Case Name: IN RE: Tommy E. BREEDLOVE, Debtor, Kenneth Storey, Plaintiff, v. Tommy E. Breedlove, Defendant
Court: United States Bankruptcy Court for the Middle District of Georgia
Jurisdiction: United States
Decision Date: 2016-01-14
Citations: 545 B.R. 359
Docket Number: Case Number: 14-30634-JPS; Adversary Proceeding Number: 14-03053
Parties: IN RE: Tommy E. BREEDLOVE, Debtor, Kenneth Storey, Plaintiff, v. Tommy E. Breedlove, Defendant.
Judges: 
Reporter: West's Bankruptcy Reporter
Volume: 545
Pages: 359–383

Head Matter:
IN RE: Tommy E. BREEDLOVE, Debtor, Kenneth Storey, Plaintiff, v. Tommy E. Breedlove, Defendant.
Case Number: 14-30634-JPS
Adversary Proceeding Number: 14-03053
United States Bankruptcy Court, M.D. Georgia, Athens Division.
Signed January 13, 2016
Entered January 14, 2016
Jon A. Gottlieb, Flynn & Gottlieb, PA, James S. Plackis, Atlanta, GA, for Plaintiff.
Ernest V. Harris, Athens, GA, for Defendant.

Opinion:
MEMORANDUM OPINION
John T. Laney, III, United States Bankruptcy Judge
This matter comes before the Court on a Motion to Dismiss for Failure to State a Claim upon which Relief may be Granted, Motion for Judgment on the Pleadings or Alternatively Motion for Summary Judgment (collectively the "Motion for Sum mary Judgment") filed by Tommy E. Breedlove (the "Defendant") and a Cross Motion for Summary Judgment filed by Kenneth Storey (the "Plaintiff'). Additionally, the Plaintiff moved for leave to amend the complaint, The Court has carefully considered the pleadings and briefs, the parties' oral arguments, and the applicable statutes and case law. For the reasons set forth below, the Court will DENY the Defendant's Motion for Summary Judgment. The Court will GRANT the Plaintiffs Motion for Leave to Amend the Complaint and GRANT in part the Plaintiffs Cross Motion for Summary Judgment.
Procedural History
This Adversary Proceeding arises out of the underlying bankruptcy case of the Defendant. On June 16, 2014 (the "Petition Date"), Breedlove sought protection under Chapter 7 of the Bankruptcy Code. The Plaintiff commenced this Adversary Proceeding on October 15, 2014, with the filing of the complaint (the "Original Complaint") against the Defendant. In the Original Complaint, the Plaintiff alleges the Defendant committed objectionable acts under 11 U.S.C. § 727(a) warranting the Court denying the Defendant a discharge. On November 11, 2014, the Defendant responded by filing an answer requesting the following: the complaint be dismissed for failure to state a claim, and other reasons; the Plaintiffs relief be denied; the Defendant receive a discharge of pre-petition debt; and any relief the Court deems appropriate. On April 9, 2015, the Court entered an order extending the deadlines for discovery and other Federal Rule of Civil Procedure ("Rule") 16 matters until May 6, 2015. On May 7, 2015, the Court entered another order extending the deadlines for discovery and other Rule 16 matters until July 6, 2015. On July 2, 2015, the Plaintiff filed an amendment to the Original Complaint (the "Amended Complaint"). On July 3, 2.015, the Defendant filed his Motion for Summary Judgment, supporting brief, and exhibits. The Defendant filed an answer to the Amended Complaint on July 7, 2015. The Plaintiff filed his Cross Motion for Summary Judgment, supporting brief, exhibits, and statement of uncontested facts on August 7, 2015. The Defendant filed a statement of uncontested facts and a response to the Plaintiffs statement uncontested facts on September 2, 2015. On September 22, 2015, the Plaintiff filed a motion to strike the Defendant's statement of uncontested facts and a motion to strike the Defendant's response to the Plaintiffs statement of uncontested facts (the "September 22 Motions"). The Plaintiff withdrew the September 22 Motions on October 1, 2015 through a Notice of Agreement submitted by both parties. The parties agreed that "the Court should decide the pending motions for summary judgment on the merits rather than on the issue of whether pleadings were timely filed." (Notice of Withdrawal, ECF No. 99). On October 6, 2015, the Court heard oral arguments on the parties' motions for summary judgment at the United States Bankruptcy Court in Macon, Georgia (the "Hearing"). At the Hearing, the Plaintiff moved for leave to amend the Original Complaint ("Motion for Leave").
Procedural Issues
Both parties have raised procedural issues, alleging procedural insufficiencies in each other's filings with the Court. The issues pertain to the Defendant's Motion to Dismiss and the Plaintiffs Motion for Leave. The Court will address the procedural issues before discussing the merits of the motions for summary judgment.
I. Motion to Dismiss
The Defendant requests in his answer that the Plaintiffs Original Complaint be dismissed for failure to state a claim. The Answer was the first response filed by the Defendant after the filing and service of the Original Complaint. On July 3, 2015, the Defendant filed a motion raising the defense of failure to state a claim upon which relief may be granted. Despite an agreement by the parties to have the Court decide the motions for summary judgment on the merits, the Plaintiff argued at the Hearing that any motion to dismiss filed by the Defendant was untimely and should be dismissed because such a motion is a pre-answer motion under Rule 12(b).
Rule 12(b) states that "[ejvery defense to a claim of relief in any pleading must be asserted in the responsive pleading if one is required." Furthermore, Rule 12(b)(6) provides that "a party may assert" the defense of failure to state a claim upon which relief may be granted by motion. However, Rule 12(b)(6) does not require a defense of failure to state a claim to be asserted by motion; it requires parties asserting the defense by a motion to file the 12(b)(6) motion before the responsive pleading. In Whitehurst v. Wal-Mart Stores East, L.P., the United States Court of Appeals for the Eleventh Circuit held that the defendant "preserved the defense of failure to state a claim by raising it in its answer," but the defendant could not assert such a defense in a motion because they already filed an answer. 329 Fed.Appx. 206, 208 (11th Cir.2008). The Eleventh Circuit stated that the motion was, therefore, untimely. Id. However, the court determined that it may construe the 12(b)(6) motion as a motion for judgment on the pleadings, which was timely. Id. See Garrett v. Unum Life Ins. Co. of America, 427 F.Supp.2d 1158, 1160-61 (M.D.Ga.2005) ("[Bjecause Defendant filed its motion [to dismiss] after filing its responsive pleading ., the Court will treat Defendant's motion as a Motion for Judgment on the Pleadings.").
A motion for judgment on the pleadings is timely if it is filed after the close of pleadings and early enough as not to delay trial. The pleadings are closed for the purposes of Rule 12(c) once the defendant answers the plaintiffs complaint. McGuigan v. Conte, 629 F.Supp.2d 76, 80 (D.Mass.2009) (citing Doe v. United States, 419 F.3d 1058, 1061 (9th Cir.2005)). A motion to dismiss and a motion for a judgment on the pleadings are "functionally identical." Henson v. Fidelity Nat'l Fin., Inc., 18 F.Supp.3d 1006, 1009 (C.D.Cal.2014). The similarity shared between the two types of motions is why it is common practice for courts to consider a motion for a judgment on the pleadings filed before a defendant's answer as a 12(b)(6) motion and a 12(b)(6) motion filed after the defendant's answer as a motion for judgment on the pleadings. McGui-gan, 629 F.Supp.2d at 80 & n. 4.
