In re Mathern, Bankruptcy 3-90-2677
| Decision Date | 21 February 1992 |
| Docket Number | Bankruptcy 3-90-2677,Adv. No. 3-90-300. |
| Citation | 137 BR 311 |
| Parties | In re John H. MATHERN and Sandra I. Mathern, Debtors. UNITED MORTGAGE CORPORATION, Plaintiff, v. John H. MATHERN and Sandra I. Mathern, Defendants. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
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Timothy A. Sullivan, Patrick B. Hennessy, Best & Flanagan, Minneapolis, Minn., for plaintiff.
Dennis E. Grande, Priscilla McNulty, Mackall, Crounse & Moore, Minneapolis, Minn., for defendants.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
This adversary proceeding came on before the Court on October 15, 1991, for hearing on Plaintiff's motion for summary judgment. Plaintiff appeared by its attorneys, Timothy A. Sullivan and Patrick B. Hennessy. Defendants appeared by their attorneys, Dennis E. Grande and Priscilla McNulty. Upon the moving and responsive documents, supporting affidavits and filed discovery responses, the arguments of counsel, and the other files, records, and proceedings herein, the Court makes the following order.
In this adversary proceeding, Plaintiff objects to the grant of a discharge under Chapter 7 to Defendants. Defendants filed their bankruptcy petition on June 18, 1990. Plaintiff is one of their pre-petition creditors.1 Plaintiff's objection to discharge sounds under 11 U.S.C. §§ 727(a)(2), 727(a)(3), and 727(a)(4).2
In a landmark trilogy of decisions in 1986, the Supreme Court gave its strongest endorsement yet for the use of summary judgment to winnow out factually-unsupported claims from litigation in the federal courts. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Electric Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Because the right to summary judgment is not specific to either side in civil litigation, the rationale of these decisions applies with equal strength to a Rule 56 motion made by a plaintiff to establish its claim, and to one made by a defendant to defeat a plaintiff's claim.
In either case, the parties must have had adequate time for discovery. After that, if one party believes that there is no triable fact dispute as to a claim or defense which is in suit, and that it is legally entitled to relief on that claim or defense, it may move for summary judgment. Celotex Corp. v. Catrett, 477 U.S. at 322-23, 106 S.Ct. at 2552-53. If the moving party is a defendant, it carries its initial burden "by `showing'—that is, pointing out to the trial court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. at 2554; Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.1992); City of Mount Pleasant, Iowa v. Assoc. Electric Coop., Inc., 838 F.2d 268, 273-74 (8th Cir.1988). If it is a plaintiff seeking to establish its claim, of course, it carries its initial burden by mustering all of the evidence which establishes the elements of the claim, and then pointing out the lack of evidence denying those elements' existence.
To successfully resist the motion, the nonmoving party must produce countering evidence going to the claim or defense in question, which would support a jury verdict in its own favor. Anderson v. Liberty Lobby, Inc., 477 U.S. at 250-52, 106 S.Ct. at 2511-12; Heideman v. PFL, Inc., 904 F.2d 1262, 1265 (8th Cir.1990). This responsive evidence "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Electric Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. at 586, 106 S.Ct. at 1356; it must be significantly probative, Anderson v. Liberty Lobby, Inc., 477 U.S. at 249-50, 106 S.Ct. at 2510-11, First Nat'l Bank of Arizona v. Cities Service Co., Inc., 391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968), Johnson v. Enron Corp., 906 F.2d 1234, 1237 (8th Cir.1990), and The Prudential Ins. Co. of America v. Whitney, 954 F.2d 516, 518-19 (8th Cir. 1992). If the nonmoving party's evidence does not meet this test, and if the moving party then shows that the law requires judgment in its favor on the uncontroverted facts, the court must grant the motion. FED.R.CIV.P. 56(c), as incorporated by FED. R.BANKR.P. 7056; Poller v. Columbia Broadcasting Co., 368 U.S. 464, 467, 82 S.Ct. 486, 488, 7 L.Ed.2d 458 (1962).
