Opinion
Case No. 11-44744-WCH Adversary Proceeding No. 12-4073
10-29-2013
IN RE: MICHAEL P. BIBBO, DEBTOR. PEOPLE'S UNITED BANK, ATTORNEY-IN-FACT FOR THE FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR BUTLER BANK (SUCCESSOR TO MARLBOROUGH COOPERATIVE BANK) PLAINTIFF, v. MICHAEL P. BIBBO, DEFENDANT.
Chapter 7
MEMORANDUM OF DECISION
I. INTRODUCTION
The matter before the Court is the "Defendant's Motion for Summary Judgment in His Favor on All Counts of the Complaint" (the "Motion for Summary Judgment") filed by the defendant, Michael Bibbo (the "Debtor"), and the "Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment" (the "Opposition") filed by the plaintiff, People's United Bank (the "Plaintiff"). Plaintiff filed the present adversary proceeding objecting to Debtor's discharge on four counts, pursuant to 11 U.S.C. §§ 727(a)(2)(A) and (B), 727(a)(3), and 727(a)(4), and/or asserting that its debt is excepted from discharge pursuant to § 523(a)(4). Debtor moved for summary judgment on all counts. For the reasons set forth below, I will grant in part the Motion for Summary Judgment.
Unless expressly stated otherwise, all references to the "Bankruptcy Code" or to specific sections shall be to the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, 11 U.S.C. § 101, et. seq.
II. PROCEDURAL MATTERS
Pursuant to Local Rule 56 of the United States District Court for the District of Massachusetts, a motion for summary judgment must include "a concise statement of material facts of record as to which the moving party contends there is no genuine issue to be tried, with page references to affidavits, depositions, and other documentation." Similarly, an opposition to summary judgment must be accompanied by a statement of material facts to which the opposing party contends that there exists a genuine issue to be tried, with supporting references to the record. All referenced documents must be filed as exhibits to the motion or opposition. Material facts set forth in the moving party's statement are deemed admitted for purposes of summary judgment if not controverted by an opposing statement.
LR, D. Mass. 56.1, adopted and made applicable to proceedings in the Bankruptcy Court by Massachusetts Local Bankruptcy Rule 7056-1.
Id.
Id.
Id.
As the local rule requires, Debtor filed a statement of material facts ("Debtor's Statement of Facts") with supporting citations to the record. In opposition, Plaintiff provided its own counter-statement of facts ("Plaintiff's Statement of Facts"), also with supporting citations to the record. The Plaintiff's Statement of Facts controverted several of Debtor's statements and provided a number of additional details. Accordingly, the following recitation of facts draws from both parties' statements, with disputed facts noted where relevant.
"Defendant's Memorandum in Support of His Motion for Summary Judgment in His Favor on All Counts of the Complaint," Docket. No. 52, ¶¶ 6-56.
The Opposition, Docket No. 65, Section II, ¶¶ 1-58.
III. BACKGROUND
Debtor was the founder and sole officer, director, and shareholder of a corporation called Medical's Network, Inc. ("MNI"). MNI's business primarily consisted of engaging doctors to provide medical record reviews and independent medical examinations for insurance companies. In 2007, MNI entered into a revolving loan agreement with Plaintiff's predecessor in interest. Debtor later became the primary obligor on the note, and MNI became the guarantor. In 2008 and 2010, respectively, Debtor delivered and executed an installment note and a term note to Plaintiff's predecessor in interest. These loans were secured by MNI's assets, Debtor's Lexus, and all of Debtor's other personal property.
Debtor's Statement of Facts, ¶ 7.
Id. at ¶ 8.
Id. at ¶ 9.
Id. at ¶ 11.
Plaintiff's Statement of Facts, ¶¶ 1 and 2. Debtor's and Plaintiff's accounts vary as to the specifics of the loan transactions. As the amount and validity of Plaintiff's claim is undisputed, the exact details are irrelevant.
Id. at ¶¶ 3-4.
In 2011, MNI began to experience severe liquidity problems. As a result, MNI failed to pay doctors and other vendors who performed services for the company. In some cases, MNI's clients, the insurance companies, paid the doctors directly. This led to many of MNI's receivables becoming uncollectible, and Debtor last collected payment on the company's receivables in July 2011. By fall 2011, Debtor no longer operated MNI, as its clients refused to engage in further business with the company.
Debtor's Statement of Facts, ¶ 14.
Id. at ¶¶ 15, 19.
Id. at ¶ 19.
Id. at ¶ 20; Plaintiff's Statement of Facts, ¶ 16.
Debtor's Statement of Facts, ¶¶ 16-17.
MNI formerly leased office space in Marlborough, Massachusetts. In late summer 2011, MNI defaulted on the lease, and the landlord sent Debtor a notice to quit the premises on September 7, 2011. The notice stated that Debtor's access to the premises was blocked and that he could contact the landlord to retrieve the property that remained there, which included personal and business financial records, computers, and computer servers. The parties dispute whether Debtor ever attempted to retrieve the records and office equipment. Regardless, he did not retrieve them, and the landlord disposed of everything left behind. At an examination held pursuant to Fed. R. Bankr. P. 2004 (the "Rule 2004 Examination"), Debtor testified that because he was locked out of the office, he did not have access to the "proper materials" to collect MNI's receivables in the company's final months.
