US Trustee - Greenbelt, 11 v. Ruppert et al

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IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
at GREENBELT
In Re: 	*
* 	Case No. 	05-41879-TJC	Daniel Andrew Ruppert,
* 	Chapter 	7
Debtor. 	*
************************************* 	*
*
*
United States Trustee,
*
Plaintiff, 	* 	Adv. No. 	05-09135-TJC
vs. 	*
*
*
Daniel Andrew Ruppert,
*
Defendant. 	*
MEMORANDUM OF DECISION
Before the court is a Complaint to Deny Discharge of Debtor filed by Plaintiff W.
Clarkson McDow Jr., the United States Trustee for Region Four (the “Trustee”) in which
the Trustee seeks the denial of the discharge of the Defendant Daniel A. Ruppert (the
“Debtor”). The Trustee contends, among other theories, that the Debtor refused to obey a
Date signed May 21, 2007
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lawful order of this Court within one year before the date of the filing of the Debtor’s
bankruptcy case, which was entered in a bankruptcy case of an insider of the Debtor. The
Trustee contends, therefore, that the Court should deny the Debtor a discharge pursuant
to 11 U.S.C. § 727 (a)(6), made applicable to this case by 11 U.S.C. § 727(a)(7). The
Debtor contends that he did not refuse to obey the order because he did not know about it,
and that the complaint does not otherwise establish a basis to deny him a discharge.
The Court conducted a trial on the complaint over a series of several days in
February and March, 2007. For the reasons set forth herein, the Court finds and
concludes that the Debtor willfully refused to obey a lawful order of this Court within
one year before the date of filing of the petition in connection with a case in which the
Debtor was an insider. The Court therefore concludes that the Debtor's discharge should
be denied pursuant to 11 U.S.C. §§ 727(a)(6) and (7). The Court need not address the
Trustee’s other theories for the denial of the Debtor’s discharge.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334, 157(a),
and Local Rule 402 of the United States District Court for the District of Maryland. This
is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J). The following constitutes the
Court’s findings of fact and conclusions of law.
I. 	Findings of Fact
The Debtor was the sole owner and operator of Ruppert Family Builders, LLC
(“RFB”). RFB filed a voluntary petition under Chapter 11 of the Bankruptcy Code on
December 26, 2002, Case No. 02-24757–DK (the “RFB Bankruptcy Case”).
RFB was a small building company that specialized in building decks on
residential houses and also built several homes. At all times during the RFB Bankruptcy
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Case, the Debtor was the responsible person in charge of RFB’s operations and activities.
RFB was represented in the RFB Bankruptcy Case by Jeffrey Orenstein, a bankruptcy
attorney who is a member of the Maryland bar. On January 27, 2003, the Trustee
appointed an official committee of unsecured creditors in the RFB Bankruptcy Case.
A. 	The Sale of the Property and the Sale Order.
On April 28, 2004, RFB filed in the RFB Bankruptcy Case a motion to sell free
and clear of liens real property located at 18900 Liberty Mill Road, Germantown, MD
20874 (the “Property”). The Property was the single, substantial asset of RFB. The
purpose of selling the Property was to fund the anticipated plan of reorganization under
which unsecured and other creditors would be paid. That purpose – that the Property
would be sold to fund the plan – had been discussed between Mr. Orenstein and the
Debtor, as Mr. Orenstein put it, since “day one of the case.” The Debtor knew that the
purpose of selling the Property was to fund the plan of reorganization.
The Court held a hearing on the motion to sell the Property, which was attended
by the Debtor. The motion was granted by the Court. In granting the motion, the Court
entered on May 20, 2004 in the RFB Bankruptcy Case the Order Authorizing the Sale of
Real Property (the “Sale Order”). The Sale Order is the order that the Trustee contends
the Debtor willfully violated.
The Sale Order provided that at the closing of the sale of the Property, RFB was
authorized to pay customary sales expenses and liens against the Property. The Sale
Order further provided that the “balance of funds, if any, shall be held by [RFB] subject
to further order of the Court.”
