In re Gaines
| Citation | 106 BR 1008 |
| Decision Date | 06 November 1989 |
| Docket Number | Bankruptcy No. 88-05043-S-7-KMS. |
| Parties | In re Ben P. GAINES and Shelba Jean Gaines, Debtors. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri |
COPYRIGHT MATERIAL OMITTED
Mark E. Fitzsimmons, Danny R. Nelson, Fitzsimmons, Schroeder & Nelson, Springfield, Mo., for petitioner.
Gregory A. Dorshorst, Craig A. Smith, Daniel, Clampett, Lilley, Dalton, Powell & Cunningham, Springfield, Mo., for respondent.
AMENDED MEMORANDUM OPINION
Pending is the Chapter 7 Trustee's objections to exemptions in a pension plan and IRAs, totaling $231,125.17, claimed by debtors, Dr. Ben Gaines and Shelba Jean Gaines. The court's original Opinion, issued on September 27, 1989, is hereby withdrawn and the following Amended Opinion is entered. The issues are: (1) whether debtors should be denied any exemption in the funds due to intentional concealment of information concerning a business they were operating at the time they filed bankruptcy; (2) whether debtors can permissibly exempt all the funds under the Missouri exemption statutes, which debtors contend grant a complete exemption to any property, including funds in an ERISA plan, which is not subject to execution under state or federal law outside bankruptcy; and (3) whether debtors can exempt all or part of the funds under the Missouri statute governing exemption of pension plans. The court has jurisdiction over this matter pursuant to 11 U.S.C. § 522 and enters its final order and judgment pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B).
On November 21, 1988 debtors filed a Chapter 7 petition, Statement of Affairs for Debtors Not Engaged in Business and Schedules of Assets and Liabilities, all signed by debtors under penalty of perjury. Debtors filed amendments to their Schedules on January 4, January 19, February 7, March 15, and June 7, 1989. Debtors' Section 341 Meeting of Creditors was convened on December 16, 1988; an additional Section 341 Meeting was held February 3, 1989.
On January 11, 1989, the trustee filed objections to debtors' exemptions claimed in a pension plan, real property, and an automobile. On January 24, debtors filed suggestions in opposition asserting that Dr. Gaines' interest in his pension plan was exempt under Missouri law, that Dr. Gaines held only bare legal title in the real property, and that debtors would redeem their interest in the automobile.
The objections to exemptions were set for hearing on February 7, 1989; debtors, their counsel, and the trustee appeared. On that date, debtors filed amended Schedules that added two Individual Retirement Accounts ("IRAs") as property of the estate and exempt. The only issue heard was the objection to exemption of debtors' interests in the pension plan and IRAs. After testimony, written evidence and argument, at the conclusion of the hearing the court entered an oral ruling on the record. From a pension plan and IRAs which totaled $231,125.17 when bankruptcy was filed, the court allowed debtors a partial exemption in the amount of $50,000.00, based on factors such as age, health, ability to accumulate additional retirement funds and reasonable need in the future at time of retirement.
On July 17, 1989, before a written order had been entered on the original hearing, trustee filed his motion to reconvene the hearing on his objections to debtors' exemptions. The motion was based on the trustee's discovery of previously undisclosed business interests of debtors. On July 21, debtors filed a response objecting to the trustee's motion to reconvene the hearing on the objections to exemptions. Debtors' arguments were that: 1) they lacked sophistication and sufficient understanding of the Bankruptcy Code such that they failed to realize that they had to reveal an allegedly profitless business operation; 2) the business had been openly operated; 3) the bankruptcy estate had not been deprived of any assets; 4) the trustee had been provided with information other than the debtors' Schedules that disclosed the business; and 5) the trustee waived the objection when he failed to litigate the issue at the February 7 hearing. Debtors' arguments against reopening the hearing for submission of additional evidence are without merit.
A hearing on the trustee's motion to reconvene was held on August 9, 1989. After additional testimony, written evidence, and argument, the court entered its ruling on the record, superseding the findings made at the conclusion of the original hearing. After considering the testimony and other evidence, the demeanor and credibility of the witnesses, the court's file, and the record of these proceedings, the court hereby memorializes its rulings for both the February 7 and August 9 hearings pursuant to Bankruptcy Rules 9014, 9021, and 7052.
