In re Olbur

• Decision Date: 01 October 2004
• Docket Number: Adversary No. 03 A 2190.,Bankruptcy No. 03 B 13958.
• Citation: 314 B.R. 732
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re Allan M. OLBUR, Debtor. Sheila Cohen and Rhona Bernau, Plaintiffs, v. Allan M. Olbur, Defendant.

314 B.R. 732

In re Allan M. OLBUR, Debtor Sheila Cohen and Rhona Bernau, Plaintiffs, v. Allan M. Olbur, Defendant.

Bankruptcy No. 03 B 13958.

Adversary No. 03 A 2190.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

October 1, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David E. Cohen, Chicago, IL, Attorney for Sheila Cohen and Rhona Bernau.

Allan M. Olbur, Pro se.

MEMORANDUM OPINION

A. BENJAMIN GOLDGAR, Bankruptcy Judge.

Businessman and consultant Allan M. Olbur had fallen on hard times. After several of his business ventures failed in the late 1990s, Olbur found himself defending a state court action brought by two former employees. Right before the action went to trial in March 2003, Olbur transferred his interest in his house to his wife and son. Right after judgment in the action was entered against him, Olbur filed a hastily prepared, error-ridden petition for relief under chapter 7 of the Bankruptcy Code.

In July 2003, the two former employees brought a five-count adversary complaint against Olbur in his bankruptcy case. Two of the counts (Counts IV and V) sought to have his debts to the former employees declared non-dischargeable under section 523(a) of the Code, 11 U.S.C. § 523(a). The other three counts (Counts I through III) asked to have Olbur denied a discharge altogether under section 727(a), 11 U.S.C. § 727(a).

The court held a trial at which only two witnesses testified: Olbur himself and counsel for the employees in the state court action. At the close of all the evidence, the court granted the former employees' motion to dismiss their section 523(a) counts and proceed only on the section 727(a) claims. The court now makes the following findings of fact and conclusions of law. For the following reasons, the former employees are entitled to judgment on Counts I and II of their complaint. Olbur will be denied a discharge.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(J). The court may therefore enter a final judgment. In re Smith, 848 F.2d 813, 816 (7th Cir.1988).

2. Findings of Fact

a. Allan Olbur

Olbur is an educated man with a thirty-year business background. He holds a B.S. in accounting from DePaul University (Tr. at 6, 109),¹ as well as a degree from the Spertus Institute (id. at 6).

After obtaining his accounting degree in 1973, Olbur spent six years with a liquor distributor, Continental Distributing Company, where he worked in the marketing department. (Id. at 109). He also did some inventory control work and "established an on-line cash application system" with the data processing department. (Id.). Following the Continental stint, Olbur went to work for a small telephone company, Computel, negotiating contracts for the sale of private telephone systems. (Id. at 110-12).

At some point, Olbur took the technological expertise he gained at Computel and struck out on his own. He met with little success. In 1992, he incorporated a company called AMO Cable & Contracting of which he was the "hundred-percent owner." (Id. at 8). AMO ceased operations at the end of 1997.² (Id.). Olbur next was associated with a company called Infrastructure Technologies of which he was also the "hundred-percent owner." (Id.). The life of Infrastructure Technologies was even briefer: 1998 until 2001.³ (P.Ex 4 at 21). In 2000, Olbur was an officer (but not an owner) of Legacy Network Services. (Tr. at 10). By 2001, it too was defunct. (Id. at 11). Another entity Olbur incorporated but did not own, IP Appliance, never transacted business at all. (Id.). By May 2004 (the time of trial), Olbur had been unemployed for roughly three years. (Id. at 7).

b. The State Court Action

In 2001, two former employees of AMO and Infrastructure Technologies, Sheila Cohen and Rhona Bernau, brought an action against Olbur and Infrastructure Technologies in the Circuit Court of Cook County. (Tr. at 65; P.Ex. 2 at 5; P. Exs. 11-15). The nature of the action was never disclosed here, but Cohen and Bernau together sought a judgment of $50,000. (Tr. at 65).

The action was eventually settled with a settlement agreement that gave the plaintiffs relief in the event of a breach. (See id. at 66). At some point, possibly May 20, 2002 (see P.Ex. 11), it appears the settlement agreement was also breached: counsel for Cohen and Bernau testified that on November 7, 2002, the circuit court entered a judgment against Infrastructure Technologies for breach of the agreement. (Tr. at 66). The court continued the claim against Olbur to January 29, 2003 for a "trial readiness" conference and set the matter for trial on February 18, 2003. (Id. at 66-67; Jt. Stip. at 3; P.Ex. 11).

