In re Gamble-Ledbetter
| Decision Date | 27 October 2009 |
| Docket Number | Bankruptcy No. 07-42635.,Adversary No. 08-4033.,Adversary No. 08-4031. |
| Citation | 419 B.R. 682 |
| Parties | In re Ruth Ann GAMBLE-LEDBETTER, Debtor. Ruth Ann Gamble-Ledbetter, Plaintiff v. Andra Group, L.P., Defendant. Andra Group, L.P., Plaintiff v. Ruth Ann Gamble-Ledbetter, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
Merv Bernard Waage, Hickory Creek, TX, for Plaintiff.
James P. Acosta, Crouch & Ramey, L.L.P., Dallas, TX, for Defendant.
This matter came before the Court as a result of a consolidated trial of the complaint of the Creditor-Plaintiff, Andra Group, L.P. f/k/a Andra Group, Inc. ("Plaintiff" or "Andra") asserted in adversary proceeding no. 08-4033, through which it seeks to deny the entry of a Chapter 7 discharge in favor of the Defendant-Debtor, Ruth Ann Gamble-Ledbetter ("Debtor"), pursuant to 11 U.S.C. § 727(a)(4)(A) or, alternatively, seeks a determination of whether an alleged debt allegedly owed to it by the Defendant-Debtor is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) or (a)(6). Consolidated for trial with that complaint is the contested matter arising from the Andra Group's objection to the Debtor's claim of an absolute exemption of her homestead and as to a particular life insurance policy in which the Plaintiff claims an interest. The Court also consolidated for trial purposes the Debtor's complaint to avoid what she characterizes as a "judgment lien" held by Andra as a result of certain state court litigation between the parties and to nullify the filing of a lis pendens designation arising from that litigation. At the conclusion of the consolidated trial, the Court took all matters under advisement. The following memorandum of decision disposes of all issues before the Court.1
The Plaintiff, Andra Group, L.P., is an internet-based woman's lingerie sales company founded by Tomima Edmark. Ms. Edmark first hired the Debtor-Defendant, Ruth Ann Gamble-Ledbetter, as a bookkeeper for her business in 2000.2 Though generally successful in that first stint, Ms. Ledbetter voluntarily departed in early 2002. Approximately six months later, Andra regained her services by hiring her company, Second Office, Inc., as an independent contractor to provide bookkeeping services. Despite the incorporation of her business, Ms. Ledbetter was the primary individual through which Second Office provided the bookkeeping services to Andra. She had primary responsibility for tracking all of the company's financial activities, including account payables and receivables, through the use of an all-purpose business accounting software program known as Peachtree. She reported directly to Ms. Edmark and to the company's outside accountant, David Joiner. Ms. Ledbetter had control of the Andra check inventory, although sole signatory authority on Andra's checking account was retained by Ms. Edmark. Ms. Ledbetter would produce through the Peachtree system all of the checks needed for ongoing operations and present them to Ms. Edmark for execution once per week and generally handle all activities regarding the check register.3
The relationship continued from 2001 to 2005 without incident and seemingly to the mutual benefit of both parties. Andra and its outside accountant were apparently pleased with Ledbetter's work. Andra paid almost $238,000 to Second Office in legitimate bookkeeping billings from 2001 to 2005, highlighted by invoices totaling $80,295.60 in calendar year 2004.4 Ledbetter seemed satisfied as well—almost to a fault—by failing to ever ask for an increase of her company's $25 per hour rate billed to Andra throughout the four + -year period.
