MANN v. LILBURN ALONZO STEELE

• Decision Date: 31 March 2011
• Docket Number: Adv. No. 09-ap-00635,Case No. 2:08-BK-15496-SSC
• Parties: DIANE MANN, CHAPTER 7 TRUSTEE, Plaintiff, v. LILBURN ALONZO STEELE, RHEMA CHRISTIAN CENTER; Defendants.
• Court: U.S. Bankruptcy Court — District of Arizona

DIANE MANN, CHAPTER 7 TRUSTEE, Plaintiff,

v. LILBURN ALONZO STEELE, RHEMACHRISTIAN CENTER; Defendants.

Case No. 2:08-BK-15496-SSC

Adv. No. 09-ap-00635

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ARIZONA

DATED: March 31, 2011

MEMORANDUM DECISION CONCERNING CLAIMS OF THE TRUSTEE AGAINST THE DEBTOR AND RHEMA CHRISTIAN CENTER UNDER SECTIONS 547, 548, 550, AND 727

I. INTRODUCTION

Diane M. Mann, the Chapter 7 trustee in this case, commenced an adversary proceeding against the Debtor, Lilburn A. Steele, and the Rhema Christian Center, seeking recovery of certain transfers, in the aggregate amount of $75,578.77,¹ pursuant to 11 U.S.C. §§ 547, 548(a)(1)(A)- (B), and 550(a)(1). The Trustee also sought to revoke the Debtor's discharge pursuant to 11 U.S.C. §§ 727(d)(1) and 727(d)(2). The Defendants filed an Answer, and various pretrial proceedings were conducted in the Adversary. On April 29, 2010, a joint pretrial statement was filed in the Adversary,²and a trial was conducted on July 21, 2010, and November 23, 2010. Thereafter, this Court took the matter under advisement. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157 (West 2010). This decision constitutes this Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

II. FACTUAL BACKGROUND

The Debtor filed his voluntary petition under Chapter 7 of the Bankruptcy Code on October 31, 2008.³ Diane M. Mann was duly appointed the Chapter 7 Trustee in this case. On June 9, 2009, she filed her Complaint, seeking relief under Bankruptcy Code Sections 547, 548, 550, and 727, as outlined above.

Rhema Christian Center (the "Center") is a nonprofit Arizona corporation. The Debtor is the founder and pastor of the Center.⁴ On or about May 31, 2007, the Debtor purchased a 2006 Bentley automobile for $161,609.28. The Debtor borrowed $30,000 from JPMorgan Chase Bank ('Chase") to assist in the purchase of the Bentley and provided Chase with a lien on the vehicle as security for the repayment of the amount borrowed. On August 20, 2008, 72 days prior to the Debtor filing this Chapter 7 case, the Debtor sold the Bentley for the sum of $100,000. Of the amount received from the sale, the Debtor paid $25,421.23 to Chase to pay its obligation in full and release its lien, and $74,578.77 was deposited into the Center's deposit account. The Debtor had signatureauthority over the Center's deposit account at the time. The Debtor did not disclose the sale of the Bentley, the payoff of the Chase lien, or the transfer of funds to the Center's account on his Statement of Financial Affairs. On August 20, 2008, the Debtor was insolvent.

The Debtor listed a residence located at 1815 W. Calle Escuda, Phoenix, Arizona on his Schedule A, with a value of $585,000 and a lien against the residence in the amount of $674,067 on Schedules A and D.⁵ The Schedules stated that the Debtor intended to surrender this residence.⁶ The Debtor did claim a homestead exemption for the residence, in the amount of $150,000.⁷ The Debtor also listed household goods and furnishings with a value of $2,100 on Schedule B, Item 4,⁸ but the furniture at the residence included antiques and other items with a value far in excess of $2,100. The Debtor claimed an exemption for household goods and furnishings located at the 1815 W. Calle Escuda residence in the amount of $4,000.⁹ The Debtor stated that he owned no jewelry or furs.¹⁰Although the Debtor testified that the white furniture in the living room of the Calle Escuda residence belonged to the Center, he later told another court that the white furniture was community property which should be sold, with one-half of the net proceeds to be paid to him.¹¹ Unfortunately, at trial, the Debtor disclosed that all of the white furniture in the living room of the Calle Escuda residence had beenplaced in storage, but that it had burned in September 2010, while in storage, and was a total loss. The furniture was uninsured.

