In re Ridley

Decision Date25 May 1990
Docket NumberAdv. No. 88-1458,89-1006 and 89-1051.,Bankruptcy No. 88-11660-HAL
Citation115 BR 731
PartiesIn re Andre T. RIDLEY, Debtor. Barry WORTMAN and Denise Wortman, Plaintiffs, v. Andre T. RIDLEY and The Good News, Inc., Defendants. Kathleen DWYER, Trustee, Plaintiff, v. Andre T. RIDLEY and The Good News, Inc., Defendant. Barry WORTMAN and Denise Wortman, Plaintiffs, v. Andre T. RIDLEY, Defendant.
CourtU.S. Bankruptcy Court — District of Massachusetts

Charles E. Vander Linden, Ciota, Starr & Vander Linden, Fitchburg, Mass., for plaintiffs, Kathleen Dwyer, Trustee and Barry and Denise Wortman.

Keith S. Halpern, Silverglate, Gertner, Fine & Good, Boston, Mass., for defendants, Andre T. Ridley and The Good News, Inc.

MEMORANDUM ON DENIAL OF DISCHARGE

HAROLD LAVIEN, Bankruptcy Judge.

Three complaints seeking to deny the debtor a discharge were based on the same basic facts and were heard in a joint trial. The plaintiffs were the trustee and two creditors, a husband and wife, whose claims against the debtor sprang from problems in a house built for them by the debtor. The complaints allege that discharge should be denied based on 11 U.S.C. § 727(a)(3), failure to keep sufficient records to ascertain the general financial condition of the debtor; 11 U.S.C. § 727(a)(4)(D), failure to cooperate with trustee and withholding of records; 11 U.S.C. § 727(a)(5), failure to explain loss of assets. A second count in two of the complaints against a non-profit religious corporation founded by the debtor sought to pierce the corporate veil. This count was transferred to the district court for trial, since the bankruptcy court lacked jurisdiction over the corporation which had not filed a bankruptcy petition.

The debtor's brief accurately states the basic principles that control this type of determination. The plaintiffs bear the burden of persuading the Court that the debtor is not entitled to discharge because of inadequate records. Bkrcy. Rule 4005. See Matter of Martin, 554 F.2d 55, 58, fn. 1 (2nd Cir.1977); Matter of Oesterle, 651 F.2d 401, 403 (5th Cir.1981). 11 U.S.C. § 727 "discharge is to be construed liberally in favor of debtors and strictly against the objecting creditor." In re Usoskin, 56 B.R. 805, 813 (Bkrtcy.E.D.N.Y.1985). "The plaintiff bears a heavy burden in proving facts to deny a discharge." In re Hirsch, 36 B.R. 643, 644 (Bkrtcy.S.D.Fla.1984). In general, "doubts . . . as to the adequacy of records should be resolved in favor of honest bankrupts." In re La Belle, 112 F.Supp. 447, 451 (S.D.Cal.1953). The trustee must prove more than the "bare assertion that the debtor's books are inadequate." In re Sutton, 39 B.R. 390, 398 (Bkrtcy.1984). The creditor "is burdened with proving that the debtor's financial condition cannot be ascertained". In re Becker, 74 B.R. 233, 237 (Bkrtcy.E.D.Tenn. 1987) (emphasis in original). The trustee bears the burden of proving the absence of a justification for whatever inadequacies exist in the debtor's books and records. Matter of Oesterle, 651 F.2d 401, 403 (5th Cir.1981); In re Golowaty, 13 B.R. 781, 784 (D.Vt.1981). The debtor is not under a duty to maintain his records in an elaborately scientific and comprehensive form.

In determining whether the debtor has kept adequate books and records, the Court should apply a case-by-case analysis, taking into account the particular facts and circumstances of the debtor's case. In re Sutton, 39 B.R. 390, 398 (Bkrtcy.M.D.Tenn. 1984); Matter of Ellison, 34 B.R. 120, 124 (Bkrtcy.D.M.D.Ga.1983). A failure to keep adequate books and records "may often be `justified under all the circumstances'," Goff v. Russell Company, 495 F.2d 199, 201 (5th Cir.1974). Records are sufficient if they allow the court and creditors to trace the debtor's financial dealings.

Because each case must, to a larger extent, turn on its own facts, all of the cases cited cannot readily be reconciled, especially since the credibility of the debtor is often a key element. In the matter presently before the Court, the debtor often seeks to substitute for records his unsupported general explanations but his memory seems to shift with the needs of the moment.

The debtor attempted to justify some of his conduct by testifying that certain documents were lost or possibly stolen. His testimony at trial on this issue directly contravenes the statements made under penalty of perjury in his Bankruptcy Petition (Plaintiffs' Exhibit 19-J).

