Matter of McElmurry
| Decision Date | 01 October 1982 |
| Docket Number | Adv. No. 81-1217.,Bankruptcy No. 80-00826-3,82-0369-CV-W-1 |
| Citation | 23 BR 533 |
| Parties | In the Matter of Eva McELMURRY, Debtor; CONTINENTAL BUILDERS, Appellee-Plaintiff, v. Eva L. McELMURRY, Appellant-Defendant. |
| Court | U.S. District Court — Western District of Missouri |
J. Nelson Happy, Happy, Cooling & Herbers, Kansas City, Mo., for appellee-plaintiff.
Maurice B. Soltz, Kansas City, Mo., for appellant-defendant.
I.
This matter comes before the Court on an appeal from a Final Judgment of the Bankruptcy Court revoking appellant's discharge in bankruptcy. For the reasons briefly stated below, we will reverse the revocation of the Bankruptcy Court and reinstate the discharge of the debtor.
On March 21, 1980, appellant filed, pro se, a voluntary petition in bankruptcy for relief under Chapter 7 of the Bankruptcy Code. By Order of the Court, May 6, 1980 was fixed as the date for the first meeting of creditors and June 6, 1980 was fixed as the last date for filing complaints objecting to discharge. The first meeting of creditors was convened on schedule but was adjourned and continued until June 10, 1980, to allow debtor time to obtain proper representation.
When the first meeting of creditors reconvened on June 10, 1980, debtor testified regarding certain real properties that did not appear on her schedules, namely, properties located at 1109 Cleveland, Kansas City, Missouri, and 1805 Spruce, Kansas City, Missouri. Debtor apparently testified that she had sold these properties and no longer owned any interest in them.
Although the first meeting of creditors was continued for over one month, a discharge hearing was scheduled on June 25, 1980, and debtor's attorney was the only party present. Since debtor did not appear at this discharge hearing, the Bankruptcy Court entered an Order for debtor to show cause why her petition should not be dismissed. The discharge hearing date was reset for July 16, 1980. Allegedly only the debtor was given proper notice of this July 16, 1980 hearing date. At this hearing the Court, having heard no objections, granted the debtor discharge orally.
After learning of the oral discharge, the trustee filed a complaint to set aside the discharge on the basis that the discharge hearing was held without notice, and that the debtor may have concealed assets. After a plenary evidentiary hearing on December 8, 1980, at which the Bankruptcy Court orally stated its findings of fact and conclusions of law, the Court entered a judgment denying the trustee's complaint objecting to discharge. Through all of this, appellee did not investigate the status of the properties at 1109 Cleveland and 1805 Spruce nor did it attempt to bring any facts concerning these properties to the attention of the trustee or the Court. Appellee did not uncover any evidence that would support an application to file a complaint objecting to discharge out of time nor did it file such an application.
In accordance with § 524 of the Bankruptcy Code, the Court entered an order of discharge on April 15, 1981. Subsequent proceedings disclosed that on June 29, 1981, appellee searched real estate records and discovered, allegedly for the first time, that appellant was the record owner of 1109 Cleveland, a property that had not been listed on debtor's schedules. On July 6, 1981, appellee requested the Bankruptcy Court to revoke the discharge of appellant pursuant to 11 U.S.C. § 727(d)(1) on the ground that appellant obtained the discharge through fraud and concealment of her ownership of the property. After notice and hearing, the Bankruptcy Court revoked the discharge. Appellant then filed this appeal.
After examining the files and record in this case, as well as the applicable law, we have concluded that the decision of the Bankruptcy Court should be reversed, and the discharge granted debtor on April 15, 1981, should be reinstated. Specifically, reversal is required on two separate grounds: (1) appellee failed to carry the burden on an element necessary for revocation under § 727(d)(1), namely, proof that appellee did not know of the fraud of appellant before the granting of discharge and (2) appellee was guilty of laches because it did not diligently investigate facts that had been brought to its attention at least as early as the first meeting of creditors.
The Bankruptcy Court heard no evidence and made no findings in regard to appellee's lack of knowledge of appellant's fraud before discharge. Section 727(d) states, inter alia:
For appellee to prevail under § 727(d)(1), it has the burden of proving by sufficient evidence every element necessary for revocation, In re Cuthbertson, 202 F. 266, 270 (D.C.S.D.1912), and that includes a showing by the requesting party that they did not know of the fraud until after the granting of the discharge. 4 Collier on Bankruptcy, ¶ 727.15, p. 727-99 (15th ed.).
Having failed to carry its burden under § 727(d)(1), the appellee is not entitled to a revocation of discharge. Although we believe this alone is enough for reversal, the second ground for reversal is even more compelling — the record establishes that appellee was guilty of laches and therefore the revocation should not have been granted. The Bankruptcy Court, however, failed to consider the equitable defense of laches.1
In her suggestions in support of her answer and again in her trial brief, appellant argued that the appellee was guilty of laches because appellee was not diligent in investigating facts disclosed to the appellee at the first meeting of creditors. We agree.
The record establishes that appellee was aware as early as June 10, 1980 that appellant had at one time had some interest in the properties located at 1109 Cleveland and 1805 Spruce and that there was some question in appellee's mind as to the current status of ownership. In its brief before this Court, appellee admits that "it is true that Plaintiff suspected intentional concealment and fraudulent transfers because of debtor's evasive tactics" but "it was not until June 29, 1981, after the discharge was granted that the Plaintiff received documentary evidence which demonstrated that fact." Thus, appellee was informed of facts as early as June 10, 1980 which made appellee suspicious and put appellee on notice of the need, at the very least, to examine the available public records. With reasonable diligence, involving the simple matter of searching real estate records, the appellee would have been possessed of the facts that were the basis of the revocation.
With this information in hand at a reasonably early date, appellee could have made an application for enlargement of time in which to file objections to debtor's discharge. This would have been the proper procedure, such a filing out of time can be granted upon a showing that the untimeliness was caused by "excusable neglect." In re Capshaw, 423 F.Supp. 1388, 1390 (E.D. Va.1977); In re Peacock, 14 B.R. 360,...
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