For the present motion, Plaintiff's counsel invoked all three pleaded statutory theories, but made their most focused and detailed argument on facts and law on the count under § 727(a)(4). Certain basic facts are common to all three counts, and are uncontroverted.3
They are as follows: Defendants are husband and wife. About 1980, John Mathern4 left his prior occupation as a life insurance salesman. He went to work as a residential building contractor, for a Hastings, Minnesota company known as Frank M. Langenfeld & Sons Contracting. This company later changed its name to "FML, Inc.," and Mathern became one of its shareholders. In the course of his business activity, Mathern became acquainted with Jeffrey Johnson, a certified public accountant who maintained offices in West St. Paul, Minnesota. The two started working together on various real estate developments and investments, Johnson furnishing tax planning advice, and Mathern doing much of the development and administration. Both Mathern and Johnson made various decisions for their projects, though Johnson apparently made most of the technical organizational decisions for a number of their business entities. At some point they began using the business name "1985-3 Partnership" for some of these activities.
During the early and mid-1980s, Defendants and Johnson individually acquired a number of single-family homes and multi-family "four-plex" residential buildings in the Twin Cities suburbs from FML, Inc.5 They held the properties as investments, renting them out to tenants. In the mid-1980s, local authorities significantly increased the real estate taxes on these properties. Reacting to that, and either in contemplation of, or in the wake of, the Tax Reform Act of 1986, Johnson and Mathern formed limited partnerships to hold fractional or full ownership interests in the properties. They formed a corporation called "1985-3 Partnership, Inc." to be the general partner in these partnerships. From 1986 through 1990, they commingled rents from at least five of the properties whose record title now reposed in the limited partnerships, in one bank account held under the name "1985-3 Partnership."
As evidenced by Defendants' tax returns for 1986 through 1989, John Mathern received substantial income during those years via payments from an entity variously named in the returns as "1985-3", "1985-3 Properties," "1985-3 Partnership," and "1985-3 Partnership Properties." The amounts averaged approximately $71,500.00 per year. They were disbursed from the checking account previously noted. In each of these returns, Defendants scheduled Mathern as an owner of one-half of the outstanding interest in this entity. They filed their 1989 joint income tax return in mid-October, 1990, after their bankruptcy filing.
Before Defendants' bankruptcy filing, Mathern and Johnson were also involved in the activities of three or more other business entities operated under similar names which all included the letters "J.A." Of these, a corporation known as J.A. Development, Inc. ("JADI"), formed in mid-1985, appears to have been the most active. Through this corporation, Mathern and Johnson continued residential development and construction throughout the late 1980s, much as Mathern had earlier carried on through FML, Inc., though generally in single-family housing. With funds from the commingled-rent account, XXXX-X Partnership provided substantial working capital to JADI. Mathern was involved in home sales for JADI, from the point of customer solicitation, through general contracting and the supervision of construction. Mathern personally guaranteed loans which JADI took out from third parties. For several years before Debtors' bankruptcy filing, Johnson and Mathern each took a salary from JADI in a gross annual amount of $4,000.00. Up to late 1989, JADI made payments to 1985-3 Partnership to repay the prior infusions of working capital. Shortly before Defendants' bankruptcy filing, it stopped making these payments; at the same time, it started making much more substantial salary payments to Johnson and Mathern. At the time of the bankruptcy filing, Mathern was receiving $5,000.00 per month in salary and "bonuses" from JADI.
When Defendants filed for bankruptcy, one or both of them held interests as limited or general partners in entities known as 409 Van Dyke Limited Partnership and Hemmingway Heights Limited Partnership, and interests under several contracts for deed on real estate located on Monroe Street in Columbia Heights, Minnesota.
Defendants noted in the caption of their bankruptcy petition that Mathern was a surety or security for seven different entities denoted as limited partnerships, and for FML, Inc. The 409 Van Dyke and Hemmingway Heights partnerships were not among those named. In the initial entries on their Statement of Financial Affairs, they noted Mathern's occupation as "General Residential Construction," and his employer as...
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