In re Trost
| Decision Date | 07 March 1994 |
| Docket Number | Bankruptcy No. SL 92-85533. Adv. No. 93-8003. |
| Parties | In re Fred D. TROST, Debtor. BUCKSTOP LURE COMPANY, Plaintiff, v. Fred D. TROST, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Jaye M. Bergamini, Glassen, Rhead, McLean, Campbell & Bergamini, Lansing, MI, for plaintiff Buckstop Lure Co.
Frederick J. Blackmond, Lansing, MI, for debtor/defendant Fred D. Trost.
OPINION REVOKING DISCHARGE PURSUANT TO 11 U.S.C. § 727(d)(1) and (2)
This case presents a textbook example of an individual, who finding himself in a seriously precarious financial position as a result of a $4 million defamation judgment, filed a Chapter 7 petition. Although Defendant sought to reap the substantial benefits which flow from filing bankruptcy, he elected to ignore the minimal but necessary requirements which the Bankruptcy Code concomitantly imposes. By his own fraud, deceit, and seemingly complete disregard for the integrity of the bankruptcy process, the Debtor has derailed himself on his way to obtaining the "fresh start" which Chapter 7 offers. And all this has been done because of a $500 account receivable and 5,000 shares of corporate stock of a seemingly worthless corporation.
This adversary proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this district on July 24, 1984 and is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J). Accordingly, this Court is authorized to enter a final judgment subject to the right of appeal provided by 28 U.S.C. § 158(a).
The following constitutes the Court's findings of fact and conclusions of law in accordance with FED.R.BANKR.P. 7052. In reaching its determinations, the Court considered the demeanor and credibility of the seven witnesses who testified, John Porter, Cathy Beutler, Michelyn Pasteur, Joanne Cribley, Zachary Trost, John Ford, III, Douglas Tabor, and Debtor Fred D. Trost. The admitted exhibits, whether or not each specific item of evidence is referenced in this decision, were also considered unless otherwise indicated herein.
The Debtor and Defendant in this case, Fred D. Trost, is a well-known, successful television and publication personality in Michigan. Until he filed Chapter 7 in 1992, he published a magazine called "Fred Trost's Michigan Outdoors" and produced a television show by the same name. Both the magazine and the television show were generated by Fred Trost Enterprises, Inc. (FTE), a corporation of which he was the sole shareholder.
Plaintiff Buckstop Lure Company, Inc., produces hunting scent products. Mr. Trost utilized his access to the public to disparage Plaintiff and its product. Specifically, Defendant claimed that the scents sold by Plaintiff, although advertised as containing deer urine, actually contained cow urine. Plaintiff instituted an action for defamation against Defendants Fred Trost and FTE in Montcalm County Circuit Court. On February 7, 1992, the jury returned a remarkable $4 million verdict against both Defendants. On October 9, 1992 Defendant filed chapter 7 and on January 6, 1993, this Court granted him a discharge. Plaintiff's present action alleges that Defendant fraudulently and intentionally concealed his entitlement to payments and ownership of assets and requests that this Court revoke Defendant's discharge pursuant to 11 U.S.C. section 727(d).1
To say that Defendant was less than honest in his disclosure to this Court and to his creditors would be a gross understatement. Although the Court bases its opinion on two of his most egregious deceptions, Defendant was dishonest about several other prepetition transactions and assets. The Court found these other incidents indicative of Defendant's disrespect for the system and his dishonesty in a process requiring complete disclosure and truthfulness. These "minor" transgressions are relevant for providing the context in which Defendant committed the fraud alleged in Plaintiff's complaint.
Defendant's petition is replete with omissions and untruths. First, Defendant failed to disclose money due him on his schedules. According to Defendant's 1991 income tax return, Defendant had loaned FTE $45,781.41 that year. This loan was neither listed in his original schedules filed on October 9, 1992 or in his amended schedules filed on March 10, 1993. When asked by Plaintiff's attorney why he failed to disclose the sum owed him by FTE, Defendant said that he did not know and that he, "paid accountants and attorneys to worry about things like that." This is a significant amount of money to "forget" and not expect repayment of, especially by an individual who ran his own business.
Similarly, Defendant did not mention an additional $500 owed him. Defendant received a check in that amount dated October 24, 1992 from Fred Trost's Outdoors Club just two weeks after filing. Although Defendant could not remember what he had done to entitle him to payment, he was absolutely certain that the money was for services he performed postpetition. The Court finds this selective, self-serving recollection unreliable, especially when considered in context with Defendant's other omissions and misrepresentations.
Defendant also failed to list a transfer of his land contract vendee's interest in a parcel of property located in Bath, Michigan. Originally, Defendant and his wife Sherry Trost were listed as the land contract vendees on the September 28, 1991 land contract. The year before he filed his petition, Defendant transferred his interest in this property to his son Zachary Trost for no consideration. At Defendant's 2004 exam on November 12, 1992, Plaintiff's counsel gave Defendant ample opportunity to disclose the transfer. The exchange at the 2004 exam went as follows:
At trial Defendant's twenty-five year-old son Zachary testified that he had completed the purchase of the Bath land subject to the land contract. His testimony was not helpful to his father's case, however. Zachary was arrogant, evasive, argumentative and profoundly unknowledgeable as to the quality of estate he held with his stepmother Sherry Trost. When questioned, he stated that he purchased the property with money taken from his personal account.
Defendant also failed to honestly disclose the amount of cash on hand at the time of filing. According to his petition, Defendant only had ten dollars in cash on October 7, 1992.2 Subsequently obtained bank records for that day indicate that Defendant wrote "cash" checks to himself in the amount of roughly $3800 (Plaintiff's Exhibits 6, 7, and 8). Defendant claims that on the advice of his attorney he was trying to liquidate assets to pay creditors before filing his petition. He was able to account for some $1,500 of the cash. When asked by Plaintiff's counsel to account for the remaining $2,000, Defendant was only able to recall paying his dentist and a record club. Neither payment was listed in Defendant's schedules, however. Defendant reluctantly admitted that the cash on hand listed in his petition was probably inaccurate.
Plaintiff explained that although it knew about these fabrications and omissions prior to Defendant's discharge, it did not file a complaint objecting to discharge because all of these matters — unlike the instances of fraud alleged in its complaint — were not worth much monetarily. Nevertheless, the Court considers Defendant's dishonesty in the above matters to be probative of his credibility in general and his disregard for the bankruptcy process.
Plaintiff's complaint alleges that Defendant committed fraud on two separate occasions. First, Plaintiff claims that at the time Defendant signed his petition under penalty of perjury, he failed to declare assets in the form of money due him. After he filed, he was paid money for prepetition services, which he neither disclosed nor turned over to the trustee.
Second, Plaintiff claims that Mr. Trost intentionally omitted assets in the form of FTE stock from his schedules in an effort to convert them to his own benefit and keep them out of the hands of his creditors. These action, Plaintiff asserts, constitute fraud in fact, warranting a revocation of discharge pursuant to 11 U.S.C. § 727. The Court agrees.
Plaintiff seeks revocation of discharge pursuant to 11 U.S.C. § 727(d)(1) and (2), which state:
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