In re Walters
| Decision Date | 27 June 1994 |
| Docket Number | 90-6030.,Bankruptcy No. 89-62082. Adv. No. 91-6073 |
| Citation | 176 BR 835 |
| Parties | In re William G. WALTERS, Terry G. Walters, Debtors. UNITED STATES of America, Plaintiff, v. William G. WALTERS, Terry G. Walters, Defendants. William H. WALTERS, Plaintiff, v. William G. WALTERS, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
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Peter Sklarew, U.S. Justice Dept., Washington, DC, for plaintiff.
William G. Walters, pro se.
James R. Byron, Elkhart, IN, for plaintiff William H. Walters.
CONSOLIDATED FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER, AS TO ? 505 TAX MOTION FILED BY UNITED STATES OF AMERICA IN MAIN CASE NO. 89-62082, AND JUDGMENTS AS TO COUNT I OF ADVERSARY PROCEEDING NO. 91-6073 AS SUPPLEMENTED, AND ADVERSARY PROCEEDING NO. 90-6030.1
1. William Grant Walters ("Debtor William") and Terry Geralyn Walters ("Debtor Terry") (or collectively "the Walters" or "the Debtors") are the Debtors in their Joint Chapter 7 Case No. 89-62082, and the Co-Defendants in Adversary Proceeding No. 91-6073. The Debtor William is the sole Defendant in Adversary Proceeding No. 90-6030.
2. The Debtors filed their Bankruptcy Petition on December 4, 1989, and were granted a Chapter 7 discharge on May 10, 1990.
3. On December 27, 1989, the Joint Proof of Claim of United States and William H. Walters ("Dr. Walters") was filed (Claim S-1), based upon Settlement Agreement and a Judgment in United States and William H. Walters v. William G. Walters and Terry G. Walters, Cause No. S86-458, in the District Court for this District. The Judgment is for $120,000, plus interest against the Debtor William only, but secured, pursuant to the Settlement Agreement signed by both Debtors (which was recorded with the LaPorte County Recorder), by the Debtors' former residence at 104 Valentine Court in Michigan City, Indiana "the 104 Valentine property".
4. Adversary Proceeding No. 90-6030 was commenced by Dr. Walters against the Debtor William by Complaint filed on March 5, 1990, seeking to establish an entirely different liquidated claim and an exception to its discharge, pursuant to 11 U.S.C. ? 523(c). The non-dischargeable damages prayed for in Dr. Walter's Complaint has since been limited, through a pre-trial order, to $300,000.
5. Adversary Proceeding No. 91-6073 was filed by the United States of America ("United States") as authorized by a delegate of the Secretary of the Treasury and directed by the Attorney General of the United States pursuant to 26 U.S.C. ?? 7401 and 7403 on May 10, 1991. The Complaint was originally in three counts: (I) to revoke the debtors' discharge based on an allegation of fraudulent concealment of assets and false statements on their statement of financial affairs, (II) to hold the Debtor Terry liable for damage to the 104 Valentine Court property in alleged breach of the District Court settlement agreement; and (III) alleging that the Debtor William deliberately vandalized the 104 Valentine Court property in violation of the automatic stay.
6. At the trial in these proceedings on February 2-3, 1994, in light of the Debtors' failure to appear thereat, the United States was granted leave to withdraw Counts II and III without prejudice in order to enable full presentation of the case without the need to call witnesses who had not yet been subpoenaed due to the Court's having set a bifurcated trial schedule, with only certain witnesses to be called at the first session. The Court granted said Motion.
7. The United States moved to supplement Count I to include allegations of misconduct by the debtors subsequent to the filing of the complaint, pursuant to Fed. R.Civ.P. 15(b) and (d) and as suggested in this Court's MEMORANDUM OPINION AND ORDER ON MOTION To Dismiss, entered in Adversary Proceeding No. 93-6137, on January 11, 1994.
8. The two Adversary Proceedings, No. 91-6073 and No. 90-6030 were consolidated by Order dated August 20, 1991.
9. On June 19, 1992, the United States filed it MOTION TO DETERMINE TAX LIABILITIES, in the Debtors' Main Case No. 89-62082, which constituted a contested matter in the Debtors' main case pursuant to Fed.R.Bk.P. 9014. By that Motion the United States sought a determination of the Debtors' joint income tax liabilities for 1984 and the individual income tax liabilities of the Debtor William for 1985 and 1986, pursuant to 11 U.S.C. ? 505 "Tax Motion".
10. The Tax Motion proceeding filed by the United States in the Debtors' main case No. 89-62082 was consolidated with the previously consolidated Adversary Proceedings, No. 91-6073 and No. 90-6030 on June 24, 1992.2
11. A Consolidated Bench Trial was held on Adversary proceeding No. 91-6073 and Adversary Proceeding No. 90-6030 on February 2, and February 3, 1994. In addition, a Consolidated Final Evidentiary Hearing on the ? 505 Tax Motion filed by the United States versus the Debtors in their main case was held at the same time. The foregoing were held pursuant to the Court's pre-trial Order of October 22, 1993.
