Sicherman v. Warner

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
In re:
WILLIAM D. WARNER,
Debtor.
___________________________
MARVIN A. SICHERMAN,
Plaintiff-Trustee,
v.
WILLIAM D. WARNER,
Defendant.
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Case No. 10-20997
Chapter 7
Adversary Proceeding
No. 11-1032
Judge Arthur I. Harris
MEMORANDUM OF OPINION1
This matter is currently before the Court on the plaintiff-trustee’s
complaint seeking denial of the debtor-defendant’s discharge under
11 U.S.C. § 727 or, in the alternative, dismissal of the debtor’s chapter 7 case
This opinion is not intended for official publication.1
The court incorporates by reference in this paragraph and adopts as the findings and orders of this
court the document set forth below. This document was signed electronically on December 9, 2011,
which may be different from its entry on the record.
IT IS SO ORDERED.
Dated: December 9, 2011
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under 11 U.S.C. § 707(a)(1). The Court held a trial on October 26, 2011, at which
the debtor and the chapter 7 trustee both testified. The parties also stipulated to a
number of facts. For the reasons that follow, the Court enters judgment in favor of
the trustee and dismisses the debtor’s case for cause. In addition, the Court
declines to address the trustee’s request for alternative relief – i.e., denial of the
debtor’s discharge under 11 U.S.C. § 727.
JURISDICTION
A motion to dismiss a bankruptcy case pursuant to 11 U.S.C. § 707(a) is a
core proceeding under 28 U.S.C. § 157(b)(2)(A), and a claim for denial of
discharge pursuant to 11 U.S.C. § 727(a)(3) is a core proceeding under
28 U.S.C. § 157(b)(2)(J). This Court has jurisdiction over core proceedings under
28 U.S.C. §§ 157(a) and 1334 and Local General Order Number 84, entered on
July 16, 1984, by the United States District Court for the Northern District of
Ohio.
FINDINGS OF FACT
Prior to trial, the parties made the following stipulations of fact:
1. This adversary proceeding is within the core matter jurisdiction of the
Bankruptcy Court, and the parties consent to the Bankruptcy Court’s
entry of a Final Judgment in this proceeding.
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2. On November 8, 2010, the Defendant, William D. Warner (the
“Debtor”), filed a petition in the United States Bankruptcy Court for
the Northern District of Ohio seeking relief under chapter 7 of title 11
of the United States Code (the “Debtor’s Case”).
3. The Plaintiff, Marvin A. Sicherman, is the duly appointed and acting
Trustee in Bankruptcy in the Debtor’s Case.
4. Pursuant to this Court's Order entered on November 8, 2010, the
meeting of creditors to be held in the Debtor's Chapter 7 case
pursuant to 11 U.S.C. §341 (the "Meeting of Creditors" or the
“Meeting”), was originally scheduled for December 13, 2010 at
12:00 (noon) at the office of the United States Trustee.
5. The Debtor appeared with counsel at the Meeting, which was partly
held and adjourned to December 28, 2010 at 8:30 A.M., to complete
the examination of the Debtor as the Debtor had testified or indicated
that he was engaged in “brokering” motor vehicles and had rental
income. Information as to his business activity was necessary to
complete the examination.
6. The Debtor was advised and instructed to appear and produce his IRS
Forms 1099 from Warner’s Used Car World and/or W-2's for the
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three (3) years prior to the commencement of the Debtor’s case under
title 11 of the U. S. Code.
7. The Debtor and his counsel both failed to appear on December 27,
2010 for the adjourned Meeting, and by reason thereof the Meeting
was adjourned to January 10, 2011 at 8:30 A.M., and successively
thereafter to 8:30 A.M. on each of January 24, 2011 and February 7,
2011, at which times the Debtor's counsel was present but the Debtor
repeatedly failed to appear.2
8. On February 7, 2011, at the then adjourned Meeting, the Debtor's
counsel reported to the Trustee that the Debtor appeared to be unable
or unwilling to produce IRS Forms 1099 or W-2's for the three (3)
years preceding the commencement of the Debtor’s case under title
11 of the U. S. Code.
9. On March 14, 2011, the Trustee sent to the Debtor’s counsel the
Plaintiff’s First Set of Interrogatories, Request for Production, and
Request for Admissions Directed to Defendant (the “Plaintiff’s
Request”), a copy of which is attached [to the stipulations and]
At trial, this stipulation was corrected by the parties to include the fact that2
on January, 24, 2011, the debtor did appear at the meeting of creditors, but did not
have the requested records with him.
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labeled as Pl. Ex. 1.