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RFB closed on the sale of the Property and received net sales proceeds of
$163,404.06 (the “Sale Proceeds”). Katherine Breesman Harper, an employee of RFB at
the time, picked up the settlement check constituting the Sales Proceeds from Mr.
Orenstein’s office. At the instruction of the Debtor, she deposited the check in the RFB
debtor-in-possession operating account.
B. 	The Dissipation of the Sale Proceeds.
Rather than retain the Sales Proceeds, RFB, under the direction of the Debtor,
spent the Sale Proceeds. The funds were spent during the six month period from July
2004 through December 2004. The Debtor testified that the Sales Proceeds were spent
on ordinary and necessary expenses of RFB. The Debtor submitted into evidence RFB’s
bank statements and copies of cancelled checks in an effort to show what happened to the
Sale Proceeds. The Debtor contends that RFB was on the cash basis of accounting and
that all revenues were deposited into, and all expenses were paid through, the checking
account. The Debtor contends therefore that the amount by which withdrawals from the
RFB’s checking account exceeded deposits each month, or vice versa, constituted the net
loss or net profit for the month, as the case may be. Under this format, the Debtor
contends that RFB’s net loss (or in the case of August 2004, net profit) for each month
from July 2004 through December 2004, was approximately as follows 1 :
July, 2004 	$32,111 	(loss)
August, 2004 	$12,199.55 	(profit)
1 The Debtor made several attempts to account for the use of the Sale Proceeds. Compare PX 22 with DX
11. The amounts that the Debtor characterized as net loss or net profit for each month differed somewhat
among those accounts, but the difference is not material for purposes of this decision. Count III of the
complaint seeks to deny the Debtor a discharge for allegedly failing to adequately explain the loss of the
Sales Proceeds. See 11 U.S.C. § 727(a)(5). The Court makes no determination on this claim.
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September, 2004 	$24,859.61 	(loss)
October, 2004 	$33,483.52 	(loss)
November, 2004 	$74,272.43 	(loss)
December, 2004 	$3,482.47 	(loss)
Total: 	$156,010.44 	(loss)
The Debtor admits that a substantial portion of the Sale Proceeds was paid to him
directly or for his benefit. By the Debtor’s own accounting, the amount of the Sale
Proceeds that were paid to or for the benefit of the Debtor personally during the period
was approximately as follows2 :
July, 2004 	$14,358
August, 2004 	$ 7,724
September, 2004 	$ 9,440
October, 2004 	$12,881
November 2004 	$11,556
December, 2004 	not available
Total: 	$55,959
Accordingly, during the five month period of July, 2004 through November,
2004, the Debtor had RFB pay to him or makes payments for his personal benefit funds
in the total approximate amount of $ 55,959. In addition, additional funds were paid to or
for the benefit of the Debtor in December 2004, although the amount of those funds is not
available.
2 As stated supra at n.1, the Debtor made several attempts to account for the use of the Sale Proceeds,
including the amounts paid to him or for his personal benefit. The amounts paid to or for the benefit of the
Debtor differ somewhat in those accounts, but the difference is not material for purposes of this decision.
The amount paid to or for the benefit of the Debtor in December 2004 is not available because the
individual checks from the RFB debtor-in-possession checking account are not available.
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The record was not particularly clear as to what the Debtor’s salary from RFB
was before it received the Sales Proceeds. It appears that the usual biweekly payroll
check issued to the Debtor from RFB was $3,082. On that basis, payments of $55,959
over a five month period would be substantially more than the Debtor was previously
receiving. Further, payments of $55,959 over a five month period would be equivalent to
more than $134,000 on an annual basis. While such an amount appears plainly excessive
in light of the operations, revenue and lack of profitability of RFB, the Court need not
make this particular finding for purposes of this ruling. For purposes of this ruling, it is
sufficient to note that the Debtor paid himself a substantial sum each month while the
Sales Proceeds continued to be depleted.
