McDow v. Gardner

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
DARLENE MATHIS GARDNER,
Debtor.
____________________________
W. CLARKSON McDOW, JR.,
UNITED STATES TRUSTEE FOR
REGION FOUR,
Plaintiff,
v.
DARLENE MATHIS GARDNER,
Defendant.
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Case No. 05-00477
(Chapter 7)
Adversary Proceeding No.
06-10056
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER DENYING
UNITED STATES TRUSTEE’S MOTION FOR SUMMARY JUDGMENT
The United States Trustee seeks summary judgment on Count
One of his complaint objecting to the debtor’s discharge pursuant
to § 727(a)(6)(A) of the Bankruptcy Code (11 U.S.C.) based on the
debtor’s noncompliance with a judicial order of the court. 	The
court denies the motion for the reasons below.
I
The following facts are undisputed.
The Memorandum Decision and Order below is hereby
signed. Dated: July 14, 2008.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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On March 29, 2005, the debtor, Darlene Mathis Gardner, filed
a voluntary petition under chapter 11 of the Bankruptcy Code.
The debtor’s chapter 11 case was converted to a case under
chapter 7 on December 6, 2005, and a chapter 7 trustee was
appointed (“Chapter 7 Trustee”).
Less than five months prior to filing for bankruptcy, the
debtor purchased a condominium known as 1300 N Street, N.W., Unit
703 (“N Street Condominium”) by deed dated November 18, 2004, and
recorded December 14, 2004. 	On March 4, 2005--less than 30 days
prior to filing her bankruptcy petition--the debtor refinanced
the N Street Condominium for $387,000 and netted $43,868.99 in
proceeds.
In addition to scheduling her ownership of the N Street
Condominium, the debtor listed on Schedule B her 100% member
interest in Mathis Gardner LLC, which was a real estate holding
company, and her 100% shareholder interest in Collectibles
Furnishings & Gift Gallery, Inc., a retail home furnishing
company.
Mathis Gardner LLC owned 1420 Ninth Street, N.W. (“Ninth
Street”), having purchased the property in 2003 for $610,000. On
July 15, 2005, after the debtor commenced this case, Mathis
Gardner LLC sold the Ninth Street property for $850,000 netting
$177,318.39 in settlement proceeds.
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On May 9, 2006, the Chapter 7 Trustee filed a motion for
turnover of certain financial and other documents and information
about the refinance of the N Street Condominium and the sale of
the Ninth Street property that the Debtor had not provided in
response to the Chapter 7 Trustee’s request. 	The Chapter 7
Trustee requested the documents and information in order to
evaluate possible avoidance actions and other matters, and
specifically to try to trace the proceeds of the refinance and of
the sale. 	The debtor received a copy of the Chapter 7 Trustee’s
motion but did not file a response.
On June 1, 2006, the Court entered an order (the “Turnover
Order”) directing the debtor to turn over all of the requested
documents and information to the Chapter 7 Trustee within ten
days of entry of the order. 	Pursuant to the Turnover Order, the
debtor was required to produce to the Chapter 7 Trustee, inter
alia, bank statements, copies of check registers, and copies of
checks for accounts in her name, in the name of Mathis Gardner
LLC, and in the name of Collectibles Furnishings & Gift Gallery.
The Turnover Order further instructed the debtor to “file a
certificate of compliance with this Order within ten days of its
entry or, if Debtor contends she is unable fully to comply with
the Order, a detailed explanation under penalty of perjury
stating the extent to which she has complied with the Order and
the reasons why she contends she is unable to fully comply with
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the order.” 	The Turnover Order also stated that failure to
comply would subject the debtor to the potential imposition of a
contempt sanction as well as the potential denial of her
discharge under 11 U.S.C. § 727(a).
The Debtor received a copy of the Turnover Order.
On September 11, 2006, the Chapter 7 Trustee filed a Motion
for Order to Show Cause claiming that the Debtor had failed to
fully comply with the Turnover Order. 	The debtor had not yet
produced all bank statements, related check registers, copies of
checks or other financial documents for accounts in her name, in
the name of Mathis Gardner LLC, and in the name of Collectibles
Furnishings & Gift Gallery which would help the Chapter 7 Trustee
trace the proceeds of the N Street Condominium refinance and the
Ninth Street sale.
