In re Womble
| Decision Date | 05 February 2003 |
| Docket Number | Adversary No. 02-2014.,Bankruptcy No. 01-21469-RLJ-7. |
| Citation | 289 B.R. 836 |
| Parties | In re Larry L. WOMBLE, Debtor. Pher Partners, Plaintiff, v. Larry L. Womble, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
S. Leon Mitchell, Gurley, Mitchell, Gassaway & Jones, Borger, TX, for Plaintiff.
Dennis Olson, Olson, Nicoud, Birne & Gueck, Dallas, TX, for Defendant.
Before the court is Pher Partners's complaint objecting to the discharge of the debtor, Larry L. Womble (Womble). Pher Partners, a judgment creditor, alleges three primary bases for denial of discharge. First, Pher Partners alleges that Womble's disclaimer of his mother's estate is a sham and a fraud, asserting that Womble retained ownership of the assets of the estate. Womble's ownership of such assets, Pher Partners argues, constitutes a continuing concealment within the meaning of section 727(a)(2)(A). Second, Pher Partners alleges that Womble's transfer of approximately $71,000 on the eve of filing a prior bankruptcy case constitutes a fraudulent transfer of property within the meaning of section 727(a)(2)(A). Third, Pher Partners asserts that Womble's discharge should be denied under section 727(a)(3) for his failure to maintain records in a reasonable and businesslike manner from which his financial condition might be accurately ascertained.
This court has jurisdiction of this matter under 28 U.S.C. §§ 1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J). This Memorandum Opinion contains the court's findings of fact and conclusions of law. FED. R. BANKR. P. 7052.
This is Larry Womble's third bankruptcy filing. He filed this Chapter 7 case on December 11, 2001. His next previous case, a Chapter 13 case, was filed July 10, 2000, after which it was converted to Chapter 11, then to Chapter 12, and ultimately dismissed by the court on November 6, 2001. Womble's first bankruptcy case, a Chapter 11 proceeding, was filed in 1989; it resulted in a confirmed plan.
Womble owns or controls three entities: Womble Land & Cattle Co., Womble Farms, Inc., and a partnership, WW Farms (collectively the "Womble Entities"). Womble Land & Cattle was originally owned by Womble and Roy Record. In 1990, under Womble's confirmed plan in his prior Chapter 11 case, Womble's ownership in Womble Land & Cattle was transferred to Womble Farms, Inc., and Record's ownership interest was transferred to Christi Weaver, Womble's daughter. Stock certificates were never issued to evidence the transfers to Womble and Weaver, however. Womble is the sole owner of Womble Farms, Inc. In the latter part of 1995, Womble Farms, Inc. filed a Chapter 12 case, which resulted in a confirmed plan. WW Farms, the partnership, is owned 70% by Womble Land & Cattle Co. and 30% by Christi Weaver.
As a result, the relationship among Womble, the Womble Entities, and his daughter Christi Weaver, is as follows: Womble owns 100% of Womble Farms, Inc., which in turn owns 50% of Womble Land & Cattle Co., the other 50% owned by Christi Weaver. Womble Land & Cattle Co. owns 70% of WW Farms and Christi Weaver owns the other 30%.
Womble was affiliated with at least two other entities, Four County Tractor & Equipment Co., Inc. (Four County) and Ag Resources, both of which, according to Womble, are no longer viable companies. Similar to Womble Land & Cattle, Womble's interest in Ag Resources, a 50% interest, was conveyed to the generically named "New Corp" under Womble's Chapter 11 plan; the other 50%, originally owed by an individual named Hester, was conveyed to Christi Weaver. Four County filed a prior Chapter 11 case, but it was converted to Chapter 7.
Womble's mother, Lucille Bentley, died February 2, 1996, thereby creating the Bentley Estate. Womble was the sole beneficiary under Lucille Bentley's will. In July, 1996, Womble sold Bentley's house for approximately $100,000. Of the proceeds, $52,000 was used to pay an obligation of Womble Farms, Inc., under its confirmed Chapter 12 plan.
On November 1, 1996, Womble executed a partial disclaimer disclaiming any interest in real property under the will of Lucille Bentley. The partial disclaimer specifically states that Womble:
has not accepted any real property as a beneficiary nor taken possession or exercised dominion or control of any real property as a beneficiary. This Disclaimer is an unqualified refusal to accept any interest in any real property and is irrevocable, and the real property subject hereto shall pass and vest as if the undersigned had predeceased the ... decedent. The sole and only child and heir at law of Lucille Bentley is the undersigned, Larry Leon Womble, and the sole and only child and heir at law of Larry Leon Womble is Christi Womble Weaver (formerly Christi Womble), who is over the age of twenty-one years.