C. 	The Debtor’s Understanding of the Sale Order Obligations
As explained further in the Conclusions of Law, the primary dispute between the
parties centers on the Debtor understanding of the Sale Order and whether he willfully
violated its terms. The key witnesses concerning these issues were Mr. Orenstein and
Ms. Harper, although as explained further in the Conclusions of Law section, the Debtor
also testified on these issues.
Ms. Harper’s understanding of RFB’s obligations with respect to the Sales
Proceeds, and more importantly, her statements of the Debtor’s understanding of his
duties and obligations with respect to the Sale Proceeds, differed dramatically from her
examination under Fed. R. Bank. P. 2004 to her trial testimony. At trial, she testified that
some time after the Sale Order was entered, she was not sure when, she acquired a vague
understanding from the Debtor that the Sale Proceeds could not be spent.
In Ms. Harper’s Rule 2004 examination, however, she testified as follows:
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Q. 	What is your understanding of what that [the phrase in the Sale Order that
the “balance of funds, if any, shall be held by [RFB] subject to further
order of the Court”] means?
A. 	The money should have stayed in the bank and not ever been spent.
Q. 	Did anyone ever tell you that before today?
A. 	I believe Mr. Orenstein did.
Q. 	Was that back when you got the check?
A. 	I believe so. I’m not 100 percent.
Q. 	Did you ever mention that to Mr. Ruppert?
A. 	Yes. I think that we were both – it was kind of understood that that [the
Sales Proceeds] was to go to the creditors.
* 	* 	* 	* 	* 	* 	*
Q. 	So at the time you got the $160,000 you were aware that that money was
for creditors and that it was to be set aside?
A. 	Correct. Yes sir.
* 	* 	* 	* 	* 	* 	*
Q. 	So on the same day you deposited the check that you knew was to be held
for creditors you wrote checks out that you knew couldn’t clear other than
the fact that you had just deposited the sales check?
A. 	Correct.
Q. 	And you knew you were supposed to hold that money?
A. 	Pretty much, yes.
Q. 	So why were you writing checks out to disburse that money on the same
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day you deposited it?
A. 	I was following orders.
Q. 	From Mr. Ruppert?
A. 	Yes
Ms. Harper’s explanation for the change in her testimony was that she was
intimidated at the Rule 2004 examination – her first – into accepting the leading
questions of the examiner. She also testified that she hadn’t been “prepared” before her
examination. But at trial, Ms. Harper was a poised witness, who was well able to
articulate her thoughts and defend her statements. She did not appear to be intimidated
by the trial proceedings and did not seem to be the type of person who is easily
intimidated. Further, the examination questions were clear and fair. A number of her
answers at the examination, such as “I think that we [she and the Debtor] were both – it
was kind of understood that [the Sales Proceeds] was to go to the creditors,” were not a
simple one word acquiescence to a leading question. At trial, Ms. Harper testified that
she answered the questions at the examination as best she could at the time.
The Court finds Ms. Harper’s account of the Debtor’s and her understanding of
the limitations on the use of the Sale Proceeds, made at her Rule 2004 examination, as set
forth above, to be a candid explanation of the Debtor’s understanding, as relayed to her,
of those limitations. The Court accepts Ms. Harper’s Rule 2004 testimony in its Findings
of Fact.
With respect to Mr. Orenstein’s testimony, as stated above, Mr. Orenstein
represented RFB in the RFB Bankruptcy Case. He has practiced law for 20 years.
Approximately 50% of his practice is in the area of bankruptcy law.
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Mr. Orenstein testified that he and the Debtor discussed the Sale Order after it
was entered in a conversation that “is as vivid in my mind today as it was the day we had
it.” The Debtor initiated the call to Mr. Orenstein after the Debtor received the Sale
Order, to discuss the terms of the Sale Order. Mr. Orenstein told the Debtor that the
Debtor was “to keep the money and not to spend it.” Mr. Orenstein told the Debtor that
he did not need to separately segregate the funds. The Debtor asked Mr. Orenstein,
“What if I blow the money?” Mr. Orenstein specifically recalled this question because he
thought it was bizarre. He told the Debtor, “Don’t blow it, Danny, don’t.”
