Opinion
Case No. 8:16-bk-07755-RCT Adv. No. 8:17-ap-00355-RCT
09-28-2018
In re: Samuel William Ballinger, Debtor. Guy G. Gebhardt, Acting United States Trustee, Region 21 Plaintiff, v. Samuel William Ballinger, Defendant.
Chapter 7 MEMORANDUM DECISION AND ORDER DENYING DEBTOR DISCHARGE PURSUANT TO 11 U.S.C. § 727(a)
On April 17, 2017, Plaintiff Guy G. Gebhardt, Acting United States Trustee for Region 21 ("UST") commenced this proceeding by filing a five-count complaint. The UST asks the court to deny Defendant-Debtor Samuel William Ballinger ("Mr. Ballinger" or "Debtor") his chapter 7 discharge pursuant to 11 U.S.C. §§ 727(a)(3) (for failure to keep or preserve records), (a)(4)(A) (for false oaths or omissions), (a)(4)(D) (for withholding information from the chapter 7 trustee), (a)(6)(A) (for failure to obey a lawful order of the court), and (a)(2)(A) (for concealment of property). Mr. Ballinger timely answered the complaint, denying the material allegations. After a few embroiled discovery disputes, the matter was tried over the course of two days. At all times during this proceeding, Mr. Ballinger has represented himself pro se.
UST Ex. 15. By order entered June 11, 2018, the UST was granted leave to amend his complaint to conform with the evidence presented at trial as allowed by Fed. R. Bankr. P. 7015(a)(2) and (b). Doc. 65.
Statutory references are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code"), unless otherwise stated.
UST Ex. 16.
Following a full day of trial at the end of April 2018, the trial was continued to and concluded on June 4, 2018.
Jurisdiction
This court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157 and 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).
Introduction
Reading Mr. Ballinger's bankruptcy schedules, a creditor or chapter 7 trustee would reasonably conclude that he was an unemployed "mechanic," with no assets, living on $1,000 per month provided by the kindness of a relative.
In re Samuel William Ballinger, Case No. 8:16-bk-07755-RCT ("Main Case" or "MC"), UST Exs. 2-5.
UST Ex. 3 (Schedule I), Line 8.
In truth, Mr. Ballinger was certainly, and may still be, a player in the purchase and management of distressed real estate. He drove a Ferrari and a Maserati. He operated numerous corporate entities, including one that he used potentially as a personal piggy bank. Mr. Ballinger is well versed in the law, and in bankruptcy. He has managed two law firms and has worked as a paralegal. He has owned and managed real estate through numerous business entities. He has purchased properties from bankruptcy trustees and even has placed businesses into bankruptcy. As a person, he is both highly intelligent and charming. No doubt he currently faces some physical and financial setbacks. But his abuse of the bankruptcy process and lack of candor in this case requires that he not receive a discharge.
Facts and Background
Initial Disclosures
Mr. Ballinger filed a voluntary chapter 7 bankruptcy on September 8, 2016. Attached to the petition were his schedules D and E/F, Official Form 106Dec, the declaration verifying the schedules, as well as Mr. Ballinger's chapter 7 statement of intention. Mr. Ballinger filed the remaining schedules on October 13, 2016, along with his statement of current monthly income and an amended statement of intentions.
UST Ex. 2.
Mr. Ballinger obtained an extension of time to file the balance of his schedules and other required documents and disclosures until October 12, 2016. MC Doc. 9. Although an order dismissing Mr. Ballinger's case for failure to file required documents was entered on October 13, it was vacated the next day when the clerk's office received his documents by mail. MC Docs. 13 and 17.
UST Exs. 3-5.
The sworn petition indicates that within the past eight years Mr. Ballinger used the business name of Diplomatic Security Services, Inc. No other business names are listed. Mr. Ballinger also indicated that, after accounting for exempt property and payment of administrative claims, he did not believe that funds would be available to pay creditors.
UST Ex. 2 (Petition), Line 4.
Id., Line 17.
Mr. Ballinger scheduled two valuable, but significantly underwater, real properties on his schedule A/B: a homestead in Lutz, FL and single-family home in Tierra Verde, FL that he co-owned with unidentified others. He identified his interest in the latter as "Tenant offer to purchase". He scheduled two 1966 motorcycles, both of which are listed of nominal value and in "[n]ot working" condition. Mr. Ballinger also scheduled jewelry, consisting of "old watches and parts" valued at $200.00; a single checking account at the Bank of Tampa with a balance of $14.00; cash on hand of $240.00; and no interests of any kind in any non-publicly traded businesses, LLCs, partnerships, etc. After accounting for personal property exempted on schedule C, Mr. Ballinger scheduled non-exempt personal property of $2,304.00.
