SE Prop. Holdings v. Stewart (In re Stewart)

• Decision Date: 03 August 2022
• Docket Number: 15-12215-JDL,Adv. 16-1087-JDL
• Parties: In re: David A. Stewart and Terry P. Stewart, Debtors. v. David A. Stewart and Terry P. Stewart, Defendants. SE Property Holdings, LLC, Plaintiff,
• Court: U.S. Bankruptcy Court — Western District of Oklahoma

In re: David A. Stewart and Terry P. Stewart, Debtors.

SE Property Holdings, LLC, Plaintiff,
v.
David A. Stewart and Terry P. Stewart, Defendants.

No. 15-12215-JDL

Adv. No. 16-1087-JDL

United States Bankruptcy Court, W.D. Oklahoma

August 3, 2022

Chapter 7

OPINION AND ORDER UPON CROSS-MOTIONS FOR SUMMARY JUDGMENT

Janice D. Loyd, U.S. Bankruptcy Judge

I. Introduction

After more than six years of acrimonious litigation, numerous depositions, more than two weeks of evidentiary hearings and tens of thousands of pages of document discovery, both Plaintiff, SE Property Holdings, LLC ("SEPH") and the Debtors have moved

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for summary judgment. SEPH seeks judgment on two of its five Counts objecting to the Debtors' discharge, those under 11 U.S.C. § 727(a)(2)(A)^[1] (transferring, removing, destroying or concealing property of the debtor within one year before the date of the filing of the petition) and § 727(a)(4) (making a false oath or account). The Debtors have moved for summary judgment on all five of SEPH's Counts objecting to the Debtors' discharge and one Count objecting to the dischargeability of a debt owed by Debtor David Stewart under § 523(a)(2)(A).

Before the Court on SEPH's motion for partial summary judgment on its claims are the following pleadings:

1. Seph's Motion for Partial Summary Judgment (the "Motion") [Doc. 127]

2. Defendant Terry Stewart's Response to Plaintiff's Motion for Partial Summary Judgment [Doc. 148]

3. Defendant David A. Stewart's Response to Plaintiff's Motion for Partial Summary Judgment [Doc 149]

4. SEPH's Reply to David A. Stewart's Response to SEPH's Motion for Partial Summary Judgment [Doc. 156];

5. SEPH's Amended Reply to Terry Stewart's Response to SEPH's Motion for Partial Summary Judgment [Doc. 164];

6. SEPH's Motion for Leave to Supplement the Summary Judgment Record [Doc. 177];

7. Defendant David A. Stewart's Supplement to Response to SEPH's Motion for Partial Summary Judgment [Doc. 179]; and

8. Defendant Terry Stewart's Supplement To Response To Plaintiff's Motion for Partial Summary Judgment [Doc. 180].

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Before the Court for decision on both of the Debtors' motions for summary judgment are the following:

1. Defendant Terry P. Stewart's Motion for Summary Judgment As To The Claims of Plaintiff SE Property Holdings, LLC [Doc. 129];

2. Defendant David A. Stewart's Motion for Summary Judgment As To The Claims of Plaintiff SE Property Holdings, LLC [Doc. 130];

3. SEPH's Response to Defendant Terry P. Stewart's Motion for Summary Judgment [Doc. 147];

4.SEPH's Response to Defendant David A. Stewart's Motion for Summary Judgment [Doc. 146];

5.Defendant Terry Stewart's Reply To Response To Motion for Partial Summary Judgment [Doc. 159];

6.Defendant David A. Stewart's Reply To Plaintiff SE Property Holdings, LLC's Response To Motion for Summary Judgment [Doc. 157]; and

Pursuant to the Federal Rules of Bankruptcy Procedure 7052,^[2] the Court makes the following Findings of Fact and Conclusions of Law.

II. Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), and 157(a) and the Order of Reference of the United States District Court for the Western District of Oklahoma as Local Rule LCvR 81.4(a). This matter seeking a determination of an objection to discharge and dischargeability of a debt are core proceedings under 28 U.S.C. § 157(b)(2)(I) and (J) over which this Court has authority to enter a final order. Venue is proper pursuant to 28 U.S.C. § 1409(a).

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III. Findings of Fact

The determination of whether a motion for summary judgment is to be granted is based upon whether there are any material issues of fact which are undisputed and entitles the moving party to judgment as a matter of law. The Court finds the following material facts to be undisputed:^[3]

I. The Alleged Fraudulent Transfers and Concealment

A. The "Oklamiss Transfer"

1. Debtors created Oklamiss Investments, LLC ("Oklamiss") on September 27, 1999. [Doc. 127-10, pg. 1]. [UMF 1].

2. From the formation of Oklamiss until the effective date of the purported Oklamiss Transfer, Debtors each owned 50% of the membership interests in Oklamiss. [Doc. 127-10, pg. 7]. [UMF 2]

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3. Amongst other assets, Oklamiss owns 99% of the membership interests in Raven Resources, LLC ("Raven Resources"), while Debtor David Stewart holds the remaining 1%. [Doc. 127-1, pg. 69; Doc. 127-2, pg. 160]. [UMF 3].

4. Debtors' ownership of Oklamiss contributed substantially to their net worth. In the May 19, 2011 financial statement, Debtors reported that Oklamiss' real estate was worth more than $4.2 million. [Doc. 127-12, pg. 5]. The financial statement also reflected secured debt on those real estate assets of more than $5.5 million. [Id.]. Debtors further valued Raven Resources at $20 million. [Id. pg. 3]. In this financial statement, Debtors reported a total net worth of $19,358,491. [Id. pg. 1]. [UMF 4].