D. 	RFB Filings in the RFB Bankruptcy Case Concerning the Sale Proceeds.
On May 17, 2004, Mr. Orenstei, on behalf of RFB in the RFB Bankruptcy Case,
filed a consent motion to extend deadline for filing plan and disclosure statement. The
consent motion seeks an extension of time for RFB to file its plan and disclosure
statement. It describes that the Court has previously approved the sale of the Property
and that the sale is scheduled to close on June 14, 2004. It states “If the sale is
consummated, the Debtor will have propose [sic] a plan that will provide for prosecution
of avoidance actions, objections to claims, and distributions of the net sales proceeds to
creditors.” Mr. Orenstein testified that it is his practice to send copies of case filings to
his clients and believes he sent a copy of the consent motion to the Debtor.
On or about June 22, 2004, shortly before RFB filed its plan and disclosure
statement, Mr. Orenstein and the Debtor discussed whether the RFB Bankruptcy Case
should be converted to a case under Chapter 7. Mr. Orenstein’s time records reflect that
the conversation was approximately 18 minutes. The point of the conversation was that,
because the creditors were going to receive the Sale Proceeds in any event, it might be
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more efficient to simply convert the case and have a Chapter 7 trustee appointed who
could resolve claims and make a distribution to creditors. It was decided not to convert
the RFB Bankruptcy Case and to file a plan and disclosure statement. The conversation is
significant, however, because it is yet another indication that the Debtor knew the Sale
Proceeds were to be used to pay creditors.
On June 29, 2004 RFB filed a plan of reorganization and a disclosure statement in
the RFB bankruptcy case. The first page of the plan provides:
The Plan provides for the payment of all administrative expenses and
payment of the claims of priority and general unsecured creditors
from the proceeds obtained from the sale of the [RFB’s] real
property located at 18900 Liberty Mill Road, Germantown, MD
20874 . . .
The plan further provides on page 5 that “this plan is to be funded from the proceeds of
the sales proceeds. . . . The Bankruptcy Court previously approved the sale of the Liberty
Mill Property and the net proceeds from the sale were approximately $162,000.” Under
the plan, the terms “sales proceeds” is a defined term to mean “the approximately
$162,000 resulting from the sale of the Liberty Mill property.”
The RFB disclosure statement for plan of reorganization describes at length the
sale of the Property. It further provides
From the proceeds received by the Debtor at the closing of the sale, the
Debtor paid customary sale expenses, and all liens on the Liberty Mill
Property including unpaid real property taxes, and all amounts to do
under the mortgage held by Investors Mortgage Services LLC in
accordance with the consent order regarding motion for entry of order
pursuant to settlement agreement granting relief from automatic stay to
permit foreclosure of real property entered March 18, 2004. The
balance of funds, approximately $162,000, are being held by the
debtor subject to further order of the Bankruptcy Court. (Emphasis
added).
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The plan and disclosure statement were filed with the bankruptcy court electronically.
Each document has a signature line for the Debtor as follows “By: /s/ Daniel A. Ruppert”
as the managing member of RFB.
Mr. Orenstein’s daily time log for June 29, 2004, the day he filed RFB’s plan and
disclosure statement, reflects the following entry: “.3 mw D. Ruppert re Plan.” The
initials “mw” were Mr. Orenstein’s standard usage for the abbreviation for “met with.”
