In re Goldstein, Bankruptcy No. 90-11473S
| Decision Date | 01 February 1991 |
| Docket Number | 90-0696S.,Adv. No. 90-0676S,Bankruptcy No. 90-11473S |
| Parties | In re Estelle GOLDSTEIN, Debtor. James and Barbara MALLOY, Robert and Carole Johnson, Peter and Gina Cammerota, Harry and Helen Murray, Kyran and Margaret Gilbert and Barbara Uhl, Plaintiffs, v. Estelle GOLDSTEIN, Defendant. Thomas & Florence DRUDING, h/w, John & Annelva Mooney, h/w, John & Frances Schwartz, h/w, Francis & Paul Kircher, Jr., h/w, Annemarie Mooney Greene, Plaintiffs, v. Estelle GOLDSTEIN, Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Diane S. Tosta, Norristown, Pa., for debtor.
Marc Vogin, Philadelphia, Pa., for plaintiffs in Adv. No. 90-0696S.
Stephen Raslavich, Philadelphia, Pa., Trustee.
George J. Badey, III, Philadelphia, Pa., for plaintiffs in Adv. No. 90-0676S.
Michael P. Morley, Philadelphia, Pa., for plaintiffs in Adv. No. 90-0733S.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa., U.S. Trustee.
In their present, final state, the two instant almost identical proceedings present one issue for disposition: whether, pursuant to 11 U.S.C. § 727(a)(3), the Defendant/Debtor, ESTELLE GOLDSTEIN ("the Debtor"), should be denied a discharge of all of her debts. In deciding this issue, we consider whether the Debtor has failed to keep, and/or has justified her failure to keep, records of the transactions involving the Plaintiffs' investments in an undertaking wherein the Debtor solicited the said investments in a plan involving a contractor who was to use the funds to rehabilitate and sell certain residential real estate. We find that the complexity and large total amount in issue in the transactions demanded more complete and better organized records than were produced by the Debtor. We decline to accept her defenses that her alleged lack of fault, alleged lack of sophistication, and alleged limited role in the transactions justified her failure to maintain coherent and complete records. We therefore enter a judgment denying the Debtor's discharge.
On April 2, 1990, the Debtor filed a voluntary petition for bankruptcy relief under Chapter 7 of the Bankruptcy Code. An Order was entered on June 18, 1990, scheduling the First Meeting of Creditors pursuant to 11 U.S.C. § 341 ("the Meeting") on July 17, 1990, and setting September 17, 1990, as the deadline for the filing of complaints in opposition to the discharge of the Debtor. Ultimately, the Meeting was held on July 24, 1990, although the deadline for filing opposition to the Debtor's discharge remained unchanged.
Three very similar Complaints objecting to the dischargeability of the Debtor's indebtednesses to three separate groups of plaintiffs in the three proceedings were filed. In one instance, the plaintiffs also objected to the Debtor's discharge.
The first proceeding, Adversary No. 90-0676S ("the Malloy Case" or "Malloy"), was filed on August 20, 1990, on behalf of five married couples and one individual who invested and lost a total of $40,000.001 and was substantively based exclusively on 11 U.S.C. § 523(a)(2)(A).2
The second proceeding, Adversary No. 90-0696S ("the Druding Case" or "Druding"), was commenced on August 30, 1990. It sought not only the non-dischargeability of the respective indebtednesses of the Debtor to the four married couples and one individual plaintiff who invested in excess of $83,6003 pursuant to 11 U.S.C. § 523(a)(2)(A),4 but also averred that the Debtor should be denied a discharge pursuant to 11 U.S.C. § 727(a).5
The third proceeding, Adversary No. 90-0733S ("the Duffy Case" or "Duffy") was not filed until September 21, 1990, and included, as Plaintiffs, two married couples and nine individuals whose investments totalled over $121,000.6 The Duffy Complaint recited dischargeability claims only, under 11 U.S.C. §§ 523(a)(2)(A) and (a)(4).7
Upon becoming aware of certain pleadings in this case indicating that the parties agreed that all three proceedings should be consolidated for trial and that the Debtor had filed a Motion to Dismiss all three of the proceedings, we entered an Order of October 22, 1990, consolidating the matters, setting them for trial on December 13, 1990, and requiring the parties to mark and exchange witness lists and exhibits beforehand; and an Order of October 30, 1990, requesting Briefs on the Motion to Dismiss to be filed by November 8, 1990 (the Debtor), and November 19, 1990 (the Plaintiffs).
