Moyer v. Geer (In re Geer)

• Decision Date: 30 October 2014
• Docket Number: Adversary No. 13–5155.,Bankruptcy No. 12–73864–WLH.
• Parties: In re Walter Idus GEER, III, Debtor. Philip Moyer, Plaintiff, v. Walter Idus Geer, III, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

522 B.R. 365

In re Walter Idus GEER, III, Debtor.Philip Moyer, Plaintiff

v.Walter Idus Geer, III, Defendant.

Bankruptcy No. 12–73864–WLH.

Adversary No. 13–5155.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed Oct. 30, 2014.

Entered Oct. 31, 2014.

David Dormont, Kaufman, Coren & Ress, P.C., Philadelphia, PA, Douglas D. Ford, Quirk & Quirk, LLC, Atlanta, GA, for Plaintiff.

Howard D. Rothbloom, The Rothbloom Law Firm, Marietta, GA, for Defendant.

ORDER

WENDY L. HAGENAU, Bankruptcy Judge.

This action under 11 U.S.C. §§ 727(a)(2) and (a)(4) alleges (i) the Debtor transferred and concealed assets to and through family trusts, an LLC and his family with intent to hinder, delay or defraud creditors, (ii) the Debtor made false oaths by omitting information from his schedules and statement of financial affairs, and (iii) the Debtor testified falsely at his 341 meeting, two depositions and at the trial of this matter. The Court concludes the Debtor is entitled to his discharge as explained in this opinion.

This dispute began with the involvement of Walter Geer III (“Debtor”), Philip Moyer (“Plaintiff”) and others in a company known as Phenix Home Source, LLC (“Phenix Home”) which purchased cabinet components from China and assembled them at a facility in Jasper, Georgia. With the decline in the housing market in 2008, Phenix Home failed. Plaintiff and the Debtor were co-guarantors on a loan at Georgian Bank, and Plaintiff had pledged securities as collateral for the loan. Upon Phenix Home's default, Georgian Bank called the guaranties. Plaintiff, rather than simply paying on the guaranty, arranged to purchase the note from Georgian Bank and then pursued the Debtor for the full amount of the guaranteed note, not just Debtor's contribution share. The Debtor also had guaranties on other business debt. In the meantime, the Debtor and his wife divorced, with the divorce being finalized in early 2012. All of the foregoing led to the Debtor's decision to file his bankruptcy petition under Chapter 7 on September 25, 2012.

The Debtor retained his brother, Will Geer, to represent him in filing the bankruptcy petition.¹ Because both the Debtor and his attorney thought they knew each other so well through their familial relationship, it is safe to say that neither the Debtor nor his attorney shared as much information as they probably would have shared had each been dealing with a third party. It was also apparent to the Court from the Debtor's testimony that the Debtor was a “big picture” guy and not a detail-oriented person.²

The Debtor's statement of financial affairs (“SOFA”) and full schedules (“Schedules”) were filed contemporaneously with the bankruptcy filing. The Debtor testified at his 341 meeting on October 23, 2012, and then amended his SOFA and Schedules on November 1, 2012, November 15, 2012, and March 6, 2013. The Debtor also testified at a 2004 exam on March 7, 2013. On April 24, 2013, Plaintiff filed this adversary proceeding under 11 U.S.C. §§ 727(a)(2) and (a)(4). The Debtor was deposed again in this adversary proceeding on September 11, 2013.

The matter came before the Court for trial on July 21–24, 2014. The Debtor testified he relied heavily on attorneys and accountants, and did not review what was prepared for him by the various professionals. Throughout much of the trial, the Debtor blamed his brother, his father, his ex-wife, other attorneys, and accountants for any errors, omissions and misstatements. Ultimately, the Debtor recognized his responsibility for the transactions and disclosures at issue. The Debtor's failure to regularly review and understand materials provided by professionals, which he then signed, lead in many instances to the allegations of misstatements and omissions. Moreover, the course of this litigation has been such that the Debtor is extremely defensive in his responses to Plaintiff's counsel. The Court notes, however, that in reviewing the original 341 transcript (Ex. 1), the Debtor was much more forthcoming and much less defensive.

The Court has jurisdiction of this matter under 28 U.S.C. § 1334 and this is a core matter under 28 U.S.C. § 157(b)(2)(J).

FACTS

The parties stipulated to a number of facts [Docket No. 31], all of which are incorporated herein (“Stipulated Facts”). The Debtor graduated from the University of Georgia with a Bachelor of Arts degree in Political Science. He married Ann Geer (“Ann”) in 1994. One of his closest friends is Jay Flowers, with whom he worked on various entrepreneurial ventures. Early on, the Debtor was CEO of eCompanyStore, Inc. In the spring of 2000, the Debtor received 4.4 million shares in eCompanyStore as a result of his sweat equity in the business. This represented about 50% of the common stock; outside capital received preferred stock. Additional investors were brought into the business over the years such that his interest was diluted to 2–3% of the company. In 2010, the company merged into Instawares Holding Company, LLC and the Debtor understood his shares were eliminated.