The Debtor also stated that he was unemployed,¹² but the Debtor was actually receiving the sum of $8,000 to $10,000 per month from the Center. Although the Debtor received funding from the Center on a monthly basis, the Debtor could not recall any documentation provided to him by the Center as to the money distributed to him. The Debtor conceded on cross examination that the last time he filed a personal income tax return was in 1999. The Debtor also could not explain the deposit of $4,000 and $1,000 to his personal Arizona Federal Credit Union Account in May 2008.¹³

Charlene Dean, who is on the Board of Directors of the Center, confirmed that the Center does take care of the "living" and "driving" bills of the Center's Bishop, who is the Debtor. She provided no documentation in support of her testimony.¹⁴To the extent that the Debtor wished to claim that he lived in the residence owned by the Center or his estranged spouse, or that he held the furniture or other items for someone else, he did not disclose that on his Statement of Financial Affairs.¹⁵ The Debtor failed to disclose that he was married.¹⁶

The 2006 Bentley

The Debtor did not list the prepetition transfer of the 2006 Bentley on his Schedules.¹⁷The Debtor testified that the Center initially purchased a 2001 Bentley, valued at $88,000. The Bentley was titled in the name of the Center. The Center allowed the Debtor to drive the vehicle. It is clear that although the Debtor may have utilized the vehicle for the Center's business, he also drove the vehicle for his personal use. Within a year, the 2001 Bentley suffered a catastrophic event, a "blown engine" due to a mechanical error by the Scottsdale dealership that provided the Bentley. The Scottsdale dealership offered to replace the 2001 Bentley with a 2006 Bentley, but because of the $30,000 difference in value, required that additional money be provided to pay for the 2006 Bentley. Although the Debtor testified that the Center was unable to provide the $30,000, the Debtor did not provide any books or records of the Center to support the inability of the Center to purchase the vehicle. The Center, also a Defendant in this Adversary, provided no documentation to support theDebtor's testimony.¹⁸ The documentation from the Scottsdale dealership reflected that the Debtor purchased the 2006 Bentley on May 31, 2007, and that he provided $51,609.28 as a down payment.¹⁹

More troubling was the Debtor's testimony that the 2006 Bentley was an "investment" for the Center. In May 2007, the 2006 Bentley had a purchase price of $161,609.28. From May 2007 to August 2008, the Debtor conceded that he drove the Bentley until it was sold. The vehicle was sold for only $100,000.²⁰ Over 15 months, the car lost $61,609.28 in value. The Debtor also conceded that it "cost the Church" about $3,000 per month for him to drive the Bentley. The Debtor did not list the payoff of Chase or the sale of the vehicle on his Statement of Financial Affairs.²¹

Oswald Hopkins, Head Deacon at the Center and also on the Board of Directors testified at trial. He stated that it was not unusual for the Center to seek out an individual with good credit, and place the name of that individual on a vehicle to be purchased by the Center. He stated that in 2005, the Center purchased an Escalade for the pastor, and the Board of Directors for the Center decided to use Mr. Hopkins' credit to purchase the vehicle. However, his testimony was specifically that he "cosigned" for the vehicle, and that the vehicle was also in the name of the Center. He also conceded that although the Board of Directors discussed the purchase of the 2001 Bentley at a Board meeting, he was not in attendance. Mr. Hopkins reviewed an exhibit evidencing the purchase of the2006 Bentley, and noted that it was placed in the Debtor's name just as the Escalade had been placed in his name, that the vehicle did not belong to the Debtor, and that the down payment in excess of $51,000 did not come from the Debtor's account.²² He believed that when the vehicle was sold in August 2008, any funds received belonged to the Center. Mr. Hopkins conceded on cross examination that he did not have a copy of the relevant Board minutes. The documents should have been produced, and he stated that the Debtor had access to such Board minutes and would have been able to produce them. He also conceded that he did not actually see the documentation underlying the purchase of the 2006 Bentley. He trusted the administrative help at the Center as to what had transpired.

The residence at 1815 W. Calle Escuda, Phoenix, Arizona

The Debtor testified that he resided at 8724 N. 35^th Avenue, Phoenix, Arizona, when he filed his Chapter 7 petition. He stated that he received his mail at that location, and that his belonging were also located at the 35^th Avenue address. Apparently he believed the property listed on Schedule A was "where his wife was," and presumably they were separated at the time of the filing of his petition. However, his testimony begs the question. At the time he filed the Chapter 7 petition, he claimed ownership of the residence at 1815 W. Calle Escuda, Phoenix, Arizona. The Debtor did not file a Petition for Dissolution of Marriage until around February 19, 2009,²³ well after the October 31, 2008 filing date of his Chapter 7 petition, yet he still listed the Calle Escuda residence as his "marital residence" and where he lived. On his bankruptcy Schedules and Statement of Financial Affairs, he listed the value of the residence in the amount of $585,000, claimed a homestead exemption in the amount of $150,000, a lien against the residence in the amount of $674,067, and signed the Schedules under penalty of perjury. In the Petition for Dissolution of Marriage, the Debtor stated that as of February 2009, well after he filed his bankruptcy petition, he and Ms. Steele still resided at 1815 W. Calle Escuda, Phoenix, Arizona, that it was the "marital residence," that the residence...