Opinion
Case No. 11-16241 Adversary No. 11-1209
10-25-2012
In Re RODNEY T. RIDDLE, Debtor DANIEL M. MCDERMOTT, UNITED STATES TRUSTEE, Plaintiff v. RODNEY T. RIDDLE, Defendant
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
____________________
Beth A. Buchanan
United States Bankruptcy Judge
Chapter 7
Judge Buchanan
DECISION GRANTING MOTION FOR SUMMARY JUDGMENT
AND DENYING THE DISCHARGE OF DEBTOR RODNEY T. RIDDLE
This matter is before this Court on the United States Trustee's (the "UST") Motion for Summary Judgment and Memorandum in Support [Docket Number 20](the "Motion"). Rodney T. Riddle, the Debtor-Defendant (the "Debtor"), did not file a response. The facts underlying this action are established by the Complaint to Deny Discharge [Docket Number 1], the Answer to Complaint to Deny Discharge [Docket Number 6], the United States Trustee's First Request For Admissions [Docket Number 20] and the "Statement of Undisputed Material Facts" contained in the Motion.
The Superintendent of the Division of Real Estate and Professional Licensing filed a Memorandum in Support of the Motion in the main case. Case No. 11-16241, Docket Number 60.
For the reasons set forth below, this Court concludes that the Debtor knowingly and fraudulently made a false oath in connection with his bankruptcy case by means of his schedules and statement of financial affairs, which conduct merits a denial of discharge under 11 U.S.C. § 727(a)(4).
I. Jurisdiction
This Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J).
II. Factual and Procedural History
The Debtor filed a pro se petition under Chapter 7 on October 14, 2011 (the "Petition Date"). The Debtor appeared for the meeting of creditors on November 22, 2011, but did not have identification. The Chapter 7 Trustee (the "Trustee") continued the meeting of creditors to December 13, 2011. The Trustee also told the Debtor what documentation the Debtor would be required to bring to the continued meeting of creditors.
On December 9, 2011, the UST initiated the instant adversary proceeding by filing the complaint (the "Complaint"). In the Complaint, the UST alleges that the Debtor failed to list his ownership interest in his residence located at 11440 Gideon Lane, Cincinnati, Ohio, that the Debtor failed to disclose a transfer of property located at 5946 Woodmont Avenue, Cincinnati, Ohio which occurred a week prior to the Petition Date, and that the Debtor failed to disclose that he had an ownership interest in and/or was an officer, director or shareholder in two business entities, Seasons Real Estate LLC and Real Dime LLC.
The Debtor appeared on December 13, 2011 for the meeting of creditors and told the Trustee that he would be filing documents to dismiss his case. The Trustee continued the meeting of creditors to February 28, 2012.
On January 3, 2012, the Debtor entered into a plea agreement wherein he plead guilty to wire fraud and bank fraud arising from the Debtor's participation in a mortgage loan fraud scheme wherein he provided fraudulent information to lending institutions in order to secure loans. The statement of facts accompanying the plea agreement indicates that the Debtor's criminal activity spanned from about 2001 to about 2006.
Except as expressly noted in this decision, this Court does not consider the plea agreement to be relevant to the instant adversary proceeding, which involves the Debtor's disclosures, or lack thereof, in his 2011 bankruptcy filing.
The Debtor filed an answer to the Complaint (the "Answer") on January 18, 2012.
The Debtor did not appear on February 28, 2012 for the meeting of creditors.
On March 8, 2012, the UST filed a Motion to Dismiss Chapter 7 Case (the "Motion to Dismiss").
As requested by the UST, the Motion to Dismiss has been held in abeyance pending the resolution of this adversary proceeding.
On May 2, 2012, the UST served the United States Trustee's First Request for Admissions (the "Admissions") on the Debtor. The Debtor did not respond to the Admissions. As a result, the Admissions are established as undisputed facts. Fed. R. Civ. P. 36(a)(3); Fed. R. Bankr. P. 7036.
III. Legal Analysis
A. Summary Judgment Standard
The standard for summary judgment is set forth in Rule 56(a) of the Federal Rules of Civil Procedure (the "Civil Rules"), made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Civil Rule 56(a) provides that a "court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In reviewing a motion for summary judgment, this Court must view all inferences to be drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986); Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 511 (6th Cir. 2003).
