United States Trustee v. Talermo

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re
HARRYTALERMO,
Debtor.
RICHARD A. WIELAND, United
States Trustee for Region 19,
Plaintiff,
v.
HARRY VILLE TALERMO,
Defendant.
)
)
) 	Case No. 	11-20806
) 	Chapter 7
)
)
)
)
)
)
)
) 	Adv. No. 	12-2009
)
)
)
)
OPINION ON COMPLAINT SEEKING TO DENY DEBTOR'S DISCHARGE
On January 23, 2013, this matter came before the court for trial on the Complaint
Seeking to Deny Debtor's Discharge filed by the United States Trustee ("UST") and the
answer filed by Harry Ville Talermo ("Debtor"). At the conclusion of the trial, the court
took the matter under advisement. Upon a review of the record, testimony, and evidence,
the court is prepared to rule.
Jurisdiction
The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157
and 1334. This is a core proceeding within the definition of28 U.S.C. § 157(b)(2)(J).
The UST seeks determination that the Debtor is ineligible for a discharge under 11 U.S.C.
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§§727(a)(2), (a)(3), (a)(4) or (a)(5) 1 and Fed. R. Bankr. P. 4004.
Findings of Fact
Debtor filed for chapter 7 bankruptcy protection on July 25, 2011. At that same
time, Debtor filed his Schedules and Statement of Financial Affairs. Gary Barney
("Trustee") was appointed as the chapter 7 trustee to administer the case.
Debtor was a partner of the business Wyoming West Designs ("WWD"). WWD
had a loan with Jackson State Bank for a line of credit for the business. Wells Fargo took
over Jackson State Bank and refused to continue to extend WWD's line of credit and
wanted paid for the outstanding loan. Negotiations for a settlement failed. 	In March
2011, Wells Fargo was granted a summary judgment in the United States District Court
for the District of Wyoming. Wells Fargo initiated collection proceedings on its
judgment by garnishing Debtor's personal bank accounts.
As part of a divorce settlement in 2009, Debtor received a payment in the amount
of$140,000.00. Debtor testified that he did not deposit the cashier's check into his bank
accounts due to Wells Fargo Bank's judgment and garnishment proceedings.
On April4, 2011, Debtor deposited the check into his son's Wells Fargo Bank
account of which he was an authorized signatory. Debtor testified that he deposited the
check to be able to cash it. On that same date, Debtor withdrew $50,000.00 from the
account. On AprilS, 2011, Debtor withdrew the balance of$90,000.00. Debtor had not
used his son's account for any other transactions.
1 Unless otherwise indicated, all future statutory references are to the Bankruptcy Code, Title 11 of the
United States Code.
Page2
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Debtor testified that he gave the $140,000.00, in cash, to his mother, Kirstin
Butzow ("Mother") in April 20 11 when she came from Helsinki, Finland to visit him. 2
Debtor testified that the funds were a partial payment toward the amounts that Debtor had
borrowed from his Mother over the course of years beginning in 1978 through 1982 for
his education and financial support. Debtor testified that he continues to owe her the
amount of$60,000.00. According to the Debtor's testimony, he assumes that his Mother
took the money back to Finland with her at the end of her visit. Debtor does not have any
documents regarding these loans and payments with his Mother. This is the first payment
to his Mother that Debtor made on the outstanding loan.
Additionally, Debtor testified that he withdrew an additional $40,000.00 from his
First Interstate Bank account in June 2011. He testified that he spent these funds on
travel, day-to-day living expenses and "aid" to his family. Debtor distributed the
following amounts:
Approximate date 	Recipient 	Amount
May, 2, 2011 	Yvonna (daughter) 	$4,500.00
May 5, 2011 	Emilie (daughter) 	$6,500.00
May, 5, 2011 	Mother 	$2,500.00
June 30, 2011 	Ryan (son) 	$3,000.00
June, 2011 	"Travel related expenses to 	$6,000.00
Finland"
July 24, 2011 	Ryan 	$3,000.00
July 10, 2011 	Yvonna 	$2,500.00
July, 2011 	"travel abroad in August" 	$2,000.00
2 The court granted the Trustee a default judgment against Debtor's Mother for the tum-over of the amount
of $140,000.00.
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The July, 2011 travel expenditure was for Debtor to travel to his family's vacation
home in Austria. Debtor also paid rent, pre-paid his rent through August 2011, and other
living expenses. Debtor provided receipts for less that $1,000.00 in day-to-day living
expenses. Debtor testified that he also paid $9,500 and $8,000 to Visa on July 12, 2011
and July 20, 2011 respectively, prior to filing his bankruptcy petition.
