Matter of Graves
| Decision Date | 27 February 1987 |
| Docket Number | Bankruptcy No. 84-10526,84-1088,Civ. No. F86-320.,Adv. No. 84-1084 |
| Citation | 70 BR 535 |
| Parties | In the Matter of Donald James GRAVES, Debtor. Mark A. WARSCO, Trustee, Plaintiff, v. Donald James GRAVES; Rose Graves; and Graves Body Crusher, Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
Mark A. Warsco, Fort Wayne, Ind., trustee/plaintiff.
Roland W. Gariepy, Fort Wayne, Ind., for debtors/defendants.
This is an appeal from two bankruptcy court orders, both dated July 21, 1986. Both parties have briefed their positions and oral argument was heard on December 3, 1986. On January 30, 1987, the court heard further arguments on the issue of sanctions. For the following reasons, both of the bankruptcy court's decisions are affirmed and sanctions are imposed on appellants and their counsel, Roland Gariepy, for filing this frivolous appeal.
This appeal is brought by the debtor, Donald Graves, and his non-bankrupt spouse, Rose Graves. Both orders which are being appealed, proceedings 84-1084 and 84-1088, were consolidated and the bankruptcy judge heard trial testimony on November 21 through 22, 1985. In proceeding No. 84-1084, the bankruptcy court entered an order avoiding the conveyance of Graves Body Crusher from Donald Graves to his wife, Rose Graves, pursuant to 11 U.S.C. § 544(b) and I.C. § 32-2-1-14, and vested the property constituting Graves Body Crusher in the bankruptcy estate, pursuant to Bankruptcy Rule 7070. In its July 21, 1986 opinion in proceeding No. 84-1088, the bankruptcy court denied Donald Graves' discharge.
There are two issues on appeal.1 The first is whether the bankruptcy court erred in vesting purported entirety property in the bankruptcy estate. The second issue is whether the bankruptcy court erred in denying discharge under 11 U.S.C. § 727.
The bankruptcy court's factual findings will not be aside unless clearly erroneous. The rules of bankruptcy procedure provide the applicable standard of review. Rule 8013 reads:
On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
This high standard of review has been followed by district courts. See, e.g., In re Clarkson, 767 F.2d 417, 419 (8th Cir.1985); In re Tesmetges, 47 B.R. 385, 388 (E.D.N.Y.1984). The clearly erroneous language of the rule tracks the language found in Federal Rule of Civil Procedure 52(a), and cases construing the standard under Rule 52(a) are equally applicable to bankruptcy cases. Matter of Louisiana Industrial Coatings, Inc., 53 B.R. 464, 467 (E.D.La. 1985). The Supreme Court recently reaffirmed its long standing definition of this standard: "a finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
Unlike the "clearly erroneous" standard used to review factual findings of the bankruptcy court, legal conclusions are subject to de novo review. In re Global Western Development Corp., 759 F.2d 724, 726 (9th Cir.1985). In addition, "the reviewing court must determine whether the trial court applied the proper legal standard to the facts." In re Stratton, 23 B.R. 284, 287 (D.S.D.1982).
The Graves argue that the bankruptcy court erred as a matter of law when it vested in the bankruptcy estate title to real estate purportedly held by Donald and Rose Graves as tenants by the entireties. In its order in proceeding No. 1084, the bankruptcy court held that "the transfer of any property involved in Donald Graves' junk crusher business to Rose Graves is found to be fraudulent and is hereby AVOIDED pursuant to 11 U.S.C. § 544(b)2 and IC. § 32-2-1-14;3 the property is now vested in the bankruptcy estate pursuant to Bankruptcy Rule 7070." The bankruptcy court reasoned that the transfer of property from Donald Graves to Rose Graves was made with the intent to defraud creditors, I.C. § 32-2-1-14, and should be set aside. Kourlias v. Hawkins, 153 Ind.App. 411, 287 N.E.2d 764 (1972). Citing to Arnold v. Dirrim, 398 N.E.2d 442 (Ind.App. 1979), the court found six badges of fraud present in the transfer of property from Donald Graves to Rose Graves, creating an inference of actual fraudulent intent.
