Lowry v. Croft (In re Croft)

• Decision Date: 22 October 2013
• Docket Number: Nos. 12–05027–CAG, 12–051140–CAG, 12–05026–CAG, 12–05027.,s. 12–05027–CAG, 12–051140–CAG, 12–05026–CAG, 12–05027.
• Citation: 500 B.R. 823
• Court: U.S. Bankruptcy Court — Western District of Texas
• Parties: In re Bradley L. CROFT, Debtor. Jeannette Barbara Lowry, et al., Plaintiffs, v. Bradley L. Croft, Defendant.

500 B.R. 823

In re Bradley L. CROFT, Debtor.Jeannette Barbara Lowry, et al., Plaintiffs,

v.Bradley L. Croft, Defendant.

Nos. 12–05027–CAG, 12–051140–CAG, 12–05026–CAG, 12–05027.

United States Bankruptcy Court,

W.D. Texas,

San Antonio Division.

Oct. 22, 2013.

David T. Cain, San Antonio, TX, Jonathan Yedor, Heinrichs & De Gennaro, PC, San Antonio, TX, for Defendant.

Allen M. DeBard, Langley & Banack, Inc., San Antonio, TX, Charles B. Gorham, Charles B. Gorham, LLP, San Antonio, TX, for Plaintiffs.

James W. Rose, Jr., Office of the United States Trustee, San Antonio, TX, for Consolidated Plaintiff.

MEMORANDUM OPINION

CRAIG A. GARGOTTA, Bankruptcy Judge.

This Memorandum Opinion resolves three related adversary proceedings—Judy A. Robbins United States Trustee, Region 7 v. Bradley L. Croft, Adv. No. 12–05026–CAG (“Robbins”); Jeanette Barbara Lowry, AMS SA Management, LLC, d/b/a Association Management Services, and Shavano Rogers Ranch Swim Club, Inc. v. Bradley L. Croft, Adv. No. 12–05027–CAG (“the Lowry Plaintiffs”); and Jeanette Barbara Lowry v. Bradley L. Croft, and Kevin W. Stouwie, as Trustee of the Willawall Investments Trust, Adv. No. 12–05114–CAG (“Lowry”). All three matters were consolidated together for purposes of discovery, pre-trial motions, and trial into Adversary No. 12–05027–CAG. See Order on Motion for Consolidation and to Extend Pre-trial Deadlines. (ECF No. 16).¹ This Court conducted a six day trial before taking the matter under advisement. Trial was concluded on June 25, 2013, and the Court instructed the parties to submit post-trial pleadings regarding the evidence received and how it supported a party's claims for or against relief. The Court has reviewed the entire record before it; including all admitted exhibits and the weight of the testimony and credibility of all witnesses. Additionally, the Court has also carefully considered all evidentiary objections raised and sustained in making its findings of fact.

As an initial matter, the Court finds that it has jurisdiction over this proceeding pursuant to 28 U.S.C. § 157 and 1334 (2006). This matter is a core proceeding as defined under 28 U.S.C. § 157(b)(2)(I) (determination of discharge of particular debts) and (J) (objections to discharge). The Court finds venue is proper under 28 U.S.C. § 1408(1). This matter is referred to the Court pursuant to the District's Standing Order on Reference. The Court may make its findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

BACKGROUND

On August 23, 2011 (the “Petition Date”), Defendant Bradley L. Croft filed a pro se voluntary Chapter 7 petition for relief. (UST ²—001). According to his schedules, Defendant seeks a discharge of $646,000 in unsecured claims. In re Croft, Case No. 11–52905–CAG (Chapter 7). As noted herein, the U.S. Trustee and the Lowry Plaintiffs (collectively, the “Plaintiffs”) seek a denial of Debtor's discharge under related provisions of 11 U.S.C. § 727.³ The majority of evidence adduced at trial involved the Court's consideration of whether Plaintiffs' evidence overcame the presumption in favor of Debtor receiving his discharge.

The Robbins adversary proceeding seeks denial of Debtor's (also referred to as “Defendant” or “Croft”) discharge under § 727(a). Specifically, Robbins as U.S. Trustee argues that Defendant falsified, omitted, or failed to disclose certain of his assets and additionally failed to disclose the transfer of assets to a trust that Defendant created to evade payment to creditors. As such, Robbins seeks denial of Debtor's discharge under § 727(a)(2)(A) for failing to disclose transfers to a trust; § 727(a)(2)(B) for concealment of cash and bank accounts; § 727(a)(3) for failure to keep or preserve books and records; § 727(a)(4)(A) for false schedules, statement of financial affairs, and false testimony; and § 727(a)(5) for failure to provide a satisfactory explanation for the loss or deficiency of assets.