UST Ex. 3 (Schedule A/B), Line 1.
Id., Line 3.
Id., Lines 12, 16, 17, 19.
Id., Line 62.
Mr. Ballinger's income, as disclosed on schedule I, consists solely of $1,000/month identified as "Gift from family". He states he is an unemployed "[m]echanic". Mr. Ballinger's statement of currently monthly income presents a slightly different income, but only to a nominal degree. It reflects that Mr. Ballinger also receives veteran's disability benefits of $149/month, increasing his current monthly income to a meager $1,149/month.
UST Ex. 3 (Schedule I), Lines 1, 8.
UST Ex. 5, Line 11.
Mr. Ballinger's schedule J indicates relatively modest living expenses. However, after expenses of $2,165, his net monthly income indicates a loss of $1,165/month. Almost half of his monthly expenses are the result of domestic support obligations, presumably related to support of a preteen son. But even without the support obligation, which he suggests may be reduced soon, Mr. Ballinger's schedules indicate his financial prospects are not promising.
UST Ex. 3 (Schedule J).
Section 341 Meeting of Creditors
Chapter 7 Trustee V. John Brook (the "Trustee") conducted the initial § 341 meeting of creditors on October 19, 2016. Mr. Ballinger appeared and was examined by the Trustee, his counsel, counsel for the UST, and counsel for Regions Bank, one of the creditors secured by Mr. Ballinger's homestead. There, Mr. Ballinger disclosed that within a year of the filing he had lost a Ferrari 348 Spider to a replevin action, that he believed he might have a "sinkhole claim" related to his homestead, and that he had been unemployed since approximately 2008 or 2009.
UST Ex. 7 (341 Transcript (hereafter "341 Tr.")).
Mr. Ballinger was unsure precisely when the automobile had been repossessed but posited in might have been within the year before his bankruptcy filing. He agreed to provide the Trustee with documents on the matter. 341 Tr. at 6:20-7:14.
341 Tr. at 7:15-8:24.
341 Tr. at 10:10-13.
During the examination by counsel for Regions' Bank, Mr. Ballinger disclosed prior affiliations with numerous business entities including: (1) Locations, Inc., a real estate investment company for which Mr. Ballinger was the President, (2) Locations of Pinellas, Inc., a company associated with Locations, Inc. that held title to the real property in Tierra Verde, FL, (3) Valhalla Properties, LLC, a defunct single asset real estate company for which Mr. Ballinger filed a chapter 11 bankruptcy case, (4) Makes & Models Magazine, Inc., a magazine publishing company for which Mr. Ballinger served as President, and, as disclosed on the petition, (5) Diplomatic Security Services, Inc. Mr. Ballinger was made aware that he had yet to file his Statement of Financial Affairs ("SOFA"). Although he believed he had filed the SOFA, he understood that the SOFA required the disclosure of all interests in any business held within four years of the petition.
341 Tr. at 10:21-13:6; 14:13-19:25.
341 Tr. at 13:21-14:12.
Regarding Locations, Inc., Mr. Ballinger stated his sister, Helen Benshoof, owned and was an officer of the company. Although he confirmed he was the President, he testified that only his sister had the authority to authorize an inspection of the Tierra Verde property. Locations of Pinellas, Inc. was formed to manage properties owned by Locations, Inc. located in Pinellas County. Neither Locations, Inc. nor Locations of Pinellas, Inc. had any employees or maintained a formal office. Mr. Ballinger acknowledged that Locations of Pinellas, Inc. held record title to several other properties but stated that he only scheduled the Tierra Verde property because he had an interest in it as a tenant. Mr. Ballinger could not say whether Locations, Inc. or Locations of Pinellas, Inc. had issued any shares or whether there were any written operating agreements. His verbal agreement with his sister was to simply share in any profits generated. He assumed but did not know if his sister maintained the corporate records.