The Debtor failed to submit her Brief, requesting a settlement conference instead. On December 7, 1990, the Honorable Judith H. Wizmur of the District of New Jersey conducted such a conference, but was unable to bring the matter to a resolution. On the day of trial, the parties engaged in further unsuccessful settlement negotiations.
Prior to commencing the trial, we engaged in a colloquy with counsel for the Debtor and for the Duffy Case Plaintiffs regarding the tardy filing of the Complaint in that proceeding. We observed that the Debtor had listed all of the Duffy Plaintiffs as creditors in her Schedules and that court records indicated that notice of the Meeting had been sent to all of these parties. Nevertheless, counsel in each of the proceedings argued vociferously that many of their clients had not received notices of the Meeting. All counsel did admit that they were well aware of the Debtor's intention to declare bankruptcy even prior to her filing of this case and that they became aware of the actual filing shortly after it occurred and prior to the Meeting.
As a result of this colloquy, we orally dismissed the Duffy Case on the basis that it was filed beyond the bar date set forth in Bankruptcy Rule 4004(a). Accordingly, we stated as follows in reference to this issue in our post-trial Order of December 13, 1990:
assuming arguendo that the Plaintiffs in the Duffy Case received no notice of the bar date, contrary to the court records, the Duffy Plaintiffs and their counsel could not deny that they knew about the filing of the Debtor\'s bankruptcy from its inception and therefore were obliged to ascertain the bar date. See, e.g., In re Sam, 894 F.2d 778, 781 (5th Cir.1990); In re Compton, 891 F.2d 1180, 1184-85 (5th Cir.1990); In re Green, 876 F.2d 854 (10th Cir.1989); In re Alton, 837 F.2d 457 (11th Cir.1988); In re Barton, 82 B.R. 50, 51 (W.D.Mich. 1985); In re Ricketts, 80 B.R. 495, 497 (Bankr. 9th Cir.1987). Cf. In re Main, 111 B.R. 535, 538 (Bankr.W.D.Pa.1990).
We then proceeded to the trial of the remaining two proceedings. The only witnesses were three of the various Plaintiffs (several minutes each) and the Debtor (several hours). By our Order of December 13, 1990, we established a schedule whereby the remaining Plaintiffs and the Debtor were to file Proposed Findings of Fact, Proposed Conclusions of Law, and Briefs supporting their respective positions by January 14, 1991, and January 25, 1991. We also scheduled another last-ditch settlement conference before Judge Wizmur on January 25, 1991. However, the impetus to settle had apparently diminished, and again no resolution was reached.
The unsuccessful "investment plan" ("the Plan") which serves as a backdrop for this matter began to unfold in April, 1986. Prior to that time, from approximately 1958 to 1983, the Debtor had been employed by the City of Philadelphia's Department of Recreation in South Philadelphia as a "playground leader" and "playground director," and she was well known in the community. In 1983, she became the proprietor of an insurance agency and was licensed as an assistant general insurance agent. In her business of selling life insurance and annuity products, she shared equal status with one George Kuney ("Kuney"), who also was licensed as an assistant general insurance agent. The Debtor testified that Kuney maintained all of the books and records of this business. Her responsibility, much like in the Plan, was to solicit prospective customers among her contacts in the community.
About the time of her involvement in the Plan, the Debtor was also involved in solicitation of funds for stock investment in a so-called Norwich Investment Program with an investment broker. This undertaking was destroyed by the stock market crash of October 19, 1987, and the broker's personal difficulties.
Most of the Plaintiffs knew the Debtor for many years and participated in the Plan because of the Debtor's good reputation in the community. The substance of the Plan was the Debtor's procuring monies from individuals to fund the acquisition and rehabilitation of residential properties by one Bernard Bunn ("Bunn"),8 with the intent of Bunn's selling the properties for a profit subsequent to rehabilitation. The Plaintiffs who testified indicated that they were attracted to the Plan because it proposed to help the community and to help provide housing to "everyday people" like themselves.
The investments were memorialized by contracts which read, in pertinent portions, as follows:
The Debtor testified that she viewed the sums received from all of the Plaintiffs as investments from them. The Plaintiffs testified that they believed that the funds were loans.
Monies received from the Plaintiffs were commingled by the Debtor with her personal funds in her own bank accounts. The Debtor would then transfer...
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