10. In response to the Plaintiff’s Request, the Debtor provided the Trustee
with the Defendant’s Response to Plaintiff’s First Set of
Interrogatories, Request for Production, and Request for Admissions
directed to Defendant (the “Debtor’s Response”), a copy of which is
labeled as Pl. Ex. 2.
11. The Debtor produced and attached the following documents to the
Debtor’s Response:
A. Debtor’s 2009 Form 1099-MISC from Warners (sic) World of
Cars, a copy of which is separately labeled as Pl. Ex. 3; and
B. Undated W-2 information from the entity Consolidated
Systems, Inc., with a handwritten description thereon, which
reads “W’2 info,” a copy of which is separately labeled as Pl.
Ex. 4.
12. Plaintiff’s Exhibits 1, 2, 3, and 4 attached [to the stipulations] are
authentic copies of the original documents and are admissible in this
proceeding.
(Stipulations, Dkt. #14).
In addition to these stipulations, the Court finds the following facts. These
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findings of fact reflect the Court’s weighing of evidence, including consideration
of the credibility of the witnesses. “In doing so, the court considered each
witness’s demeanor, the substance of the testimony, and the context in which the
statements were made, recognizing that a transcript does not convey tone, attitude,
body language, or nuance of expression.” In re Parrish, 326 B.R. 708, 711
(Bankr. N.D. Ohio 2005). Even if not specifically mentioned in this decision, the
Court has considered the testimony of the witnesses, as well as all exhibits
admitted into evidence.
In the three years preceding the debtor’s bankruptcy case, the debtor
was employed with businesses other than Warner’s World of Cars. On
February 9, 2011, the plaintiff-trustee, Marvin Sicherman, initiated this adversary
proceeding seeking denial of the debtor-defendant’s discharge under
11 U.S.C. § 727 or, in the alternative, dismissal of the debtor’s chapter 7 case
under 11 U.S.C. § 707(a)(1). Specifically, the trustee asserts that the debtor’s
discharge should be denied because, without justification, the debtor failed to keep
or preserve certain financial records from which the debtor’s financial condition or
business transactions might be ascertained. Alternatively, the trustee alleges that
the debtor’s failure to attend multiple adjourned meetings of creditors and inability
to provide requested documentation constitute unreasonable delay that is
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prejudicial to creditors and therefore cause for dismissal under
11 U.S.C. § 707(a)(1).
The debtor claims that he was unable to attend two of the four adjourned
meetings of creditors because he was in a car accident prior to one of the meetings
and missed the other because he was in Florida seeking employment. The debtor
asserts that he attempted in good faith to comply with the trustee’s request for
records, but was not able to produce the documents because he relied on his
accountant for managing those records. Further, the debtor claims that he
entrusted all copies of his tax records for the requested years to his accountant and
was not able to retrieve them upon request to that accountant.
CONCLUSIONS OF LAW
The trustee’s adversary complaint seeks denial of the debtor’s discharge
under 11 U.S.C. § 727 or, in the alternative, dismissal of the debtor’s chapter 7
case under 11 U.S.C. § 707(a)(1). Although the adversary complaint seeks denial
of the debtor’s discharge under a number of theories, at trial the trustee limited
himself to 11 U.S.C. § 727(a)(3). As explained more fully below, the Court3
11 U.S.C. § 727(a)(3) provides:3
(a) The court shall grant the debtor a discharge, unless–
. . . .
(3) the debtor has concealed, destroyed, mutilated, falsified, or
failed to keep or preserve any recorded information, including
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declines to address the trustee’s claim seeking denial of the debtor’s discharge
under 11 U.S.C. § 727(a)(3). Rather the Court finds that the facts presented at trial
and by stipulation establish that the trustee is entitled to judgment on his
alternative claim – i.e., dismissal of the debtor’s Chapter 7 case for cause under
11 U.S.C. § 707(a).
I. DISMISSAL FOR CAUSE UNDER 11 U.S.C. § 707(a)
Section 707(a) of the Bankruptcy Code provides for dismissal of a chapter 7
case “for cause, including – (1) unreasonable delay by the debtor that is prejudicial
to creditors . . . .” 11 U.S.C. § 707(a)(1). The three examples of cause in
paragraphs (a)(1), (a)(2), and (a)(3) of section 707 are not exhaustive. See In re
Zick, 931 F.2d 1124, 1126-27 (6th Cir. 1991); see also In re Alt, 305 F.3d 413,
418 n.2 (6th Cir. 2002) (interpreting “cause” for dismissal under analogous
provision in chapter 13, 11 U.S.C. § 1307(c), and noting that enumerated grounds
constituting “cause” are not exhaustive). The trustee has the burden of
establishing cause by a preponderance of the evidence. See Grogan v. Garner,
498 U.S. 279 (1991) (preponderance-of-the-evidence standard presumed to be
books, documents, records, and papers, from which the
debtor’s financial condition or busisness transactions might be
ascertained, unless such act or failure to act was justified under
all of the circumstances of the case[.]