Debtors reside in the resort community of Branson, Missouri. Dr. Gaines is a dentist employed by Ben P. Gaines, D.D.S., Inc., a professional corporation. Dr. Gaines is the sole shareholder, director, and owner of Ben P. Gaines, D.D.S., Inc. He has been a practicing dentist for more than 30 years and the sole shareholder of Ben P. Gaines D.D.S., Inc. since incorporation in 1966. Ben P. Gaines D.D.S., Inc. established a pension plan under the provisions of the Employees Retirement Income Security Act of 1974 ("ERISA") for which Dr. Gaines is the sole member and beneficiary.
Dr. Gaines, who gives the appearance of an affluent, sophisticated professional person, has been involved in numerous and varied business transactions and business ventures unrelated to bankruptcy. In fact, he seeks to discharge debts from some of those business ventures in this bankruptcy proceeding. He is highly educated, holding both Bachelors and Doctor of Dentistry degrees. Likewise, Mrs. Gaines is educated and has business experience as evidenced by her work in her husband's dental office and as the operator of the bed and breakfast business conducted in debtors' home. Accordingly, the court finds that both debtors — and especially Dr. Gaines — have a great deal of business experience and a degree of sophistication in business matters above the level of the average person.
In their original Schedules and all subsequent amendments, debtors listed Dr. Gaines' interest in the pension plan as property of the estate. The IRAs were first listed as property of debtors' estate on February 7, 1989, the day of the first hearing of this matter. The pension plan interest was valued by debtors at $198,759.49; the IRAs were valued at $32,365.68. Dr. Gaines has exclusive control over the contributions to the pension plan, investment of the funds in the plan, and the rights to amend or terminate the plan. Debtors have similar rights and powers over their IRAs.
Dr. Gaines is 58 years old; Mrs. Gaines is 49. Both are in good health. Although Dr. Gaines testified that as a dentist, his income would be reduced if he lost the use of his hands, he also testified there was nothing wrong with his hands and his concern was mere speculation about any possible mishap that could occur in the future. There was no evidence of anything that presently impairs his ability to work. Debtors have between $700 and $800 in excess income over their monthly living expenses of $2,200.
In 1986, debtors reported $80,339.00 in gross income to the IRS; in 1987, they reported $46,218.00; in 1988, they reported $40,455.00 in adjusted gross income.
In July 1988, five months before filing their petition, debtors began a bed and breakfast business, known as Gaines Landing, in their home. Gaines Landing was run primarily by Mrs. Gaines. An accounting system was established and business records were kept. In 1988, in a period of about four months, before the bankruptcy was filed, 104 guests stayed at Gaines Landing. After starting the business, debtors purchased items which they used both personally and in the business, including an expensive hot-tub spa, a freezer and a sofa. Debtors included income and expenses from the operation of Gaines Landing (including the spa and the other purchases) in their 1988 income tax return.
In their Statement of Affairs filed November 21, 1988, debtors did not disclose that they owned and operated Gaines Landing; Mrs. Gaines listed her occupation as housewife. In their Schedules and subsequent amendments filed November 21, 1988, and January 4, January 19, February 7, and March 15, 1989, debtors did not disclose that they owned and operated Gaines Landing. In their two Section 341 Meetings, debtors did not disclose that they owned and operated Gaines Landing, despite questions from the trustee that gave them the opportunity to disclose any information that had been previously omitted from the Schedules and Statement of Affairs. In the hearing on February 7, debtors did not disclose that they owned and operated Gaines Landing.
The court concludes that the business was affirmatively concealed at that hearing. It is noteworthy that in the Statement of Affairs and at the February 7 hearing, Mrs. Gaines testified that she was a housewife and her only work experience was in her husband's dentistry office. Mrs. Gaines' testimony that she was solely a housewife is wholly inconsistent with the later evidence, presented at the second hearing, that she was primarily responsible for operation of the bed and breakfast business and had 104 paying guests in the latter part of 1988 before the bankruptcy was filed in November.
Immediately before debtors amended their Statement of Affairs and Schedules to disclose ownership of the Gaines Landing business, a newspaper feature story about debtors' operation of Gaines Landing was published in the Springfield newspaper. Debtors first contacted their attorney, seeking to amend the statement of affairs to disclose the Gaines Landing Business after publication of the feature story. Immediately after publication of the article, debtors' attorney contacted the...
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