The Defendant asserted the defense of failure to state a claim in his answer, therefore, preserving the defense. Any 12(b)(6) motion filed thereafter would have been untimely. However, the Defendant's Motion to Dismiss may be interpreted as a Rule 12(c) motion for judgment on the pleadings due in part because the Defendant filed a consolidated motion which included both a 12(b)(6) motion, a motion for judgment on the pleadings, and a motion for summary judgment.
On May 6, 2015, the Court extended the deadline for Rule 16 matters for 60 days from that date. The Plaintiff argues that any motion for judgment on the pleadings was untimely because the Defendant filed his motion before the time set by the May 6 Order had expired. The Court disagrees. The Defendant filed the motion after he filed his answer. Therefore, the Defendant's Motion to Dismiss interpreted as a motion for judgment on the pleadings was timely, and the defense of failure to state a claim was timely.
II. Eleventh Circuit Decisions on Motions for Leave to Amend Complaint
At the Hearing, the Defendant opposed the Plaintiffs Motion for Leave on the basis that the Plaintiffs amendment was untimely because he filed the Amended Complaint eight months after he filed the Original Complaint. Additionally, it is the Defendant's position that both the Original Complaint and the Amended Complaint are subject to dismissal for failure to state a claim upon which relief may be granted. The Defendant asserted that defense as to the Amended Complaint both in his answer to the Amended Complaint and at the Hearing.
Rule 15 "governs amendment of pleadings before judgment is entered." Ball v. JPMorgan Chase Bank, N.A., 2014 WL 297907, at *2 (M.D.Ga. Jan. 27, 2014). Subsection (a)(2) states that "[t]he court should freely give leave [to amend a pleading] when justice so requires." Accordingly, "unless a substantial reason exists to deny leave to amend," the bankruptcy court should allow the motion for leave because "the discretion of the [trial] court is not broad enough to permit denial." Shipner v. E. Air Lines, Inc., 868 F.2d 401, 407 (11th Cir.1989). Additionally, a party should be granted leave to amend so long as the non-moving party is not unduly delayed or prejudiced by the amendment, or the moving party is not acting in bad faith. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).
The Eleventh Circuit has held that a trial court must grant a plaintiff an opportunity to amend his complaint before it may grant a defendant's motion for summary judgment that asserts the complaint failed to state a claim. Silva v. Bieluch, 351 F.3d 1045, 1048-49 (11th Cir.2003). The court must grant a motion for leave if the complaint may be so drafted as to state a claim upon which relief may be granted. Silva, 351 F.3d at 1048-49. The Eleventh Circuit in Silva followed the decision in Bank v. Pitt, which required the court to grant a motion to amend "even where the plaintiff never seeks leave to amend." 928 F.2d 1108, 1112 (11th Cir.1991). Fearing that such plaintiff-friendly precedent provided for "two bites at the apple," the Eleventh Circuit overruled Bank and instead held that a trial court is not required to grant a plaintiff leave to amend where the plaintiff made no effort to request leave. Wagner v. Daewoo Heavy Indus. Am. Corp., 314 F.3d 541, 542-43 (11th Cir.2002).
The court shall not grant a motion for leave to amend a complaint when such an amendment would be futile. An amendment is futile when the complaint as amended would still be subject to dismissal. Brooks v. Warden, 800 F.3d 1295, 1300 (11th Cir.2015); Cockrell v. Sparks, 510 F.3d 1307, 1310 (11th Cir.2007). However, the court determines the issue of futility in the light most favorable to the plaintiff. To determine whether the amendment to the complaint is futile, the Court must address the Defendant's defense of failure to state a claim and the relevant legal standard for analyzing such a defense.
III. 12(b)(6) Standard
When ruling on a 12(b)(6) motion, the court must accept all the factual allegations plead in the complaint as true and view the complaint in the light most favorable to the plaintiff. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Day v. Taylor, 400 F.3d 1272, 1275 (11th Cir.2005). To survive a Rule 12(b)(6) motion, the plaintiff must plead "more than labels and conclusions [or] a formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The complaint must meet the "plausibility standard." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). This standard requires that a complaint contain sufficient factual allegations which "state a claim to relief that is plausible on its face." Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). The factual allegations must "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555,127 S.Ct. 1955.
A complaint asserting a claim for relief must contain "a short and plain statement of the claim showing the [plaintiff] is entitled to relief." Fed.R.Civ.P. 8(a)(2); FRBP 7008. Claims alleging fraud must also meet the "particularity" requirement of Rule 9(b). A plaintiff meets the particularity requirement by "set[ting] forth the basic outline of fraud and . indicating] who made the misrepresentations and the time and place the misrepresentations were made." Rezin v. Barr (In re Barr), 188 B.R. 565, 570 (Bank.N.D.Ill.1995). Conditions of the defendant's mind such as intent or knowledge may be alleged generally; the rule does not require elevated pleading. Iqbal, 556 U.S. at 686, 129 S.Ct. 1937.
IV. Plaintiff s Amended Complaint
In accordance with Eleventh Circuit case law, the Court will GRANT the Plaintiffs Motion for Leave for the following reasons.
a. No Undue Delay or Prejudice
The Court concludes that granting the Motion for Leave does not unduly delay or • prejudice the Defendant. The Defendant had the opportunity to hear the Plaintiffs argument at the Hearing. Therefore, the Defendant has had a fair opportunity to address the Amended Complaint. See Schaumburg Bank & Tr. Co. v. Hartford (In re Hartford), 525 B.R. 895, 904 (Bankr. N.D.Ill.2015) ("Having already heard [the plaintiffs] argument . at the hearing for summary judgment and having objected .the [defendant] had fair warning and opportunity to address the issues.").
b. Amendment was Not Futile
The Court concludes that the Plaintiffs amendment to the Original Complaint was not futile. For the reasons set forth in the Court's discussion of the motions for summary judgment, the Amended Complaint is not immediately subject to summary judgment for the Defendant. The real issue regarding the futility of the Amended Complaint is whether the counts of the Amended Complaint pleading fraud survive the Defendant's defense of failure to state a claim. More specifically, the issue is whether the Amended Complaint meets the particularity standard for pleading fraud.
i. Amended Complaint Sufficiently Pleads Fraud
The Plaintiff seeks a denial of the Defendant's discharge based on Five Counts. Counts One, Four, and Five contain allegations that a denial of discharge is proper under § 727(a)(4)(A), (a)(2), and (a)(7), respectively. These subsections require a showing of fraud, and therefore, the Amended Complaint must allege fraudulent behavior by the Defendant with particularity. The Court finds that at least twenty-five paragraphs in the Amended Complaint contain factual averments of fraudulent behavior relevant to and incorporated in Counts One, Four, and Five.
The Plaintiff has alleged misrepresentations made by the Defendant in his Statement of Financial Affairs ("SOFA") No. 1, filed on June 16, 2014, and at the Rule 2004 Examination of the Defendant on August 12, 2014, (Am. Compl. 1, ¶8, 28, ECF No. 50). The Amended Complaint contains allegations of the Defendant falsifying records for the purpose of concealing undeclared personal income for the year 2012 to date. (Am.Compl.l, ¶ 29). It also contains allegations of omissions by the Defendant in the original and amended SOFAs. For example, the Plaintiff specifically alleges that the Defendant failed to disclose the existence of his scrap metal business on SOFA No. 18. (Am.Compl.2, ¶ 32). The Plaintiff alleges that in the year prior to the Petition Date the Defendant transferred a recreational vehicle in which he possessed an interest and failed to disclose the transfer in his SOFA. (Am. Compl.5, 62-64). This allegation along with the other alleged omissions are allegations of false oaths and attempts to conceal property of the Defendant. The Plaintiff incorporates these allegations in the counts alleging fraudulent behavior. Additionally, the Amended Complaint contains an allegation of the Defendant's involvement in transfers to an insider, SES, made within one year of the Defendant's bankruptcy, and in connection with the SES bankruptcy. (Am. Compl. 6-7, ¶ 75-76, 82-83). Because intent may be plead generally, it is not necessary that the Plaintiff plead specifically that the Defendant knowingly and fraudulently made false oaths, possessed the intent to hinder, delay, or defraud creditors with regards to a transfer or disposition of property of the estate, or any fraudulent intent that may be required under § 727(a)(7).
