In re McCoy
| Decision Date | 10 May 1990 |
| Docket Number | Adv. No. 2-89-0057.,Bankruptcy No. 2-88-05343 |
| Citation | 114 BR 489 |
| Parties | In re Timothy J. McCOY, Debtor. Richard E. JAMES, Plaintiff, v. Timothy J. McCOY, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Lee C. Mittman, Columbus, Ohio, for debtor/defendant.
Richard K. Stovall, Thompson, Hine and Flory, Columbus, Ohio, for plaintiff.
Charles M. Caldwell, Office of U.S. Trustee, Columbus, Ohio, Asst. U.S. Trustee.
This submitted proceeding is before the Court following the trial of a complaint filed by Richard E. James, objecting to the discharge of, and dischargeability of a debt owed by, the debtor, Timothy J. McCoy. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding which the Court may hear and determine in accordance with 28 U.S.C. § 157(b)(2)(I) and (J). This opinion and order shall constitute the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
The parties have submitted proposed findings of fact. Based upon those submissions, the Court makes the following factual findings:
A. Background
1. Plaintiff, Richard E. James ("James") initiated this adversary proceeding, seeking to have the Debtor's debt to him determined to be nondischargeable under 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6), and seeking a judgment denying the Debtor's discharge pursuant to 11 U.S.C. § 727(a)(3) and § 727(a)(4)(A). James is a creditor of Timothy J. McCoy ("Debtor") by virtue of certain obligations arising from the Debtor's purchase of a business, in Mount Vernon, Ohio, known as The Appliance Repair Center ("ARC"). This matter was tried to the Court on December 4-6, 1989.
2. James' career has been devoted to the repair of household appliances. James formed ARC in 1966 and operated it as a sole proprietorship. ARC was engaged in the business of repairing appliances; it did not sell either new or used appliances because of potential conflicts with appliance dealers upon whom ARC relied for repair business.
3. In 1976, Debtor obtained employment with ARC in connection with his high school's vocational education program. Debtor terminated his employment with ARC upon graduation from high school. On or about December, 1981, Debtor became re-employed with ARC in a full-time capacity as parts' manager. Debtor's duties as parts' manager included inter alia, the maintenance of inventory levels and credits, and the distribution of parts to technicians. Debtor's duties as parts' manager, and later as co-manager of ARC, included the ordering of inventory.
4. Upon his return to ARC in December, 1981, Debtor informed James that Debtor and his father, Eugene McCoy, intended to form an appliance sales' business. James and Debtor thereupon began preliminary discussions concerning James' sale of ARC to the Debtor and his father.
5. The Debtor, along with other family members, formed The Appliance Center of Mt. Vernon, Inc. ("ACMV") in June, 1982, for the purpose of retail sales of appliances. The original shareholders of ACMV were the Debtor and his wife, Teresa McCoy; Debtor's parents, Eugene and Sylvia McCoy; and Teresa McCoy's parents, Ronald and Marilyn Rodehaver. All six shareholders maintained an equal ownership interest in ACMV. In 1982 or 1983, the Rodehavers sold their ACMV shares to the other four shareholders. As of November, 1983, the corporate shares of ACMV were held by Debtor, his wife, and Debtor's parents, each of whom owned a 25 percent ownership interest.
6. James leased contiguous floor space to ACMV or Debtor for the operation of ACMV's appliance sales' business. There was no physical separation of the respective operations of ARC and ACMV until 1983, when an internal wall was constructed as a divider of the two businesses. ACMV commenced business by purchasing appliances from various retailers offering them for sale in December, 1982.
7. James believed that the owners of ACMV in the fall of 1982 were the Debtor, his wife, and the Debtor's parents (collectively the "McCoys"). James first learned that the aforementioned four family members were owners of ACMV through advertisements in a local newspaper which carried pictures of all four McCoys as the "owners" of ACMV during the Christmas selling season in 1982. Following the release of the newspaper advertisements reflecting such ownership of ACMV, James confirmed that "all four McCoys" owned ACMV through discussions he had with the McCoys. Transcript 1-22-23.
B. The Sales Agreements
8. On November 2, 1982, James and Debtor executed a Sales Agreement for the sale of ARC by James to Debtor for the purchase price of $130,000. Plaintiff's. Exh. 1. The Sales Agreement provided for the purchase-sale to close no earlier that January 1, 1985, and no later than January 1, 1988. Plaintiff's. Exh. 1, para. 2. The Sales Agreement contained no representations regarding the Debtor's ownership of an interest in ACMV or limiting his right to transfer his interest in ARC.