"If any of these books or records are not available, explain. None Have any books of account or records relating to your affairs been destroyed lost or otherwise disposed of within the two years immediately preceding the filing of the original petition herein? None

The debtor's credibility also suffers as a result of his claim at trial that it was necessary to use cash to purchase plants for resale. This claim of the need for cash transactions is directly contradicted by documents in evidence indicating that payments were made for plants by checks written to Tropiculture and E.T. Ehlers & Sons.

The Basic Facts:

Andre Ridley is one of the founders of the Church of the Good News. He has served as the Church's minister for 19 years. In 1986, Mr. Ridley began a home-building business in Ashburnham. Subsequently, Mr. Ridley sold only one home, which was purchased in 1987 by the Wortmans, plaintiffs in this action. Two additional homes were partially built. Mr. Ridley engaged in two additional money-making enterprises. He purchased plants in bulk and then resold them from the back of a truck for cash. Mr. Ridley also sold sand and gravel from property in Ashburnham, which was also done on a cash basis. In his Petition, he described himself as a "self-employed . . . carpenter, street vendor and minister." He has filed no tax returns. He has filed no sales tax returns. He has received an 8th grade education, and has taken several courses while at seminary. The debtor maintained no regular bookkeeping system for his various business transactions. The best records which the trustee has been able to obtain are in the form of various checks drawn upon a construction loan account, showing approximately $60,000 to $85,000 each year withdrawn to "cash" or payable to the debtor or his wife. A document submitted to the trustee on March 28, 1989, by the debtor, which is a reconstructed spreadsheet showing certain expenses, shows disbursements to cash and Denise Ridley in 1986 in the amount of $58,638.00. Checks written by Andre Ridley on the account of The Good News, Inc. also show disbursements to cash, Andre Ridley and Denise Ridley, in 1986. The reconstructed summary submitted by Andre Ridley to the trustee on March 28, 1989, after the present litigation was pending, reveals disbursements in 1986 of $226,333.00. In 1987, the debtor apparently disbursed at least $219,580.35, the amount set forth in his reconstructed spreadsheet. Checks made out to cash, the debtor or his wife, in 1987, totalled $84,800.00.

No records of any kind exist with regard to income from the sale of plants. No sales tax returns were ever filed. A document submitted by the debtor at trial (which was not available to the trustee until two days before the trial) indicated the debtor spent $23,864.00 in 1987 for plants to be re-sold. In 1986, the purchase price of the plants was apparently $15,765. As noted above, no records were kept of the proceeds from the sales of these plants. The debtor has not explained the use of the substantial amount of cash including the cash disbursements described above and cash income from the sale of plants except in general unsubstantial terms, such has that he used the cash to pay for materials to build the houses. Immediately prior to trial, the debtor engaged an accountant to attempt to reconstruct the debtor's business records. In doing so, however, the accountant was forced to give estimates regarding cash flow, equipment rental, automobile expense, etc. 11 U.S.C. § 727(a)(3):

(3) The debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor\'s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case. 11 U.S.C. § 727(a)(3).

The purpose of the Bankruptcy Code ("Code") § 727(a)(3), which precludes the discharge of a debtor who has failed to keep or preserve adequate recorded information pertaining to the debtor's business transactions and financial condition, is to insure that dependable information be supplied to the trustee and to creditors upon which they can rely in tracing the debtor's financial history; the trustee and creditors are entitled to complete and accurate information showing what property has passed through the debtor's hands during the period prior to bankruptcy. In re Mascolo, 505 F.2d 274, 278 (1st Cir.1974), quoting In re Slocum, 22 F.2d 282, 285 (2nd Cir.1927). The production of appropriate records is the quid pro quo for the debtor's relief from substantially all financial obligations through a discharge in bankruptcy. 11 B.R. 487, 489 (Bkrtcy.D.Mass.1981).

Under both the current Code § 727(a)(3) and its immediate statutory predecessors, there is no requirement that the trustee prove intent to conceal on the part of the debtor. See, e.g. In re Esposito, 44 B.R. 817 (Bkrtcy.S.D.N.Y.1984) (holding that intent, while inferred, is not a requisite element to be specifically proven for denial of discharge under § 727(a)(3).) See also White v. Schoenfeld, 117 F.2d 131 (2nd Cir.1941) (providing that no "moral obliquiy" need be shown.).

Complete disclosure is in every case a condition precedent to the granting of the discharge, and if such a disclosure is not possible without the keeping of books or records, then the absence of such amounts to that failure to which the act applies.

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  • Grossman v. Garabedian (In re Garabedian), Bankruptcy No. 11–13548–JNF.
    • United States
    • U.S. Bankruptcy Court — District of Massachusetts
    • October 7, 2014
    ...but it must meet two criteria: First, it must be supported by at least some corroboration. See, e.g., Wortman v. Ridley (In re Ridley), 115 B.R. 731, 737 (Bankr.D.Mass.1990) (undocumented explanations are not satisfactory for § 727(a)(5) purposes) (citing Chalik v. Moorefield (In re Chalik)......

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