Source: http://openjurist.org/301/f3d/3/in-re-watman
Timestamp: 2017-07-22 13:22:14
Document Index: 232976261

Matched Legal Cases: ['§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 101', '§ 727', '§ 727', '§ 548', '§ 727', '§ 12', '§ 12', '§ 548']

301 F. 3d 3 - In Re Watman HomeFederal Reporter, Third Series301 F.3d
11 U.S.C. § 727(a)(2). Thus, in order for a debtor to be denied a discharge under § 727(a)(2), an objector must show by a preponderance of the evidence that (1) the debtor transferred, removed, destroyed, mutilated, or concealed (2) his or her property (or the property of the estate if the transfer occurs post-petition) (3) within one year of the petition filing date (for prepetition transfers) (4) with intent to hinder, delay or defraud a creditor. R.I. Depositors Economic Protection Corp. v. Hayes (In re Hayes), 229 B.R. 253, 259 (B.A.P. 1st Cir.1999). Grounds for discharge are construed liberally in favor of the debtor. See Commerce Bank & Trust Co. v. Burgess (In re Burgess), 955 F.2d 134, 137 (1st Cir.1992).
Section 727(a)(2) applies to this case because of the terms of § 727(a)(7), which prohibits a debtor from committing an act proscribed under § 727(a)(2) in connection with the bankruptcy case "concerning an insider." 11 U.S.C. § 727(a)(7). Where the debtor is an individual, the term "insider" is defined to include a "corporation of which the debtor is a director, officer, or person in control." 11 U.S.C. § 101(31)(A)(iv).
Under this theory, Groman alleges that Childrens Dental is an insider of Watman, and Watman transferred, removed, destroyed, mutilated, or concealed assets of Childrens Dental in its bankruptcy case, warranting the denial of a discharge in Watman's individual bankruptcy case. In light of Watman's status as sole officer, shareholder, and director of Childrens Dental, Childrens Dental clearly qualifies as an "insider" of Watman for purposes of § 727(a)(7), and Watman does not argue otherwise. Rather, this case turns upon what, exactly, Watman transferred out of Childrens Dental, and whether he acted with the intent that disqualifies him from the discharge of his substantial debt to Groman.
In order to prevail under § 727, Groman had to convince the bankruptcy court that Watman acted with the intent to hinder, delay, or defraud his creditors (including Groman) from collecting on their debts. Section 727 requires a showing of actual intent, not constructive intent. See 6 Collier on Bankruptcy ¶ 727.02[3][a] (L. King 15th ed.2002) (citing cases). The determination of actual intent is a finding of fact. See In re Burgess, 955 F.2d at 137. Often, the intent issue will turn on the credibility and demeanor of the debtor, and in such circumstances, we typically defer to the bankruptcy court's conclusions. Palmacci v. Umpierrez, 121 F.3d 781, 785 (1st Cir.1997). In all events, we will affirm the bankruptcy court's findings of fact unless they appear to be clearly erroneous — that is, unless we are "left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (internal quotation marks omitted). Of course, if we determine "that a bankruptcy court's findings are too indistinct, [we] may decline to proceed further and remand for more explicit findings." In re Healthco, 132 F.3d at 108 n. 5.
We are guided in this inquiry by case law from this and other circuits addressing the question of intent. Given the practical difficulty of mounting direct evidence of the debtor's intent, few cases turn on such proof. Instead, looking to the circumstances surrounding the transfer, courts have identified several objective indicia that, taken together, strongly indicate fraudulent intent. Those indicia include: (1) insider relationships between the parties; (2) the retention of possession, benefit or use of the property in question; (3) the lack or inadequacy of consideration for the transfer; (4) the financial condition of the party sought to be charged both before and after the transaction at issue; (5) the existence or cumulative effect of the pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; (6) the general chronology of the events and transactions under inquiry; see Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582-83 (2d Cir.1983); and (7) an attempt by debtor to keep the transfer a secret; Annino, Draper & Moore, P.C. v. Lang (In re Lang), 256 B.R. 539, 541 (B.A.P. 1st Cir. 2000). Cf. Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1254 (1st Cir.1991) (enumerating similar indicia in the context of fraudulent intent showing under 11 U.S.C. § 548(a)(1)). "The shifting of assets by the debtor to a corporation wholly controlled by him is another badge of fraud." Kaiser, 722 F.2d at 1583.
