Malmberg Dev. Corp. v. Puro (In re Puro)
| Decision Date | 16 December 2013 |
| Docket Number | BKY 08-35350,ADV 09-3069 |
| Parties | In re: BARBARA LYNNAE PURO, Debtor. MALMBERG DEVELOPMENT CORPORATION, Plaintiff, v. BARBARA LYNNAE PURO, Defendant. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota |
ORDER FOR JUDGMENT
At St. Paul, Minnesota
December 16, 2013.
The Defendant in this adversary proceeding is the debtor in the underlying case. The Plaintiff objects to the grant of a general discharge under Chapter 7 to her. Trial was ordered and convened; it lasted nearly three days. The Plaintiff appeared by its attorney, S. Steven Prince. The Defendant ("the Debtor") appeared in person and by her attorneys, Thomas J. Flynn and Richard J. Reding. The following memorandum of decision is based on the evidence received at trial and legal briefing and argument by counsel. The latter included two sets of post-trial briefing, plus proposed findings of fact and conclusions of law submitted at the court's direction.1
The origins of this adversary proceeding lay in the residential real estate sales industry, before the end of its market bubble in the economic crash of 2008. Both parties were engaged in that industry. They were associated with each other for a brief period of time. Most of the points of factual controversy between them concern financial attributes and consequences of real estate sales, financing and investment, and the structures and processes used for professional involvement in them. As the main part of its case, the Plaintiff accuses the Debtor of grossly and fraudulently misrepresenting her interests in such attributes and her disposition of them, in the disclosures that she was legally required to make for her bankruptcy case.
The Plaintiff is a real estate brokerage based in Savage, Minnesota. It is owned by Eric Malmberg. At relevant times it transacted with the public under the business name of RE/MAX Advantage Plus.
From mid-January to mid-November, 2006, the Debtor was associated with the Plaintiff as a real estate sales agent, under an independent contractor relationship. Pl. Exh. 67. The Debtor held a real estate salesperson's license from the State of Minnesota for about five years, from 2004 to 2009.2
Eric Malmberg terminated the Debtor's agency relationship with the Plaintiff in November, 2006 when three issues emerged from his review of her performance. The Debtor had received direct payment of commissions on several sales she had handled, and had negotiated payment and used funds without a contractually-required accounting to the Plaintiff as broker. A review of her client files revealed a number of engagements as agent that had not been revealedto the Plaintiff, were poorly documented, were not being handled through the Multiple Listing Service, or were otherwise "problematic" under the agency agreement. Finally, clients of the Plaintiff, Gerald and Mary Kay Lejchar, had complained to Eric Malberg of conduct on the Debtor's part that they characterized as negligent and fraudulent. Trial Tr. 492:21 - 496:18.3
The Lejchars later sued the Debtor, the Plaintiff, and others in the United States District Court for the District of Minnesota, basing their suit on the Debtor's actions in connection with a real estate sale involving them. They asserted liability under the federal Racketeer Influenced and Corrupt Organizations Act. The Plaintiff moved for summary judgment in the Lejchars' lawsuit and the motion was granted.
In mid-October, 2007, the Plaintiff sued the Debtor in the Hennepin County, Minnesota District Court under an indemnification clause in the agency agreement, seeking to recover the attorney's fees and costs it had incurred in the Lejchars' action. The Debtor defended the action and opposed the Plaintiff's motion for judgment on the pleadings. The Plaintiff prevailed; a judgment in its favor in the amount of $90,883.86 was docketed on June 18, 2008. Pl. Exhs. 26 and 27. The Debtor did not appeal that judgment. This gave the Plaintiff the status of a creditor of the Debtor.
As of 2008, the Debtor had been married to Deron Evan Puro for nearly ten years. After an order for judgment was entered in the Plaintiff's lawsuit against the Debtor, a petition to dissolve the marriage was filed in the Scott County, Minnesota District Court. Deron Puro was the nominal petitioner.
A Marital Termination Agreement was executed by both parties on June 27, 2008.4 It was filed on July 15, 2008; and the dissolution proceeding was quickly presented to a judge ofthe Scott County District Court. The Puros did not consult an attorney or attorneys before finalizing the terms of the Marital Termination Agreement. Pl. Exh. 28, 28.2, 28.36 - .38.
