In re Sawyer

• Decision Date: 30 March 2005
• Docket Number: Bankruptcy No. 04-01279-PHX-SSC.,Adversary No. 04-00838.
• Citation: 324 B.R. 115
• Parties: In re Sandra and Samuel SAWYER, Debtors.
• Court: U.S. Bankruptcy Court — District of Arizona

324 B.R. 115

In re Sandra and Samuel SAWYER, Debtors.

Bankruptcy No. 04-01279-PHX-SSC.

Adversary No. 04-00838.

United States Bankruptcy Court, D. Arizona.

March 30, 2005.

Barton L. Baker, Yuma, AZ, for Debtors.

MEMORANDUM DECISION

SARAH SHARER CURLEY, Chief Judge.

I. Preliminary Statement

On May 18, 2004, Jill Ford, the Chapter 7 Trustee in this case, filed a Motion to Compel Turnover by the Debtors of Estate Property. The Debtors, acting pro se, filed an initial pleading objecting to the relief requested. Because of the unique issues presented by the Trustee, the Court set up a further briefing schedule and conducted several hearings on the matter. The Court has now set forth its decision on the matter. This constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. This is a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334 and 157. (West 2004)

II. Factual Discussion

The Debtors filed a voluntary Chapter 7 petition under the Bankruptcy Code on January 27, 2004.¹ At the time that they filed their petition, they maintained an account at Wells Fargo Bank Arizona, N.A. ("Wells Fargo"). At the time of oral argument on the Trustee's Motion, the Trustee presented a chart, which the Debtors did not contest, but which was not admitted as an exhibit, which reflected the Debtors' having written certain checks pre-petition which cleared the Wells Fargo Account post-petition. The Trustee's counsel was unclear whether the checks had been mailed pre-petition or post-petition, but stated that it did not matter. The Debtors asserted at the time of oral argument that Ms. Sawyer had been ill, and when she had received certain income pre-petition, she wrote the checks and sent them by mail. It was the Debtors' position that they had defrauded no one and had simply written and sent the checks pre-petition in the ordinary course.

The Trustee also presented, but did not admit, the check register of the Debtors for the time period from January 20, 2004 through February 2, 2004 ("Register"). The Debtors did not dispute that the Register was a portion of their check register. The Register reflects that the Debtors had a balance on hand of $1,057.62 on or about January 20, 2004. One or both of the Debtors apparently wrote a number of checks in the Register until January 22, 2004, when the Register reflected a balance on hand of $9.16. On that date, in the margin, there was a notation that subsequent checks "would be mailed after the deposit." A number of checks were set forth in the Register after that date with the balances in parentheses. A series of deposits were reflected in the Register around January 26, 2004. One or both of the Debtors continued to write checks, as reflected in the Register, until the balance of funds was reduced to zero.

Finally, the Trustee also presented, without objection, Page 3 from the Debtors' Wells Fargo bank account statement for the period January 24, 2004 through February 23, 2004 ("Bank Statement"). The Bank Statement set forth a number of checks, the "date" of the checks, and the amount of each check. The aggregate amount of all checks that were reflected on Page 3 was the sum of $8,712.70. The Bank Statement also reflected a number of "Other Withdrawals" by the Debtors, such a "Paypal Transfers," direct debits by various merchants, and a number of "check card" purchases. It is unclear whether all of the "Other Withdrawals" have been shown, and there is no aggregate balance for these other transactions.

The Trustee's Memorandum of Law also stated that the Trustee was seeking the turnover by the Debtors of the net sum of $5,082.34, which was the alleged non-exempt portion of the funds on deposit in the Debtors' account. The Trustee was willing to allow the Debtors an exemption of $300, as provided under Arizona law, for the funds in the account on the date of the commencement of Debtors' case, but the net amount of $5,082.34 was to be turned over to the Trustee for administration.

The Trustee did not call anyone from Wells Fargo to testify as to the Account, did not present the complete Bank Statement, and presented only the Bank Statement concerning when the various checks written by the Debtors on their Account actually cleared the Wells Fargo Account. The Debtors did not present any evidence in support of their position.

