McDermott v. Horvath (In re Horvath)
| Decision Date | 19 April 2017 |
| Docket Number | Adv. Pro. No. 15-3041,Case No.: 13-34137 |
| Parties | In Re: Robin L. Horvath, Debtor. Daniel M. McDermott, United States Trustee, Plaintiff, v. Robin L. Horvath, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
The court incorporates by reference in this paragraph and adopts as the findings and analysis of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
Hon. Mary Ann Whipple
MEMORANDUM OF DECISIONThis adversary proceeding is before the court for decision after trial on the "Complaint to Revoke and Deny Discharge" filed by Plaintiff, the United States Trustee ("the UST"). Defendant, proceeding pro se, is the debtor in the underlying Chapter 7 bankruptcy case. In count one of the complaint the UST seeks an order revoking Debtor's Chapter 7 discharge under 11 U.S.C. § 727(d)(3) and (a)(6)(A).1 The issue is whether Defendant's conduct in response to an order of this court to produce documents justifies revocationof his discharge.
The district court has jurisdiction over Defendant's underlying Chapter 7 bankruptcy case as a case under Title 11 and over all proceedings arising in or related to that case, including this adversary proceeding. 28 U.S.C. § 1334. The Chapter 7 case and all proceedings arising in or related to that case, including this adversary proceeding, have been referred to this court for decision. 28 U.S.C. § 157(a) and General Order No. 2012-07 of the United States District Court for the Northern District of Ohio. This adversary proceeding is a core proceeding in which this court can make a final determination because it involves a debtor's right to a discharge. 28 U.S.C. § 157(b)(1) and (2)(J).
This memorandum of decision constitutes the court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, made applicable to this adversary proceeding by Fed. R. Bankr. P. 7052. Regardless of whether specifically referred to in this memorandum of decision, the court has examined the submitted materials, weighed the credibility of the witnesses, considered all of the evidence, and reviewed the entire record of the case. Based upon that review, and for the reasons discussed below, the court finds that Defendant is entitled to judgment in his favor on the complaint.
On October 7, 2013, the underlying involuntary Chapter 7 bankruptcy case was commenced against Defendant by petitioning creditors, an accounting firm and two law firms trying to collect professional fees from him. The principals of the two law firm petitioning creditors are attorneys Thomas Matuszak and Troy Moore. For years before commencement of the involuntary Chapter 7 case, Defendant had been a party to extensive litigation in the Lucas County, Ohio Court of Common Pleas ("State Court") involving a number of cases and claims against a number of parties, all stemming from his fifty percent ownership of Tony Packo's Inc., Tony Packo Food Company, LLC, Packo Properties, LLC, and Magyar Holdings, LLC ("the Packo Companies"), disagreements amongst the owners of the Packo Companies, and his partial personal guaranty of the companies' debts owed to Fifth Third Bank. The Packo Companies and their longtime core family restaurant and food business focusing on Hungarian specialties ended up in a receivership proceeding in State Court. The petitioning creditor law firms, through Matuszak and Moore, represented Defendant in the State Court receivership and other proceedings.
This court entered an order for relief against Defendant in the Chapter 7 case and, on February 28, 2014, he filed his bankruptcy schedules. Assets listed on Defendant's Schedule B-Personal Property2include, among other things, a fifty percent ownership interest in Tony Packo's, Inc. ("TPI") and Packo Properties and the "Tony Packo's Recipe 'Ingredient' List." He pointedly did not schedule the recipes themselves. [UST Ex. C, p. 2]. According to Defendant, it was his understanding at that time that the Tony Packo recipes had been sold by the receiver of TPI in the State Court receivership proceeding. [UST Ex. J, p. 77].
Following a January 13, 2015, evidentiary hearing on a motion to approve compromise filed by the Chapter 7 Trustee ("Trustee"), ownership of the recipes became a hotly contested issue. According to Defendant, following that hearing and subsequent meetings with Matuszak and Moore, it became his new understanding that the recipes were not properly conveyed to the buyer in the receivership proceeding and that, as a result, either he or his late mother's trust owned the rights to recipes for Tony Packo's hot dog sauce and chili soup. [UST Ex. J, pp. 79-80, 99/422]. Defendant's mother, Nancy Packo Horvath, died in April 2003. Defendant is the sole beneficiary under her will and successor trustee and beneficiary under her trust (the "NPH Trust"). [UST Ex. J, pp. 31, 44/422]. According to Defendant, he relies on the affidavit of Nancy Packo Horvath ("NPH Affidavit"), a Term Sheet produced in mediation of state court litigation in 2002 between family members who were co-owners of TPI, and a License Agreement relating to the hot dog sauce and chili soup recipes, as showing that his mother owned the recipes. [Id. at pp. 58, 63-64/422; UST Ex. M, pp. 189-91, 209/324]. He relies on a provision of the License Agreement as support for his claim that certain of the recipes became assets of his mother's probate estate. [UST Ex. J, pp. 86-87].