Additionally, on May 9, 2011, Debtor withdrew $9,000.00 from his First Interstate
Bank account. Debtor testified that he did not recall how these funds were spent.
The court's review of Debtor's petition reflects that on the date that the petition
and schedules were filed, Debtor listed non-priority unsecured claims in the total amount
of$731,961.00 and secured claims in the amount of$43,828.00. Debtor did not list on
the appropriate schedules or documents: (1) his Mother, as either a secured or unsecured
creditor; (2) the cash payment in the amount of$140,000.00 to his Mother on his
Statement of Financial Affairs ("SOFA"); (3) his son's Wells Fargo account which he
was an authorized signatory and which he used to cash the divorce settlement cashier
check; and, (4) payments to his family members.
According to Debtor's SOFA, in April and July, 2011, Debtor sold personal and
real property for the amount of $22,300.00. Debtor indicated that he used $2,500.00 for
expenses, but does not indicate on his SOFA where the remaining balance was spent.
Additionally, Debtor was loaned an amount of $20,000.00 from a friend, Steve
Robinson. 3 On November 9, 2011, Debtor amended his Schedule J. On December 23,
3 The court entered an order granting summary for the Trustee regarding the adversary proceeding against
Mr. Robinson, voiding the lien and for turnover of property of the estate.
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2011, Debtor filed an amended SOFA to include the $140,000.00 payment to his Mother.
Discussion
The UST seeks to deny Debtor's discharge alleging that Debtor (1) omitted
disclosing transfers to his Mother in the amount of$140,000.00 and another $40,000.00
to other insiders; (2) failed to keep records of the transfers and disbursement of assets; (3)
gave false testimony by failing to disclose the transfers at his §341 meeting of creditors;
and, (4) failed to satisfactorily explain the distribution of the $40,000.00 in transfers made
to each insider.
Page 5
The Bankruptcy Code provides, in relevant part:
"The court shall grant the debtor a discharge, unless:
• 	... the debtor, with intent to hinder, delay or defraud a creditor
or an officer of the estate charged with custody of property
under this title, has transferred, removed, destroyed, mutilated,
or concealed, or has permitted to be transferred, removed,
destroyed, mutilated or concealed, property of the debtor,
within one year before the date of the filing of the petition; 4
• 	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 transaction might be
ascertained, unless such act or failures to act were justified
under all the circumstances of the case; 5
• 	the debtor knowingly and fraudulently, in or in connection
with the case, made a false oath or account; presented or used
a false claim; gave, offered received or attempted to obtain
money, property or advantage or a promise of money property
4 § 727(a)(2)(A).
5 § 727(a)(3).
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or advantage for acting or forbearing to act; or withheld from
an officer of the estate entitled to possession under this title,
any recorded information, including books, documents, records
and papers relating to the debtor's property or financial
affairs; 6 and,
• 	the debtor failed to explain satisfactorily, before the
determination of denial of discharge under this paragraph, any
loss of assets or deficiency of assets to meet the debtor's
liabilities. " 7
§ 727(a)(2) Intent to hinder or delay
The Bankruptcy Code must be construed liberally in favor of the debtor and
strictly against the creditor. To deny a discharge under §727(a)(2), a court must find
actual intent to defraud creditors. 8 The circumstances of the transaction must be
examined. 9 Creditor must demonstrate debtor's fraud by a preponderance of evidence to
warrant denial of discharge. 10 To obtain a denial of discharged, a plaintiff must prove: (1)
that a transfer of property occurred; (2) that the debtor owned the property transferred; (3)
that the transfer occurred within one year of filing the petition; and, (4) that the debtor
had, at the time of the transfer, the intent to defraud a creditor. 11
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Debtor admitted during his testimony that he intended to pay his family members
6 § 727(a)(4).
7 § 727(a)(5).
8 In re Warren, 512 F.3d 1241 (lOth Cir. 2008).
9 In re Brown, 108 F.3d 1290 (lOth Cir. 1997).
10 In re Serafini, 938 F.2d 1156 (lOth Dir. 1991).
11 In re Seay, 215 B.R. 780 (lOth Cir. BAP 1997).
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the funds that he had available to him rather than pay any of the debt owing or judgment
entered in favor of Wells Fargo Bank. He testified that he gave his Mother $140,000.00
cash in April 20 11 and he provided "aid" to his three children in various amounts totaling
over $22,000.00 in the time period between May 2, 2011 through July 10, 2011. As
debtor filed for Chapter 7 bankruptcy protection on July 25, 2011, these transferrs
occurred within one year of his petition filing date. The court also finds that the Debtor
had, at the time of the transfers, intended to defraud a creditor. Debtor specifically
testified that he used an account that he had with his son to cash the divorce settlement
cashier's check that he had in his possession for nearly two years. His testimony reflects
he intentionally did not use his own accounts to forestall Wells Fargo from garnishing the
funds. 	He testified that he wanted to pay his family the money.