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applicable in civil actions between private parties); In re Simmons, 200 F.3d 738,
743 (11th Cir. 2000) (“[B]urden for showing cause [under section 707(a)] is on the
moving party.”); see also In re Alt, 305 F.3d at 419 (party seeking dismissal for
cause has burden of proof under analogous provision in chapter 13). The Court
must engage in a case-by-case analysis in determining whether sufficient cause is
present to warrant dismissal, taking into account the interests of both the debtor
and the creditors. See In re Dinova, 212 B.R. 437, 442 (B.A.P. 2nd Cir. 1997).
Section 521(a)(3) requires that the debtor “cooperate with the trustee as
necessary to enable the trustee to perform the trustee’s duties under this title[.]”
11 U.S.C. § 521(a)(3). “ ‘[C]ooperate’ is a broad term, indeed, and must be
construed that whenever the trustee calls upon the debtor for assistance in the
performance of his duties, the debtor is required to respond, at least if the request
is not unreasonable.” 4 Collier on Bankruptcy ¶ 521.15[5] (16th ed. 2011). “It is
essential that debtors assist the trustee in the administration of their cases.”
In re McDonald, 25 B.R. 186, 188 (Bankr. N.D. Ohio 1982). Courts have held
that where a debtor fails to cooperate with the trustee, the trustee’s inability to
effectively administer the estate constitutes cause under § 707(a). See In re
Ventura, 375 B.R. 103, 109 (Bankr. E.D.N.Y. 2007) (dismissing case for cause
under section 707(a) where trustee was unable to administer estate, and auditor
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was not able to audit, because debtor failed to cooperate, provide recorded
information, and appear for section 341 meeting); In re Moses, 792 F.Supp. 529,
531 (E.D. Mich. 1992) (“[D]ismissal [under section 707(a)] may be premised on
the failure of a debtor to perform his duties, including the duty to cooperate with
the trustee and provide the requisite information.”), aff’d, 227 B.R. 98
(E.D. Mich. 1996); In re Peklo, 201 B.R. 331, 334 (Bankr. D. Conn. 1996)
(dismissing for cause under section 707(a) because of trustee’s inability to
administer the estate where debtor refused to answer questions).
Although the trustee’s adversary complaint cites to 11 U.S.C. § 707(a)(1),
the Court finds that the trustee has sufficiently pleaded “cause” for dismissal based
on the debtor’s failure to cooperate with the trustee. Indeed, the adversary
complaint specifically alleged that “the Debtor has failed to appear and submit to a
complete examination under oath and failed to cooperate with the Trustee to
enable the Trustee to perform his duties.” Complaint (Docket #1) at ¶10.
In this case, at the first meeting of creditors, the debtor indicated that he was
engaged in “brokering” motor vehicles and had rental income. The meeting was
adjourned to December 28, 2010, in order for the trustee to inquire further into the
debtor’s business activities because the information was necessary for the trustee
to effectively administer the estate. The trustee instructed the debtor to appear at
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the adjourned meeting and provide either his Internal Revenue Service Forms
1099 from Warner’s World of Cars or his W-2 Forms for the three years prior to
filing his bankruptcy petition. The debtor failed to appear at the first and second
adjourned meeting of creditors, appeared at the third adjourned meeting without
the requested documentation, and did not appear at the fourth adjourned meetings.
In response to discovery requests in this adversary proceeding, the debtor only
provided his Form 1099 from 2009 and undated W-2 information from one of the
businesses for which he had previously worked. The debtor failed to provide the
majority of the requested records.
The parties stipulated that at the final meeting of creditors, the debtor’s
attorney reported that the debtor appeared to be unable or unwilling to produce the
requested records. Also, both parties stipulated that the information as to the
debtor’s business activities was necessary to complete the section 341
examination. At trial, when asked if he was able to ascertain the debtor’s financial
condition based upon the information provided, the trustee responded, “No, there
were no records. I had no idea what business activity went on as a broker, and no
way of finding out.” When asked if he was able to administer the debtor’s estate
without that knowledge, the trustee stated, “Can’t administer that which I don’t
know whether it exists or not.”