The peace was soon disrupted; however, when in July 2005 an employee at Andra's credit union discovered an $11,580.83 negotiated check with a signature suspiciously different from that of Ms. Edmark.5 An initial inquiry into Andra's accounting books revealed the vendor-payee as recorded in the check registry (Le Mystere) did not match the endorsements on the check. Instead of reflecting a negotiation by Le Mystere, the check reflected that it was first negotiated and deposited into the checking account of Second Office and subsequently a corresponding deposit was made into Ms. Ledbetter's personal bank account. Upon consultation with Andra's accountant, Ms. Edmark identified four or five more suspicious checks. The accountant subsequently discovered through the internal auditing log of the Peachtree accounting system that, as to the original La Mystere check, a Peachtree user initialed "RAGL" had initially prepared a checking transaction with La Mystere as payee, changed the payee to Second Office for check printing purposes, then changed it back so that the ledger would reflect the payee of the check as La Mystere.6
When confronted, Ms. Ledbetter quickly took responsibility for the bookkeeping error but denied any wrongdoing. She denied having any knowledge regarding the alleged deposits or the tampering with the check register. She never claimed at that time that the payment could be the product of a legitimate expense reimbursement process to her or her company. Despite her promises of cooperation, Ms. Ledbetter quickly submitted her company's resignation as the bookkeeper for Andra soon after her meeting with Ms. Edmark and David Joiner. Upon Andra's payment of the final invoice submitted by Second Office and the return of Andra records from Second Office's headquarters in Lewisville, Ms. Ledbetter refused to provide further cooperation into the investigation regarding the apparent misappropriation of Andra funds.
The results of that investigation subsequently revealed that funds in excess of $900,000 had been misappropriated from Andra over the 4½ years in which Ms. Ledbetter's company had acted as Andra's bookkeeper through a methodology similar to those used to disguise the so-called La Mystere payment.7 Virtually all of the transactions were registered as vendor payments based upon a nonexistent vendor invoice, processed through checks that contained a forged signature of Tomima Edmark,8 and resulted in a corresponding deposit of equivalent proceeds into a bank account owned by Ms. Ledbetter or the negotiation of the Andra check to a third party for the benefit of Ms. Ledbetter. Not one of the questionable transactions reflected a legitimate company expense.
In the same time period, the subpoenaed bank records of the Defendant reveal substantial activity that was significantly funded by the deposits procured from Andra. Such deposits were commingled with other personal funds of the Debtor. The records of those commingled accounts evidenced withdrawals in excess of $500 (which was the threshold for which the Debtor's former bank would produce banking records to the Plaintiff) that totaled more than $264,000 in the relevant time period.9 The subpoenaed records reveal that the Defendant paid personal American Express charges in excess of $119,000.10 She had other online transfers of cash from her accounts exceeding $102,000.11 She incurred and paid charges exceeding $53,000 for home improvements and landscaping.12 More than $54,000 of her mortgage debt was satisfied.13 Needless to say, the aggregate amount of bank activity and the cash flowing through her accounts seems highly unusual for an individual otherwise reporting an average annual income of between $35,000 and $40,000 per year.14
These subsequent discoveries led the Plaintiff to initiate civil litigation against the Defendant in late 2005 before the 193rd Judicial District Court in Dallas County and to file a lis pendens notice against the Debtor's homestead property located at 4507 N. Horseshoe Trail in The Colony.15 At the June 2007 trial setting, the Defendant failed to appear personally, although she was represented by counsel, and she communicated to her counsel by telephone throughout the day as the parties attempted to reach a settlement. A Rule 11 settlement agreement was announced on the record of the state court and the presiding judge accepted the agreement on that date.16 When the Defendant subsequently refused to sign the proposed agreed judgment incorporating the terms of the agreement, the Plaintiff sought to compel its enforcement and entry. The Court did so and the terms of the agreement were subsequently reduced to a written judgment signed on November 8, 2007, in favor of the Plaintiff and against the Defendant and Second Office, Inc. jointly and severally, for actual damages in the amount of $400,000.00 plus 5% post-judgment interest and the Plaintiff was also awarded an equitable interest in the Defendant's homestead property to the extent of $54,036.00.17 The Defendant insists that the agreed judgment was erroneously entered because she never agreed to its terms, notwithstanding the announcement of her attorney on the record. She failed, however, to appeal that judgment.
At 6:30 p.m. on the date that the judgment was signed, the Defendant filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. The complaints in these two adversary proceedings were filed almost simultaneously. In adversary proceeding 08-4031, the Debtor took the initiative by filing a complaint seeking to nullify and remove the lien in favor of Andra upon her homestead as imposed by the judge in the state court lawsuit to the extent that it impairs an exemption to which she is entitled under the Texas exemption statutes as well as the cancellation of the lis pendens designation arising from that suit. In adversary proceeding 08-4033, the Plaintiff, Andra Group, seeks to determine whether the Defendant's entire discharge may be denied on the basis of a false oath when she failed to include the receipt of embezzled...
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