On February 10, 2015, Defendant filed an amended Schedule B-Personal Property. In addition to "potential claims" against certain parties, amended Schedule B adds "[a]ssets from the Estate of Nancy Packo Horvath - including, but not limited to, the License Agreement Dated October 29, 2002 between Nancy Packo Horvath & Tony Packo's Inc. and any rights arising from that agreement." [UST Ex. D, p. 4].
On March 10, 2015, the Trustee filed a motion for an order directing Defendant to appear for questioning at a Bankruptcy Rule 2004 examination and to produce certain documents. [UST Ex. E]. On March 27, 2015, the court granted the Trustee's motion and ordered Defendant to produce to Trustee's counsel on or before April 6, 2015, the following documents within his custody or control:
(1) Debtor's last two filed tax returns as required by 11 U.S.C. § 521(e); (2) any and all documents supporting the assets identified in the amended schedules filed on February 10, 2015 at Doc. # 119, including The Nancy Pack[o] Horvath Living Trust dated March 22, 2002, and any amendments, changes or modifications, any exhibits or funding documents relating thereto and a copy of the certificate of determination of final estate tax liability filed with the probate court on May 6, 2004; and (3) and any and all documents supporting Debtor's signed Affidavit pertaining to his assets filed on February 25, 2015 at Doc. # 125.
[UST Ex. H, p. 3]. The order was served on Defendant by first class mail as well as on his then bankruptcy attorney through the court's CM/ECF electronic mail system. [See Case No. 13-34137, Doc. # 155].3
Before entry of the court's order, the Trustee had filed a motion in the Lucas County, Ohio, Probate Court, asking for a copy of the Nancy Packo Horvath final estate tax return ("NPH estate tax return"). [UST Ex. J, p. 37/422; see Adv. No. 15-3058, Doc. # 86, p. 3]. The motion was served on Defendant's then bankruptcy counsel and separate counsel for the NPH Estate. [UST Ex. J, p. 37-38/422]. That motion was granted by the Probate Court without objection and Trustee's counsel obtained the final and only NPH estate tax return before the Rule 2004 examination. [Id.].
On April 6, 2015, Defendant produced to Trustee's counsel thirty-one documents. In addition to documents relating to the "potential claims" included on amended Schedule B, Defendant produced the NPH Trust, NPH Will, NPH Affidavit, License Agreement, and the Term Sheet. At the Rule 2004 examination that took place on April 10, 2015, Defendant stated that he had twenty-six half-size banker boxes of files that he had not gone through, but that all of those files relate to litigation since 2010 and not to his mother's estate. [Id. at 70-72/422]. After examining Defendant regarding the potential claims included on amended Schedule B, as well as Debtor's interest in the recipes, the Trustee asked for documents in addition to what had been produced and emphasized that the court's order "says any and all documents relating to, you know, anything identified in the schedules." [Id. at 219-20/422]. Defendant then agreed to produce any additional documents, as discussed at the Rule 2004 examination, by April 24, 2015. [Id. at 383-87/422].
On April 25, 2015, Defendant produced an additional forty documents to Trustee's counsel and further supplemented his document production on April 30, 2015, with additional documents. [UST Ex. Q, pp. 3-6; Ex. M, p. 10/324]. Apparently none of those documents were documents in Debtor's NPH Trust files. Instead, what was labeled as Exhibit 40 in his document production is one page that states as follows:
INDIVIDUALLY, AND NOT FOR THE NANCY PACKO
HORVATH TRUST.
[UST Ex. Q, p. 3/6; Ex. R].
Before the April 10 Rule 2004 examination, Defendant had engaged attorney Marvin Keller as counsel to represent the NPH Trust. [See Ex. N]. Keller had represented Nancy Packo Horvath before her death in 2003 regarding estate planning, including preparation of the NPH Will, which he described as a pour-over will, and the NPH Trust. At some point after her death, Defendant had obtained the trust files from Keller but returned all of the files to Keller before...
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