At the December 1, 2006, hearing on the motion, the Court
found that the Debtor had not fully complied with the Turnover
Order and had not produced documents sufficient to explain fully
what happened to those proceeds, and further, that the Debtor
failed to explain why she was unable to comply with the Turnover
Order. 	Consequently, the Court entered a written order (the
“Contempt Order”) on December 12, 2006, holding the Debtor in
civil contempt.
Before the court entered the Contempt Order, the United
States Trustee filed his complaint objecting to the debtor’s
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discharge pursuant to, inter alia, 11 U.S.C. § 727(a)(6)(A) for
refusal to obey the court’s Turnover Order on November 30, 2006.
On March 28, 2007, the Chapter 7 Trustee filed a complaint
against the debtor for conversion of the property of the estate
and for turnover of property of the estate seeking to recover
$125,000 which had allegedly been diverted from the estate. 	The
debtor answered the complaint denying the substantive
allegations. 	On May 2, 2007, the court entered a consent
judgment order between the Chapter 7 Trustee and the debtor,
pursuant to which the debtor and her related entities agreed to
entry of a nondischargeable judgment for $120,000, provided that
the judgment would be deemed satisfied and Gardner would be
deemed to have purged herself of contempt if Gardner were to pay
the Chapter 7 Trustee $70,000 according to a payment schedule.
As of November 13, 2007, Gardner paid the final installment to
the Chapter 7 Trustee, thereby satisfying the judgment, and being
deemed purged of contempt.
II
Pursuant to Fed. R. Civ. P. 56 (as incorporated by Fed. R.
Bankr. P. 7056), summary judgment will be granted where “there is
no genuine issue as to any material fact and [] the movant is
entitled to judgment as a matter of law.” 	Fed. R. Civ. P. 56(c).
The court must deny summary judgment where there is a genuine
issue as to any material fact. 	Anderson v. Liberty Lobby, Inc.,
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477 U.S. 242, 247 (1986). 	If the movant makes a properly
supported motion, the burden shifts to the opposing party to
demonstrate specific facts showing that there is a genuine issue
for trial. 	Id.
If the moving party does not bear the burden of proof at
trial on an issue, summary judgment may be granted if the moving
party shows “that there is an absence of evidence to support the
nonmoving party’s case.” 	Celotex Corp. v. Catrett, 477 U.S. 317,
325 (1986). 	If the movant alleges that the opposing party lacks
proof to establish requisite elements of its case, the movant
need not demonstrate the absence of such facts, but only that the
opposing party has failed to present evidence to prove such
facts. 	Id. 	The court must view the opposing party’s evidence in
the light most favorable to the non-movant’s position and draw
inferences in favor of that party, provided such inferences are
justifiable or reasonable. 	Matsushita Elec. Indus. Co., Inc. v.
Zenith Radio Corp., 475 U.S. 574, 587-88 (1986).
III
The issue on summary judgment is whether the debtor refused
to comply with the court’s Turnover Order such that the debtor
should be denied her discharge pursuant to 11 U.S.C. §
727(a)(6)(A).
The grounds for denial of discharge are enumerated in §
727(a). 	The relevant subsection provides in relevant part that
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the court shall grant the debtor a discharge, unless “the debtor
has refused, in the case to obey any lawful order of the court,
other than an order to respond to a material question or to
testify.” 	11 U.S.C. § 727(a)(6)(A) (2006)(emphasis added).
Courts diverge on whether the statutory term “refused”
requires an element of willfulness and intent. 	See Smith v.
Jordan (In re Jordan), 521 F.3d 430, 434 (4th Cir. 2008). 	The
majority holds that the use of the word “refused” in §
727(a)(6)(A) requires a showing that the debtor willfully and
intentionally refused to obey the court’s order. 	In re Jordan,
521 F.3d at 433-34; State of Missouri, ex. rel. Nixon et al. v.
Foster (In re Foster), 335 B.R. 709, 716 (Bankr. W.D. Mo. 2006).
Under this approach, a mere “failure” to comply with a court
order resulting from inadvertence, mistake, or inability to
comply does not constitute a refusal to obey which would justify
denial of discharge under § 727(a)(6)(A). 	Stapleton v. Klika (In
re Klika), Case No. 05-10707, Adv. Nos. 06-50605, 06-50607, 2007
WL 842073, at *2 (Bankr. D. Del. Mar. 16, 2007); Wilmington Trust
Co. v. Jarrell (In re Jarrell), 129 B.R. 29, 33 (Bankr. D. Del.
1991) (citing 4 Collier on Bankruptcy, ¶ 727.09[2] (15th ed.
1979)).