January 29 arrived. At the conference, the court asked about settlement. (Tr. at 67). Olbur, who was pro se, insisted the obligation belonged solely to the corporation. The court quickly disabused him of this notion, telling him that "he was being sued individually," that "he had substantial exposure and that he should reconsider whether he want[ed] to settle." (Id. at 67; Jt. Stip. at 3). In the order entered after the conference, the trial date remained the same: February 18, 2003. (Tr. at 67; Jt. Stip. at 3; P.Ex. 12).

On February 18 itself, though, the judge was unavailable, and the trial had to be continued to March 4. (Tr. at 68; P.Ex. 14). The continuance was unexpected. Because no order continuing the trial had been entered between January 29 and February 18, and because no request to continue the February 18 trial date had been made, Olbur could not have known the trial would not in fact be held on February 18 as scheduled. (Tr. at 68-69).

The trial took place on March 4, 2003. (Id. at 68; P.Ex. 15). Following trial, the circuit court entered judgment against Olbur, awarding Cohen $39,900 and Bernau $24,960. (Tr. at 15, 18; Jt. Stip. at 2; P.Ex. 15). Cohen and Bernau immediately began trying to collect the judgment. Two days after the entry of judgment, they had a citation to discover assets issued to Olbur requiring him to appear and be examined on March 14. (P.Ex. 10).

c. The Transfer of the House

In 2003, Olbur and his wife owned a single family home in Buffalo Grove, Illinois. (P.Ex. 4 at 2). Legal title to the property was held by a land trust of which LaSalle Bank was the trustee. (Tr. at 48, 81; Jt. Stip. at 3). The Olburs each owned 50% of the beneficial interest in the land trust. (See Jt. Stip. at 4).

On February 13, 2003 — a little over two weeks after the pre-trial conference in the circuit court action and five days before the February 18 trial date — Olbur executed an assignment transferring his portion of the beneficial interest in the land trust to his wife and son. (Tr. at 46; Jt. Stip. at 3; P.Ex. 13). Olbur received no money in the transaction. (Tr. at 49). It was Olbur's intention in making the transfer to dispose of his ownership interest in his home (id. at 48-49), and from the time of the assignment until at least March 12, he believed he had done so (id. at 48, 50, 101, 106; Jt. Stip. at 4).

Some question, however, was later raised about the assignment's effectiveness. Although the assignees accepted the assignment (Jt. Stip. at 3; P.Ex. 13), and although the assignment was duly submitted to LaSalle Bank as trustee (Tr. at 46, 104), LaSalle Bank never acknowledged it (id. at 87, 103-04). When Olbur consulted a bankruptcy lawyer on March 12 in preparation for filing his petition in this case, he was told the transfer "was no good," that "it wouldn't mean anything at this point." (Id. at 102, 106).

Olbur explained the transfer as an innocent precursor to the refinancing of his mortgage. All through 2002, Olbur said, he had attempted to get new financing. (Id. at 82). He was rebuffed — told that financially he was "a pariah," a "black eye in terms of credit." (Id.). The purpose of transferring the beneficial interest in the land trust was to "get [his name] off" the property so the mortgage could be refinanced. (Id. at 84). Olbur believed the property was worth $340,000; with a mortgage of $240,000 (and some small tax liens (see id. at 96)), enough equity existed to induce a relative to take on a refinanced mortgage in exchange for the equity (id. at 84-85). That way, the Olburs could continue living in the house. (Id.).

No refinancing ever took place. The house was sold at foreclosure on February 26, 2004 for $275,000. (Id. at 52; P.Ex. 16). Despite Olbur's assignment of his beneficial interest in the land trust to his wife and son, an interest he admitted was never assigned back to him (Tr. at 51), the lawyer for the Olburs in the foreclosure action subsequently brought a motion asking to have the surplus from the sale turned over to both "Allan M. Olbur and Barbara R. Olbur" (P.Ex. 16).

d. The Bankruptcy Petition and Schedules

On March 28, 2003, Olbur filed a petition for relief under chapter 7. (P.Ex. 3; Jt. Stip. at 2). His schedules were filed on April 4, 2003, one week later. (P.Ex. 4; Jt. Stip. at 2). Although they were prepared with the assistance of counsel, the petition and schedules contained numerous errors and omissions. Specifically:

a. Despite their recent judgment against Olbur, Cohen and Bernau were not listed on the creditor matrix accompanying the petition. (Tr. at 15, 17-18; Jt. Stip. at 2; P.Ex. 3 at 4). Cohen and Bernau also were not listed on Schedule F as creditors holding unsecured nonpriority claims. (Tr. at 30; Jt. Stip. at 2; P.Ex. 4 at 10). The circuit court action (though not the judgment) was disclosed in Olbur's statement of financial affairs, but Cohen and Bernau did not appear as creditors anywhere in the petition or schedules. (See P. Exs. 3, 4).

b. On Schedule B, where Olbur was required to itemize stock and interests in incorporated and unincorporated businesses, Olbur...