The Plaintiff, United States, in Adversary Proceeding No. 91-6073, and as Movant in the ? 505 Tax Motion filed by it versus the Debtors in the main case, appeared by Attorney Peter Sklarew.
The Plaintiff, Dr. Walters, in Adversary Proceeding No. 90-6030 appeared by Attorney James Byron.
The Debtors failed and refused to appear.3
Submitted. Evidence and arguments heard.4
Consolidated Findings of Fact as to the ? 505 Motion filed by the United States in Main Case No. 89-62082, Count I of Adversary Proceeding No. 91-6073, and Adversary Proceeding No. 90-6030
1. Dr. Walters is the father of the Debtor William and the Plaintiff in Adversary Proceeding No. 90-6030. Dr. Walters is married to Eleanor ("Sandy") Walters, who is not the mother of the Debtor William.
2. In the early 1980s, Dr. Walters and Eleanor Walters resided in Hawaii. (Trial testimony of Dr. Walters.)
3. On March 25, 1981, Dr. Walters and the Debtor William entered a contract for the former to sell the latter the property located at 104 Valentine Court in Michigan City, Indiana ("104 Valentine") for $140,000 if the property was not sold to a third party for $160,000 after listing with a realtor for six months. Full payment was due January 2, 1984. (Exh. S-1; testimony of Dr. Walters.) The Debtors William and Terry moved into 104 Valentine Court in 1983, after a fire damaged their prior residence. (Exhs. aO, aP.)
4. Sometime in 1982, the Debtor William received a commodity futures trading license. Exh. aO at 110, 157-59.
5. The Debtor William filed a previous Chapter 7 petition on April 1, 1982 and received a discharge from the South Bend Division of this Court. He reported de minimis assets (other than a residence at 306 Lawndale in Michigan City, Indiana, with no equity), and only $4,000 per year in income during 1980 and 1981. His 1982 bankruptcy schedules do not disclose his contract interest in the 104 Valentine property. (Exh. 3; judicial notice ?€” Case No. 82-30309.) However, on August 6, 1982, the Debtor William signed a commodities account application with Lind-Waldock & Co. indicating annual income of more than $50,000, and a net worth of over $100,000, and further executed a Customer Agreement which represented that the application information was "true and correct.". (Exh. K-3, and ? 11 thereof.) The Debtors William and Terry's 1982 joint federal income tax return reports gross income of slightly over $8,000. (Exh. V-1.)
6. On March 8, 1983, Dr. Walters, the Debtor William, and David F. Black agreed that Dr. Walters would allow the latter two to use the former's money to trade in a commodities account with profits to be divided according to a formula, with the principal to remain Dr. Walters. (Exh-Y-1.) Dr. Walters invested at least $55,000 for this purpose. The Debtor William used the previously opened Lind-Waldock account, No. 91DAA 68436 in the name of "William G. Walters," depositing $15,000 of Dr. Walters' money on June 1, 1983, and used $40,000 of Dr. Walters' money to open a second account at Lind-Waldock, No. 91DAA 79459 in the name of "William Grant Walters," on July 20, 1983. (Exhs. N-2, aO at pp. 74-75.)5
7. In the early 1980s, the joint income tax returns of Dr. and Eleanor Walters for the late 1970s were audited by the IRS, ultimately resulting in the issuance of deficiency notices in early 1983 asserting very large tax liabilities. The liabilities stemmed largely from the disallowance of tax shelter type deductions and not from the failure to report income. (Testimony of Dr. Walters.)
8. Although the Debtor William had paid at most $20,000 towards the $140,000 contract amount for the 104 Valentine property, in May of 1983, a deed from Dr. Walters to the Debtor William was recorded with a purported execution date of January 2, 1983 ?€” some four months earlier. (Exh. aO at pp. 62-66, 90-92.)
9. Soon after the Debtor William moved into the 104 Valentine residence, he told his sister, Penelope Ropar, something to the effect that ?€” I got the house, and someday I'll get everything, referring to Dr. Walter's assets. Dr. Walters was not made aware of this. (Testimony of Penelope Ropar.)
10. After the joint income taxes of Dr. and Eleanor Walters were assessed, the Internal Revenue Service ("IRS") began seizing their assets in Hawaii. (Testimony of Dr. Walters.)
11. In 1984, Dr. and Eleanor Walters moved to the Cayman Islands, and Dr. Walters enlisted the willing assistance of his son, the Debtor William in secreting his assets and aiding in the removal thereof from the jurisdiction of the United States in a manner designed to frustrate the collection of those taxes.
12. Throughout 1983 a...
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