The Court finds that the Plaintiff provided a basic outline of fraud in pleading facts upon which relief may be granted under § 727(a)(2), (a)(4)(A), and (a)(7). Therefore, the Amended Complaint meets the particularity requirement for pleading- fraud, and thus, the amendment is not futile.
V. Legal Standard for Addressing Parties' Motions
Rule 12(c) allows a party to move for a judgment on the pleadings after the pleadings are closed but timely enough not to delay trial. Rule 12(d) provides that motions under 12(b)(6) or 12(c) must be treated as a motion for summary judgment if the parties present matters outside the pleadings and the Court does not exclude such matters.
The Defendant moved for summary judgment in the alternative. The Plaintiff filed a cross motion for summary judgment. Both parties presented extraneous matters to the Court by attaching exhibits to them motions for summary judgments and reply briefs. Additionally, both parties referenced these exhibits in their statements of uncontested facts, responses to the other party's statement of uncontested fact, and at the Hearing. Because the Court did not exclude extraneous materials produced by the parties, the Court will consider in its analysis all the documents in the record. Therefore, the proper legal standard for addressing the parties' motions is the standard prescribed in Rule 56.
Summary Judgment
Pursuant to Rule 56, the Court must "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." The Court must view the evidence in the record "in the light most favorable to the non-moving party." Johnson v. Clifton, 74 F.3d 1087, 1090 (11th Cir.1996). Under Rule 56(c), the party seeking summaiy judgment bears the burden of showing the bankruptcy court the basis for its motion and "identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact" and warrant a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party must "present evidence from which a jury might return a verdict in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
If the moving party bears the burden of proof at trial, he must show that "no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548). But if the non-moving party bears the burden, "the movant can prevail merely by pointing out that there is an absence of evidence to support the non[-]moving party's case." Id. An entry of summary judgment is proper "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548.
An issue of fact is material if it affects the outcome of the case as identified by substantive law. Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1496 (11th Cir.1996); Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Therefore, the court will focus its analysis solely on .factual contentions that are relevant and necessary to the outcome of the case. Id. A genuine dispute exists if a reasonable fact finder could return a verdict for the non- moving party based on the evidence at hand. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. A genuine dispute means that "more than 'some metaphysical doubt [exists] as to the material facts.' " Id. at 260, 106 S.Ct. 2505 (citing Matsuchita Elec. Cp. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).
Factual Background
The parties have disputed a number of each other's "uncontested" facts, but the following constitutes the Court's findings of undisputed facts based on all matters of record. The Plaintiff is a judgment creditor. On June 28, 2009, the Superior Court of Newton County entered a judgment in favor of the Plaintiff and against the Defendant by means of a consent order. The judgment obtained against the Defendant was for $1,517,488.27.
The Defendant is a salesman with a ninth grade education whose business over the years has included selling horses, scrap metal, and supermarket equipment, and consulting companies in supermarket equipment sales. He has bought and sold agricultural products, scrap metal, and used supermarket equipment for approximately thirty-nine years.
Oconee Metal Recovery, Inc. ("OMR") is an entity that purchased scrap metal from the Defendant. OMR paid the Defendant through checks made payable to the Defendant personally. The Defendant conducted his business of buying and' reselling scrap metal under his own name as opposed to a trade name. In the two years preceding the Petition Date, OMR issued the Defendant 30 checks for a total of $40,176.47. (Pl.'s Mo. Summ. J. Supp. Br. Ex. A; Ex. G; Def. Mo. Summ. J. Ex. D-1, ECF No. 52-2).
TB Auctions, Inc. ("TB Auctions") is a Georgia Corporation. The Defendant is the officer or director and the 100% shareholder of the corporation. TB Auctions would buy supermarket equipment and sell it through auctions, but TB Auctions does not have an inventory of supermarket equipment. (PL's Reply Br. Ex. A., ECF No. 100). Prior to the Petition Date, TB Auctions had an account at Regions Bank. This account received funds from electronic transfers made by American Express and wire transfers made by Supermarket Equipment Sales, LLC. (Def.'s Rep. Br. Ex. D, ECF No. 91). TB Auctions received a wire transfer for $12,000 on September 23, 2013 and another for $1,000 on October 7, 2013 from Supermarket Equipment Sales, LLC. (Def.'s Mo. Summ. J. Ex. D-4, ECF No. 52-6).
Supermarket Equipment Sales, LLC ("SES") was a Georgia limited liability company that filed for Chapter 7 bankruptcy on July 8, 2014. Kirby Murdoch was the sole owner. The Defendant served in a managerial capacity at SES, but he did not receive income from SES. (Murdoch Dep. 6:16-7:16; 12:17-25; 31:2-32:12). The Defendant's wife, Judy Breed-love, received a salary from SES for the years 2010 through 2014. (Def.'s Mo. Summ. J. Ex. D-10). SES maintained its office at the same location as the former Supermarket Equipment Resale, Inc. ("SER"), a company owned by the Defendant. SES took over SER in 2009 after Prins Bank in Prinsburg, Minnesota foreclosed on SER. (Murdoch Dep. 15:9-16:17).
In February 2014, the Defendant sold a recreational vehicle that the Defendant originally purchased for SES. The recreational vehicle sold for $45,000. The Defendant kept at least $20,000 of the proceeds as commission for the sale. The title to the recreational vehicle was in' SES's name, but the Defendant stored the recreational vehicle on his property. (Murdoch Dep. 107:2-109:24).
The Defendant collects $1,668.45 a month for social security. (Am. Sched. I, Case No. 14-30634, ECF No. 36). The Defendant's Original SOFA, filed on the Petition Date, shows gross income from sales of $35,468 for the year 2012; $8,438 for the year 2013; and $12,000 for the year 2014 up until the Petition Date. (SOFA, Case No. 14-30634, ECF No. 1). The Defendant amended his SOFA on February 19, 2015 to reflect the amount of gross income that he received from sales of scrap metal, horses, equipment, and other personalty. The Defendant received $120,515 for the year 2012; $61,523 for the year 2013; and $18,655 for the year 2014 up until the Petition Date. (Am. SOFA, Case No. 14-30634, ECF No. 36). On April 6, 2015, the Defendant filed another amended SOFA to reflect the commission earned by the Defendant for selling the recreational vehicle. Up until the Petition Date, the Defendant earned a gross income of $38,655 for the year 2014. (Am. SOFA, Case No. 14-30634, ECF No. 42).
The only financial record kept by the Defendant is a check register. (PL's Mo. Summ. J. Supp. Br. Ex. A, ECF No. 60-1). The check register lists checks drawn on the Defendant's personal account but does not record deposits. (PL's Mo. Summ. J. Supp. Br. Ex. E, ECF No. 60-3; Ex. H, ECF 60-6). His only records of his personal financial condition are his check register and his personal bank statements from United Community Bank ("UCB") in Conyers, Georgia. (PL's Mo. Summ. J. Supp. Br. Ex. A; Ex. H; Ex. I, ECF No. 71-77). The Defendant does not maintain any other record of checks received as part of his income. Additionally, the Defendant does not maintain any other record of cash withheld from deposits.
