In re Somerville

• Decision Date: 19 May 1987
• Docket Number: Adv. No. 85-0904K.,Bankruptcy No. 83-04881K
• Citation: 73 BR 826
• Parties: In re Lonnie SOMERVILLE, Debtor. Luther RANDOLPH, Plaintiff, v. Lonnie SOMERVILLE, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

73 B.R. 826 (1987)

In re Lonnie SOMERVILLE, Debtor Luther RANDOLPH, Plaintiff, v. Lonnie SOMERVILLE, Defendant.

Bankruptcy No. 83-04881K, Adv. No. 85-0904K.

United States Bankruptcy Court, E.D. Pennsylvania.

May 19, 1987.

COPYRIGHT MATERIAL OMITTED

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David R. Dearden, Philadelphia, Pa., for debtor.

James Wade, Philadelphia, Pa., trustee.

James G. Buckler, Brookhaven, Pa., for plaintiff.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION

Presently before the Court is an adversary proceeding in which the Plaintiff, Luther Randolph (hereinafter referred to as "Randolph"), objects to the discharge of the Debtor, Lonnie Somerville (hereinafter referred to as the "Debtor"), pursuant to 11 U.S.C. §§ 727(a)(2), (a)(3), and (a)(5). In the same Complaint, Randolph also seeks a determination of the dischargeability of his debt pursuant to 11 U.S.C. § 523(a)(2)(A). We find that the Plaintiff has established that the Debtor should be denied a discharge pursuant to §§ 727(a)(3) and (a)(4), principally due to our determination that the Debtor has not been truthful either in this filings in this Court or in his testimony at trial, and we believe that honesty in proceedings in this court is the linchpin of § 727(a). We reach this conclusion even though Randolph presented a relatively poor case, and, despite our finding on the critical issue of credibility, we are unable to act in Randolph's favor on the basis of the record made as to §§ 727(a)(2) and (a)(5). In light of our conclusion that the Debtor's entire discharge must be denied, we believe that it is not necessary to determine the non-dischargeability of Randolph's debt under § 523(a)(2)(A) or to make Findings of Fact relative to that matter, although we would be unlikely to have reached this conclusion on the basis of the Plaintiff's sole theory, i.e., collateral estoppel from the state court proceedings.

Pursuant to our Order of January 29, 1987, establishing a schedule that briefs be filed after preparation of the Transcript of the trial of January 28, 1987, had been completed, the parties filed briefs, Randolph on March 2, 1987, and the Debtor on March 20, 1987. Per Bankruptcy Rule 7052 and Federal Rule of Civil Procedure 52(a), we present our Opinion in the form of Findings of Fact, Conclusions of Law, and a Discussion.

We note at the outset one procedural issue not addressed until our accompanying Order. On October 1, 1985, this Court entered a "conditional discharge" Order, per its practice at that time, on the date of the meeting held pursuant to 11 U.S.C. § 341. Since this adversarial proceeding was instituted in timely fashion on October 10, 1985, see Bankruptcy Rules 4004(a) and 4007(b), and we grant Randolph relief, that Order must be vacated.

B. FINDINGS OF FACT

1. The Debtor, LONNIE SOMERVILLE, filed a Chapter 13 Petition on December

16, 1983. On March 1, 1984, the Debtor filed a Chapter 13 Statement, Plan, summary Sheet, List of Creditors, and Bankruptcy Rule 2016(b) Statement.

2. On February 13, 1985, the Debtor filed an Application to convert his case to a Chapter 7 case, which was granted, and an Order was so entered on February 14, 1985.

3. On July 15, 1985, the Debtor filed the Chapter 7 Statement of Affairs, Schedules, Master Sheet, and Statement Pursuant to Rule 2016(b).

4. At the hearing of January 28, 1987, the Debtor verified and confirmed his signatures on the Chapter 13 documents which were filed on March 1, 1984.

5. However, the Debtor refused to verify the signatures on the Chapter 7 documents, filed on July 15, 1985, testifying that he had not reviewed these documents, but had merely authorized his then-attorney, James W. Wilson, Esquire, to sign same on his behalf.

6. The Debtor also testified that he had not filed any amendments to his Statement or Schedules, nor indicated any intention to do so in the future.

7. Both Randolph and the Debtor have been employed as full-time school teachers by the Philadelphia School District for more than ten years. The parties have known each other since childhood, and professionally as well since they taught at the same school in 1979.

8. The Debtor and Randolph entered into a business relationship or partnership for the training, breeding, and racing of horses in January, 1980, which relationship was memorialized in a written contract.