Id. at ¶ 21.
Id. at ¶ 22; Plaintiff's Statement of Facts, ¶ 20.
Debtor's Statement of Facts, Exhibit E; Plaintiff's Statement of Facts, ¶ 21.
Compare Debtor's Statement of Facts, ¶ 23 with Plaintiff's Statement of Facts, ¶¶ 21-23.
Debtor's Statement of Facts, ¶ 23; Plaintiff's Statement of Facts, ¶ 23.
Plaintiff's Statement of Facts, ¶ 58.
Also in September 2011, Debtor's wife, Amy Osber Bibbo ("Amy Bibbo"), formed a corporation called Quality Assurance Partners, Inc. ("QAP"); she is the sole officer, director, and shareholder of the company. Amy Bibbo founded the company using her maiden name, and the articles of incorporation listed a friend's residential address as the corporation's address, although the company is run out of the Bibbos' residence. QAP's articles of incorporation, promotional materials, and 2011 tax return describe the company as providing services very similar to MNI's. Prior to founding QAP, Amy Bibbo had no experience in the medical peer review or medical records review industry.
Id. at ¶ 24.
Id. at ¶¶ 24-25.
Debtor's Statement of Facts, ¶ 28; Plaintiff's Statement of Facts, ¶ 26.
Plaintiff's Statement of Facts, ¶ 29.
Upon the company's formation, Debtor began to work as an "independent contractor" for QAP. Debtor promotes the medical records review services of QAP's largest client, Juris Solutions, Inc. ("Juris"), to potential customers. Debtor had previously developed a relationship with Juris while he operated MNI. QAP bills Juris for Debtor's services, and Debtor's work for Juris represented the majority of QAP's revenues in 2011. According to Debtor, he does not promote Juris's services to any of MNI's former customers; however, during a deposition conducted by Plaintiff, he refused to reveal the names of his current clients, despite not having a confidentiality agreement with Juris.
Debtor's Statement of Facts, ¶ 32; Plaintiff's Statement of Facts, ¶ 34.
Debtor's Statement of Facts, ¶ 33.
Plaintiff's Statement of Facts, ¶ 35.
Id.
Debtor's Statement of Facts, ¶ 33; Plaintiff's Statement of Facts, ¶ 37.
In October 2011, Plaintiff issued notices of default for the installment note and the term note on which Debtor was obligated. On November 14, 2011, Debtor filed the present bankruptcy case. On his petition, Debtor listed MNI as having a value of $25,000, although by that time he was no longer operating the company.
Plaintiff's Statement of Facts, ¶ 6.
Debtor's Statement of Facts, ¶ 36.
Plaintiff's Statement of Facts, ¶¶ 12 and 19.
Around the same time Debtor filed his bankruptcy petition, he left his Lexus at Kearney's Automotive in Sudbury, MA. William Kearney, the owner of Kearney's Automotive, is a longtime friend of Debtor. Debtor listed the Lexus among his assets on "Schedule B - Personal Property" of his bankruptcy petition ("Schedule B"); and on November 21, 2011, Bank filed a motion for relief from stay to repossess and sell the Lexus. On December 14, 2011, at the meeting of creditors held pursuant to 11 U.S.C. § 341 (the "341 Meeting"), Debtor informed Plaintiff's counsel of the car's location. The parties dispute whether Debtor provided Plaintiff with this information earlier.
Id. at ¶ 41.
Id.
Id. at ¶ 40.
Id. at ¶ 44.
Compare Debtor's Statement of Facts, ¶ 41 with Plaintiff's Statement of Facts, ¶¶ 42-44.
On December 20, 2011, Plaintiff obtained relief from the automatic stay to repossess and sell the Lexus. Plaintiff asked Kearney to turn over the car, but he refused to release it unless Plaintiff paid a storage fee of $35 per day, which by that time was in excess of $2,000. Plaintiff was unable to negotiate successfully with Kearney and filed suit against him in state court. Plaintiff incurred legal expenses of over $2,500 before Kearney agreed to turn over the car. In September 2012, Plaintiff liquidated the car at an auction for $9,000. Plaintiff never requested Debtor's assistance in retrieving the car.
Debtor's Statement of Facts, ¶ 43.
Plaintiff's Statement of Facts, ¶ 45.
Id. at ¶ 46.
Id. at ¶ 47.
Id.
Debtor's Statement of Facts, ¶ 46.
During his Rule 2004 Examination, Debtor testified that he never agreed to pay Kearney storage fees for the Lexus, and did not expect to pay such fees. Debtor further stated that he left the car with Kearney to avoid the embarrassment of it being repossessed from his home.
Plaintiff's Statement of Facts, ¶ 49.