The entry meant that Mr. Orenstein met with the Debtor for approximately 3/10 of an
hour on June 29, 2004. Mr. Orenstein was certain, and the Court accepts, that the Debtor
signed the Plan.3
II. Conclusions of Law
Under Section 727 “the court shall grant the debtor a discharge” unless one of
twelve exceptions is present. See 11 U.S.C. § 727(a)(1)-(12). “Obtaining a discharge is
the key component of the ‘fresh start’ a bankruptcy proceeding is designed to give a
debtor.” Missouri ex rel. Nixon v. Foster (in re Foster), 335 B.R. 709, 714 (Bankr. W.D.
Mo. 2006). To that end, “the provisions denying a discharge to a debtor are generally
construed liberally in favor of the debtor and strictly against the creditor.” Collier on
Bankruptcy P 727.01[4] (15th ed. Rev. 2006). The party seeking the denial of the debtors
discharge has the burden of proving the claim by a preponderance of the evidence.
Farouki v. Emirates Bank Int'l, 14 F.3d 244, 250 (4th Cir. 1994).
In the instant case the Trustee seeks denial of the Debtor’s discharge pursuant to
Sections 727(a)(2),(5) and (6) which are applicable in this case pursuant to Section
727(a)(7). Under Section 727(a)(7), a debtor can be denied a discharge if “the debtor has
3 Mr. Orenstein’s time records have a second entry on June 29, 2004 for time spent filing and serving the
plan.
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committed any act specified in paragraph (2),(4),(5), or (6) of this subsection on or before
one year before the date of the filing of the petition or during the case, in connection with
another case, under this title or under the Bankruptcy Act, concerning an insider.” 11
U.S.C. § 727(a)(7). In the instant case the Debtor has admitted that he is an insider of
RFB for purposes of Section 727(a)(7). Thus, the Trustee must establish that the Debtor
committed an act specified in Sections 727(a)(2),(5), or (6) within one year of his filing
the petition in his bankruptcy case.
“A party objecting to discharge need prove only one of the grounds for
nondischargeability under § 727(a) because the provisions of § 727(a) are phrased in the
disjunctive.” Farouki, 14 F.3d at 250. Denial of a discharge pursuant to one provision of
Section 727(a) eliminates the need for consideration of the remaining claims. Id. (citing
In re Shumate, 55 B.R. 489, 495 (Bankr. W.D. Va. 1985); In re Moore, 89 B.R. 935, 937
(Bankr. M.D. Fla. 1988)). Therefore, because the Court concludes that the Debtor's
discharge should be denied pursuant to Section 727(a)(6)(A), the Court does not consider
the remaining counts under the complaint, namely, the counts under Sections 727(a)(2)
and 727(a)(5).
The Court therefore turns to Section 727(a)(6)(A). That section requires that a
debtor be denied a discharge if
the debtor has refused, in the case-
(A) 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).
The actual matter in dispute between the parties with respect to the Section
727(a)(6)(A) claim is quite narrow. There is no dispute that the Sale Order required that
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RFB was to hold the balance of the Sale Proceeds, subject to further order of the Court,
and not spend the Sale Proceeds. Further, there is no dispute that the Debtor had the Sale
Proceeds deposited into the RFB debtor-in-possession bank account and, contrary to the
express provisions of the Sale Order, spent the money. Finally, there is no dispute that
some or all of the funds were spent in the one year period prior to the date of the filing of
the Debtor’s bankruptcy petition. Thus, there is no dispute that the Sales Order required
RFB to hold, and not spend, the Sale Proceeds, nor is there any dispute that the RFB,
under the direction of the Debtor, failed to comply with it.
The parties, however, dispute whether the Debtor willfully violated the Sale
Order. The Trustee contends that the Debtor knew of the prohibition in the Sale Order
against spending the Sale Proceed and willfully refused to comply with its terms. The
Debtor contends that he did not see the Sale Order and did know that the Sale Order
prevented him from using the proceeds in the operation of RFB’s business. He contends
that Mr. Orenstein was not clear in his instructions to the Debtor concerning the
limitations on spending the funds. He alleges that the funds were spent, more or less, on
RFB’s business expenses (although he acknowledges that he spent at least $55,959 (plus
the December amounts) of the funds for his personal benefit).