To calculate his personal income, the Defendant relied on his bank statements. (PL's Mo. Summ. J. Supp. Br. Ex. A). The Defendant's CPA and the CPA's father have prepared the Defendant's personal and business tax returns for 30 years. The CPA calculated the Defendant's income for tax purposes by using the Defendant's bank statements and relying on the Defendant's oral representations regarding his income. The Defendant's representations to his CPA of his income from scrap metal and horse sales were not always concrete figures. To determine the amount of income derived from scrap metal sales, the CPA would subtract farm income, a figure the Defendant orally represented to the CPA, from the deposit amounts appearing in the Defendant's bank statements. The CPA would disclose the resulting figure in Schedule F of the Defendant's tax return. The CPA was unaware of the total amount of income the Defendant earned from scrap metal sales to OMR. She did not receive anything from OMR regarding checks made payable to the Defendant. The CPA did not include OMR checks not deposited in calculating the Defendant's income. (PL's Mo. Summ. J. Supp. Br. Ex. J. ECF No. 79). The Defendant did not deposit two checks from OMR: a check for $1,241.10 dated December 7, 2012 and a check for $2,556.65 dated February 5, 2014. (Def.'s Rep. Br. Ex. A, ECF No. 91). Additionally, the CPA did not include cash that the Defendant withheld from deposits in calculating his income. (PL's Mo. Summ. J. Supp. Br. Ex. J).
Discussion and Conclusions of Law
At the Hearing, the Court asked the parties to address in their closing arguments the possibility of the Court granting the Plaintiffs Motion for Leave and allow ing the Amended Complaint previously-filed by the Plaintiff. The Court, thereby, provided an opportunity for the parties to be heard on their motions for summary judgment in light of the Amended Complaint. Because the Court provided such an opportunity and will grant the Motion for Leave, the Court will analyze the Defendant's Motion for Summary Judgment in light of the Amended Complaint. The Plaintiff requests in five counts that the Defendant be denied a discharge based on § 727(a)(2), (a)(3), (a)(4)(A), (a)(5), and (a)(7).
The Court will DENY the Defendant's Motion for Summary Judgment on all counts. The Court will GRANT partial summary judgment for the Plaintiff on Count Two and DENY the Defendant a discharge on the basis of § 727(a)(3).
I. Count One: § 727(a)(4)(A)
The burden is on the plaintiff to prove by a preponderance of the evidence that a denial of a discharge is proper under § 727(a). DePaola v. Hollingsworth (In re Transp. Mgmt. Inc.), 278 B.R. 226, 236 (Bankr.M.D.Ala.2002). Under § 727(a)(4)(A), the plaintiff must prove that "the [defendant] knowingly and fraudulently, in or in connection with the case . made a false oath or account." The court should deny a discharge "where the omission from the Schedules or Statement of Financial Affairs is both fraudulent and material." Chambers v. Coon (In re Coon), 396 B.R. 772, 779 (Bankr.M.D.Fla. 2008) (citing Swicegood v. Ginn, 924 F.2d 230, 232 (11th Cir.2008)). The substance of a false oath made by the defendant is material if it "bears a relationship to the [defendant's] business transactions or [bankruptcy] estate or concerns the discovery of assets, business dealings or the existence and disposition of his property." Bozeman v. Sullivan (In re Sullivan), 492 B.R. 348, 353 (Bankr.M.D.Ga.2013) (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir.1984)).
To establish fraudulent intent, the plaintiff must show that the debtor "deliberately omitted information from her bankruptcy schedules" and statement of financial affairs. Id. The plaintiff must prove actual fraudulent intent. Petland, Inc. v. Unger (In re Unger), 333 B.R. 461, 465 (Bankr.M.D.Fla.2005). Amendments to Schedules or Statements of Financial Affairs made by the defendant do not expunge any fraud in the falsity of oaths; they may only cure false oaths made through honest mistakes. Wachovia Bank, N.A. v. Spitko (In re Spitko), 357 B.R. 272, 313 (Bankr.E.D.Pa.2006). However, "courts are reluctant to grant summary judgment on a cause of action under § 727(a)(4)" because the determination of fraudulent intent "involves questions of fact involving the debtor's state of mind." Adv. Leasing Corp. v. Moss (In re Moss), 2006 WL 6589913, at *4 (Bankr.N.D.Ga. Mar. 31, 2006).
a. Defendant's Motion for Summary Judgment on Count One
i. False Oaths in Statement of Financial Affairs and Amendments
The Defendant contends that the Plaintiff cannot meet his burden under § 727(a)(4)(A) because all of the OMR income was included in the 2012 and 2013 tax returns and the amendments to SOFA cured the mistakes made by the Defendant in the original filings. However, the record shows that not all of the OMR income was included in the tax returns. Two checks from OMR dated within two years prior to the bankruptcy for a total of $3,797.75 were not deposited in the Defendant's UCB Account. One check for $1,241.10 was dated December 7, 2012. Based on the CPA's method for filing tax returns, this amount of income was not included in the Defendant's 2012 tax return. The other check for $2,556.65 was dated February 5, 2014. The evidence suggests the Defendant failed to include $3,797.75 in the Original SOFA or any amendment. Additionally, the record shows that the Defendant failed to disclose that he earned a commission for the sale of the recreational vehicle in his Original SOFA and the first amendment. The Defendant argues that these omissions in the SOFAs were not material. The Court disagrees. The failure to disclose $3,797.75 of pre-petition income from scrap metal sales and a $20,000 commission in his SOFA "bears a relationship to the [defendant's] business transactions or [bankruptcy] estate or concerns the discovery of assets, business dealings or the existence and disposition of his property." In re Sullivan, 492 B.R. at 353 (quoting In re Chalik, 748 F.2d at 618). Therefore, the Defendant has not shown an absence of an essential element of a claim under § 727(a)(4)(A).
ii. Fraudulent Intent
The Defendant argues that any false oaths made on the SOFA and amendments were the product of honest mistake and that every mistake was eventually cured through amendments. Whether the Defendant made honest. mistakes in his SOFAs is an issue of intent. The Court agrees with its sister court that the issue of actual fraudulent intent is not appropriate on summary judgment. Because the record indicates the Defendant made false oaths in his SOFAs and his amendments, the Court concludes that summary judgment is not proper for the Defendant on Count One.
b. Plaintiffs Cross Motion for Summary Judgment on Count One
The Plaintiff needs only prove that a denial of discharge is proper under one subsection of § 727(a). Because the Court finds that summary judgment is proper for the Plaintiff on Count Two, it is unnecessary for the Court to make a determination on the Plaintiffs Cross Motion for Summary Judgment on Count One.
II. Count Two: § 727(a)(3)
A denial of a discharge is proper under § 727(a)(3) if the plaintiff can prove that "the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained." An objectionable act under this subsection may be excused if the defendant shows that "such act or failure was justified under all of the circumstances of the case." 11 U.S.C. § 727(a)(3). This subsection "make[s] the privilege of a discharge dependent on a true representation of the debtor's financial affairs." Colonial Bank v. Wynn (In re Wynn), 261 B.R. 286, 299 (Bankr.M.D.Ala.2001). It ensures that creditors and trustees receive sufficient and accurate information to determine the debtor's financial history, financial condition, and the details of financial transactions. Id. The debtor shoulders the affirmative duty to maintain and retain comprehensible records. Sackett v. Shahid (In re Shahid), 334 B.R. 698, 706 (Bankr.N.D.Fla.2005). Courts and creditors should not be burdened with reconstructing and speculating as to the financial history or condition of a debtor. Turner v. Tran (In re Tran), 297 B.R. 817, 835 (Bankr.N.D.Fla.2003).