"One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). As such, the summary judgment process should not be regarded "as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Id. at 327 (citing Fed. R. Civ. P. 1). B. 11 U.S.C. § 727(a)(4) - False Oath or Account
The UST contends that the Debtor violated 11 U.S.C. § 727(a)(4) ("§ 727(a)(4)") by making a false oath when the Debtor failed to disclose his interests in two parcels of real estate and three business entities in his schedules and statement of financial affairs. A debtor may be denied a discharge pursuant to § 727(a)(4) if "the debtor knowingly and fraudulently, in or in connection with the case—(A) made a false oath or account." To prevail, the plaintiff must prove the following by a preponderance of the evidence: "1) the debtor made a statement under oath; 2) the statement was false; 3) the debtor knew the statement was false; 4) the debtor made the statement with fraudulent intent; and 5) the statement related materially to the bankruptcy case." Keeney v. Smith (In re Keeney), 227 F.3d 679, 685 (6th Cir. 2000)(citing Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174, 178 (5th Cir. 1992)); see also Warren v. Rowland (In re Rowland), 441 B.R. 281, 286 (Bankr. S.D. Ohio 2010).
As further described by the Sixth Circuit Court of Appeals:
" 'Complete financial disclosure' " is a prerequisite to the privilege of discharge. Peterson, 172 F.3d at 967. The Court of Appeals for the Seventh Circuit has explained that intent to defraud "involves a material representation that you know to be false, or, what amounts to the same thing, an omission that you know will create an erroneous impression." In re Chavin, 150 F.3d 726, 728 (7th Cir.1998). A reckless disregard as to whether a representation is true will also satisfy the intent requirement. See id. " '[C]ourts may deduce fraudulent intent from all the facts and circumstances of a case.' " Williamson, 828 F.2d at 252 (citation omitted). However, a debtor is entitled to discharge if false information is the result of mistake or inadvertence. See Gillickson, 108 F.3d at 1294. The subject of a false oath is material if it " 'bears a relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property.' " Beaubouef, 966 F.2d at 178 (citation omitted).In re Keeney, 227 F.3d at 685-86.
The first element of under § 727(a)(4)—a statement by the Debtor under oath—is clearly met in this case. In accordance with Federal Rule of Bankruptcy Procedure 1008, a debtor's bankruptcy schedules and statement of financial affairs are submitted under oath. Therefore, the Debtor's failure to disclose information regarding certain real property and business interests in his schedules and statement of financial affairs satisfies the first element of the § 727(a)(4) test. See In re Keeney, 227 F.3d at 685-86; In re Rowland, 441 B.R. at 286. Similarly, the second and fifth elements of § 727(a)(4) are met in this case because the Debtor's failure to disclose assets and other information relevant to the Debtor's financial dealings and disposition of assets relates materially to the Debtor's bankruptcy case. In re Rowland, 441 B.R. at 286 ("Nothing is more fundamental to a Chapter 7 bankruptcy case than the forthright disclosure of a debtor's assets and liabilities, [which is] essential information for administering the estate and an absolute prerequisite to a debtor's discharge." (citing United States v. Ellis, 50 F.3d 419, 423-24 (7th Cir. 1995)).
As to the third and fourth elements under § 727(a)(4)—whether the Debtor knew his statements were false and made the statements with fraudulent intent—this Court turns to the specific items that the Debtor failed to disclose in his schedules and statement of financial affairs.
1. Interest in Gideon Lane Property
The UST established that the Debtor owns an interest in real property located at 11440 Gideon Lane, Cincinnati, Ohio (the "Gideon Lane Property"), where the Debtor resides with his wife. See Complaint at Exhibit A; Answer at Exhibit A; & Admissions at E. The Debtor did not disclose his interest in the Gideon Lane Property in his bankruptcy filing nor did he disclose his interest in this property to the Trustee. See Admissions at E.
In his Answer, the Debtor asserts that he thought he had deeded over the Gideon Lane Property to his wife in connection with a 2005 refinance of the property and that "[he] did not know [his] name was jointly included in the deed." Attached to the Debtor's Answer is a copy of a quitclaim deed executed by the Debtor and recorded in February of 2005 for the Gideon Lane Property showing the grantor as "Rodney Riddle married to grantee" and the grantees as "Dionne Y. Riddle and Rodney Riddle."
Courts may consider a debtor's education and business experience when evaluating a debtor's knowledge of a false statement. Krywopusk v. Raftogianis (In re Raftogianis), 2012 Bankr. LEXIS 3284 at *19-20, 2012 WL 2885469 at *6 (Bankr. E.D. Pa. July 12, 2012)(citing In re Maletta, 159 B.R. 108, 112 (Bankr. D. Conn. 1993)). The Debtor in this case has been a realtor for over fifteen years. See Admissions at Appendix A (Grand Jury Indictment); see also Schedule I. As an experienced realtor, the Debtor should be capable of understanding that the 2005 deed, which bears his signature, purports to grant an interest in the Gideon Lane Property to both he and his wife. Moreover, while the Debtor did not sign the promissory note in connection with the 2005 refinance of the Gideon Lane Property, he did execute the mortgage. Case No. 11-16241, Docket Number 34, Exhibit C. Accordingly, as an experienced real estate professional, the Debtor must have understood that he had some interest in the property, be it a fee interest or a dower interest, which necessitated his signature on the mortgage. Therefore, this Court finds that the Debtor knew he was making a false statement when he failed to disclose his interest in the Gideon Lane Property in his bankruptcy schedules.