The Debtor resigned from eCompanyStore on December 31, 2003, and by 2005 began the company known as Phenix Direct LLC. His initial investor was Frank Murphy. Frank Murphy then introduced the Debtor to Plaintiff, who became an equity investor in Phenix Direct along with Jay Flowers and others. The purpose of Phenix Direct was to import promotional products from Asia. In late 2005 or early 2006, the Debtor began investigating the idea of importing cabinet components from Asia for assembly and sale in Georgia. Phenix Home was born of this idea. Plaintiff, Murphy, Flowers and others continued their investment with the Debtor in Phenix Home. In addition to the equity investments in the company, Phenix Home obtained a loan from Georgian Bank for a line of credit to be used to buy inventory and to provide working capital to the company. The Debtor and Plaintiff executed guaranties, and Plaintiff collateralized the loan with securities.

The assembly of cabinet components was conducted at a warehouse located on Hood Road in Jasper, Georgia (“Hood Road Property”). The Debtor obtained the funding for the purchase of the Hood Road Property from Power Lending, described as a hard-money lender. The Debtor thought this loan was to Walt Geer LLC, a company the Debtor wholly owns, and that the property was purchased in the name of Walt Geer LLC. The acquisition of the property was 100% financed by Power Lending, including improvements, and the Debtor contributed no money to the purchase of the Hood Road Property. Notwithstanding the Debtor's understanding, the Court finds the Hood Road Property was purchased in the name of the Debtor individually and was never transferred from the Debtor's individual name to Walt Geer LLC. Phenix Home apparently leased the property from the Debtor/Walt Geer LLC with the rent being used to fund the loan payments to Power Lending.

Phenix Home also borrowed money from Advance Financial on an asset-based loan in the approximate amount of $250,000 to $300,000. Advance Financial then took a lien on Phenix Home's inventory and receivables. The Debtor was a guarantor. As of 2008, Phenix Home owed money on a line of credit to Georgian Bank, owed money on an asset-based loan to Advance Financial, owed money to the Debtor/Walt Geer LLC for the rent on the Hood Road Property, and owed money to its investors.

In 2008, as the real estate market in Atlanta crashed, the demand for home cabinets also declined significantly. The Debtor and the various investors tried to sell the Phenix Home business to a third party, Trivest. Some aspects of the business were sold to Trivest in late 2008 or early 2009, but ultimately Phenix Home received no money from that purchase because Trivest deemed the business to be worthless. In early 2009, a former customer of Phenix Home wanted to purchase specific product. Phenix Home did not have the product, but had contacts with the suppliers. Since Phenix Home had no funds with which to purchase the inventory, the Debtor notified Jay Flowers and other members of the board of the opportunity to purchase the inventory with their own money and sell it to this former Phenix Home customer. This transaction was anticipated to result in a profit. Jay Flowers purchased the inventory with his own funds and filled the customer's order. The inventory which was sold to the customer by Jay Flowers was not inventory already owned by Phenix Home, but rather inventory purchased specifically for the customer by Jay Flowers. Ultimately, Jay Flowers and the Debtor made a profit on the sale of this inventory.

Around the same time, Georgian Bank called the loan to Phenix Home and made demand on Plaintiff and the Debtor for payment on the guaranty, and Advance Financial demanded payment on the asset-based loan, which was also guaranteed by the Debtor. Finally, with Phenix Home unable to pay rent to the Debtor/Walt Geer LLC, the Debtor/Walt Geer LLC defaulted on the real estate loan to Power Lending, for which the Debtor was also personally liable.

Plaintiff purchased the Phenix Home loan from Georgian Bank and then began pursuing the Debtor, not just for a contribution share of the loan but for the full amount. Advance Financial approached the Debtor about assisting Advance Financial in the liquidation of its collateral. One of Phenix Home's former employees, Darrell Morris, had, in the meantime, started Precision Cabinets. Advance Financial, Darrell Morris and the Debtor agreed that the Advance Financial inventory of cabinets and components would be sold through Precision Cabinets on consignment. Later, it was decided the inventory would be sold through the Debtor and Rick Leaman. Advance Financial then “sold” its collateral to Walt Geer LLC pursuant to a bill of sale. The Debtor understood Advance Financial “advanced” funds to Walt Geer LLC so it could “purchase” the inventory, with Phenix Home's debt paid in full, leaving Walt Geer LLC liable to...