See Womble Ex. D-15.
Womble is the executor under Lucille Bentley's will, and, for several months prior to her death, managed her assets under a power of attorney. The Bentley Estate is still open and no distribution has been made to Christi Weaver. The Bentley Estate holds 2 1/2 sections of farmland which is being farmed either by the estate or by one of the Womble Entities, in either instance under the direct supervision and control of Larry Womble.
In 1996, Womble had debts in excess of $1 million. In addition, he had guaranteed certain corporate debt. Pher Partners had a judgment for $850,000. Womble testified that his debt structure was about the same in 1996 as it is now.
William J. Lowe, attorney for the Bentley Estate, testified that the Bentley Estate is still open, in part because it is encumbered by large debt to the Federal Land Bank of Houston.
Christi Weaver is the sole beneficiary of the Bentley Estate; she professes little or no knowledge concerning the affairs of the Bentley Estate and the various transactions among the Bentley Estate, Larry Womble, and the Womble Entities.
The Bentley Estate has received four $15,000 lease payments, apparently for the 2 1/2 sections of farmland, from WW Farms. The payments were made January 14, 1999, December 16, 1999, December 12, 2000, and December 21, 2001. No written lease agreements, setting forth the terms and conditions of the lease, exist.
In late July and through August, 1999, the Bentley Estate issued several checks, aggregating in excess of $53,000, payable to Womble Land & Cattle, WW Farms, and Womble Farms, Inc. See Plaintiff's Ex. 16. Womble testified that these payments constituted loans. No notes were prepared for the loans. Many of the checks contain no notation indicating the purpose of the check. Womble said the loans are notated on a spreadsheet maintained by Womble. This is typical of the way in which Womble handled and managed the affairs of the Bentley Estate.
In 1999, Womble Farms, Inc. transferred a John Deere tractor, valued at $58,000, and a vacuum planter/monitor, valued in excess of $7,000, to the Bentley Estate. Despite this, the Womble Farms, Inc. tax return shows no reduction in depreciable assets for 1999. See Plaintiff's Ex. 51. Womble further testified that the use of the two items continued, and still does, as was before the transfer, and he simply keeps track of the hours. Womble explained that the equipment transfer was made in payment of debt owed by Womble Farms, Inc. to the Bentley Estate. There are no promissory notes to evidence such debt, however.
The bank accounts for Womble, the Womble Entities, and the Bentley Estate reflect aggregate gross income for the period of 1996 through 2000 of $1.6 million; the tax returns for Womble, the Womble Entities, and the Bentley Estate for the same period reflects aggregate gross income of $3.5 million. Womble testified that this $1.9 million variance is explained, in part, by the practice of having crop checks (proceeds) forwarded directly to his lender, Ag Services of America.
An analysis of the bank accounts for Womble, the Womble Entities, the Bentley Estate, and Christi Weaver reflects that, during this time frame (1996 through 2000), Womble Land & Cattle Co. received $135,371, Larry Womble $69,888, and Christi Weaver $2,145. The Bentley Estate, owner of the major assets, received approximately $21,000. Womble Land & Cattle Co. and Larry Womble were therefore the primary beneficiaries of the various transfers and transactions that occurred by and between Womble, the Womble Entities, and the Bentley Estate. Christi Weaver, the beneficiary of the Bentley Estate given Larry Womble's disclaimer, received very little.
On June 3, 2000, Larry and Vivian Womble received a check from "Texas Beef Cattle" in the sum of $71,708.57. They made an immediate $10,000 payment to Womble Land & Cattle Co. for pasture lease. On July 8, 2000, Womble transferred $17,500 to his attorney and $12,500 to WW Farms. With other transfers or payments made by Womble, the Wombles' account balance went from approximately $62,000 on June 3, 2000, to $2,879.55 on July 8, 2000. As noted previously, Womble filed his prior Chapter 13 case on July 10, 2000. In June, 2000, a turnover action had been initiated by Pher Partners against Womble Farms, Inc., Womble Land & Cattle Co., and WW Farms.
In addition to the $12,500 payment on July 8, 2000, from Larry Womble, WW Farms received several other payments from Womble Land & Cattle Co. and Larry Womble in June and July of 2000. Each payment was made at a time when WW Farms's account had been overdrawn. WW Farms received $4,000 from Womble Land & Cattle Co. on June 2, 2000; $3,500 from Womble Land & Cattle Co. on June 5, 2000; $3,000 from Larry Womble on June 15, 2000; $3,000 from Womble...
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