2. Interest in Woodmont Avenue Property
The UST established that the Debtor held an interest in real property located at 5946 Woodmont Avenue, Hamilton County, Ohio (the "Woodmont Avenue Property"), which interest was conveyed to Fifth Third Mortgage Company on October 7, 2011. See Complaint at Exhibit B, Admissions at E. The Debtor did not disclose his interest in the Woodmont Avenue Property or the transfer of the Woodmont Avenue Property in his bankruptcy filing nor did he disclose his interest in or the transfer of this property to the Trustee. See Admissions at E.
In his Answer, the Debtor asserts that the Woodmont Avenue Property was not transferred but was "taken through foreclosure." This Court acknowledges the distinction between a voluntary transfer and an involuntary foreclosure. If the Debtor did not view this as a "transfer" reportable under Question 10 of the statement of financial affairs, the Debtor nonetheless should have disclosed this "foreclosure" at Question 5 of his statement of financial affairs which requires a debtor to list "all property that has been repossessed by a creditor [or] sold at a foreclosure sale . . . within one year immediately preceding the commencement of this case." In light of the Debtor's experience with real estate transactions and given that the foreclosure sale occurred within one week of the Petition Date, this Court finds that the Debtor knew he was making a false statement when he failed to disclose either the transfer or foreclosure of the Woodmont Avenue Property in his statement of financial affairs.
3. Business Interest in Seasons Real Estate LLC
The UST established that the Debtor had a material connection to Seasons Real Estate LLC either as an owner, officer, incorporator, director or other person in control of Seasons Real Estate LLC. See Complaint at Exhibit C, Admissions at B. In particular, the Articles of Organization filed with the Ohio Secretary of State by Seasons Real Estate LLC indicate that the Debtor and his wife, Dionne Riddle, were the "authorized member[s], manager[s] or representative[s] of Seasons Real Estate, LLC" as of May 3, 2007. See Complaint at Exhibit C. The Debtor did not disclose any information regarding Seasons Real Estate LLC—including a transfer of his ownership interest in Seasons Real Estate LLC to his wife—in his bankruptcy filing or to the Trustee. See Admissions at B.
In his Answer, the Debtor asserts that he is "not an officer nor director" of "SEASONS REAL ESTATE AND TRUST," because "[t]he llc paperwork was filed initially incorrectly and then paper work was corrected." The Debtor attached to his Answer copies of certificates from the Ohio Secretary of State indicating that Seasons Real Estate LLC recorded its Articles of Organization with the Ohio Secretary of State on June 1, 2007 and that the originally appointed statutory agent resigned on July 3, 2007 and was replaced by a subsequently appointed Agent on the same date. See Answer at Exhibit C. This documentation only indicates a change in the statutory agent for Seasons Real Estate LLC. It does not otherwise refute that the Debtor was an "authorized member, manager or representative" of Seasons Real Estate LLC as of May 3, 2007. Moreover, even if the Debtor later had no ownership or controlling involvement with Seasons Real Estate LLC, the Debtor was nonetheless required to disclose information about Seasons Real Estate LLC in Question 18 of his statement of financial affairs since he held such a position of control within six years of the Petition Date. As such, this Court finds that the Debtor knew he was making a false statement when he failed to disclose information regarding Seasons Real Estate LLC in his schedules or statement of financial affairs.
4. Business Interest in Real Dime LLC
The UST established that the Debtor is an owner, officer, incorporator, or director of Real Dime LLC. See Complaint at Exhibit D, Admissions at E. The Debtor did not disclose his interest in Real Dime LLC in his bankruptcy filing nor did he disclose his interest in Real Dime LLC to the Trustee. See Admissions at E.
