In re Riso, Bankruptcy No. 84-340
| Decision Date | 16 April 1987 |
| Docket Number | Bankruptcy No. 84-340,Adv. No. 84-107. |
| Citation | 74 BR 750 |
| Parties | In re R. Richard RISO, Debtor. Donald H. FRANCIS, Plaintiff, v. R. Richard RISO, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Mark Vaughn, Manchester, N.H., for plaintiff.
Victor Dahar, Manchester, N.H., for trustee.
Mark Berman, Boston, Mass., U.S. Trustee, for debtor.
This adversary proceeding came on for trial over a four day period on the plaintiff's Complaint, Amended Complaint, and Second Amended Complaint (all of which remain relevant and all of which are collectively referred to herein as the "Complaint") and defendant's answer to same. Subsequent to the trial the parties submitted legal memoranda and the court then took the matter under submission for the rendering of a decision.
The plaintiff's Complaint seeks to have this court deny Mr. Riso a general discharge pursuant to § 727(a)(2)(A) and/or § 727(a)(5) of the Bankruptcy Code. These sections of the Code provide in relevant part as follows:
§ 727. Discharge.
More particularly, the plaintiff alleges that within one year of the June 7, 1984 filing of Mr. Riso's petition in bankruptcy1, he embarked on a scheme with his wife, Beatrice Riso, to transfer to her his interest in all assets of value in order to intentionally hinder, delay, or defraud the major creditor of his estate, the plaintiff, Donald H. Francis. Mr. Francis contends that the device the debtor used to accomplish this scheme was an agreement entered into on January 9, 1984, under which the debtor-defendant and Beatrice Riso agreed to the transfer to her of certain valuable assets, and the subsequent transfer of said assets. In Count II of his Complaint Plaintiff Francis further alleges that the debtor has failed to satisfactorily explain the loss or deficiency of certain assets from those he possessed in December 1981 and April 1982 — more particularly, loans to his two sons, Kenneth and Ronald Riso, totalling $140,000; automobiles and other personal property totalling $50,000; the decrease in value of real estate transferred to Beatrice Riso; and other assets transferred to Beatrice Riso pursuant to the January 9, 1984 agreement between them. The plaintiff also takes the position that since the filing of his Complaint in this adversary proceeding, he has additionally discovered the omission of at least $3,000 in 200 shares of Diamond Shamrock stock and the omission of a home in Goodland, Florida, owned by Mrs. Riso.
Mr. Riso answered Mr. Francis' Complaint denying that he transferred assets to his then-wife, Beatrice, with fraudulent intent and took the position that the plaintiff has failed to produce clear and convincing evidence that Mr. Riso had an actual fraudulent intent vis-a-vis his creditors when he transferred property to Beatrice Riso. Rather, defendant contends that the evidence shows that Mr. Riso merely intended to fairly divide his marital estate when his marriage to Beatrice came to an unquestionable end. As to the second count of Mr. Francis' Complaint, the debtor denied that he failed to satisfactorily explain the loss or deficiency of any asset from his estate within the meaning of the pertinent statutory provision.
Richard and Beatrice Riso met while working at the MayWood Chemical Works in New Jersey — she as a purchasing agent and he as a chemist. They were married in 1941. At the time of their marriage they had few assets. Over the years however, Beatrice received a number of substantial inheritances from her family. In contrast, Mr. Riso inherited during the course of the parties' marriage only a few hundred dollars from his father. Following their marriage Beatrice and Richard Riso both continued to work at the same chemical firm in New Jersey for a few years, following which Mrs. Riso left the outside labor market for approximately 11 years during which the Risos had five children. Mrs. Riso returned to office work once the parties' children were older and held a number of positions with various companies in New Jersey. In her jobs Beatrice Riso was usually involved in control of inventory, purchase orders, shipments, etc., and over the years has developed self-taught skills in doing bookkeeping work and related office work concerning inventory control, purchase orders and the like.