The court has "wide discretion in determining the sufficiency of records." James v. Tipler (In re Tipler), 360 B.R. 333, 347 (Bankr.N.D.Fla.2005). The court may consider the following factors when determining the adequacy of records: (1) the debtor's education; (2) the debtor's sophistication; (3) the debtor's business experience; and (4) the sophistication of the debtor's business. Union Bank of the Middle E., Ltd. v. Farouki (In re Farouki), 133 B.R. 769, 781 (Bankr.E.D.Va.1991). This list of factors is not exhaustive, and therefore, the court may consider any factor relevant to determining the adequacy of the debtor's records. See Ng v. Adler (In re Adler), 494 B.R. 43, 67 (Bankr.E.D.N.Y.2013) (considering factors such as whether a failure to preserve record was Debtor's fault, customary business practices for record keeping, and degree of accuracy of existing records). Justification for maintaining inadequate records "depends . on what a normal, reasonable person would do under similar circumstances" based on the education, experience, and sophistication of the debtor, and other relevant factors regarding the debt- or's business. In re Tipler, 360 B.R. at 349 (quoting Milam v. Wilson (In re Wilson), 33 B.R. 689, 692 (Bankr.M.D.Ga.1983)).
Types of Financial Records
In Schechter v. Hansen (In re Hansen), the United States Bankruptcy Court for the Northern District of Illinois opined on the types of records an average adult is expected to keep and preserve. 325 B.R. 746, 763 (Bankr.N.D.Ill.2005). The debtor in that Chapter 7 case was a lawyer and a corporate officer. The court found that the plaintiff met his burden of proving the debtor-defendant's records were inadequate because the defendant's tax returns were incomplete: one tax return lacked a W-2 attachment and another lacked a Schedule B. He also had no copies of a certificate of deposit and a promissory note. Additionally, the defendant did not produce monthly statements from his brokerage account, records of checks drawn on the account, and check and bank statements from another bank account. In denying the defendant a discharge, the court emphasized that the records lacked by the defendant were "the kind every adult is expected to keep and preserve: tax returns, promissory notes, checks, check ledgers, bank statements, and statements from investment accounts." Id.
Applying Relevant Factors
In Moreo v. Rossi (In re Moreo), the United States District Court for the Eastern District of New York affirmed the bankruptcy court's denial of the Chapter 7 debtors' discharge under § 727(a)(3). 437 B.R. 40, 58 (E.D.N.Y. 2010). The debtors in that case were a husband and wife who owned an incorporated bagel shop. The wife was the main operator of the store. Id. at 47. The district court considered the complexity of the debtors' business, the sophistication of the debtors, the custom record keeping practices for the type of business ran by the debtors, and the accuracy of existing books and records. Id. at 51-58. The court determined that the complexity of the business had no effect on a denial of a discharge. Id. at 52. The business was small and not complex. It did not engage in large volumes of sales while it was in operation. Id. at 51-52. The court noted that the small nature of a business does not justify a failure to keep records. Id. at 52.
Despite achieving only a high school education, the court determined that the wife-debtor's lack of sophisticated did not justify her failure to keep accurate records. Id. at 52. The court focused its analysis on the wife because she was the primary operator of the business. She had no business or accounting experience prior to running the bagel store. The wife hired an accountant to help with the business's finances. The accountant would come by the shop every month or so to collect financial information and records from the wife. The court noted that the use of an accountant should have indicated to the wife that she needed to keep records of sales, expenses, and outgoing payments. Id. Furthermore, the court emphasized that it was the debtor's responsibility to maintain accurate records and not the accountant's. Id.
The district court determined that the "widespread use of 'informal bookkeeping practices' . does not obviate [the debt- or's] duty to record and keep financial and business records." Id. at 58. The debtors' argument for their lack of financial and business records was "that the retail bagel business is a cash business with informal bookkeeping practices;" however, the debtors did not present evidence of what the customary bookkeeping practice was for a bagel store. Id.
The bankruptcy court found that the records and documents provided to the accountant by the wife for filing tax returns were inaccurate and incomplete. Id. at 55. The wife failed to "keep any ledger or formal records of her receipts, expenses, or payments." Id. at 55-56. The district court agreed with the bankruptcy court and emphasized the importance of accurate and complete record keeping in a cash-based business "for creditors to determine the financial condition and business transactions of the business and to determine the sales and withholding taxes that are due to the taxing authorities." Id. at 56.
a. Defendant's Motion for Summary Judgment on Count Two
First, the Court notes that Count Two of the Original Complaint meets the plausibility pleading standard. Paragraphs 21, 23, 24, 33, and 34 of the Original Complaint sufficiently state a claim for a denial of discharge under § 727(a)(3). Paragraph 21 states, "At the [Rule 2004] Examination, Defendant testified that the record of deposits on the checkbook register for his personal checking account is the sole record of the personal income he has received through his business operations." Paragraph 23 states, "At the Examination, Defendant testified that he furnished his accountant with all personal checkbook registers, bank statements, and bank deposit slips. These documents were utilized by his accountant as the sole source of information to calculate his personal income, and to prepare his personal tax returns." Paragraph 24 states, "At the Examination, Defendant testified that all of his personal income he received through his business operations is included in his personal income tax returns." The Plaintiff incorporates these factual allegations into Count Two through Paragraph 33, and the Plaintiff states the grounds for relief in Paragraph 34. Count Two of the Original Complaint would survive a 12(b)(6) motion to dismiss if the Court had denied the Plaintiffs Motion for Leave.
i. Defendant's Financial Records
For the reasons stated below, the Court finds that summary judgment is not proper for the Defendant on Count Two. The Defendant contends that the Plaintiff is unable to show that the Defendant "failed to keep financial records from which his financial conditions or business transactions may be ascertained." (Def.'s Mo. Summ. J., at 17). He states that the Plaintiff cannot identify financial records that meet the criteria of § 727(a)(3) and cannot name a missing record. Furthermore, the Defendant supports his position by stating the Plaintiff has all of the records pertaining to his two bank accounts— his personal UCB Account and the TB Auctions Regions Account—because the Plaintiff has the Defendant's check register and bank statements for both accounts. According to the Defendant, these records satisfy the requirements for receiving a discharge under § 727.
The evidence shows there is no record for at least $3,797.75 of OMR income because two checks from OMR were not deposited into the Defendant's UCB Account. Additionally, the evidence shows that the Defendant may not have deposited another $1,639.80 worth of OMR checks. The bank statements the Defendant references as being records of income are only such if the Defendant deposited checks representing income into his UCB Account. OMR produced the only record of the Defendant's. OMR income. Because the Defendant has no independent record of OMR income other than his bank statements, the only record of OMR income kept or preserved by the Defendant is incomplete. Additionally, any check representing income that was not deposited would not have been included in the Defendant's 2012 and 2013 tax returns based on the method used by the Defendant's CPA to file his tax returns. The same is true for cash transactions. As admitted by the Defendant, "Check and cash deposited into Defendant's UCB Account, less any cash received by Defendant, even if it was not actually income, was recorded as income by his CPA on Schedule F of his federal tax returns and on his SOFA ¶ 1 for 2012 and 2013." (Def.'s Statement of Material Facts ¶ 10, ECF No. 92) (emphasis added). The amounts of cash withheld from deposits and whether that cash was income are in dispute. However, the disputed amounts in the record and exhibits reconstructing deposits made by the Defendant show the impossibility in attempting to derive the Defendant's financial situation. This impossibility is due to the lack of financial records pertaining to the Defendant's income. The Defendant has failed to show an absence of material facts necessary for the Plaintiff to prove a claim under § 727(a)(3).