The Lowry Plaintiffs also seek denial of Debtor's discharge on similar grounds under § 727(a)(2)-(5). Additionally, the Lowry Plaintiffs seek a denial of dischargeability of debt as to certain claims the Lowry Plaintiffs have against Defendant under 11 U.S.C. § 523(a)(6). The Lowry Plaintiffs have judgments against Defendant totaling $114,472.65 that arise out of court-ordered sanctions imposed on Defendant for initiating two state court lawsuits against the Lowry Plaintiffs. Defendant, through the assistance of others, or on his own, filed four state court actions against the Lowry Plaintiffs alleging irregular business practices and fraud. In each suit, after the Lowry Plaintiffs challenged the allegations in state court, Defendant, on his own or at his direction, dismissed the lawsuits. In two of the lawsuits, the Lowry Plaintiffs obtained sanctions against Defendant on the basis that the lawsuits were intended to harass, humiliate, and assert fraudulent claims against the Lowry Plaintiffs to damage their business reputation. The Lowry Plaintiffs argue that Defendant prosecuted these lawsuits against them in a willful and malicious manner, and, as such, are non-dischargeable under § 523(a)(6).

Additionally, Barbara Lowry (“Lowry”) individually filed suit against Defendant and Kevin Stouwie, as Trustee of the Willawall Investments Trust, under the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 (2010), for unlawfully posting Lowry's credit report on a web page that Defendant controls. Lowry argues that the posting of the credit report, and the public dissemination of Lowry's personal information, including her social security number, address, credit card numbers, was done with willful and malicious intent to injure Lowry both personally and professionally. The District Court, upon learning that the Lowry lawsuit contained many of the same allegations as contained in the Lowry Plaintiffs and Robbins lawsuits, referred the matter to this Court for trial.⁴ Lowry and Defendant have consented to this Court issuing a final order as to damages and dischargeability; Stouwie has not.⁵ Lowry seeks damages under the FCRA against Defendant and asks that those damages be deemed non-dischargeable under § 523(a)(6).

FINDINGS OF FACT

I. The Trust

Defendant was the owner and founder of Willawall Investments, Inc. (“Willawall”), which incorporated Defendant's swimming pool maintenance business, Innovative Pool Solutions, in 2007. (UST—012). On August 24, 2009, Defendant and his former wife, Cherie Jeffcoat, as grantors, created the Willawall Trust (“Trust”) to hold their personal and business assets purportedly for the benefit of their minor daughter, naming Defendant as the sole trustee. (UST—6). Within two years of filing for bankruptcy, Defendant and Jeffcoat transferred nearly all of their personal and business assets to the Trust for no consideration,including: 1) a quitclaim deed to real property and furnishings at 17914 Butte Hill, San Antonio, Texas (“Butte Hill Property”); 2) a 2008 Newell American Motor Home (the “Motor Home”); 3) a 2002 Ford Truck (the “Truck”); 4) a 2007 Honda Odyssey; 5) a Grand Junction Fifth Wheel Trailer (the “Trailer”); 6) stock in Willawall; 7) two Dell computers; and 8) $322,046.38 of funds. (PL ⁶—156). A third party, Richard Graf, also transferred a 1999 Honda van to the Trust. During the time of these transfers, Defendant was involved in litigation with the Lowry Plaintiffs. (PL—126–130).

Defendant's friend, Richard Snell, participated in or handled many of the transactions and business dealings involving the Trust, either as co-trustee or as the sole trustee.⁷ Defendant appointed Snell as co-trustee of the Trust on June 10, 2010, apparently without ever resigning as trustee. (D ⁸—12). Conversely, Snell claimed that Defendant resigned as trustee before June 2010, but that he allowed Defendant to act as his agent and appointed Defendant as trustee for “specific purpose[s] ... [m]aybe ten” times. (UST—112, at 26, 37–39). Notably, Defendant signed several documents in May 2011, including a “Statement of Fact for a Trust” as trustee, in order to facilitate the sale of the Motor Home. (PL—131). Snell also testified that he was not permitted to access the Trust's bank statements at Chase Bank, but only “looked at them online ... with [Defendant] pulling them up.” (UST—112, at 32–33).

Neither Defendant nor Snell appeared to understand fully the continuity of trustee appointments and resignations. (UST—112, at 26–54). Defendant changed his testimony several times concerning his role as trustee, stating, “I don't ever remember completely resigning,” and then responding to whether he resigned at the time of filing for bankruptcy, “I guess, yes.” Defendant then appointed attorney Stouwie as co-trustee in November of 2011, a few weeks before Snell's death. Stouwie served as trustee until his resignation on July 18, 2012. (PL—133).

A. The Motor Home

On August 21, 2008, Defendant purchased the Motor Home for $265,000 to use for his swimming pool business. (PL—131). Defendant testified that the Motor Home was purchased so that when he toured areas soliciting for his pool business, that he would have a place to live. Defendant further explained that he was attempting to develop a portion of his business in converting pools from chlorine purifiers to salt-based purifiers. Defendant financed the purchase with a $225,000 loan from U.S. Bank, secured by a lien on the Motor Home. (PL—131). On November 25, 2009, U.S. Bank released its lien on the Motor Home, apparently in error, and on December 8, 2009, Defendant transferred the Motor Home title to the Trust, absent the lien. (PL—131). Subsequently on May 4, 2011, Defendant, as trustee for the Trust, sold the Motor Home for $189,290 to Ancira Motor Homes (“Ancira”) without disclosing the lien. (PL—157).⁹

Defendant then deposited the cashier's check from Ancira into a newly created Willawall Trust account at Compass Bank on May 6, 2011, even...