In re Hunter

• Decision Date: 01 February 1999
• Docket Number: Adversary No. 98-88.,Bankruptcy No. 97-00585-3P7
• Citation: 229 BR 851
• Parties: In re James Stephen HUNTER, Debtor. Citizens First National Bank, Plaintiff, v. James Stephen Hunter, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

229 B.R. 851 (1999)

In re James Stephen HUNTER, Debtor.

Citizens First National Bank, Plaintiff, v. James Stephen Hunter, Defendant.

Bankruptcy No. 97-00585-3P7, Adversary No. 98-88.

United States Bankruptcy Court, M.D. Florida, Jacksonville Division.

February 1, 1999.

COPYRIGHT MATERIAL OMITTED

Aaron R. Cohen, Jacksonville, FL.

Albert H. Mickler, Jacksonville, FL.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GEORGE L. PROCTOR, Bankruptcy Judge.

This proceeding is before the Court upon the complaint of CITIZEN FIRST NATIONAL BANK ("Plaintiff") objecting to JAMES STEPHEN HUNTER'S ("Defendant") discharge in its entirety pursuant to 11 U.S.C. § 727(a)(2)(A) and (a)(4). The complaint also sought to determine the dischargeability of a debt pursuant to 11 U.S.C. § 523(a)(2)(A), (B) and (a)(6). A trial was conducted on September 29 and October 14, 1998. After considering the evidence presented, the Court enters the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. Prior to June 1991, Defendant managed two corporate business entities, to-wit Steve\'s Electronics, Inc. ("Steve\'s") and Certified Aviation, Inc. ("Certified"). Certified bought, refurbished and subsequently sold small aircraft for profit. (Tr. at 157.)

2. Defendant would oversee the repainting, engine restoration and interior reconstruction of each airplane. Defendant did most of his work with Certified outside the office. (Tr. at 214.)

3. Both of the corporations had extensive business dealings with Plaintiff.

4. Certified had an ongoing financing relationship with Plaintiff, including a $350,000.00 line of credit. Under the line of credit, Plaintiff would receive a lien on each airplane purchased by Certified. After the airplane was refurbished and resold, Plaintiff would subsequently release its lien. In the normal course of lien transactions between Plaintiff and Certified, the proceeds from the sale of each airplane were deposited with Plaintiff in Certified\'s account. Plaintiff would then debit Certified\'s account for the lien amount and issue a lien release on that particular airplane. (Tr. at 40, 159-60.) The acquisition of planes by Certified and financing of those planes by Plaintiff was an ongoing process. (Tr. at 40.) Defendant also kept a $100,000.00 certificate of deposit with Plaintiff through January of 1994. (Tr. at 169, Pl.\'s Ex. 5.)

5. Certified was required to carry insurance coverage on each financed airplane. Plaintiff\'s representatives followed the routine practice of contacting Certified\'s office staff to request that certain airplanes be placed under the insurance policy. Certified would then call their insurance carrier and add these airplanes to the insurance policy. (Tr. at 215, 217.) Defendant testified that he did not participate directly with insurance coverage of financed airplanes or with the general office administration at Certified. (Tr. at 214, 217.)

6. Often, the aircraft were not sold within the time period contained in the initial financing arrangement of each aircraft. However, Plaintiff and Certified evolved a process in which the initial ninety day loans would be renewed for an additional ninety day period or until the collateral was sold. (Tr. at 46.) The renewal procedure often involved Plaintiff contacting Defendant and requesting him to go to the bank to execute several pre-prepared refinance agreements and notes, as well issue a certified check for any accumulated interest that had accrued on the notes/security agreements that were being refinanced. (Tr. at 169, Pl.\'s Ex. 5.)

7. The subject matter of this proceeding involves a series of three loans made to Certified and Steve\'s. The first loan was for approximately $68,000.00 to Certified secured by a 1972 Cessna aircraft. The second loan was also to Certified for approximately $28,500.00 secured by a 1961 Cessna airplane. The third loan was unsecured for $21,000.00 and owed to Steve\'s.

8. In July 1991, Certified made an arrangement with Plaintiff for the sale of the 1961 Cessna aircraft. Plaintiff agreed to a sale price of $22,500, which was to be deposited into Certified\'s bank account maintained with Plaintiff. Of the $22,500.00 sale price, $20,000.00 was to be applied against the $28,500.00 loan balance with the $8,000.00 deficiency to be rolled into other notes.

9. The 1961 Cessna was sold, and Defendant delivered the $22,500.00 sale proceeds to Plaintiff in the form of a check endorsed to Plaintiff. (Tr. at 34, 39; Def.\'s Ex. 3.) Plaintiff issued a release of lien and prepared an advice of debit to charge Certified\'s account. (Tr. at 37; Pl.\'s Ex. 8; Def.\'s Ex. 2.) Through Plaintiff\'s inadvertence, the debit was never processed and the money was never removed from Certified\'s account. However, Defendant received the advice of debit that indicated that Plaintiff had debited the Certified account. (Tr. at 166-67.)