The Defendant contends that even if cash withheld was not included in his gross income, the record shows that the Defendant "reported as gross income on his tax returns and in his SOFA ¶ 1 a significant amount of deposits which was not earned as income." (Def.'s Mo. Summ. J., at 9). There lies the inherent problem with the Defendant's financial records. Whether or not deposits not earned as income were included in the calculation of the Defendant's gross income does not change the fact that the Defendant's financial records regarding his income are inaccurate.
ii. Defendant's Justification for Financial Records
In support of his argument that his financial records are reasonable under the circumstances, the Defendant states that the Defendant is "not a lawyer, accountant, business owner, or the operator of a sophisticated business," (Def.'s Mo. Summ. J., at 17). Furthermore, the Defendant argues that he has only achieved a ninth grade education and worked as a salesman all his life. However, the record shows that the Defendant is a former 100% shareholder and corporate officer of a Georgia corporation. He is the current 100% shareholder and corporate officer of a Georgia corporation. He is a businessman with thirty-nine years of business experience, engaging in sales in multiple trades. Despite the Defendant's claim of unsophistication, a reasonable fact finder could determine that the Defendant is a sophisticated businessman.
The Defendant has offered no evidence of the recordkeeping standard for a businessman involved in sales across multiple trades. The record shows only evidence that the Defendant's recordkeeping was similar to that of individuals engaged in small business. Additionally, the Defendant's use of an accountant for both his personal and business finances should have indicated to him the need to keep records from which his CPA could file accurate and complete tax returns. The Defendant has failed to show a justification for his financial records. Therefore, summary judgment is not proper for the Defendant on Count Two.
b. Plaintiff's Cross Motion for Summary Judgment on Count Two
i. Defendant's Financial Records
The Court finds that the Plaintiff met his burden in showing that no genuine issue of material fact exists as to whether the Defendant failed to keep or maintain financial records from which the Defendant's financial condition could be derived. First, it is undisputed that the sole financial record kept by the Defendant is his check register, and it only shows checks drawn on the Defendant's personal UCB Account. The issue with the Defendant's records is not the outgoing transactions from the UCB Account; it is the Defendant's income deposited into his UCB Account, specifically income from OMR. The Defendant's UCB bank statements are the sole records of the Defendant's income. The bank statements contain images of deposit slips and checks drawn on the UCB Account, but there are no such images of deposited checks. If the Defendant did not deposit the check, the income was omitted from the bank statement. . The Defendant failed to maintain any record of income received from OMR. As stated above, the lack of records has left the parties to reconstruct individual deposits based on the amounts written on deposit slips. The Defendant admits $3,797.75 of the OMR checks were not deposited into his UCB Account. Viewing the evidence in the light most favorable to the Defendant, $400 of $26,626 of cash withheld from deposits actually represents income. The Defendant's CPA used the bank statements and the Defendant's oral representations to calculate income to file his tax returns. The CPA would corroborate the Defendant's oral representations using the information provided in the bank statements. However, the bank statements were not complete records of the Defendant's income. Additionally, the CPA did not include cash withheld in her calculation of the Defendant's income. Therefore, the Defendant's CPA did not include the income from checks that were not deposited or cash withheld in the Defendant's tax returns. Thus, the tax returns and bank statements as records of the Defendant's income are inaccurate and incomplete.
The Defendant presented evidence of his financial records and an affidavit from his CPA explaining the Defendant's record-keeping practices. Based on the evidence in the record, the Court is persuaded that no reasonable fact finder could determine that the Defendant kept adequate records to warrant his receipt of a discharge.
The Court notes that the Defendant's financial records are not abysmal like the defendant's financial records in In re Hansen. However, given the Defendant's business transactions were across several trades, the inaccuracy and incompleteness of the few financial records available, such as tax returns and bank statements, have a large bearing on the Court's ability to derive the Defendant's financial condition,
ii. Defendant's Education and Sophistication
The Court finds that no genuine issue exists as to the Defendant's financial sophistication. Despite achieving only a ninth grade education, the Defendant has achieved a certain level of financial sophistication as a businessman. The Defendant claims that his business records of a check register and bank statements are adequate financial records under the circumstances because he is not a sophisticated businessman. However, the record shows that the Defendant is an experienced businessman who earned income from multiple business ventures, which included the sale of horses, scrap metal, and supermarket equipment. See In re Herzog, 121 F.2d 581, 582 (2d Cir.1941) ("Men who do business in two capacities should know they must keep a record which will show in which capacity they were acting in a given transaction."). The record indicates that the Defendant was a successful businessman in years prior to filing for bankruptcy. The fact that the Defendant only has a high school level education is not per se justification for the failure to keep or preserve adequate financial records. See Trustee v. Sieber (In re Sieber), 489 B.R. 531, 553 (Bankr.D.Md.2013) (holding that debtor who only had a high school education but ran a profitable contracting business should be denied a discharge for failure to keep or preserve sufficient financial records); Novak v. Blonder (In re Blonder), 258 B.R. 534, 538, 540 (Bankr. D.Conn.2001) (determining that debtor failed to rebut plaintiffs § 727(a)(3) claim or justify inadequacy of financial records despite debtor arguing that he was unsophisticated and had no formal education past high school). See also Crocker v. Stiff (In re Stiff), 512 B.R. 893, 899 n. 3 (Bankr.E.D.2014) (noting that a debtor's financial sophistication, "whether acquired by higher education or by other means," is more important than educational attainment in determining the reasonableness of record keeping). The circumstances show that the Defendant is not unsophisticated; he is a businessman and a business owner with thirty-nine years of experience. Therefore, no reasonable fact finder could determine that his failure to maintain financial records of his income was justified.
The Defendant cites this Court as authority for why the debtor's discharge should not be denied under § 727(a)(3). In Bozeman v. Sullivan (In re Sullivan), the United States Bankruptcy Court for the Middle District of Georgia held that a debtor with a high school education and no business experience should not be denied a discharge pursuant to § 727(a)(3). 492 B.R. at 350. This Court noted that the debtor failed to keep inventory records for her business; however, such a failure did not make it impossible for creditors to determine the debtor's financial condition. The plaintiff was unable to show how the failure to provide records of inventory made it impossible to derive the debtor's financial situation. Additionally, the debt- or provided creditors with statements of revenue and expenses as prepared by her accountant.
The Court distinguishes the case at hand from In re Sullivan for two reasons:
(1) the Defendant is a businessman; and (2) the Plaintiff has shown the inability to determine the Defendant's financial condition because of the inaccuracies surrounding the Defendant's tax returns and bank statements as records of income. First, the Court reemphasizes that the Defendant has thirty-nine years of business experience, which distinguishes him from defendants with only a high school level education and no business experience. Therefore, In re Sullivan is not analogous in regard to debtor sophistication. Secondly, the Plaintiff has shown the inability to determine the Defendant's income because of a lack of financial records regarding income. The Plaintiff cannot rely on the Defendant's tax returns or bank statements to determine the Defendant's financial condition, and as stated above, he has shown evidence to that effect.
