Bennett v. Butler

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
DAVID C. BUTLER,
Debtor.
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ANDREW BENNETT, as Administrator of
the Estate of Harold Hart Bennett,
Plaintiff,
v.
DAVID C. BUTLER,
Defendant.
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Case No. 12-633
Chapter 7
Adv. Proc. No.12-82
MEMORANDUM OPINION
The Plaintiff seeks to deny the Debtor’s anticipated discharge under 11 U.S.C. § 727(a)(4)(A)
based upon the Debtor’s failure to include on his bankruptcy schedules an alleged interest in property
located in Hampshire County, West Virginia (the “Property”). The Debtor asserts that the Plaintiff
failed to prove every element of § 727(a)(4)(A) by a preponderance of the evidence.
For the reasons stated herein, the court will deny the relief sought in the complaint.
I. BACKGROUND
Since 1965, the Debtor and his family have enjoyed the use of the Property. From 1965 to
1995, the Debtor’s family, in conjunction with another family, leased the Property from the Herriott
family pursuant to a number of consecutive written leases. According to the Debtor, the terms upon
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which his family leased the Property permitted the building of a cabin thereon and required the
lessees to insure and pay taxes upon the personalty located on the Property. Sometime in 1986 or
1987, the cabin was rebuilt after a flood destroyed the then-existing structure. The Debtor’s parents
spent approximately $16,000.00 to construct the cabin. In 1995, the lease for the Property was
reexecuted between members of the Herriott family then having an interest therein and the Debtor
and his wife; the lease called for annual rental payments of $250.00 for a term of ten years and
expired on September 1, 2005. Since 2005, the Debtor and his family have continued to use the
Property in the absence of any written agreement with the Herriott family. The Debtor has
consistently attempted to obtain a written lease since 2005. The last communication he received
from the Herriotts was in 2007 and led the Debtor to believe a lease would be forthcoming, but the
Debtor never received a subsequent lease. Nonetheless, the Debtor continues to comply with terms
of the prior lease. He pays rent to the Herriotts and maintains personal property insurance and pays
personal property taxes on his personalty located on the Property. In 2004, the Debtor claimed the
lease on the Property as an asset in conjunction with a home equity loan application and valued the
lease at $30,000.00. In 2009, the Debtor claimed the lease as an asset on a personal financial
statement and valued the lease at $70,000.00.
On April 30, 2012, the Debtor filed his Chapter 7 voluntary petition in this court. The Debtor
omitted any interest in the Property from his bankruptcy schedules. The only real property interest
disclosed on the Debtor’s Schedule A is his primary residence located at 2535 Arden Nollville Road
in Inwood, WV. The Debtor likewise did not list any leasehold interest in the Property on his
Schedule G - Executory Contracts and Unexpired Leases. The Debtor listed only the Plaintiff’s
wrongful death claim, as representative of the estate of Harold Hart Bennett, on his schedule of
unsecured creditors. On September 19, 2012, the Chapter 7 trustee commenced the meeting of1
creditors as prescribed by 11 U.S.C. § 341(a). In addition to the trustee, counsel for the Plaintiff
The Debtor scheduled the Plaintiff’s claim as contingent, unliquidated, and disputed.1
On January 31, 2013, the court granted the Plaintiff relief from the automatic stay to pursue his
wrongful death civil action against the Debtor in the Circuit Court of Berkeley County, WV
(“State court”). The complaint arises from the death of Harold Hart Bennett who was shot and
killed by the Debtor on October 24, 2009, while he and the Debtor were turkey hunting on the
Property. As far as the court is aware, that litigation is still pending.
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appeared and participated at the meeting of creditors. The Debtor first disclosed the Property to the
trustee in response to a question posed to him at the meeting of creditors. The trustee and counsel
for the Plaintiff each questioned the Debtor about the Property and his failure to list any interest
therein on his bankruptcy schedules. According to the Debtor’s testimony at his meeting of
creditors, he left the Property off of his bankruptcy schedules because he did not believe he had any
interest therein.