341 Tr. at 21:6-22:6.
341 Tr. at 23:25-25:12.
341 Tr. at 29:7-30:18
341 Tr. at 47:8-23; 48:13-19.
341 Tr. at 48:7-12.
Regarding additional bank accounts for which he held signatory authority, Mr. Ballinger disclosed an individual account at Wells Fargo Bank and a closed account at BB&T. He testified there were no others. He offered that he once was a signatory to an account owned by Valhalla Properties LLC and one owned by Locations of Pinellas, Inc., but no longer. Mr. Ballinger later amended his statement, indicating he had signatory authority along with Ms. Benshoof on an account owned by Locations, Inc. at the Bank of Tampa.
341 Tr. at 36:20-37:8; 37:20-38:8.
341 Tr. at 37:20-39:3.
341 Tr. at 50:7-52:3.
In providing a contact email to the UST, Mr. Ballinger disclosed that he had worked intermittently as a paralegal from 2010 until the present. He explained, however, that he worked only minimal hours and then only every six to eight months, and further received no payment for his services. Explaining why then he had indicated his profession on schedule I as "mechanic", Mr. Ballinger stated that although he had not been regularly employed as a mechanic since 1973, he listed it on his schedules as he hoped to return to the profession going forward.
341 Tr. at 31:23-33:18.
341 Tr. at 33:19-34:13.
Mr. Ballinger explained that the gifts from his family that made up his current income was not a "formalized thing". His sister and his son, Christopher Ballinger, were providing the necessary financial support. He testified that he drove to the first meeting of creditors in a 2006 Maserati. He claimed that the car is owned by his son Christopher but that he is permitted to drive it all the time.
341 Tr. at 20:3-14; 20:25-21:5; 26:23-27:11; 36:5-7. During this line of questioning, Mr. Ballinger disclosed that within 2 years of his bankruptcy he received $33,000 for a stolen 2006 Jaguar.
341 Tr. at 20:1-18; 36:14-19; 45:16-21.
Mr. Ballinger first knew he was in financial dire straits when he separated from his wife in or about 2010. At that time, his annual income dropped from $2 million to zero. Since 2011, Mr. Ballinger had no regular income other than his veteran's disability. He received income in the form of a few property claim settlements but could not recall the specific dates. He stated that because he "moved around like a gypsy" he had not kept clear records of the settlements he received. He had several boxes of assorted records stored at his homestead, but no others.
341 Tr. at 39:21-40:13.
341 Tr. at 41:13-44:1.
341 Tr. at 44:2-45:7.
The initial meeting of creditors was continued to November 16, 2016, to allow Mr. Ballinger to provide documents to the Trustee and, in part, for him to file his SOFA. The meeting was continued several more times, but Mr. Ballinger repeatedly failed to appear.
See UST Ex. 53, ¶ 2(d) (Trustee's Motion for Turnover noting Debtor had failed to attend "several" continued 341 meetings).
Discovery Prior to the Adversary
After the initial 341 meeting of creditors but before the complaint in this proceeding was filed, the record demonstrates that the UST and the Trustee were frustrated in their efforts to obtain documents and records from Mr. Ballinger. Once informal attempts at discovery failed, the UST duly noticed Mr. Ballinger to appear at a Rule 2004 examination on January 20, 2017. The notice provided a detailed list of documents and records that Mr. Ballinger was to produce. Of particular note, the UST requested documents and financial records related to Locations, Inc. and Locations of Pinellas, Inc. (together, the "Locations Entities") as well as those describing Mr. Ballinger's interest in or role with the Locations Entities. Mr. Ballinger did not appear.
Fed. R. Bankr. P. ("Rule(s)") 2004.
UST Ex. 9; see also UST Ex. 11.
UST Ex. 9, at pp. 8-9.
UST Ex. 11 (UST's Motion to Compel Debtor's Production of Documents and Examination of the Debtor and order granting the motion).
Shortly after Mr. Ballinger failed to appear for the Rule 2004 examination noticed by the UST, the Trustee noticed his own Rule 2004 examination of Mr. Ballinger and Ms. Benshoof. Like the UST, the Trustee requested documents and records related to the Locations Entities. Once again, Mr. Ballinger failed to appear.
UST Ex. 10 (Transcript of Rule 2004 Examination held Mar. 3, 2017).