III. Count Three: § 727(a)(5)
For the court to deny a discharge under § 727(a)(5), the plaintiff must prove that "the debtor has failed to explain satisfactorily . any loss of assets or deficiency of assets to meet the debtor's liabilities." Courts have interpreted § 727(a)(5) to require that the asset be a "substantial identifiable asset" that was owned "not too remote in time" to the petition date. Libertore v. Walden (In re Walden), 380 B.R. 883, 894 (Bankr.M.D.Fla.2008); Nuvell Credit Corp. v. Boss (In re Boss), 359 B.R. 690, 700 (Bankr.N.D.Ill.2007); Buckeye Ret. Properties of Ind., LLC v. Tauber (In re Tauber), 349 B.R. 540, 565 (Bankr.N.D.Ind.2006).
a. Defendant's Motion for Summary Judgment on Count Three
Defendant states in his Motion for Summary Judgment and reemphasized at the Hearing that the Plaintiff must "identify an asset that the Defendant possessed pri- or to filing for bankruptcy" but no longer possesses, without explanation for its disposition. (Def.'s Mo. Summ. J., at 15). Furthermore, the Defendant asserts that the Plaintiff has failed to meet his burden under § 727(a)(5) because he failed to identify such an asset.
A genuine dispute exists as to whether the Defendant engaged Murdoch to divert to Judy Breedlove any potential salary that the Defendant may have earned for his work at SES. However, the record does not show salary possessed by the Defendant.
The record does show the loss of two checks issued by OMR within two years prior to the Petition Date. The Defendant admits he has no explanation for their disposition. The total of these checks is $3,797.75, A genuine dispute exits as to whether this amount of would-be cash or checking account assets is substantial given the $336,501.61 in assets and $2,959,911.41 in liabilities listed in the Defendant's Amended Summary of Schedules. Because the Defendant failed to show that no genuine issue of material fact exists as to the Plaintiff's claim under § 727(a)(5), the Court will deny the Defendant's Motion for Summary Judgment on Count Three.
IV. Count Four: § 727(a)(2)
A denial of a discharge is proper under § 727(a)(2)(A) if the plaintiff shows that the debtor transferred, removed, destroyed, mutilated, or concealed the debt- or's property within one year before the date of filing the petition with the intent to hinder, delay, or defraud creditors. A plaintiff "alleging intent to defraud under § 727(a)(2)(A) bears the considerable burden of demonstrating actual fraudulent intent; constructive fraud is insufficient." AB & T Nat'l Bank v. Goodwin (In re Goodwin), 488 B.R. 799, 806 (Bankr.M.D.Ga.2013) (quoting Equitable Bank v. Miller (In re Miller), 39 F.3d 301, 306. (11th Cir.1994)). See also In re Moss, 2006 WL 6589913, at *3 (citing Hunderwadel v. Dulock (In re Dulock), 250 B.R. 147, 152 (Bankr.N.D.Ga.2000)) (stating moving party "must establish that the debtor possessed an actual intent to defraud at the time of the transfer or concealment"); In re Tipler, 360 B.R. at 340 (Bankr.N.D.Fla.2005) (noting that plaintiffs bear the burden of demonstrating actual fraud).
Despite the requirement of proving actual fraud, the Court may potentially deduce the intent to defraud from the totality of the circumstances. In re Moss, 2006 WL 6589913, at *3. However, issues of actual intent are not appropriate for summary judgment. In re Hartford, 525 B.R. at 903; In re Moss, 2006 WL 6589913, at *3 (citing Fogal Legwear of Switz, Inc, v. Wills (In re Wills), 243 B.R. 58, 65 (9th Cir. BAP 1999); Bell v. Stuerke (In re Stuerke), 61 B.R. 623, 626 (9th Cir. BAP 1986)).
a. Defendant's Motion for Summary Judgment on Count Four
i. Defendant Concéaling Income
A genuine dispute exists as to whether the Defendant concealed his property or property of the estate within one year prior to the Petition Date by failing to disclose pre-petition income in his Schedules and SOFA. The Defendant maintains that his "CPA totaled all of the deposits made by the Defendant and treated all of those deposits as income." (Def. Mo. Summ. J. 5, ECF No. 91). The Defendant admits, however, that at least $2,556.65 of his income from an OMR check dated February 5, 2014 was not deposited in the Defendant's UCB Account. Because the records shows that the Defendant's financial records would not include this check, a reasonable fact finder could determine that this amount of income and potential checking account asset was not disclosed in the Defendant's SOFA or Schedule B.
Additionally, cash withheld from deposits were not included in the Defendant's 2012 and 2013 tax returns; therefore, the Defendant did not disclose the cash in his SOFA. The Defendant withheld cash from a number of deposits in the year prior to filing for bankruptcy, the total dollar amount of which is in dispute. Regardless of the amount, the record indicates that the amount of cash withheld from deposits was not disclosed in Defendant's tax returns or SOFA. Therefore, a genuine dispute exists as to whether the Defendant concealed income and cash and checking account assets.
Lastly, the portion of the proceeds from the recreation vehicle sale that the Defendant took as a commission for facilitating the sale was not disclosed in the SOFA. The recreational vehicle was sold in February 2014. Neither the transaction nor the commission was disclosed.
ii. Defendant's Intent to Defraud Creditors
Issues of actual intent are not appropriate for summary judgment, and the Court declines to reach a determination of intent on Count Four. For the reasons stated above, the Court will deny the Defendant's Motion for Summary Judgment on Count Four.
V. Count Five: § 727(a)(7)
A denial of discharge under § 727(a)(7) is proper if the plaintiff can prove the following three elements: (1) the debtor committed an objectionable act under § 727(a)(2) through (6); (2) the objectionable act occurred on or within one year before the Petition Date or during the debtor's bankruptcy case; and (3) the act was committed in connection with another bankruptcy case concerning an insider. An insider includes a corporation of which the debtor is a director, officer, or person in control. 11 U.S.C. § 101(31)(A). To prove a denial of a discharge is proper under § 727(a)(7) based on an objectionable act under § 727(a)(2), the plaintiff must show the following:
(1) an insider relationship exists, and that (2) within one year of the filing of the debtor's personal bankruptcy case, (3) there was a transfer, removal, destruction, mutilation, or concealment, (4) of the property of the insider or of the estate of the insider, (5) by the debtor, (6) with the intent to hinder, delay, or defraud the insider's creditors.
Kane v. Stewart Tilghman Fox & Bianchi Pa (In re Kane), 755 F.3d 1285, 1297 (11th Cir.2014).
a. Defendant's Motion for Summary Judgment on Count Five
The Plaintiff alleges that the Defendant committed an act under subsections (a)(2), (a)(3), and (a)(5) in connection with the SES bankruptcy. The Court will first dispose of the issues of whether a genuine dispute exists as to the material facts of a § 727(a)(7) claim premised on objectionable acts under (a)(3) and (a)(5). The evidence in the record shows no genuine dispute exists as to whether the Defendant failed to keep or preserve adequate records from which SES's financial condition or business transactions might be ascertained. The Defendant did not address in his Motion for Summary Judgment whether or not there is an absence of a genuine dispute as to the material facts of a § 727(a)(7) claim premised on an act under (a)(5). Additionally, the Plaintiff did not address an (a)(7) claim premised on an (a)(5) objectionable act. Therefore, the Court will not analyze whether a genuine dispute exists as to any material facts of such a claim.