II. DISCUSSION
The Plaintiff asserts that the Debtor’s failure to schedule an interest in the Property is ground
upon which the court should withhold the Debtor’s anticipated discharge in this case because the
Debtor’s omission is a false statement, which he knowingly made with a fraudulent intent; counsel
for the Plaintiff asserts that the Debtor would not have disclosed the Property had counsel not been
present at the meeting of creditors. The Debtor asserts that his omission is not a false statement, and
to the extent that it is, he did not make it knowingly or with a fraudulent intent.
The Bankruptcy Code provides that the court shall grant a discharge under Chapter 7 unless,
among other things, the debtor knowingly and fraudulently made a false oath that is material to the
bankruptcy estate. 11 U.S.C. § 727(a)(4)(A). The purpose of § 727(a)(4)(A) is to enforce a debtor’s
duty to provide reliable information to those with an interest in the administration of the bankruptcy
estate. See In re Stout, 348 B.R. 61, 64 (Bankr. N.D.W. Va. 2006) (citation omitted). “The
bankruptcy code favors discharge, and the exceptions to discharge are narrowly construed.” Id.
(citing Wilson v. Key, No. 97-1408, 1997 WL 770529, at *1 (4th Cir. 1997)(unpublished)). To deny
a debtor discharge under this section, a plaintiff “must prove by a preponderance of the evidence
that: 1) the debtor made a statement under oath; 2) the statement was false; 3) the debtor knew the
statement was false; 4) the debtor made the statement with fraudulent intent; and 5) the statement
materially related to the bankruptcy case.” Sheehan v. Stout (In re Stout), 348 B.R. 61, 64 (Bankr.
N.D.W. Va. 2006) (citing Williamson v. Fireman’s Fund Ins. Co., 828 F.2d 249, 251-52 (4th Cir.
1987). In evaluating a claim under § 727(a)(4)(A), the court’s determination of whether the debtor
knowingly and fraudulently made a false statement is a question of fact. See Mercantile Peninsula
Bank v. Franch (In re French), 499 F.3d 345, 352 (4th Cir. 2007) (citation omitted). The court’s
determination concerning fraudulent intent depends “largely upon an assessment of the credibility
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and demeanor of the debtor.” Id. at 253.
To prevail under § 727(a)(4)(A), a plaintiff must prove the debtor’s fraudulent intent “either
through direct evidence or by pointing to specific facts . . . that, in the aggregate, demonstrate a
pattern of reckless disregard for the truth sufficient to warrant an inference of fraudulent intent.”
Webb v. Isaacson (In re Isaacson), 478 B.R. 763, 784 (Bankr. E.D. Va. 2012) (citation omitted). The
court may consider the debtor’s subsequent voluntary disclosure as evidence of innocent intent. Id.
(citation omitted).
Here, the Plaintiff has not proven by a preponderance of the evidence each factor necessary
to deny the Debtor a discharge under § 727(a)(4)(A). The Debtor, whom the court finds credible2
and forthright, concedes the first and fifth factors; the Plaintiff, however, failed to prove that the
Debtor knowingly made the allegedly false statement and that such was made with a fraudulent
intent.3
Even assuming that the Debtor possesses an interest in the Property, the Plaintiff failed to
prove by a preponderance of the evidence that the Debtor knew he had such an interest and was
motivated by a fraudulent intent when he omitted it from his bankruptcy schedules. In an attempt
to prove that the Debtor knew he had an interest in the Property, the Plaintiff focused primarily on
the Debtor’s prior claims of ownership of the Property and his continued payment of rent, personal
property taxes, and insurance. According to the Plaintiff, that conduct evidences the Debtor’s
knowledge, or at least belief, that he had some interest in the Property. The Debtor, however,
testified at trial that he included the lease as an asset in 2004 because the lease did not expire until
the following September. Similarly, according to the Debtor’s testimony, he again claimed the lease
The record is unclear with respect to precisely what interest the Plaintiff believes the2
Debtor should have listed on his schedules. The Plaintiff’s amended complaint alleges that the
Debtor failed to list his alleged ownership interest in the Property on Schedule A. The evidence
at trial revolved around an allegation that the Debtor failed to schedule a leasehold interest in the
Property on his Schedule H. The court finds no reason to clarify the record, however, because
this issue is not dispositive.