The complaint in this proceeding was filed on April 17, 2017. Earlier that day, the Trustee filed an application to employ special counsel for a state court lawsuit pending at the time of Mr. Ballinger's filing but undisclosed on either his schedules or at the initial 341 meeting. In the state court lawsuit, Mr. Ballinger sought to recover three luxury watches allegedly stolen by his son and sold to a pawn shop (the "Luxury Watch Lawsuit"). Eventually, the watches were recovered by the Trustee and sold for $15,000.
MC Doc. 74. An order approving the application was entered Apr. 28, 2017. MC Doc. 80.
UST Exs. 58-64. Interestingly, in a police report filed by Mr. Ballinger shortly before bankruptcy, he valued the watches at $56,000. See UST Ex. 58 (Petition to Recover Property From a Pawnbroker, Ex. A).
Statement of Financial Affairs ("SOFA")
After the UST filed the complaint objecting to his discharge, Mr. Ballinger first tried to dismiss his chapter 7 case. His motion to dismiss was quickly denied on May 18, 2017. So, Mr. Ballinger finally filed his SOFA on May 31, 2017, just over seven months after the initial § 341 meeting of creditors and approximately six weeks after the instant complaint was filed. The disclosures are consistent with Mr. Ballinger's testimony at the meeting of creditors and not unsurprisingly, include the pendency of the Luxury Watch Lawsuit and his connection to Locations, Inc.
MC Doc. 87.
MC Doc. 90.
UST Ex. 6. Attached to the SOFA is a list of entities in which Mr. Ballinger is affiliated, purportedly generated on sunbiz.org, the State of Florida's Department of Corporations online registry and search tool. Most of the business entities discussed at the initial meeting of creditors are listed, but there are many more that are not.
Discovery Within the Adversary
As before this proceeding was filed, the UST's frustration in obtaining documents and records from Mr. Ballinger continued. Mr. Ballinger's resistance to participate in discovery prompted the UST to move for summary judgment or, alternatively, to compel Mr. Ballinger to respond to discovery and impose sanctions. Mr. Ballinger responded by noting that he had attempted to comply and that various categories of requested documents were not in his possession and/or could be obtained by resort to third parties.
Doc. 23
UST Exs. 20 and 21.
Following a hearing on January 29, 2018, at which Mr. Ballinger appeared, the UST's motion was denied as to summary judgment but granted as to compel discovery. The court's order detailed how Mr. Ballinger was to respond to the UST's outstanding requests.
UST Ex. 22.
By affidavit sworn February 20, 2018, Mr. Ballinger repeated that he had, to the best of his ability, attempted to comply with all discovery requests propounded by the UST. He noted that he has lost many of his vital records due to either sinkhole damage at his homestead or during his many relocations since the filing due to foreclosures upon his various residences. Specifically, as to Locations, Inc., Mr. Ballinger averred:
UST Ex. 24.
12. The debtor was informed by the president of Locations, Inc. is still operating.
13. The debtor requested the bank statements from the president of Locations and was given a statement dated January, 31st 2018.
14. The Debtor is not a signer of the Locations, Inc. BB&T account and has no records related to the account other than those provided to the Trustee.
Id. (errors in original). At some point between the bankruptcy filing and April 30, 2017, the registered agent for Locations, Inc. was changed to Ms. Darla Wright. Responding to a motion for turnover filed by the Trustee, Debtor acknowledged the change in the officers of the corporation but claimed to be without knowledge of who directed the change. Further, he stated that he "no longer ha[d] possession" of the records of the business and was unsure whether the current officers had any records that might be responsive to the UST and Trustee's requests. UST Ex. 56; MC Doc. 109.
Shortly before trial, the UST filed a Motion to Compel Completion of Discovery and Providing Disclosures or to Impose Sanctions Against Defendant for Failure to Attend Continued Deposition and Failure to Provide Disclosures. The UST complained of Mr. Ballinger's incomplete or vague responses to the discovery requests as well as his failure to complete a deposition in advance of trial. Following a hearing, at which Mr. Ballinger appeared, the court denied the motion without prejudice to the UST raising any discovery issues at trial.
Doc. 44.
Id.
Doc. 51.
Testimony at Trial
In addition to documentary evidence, five witnesses provided live testimony at trial. Mr. Ballinger, Darla Wright (Mr. Ballinger's longtime friend), Steven Pralle (an auditor with the UST's office), James Stevens (appraiser for the chapter 7 trustee) and Jason Brazleton (attorney for the chapter 7 trustee). The deposition testimony of Helen Benshoof also was introduced by the UST.