The Court's review of the partial records presented does provide some information that has not been explained. For instance, the Debtors appear to have kept a meticulous record of their transactions in their Register. It appears that around January 20, 2004, the Debtors had collected funds in their Wells Fargo Account in the amount of $1,057.62. The Debtors proceeded to write a number checks or to have direct debits by merchants to their account, in the ordinary course, until January 22, 2004, when they had only $9.16, according to their records, in the Wells Fargo Account. The Debtors' Register reflects that the Debtors then recorded a number of checks being written, reflecting a negative balance on their check register, with a notation to "mail after deposit." The Debtors' Register then reflects that on January 26, 2004, the Debtors made four separate deposits into the Wells Fargo Account; that is, the amounts of $1,142.67, $169.30, $2,500, and $1,100.² Once the deposits were made, the Debtors reflected positive balances in their Register. They continued to write checks on January 26 and January 27, 2004, the date that they filed their bankruptcy petition. They made another deposit, according to the Register, on January 29, 2004, in the amount of $95.68, and they continued to write checks on January 31 and February 2, 2004 until they once again had a negative balance.

Page 3 of the Debtors' Bank Statement reflects numerous checks written from January 26, 2004, through February 23, 2004, in the aggregate amount of $8,712.70. The Page also reflects numerous other withdrawals from the Account through the mechanism of direct debits by merchants or a similar method of payment.³ No deposits are reflected on this Page.

There is nothing in the record to reflect that the Debtors were acting in bad faith or with fraudulent intent. They simply seemed to be depositing funds, allowing debits from their Account by merchants, and writing checks in the ordinary course.

III. Issue Presented

Whether the Trustee may require the Debtors to turn over the net sum of $5,082.34 pursuant to Section 542 of the Bankruptcy Code.⁴

IV. Discussion

A. The Evidentiary Requirement

As the movant, the Trustee carries the burden of proof on her Motion for Turnover. To the extent that the record is incomplete or does not address certain evidentiary issues, the Court must hold the Trustee responsible.

The Court cannot conclude that the net sum of $5,082.34 should be turned over by the Debtors. The Trustee has presented some information, which has not been contested by the Debtors, as to what the collected funds were in the Debtors' Wells Fargo Account on the date that they filed their bankruptcy petition. However, if the Court reviews the Trustee's chart as to, for instance, Check No. 2367, the Trustee asserts that it was dated January 22, 2004 and that it cleared the Wells Fargo Account on February 2, 2004. If the Court reviews Page 3 of the Bank Statement, it reflects withdrawals by check numbers and has under the heading "Date," the notation "2/2." The Trustee apparently wants the Court to surmise that Check No. 2367 was honored by Wells Fargo on February 2, 2004, but there is certainly no evidentiary support, from a bank officer or other appropriate witness with personal knowledge, for that conclusion. Moreover, the Trustee did not call the Debtors to testify before the Court on these points. The gap in the evidentiary support is true as to the other transactions that the Trustee questions. Although the Debtors did not necessarily dispute when the various checks were honored by Wells Fargo, the Court was presented with an incomplete record as to what transpired. Based upon the Trustee's failure to present sufficient evidence in support of the specific relief requested, the Court must set a further hearing on this matter. However, the Court recognizes that once these evidentiary issues are addressed, the Trustee will be entitled to a turnover of the Debtor's collected funds in their Wells Fargo account on the date that they filed their bankruptcy petition.

B. The Overlay of Federal and State Law

The Debtors represented, at the time that they filed their petition, that they were unemployed. However, at oral argument, they related that they had previously owned and operated a construction company. Ms. Sawyer also described that as she received "commissions," they were deposited into the Account at Wells Fargo. Certainly, since the Debtors resided in Arizona and maintained their Account in this State, Arizona's law governing commercial transactions would be applicable, at least in part, to resolving this dispute. See A.R.S. § 47-1102(b)(1) (2004).⁵

In determining the nature of the transactions between the Debtors and Wells Fargo, the Uniform Commercial Code, as well as the law of contracts — or the bargain of the parties would be important in any decision of this Court. See A.R.S. § 47-1201(3) (2004).⁶

Since the Debtors maintained a pre- and post-petition Account at Wells Fargo, a national banking association, Article 4 and 4A of the Uniform Commercial Code deal primarily with deposits and their availability. However, Article 3, which pertains to negotiable instruments, may also be relevant to any inquiry. If there is a conflict between the Articles, Article 4 controls over Article 3. See U.C.C. § 4-102(a) (2004). Articles 4, 4A, and 3 have been adopted in Arizona. See A.R.S. § 47-3101 and § 47-4101 et. seq (2004).

Title 12 of the United States Code also governs the relationship of the banking institution with the depositor...