At the time of their marriage, while the Risos had few assets, Beatrice was able to borrow or received as a gift from a relative, $2,000 to put down on the purchase of a $6,000 home. The original home purchased with the $2,000 deposit in 1942 was sold and eventually led to the Risos building a home in Oradell, New Jersey in 1956. The Oradell, New Jersey home was eventually sold for $156,000 in 1981.
The Risos' relationship was not always one of marital bliss. During the course of their marriage they had numerous arguments at various times including an incident in the 1950's in which Mr. Riso left for a period of a month or so and obtained his own apartment. In another incident in the 1960's Mrs. Riso took the five children and started off for Florida in a station wagon but turned back when she reached Baltimore. There were miscellaneous other spats between them but each time they reconciled and remained together.
In 1975, by taking everything they owned, Richard and Beatrice Riso purchased a division of Stephan Chemical. The Risos pledged everything they owned for bank loans to get the new company off the ground, including a mortgage on their home. The new company — "Maybrook, Inc." — was to do research and development of various lanolin-related chemical products for the cosmetics industry. Beatrice and Richard Riso set up the new business in their Oradell, New Jersey home by converting a long room on the top of the house into an elaborate laboratory and using other portions of the room for office work. Mr. Riso did the chemical formulating and Mrs. Riso did the administrative work for the new company. Mrs. Riso, however, was never paid by Maybrook, Inc., for her office work. On the advice of counsel, the stock of Maybrook was not put in Mrs. Riso's name although the Risos understood that the Maybrook stock, like all other assets they acquired by joint effort during their marriage, was owned by them jointly.
Maybrook, Inc., was a quite successful venture and the company became wellknown in the cosmetics industry. Maybrook's business grew steadily during its early years through 1978 and continued to grow steadily with an increase in gross sales every year, including the year of 1983.
During 1978, Beatrice Riso started to urge her husband to bring other people into the company, so that he would not have to work such long hours. She was concerned about his health at his advancing age, and wanted him to live to enjoy the retirement they were planning in Florida. She encouraged him to bring into the firm as co-owners, the plaintiff, Donald Francis, and one Ivar W. Malmstrom. Plaintiff had worked with defendant at Stephan Chemical from 1959 to 1974 when Francis left that company. Francis was basically a business or financial man and was not technically qualified in chemistry or other scientific matters. Malmstrom was a salesman that they knew from another company.
The debtor at first resisted bringing anyone into the company because he liked his "small operation". Additionally, he and Beatrice enjoyed working together in their home. However, he eventually agreed with Beatrice that they should bring Malmstrom and Francis into the company.
On or about December 13, 1978 an agreement was struck by which Malmstrom and Francis each acquired a one-third interest in Maybrook, leaving Richard Riso with the other one-third stock ownership i.e., 300 shares split among each of them at 100 shares each. The new partners were obligated to pay under the agreement $175,000 each for their shares. Ultimately Malmstrom paid $150,000 and Francis ultimately paid $125,000 before the disputes among the parties surfaced, as related below. In conjunction with his purchase, Mr. Francis became an officer and director of Maybrook, Inc., and entered into a certain Employment Agreement and a certain Shareholders Agreement dated December 13, 1978.
From the outset there were difficulties in the relationships between the new owners and Beatrice Riso. Plaintiff, who was brought in to head up the financial end of the business, became Mrs. Riso's superior. Francis and Mrs. Riso disagreed about many things, including the accounting system for Maybrook, Inc.
Initially it was understood that Beatrice Riso would resign as an officer and director of Maybrook, which she did, but that she would remain to do essentially the bookkeeping and related work that she was doing in New Jersey. It was further understood that Francis would build and develop a manufacturing plant in Massachusetts and that he would be located there. Malmstrom was to work as a sales manager in New Jersey and all three of them had plans for a new building, in New Jersey, to house both Malmstrom's sales offices and Richard Riso's laboratory.
The friction between the new co-owners and Beatrice Riso developed further, culminating in September or October of 1979, in Francis' successful initiation of action requiring that Mrs. Riso...
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