For purposes of the court's ruling, the key testimony is summarized as follows:
Darla Wright
Ms. Wright testified that Mr. Ballinger asked her to take possession of the documents related to Locations, Inc., to become its President and to take control of the company's finances in late April 2017. She further stated that she was a friend and had no business interest in the company. She opened a new account at BB&T with money Mr. Ballinger gave her in July 2017. She deposited and withdrew cash as directed by Mr. Ballinger and delivered the cash to him from the company. She also would have returned everything associated with Locations, Inc. to Mr. Ballinger any time he asked. She ultimately returned the documents and ended her Presidency at her request. She testified that Mr. Ballinger asked for the company's books just before trial.
See UST Ex. 31 (BB&T statements, cancelled checks and signature card for account ending in 5592 in the name of Locations, Inc., covering period 7/31/17 to 2/28/18; BB&T Signature Card and Affidavit of Branch Banking and Trust Company).
Helen Benshoof
Ms. Benshoof was deposed on October 3, 2017 and her deposition was introduced at trial. She testified that she was involved when Locations, Inc. was formed as a real estate company back in 1966. But, approximately eight years before her deposition, she gave over her ownership and all documents for Locations, Inc. to Mr. Ballinger. She further testified: "I don't know what he did with the company after I turned it over to him." She is "[a]bsolutely not" involved in the current operations or management of the company and has had no involvement since she turned it over to Mr. Ballinger many years ago.
UST Ex. 25 (hereafter "Benshoof Tr.").
Benshoof Tr. at 8:4-11:11.
Benshoof Tr. at 11:12-12:7. Ms. Benshoof's noninvolvement is buttressed by the fact that she lives outside the state of Florida in Georgia. Benshoof Tr. at 7:17-19. Mr. Ballinger testified at his § 341 meeting that she resided in Hillsborough County Florida. 341 Tr. at 26:5-11.
Steven Pralle
Mr. Pralle described the efforts of the UST to get information from Mr. Ballinger and attempted to piece together Mr. Ballinger's business and financial affairs. He obtained records from the Bank of Tampa for Mr. Ballinger's personal account and the business account for Locations, Inc. Those records demonstrate that the Bank of Tampa business account for Locations, Inc. was opened by Mr. Ballinger in 2011 and that Mr. Ballinger - and only Mr. Ballinger - was an authorized signatory on the account before he filed bankruptcy. Mr. Pralle further testified that Mr. Ballinger used the Locations Inc. bank account to pay his personal as well as business expenses.
The main account for Locations, Inc. was at Bank of Tampa. See UST Ex. 29 (Bank of Tampa signature card, statements, and cancelled checks for account ending in 2501, in the name of Locations, Inc., covering period 01/01/2014 to 07/31/2017; and Certification of Records Custodian). Locations, Inc. also had an account at Branch Banking & Trust opened in July 2017. See supra note 59.
See UST Ex. 29 at p. 1 (Bank of Tampa signature card for account ending in 2501 noting date opened 06/28/2011).
Mr. Pralle's testimony was based on his analysis of the checks and deposits in and out of the bank accounts for Locations, Inc. that he was able to subpoena. See UST Ex. 26 (Analysis of Banking Transactions for Bank of Tampa account ending in 2501, in the name of Locations, Inc., during the period of 01/01/2015 through 07/31/2017).
Samuel Ballinger
Mr. Ballinger testified that he had extensive experience in business, law and bankruptcy. He next attempted to rebut the allegations that he was not cooperative with the chapter 7 trustee and the UST with a litany of excuses. One excuse was that he lost many documents because he was dealing with foreclosures and moved frequently. Another was that he fell ill and was briefly hospitalized in April 2017. He claimed that this was the reason why he had to transfer control of Locations, Inc. to Darla Wright. A third excuse related to a lawyer, Darren Soto, who was going to help him with his bankruptcy and then backed out when he was elected to public office. Mr. Ballinger vehemently challenged Mr. Pralle's allocation of funds from the Locations, Inc. bank account, as between personal and business use. And notwithstanding Ms. Benshoof's deposition testimony, he continued to deflect questions regarding Locations, Inc. and its records to Ms. Benshoof.
Discussion
It is the general policy of the Bankruptcy Code to "favor[] discharge of an honest debtor's obligations." But the policy "that provisions denying such a discharge are construed liberally in favor of the debtor . . . applies only to the honest debtor."