Section 727(a)(6)(A) provides for the denial of a debtor's discharge if that debtor
“refuses” to obey a lawful court order. The term “refuse” is not defined in the
Bankruptcy Code. “Refuse” means “to deny, decline, reject.” BLACK’S LAW
DICTIONARY 887 (6th ed. 1991). “Fail is distinguished from ‘refuse’ in that ‘refuse’
involves an act of the will, while ‘fail’ maybe an act of inevitable necessity.” Id.
Nonetheless, Courts diverge on whether the statutory term “refused” requires an element
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of willfulness or intent. See In re Gentry, 275 B.R. 747, 754 (Bankr. W.D. Va. 2001)
(identifying the diverging opinions); Foster, 335 B.R. at 716 (finding that a court must
find that a debtor’s lack of compliance with a court order was willful and intentional
because “[t]he term used in the statute [11 U.S.C. § 727(a)(6)] is ‘refused’ not ‘failed.’”);
Hunter v. Magack (In re Magack), 247 B.R. 406, 409-10 (Bankr. N.D. Ohio 1999)
(holding that “the use of the word ‘refused’ in § 727(a)(6) denotes that an action brought
under this section should, in substance, simply be treated as a civil contempt proceeding
thereby implicitly negating the intent requirement from the word ‘refuse’ as willfulness is
not an element to a proceeding in civil contempt.”).
For the reasons set forth below, the Court finds that the Debtor willfully failed to
obey the Sale Order. Accordingly, it is not necessary to determine whether a claim under
Section 727(a)(6)(A) can be made out without a showing of willfulness.4
“The word ‘willful’ is widely used in the law, and, although it has not by any
means been given a perfectly consistent interpretation, it is generally understood to refer
to conduct that is not merely negligent.” McLaughlin v. Richland Shoe Co., 486 U.S.
128, 133 (1988). “In common usage the word ‘willful’ is considered synonymous with
such words as ‘voluntary,’ ‘deliberate’ and ‘intentional.’” Id. Willful is defined by
Black’s Law Dictionary as “proceeding from a conscious motion of the will; voluntary;
knowingly; deliberate. Intending the result which actually comes to pass; designed;
intentional; purposeful; not accidental or involuntary.” BLACK’S LAW DICTIONARY
1103 (6th ed. 1991).
4 The Trustee stipulated at trial that, for purposes of this case, a party seeking to deny a debtor’s discharge
under Section 727(a)(6) must show that the debtor willfully did not comply with the relevant court order.
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A debtor’s willful intent to disobey a court order can be inferred from his conduct.
See, In re Dowell, 61 B.R. 75, 78 (Bankr. W.D. Mo. 1986) (“If the evidence establishes
that the debtor knew or should have known of the multitude of orders and notices sent to
her and disregarded them, it could hardly be said that her failure and refusal to attend or
to perform other duties imposed by the court was inadvertent or simply by mistake.”).
In this case, Mr. Orenstein’s testimony established that the Debtor well knew,
from “day one” of the case, that RFB’s case strategy was to sell the Property and pay the
creditors from any generated surplus. The Property was in fact sold and the Sale Order
required that the Sales Proceeds be held by RFB pending further order of the Court,
consistent with that case strategy. The Debtor also knew, after the Sale Order was
entered, that the Sale Proceeds were to be used to pay creditors, as evidenced by, among
other things, his express conversation with Mr. Orenstein on June 22, 2004, about
whether or not to convert the case to Chapter 7.
More critically, Mr. Orenstein had an explicit conversation with the Debtor about
the terms of the Sale Order after the Debtor received the Sale Order. That testimony
established that the Debtor knew of the Sale Order and knew of the prohibition against
spending the Sale Proceeds in the Sale Order, and the Court accepts that testimony in its
findings. See supra, Findings of Fact at p. 9.