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The Court finds that the debtor’s failure to cooperate with the trustee by not
providing the requested records and not appearing at three of the four adjourned
meetings prevented the trustee from being able to effectively administer the
debtor’s estate. Taking into account the interests of both the debtor and the
creditors, dismissal is appropriate when a trustee is unable to effectively
administer the estate. In addition, the Court does not find the debtor’s various
excuses to be credible. If the debtor were truly earnest about cooperating with the
trustee and providing the requested information, he could have gone to his
accountant or someone from his family’s car business and requested the
information sought by the trustee. Instead, the debtor did almost nothing, even
belatedly, to provide the trustee with the requested records during the eight months
that this adversary proceeding was pending before trial. Therefore, the trustee has
met his burden of establishing cause for dismissal under 11 U.S.C. § 707(a).
II. DISMISSAL FOR CAUSE UNDER 11 U.S.C. § 707(a)(1)
If a reviewing court were to find that the debtor’s failure to cooperate with
the trustee is insufficient cause for dismissal under 11 U.S.C. § 707(a), then this
Court would further find cause for dismissal under the express provision of
11 U.S.C. § 707(a)(1) – “unreasonable delay by the debtor that is prejudicial to
creditors.” In this case, the debtor’s delay in producing the requested records was
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unreasonable. Even after four adjourned meetings of creditors spanning eight
weeks, the debtor failed to produce his Forms 1099 for two of the requested three
years and his W-2 Forms for an undetermined number of businesses that he
worked for during the requested three years. The debtor’s claim that he made
“numerous attempts” to contact his accountant is not a sufficient excuse for his
delay. At trial, the debtor testified that he had provided his accountant with the
information necessary to complete his taxes and therefore could have provided
that same information to the trustee. Also at trial, when asked if he made any
inquiries for the requested information to the businesses with which he was
previously employed, other than Warner’s World of Cars, the debtor replied, “No,
I haven’t.” Under these circumstances, the Court finds that the debtor’s delay for
over eight weeks to provide the requested information was unreasonable.
Prejudice to creditors exists in this case because the debtor’s failure to
provide the trustee with the requested records compelled the trustee to file this
adversary proceeding and incur costs that will constitute administrative expenses
against the estate pursuant to section 503(b)(2). If no assets are recovered, the
trustee as creditor will have incurred administrative expenses that will go unpaid.
If assets are recovered, creditors with claims that are lower in priority will likely
receive less as a result of the trustee having to initiate this adversary proceeding.
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Further, the debtor’s unreasonable delay in producing the requested
documentation prevented the trustee from ascertaining the extent of the debtor’s
interest in Warner’s World of Cars and whether the debtor had any unreported
income. Accordingly, cause for dismissal also exists under the express provision
of 11 U.S.C. § 707(a)(1).
III. DENIAL OF DISCHARGE UNDER 11 U.S.C. § 727(a)(3)
While the Court has no trouble deciding that the trustee has met his burden
of proof on his claim seeking dismissal of the debtor’s case for cause, the trustee’s
alternative claim seeking denial of the debtor’s discharge is more problematic.
Because the trustee initiated this adversary proceeding immediately after it became
clear that the debtor had failed to cooperate with the trustee in producing relevant
documents, it is difficult for the Court to determine whether the debtor failed to
keep or preserve records within the meaning of section 727(a)(3) or, on the other
hand, simply failed to cooperate with the trustee in timely turning over records that
the debtor could have obtained from his accountant with minimum effort. Nor
does the Court believe that the debtor’s noncompliance with written discovery
requests after this adversary proceeding had been commenced should form the
basis of the trustee’s section 727(a)(3) claim alleged in the adversary complaint.
While noncompliance with written discovery requests is not to be condoned, such
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noncompliance is subject to its own sanctions. See Fed. R. Bankr. P. 7037. In any
event, the Court declines to address the trustee’s request for alternative relief – i.e.,
denial of the debtor’s discharge under 11 U.S.C. § 727 – since the Court grants the
trustee’s claim seeking dismissal of the debtor’s case under 11 U.S.C. § 707(a).
Nevertheless, should the trustee still seek a ruling on his claim under section
727(a)(3), the trustee should file an appropriate motion under Fed. R. Bankr. P.
7052 or 9023 within 14 days.
CONCLUSION
For the reasons stated above, the Court enters judgment in favor of the
trustee and dismisses the debtor’s case for cause under 11 U.S.C. § 707(a). The
Court declines to address the trustee’s request for alternative relief – i.e., denial of
the debtor’s discharge under 11 U.S.C. § 727. Each party shall bear its own costs
and attorney’s fees.
IT IS SO ORDERED.
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