Id. at 734; See also FitzSimmons v. Walsh (In re FitzSimmons), 725 F.2d 1208, 1211 (9th Cir.1984) ("To the extent that the law practice's earnings are attributable not to [sole practitioner-debtor's] personal services but to the business' invested capital, accounts receivable, good will, employment contracts with the firm's staff, client relationships, fee agreements, or the like, the [post-petition] earnings of the law practice accrue to the estate."); First Prof'l Bank, N.A. v. Wrobel (In re Mullen), 200 B.R. 352, 356-57 (C.D.Cal.1996) (recognizing possibility of property interest in goodwill of dissolved business where former principals were profiting from that goodwill in new business endeavor); Sheppard's Dental Ctrs., Inc. v. Southwest SDC, Inc. (In re Sheppard's Dental Ctrs., Inc.), 65 B.R. 274, 278 (S.D.Fla.1986) (treating intangible assets such as patient and employee relationships, contractual relationships with landlords, and goodwill as having value and as property of the bankrupt estate); Glosband, 21 B.R. at 972, 975 (stating that "goodwill is by definition something of value in a going concern which attaches by reason of its name, location, skill, reputation and the like, [and] clearly is `property' for purposes of this opinion" and that "[i]t is possible that the expectancy of a continued employer-employee relationship, just as the prospect of a continued landlord-tenant relationship, is something of value which ought to be preserved for the benefit of the trustee"). In the face of these precedents, Groman understandably persists with his argument that "[w]hether or not Debtor transferred legal title to the property of Childrens Dental, he effectively transferred the entire dental practice to Lowell Dentistry in violation of §§ 727(a)(2) and 727(a)(7)."
Accordingly, we remand this case to the bankruptcy court for adequate findings on these issues. See In re Healthco, 132 F.3d at 108 n. 5 ("[I]f a reviewing court determines that a bankruptcy court's findings are too indistinct, it may decline to proceed further and remand for more explicit findings."); FitzSimmons, 725 F.2d at 1212 (remanding case to bankruptcy court to ascertain the portion of the law practice's post-petition earnings that accrue to the bankrupt estate). The bankruptcy court is free to take more evidence if deemed necessary to carry out this mandate. We do not retain jurisdiction of this case. See Clauson v. New England Ins. Co., 254 F.3d 331, 342 (1st Cir.2001).
According to Rosen's testimony at trial, Groman intended to object to the confirmation of any Chapter 11 plan, and the bankruptcy judge in any eventsua sponte converted the Childrens Dental case to Chapter 7.
As an aside, we note that, to the extent that the bankruptcy court found that patient records belong to the patient, Mass. Gen. Laws ch. 112, § 12CC may suggest otherwise. Section 12CC states that a patient is only entitled to inspect his or her records and to obtain a copy of themSee Mass. Gen. Laws ch. 112, § 12CC.
In the analogous context of voidable fraudulent transfers under what is now 11 U.S.C. § 548, we have held that the term "property" in the Bankruptcy Act "`has been construed most generously' for the purpose of protecting the creditors of the bankrupt."Robinson v. Watts Detective Agency, 685 F.2d 729, 734 (1st Cir.1982) (quoting Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)). "Generally speaking, it is anything of value — anything which has debt paying or debt securing power." Id. (internal quotation marks omitted); see also Glosband v. Watts Detective Agency, Inc., 21 B.R. 963, 971 (D.Mass.1981) (holding that the term "property" as invoked in the definition of "transfer" should be interpreted "most generously to incorporate anything of value which but for the transfer might have been preserved for the trustee to the ultimate benefit of the bankrupt's creditors" (internal quotation marks omitted)).