Jennings v. Maxfield (In re Jennings), 533 F.3d 1333, 1338 (11th Cir. 2008).
Id. at 1338-39.
Section 727(a) of the Code provides several grounds upon which a debtor may, upon proper objection, be denied his discharge. The party objecting to the debtor's discharge bears the initial burden to prove the ground for its objection by a preponderance of the evidence. Once the objecting party meets its burden "[t]he debtor must bring forward enough credible evidence to dissuade the court from exercising its jurisdiction to deny the debtor discharge based on the evidence presented by the objecting party."
Jennings, 533 F.3d at 1339.
Id. (quoting In re Prevatt, 261 B.R. 54, 58 (Bankr. M.D. Fla. 2000)).
The UST seeks denial of Mr. Ballinger's discharge under five separate provisions of § 727. Unique among them is § 727(a)(3), which unlike the remaining sections, does not require fraudulent intent. Because the court finds that the UST satisfied its burden proof on this count of the complaint and that Mr. Ballinger was unable to justify his failure to keep and preserve records, or rebut the claim that he concealed records, his discharge will be denied under section 727(a)(3), without need for the court to decide the issues under the remaining counts of the complaint.
See Protos v. Silver (In re Protos), 322 F. App'x 930, 935 (11th Cir. 2009); see also Trauner v. Burrowes (In re Burrowes), No. 10-91876-WLH, Adv. No. 11-5254-WLH, 2011 WL 5035975, at *2 (Bankr. N.D. Ga. Oct. 13, 2011).
See Protos, 322 F. App'x at 932-33 ("A finding against the [debtor] under any single subsection of section 727 is sufficient to deny him a discharge.").
Denial of Discharge Pursuant to 11 U.S.C. § 727(a)(3)
To deny a discharge under section 727(a)(3), a court must find:
the debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information . . . from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case."The purpose of § 727(a)(3) is to give creditors, the trustee and the bankruptcy court complete and accurate information concerning the debtor's affairs and to ensure that dependable information is provided so that the debtor's financial history may be traced." As stated before, fraudulent intent is not an element of a denial of discharge under section 727(a)(3).
Hylan Debt Fund, LLC-Portfolio Series 18 v. Nestor (In re Nestor), 546 B.R. 482, 486 (Bankr. N.D. Ga. 2016) (quoting Harrington v. Simmons (In re Simmons), 525 B.R. 543, 547 (1st Cir. B.A.P. 2015)); In re Juzwiak, 89 F.3d 424, 427-28 (7th Cir. 1996) (listing cases).
See e.g., Protos, 322 F. App'x at 935.
Courts recognize a shifting burden of production under § 727(a)(3). Where an unreasonable failure to preserve financial records is shown, a debtor may receive a discharge only if he can show that the failure to keep those records is "justified under all the circumstances."
Milam v. Wilson (Matter of Wilson), 33 B.R. 689, 692 (Bankr. M.D. Ga. 1983).
A plaintiff meets its initial burden under § 727(a)(3) by showing that the records are insufficient to ascertain the debtor's financial condition and business transactions. This is demonstrated not by a failure to maintain records in any special form, but by a failure to maintain records that make complete disclosure. Complete disclosure is a condition precedent to a discharge. The adequacy of records depends on several factors including:
See Ochs v. Nemes (In re Nemes), 323 B.R. 316, 325 (Bankr. E.D. N.Y. 2005); Jacobowitz v. The Cadle Co. (In re Jacobowitz), 309 B.R. 429, 440 (S.D.N.Y. 2004).
See In re Juzwiak, 89 F.3d at 428; In re Nemes, 323 B.R. at 324- 25.
whether a debtor was engaged in business and, if so, the complexity and volume of the business; the amount of the debtor's obligations; whether the debtor's failure to keep or preserve books and records was due to the debtor's fault; the debtor's education, business experience and sophistication; the customary business practices for record keeping in the debtor's type of business; the degree of accuracy disclosed by the debtor's existing books and records; the extent of any egregious conduct on the debtor's part; and the debtor's courtroom demeanor.
Krohn v. Frommann (In re Frommann), 153 B.R. 113, 117 (Bankr. E.D. N.Y. 1993).