9. Upon the execution of the Sales Agreement in November, 1982, Debtor became a co-manager of ARC; however, no operational changes occurred in the daily functioning of the business. During Debtor's course of employment as co-manager of ARC, Debtor was operating ACMV in the same building. The simultaneous operation of ACMV and ARC, and ACMV's entry into the repair business, caused considerable friction between James and the Debtor.
10. The proposed sale of ARC by James to Debtor did not close under the timetables provided in the November, 1982, Sales Agreement. On April 25, 1984, James and the Debtor executed a Modification of Sales Agreement (the "Modified Sales Agreement"). Plaintiff's. Exh. 2. The Modified Sales Agreement provided that the sale of ARC to the Debtor was to close on May 25, 1984. It further provided for a revised purchase price in the amount of $134,500. Plaintiff's. Exh. 2, para. 1. The revised purchase price of $134,500 was determined by a physical inventory of ARC undertaken in 1983 at the Debtor's request. Under the Sales Agreement, ARC's inventory was simply to be maintained at an acceptable level. Plaintiff's. Exh. 1, para. 15. Similar to the original Sales Agreement, the Modified Sales Agreement contained no provisions regarding the Debtor's ownership interest in ACMV or limiting his right to transfer his interest in ARC.
11. Further, the Modified Sales Agreement contained a provision prohibiting James from "engaging in, or in any way concern himself with, the business of Debtor, directly or indirectly, within the counties of Knox, Muskingum, Licking or Morrow, in the State of Ohio" for a period of five years from the date of closing of the contract. Plaintiff's Exh. 1, para. 12; Plaintiff's Exh. 2, para. 4.
12. The Modified Sales Agreement also called for the transfer of various vehicles from James to Debtor upon Debtor's assumption of the indebtedness on those vehicles. Plaintiff's. Exh. 2. Excluded from such transfers was a 1980 Dodge van on which James was to retain the original certificate of title as security until the Debtor paid James the sum of $2,200, at which time James would release his "lien." James and Debtor executed a Security Agreement in favor of James, listing this vehicle as collateral for Debtor's obligations. James retained the original certificate of title, but never received the $2,200 payment. Plaintiff's. Exhs. 10, 11. Debtor, however, executed a lost-title affidavit on May 16, 1985, affirming that the original certificate had been lost and that the vehicle was unencumbered; and, as a result, obtained a certified copy of the original title in his own name. Plaintiff's. Exhs. 123, 13, 14, 15. The Debtor's testimony that he believed the original certificate of title had been lost and that no liens existed as to this vehicle was not credible.
13. On April 25, 1984, the sale of ARC from James to McCoy occurred in accordance with the terms of the Modified Sales Agreement. At that time, McCoy executed a promissory note ("Note") in the face amount of $116,500 in favor of James which required the following installment payments: $25,000 due on May 25, 1984; $25,000 due on May 25, 1985; $25,000 due on May 25, 1986; $24,000 due on May 25, 1987; and, $17,500 due on May 25, 1989, with interest at the rate of 12 percent per annum from May 25, 1984 Plaintiff's. Exh. 3. As further consideration for the purchase of ARC, the Modified Sales Agreement required Debtor to maintain a life insurance policy on James in an amount not less than the lesser of $75,000 or the unpaid balance on the Note until it was paid in full. Plaintiff's. Exh. 1, para. 18; Plaintiff's. Exh. 4. Debtor also agreed to reimburse James for health insurance premiums in the amount of $235.88 per month with the first payment being due on May 25, 1984, and subsequent payments being due on the twenty-fifth of each month thereafter until James was eligible for Medicare benefits, or until January 1, 1993, whichever occurred first. Plaintiff's. Exh. 2.
14. On May 25, 1984, James and Debtor executed a Closing Agreement for Debtor's purchase of ARC from James. Plaintiff's. Exh. 4. At the time of the execution of the Closing Agreement, Debtor paid James the first installment of $25,000 due under the Modified Sales Agreement and Note. McCoy also paid the first monthly health insurance payment in the amount of $235.88.
15. James received monthly interest payments from Debtor as due under the Note from the date of the closing through and including April, 1985. James also received health insurance payments from Debtor from the date of the closing in the amount of $235.88 per month through and including February, 1988. The life insurance policy maintained by the Debtor on James...
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