The issue of whether summary judgment is proper for the Defendant as to a § 727(a)(7) claim premised on objectionable acts under (a)(2) requires more analysis. The Plaintiff alleges in the Amended Complaint that the Defendant, through TB Auctions, made a wire transfer to SES within one year of the Defendant filing for bankruptcy, and this transfer was made in connection with another bankruptcy. The Defendant stated in his Motion for Summary Judgment that the Plaintiffs allegation was incorrect; the wire transfer was from SES to TB Auctions. The Defendant admits in his Statement of Material Facts that SES made "a couple of wire transfers" to TB Auctions. (Def.'s Statement of Material Facts ¶ 14, ECF No. 92). Furthermore, the Defendant attached a bank statement from the TB Auctions Regions Bank Account showing the receipt of the two wire transfers from SES. The Defendant also stated that any such transaction alleged by the Plaintiff was not in connection with the SES bankruptcy.
i. SES's Status as an Insider
The Court must determine whether a reasonable fact finder could determine that an insider relationship exists between SES and the Defendant. In the Plaintiffs First Request for Admissions ("RFA 1"), he sought to have the Defendant admit that he was in control of SES and that SES was essentially a restructured SER. In the Defendant's Response to RFA 1, he admitted that he "managed and had supervisory control over some aspects of the business operations of [SES] but denie[d] that he was in control of SES." (Def.'s Mot. Summ. J. Ex. D-5, at 9, ECF No. 52-7). The Defendant also denied that the Defendant was the "de facto manager of SES." Id. (emphasis omitted). On April 16, 2015, Murdoch stated in his deposition, "If there was a manager, Tommy would have been the manager." (Murdoch Dep. 13:5-6, ECF No. 96). Murdoch clarified his statements in that deposition through an errata sheet, stating, "There [were] several managers at SES: . Tommy to [sic] was a manager." (Murdoch Dep. 172:23-25, ECF No. 52-15). Additionally, Murdoch stated that "if there was a CEO or manager, I would think Tommy would be closer to that than I would." (Murdoch Dep. 13:18-20). Murdoch clarified this statement through an errata sheet by stating, "SES had no CEO as such. I assumed a similar roll [sic] as the owner. SES has several managers, one of which was [the Defendant]." (Murdoch Dep. 173:3).
The relationship between SER and SES appears to be that of a failed company and its immediate successor. According to the Murdoch Deposition, the Defendant was the "boss" of SER. (Murdoch Dep. 18:6-7). After SER ceased to exist, SES took over all of SER's assets and continued the exact same business in the exact same location. Once SES operations began, the Defendant occupied the same office as he did in his role at SER.
In viewing the evidence in the light most favorable to the Plaintiff, the Court determines a genuine dispute exists as to whether SES is an insider to the Defendant. The Murdoch Deposition and accompanying errata sheets suggest that the Defendant was a person in control of SES, regardless of the absence of a corporate title. Therefore, a reasonable fact finder could determine that SES is an insider to the Defendant.
ii.Timing of Transfers
The evidence shows that the Plaintiff satisfies this element of § 727(a)(7). As stated in the Amended Complaint and supported by the record, two transfers of SES property took place within one year of the Defendant filing for bankruptcy: one on September 23 and another on October 7, 2013.
iii.Defendant's Involvement in Transfers of SES Property
The Regions bank statement shows the Defendant's involvement in at least two transfers of SES property, and both the Plaintiff and the Defendant acknowledge that SES may have made other wire transfers to TB Auctions. Whether the Defendant actually made or permitted the transfers between SES and TB Auctions is a factual question that remains to be resolved. The answer to this question depends on the reasonable fact finder's determination of the Defendant's status as an insider and the extent of the Defendant's role and authority as an alleged manager of SES. Because evidence suggests the Defendant had a managerial role at SES, a genuine dispute exists as to whether the Defendant made or permitted the transfer of SES property to TB Auctions,
iv.Defendant's Intent to Hinder, Delay, or Defraud SES Creditors
As stated above, the issue of intent under § 727(a)(2) is not an appropriate determination on summary judgment. Accordingly, the Court will not make such a determination here.
v.Transfers in Connection with SES Bankruptcy
The Defendant contends in his Motion for Summary Judgment that any transfer made between SES and the Defendant was not in connection with the SES bankruptcy. However, the connection with the SES bankruptcy would be established by showing the Defendant committed an objectionable act, an insider relationship exists between SES and the Defendant, a disposition of SES's property or property of the SES's estate occurred, and the bankruptcies of the Defendant and the Defendant were contemporary. The record shows that genuine disputes exist as to material facts underlying these issues. Additionally, the Defendant has not supported his assertion that any transfer between SES and the Defendant was not in connection with the SES bankruptcy.
The Defendant has not met his burden under Rule 56 of showing an absence of evidence to support .the Plaintiffs claim under § 727(a)(7). Therefore, the Court will deny the Defendant's Motion for Summary Judgment on Count Five.
Conclusion
For the reasons stated in this Memorandum Opinion, the Court will grant the Plaintiffs Motion for Leave to Amend the Complaint. The Court will deny the Defendant's Motion for Summary Judgment on all counts. The Court will grant partial summary judgment for the Plaintiff on Count Two—denial of discharge claim under 11 U.S.C. § 727(a)(3). Therefore, the Court will deny the Defendant a discharge pursuant to 11 U.S.C. § 727(a)(3). The Court will enter an order in accordance with this Memorandum Opinion.
. The Defendant filed a consolidated motion titled "Motion to Dismiss for Failure to State a Claim upon which Relief may be Granted, Motion for Judgment on the Pleadings or Alternatively Motion for Summary Judgment and Brief in Support Thereof."
, The Plaintiff also filed a Motion to Strike Defendant's Pending Motion to Dismiss and to Strike Motion for Summary Judgment on August 7, 2015, That motion stated that the Defendant's Motion for Summary Judgment was insufficient as a matter of law. The parties agreed in the Notice of Agreement to have the Court decide the motions for summary judgment based on their merits. The Court has honored their request.
. Rule 12(b)(6) is made applicable to adver-saiy proceedings by Federal Rule of Bankruptcy Procedure (''FRBP") 7012.
. Rule 15(a)(2) is made applicable to adversary proceedings by FRBP 7015.
, "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Rule 9(b) is made applicable to adversary proceedings by FRBP 7009.
. Count Five of the Amended Complaint contains the allegation that a denial of a discharge is proper under § 727(a)(7). One of the underlying objectionable acts that the plaintiff pleads as a basis for a § 727(a)(7) claim is an act under § 727(a)(2), which requires a showing of fraud.
. Rule 56 is made applicable to adversary proceedings by FRBP 7056.
. The Superior Court of Newton County entered the judgment against the Defendant and Supermarket Equipment Resale, Inc., jointly and severally.
. This amount represents two OMR checks: one for $695.50 dated October 11, 2013 and another for $944.30 dated March 20, 2014. The Defendant believes they were included in deposits, but he cannot be certain. (Def.'s Reply Br, Ex. A).
. The Court notes that the Defendant has not filed his 2014 tax return.
.The Plaintiff contends that $26,262 has been withheld by the Defendant from deposits, as shown by the Defendant's UCB Bank Statements. (Pl.'s Mo. Summ. J. Supp. Br. Ex. I). In his Response to Allegation that Cash Retained from Deposits was Unreported Income, the Defendant argues that only $400 of the $26,262 withheld from deposits represents income. (Def.'s Reply Br. Ex. C, ECF No. 91).
. Rules of law assigning burdens, such as Rule 56, "would mean nothing if [trial] courts were required to mine the record, prospecting for facts that the . petitioner overlooked and could have, but did not, bring to the surface in his petition." Chavez v. Secretary Fla. Dept. of Corrections, 647 F.3d 1057, 1061 (11th Cir.2011). If trial courts were forced to dig through the record without direction from the movant, the burden of "sifting" through the record would shift from the movant to the courts. Id.
. The Murdoch Deposition at ECF No. 52-13 through 52-17 is the same deposition at ECF No. 96. ECF 52-15 through 52-17 are errata sheets.