A minority of courts has found that an action under §
727(a)(6)(A) should be treated as a civil contempt proceeding,
thereby negating the intent requirement from the word “refused”
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as willfulness is not an element to a proceeding in civil
contempt. 	See In re Jordan, 521 F.3d at 434.
The court adopts the majority view and holds that in order
for the trustee to successfully obtain a denial of discharge
pursuant to § 727(a)(6)(A), there must be a showing that the
debtor willfully and intentionally refused to obey the court’s
Turnover Order. 	That the court held the debtor in civil contempt
for failure to comply with the Turnover Order is insufficient to
justify denying the debtor’s discharge. 	The court must make an
independent determination that the debtor willfully and
intentionally refused to obey the Turnover Order, therefore
warranting a denial of her discharge.
IV
Because a discharge pursuant to § 727(a)(6)(A) requires a
showing of willful and intentional disobedience, the critical
issue is whether material issues of fact exist with respect to
whether the debtor wilfully disobeyed the court’s Turnover Order.
The party objecting to discharge must demonstrate willful
and intentional disobedience of the court order. 	This burden is
satisfied, initially, by demonstrating that the debtor received
the order in question and failed to comply with its terms. 	In re
Foster, 335 B.R. at 716; LaBarge v. Ireland (In re Ireland), 325
B.R. 836, 838 (Bankr. E.D. Mo. 2005)(citing Katz v. Araujo (In re
Araujo), 292 B.R. 19, 24 (Bankr. D. Conn. 2003)). 	Apparently
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based on the assumption that in the absence of an explanation for
the failure to comply, it can be inferred that the failure was a
refusal, the burden then shifts to the debtor to explain non-
compliance with the order. 	In re Foster, 335 B.R. at 716. 	Once
a debtor produces evidence explaining the non-compliance, the
ultimate burden of persuasion rests with the plaintiff to show
that the failure was willful and intentional. 	Pereira v. Gardner
(In re Gardner), 384 B.R. 654, 663 (Bankr. S.D.N.Y. 2008).
The United States Trustee asserts that the following facts
demonstrate the debtor’s willful and intentional refusal to obey
the court’s Turnover Order justifying denial of her discharge
pursuant to § 727(a)(6)(A): (1) the debtor received the Turnover
Order; (2) she failed to comply with that order as many as six
months after it was entered; and (3) she was held in civil
contempt for her noncompliance. 	Pl.’s Mot. Summ. J. ¶ 32. 	The
debtor’s failure to offer an explanation of her inability to
comply, as required by the Turnover Order and as a defense to the
charge of civil contempt, shows more than inadvertence, mistake,
or inability to comply. 	Pl.’s Reply to Def.’s Opp’n to Mot.
Summ. J. at 4-5.
The debtor defends that she was not willfully disobedient,
but rather, that she was unable to comply with the Turnover
Order. 	Def.’s Opp’n to Mot. Summ. J. at 5-6, 13-15. 	The debtor
additionally contends that her lack of compliance has not
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1 	Under the Consent Judgment Order, the court entered
judgment for $120,000 against the debtor, which would be deemed
satisfied if she paid the Chapter 7 Trustee $70,000 according to
an agreed payment schedule. 	The debtor paid the final
installment to the Chapter 7 Trustee on November 13, 2007.
10
resulted in irreparable injury to her creditors and that she has
sufficiently made amends for her actions by satisfying the
requirements of the Consent Judgment Order, entered by the court
on May 2, 2007. 1 	Def.’s Opp’n to Mot. Summ. J. at 16.
The United States Trustee replies that the debtor’s
inability to comply is not material to the issue whether she
refused to obey the Turnover Order, or alternatively, that the
debtor should be estopped from asserting inability to comply as a
defense because she failed to explain her inability to comply in
the civil contempt proceeding. 	Pl.’s Reply to Def.’s Opp’n to
Mot. Summ. J at 2, 4.
To adjudicate a denial of discharge claim, “[a] court may
consider factors such as the intent behind the debtor’s acts,
whether the acts were willful, whether there was a justifiable
excuse, whether there was injury to creditors and whether there
is some way the debtor could make amends.” 	In re Klika, 2007 WL
842073 at *2 (citation omitted). 	Inability to comply is a
justifiable excuse which may be asserted as a defense to a charge
of willful and intentional disobedience of a court order. 	In re
Jarrell, 129 B.R. at 33.