Relying on In re Jeffers, 3 B.R. 49 (Bankr.N.D.Ind.1980), the appellants argue that any property held by them as tenants by the entirety, should not be included in the bankruptcy estate. While Jeffers holds that entirety property should not be included in a bankruptcy estate, the bankruptcy court in the case at bar held that the transfer of any property involved in Donald Graves' junk crusher business to Rose Graves was fraudulent and would be avoided under 11 U.S.C. § 544(b) and I.C. § 32-2-1-14. As to creditors, no tenancy by the entirety is created from a fraudulent conveyance of real estate. Vonville v. Dexter, 118 Ind.App. 187, 76 N.E.2d 856 (1948), reh'g denied, 118 Ind.App. 187, 77 N.E.2d 759. To the extent therefore, that the bankruptcy court's holding applies to the entireties' property, that property was properly included in the bankruptcy estate and the bankruptcy court's decision must be affirmed.
It is clear that the bankruptcy court found the transfer from Donald Graves to Donald and Rose Graves as husband and wife, fraudulent. The Graves claim that the business was transferred from Donald Graves to Rose Graves through a series of transactions, which took place on January 1, 1982. Some of the transfer documents evidencing these transactions were prepared by the Graves and notarized by their daughter. The documents are entitled, "General Assignment," "Assignment of Income," and "Assignment of Contract." In finding the transfers fraudulent the court noted that the transaction was hurried, was concealed from the public, was not done in the customary manner, was not for adequate consideration, did not alter Donald Graves' control over important business matters, and did not result in the actual transfer of any land by deed until over a year later. The transfer of land referred to by the bankruptcy court is evidenced by two deeds, dated February 8, 1983. In one of those deeds Donald Graves purports to convey six lots to himself and his wife, as tenants by the entireties. In the other, Donald Graves purports to convey a tract of land to his wife. The bankruptcy court's finding that the transfers were fraudulent includes the property conveyed by Donald Graves to himself and his wife, as tenants by the entireties. This is made clear by the language of the bankruptcy court's opinion, which refers to "a series of transfers," the land that was "deeded at a later date," and the bankruptcy court's conclusion that "the transfer of any property involved in Donald Graves' junk crusher business" was fraudulent.
It is also made clear in the appellants' brief that the voided transfers included the entireties property. Appellants argue, At this point the appellants' argument was simply that entireties property could not be included in the bankruptcy estate. The argument, however, overlooked the well established rule that as to creditors defrauded no entireties property is created. After appellee had made this point in his brief, the appellants' argument switched tracks. In their reply brief, the appellants argue that "the real estate in question was not involved in the transfer, which documents were dated January 1, 1982." By completely changing their factual assertions, appellants hoped to convince this court that the entireties property was not a part of the fraudulent transfers voided by the bankruptcy court.
To support their new argument, the appellants contend that the entireties property was listed in a mortgage4 executed on November 19, 1981 and recorded on November 25, 1981, to the Hicksville Bank. According to this mortgage the entireties property existed prior to any of the transfers in question. If that were true, then the February 8, 1983 conveyance from Donald Graves to Donald and Rose Graves, which purportedly created the entireties property, would obviously have been unnecessary. Donald Graves attempted to create the entireties property on February 8, 1983, as a part of his fraudulent attempt to transfer his junk crusher business in order to defraud his creditors. The bankruptcy court correctly found the transfers fraudulent and the entireties property was correctly vested in the bankruptcy estate.
In proceeding No. 84-1088, the bankruptcy court denied discharge, holding that Donald Graves had knowingly and fraudulently committed acts proscribed by 11 U.S.C. § 727(a)(2), (3), and (4). Appellants argue that the denial of discharge was barred by the one year statute of limitations under 11 U.S.C. § 727(a)(2)(A). This argument completely ignores the bankruptcy court's very clear holding that appellants violated 11 U.S.C. § 727(a)(3) and (4), both of which are sufficient to justify the bankruptcy court's denial of discharge, and neither of which contain a one year statute of limitations. Beyond that, the bankruptcy court explicitly held that Graves had visited the Hicksville State Bank on...
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