In his Answer, the Debtor admits that Real Dime LLC is in existence but that it has never been used and that "[a]ctually, [he] forgot it was out there. [He] never finished putting all the paperwork together for that idea." A debtor may not evade the denial of discharge by asserting that the omitted information relates to a worthless business; "such a defense is specious." Stamat v. Neary, 635 F.3d 974, 982-83 (7th Cir. 2011)(citations omitted). Furthermore, at least some organizational paperwork for Real Dime LLC was prepared and filed with the Ohio Secretary of State, which paperwork reflects that the Debtor was an "authorized member, manager or representative" of Real Dime LLC as of June 19, 2007. See Complaint at Exhibit D. As previously discussed, at a minimum the Debtor should have disclosed information regarding this business entity in response to Question 18 of the statement of financial affairs because the Debtor was a person in control of Real Dime LLC within six years of the Petition Date. If this was the only interest that the Debtor failed to disclose in his schedules and statement of financial affairs, the proffered excuse of mistake may have been persuasive. In light of the other omissions, however, the Debtor's failure to disclose his interest in Real Dime LLC reflects a reckless disregard for the truth supporting a finding that the Debtor knew he was making a false statement when he failed to disclose information regarding Real Dime LLC in his schedules or statement of financial affairs.
5. Business Interest in Quality Home Maintenance
By failing to respond to the Admissions, the UST has conclusively established that the Debtor owned and operated Quality Home Maintenance and that the Debtor used Quality Home Maintenance to engage in the buying and selling of homes since 2001. See Admissions at D. The Debtor did not disclose his interest in Quality Home Maintenance in his bankruptcy filing nor did he disclose his interest in Quality Home Maintenance to the Trustee. Id.
This Court also notes that the Debtor admitted in his December 30, 2011 Statement of Facts executed in connection with the plea agreement that he owned Quality Home Maintenance and operated such business beginning in 2001 and continuing into 2006. See Admissions at Appendix A. Again, information regarding Quality Home Maintenance should have been disclosed in response to Question 18 of the statement of financial affairs because the Debtor held an ownership interest in Quality Home Maintenance within six years of the Petition Date.
The Complaint does not include a specific allegation regarding the Debtor's failure to disclose his business interest in Quality Home Maintenance. This allegation was made in both the Motion and the Admissions. The Debtor had an opportunity to challenge this allegation. Accordingly, this Court will treat this issue as if it were raised in the pleadings. Fed. R. Civ. P. 15(b)(2); Fed. R. Bankr. P. 7015(b)(2). In any event, the UST's failure to raise this particular allegation in the Complaint is not fatal to the outcome of this Court's decision because the Debtor's failure to disclose his other assets is sufficient for this Court to conclude that a denial of discharge is appropriate.
6. Fraudulent Intent
As noted above, courts may infer fraudulent intent from all the facts and circumstances of a case. In re Keeney, 227 F.3d at 685-86. While exceptions to discharge should be liberally construed in favor of the debtor to promote the "fresh start" policy underlying the Bankruptcy Code, "a discharge in bankruptcy is a privilege, not a right, and should only inure to the benefit of the honest debtor." In re Raftogianis, 2012 Bankr. LEXIS 3284 at *14, 2012 WL 2885469 at *4
The very purpose of . . . 11 U.S.C. § 727(a)(4)(A), is to make certain that those who seek the shelter of the bankruptcy code do not play fast and loose with their assets or with the reality of their affairs. The statutes are designed to insure that complete, truthful, and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on fact rather than fiction . . . Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight.Hamo v. Wilson (In re Hamo), 233 B.R. 718, 725 (B.A.P. 6th Cir. 1999)(internal quotation marks and citations omitted). The Debtor in this case has exhibited a continued pattern of attempting to avoid making complete financial disclosures in his bankruptcy case. The Debtor either has been unprepared or failed to attend numerous scheduled meetings of creditors. The Debtor has exhibited reckless disregard for the truth in preparing his schedules and statement of financial affairs by failing to disclose information regarding two parcels of real estate and three business entities. While the Debtor filed an Answer to the Complaint, the Debtor has otherwise failed to offer any additional explanation or defense to the allegations raised by the UST by failing to respond to the Admissions or to the Motion. The successful functioning of the bankruptcy system hinges upon a debtor's veracity and willingness to make full disclosures, which is a small quid pro quo for the privilege of a discharge in bankruptcy. Id. The Debtor in this case has failed to meet this minimal requirement. Accordingly, under the facts and circumstances of this case, this Court finds that the Debtor knowingly and fraudulently made a false oath in connection with his bankruptcy case by means of his schedules and statement of financial affairs, which conduct merits the denial of a discharge under 11 U.S.C. § 727(a)(4).
In view of the foregoing, it is not necessary for this Court to address the UST's alternative theory requesting denial of discharge under 11 U.S.C. § 727(a)(2).
IV. Conclusion
For the foregoing reasons, this Court GRANTS the United States Trustee's Motion for Summary Judgment and hereby DENIES the discharge of Debtor Rodney T. Riddle under 11 U.S.C. § 727(a)(4).
IT IS SO ORDERED. Distribution list: Rodney T. Riddle, Debtor
Douglas N. Hawkins, Esq.
Keith O'Korn, Esq.