The result was the entry of a Judgment and Decree of Dissolution of Marriage on July 15, 2008. Pl. Exh. 28, 28.42 ff. Under its terms, Deron Puro and the Debtor were to share joint custody of their two minor children. Deron Puro was granted all right, title, and interest in two parcels of real estate--the Savage, Minnesota homestead in which the Puros had lived as husband and wife, and a cabin near Stone Lake, Wisconsin. The Marital Termination Agreement also provided for Deron Puro to receive a 2006 Lincoln Navigator SUV. This vehicle had been previously titled in TRAE, Inc., a "Subchapter S" corporation that the Puros had formed when the Debtor began working as a real estate agent. The Debtor had used the Navigator as a vehicle for several purposes during her involvement in real estate sales.
The Debtor was granted a 1990 Subaru Impreza automobile (of negligible value) and 100% of the shareholding in TRAE, Inc. (Previously, the stock had been held in fractional shares, 51%-49%, by Deron Puro and the Debtor respectively.) Other aspects of the Decree's terms and the parties' post-dissolution performance under them will be discussed where relevant, later.
On October 6, 2008, the Debtor first consulted an attorney regarding filing for bankruptcy, paying him $3,600.00. She and Deron Puro had discussed filing for bankruptcy before she consulted the lawyer. Deron Puro had authorized her to pay the attorney's fee and the costs by using the checking account that the Puros had formerly held jointly, but which had been awarded to him in the divorce. Trial Tr. 62:7-23; Pl. Exh. 9, 9.31 . On October 14, 2008, her petition under Chapter 7 was filed. All required statements and schedules accompanied the petition.
The Plaintiff timely filed the complaint that commenced this adversary proceeding.5 In it, the Plaintiff seeks to have the Debtor denied a general discharge under Chapter 7. Neither the Trustee nor the United States Trustee filed a complaint for the same relief.
As the trial and appellate courts have observed, denial of discharge in bankruptcy is a weighty, even "harsh" remedy. In re Korte, 262 B.R. 464, 471 (B.A.P. 8th Cir. 2001) (). However, the remedy does lie "to prevent the debtor's abuse of the Bankruptcy Code." Id. As a result, most of the statutory grounds for denial of discharge go to serious wrongdoing by debtors, committed during the very effort to obtain bankruptcy relief, or in close proximity with the bankruptcy process. "At the trial on a complaint objecting to discharge, the plaintiff has the burden of proving the objection." Fed. R. Bankr. P. 4005.
In its complaint, the Plaintiff impugned the Debtor's conduct in relation to her bankruptcy case as just that fraudulent and just as inimical to the processes of bankruptcy administration. The Plaintiff cited numerous instances of the Debtor's conduct--pre-petition, at filing, and post-petition. Ultimately, the Plaintiff legally classified particular acts by the Debtor under multiple rubrics for denial of discharge--as pre-petition transfers of assets with wrongful intent, 11 U.S.C. § 727(a)(2)(A); as false declarations of fact, given under penalty of perjury on her bankruptcy statements and schedules or under oath at her meeting of creditors, 11 U.S.C. § 727(a)(4)(A); as abject failures to document or to retain and produce documentation for various transactions and transfers of assets, material aspects of her financial posture, etc., 11 U.S.C. § 727(a)(3); or as a general failure to account with corroboration for the insolvency that prompted her bankruptcy filing, 11 U.S.C. § 727(a)(5).
At first glance, the Plaintiff's effort seemed over-pled, redundantly analyzed, and founded more on blunt truculence than on zealous but careful advocacy. But the antagonism was not unilateral.6 The trial opened with a sharp, gratuitous, and disruptive objection from the defense,to simple wording in the Plaintiff's opening statement--admittedly argumentative, but not out of line in context. The matter then plodded across two and a half days. The majority of trial time was spent in labored interrogation of the Debtor, successively as adverse witness and as proponent of her own defense. The Debtor's testimony was, by turns, hesitant; evasive; self-contradictory; oblivious to memory; and defiant. It was difficult to receive and to puzzle through later.
Matters were not made any easier by the Plaintiff's heavy reliance on the Debtor's own testimony to make out the ostensible lies that it accused her of telling. "Proving the negative" of an intentional deception is hard enough, without trying to establish it by forcing admissions from an opponent on the witness stand.
Over the several days of trial, the parties sunk into hard-bitten, overt antagonism. The Plaintiff was accused of blindsiding the defense by using the testimony of a particular witness; but the contention was not raised until a motion to strike was made the day after that witness testified without objection.
At the end, counsel were ordered to organize the welter of...
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