5. Debtors purported to transfer 98% of their interest in Oklamiss to their children, Thad Stewart, Neal Stewart and Jena Stewart Rush (collectively, the "Stewart Children"). [Doc. 127-11, pg. 1]. After this alleged transfer, the Stewart Children each held a 32.66% interest in Oklamiss, while Debtors each retained a 1% interest in Oklamiss. [Id.]. [UMF 5].^[4]

6. Each of the Debtors, David Stewart and Terry Stewart, executed the transfer document. [Id.]. [UMF 6].

7. The Stewart Children did not pay any consideration for the transfer of the interests in Oklamiss. [Doc. 127-2, pg. 192; Doc. 127-7, pg. 22]. [UMF 7]

8. The face of the document reflecting the Oklamiss Transfer is dated October 31, 2011, with the effective date of January 1, 2012. [Doc. 127-11, pg. 1]. [UMF 8].

9. Debtors' December 31, 2012, financial statement shows that they owned a 100% membership interest in Oklamiss. [Doc. 127-13, pg. 2]. [UMF 9].

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10. The 2013 tax returns for Oklamiss continued to show that Debtors owned 100% of the interest in Oklamiss. [Doc. 127-14, pg. 12]. [UMF 10].

11. Raven Resources' former in-house counsel (Linda McGuire), former in-house accountant (Dan Neale), and former outside accountant (Dennis Lakely) testified that they did not learn of the Oklamiss Transfer until late 2013 or early 2014. [Doc. 127-4, pg. 255; Doc. 127-5, pgs. 85-86; Doc. 127-6, pg.118]. [UMF 11].^[5]

12. Debtors' daughter, Jena Stewart Rush - a purported recipient of substantial interests - was not aware of the alleged Oklamiss Transfer until 2013. [Doc. 127-7, pgs. 21-22]. [UMF 12].

13. Though David Stewart contends that the Oklamiss Transfer was a gift, Debtors did not file a gift tax return. [Doc. 127-2, pgs. 192-193 & 198]. [UMF 13].

14. David Stewart maintained complete control over Oklamiss even after the alleged transfer. [Doc. 127-11, pg. 1 (purported transfer document stating that "David Stewart shall remain Managing Member (of Oklamiss) until he resigns or 12/31/2023, whichever occurs first."); Doc. 127-1, pg. 205]. [UMF 14].

15. The Stewart Children have received no distributions from Oklamiss and have paid no expenses associated with Oklamiss. [Doc. 127-5, pgs. 90-92]. [UMF 15].^[6]

16. Debtors continued to receive all distributions from Oklamiss. [Doc. 127-14, pgs. 48 & 53; Doc. 127-5, pgs. 121-122]. [UMF 16].

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17. The Debtors and the Stewart Children signed documents agreeing that "all losses and profits attributable to Oklamiss... will be credited to (Debtors') ... tax return(s)." [Doc. 127-11, pgs. 3-6]. [UMF 17].

18. The Oklamiss Transfer was reflected in a decrease in the Debtors' net worth in their financial statements. Their May 19, 2011, financial statement showed a net worth of $19,358,491. [Doc. 127-12, pg. 1]. In the financial statement dated December 31, 2013, in which Debtors disclosed the Oklamiss Transfer, Debtors reported a net worth of $312,446. [Doc. 127-15, pg. 1]. [UMF 18].

19. Two loans from SEPH to David Stewart matured on December 3, 2009, and December 22, 2011. [Doc. 127-16, pgs. 4-5 & Exs. 1-2]. These two loans had an outstanding balance in excess of $3.7 million. [Id. pg. 7]. [UMF 19].

20. Debtors were guarantors on loans to Neverve, LLC ("Neverve") and ZLM Acquisitions, L.L.C. ("ZLM") with balances in excess of $26 million. [Id. pg. 7 & Exs. 3-9]. [UMF 20].

21. In 2012 and 2013, SEPH initiated multiple actions against Debtors and entities for which Debtors were guarantors, including SE Property Holdings, LLC v. David A. Stewart, et al., Case No. 1:12-CV-00537-CB-M (S.D. Ala.) (filed on August 24, 2012) [Doc. 127-18]; SE Property Holdings, LLC v. David A. Stewart, Case No. 1:13-CV 00609-KD-C (S.D. Ala.) (filed on December 12, 2013) [Doc. 127-19]; and SE Properties Holdings, LLC v. ZLM Acquisitions, L.L.C. et al., Case No. 1:13-cv-00610-CG-N (S.D. Ala.) (filed on December 13, 2013). [Doc. 127-20]. [UMF 21].^[7]

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22. SEPH obtained summary judgment against Debtors in relation to the guarantees on the Neverve loans on May 19, 2014. [Doc. 127-17] . [UMF 22].

B. The "NOG Transfer"^[8]

23. In the spring of 2014, David Stewart suggested to his mother, Ruth Carroll, that she form the Red Britt Irrevocable Trust ("Red Britt Trust") to hold Approximately $65,000.00 for unpaid royalties (the "Royalty Debt") purportedly due to her from Raven Resources. [Doc. 127-8, pgs. 27-28 & 114-115]. [UMF 23].

24. David Stewart suggested the creation of the Trust to outside counsel for Debtors and the entities they controlled. [Doc. 127-21, pg. 2 (email from David Stewart asking outside counsel "[h]ow much and how long would it take set up an irrevocable trust[?]")]; [Doc. 127-4, pgs. 175, 183, 215-217 & 222]. [UMF 24].

25 .Ruth Carroll was not present for any of the discussions about creating the Red Britt Trust. [Doc. 127-4, pgs.164 & 180-181]. [UMF 25].

26. Ruth Carroll testified that she...