Because the court finds that the Plaintiff failed to carry his burden of proof regarding3
the third and fourth factors to be considered, the court makes no findings regarding the second
factor — whether the statement made was false.
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to be an asset in 2009 because he expected to receive a written renewal of the lease; in 2007, he
received correspondence from a member of the Herriott family that led him to believe a written
renewal of the lease would be forthcoming. As of the petition date in 2012, however, the 2007
communication was the last received by the Debtor. Based upon the lack of communication from
the Herriott family, the Debtor resigned himself to the fact that a written lease was unlikely, and he
believes his continued use of the Property is insecure although there is no indication on the record
that the Debtor or any member of his family has been denied access to the Property. Nonetheless,
the Debtor is hopeful that he and his family will be able to continue to use and enjoy the Property
into the future. In that regard, the court finds that the Debtor’s continued payment of rent, personal
property taxes, and insurance on the Property is not necessarily evidence of his knowledge of an
interest in the Property but merely evidence of his desire to protect his family’s continued use of the
Property, whether or not that interest continues to be viable. The Debtor and his family presumably
have personalty on the Property that requires the payment of taxes and insurance irrespective of any
lease obligations regarding the same.
The court similarly finds that the Plaintiff failed to prove by a preponderance of the evidence
that the Debtor acted with a fraudulent intent when he omitted the Property from his bankruptcy
schedules. As the court noted, it finds the Debtor’s testimony to be credible. In that regard, the court
finds the Debtor’s explanation of why he omitted the Property from his bankruptcy schedules to be
reasonable and void of any fraudulent intent. The Debtor’s written lease of the Property expired in
2005. Less than two years later, the Debtor received a letter from Charles B. Herriott. Based upon
the letter, the Debtor believed that a new lease from the Herriotts would be forthcoming. The Debtor
never received a new lease from the Herriotts, and the 2007 letter was the last communication from
the Herriott family ever received by the Debtor. The Debtor thus reasonably believed, albeit maybe
mistakenly, that he did not have an interest in the Property as of the petition date in this case.
Nonetheless, the Debtor volunteered information regarding the Property to the trustee at his meeting
of creditors. Based upon the Debtor’s belief that he does not possess an interest in the Property, his
subsequent disclosure was not made in an effort to “come clean” but was made to explain why the
Property was not scheduled. The court finds that the Debtor’s disclosure at the meeting of creditors
mitigates any potential finding of fraudulent intent.
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Additionally, a discharge of the Plaintiff’s debt is the only material purpose of the Debtor’s
Chapter 7 case; the Debtor indicated an intent to reaffirm his secured debt obligations, and the
Plaintiff is the only unsecured creditor scheduled by the Debtor. In that regard, the Plaintiff is
intimately familiar with the Property as it is the location around which the State court litigation is
focused. The Debtor testified that he would not risk his Chapter 7 discharge by omitting the Property
from his schedules when the lone debt to be discharged arises from the State court litigation and is
held by the Plaintiff. Because the court finds the Debtor to be credible and forthright, the Debtor’s
omission of the Property, to the extent it should have been scheduled, is more likely than not the
result of a mistake or poor judgment rather than a fraudulent intent.
III. CONCLUSION
Based on the foregoing, the court finds that the Plaintiff failed to prove by a preponderance
of the evidence that the Debtor knowingly made the allegedly false statement with a fraudulent
intent. In sum, to the extent that the Debtor’s omission of the Property from his bankruptcy
schedules is a false statement, the Debtor did not make it knowingly because he believed, rightly or
wrongly, that he did not have such an interest. And his explanation regarding his lack of
communication with the Herriott family, his subsequent disclosure of the Property at his meeting of
creditors, and the fact that the Plaintiff is the only creditor subject to discharge in this case preclude
a finding of fraudulent intent.
Pursuant to Fed. R. Bankr. P. 7058, the court will enter a separate order dismissing this
proceeding.
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