10. From June 1991 through June 1994, several notable occurrences transpired. First, Defendant renewed the $28,500.00 note twelve times before Plaintiff ultimately discovered that it had failed to debit Certified\'s account. (Tr. at 62-63.) Second, on February 9, 1994, Plaintiff requested an updated appraisal on the 1961 Cessna (Pl.\'s Ex. 11.) which was ultimately telefaxed by Certified to Plaintiff. (Pl.\'s Ex. 12.) Third, on at least three separate occasions, Certified sent confirmation of insurance to Plaintiff on the 1961 Cessna after it had been sold. (Pl.\'s Composite Ex. 10.) Fourth, Defendant furnished two personal financial statements to Plaintiff dated April 10, 1991 and February 17, 1994. The financial statements showed higher values for Defendant\'s Interlachen and Miami real estate than what Defendant actually received from the sales, and Defendant failed to disclose joint ownership on Defendant\'s Miami real estate. (Pl.\'s Exs. 15, 16.) The financial statements also showed an inflated price for Debtor\'s homestead property. Defendant attributes the distressed values of the properties to Hurricane Hugo and other environmental problems.

11. Plaintiff went through a managerial change in 1994 and upon inspection of Certified\'s files, determined that the 1961 Cessna had been sold three years earlier. Defendant subsequently found a buyer and sold the 1972 Cessna for $60,000.00 with Plaintiff agreeing to release the lien and roll the $8,000.00 deficiency into another note. (Tr. at 45.) Consequently, Plaintiff attempted to negotiate with Defendant to obtain additional collateral to secure the payment of the previous loan securing the 1961 Cessna, the deficiency from the sale of the 1972 Cessna and the unsecured loan in favor of Steve\'s. However, Defendant had sold the Miami property in 1995 when the taxes were $30,000.00 in arrears. (Tr. at 203.) Defendant sold some of the Interlachen properties from 1994 through 1998 at distressed prices due to changing environmental conditions. The proceeds from the sale of the Interlachen lots were used to fund Defendant\'s business enterprises. Defendant declined to collateralize the loans with his homestead property.

12. Plaintiff contends that it relied on these allegedly material false and fraudulent statements in extending credit to Certified in regard to the 1972 Cessna. In February 1997, Plaintiff brought suit in Circuit Court to collect damages.

13. In June 1997, Steve\'s, which continuously lost money, sold all of its assets in order to pay current vendors and transfer the liability for an automobile loan. (Tr. at 199.) Defendant never directly received any cash from the sale of Steve\'s.

14. On January 16, 1998, Defendant and Hunter Ventures, Inc. sold a 1994 Stamus fishing boat for approximately $38,900.00. In March 1994, Defendant had purchased the boat under his name personally, with funds contributed from his father, son and himself, for the approximate price of $80,000.00. (Tr. at 122.) However, in 1995, Defendant formed the corporate entity Hunter Ventures, Inc. and transferred the boat to the corporation for liability purposes. (Tr. at 182-85.) Stock ownership in Hunter Ventures, Inc. was equally divided between Defendant, his father, and his son. (Tr. at 183.) The only reason Defendant listed his name on the title of the boat was to reduce the price of insurance coverage. (Tr. at 185.) Defendant did not list Hunter Ventures, Inc. as a business corporation because he did not believe it to be a "business" as the boat was only used as a pleasure cruiser. (Tr. at 182, 188.)

15. Approximately $13,422.08 of the proceeds from the sale of the boat was retained by Barnett Bank to satisfy a lien it had on the boat. Defendant received $8,477.92 and the other two corporate shareholders received $8,500.00 each. (Tr. at 127.) On January 20, 1998, six days before filing his bankruptcy petition, Defendant deposited his portion of the boat sale proceeds into his Barnett Bank account. Two days later Defendant withdrew $8,662.93.00 from Barnett Bank and closed the account. (Pl.\'s Ex. 23; Tr. at 136.)

16. Following the receipt of the monies, Defendant made the following payments:

                $1,705.18      Pre-payment of mortgage
                $1,940.00      Pre-payment to dentist to
                                  fix broken crowns
                $1,803.82      Real estate taxes on homestead
                                 property
                $1,100.00      Payment of state court
                                 attorney fees in order to
                                 obtain file
                $  700.00      Bankruptcy attorney
                $  210.00      Light bill
                $  183.00      Health insurance
                $   81.00      Wife's car insurance
                $  413.00      Palatka Marine
                $  500.00      Deposit Credit Union
                                 account
                _________
                

                $8,636.00      Total1
                

17. Defendant signed his bankruptcy petition on Friday, January 23, 1998. (Pl.\'s Ex. 28; Tr. at 200.) After Defendant signed the petition (which was ultimately filed on January 26, 1998 at 1:45 P.M.) he traveled to Biloxi, Mississippi to gamble. Defendant had approximately $320.00 with him (Tr. at 200-01) which he eventually lost.

18. On

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