If the plaintiff satisfies its initial burden, then the debtor must justify the failure to keep records. A blanket assertion that the records are sufficient or statements that it was the normal practice of the debtor not to keep records does not satisfy the debtor's burden. Nor can the debtor justify his failure by relying on the delegation to a third party the obligation to keep records, or by attempting to shift back to a plaintiff the obligation to "ferret out" the required documents based upon an incomplete or unorganized production. Further, a "satisfactory explanation must consist of more than a vague, indefinite and uncorroborated hodge-podge of financial transactions."
Id. at 117.
Seidle v. Escobar (In re Escobar), 53 B.R. 382, 385 (Bankr. S.D. Fla. 1985).
In re Nemes, 323 B.R. at 329-30.
In re Simmons, 113 B.R. 741, 744 (Bankr. M.D. Fla. 1990) (quotation omitted); In re Escobar, 53 B.R. at 384 ("[T]hrough the simple expedient of not keeping proper records and not remembering transactions, the Debtors have frustrated the Trustee's efforts to discover and evaluate assets for the benefit of creditors.").
Here, the UST urges the court to deny Mr. Ballinger a discharge because he failed to disclose and concealed the books and records of Locations, Inc., a corporation that Mr. Ballinger controlled when he filed bankruptcy, as well as the records associated with other potential assets.
For example, Mr. Ballinger did not initially disclose his claim to recover three gold watches from a pawn shop. In time, the watches were recovered by the Trustee and sold for $15,000. UST Exs. 58-64.
The original owner of Locations, Inc. was Helen Benshoof. But Ms. Benshoof testified, via deposition, that she gave up her interest in and documents related to Locations, Inc. to Mr. Ballinger many years before Mr. Ballinger filed bankruptcy. Her testimony is corroborated by the fact that she is retired and living in Georgia, and that, in 2011, Mr. Ballinger opened a new bank account for Locations, Inc. at the Bank of Tampa as the sole authorized signatory. It is further corroborated by the fact that Mr. Ballinger had the authority to completely turn management of the company over to Ms. Wright in April 2017.
Benshoof Tr. 11:12-12:17.
Benshoof Tr. at 7:17-19.
UST Ex. 29.
UST Ex. 31.
Mr. Ballinger initially failed to disclose any interest in Locations, Inc. on his schedules. Though the issue of a potential interest in Locations, Inc. came up at the initial 341 meeting of creditors, Mr. Ballinger's responses to questions were intentionally vague and seriously misleading with respect to the nature and extent of his interest. Ultimately, it was only after the UST filed this complaint objecting to his discharge, and he was unsuccessful in dismissing his chapter 7 case, that Mr. Ballinger finally filed his SOFA to reflect some undisclosed interest in Locations, Inc. Even then, during his chapter 7 case and at trial, Mr. Ballinger continued to claim ignorance and deflect questions regarding Locations, Inc. to Ms. Benshoof, who had had nothing to do with the business for years. Mr. Ballinger's testimony with respect to the management and operations of Locations, Inc. simply was not credible.
UST Ex. 6.
Benshoof Tr. at 13:25-14:16.
In fact, Mr. Ballinger opened a bank account for Locations, Inc. at the Bank of Tampa in 2011. He was the only person who could write checks and withdraw money from that account through the date of the bankruptcy, and he wrote many. Despite his § 341 testimony to the contrary, Ms. Benshoof has never been designated as a signatory for Locations, Inc's account.
UST Ex. 29.
Benshoof Tr. at 13:25-14:16.
Further, despite numerous requests from the UST and the Trustee, Mr. Ballinger did not produce bank account information for Locations, Inc. The documents were produced only because the UST issued a blanket of subpoenas to all major banks in the in the Tampa Bay area.
Darla Wright's testimony was that Mr. Ballinger gave her the documents relating to Locations, Inc. in April of 2017— just after the UST filed this proceeding and just before he filed his SOFA. He also made her President of Locations, Inc. He provided her with the money to open a new account at BB&T. She deposited checks that he provided her. And, at his direction, delivered to him cash taken from the company.
See UST Ex. 31.
Throughout discovery in this proceeding, Mr. Ballinger used Ms. Wright's possession of the documents as an excuse not to produce them to the UST. He made no effort to request any documents from her (except a single bank statement) until just before trial. Essentially, Locations, Inc.'s documents were parked with Ms. Wright by Mr. Ballinger just after the UST filed its complaint objecting to discharge and they remained with her until shortly before trial.
UST Ex. 24.