Debtor knowingly and fraudulently concealed assets, and withheld and concealed
information intending to hinder creditors and the Trustee. Debtor failed to disclose his
interest in the $140,000.00 and subsequent funds in the amount of$49,000.00 at the §341
meeting of creditors. It was not until after the Trustee's attorney asked him questions
about the funds from bank documents the Trustee had obtained, that the Debtor disclosed
the assets and transfers. Debtor was "upset" that the Trustee had this information and
questioned the Debtor about the assets and transfers at a deposition. He did not readily
disclose these assets and transfers until confronted.
Debtor knowingly and fraudulently withheld and concealed financial information
that would have provided the Trustee information concerning the nature and extent of
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Debtor's assets. Debtor testified that he answered any direct question put to him
regarding his assets, implying that since he was not directly asked a question by the
Trustee at the §341 meeting of creditors regarding this property and the transfers that he
is in compliance with the Bankruptcy Code. The court finds that the Debtor repeatedly
failed to be truthful and cooperate with the Trustee. Debtor's failure to provide complete
and accurate disclosure of his assets and debts was not a mistake, but a pattern of
concealing assets from the Trustee and Debtor's creditors. Based upon these acts and
failure to disclose, the court finds that the UST established a basis for denial of Debtor's
discharge under § 727(a)(2)(A).
§ 727(a}(3} Failure to Keep or Preserve Records
The Tenth Circuit stated that a prima facie case under 11 U.S.C. § 727(a)(3)
requires the creditor to show that ( 1) the debtor failed to maintain and preserve adequate
records; and, (2) the failure made it impossible to ascertain his or her financial condition
and material business transactions. If the creditor makes such a showing, the burden then
shifts to the debtor to justify his or her failure to maintain the records. The long-standing
rule in the Tenth Circuit is that records need not be so complete that they state in detail all
or substantially all of the transactions taking place in the course of the business. It is
enough if they sufficiently identify the transactions that intelligent inquiry can be made
respecting them. 12
12 In re Stewart, 263 B.R. 608 (lOth Cir. BAP 2001) citing Hedges v. Bushnell, 106 F.2d 979 982 (lOth Cir.
1939).
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Debtor is a sophisticated business man. He attended Oral Roberts University and
graduated with a degree in business management and finance in 1981. He speaks three
languages and appears to have traveled extensively for personal and business purposes.
Debtor was a member ofHGRR Group LLC and a fifty-percent shareholder of Wyoming
West Designs II. Inc. which operated a business in Jackson, Wyoming.
Debtor failed to maintain any records regarding the unsecured loan from his
Mother for his education and financial support purposes. He also failed to maintain any
records regarding the repayment of$140,000.00 to his Mother. Debtor failed to maintain
any records of the disbursements to his family members, his travel, or the majority of his
day-to-day living expenses in the few short months prior to filing for chapter 7
bankruptcy protection. The court's calculation reflects that Debtor had access to
approximately $231,000.00 in the few months prior to his bankruptcy filing. 	Debtor can
only account for rental payments (both prior to filing and pre-payment for after filing);
payment of the $140,000.00 to his Mother; distributions to his children; travel for himself
in the amount of$8,000.00 (of which $2,000.00 were for pre-paid travel expenses paid
for post-petition travel); payment on his Visa credit card in the amount of$17,500.00 and
less than $1,000.00 of miscellaneous day-to-day living expenses. The court's calculations
is that approximately $37,800.00 is unaccounted for and the Debtor could not recall
where he had spent the money. Overall, the Debtor's failure to maintain and preserve
adequate records made it impossible for the Trustee to ascertain Debtor's financial
condition without the documents provided to him from a source other than the Debtor.
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The court finds that the UST established a basis for denial of Debtor's discharge under
§ 727(a)(3).
§ 727(a)(4) Fraudulent Conduct
In order to deny a debtor's discharge under §727(a)(4), plaintiff must demonstrate
by a preponderance of the evidence that the debtor knowingly and fraudulently made an
oath and that the oath related to a material fact. The plaintiff must prove these elements
by a preponderance of the evidence. Once a plaintiff has met its burden of presenting
prima facie evidence, the burden shifts to the debtor to provide a cogent explanation for
the omissions or misstatements. 13 A debtor will not be denied discharge if a false
statement is due to mere mistake or inadvertence. The fact that a debtor comes forward
with omitted material on his own accord is strong evidence that there was no fraudulent
intent in the omission. 14 Fraudulent intent may be deduced for purposes of denying
discharge based upon false oath or account in connection with the bankruptcy case from
facts and circumstances of the caseY To infer fraudulent intent, courts look for specific
indica of fraud. 	Action from which fraudulent may be inferred include situations in
which a debtor conceals pre-bankruptcy conversions, converts assets immediately before
the filing of the bankruptcy petition, gratuitously transfers property, continues to use
transferred property, and transfers property to family members. Courts also consider the