Some courts have granted motions for summary judgment
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2 	Courts have granted motions for summary judgment denying
the debtor’s discharge pursuant to section 727(a)(6)(A) based on
the debtor’s refusal to obey other types of courts orders as
well. 	See, e.g., NCNB Texas National Bank, et al. v. Jones (In
re Jones), 966 F.2d 169, 171-174 (5th Cir. 1992)(affirming
summary judgment denying the debtor’s discharge pursuant to
section 727(a)(6)(A) where the debtor violated court order
prohibiting the debtor from using specific funds without court
approval); Dzikowski v. Massaline (In re Massaline), 298 B.R. 920
(Bankr. S.D. Fl. 2003) (granting summary judgment denying debtor
a discharge pursuant to § 727(a)(6)(A) for refusing to obey court
order to deliver the proceeds of federal income tax return to the
trustee).
11
denying the debtor’s discharge pursuant to § 727(a)(6)(A) based
on the debtor’s failure to obey a court order requiring the
debtor to produce documents related to his bankruptcy case. 2
See, e.g., In re Klika, 2007 WL 842073 at *3 (granting partial
summary judgment denying debtors a discharge pursuant to §
727(a)(6)(A) for refusal to obey a court order to produce certain
documents); In re Foster, 335 B.R. 709 (same). 	The courts in
Klika and Foster denied the debtors’ discharges on summary
judgment because the debtors did not explain their failure to
produce the court-ordered documents. 	Klika, 2007 WL 842073 at
*3; Foster, 335 B.R. at 716-717. 	Those debtors did not assert
that they were unable to comply with the production orders
because, for example, the documents did not exist or were never
created. 	Klika, 2007 WL 842073 at *3; Foster, 335 B.R. at 716-
717. 	Under those circumstances, the courts justifiably inferred
that the debtors’ failure to comply with the court’s order was
willful and intentional.
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But here the debtor does offer an explanation of her
inability to comply. 	She claims that she did not intentionally
or willfully refuse to obey the Turnover Order, Gardner Aff. ¶
21, and asserts inability to comply as a defense against the
United States Trustee’s charge of willful disobedience. 	Def.’s
Opp. To Pl.’s Mot. Summ. J. at 5. 	Inability to comply is
material to the determination of denial of the discharge for
willful disobedience of a court order. 	Viewing the evidence in
the light most favorable to the nonmovant, the court concludes
that there is a material issue of fact with regard to the
debtor’s willfulness, as explained below, such that the United
States Trustee’s motion for summary judgment should be denied.
The debtor admits that she received the Turnover Order, that
she 	understood 	the 	necessity 	of 	responding 	to 	and 	complying 	with
the 	Turnover 	Order 	by 	producing 	documents, 	and 	that 	she 	produced
some but not all of the documents enumerated in the Turnover Order
up to the date she was held in civil contempt. 	Def.’s State. Mat.
Facts Disp. at 3; Gardner Aff. ¶¶ 9-19; see, e.g., Gardner Dep. at
24:4-15, 25:15-18, 31:4-12, 33:7-9, 34:17-22, 37:9-10. 	The debtor,
however, 	claims 	that 	she 	was 	trying 	to 	comply 	with 	the 	Turnover
Order 	from 	the 	date 	it 	was 	entered, 	and 	that 	she 	was 	unable 	to
comply for a number of reasons. 	Def.’s Opp. to Pl.’s Mot. Summ. J.
at 5, 8-9; Def.’s State. Mat. Facts Disp. at 3; Gardner Aff. ¶¶ 10-
17, 19; see, e.g., Gardner Dep. at 37:1-38:11.
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3 	That the debtor also purged herself of contempt by
ultimately complying with the Turnover Order and the Consent
Judgment Order, thereby making amends for her actions, is also a
13
The 	debtor 	claims 	that 	she 	was 	unable 	to 	obtain 	and 	produce
all 	of 	the 	required 	documents 	due 	to 	a 	lack 	of 	bookkeeping 	and
other financial skills and general disorganization of her personal
and business financial records. 	Def’s Opp. to Pl.’s Mot. Summ. J.
at 5, 13-15; Def.’s State. Mat. Facts Disp. at 3; Gardner Aff. ¶¶
4-5,7-8; Gardner Dep. at 60-62. 	She further states that she turned
over all the documents in her possession at the time of the Chapter
7 Trustee’s requests and that before and after the Turnover Order,
she 	“made 	numerous 	attempts 	to 	obtain 	all 	the 	requested 	bank
statements 	and 	checks 	copies 	from 	[her] 	banks.” 	Def’s 	Opp. 	to
Pl.’s 	Mot. 	Summ. 	J. 	at 	6, 	8; 	Gardner 	Aff. 	¶¶ 	18-19. 	Gardner
additionally contends that certain documents did not exist in the
format requested. 	Def.’s Opp. to Pl.’s Mot. Summ. J. at 5; Def.’s
State. Mat. Facts Disp. at 1-4.