9. Immediately prior to the formation of the partnership, the Debtor owned three horses, Pam-N-Heather (a "chestnut filly"), Jennifer (also known as "Donna's Lace"), and Pearly. Upon the formation of the partnership, Randolph purchased fifty (50%) percent of the interest in two of these horses, Pam-N-Heather and Pearly; and both horses became the assets of the partnership pursuant to the agreement of the parties.

10. Jennifer remained solely owned by the Debtor. The Debtor also subsequently leased a part-interest in a horse named Silent Rebellion during the time that the partnership existed.

11. The partnership later acquired a third horse, an unnamed colt.

12. Randolph entered into the partnership based upon the Debtor's representations that he was a trainer and had been breeding and racing horses for some time. Prior to entering this partnership, Randolph had no experience with this business.

13. The responsibilities of the partnership were divided such that Randolph was to be in charge of the administrative or bookkeeping duties, and the Debtor was to be in charge of the care, training, and racing of the horses.

14. Expenses of the business were to be shared equally. The contemplated procedure established was that the Debtor would inform Randolph of his need for certain items, such as feed or hay for the horses. A voucher or petty cash slip (hereinafter referred to as "the vouchers") was then to be filled out by the Debtor to confirm that Randolph was giving fifty (50%) percent of the stated amount to the Debtor for the purchase of these needed items.

15. Although Randolph was in charge of the books and requested receipts from the Debtor, he never received any receipts from the Debtor to verify that purchases were made pursuant to the vouchers.

16. Randolph did keep ledgers or records of expenditures which were based upon the vouchers. Over time, Randolph came to believe that the Debtor had misappropriated funds, particularly because he could not obtain receipts for purchases from the Debtor.

17. As a result of continuous friction concerning the accounting, or lack thereof, for expenditures, the partnership ceased to operate in November, 1981.

18. The Debtor attempted to place responsibility for insufficiency of bookkeeping upon Randolph. However, the Debtor never refuted his failure to provide Randolph with receipts. We do not accept the Debtor's claims that Randolph was primarily responsible for these problems, but rather we believe that the Debtor was primarily so responsible, due to his failure to produce the receipts.

19. On June 23, 1982, Randolph filed suit against the Debtor in the Court of Common Pleas of Delaware County, Pennsylvania, both in assumpsit, requesting compensatory damages of $24,862.90 and a rescission of the partnership agreement, and in trespass, requesting both compensatory damages of $24,862.90 and punitive damages of $10,000.00.

20. A jury trial took place in this suit during October and November, 1983, which lasted ten days. The jury returned a verdict in favor of Randolph in the amount of $20,000.00 compensatory damages and $5,000.00 punitive damages.

21. In this same action, the Debtor filed a Counterclaim, on which the jury returned a verdict in favor of Randolph.

22. Randolph's action in assumpsit was based upon allegations of a breach of the contract or partnership agreement between the Debtor and Randolph.

23. Randolph's action in trespass was based upon allegations of misrepresentation or fraud by the Debtor which induced Randolph to enter into partnership with the Debtor.

24. Randolph was aware that the Debtor's regular and fulltime employment was as a teacher. Randolph was also aware that the Debtor had a home remodeling business, as well as his own separate horse racing, breeding, and training business.

25. The Debtor trained, raised, and raced horses between 1963 and 1983, and kept records concerning this business from 1963 until 1983.

26. The Debtor has been licensed by the respective State Racing Commissions in the States of Rhode Island, Massachusetts, West Virginia, Delaware, New Jersey, and Pennsylvania, maintaining his licenses in New Jersey and Pennsylvania until 1982. These licenses permitted him to conduct his horse racing business.

27. About six months before the inception of the partnership, Pearly won a race at the Atlantic City Race Course, earning $5,000.00; she had also previously finished second and fourth at Delaware Park. Pearly had been trained by the Debtor.

28. The Debtor was audited by the Internal Revenue Service in 1982 and claimed that he subsequently destroyed or threw away records through the date of his audit, allegedly believing that there was no need to keep records subsequent to the date of audit. We find this testimony to be of doubtful credibility.

29. Prior to filing for bankruptcy, the Debtor claimed that his records with respect to his business were placed in the possession of his previous attorney, Mr. Wilson. We find that this attempt, like the attempt to foist off the inaccuracies in the Chapter 7 statements upon Mr. Wilson, who is a conscientious practitioner before us, of extremely doubtful veracity and likely to have been concocted for purposes of expediency rather than truthfulness.

30. Randolph did not file any income tax returns for the partnership because he had no receipts for expenditures other than the vouchers.

31. Randolph did file his own personal federal income tax returns for 1980 and 1981, in which he reported business expenses and deductions of $7,985.00 and $10,533.00, respectively, for the...