Id. at ¶ 48.
On Schedule B, Debtor listed "Household Furnishings and Personal Items" in the amount of $1,25 0. At the 341 Meeting, counsel for Plaintiff asked a series of questions concerning what items Debtor meant by "household furnishings." Debtor testified to having a watch, a couch, two televisions, a computer, and other furniture. At the Rule 2004 Examination, Plaintiff's counsel further questioned Debtor concerning his "household furnishings." At that time, Debtor testified that the same personal property consisted of, "couches, end table, I think lamps, a [kitchen/dining room] table." He testified that he had no interest in the other furniture in the house, including the televisions, because his wife had purchased it all.
Debtor's Statement of Facts, ¶ 37.
Id. at ¶ 42.
Id.
Plaintiff's Statement of Facts, ¶ 53.
Id.
Later, in connection with this action, Plaintiff subpoenaed documents from Amy Bibbo. In response to the subpoena, Amy Bibbo produced receipts for numerous items of household furniture and a television set. The receipts were all addressed to Debtor, not his wife.
Id. at ¶ 54.
Id.
Id.
On July 11, 2012, Plaintiff commenced the present adversary proceeding asserting four bases for denial of Debtor's discharge and one for excepting its debt from discharge. Count I objected to Debtor's discharge under § 727(a)(2)(A), alleging that he fraudulently transferred MNI's assets to QAP in order to shield the company's value from creditors. Count II objected to Debtor's discharge under § 727(a)(2)(B), alleging that he concealed his Lexus with Kearney in order to hinder Plaintiff's efforts to repossess it. Count III alleged that Debtor failed to adequately keep records pursuant to § 727(a)(3) because Debtor did not retrieve MNI's property from its former office space. Count IV alleged that Debtor's failure to disclose all of his household furnishings on Schedule B constituted a false oath under § 727(a)(4). Finally, Count V alleged that Debtor's transfer of MNI's assets to QAP constituted fraud or defalcation while acting in a fiduciary capacity, rendering Plaintiff's debt nondischargeable pursuant to § 523(a)(4).
"Complaint Objecting to Discharge of Debtor and Seeking Determination of Non-Dischargeability of Debt" (the "Complaint"), Docket No. 2, ¶¶ 74-85.
Id. at ¶¶ 86-99.
Id. at ¶¶ 100-110.
Id. at ¶¶ 111-119.
Id. at ¶¶ 120-123.
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Debtor filed the Motion for Summary Judgment on August 5, 2013. On September 9, 2013, Plaintiff filed the Opposition. I heard the motion on September 11, 2013, and, after the conclusion of oral arguments, took the matter under advisement.
IV. POSITIONS OF THE PARTIES
A. The Debtor
With respect to Count I, Debtor argues that Plaintiff has no evidence of any specific assets that he transferred from MNI to QAP. Debtor contends that evidence of a specific transfer is necessary overcome summary judgment on a § 727(a)(2)(A) claim. Debtor further claims that MNI had no assets to transfer, because its goodwill, receivables, and customer base were valueless by the time Amy Bibbo formed QAP. Moreover, Debtor contends that the allegedly transferred assets belonged to MNI as a distinct corporate entity and thus were not "property of the debtor," as § 727(a)(2)(A) requires. Finally, Debtor argues that even if QAP was a mere continuation of MNI, as Plaintiff claims, that alone is not evidence of fraudulent intent.
As to Count II, Debtor asserts that he did not conceal the Lexus from Plaintiff, since he disclosed the Lexus on Schedule B and informed Plaintiff of the car's location. Debtor also relies on Plaintiff's statement that Debtor did not preclude its repossession from Kearney. Moreover, Debtor argues that it would be inequitable to deny his discharge for concealing a fully encumbered asset, which Plaintiff never asked him to turn over.
With respect to Count III, Debtor primarily relies on the fact that, both pre- and post-petition, he provided Plaintiff with tax returns, bank account documents, and MNI's financial statements. Debtor claims that at all times Plaintiff was fully able to ascertain his financial condition, and that any records seized by the landlord were otherwise available and provided to Plaintiff. Debtor further argues that any failure to produce records was justified, because he and his attorney contacted the landlord to retrieve the files and computers left on the office premises, but the landlord refused to cooperate.
As to Count IV, Debtor argues that listing $1,250 of "Household Furnishings and Personal Items" on Schedule B was sufficient disclosure of his personal property. Debtor asserts that the schedule put interested parties on inquiry notice of the referenced assets, and that more specificity was not required. Debtor further contends that his testimony during the 341 Meeting and the Rule 2004 Examination gave creditors actual notice of the items to which Schedule B referred.
Finally, regarding Count V, Debtor argues that a breach of a commercial debt contract does not give rise to liability under § 523(a)(4). Debtor points out that his debt to Plaintiff arose years before the alleged transfer of assets from MNI to QAP. Thus, as the alleged defalcation in a fiduciary capacity did not cause his debt to Plaintiff, Debtor maintains that § 523(a)(4) is inapplicable.