Further, RFB’s plan of reorganization expressly provided that the Sale Proceeds
were to be used to pay creditors. The disclosure statement expressly stated that RFB was
holding the Sale Proceeds subject to further order of the Court. See supra, Findings of
Fact at p. 9-10. The Debtor and Mr. Orenstein met on June 29, 2004, the day Mr.
Orenstein filed the plan. While the Debtor contends that an eighteen minute meeting is
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not long enough for Mr. Orenstein to properly explain the plan and disclosure statement,
the plan is a very simple plan that had at its core that the Sale Proceeds would be used to
pay creditors. Especially considering that this had been the case strategy since “day one,”
eighteen minutes or so was sufficient time for Mr. Orenstein to again advise the Debtor
that the Sale Proceeds were to be used to fund the plan. Thus the language in the plan
and disclosure statement fully supports and corroborates Mr. Orenstein’s testimony that
the Debtor knew of the prohibition against spending the Sale Proceeds in the Sale Order.
Additionally, the Court accepts Ms. Harper’s Rule 2004 examination testimony as
a more credible account – as compared to her trial testimony - of the understanding of the
Debtor’s on the prohibition against spending the Sale Proceeds. Ms. Harper’s Rule 2004
examination testimony was candid, the questions were clear and fair, and her answers
were given before she was “prepared.” See supra, Findings of Fact, at p.6-8. She stated
explicitly that “Yes. I think that we [she and the Debtor] were both – it was kind of
understood that that [the Sales Proceeds] was to go to the creditors.”
Based on the testimony of Mr. Orenstein and Ms. Harper, and the documentary
evidence, the Court finds and concludes that the Debtor was aware of the prohibition in
the Sale Order against spending the Sale Proceeds and willfully ignored that prohibition.
Finally, the foregoing findings and conclusions based on the testimony of Mr.
Orenstein and Ms. Harper are sufficient to establish a claim under Section 727(a)(6)(A).
The Court notes, however, the Debtor testified that Mr. Orenstein only told him not to
“blow” the Sale Proceeds, and that the Debtor understood that to mean he could not
“lose” or “deplete” the Sale Proceeds. Nevertheless, the Debtor did lose and deplete the
Sale Proceeds. Indeed, the Debtor’s own trial exhibits showed that each month from July
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2004 through December 2004, except for August, RFB’s bank statements reflected that
the Sale Proceeds were dwindling substantially. Thus as each month went by, the Debtor
continued to spend the Sale Proceeds while the Debtor knew from the bank statements
the funds were being depleted. Further, much of that depletion was due to the Debtor
paying himself in excess of $55,000 for five of those months.
In light of the Court’s findings based on the testimony of Mr. Orenstein and Ms.
Harper, the Court need not determine whether the Debtor’s continued spending of the
Sale Proceeds, while he knew from the bank statements that the funds were being
depleted, alone establishes a claim under Section 727(a)(6)(A). Stated otherwise, the
Court need not decide whether, if it were to disregard Mr. Orenstein’s testimony, Ms.
Harper’s Rule 2004 examination testimony, and the documentary evidence, the Debtor’s
testimony about his purported understanding of the limitation on spending the Sale
Proceeds (i.e., that he could spend the Sale Proceeds but not lose or deplete them, as
opposed to not spending them at all) makes out a claim under Section 727(a)(6)(A). The
Court notes, however, that the Debtor’s testimony established, at the very least, that the
Debtor violated his own purported understanding of the limitation on spending the Sale
Proceeds. Further, he did so despite receiving RFB’s bank statements each month that
plainly showed the funds were being depleted, and while benefiting himself personally.
These actions hardly are compatible with the fiduciary duties imposed on a responsible
person in a Chapter 11 bankruptcy proceeding.
III. 	CONCLUSION
For the foregoing reasons, the Court shall enter an order denying the Debtor a
discharge.
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Copies to:
Plaintiff’s Counsel
Defendant
Defendant’s Counsel
END OF ORDER
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