Vara v. Motil (In re Motil)
| Docket Number | 22-10571,Adversary Proceeding 22-1084 |
| Decision Date | 13 June 2023 |
| Parties | In re:MATTHEW M. MOTIL, Debtor. v. MATTHEW M. MOTIL, Defendant. ANDREW R. VARA, United States Trustee, Plaintiff, |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
1
In re:MATTHEW M. MOTIL, Debtor.
ANDREW R. VARA, United States Trustee, Plaintiff,
v.
MATTHEW M. MOTIL, Defendant.
No. 22-10571
Adversary Proceeding No. 22-1084
United States Bankruptcy Court, N.D. Ohio
June 13, 2023
Chapter 7
MEMORANDUM OF OPINION [1]
Arthur I. Harris United States Bankruptcy Judge
In this adversary proceeding, the U.S. Trustee seeks denial of the debtor Matthew M. Motil's discharge under various provisions of 11 U.S.C. § 727. Over the course of five days, the Court held a trial before taking the proceeding under
advisement. For the reasons that follow, the U.S. Trustee has established the elements for denial of the debtor's discharge by a preponderance of the evidence as to two of the six claims for relief in the U.S. Trustee's amended complaint. Those two claims are Amended Count 1(B), involving the prepetition transfer of a 2009 Ford F-150 with the intent to hinder, delay, or defraud creditors under § 727(a)(2)(A), and Amended Count 3(B), the making of false oaths concerning the same vehicle under § 727(a)(4)(A). As to the other four claims for relief, the U.S. Trustee has failed to establish the elements for denial of the debtor's discharge by a preponderance of the evidence.
JURISDICTION
An objection to discharge is a core proceeding under 28 U.S.C. § 157(b)(2)(J). This Court has jurisdiction over core proceedings under 28 U.S.C. §§ 157(a) and 1334 and Local General Order 2012-7 by the United States District Court for the Northern District of Ohio.
PROCEDURAL HISTORY
On March 7, 2022, Dr. Matthew M. Motil (the debtor) filed a voluntary petition under Chapter 7. Case No. 22-10571, Docket No. 1. After obtaining two extensions of time without objection, the U.S. Trustee filed a complaint objecting to the debtor's discharge, commencing this adversary complaint on September 30, 2022. Adv. Proc. No. 22-1084.
On November 17, 2022, the debtor filed an amended motion to dismiss the adversary complaint in its entirety (Docket No. 10), to which the U.S. Trustee responded with a brief opposing the motion. Docket No. 14. On December 14, 2022, the debtor filed a reply brief (Docket No. 18), and the Court took the matter under advisement without oral argument.
On January 13, 2023, the Court issued a Memorandum Opinion and Order denying the debtor's motion to dismiss in part and granting the U.S. Trustee leave to file an amended complaint by February 3, 2023. Docket Nos. 21-22. On January 20, 2023, the Court granted the U.S. Trustee until February 17, 2023, to file an amended complaint. Docket No. 33. On February 14, 2023, the U.S. Trustee filed a motion for leave to file an amended complaint and attached a proposed amended complaint to the motion along with numerous supporting documents. Docket No. 37. On February 21, 2023, the Court approved an agreed order deeming the amended complaint filed as of February 14, 2023. Docket No. 39.
In the amended complaint, the U.S. Trustee alleges six grounds for denying the debtor's discharge.
In Amended Count 1(A), the U.S. Trustee alleges the debtor intended to hinder, delay, or defraud creditors under § 727(a)(2)(A) by transferring real
property located at 3593 West 50th Street in Cleveland (the West 50th Street property) either individually or using entities as the debtor's "alter ego," or by concealing or converting the proceeds of the sale of the property.
In Amended Count 1(B), the U.S. Trustee alleges the debtor intended to hinder, delay, or defraud creditors under § 727(a)(2)(A) by transferring the title of a 2009 Ford F-150 (the F-150) to his spouse, Ms. Amy Motil, shortly before bankruptcy and by concealing the transfer on his filings and at the meeting of creditors.
In Amended Count 2, the U.S. Trustee alleges the debtor falsified or mutilated recorded information by improperly notarizing mortgages, so that his financial condition and transactions could not be properly ascertained under § 727(a)(3).
In Amended Count 3(A), the U.S. Trustee alleges that the debtor made a false oath by failing to disclose a 100 percent membership/ownership interest in a limited liability company (L.L.C.) called BUYCLE114, L.L.C. (BUYCLE114), thereby violating § 727(a)(4)(A).
In Amended Count 3(B), the U.S. Trustee alleges that the debtor made a false oath by failing to disclose the prepetition, gift, transfer, or sale of the F-150
on the debtor's Statement of Financial Affairs (SOFA), the amended SOFA, and at the meeting of creditors, thereby violating § 727(a)(4)(A).
In Amended Count 4, the U.S. Trustee alleges the debtor failed to explain satisfactorily the loss or dissipation of assets under § 727(a)(5) both with respect to the amount of investor funds that exceeded the purchase price of the debtor's real properties and with respect to the loss of funds involved in the transfer of the F-150.