Mr. Ballinger's participation in the discovery process was evasive, to say the least. Indeed, he seems in a strange way to have relished the challenge of frustrating the Trustee and the UST.
It is clear to the court that Ms. Wright is a friend who simply was doing Mr. Ballinger's bidding. She had no real interest in Locations Inc. and, whether knowingly or not, was helping Mr. Ballinger mask and preserve his interest in Locations, Inc. At all times, Mr. Ballinger retained effective control of Locations, Inc.'s documents and bank accounts.
Mr. Ballinger argues that his justification for concealing the documents were medical problems that arose in April 2017, and his generalized excuse that he no longer possessed the documents having delivered them to Ms. Wright. Even if the court accepts that his medical condition was the original reason the documents were placed with Ms. Wright and she was legitimately named president, this does not explain why Mr. Ballinger was less than candid with the UST and the court in disclosing where the documents were parked, or why he did not request the documents from Ms. Wright sooner. Nor for that matter why he did not produce them in response to the UST and Trustee's requests made before this proceeding was commenced.
In May 2017, shortly after his April 2017 hospitalization, Mr. Ballinger was back in court urging dismissal of his bankruptcy case. Hearing Proceeding Memo, MC Doc. 88.
Indeed, in February 2018, following a hearing at which Mr. Ballinger attended, the court entered an order compelling him to produce documents or to file an affidavit explaining why the documents could not be produced. Mr. Ballinger's affidavit in response stated, simply, that he requested bank statements from Locations, Inc.'s President and was given only a statement dated January 2018. In that same affidavit, Mr. Ballinger avers: "The Debtor is not a signer on the Locations, Inc. [or] BB&T account and has no records related to the account[s] other than those provided to the Trustee." Technically, at the time the affidavit was sworn, this may have been true. But, viewed in context, the court finds that the circumstances were contrived by Mr. Ballinger so that he could mislead and thwart the Trustee and UST's pursuit of the documents.
UST Ex. 22.
UST Ex. 24, ¶ 13.
Id. at ¶ 14. --------
Mr. Ballinger failed to disclose the fact that he turned the records over to Ms. Wright and that she would willingly give them back at any time. Mr. Ballinger effectively used Ms. Wright to conceal the Locations, Inc. documents, just as he used Ms. Benshoof to obscure his pre- and post-petition involvement with the company.
Based upon what limited information had been disclosed and his obfuscation of the truth, neither the chapter 7 trustee nor creditors could ever determine the full nature and extent of Mr. Ballinger's business interests. Indeed, the UST with its full resources and a financial auditor had a hard time putting together an accurate picture of Mr. Ballinger's business interests.
Finally, when cross-examining the UST's financial auditor, Mr. Ballinger became frustrated that the auditor made "judgment calls" about what expenditures by Locations, Inc. were business expenses and what were for Mr. Ballinger's personal use. Mr. Ballinger obviously knows that the auditor made some mistakes. But in making his point, Mr. Ballinger plainly misses the larger, more important point. As the auditor aptly responded, the UST would not have to make such "judgment calls" if Mr. Ballinger had not concealed the documents and obstructed the Trustee and UST's efforts to obtain the information necessary to understand Mr. Ballinger's financial affairs.
Accurate and full disclosure is necessary to secure a discharge. Dribs and drabs of information over a year and half, sprinkled in with misleading bits of information is not good enough. Mr. Ballinger is not the unemployed mechanic described in his bankruptcy schedules. Rather, he is a sophisticated businessman whose courtroom demeaner suggests that he is highly intelligent, business savvy, and not unaccustomed to delivering a compelling sales pitch. He concealed his business interests and failed to maintain adequate records to allow anyone, much less the Trustee or UST, to evaluate the nature and extent of his assets.
Applying the factors under § 727(a)(3), the court finds Mr. Ballinger's business interests were sufficiently complex that the records he maintained were not adequate or were concealed. Moreover, because he is sophisticated in all matters relating to the real estate business and bankruptcy law, he would be reasonably expected to maintain good records. He did not, and he has offered no acceptable justification for this failure. As a result, his discharge will be denied under § 727(a)(3).
For these reasons, it is ORDERED AND ADJUDGED that Debtor Samuel W. Ballinger be denied his discharge pursuant to 11 U.S.C. § 727(a)(3).
ORDERED.
Dated: September 28, 2018
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Clerk's Office to serve.