Page 10
13 In re Phouminh, 339 B.R. 231 (Bankr. D. Colo. 2005).
14 In re Brown, 108 F.3d 1290 (lOth Cir. 1997).
15 In re Calder, 907 F.2d 953 (lOth Cir. 1990).
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monetary value of the assets converted in determining whether the debtor acted with
fraudulent intent. 16 A false oath is "material" if it bears a relationship to debtor's estate or
concerns discovery of assets or existence of disposition of debtor's property. Debtors
must disclose all property and cooperate fully with the trustee. Badges of fraud which a
bankruptcy court should consider include: (1) concealment of conversions; (2) conversion
of property on eve of bankruptcy; (3) gratuitous transfers of property by debtor; and (4)
debtor's continued use of transferred property. 17 A debtor's reliance on counsel in
completing statements and schedules is no defense to material misstatements. Debtors
have a duty to carefully and accurately complete their statements and schedules,
especially since they sign them under penalty ofperjury. 18
Debtor knowingly and fraudulently made an oath and that oath related to a material
fact. Debtor filed his bankruptcy petition and schedules without disclosing: ( 1) his
Mother as a creditor; (2) payment of$140,000.00 to his Mother on or about April15,
2011; (3) two separate withdrawals of$40,000.00 and $9,000.00 from First Interstate
Bank in the months prior to filing his bankruptcy; and (4) disbursements of "aid" to
family members in the three months prior to filing his bankruptcy petition.
Debtor concealed this property and these transfers until he was "caught" by the
Trustee. Only then did the Debtor modify his SOFA to include the transfer of
Page II
16 In re Cary, 938 F.2d I073 (lOth Cir. I99I).
17 In re Garland, 417 B.R. 805 (lOth Cir. BAP 2009).
18 In re Vigil, 4I4 B.R 743 (Bankr. D.N.M. 2009).
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$140,000.00 cash to his Mother. Other transfers occurred to family members within
approximately three months prior to the Debtor filing for chapter 7 bankruptcy protection
which the Debtor has never amended his schedule of SOFA to include. Debtor testified
that the transfers to his family were not gifts or loans, but "aid." The court found
Debtor's credibility while testifying to be incredible and disingenuous. Debtor's failure
to disclose the assets and the transfers was intentional and not due to mere mistake or
inadvertence. Had the Trustee not called him on the discrepancies, the court has no doubt
that the Debtor would never have disclosed these assets and transfers. Finding that the
Debtor intentionally misrepresented the information of his petition, schedules and
bankruptcy documents, the court finds that the UST established a basis for denial of
Debtor's discharge under§ 727(a)(4).
§727(a)(5) Failure to Explain Loss
A party objecting to a debtor's discharge under this section has the burden of
proving facts establishing that a loss of assets actually occurred. Once the objecting party
meets its initial burden of proof, the burden then shifts to the debtor to explain the loss in
a satisfactory manner .19 The debtor's explanation for a diminution of assets must be
specific and corroborated. An explanation of the debtor's circumstances in general terms
that is merely suggestive of reasons that assets became depleted falls short of the mark.20
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Debtor failed to explain the diminution of his assets. He testified that he could not
19 In re Stewart, 263 B.R. 608 (lOth Cir. BAP 2001).
20 Phouminh at 248.
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recall where the amount of nearly $37,000.00 was spent in the few months prior to his
filing for bankruptcy protection. The court finds that this falls far short of the mark for
reasons that the estate's assets became depleted. The UST established a basis for denial
of Debtor's discharge under§ 727(a)(5).
Conclusion
A debtor seeking bankruptcy protection must disclose all assets and interest
because full and honest disclosure is essential if the bankruptcy system is to function
effectively. A bankruptcy discharge is reserved for an honest but unfortunate debtor. The
court finds that Debtor filed for protection under the Bankruptcy Code, but failed to fulfill
his duties to be honest, forthcoming and fully disclose his assets and transfers with the
court, the Trustee and his creditors. The relief sought in the UST's Complaint is granted.
Debtor's discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), (a)(3), (a)(4) and (a)(5) shall
be denied.
This opinion constitutes the Court's findings of fact and conclusions of law. A
separate order shall be entered pursuant to Fed. R. Bankr. P. 9021.
DATED thi~ day ofFebruary, 2013.
Service to:
All on Matrix
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