In re Tauber

• Decision Date: 06 September 2006
• Docket Number: Adversary No. 05-6011.,Bankruptcy No. 04-63413 JPK.
• Parties: In re Jan Earl TAUBER and Kathy Lee Tauber, Debtors. Buckeye Retirement Properties of Indiana, LLC, Plaintiff, v. Jan Earl Tauber, Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

349 B.R. 540

In re Jan Earl TAUBER and Kathy Lee Tauber, Debtors.

Buckeye Retirement Properties of Indiana, LLC, Plaintiff, v. Jan Earl Tauber, Defendant.

Bankruptcy No. 04-63413 JPK.

Adversary No. 05-6011.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

September 6, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lambert C. Genetos, Esq., Kopko, Genetos & Retson, L.L.P., Merrillville, IN, for the Plaintiff.

Gordon E. Gouveia, Esq., Gouveia & Associates, P.C., Merrillville, IN, for the Defendant.

MEMORANDUM OF OPINION AND ORDER

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

On July 9, 2004, Jan Earl Tauber, along with his wife Kathy Lee Tauber, filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. Subsequently, on January 20, 2005, Buckeye Retirement Properties of Indiana, ("Buckeye") filed an adversary proceeding against Jan Earl Tauber (the "Debtor"),¹ contending that the Debtor's discharge should be denied pursuant to 11 U.S.C. § 727(a)(3), (a)(4), & (a)(5). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J) in which a bankruptcy court can enter a final judgement thereon, and venue before this Court is proper pursuant to 28 U.S.C. § 1409(a).

At a telephonic status conference held on June 29, 2005, the Court ordered the parties to file a joint stipulation of facts and set a trial date, at which time each party would have the opportunity to present evidence exclusive of the stipulation. A trial was held on October 6, 2005, and the parties were ordered to file post-trial briefs in support of their respective positions, which they did. The matter is now before the Court for final disposition.

The record before the Court is comprised of Buckeye's complaint, Tauber's answer to that complaint, the stipulation filed on October 3, 2005 (including certain documents attached thereto), and the trial record. The pertinent facts from the stipulation are the following:²

1. On July 9, 2004, the Defendant, Jan Earl Tauber, filed a Petition for Relief under Chapter 7 of the Bankruptcy Code [a copy of the petition and schedules, and all amendments thereto are attached to the stipulation and are deemed by the Court to be part of the record]. {Stipulation ¶ 3}.

2. Buckeye does not object to the discharge of Kathy Lee Tauber. {Stipulation ¶ 5}.

3. The Defendant's Schedule F lists Buckeye Retirement Properties of Indiana, LLC, as successor in interest to South Holland Trust and Sayings, Plaintiff herein, as having a claim based on a personal guarantee of Jan Tauber for Metal Manufacturing Co. and Sinusoidal, LLC. {Stipulation ¶ 7}.

4. Defendant was a 50% shareholder of A-Bust Tool and Manufacturing Co., Inc. d/b/a Metal Manufacturing Co. ("Metal Mfg.") at the time of the filing of his bankruptcy petition. {Stipulation ¶ 8}.

5. Defendant in his original Schedule F listed Metal Mfg. as an unsecured creditor for $243,270.00 for shareholder loans. {Stipulation ¶ 9}.

6. Defendant in his Amended Schedule F filed on October 18, 2004, lists Metal Mfg. as an unsecured creditor for $243,269.83 for loans incurred in 2003. {Stipulation ¶ 10}.

7. The Statement of Financial Affairs filed by Metal Mfg., in its Chapter 11 bankruptcy proceeding Case No. 04-64206 states that the Defendant received $35,000.00 in shareholder loans between September 1, 2003 and August 31, 2004. {Stipulation ¶ 11}.

8. Defendant did not list in his Statement of Financial Affairs his gambling winnings or losses during the two years immediately preceding the commencement of his bankruptcy proceedings. Winnings of $67,400.00 in 2002 and $27,240.00 in 2003. {Stipulation ¶ 12}.

9. Defendant in Schedule J states that his monthly rent was $800.00. {Stipulation ¶ 13}.

10. Checks of the Defendant and/or his wife payable to the owner of the property where Defendant resided for the months preceding the filing of Defendant's bankruptcy petition were in the amount of $622.00 {Stipulation ¶ 14}.

11. The Debtor's background includes a high school education and significant practical production and sales experience in the steel industry. {Stipulation ¶ 18}.

12. The Debtor's business experience includes 20 years in sales at Bendix Corporation, 8 years in sales with Farrel Corporation (overlapping) and 24 years working at A-Bust Tools & Manufacturing, Co., as Vice President with his primary responsibilities including machine setup, personnel supervision and sales. {Stipulation ¶ 19}.

13. Copies of the Debtor's 2002 and 2003 Federal Income Tax returns are included in the record. {Stipulation ¶ 20 and 21}.

14. Debtor paid one month rent to Burgess, LLC in February 2004, prior to the filing of this bankruptcy petition, but he had no written lease with Burgess, LLC when he filed this chapter 7 bankruptcy petition. {Stipulation ¶ 22}.