Because 	the 	debtor 	alleges 	specific 	facts 	to 	support 	her
explanation that she was unable to comply with the Turnover Order’s
requirements 	regarding 	producing 	bank 	records, 	thereby 	disputing
the 	United 	States 	Trustee’s 	charge 	of 	wilful 	disobedience, 	and
because those facts are material to the issue whether she refused
to obey the Turnover Order, the court concludes that this matter is
not 	properly 	disposed 	of 	on 	summary 	judgment 	with 	respect 	to 	her
failure to produce bank records. 3
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fact that may be considered in the calculation of whether denial
of the discharge is appropriate, at least under the view of some
courts. 	See In re Klika, 2007 WL 842073 at *2 (citation
omitted).
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The 	Turnover 	Order 	also 	required 	Gardner 	to 	submit 	an
explanation 	of 	her 	inability 	to 	comply 	with 	the 	Turnover 	Order
within ten days of entry of the order but she never did.
According 	to 	the 	debtor, 	she 	did 	not 	understand 	what 	the 	court
meant 	by 	a 	certificate 	of 	compliance, 	and 	its 	meaning 	was 	never
explained 	to 	her. 	Def.’s 	State. 	Mat. 	Facts 	Disp. 	at 	4; 	Gardner
Dep. 8-13. 	The debtor also suggests that by producing all of the
documents in her possession and using good faith efforts to obtain
any 	remaining 	documents, 	she 	thought 	she 	had 	complied 	with 	the
Turnover Order. 	Def.’s Opp. to Pl.’s Mot. Summ. J. at 8; Gardner
Dep. 26:6-17; 64:8-18.
The 	United 	States 	Trustee 	contends 	that 	because 	the 	debtor
failed 	to 	offer 	any 	explanation 	for 	failing 	to 	fully 	comply 	with
the Turnover Order, despite the court’s express instruction to do
so, she should not now be allowed to defend that she was unable to
comply. 	The court disagrees.
Impossibility or an inability to comply with a judicial order
is 	a 	valid 	affirmative 	defense 	to 	a 	charge 	of 	civil 	contempt.
Magar 	v. 	U.S. 	Trustee 	(In 	re 	Magar), 	No. 	7:07CV00111, 	2007 	WL
2220517, at *2 (Bankr. W.D. Va. Jul. 31, 2007); Parker v. Thompson
(In re Thompson), No. 06-3468, 2007 WL 671348, at *3 (Bankr. N.D.
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Ohio Feb. 28, 2007). 	Inability to comply is also defense to charge
of willfulness for purposes of 727(a)(6)(A). 	In re Jarrell, 129
B.R. 	at 	33. 	But 	“the 	doctrine 	of 	collateral 	estoppel 	(issue
preclusion) 	applies 	only 	to 	issues 	actually 	litigated 	and
determined in prior litigation.” 	Webster v. Hope (In re Hope), 231
B.R. 403, 422 (Bankr. D.D.C. 1999). 	The debtor’s 	state of mind,
specifically 	whether 	she 	willfully 	and 	intentionally 	refused 	to
comply 	with 	the 	Turnover 	Order, 	was 	not 	actually 	litigated 	and
determined in the civil contempt proceeding in this court.
Although the debtor did not explain her inability to comply
with the Turnover Order as a defense in the civil contempt
proceeding in this court, the doctrine of collateral estoppel
does not preclude her from asserting inability to comply as a
defense to the United States Trustee’s current charge of willful
and intentional disobedience of the Turnover Order. 	In regard to
the failure to file a certificate of compliance, the debtor’s
explanation for that failure raises an issue of whether her
failure arose from a lack of understanding of what the order
required.
A reasonable finder of fact could conclude based on the
evidence submitted that the debtor was unable to comply with the
Turnover Order or misunderstood its terms, thereby negating any
willful or intentional disobedience.
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V
In light of the foregoing, it is
ORDERED that the United States Trustee’s motion for summary
judgment is denied.
[Signed and dated above.]
Copies to: All counsel of record.
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