On April 4-5, 12-13, and 17, 2023, the Court held a trial on the U.S. Trustee's complaint to deny the debtor's discharge. Nine witnesses testified:
• Ms. Kristen Kish (a former employee of the debtor);
• Lt. Col. Eric Chase,
• Dr. Kenneth Lynch, III, M.D.,
• Mr. Scott Senseny, and
• Mr. Brian Niec (all former investors with and current creditors of the debtor);
• Mr. Ryan Thomas, Esq. (an attorney representing current creditors in proceedings against the debtor);
• Ms. Amy Motil (the debtor's spouse);
• the debtor, and
• Ms. Catherine Lowman, Esq. (a bankruptcy auditor with the U.S. Trustee's office).
The Court admitted without objection U.S. Trustee Exhibits 1 through 71, 74 through 77, 83 through 100, and 102 through 138. The Court also admitted without objection Defendant Exhibits A through I and K through R, as well as Deposition Exhibits A through H to Exhibit P and two unlettered exhibits (the Right to Sell Agreement and an email chain between the U.S. Trustee and the debtor's attorney).
After closing arguments and after the Court had taken this proceeding under advisement, the debtor filed amended schedules and statements in the debtor's main case. Case No. 22-10571, Docket Nos. 137-42. Because no party has asked the Court to reopen the trial record, the Court will not consider the amended schedules and statements filed on May 11, 2023, in rendering its decision. Nevertheless, none of these filings, had they been considered, would have altered the Court's determination as to any claims or defenses in this adversary proceeding.
FINDINGS OF FACT
The findings of fact contained in this Memorandum of Opinion reflect the Court's weighing of the evidence, including the credibility of the witnesses. "In doing so, the court considered the witnesses' demeanor, the substance of the testimony, and the context in which the statements were made, recognizing that a
transcript does not convey tone, attitude, body language or nuance of expression." In re Parrish, 326 B.R. 708, 711 (Bankr.N.D.Ohio 2005). Even if not specifically mentioned in this decision, the Court considered the testimony of all the trial witnesses, exhibits admitted into evidence, and any stipulations. Unless otherwise indicated, the following facts were established at trial by a preponderance of the evidence.
2015-Summer 2019: The Debtor's Entry into Real Estate
The debtor holds a bachelor's degree in mechanical engineering from the University of Toledo and a Master's in Business Administration from Ottawa University in Ottawa, Kansas. In 2015, the debtor obtained a Ph.D. in business administration from Walden University under the direction of his supervisor, Dr. Cheryl Lentz, researching the causes of burnout in the construction industry.
In 2015, the debtor bought his first investment property in Parma, Ohio, a duplex on Velma Avenue. To help manage the property, the debtor created North Shore Equity Management, L.L.C. (NSEM). Changing careers, the debtor became licensed as a realtor in February 2016 and formed North Shore Equity Sales, L.L.C. (NSES) to help manage his sales of real estate. Afterwards, the debtor worked for other realtors helping investors buy investment properties, as well as maintaining and renovating his own rental properties. In the beginning, the debtor
apparently took investments from close friends and relatives. For example, on October 31, 2018, INVCLE150, L.L.C. (INVCLE150), an entity controlled by the debtor, granted a mortgage on real estate to the debtor's doctoral advisor, Dr. Lentz, in exchange for $57,749.32. The mortgage was promptly recorded on November 1, 2018. Ex. 74 at 69-72.
Ms. Kristen Kish began to work for entities controlled by the debtor in October 2018 and continued until February 4, 2020. Ex. 46 at 4. Early in Ms. Kish's tenure, the debtor asked Ms. Kish to become a notary public. The debtor testified that his motivation in asking Ms. Kish to do this was to avoid the inconvenience of having to schedule an appointment or wait for a notary public to become available.
On November 2, 2018, the debtor and two partners, through an entity named ALV Twinsburg, L.L.C., purchased a gym in Twinsburg from TTV's Second L.L.C. using a cognovit note and assumed the gym lease. Compl. 1-15, TTV's Second, L.L.C. v. ALV Twinsburg, L.L.C., No. CV-21-944682 (Cuyahoga Cnty. Ct. Com. Pl. Mar. 3, 2021). The debtor personally guaranteed the notes and the lease. Id. at 13-15; Ex. 121 at 70-72. A month later, INVCLE150 bought a twenty-eight unit apartment complex at 4027 Rocky River Drive, in Cleveland (the Rocky River Drive apartments), using $845,000 in funds loaned by Sharestates Investments,
L.L.C. (Sharestates). Case No. 22-10571, Proof of Claim No. 43-2. The debtor hired a new property management company to manage the Rocky River Drive apartments. In December 2018, Ms. Kish passed the notary public exam and began notarizing documents for the debtor.
On March 22, 2019, the debtor negotiated to buy a portfolio of ninety-four...
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