15. The transcript of the Plaintiff's 2004 exam taken of the Debtor on November 23, 2004 is included in the record. {Stipulation ¶ 25; Exhibit "8" to the stipulation}.

16. Copies of Bank Calumet account number 000352994 of Jan and Kathy Lee Tauber for the months of September 2003 through June 2004 are included in the record. {Stipulation ¶ 26; Group Exhibit "9"}.

17. A copy of Metal Mfg. Co. general ledger for the period September 1, 2003 through August 31, 2004 is included in the record {Stipulation ¶ 27; Exhibit "10" to the stipulation}.

18. Copies of casino markers paid by Jan Tauber on behalf of Kathy Lee Tauber between September 2003 and June 2004 are included in the record. {Stipulation ¶ 28; Group Exhibit "11" to the stipulation}.

See, Stipulation Of The Parties On Complaint Objecting to Discharge Pursuant to 727(a) (the "Parties' Stipulation") at ¶ s 3-28.

The crux of Buckeye's complaint is that the Debtor's discharge should be denied under § 727(a)(3) for failing to maintain or preserve books and records relating to loans made by A — Bust to the Debtor; that discharge should be denied under § 727(a)(4) due to the Debtor's improperly stating the amount of rent being paid on a monthly basis, understating employment income for 2003, not claiming gambling winnings for certain years, not listing a safe-deposit box, and for not listing a prepetition lease agreement; and finally that discharge should be denied under § 727(a)(5) due to the Debtor's failure to satisfactorily explain the loss or deficiency of assets to meet his liabilities with respect to the A — Bust loans.

DISCUSSION

The denial of a debtor's discharge is akin to financial capital punishment. It is reserved for the most egregious misconduct by a debtor. As the Seventh Circuit Court of Appeals has stated:

The purpose of the Code is to provide equitable distribution of the debtor's assets to the creditors and "to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes." Williams v. United States Fid. & Guar. Co., 236 U.S. 549, 554-55, 35 S.Ct. 289, 59 L.Ed 713 (1915). We construe the Bankruptcy Code "liberally in favor of the debtor and strictly against the creditor." Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1292 (10th Cir.1997); In re Reines, 142 F.3d 970, 973 (7th Cir.1998); In re Adlman, 541 F.2d 999, 1003 (2d Cir.1976); 11 U.S.C. § 727(a) (providing that, "the court shall grant the debtor a discharge, unless ..."). Thus, consistent with the Code, bankruptcy protection and discharge may be denied to a debtor who was less than honest. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) ("But in the same breath that we have invoked this `fresh start' policy, we have been careful to explain that the Act limits the opportunity for a completely unencumbered new beginning to the `honest but unfortunate debtor.'") (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934)); Mayer v. Spanel Int'l Ltd., 51 F.3d 670, 674 (7th Cir.1995) ("Congress concluded that preventing fraud is more important than letting defrauders start over with a clean slate, and we must respect that judgment."). If a creditor demonstrates by a preponderance of the evidence that the debtor actually intended to hinder, delay, or defraud a creditor, the court can deny the discharge. See Keeney v. Smith (In re Keeney), 227 F.3d 679, 683 (6th Cir.2000); Peterson v. Scott (In re Scott), 172 F.3d 959, 966-67 (7th Cir. 1999); cf. Grogan, 498 U.S. at 286-87, 111 S.Ct. 654. The intent to defraud must be actual and cannot be constructive; however, because it is unlikely that the debtor will admit fraud, intent may be established by circumstantial evidence. See In the Matter of Krehl, 86 F.3d 737, 743-44 (7th Cir.1996); Smiley v. First Nat'l Bank of Belleville (In re Smiley), 864 F.2d 562, 566 (7th Cir. 1989).

Village of San Jose v. McWilliams, 284 F.3d 785, 789-790 (7th Cir.2002).

This Court does not take lightly a creditor's, or for that matter a Trustee's, request for the outright denial of a discharge. In fact, it is within the discretion of a bankruptcy court to grant a discharge even when grounds exist for the denial of a discharge. Union Planters Bank, N.A. v. Connors, 283 F.3d 896, 901 (7th Cir.2002) (citing, In re Hacker, 90 B.R. 994, 997 (Bankr.W.D.Mo.1987)). But, although a denial of a discharge "should be construed liberally in favor of a debtor," a discharge is a privilege and not a right; In re Juzwiak, 89 F.3d 424, 427 (7th Cir.1996).

The standard of proof for determining whether a discharge should be withheld pursuant to 11 U.S.C. § 727(a) is by the preponderance of the evidence. Peterson v. Scott, et al., 172 F.3d 959, 966 (7th Cir.1999). At trial, there is a burden shifting process similar to the procedure found in Title VII cases. See, McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973); In re Martin, 698 F.2d 883, 887 (FN.4) (7th Cir.1983).

It is true that the parties, and the authorities, are...