In re Raejean S. Bonham dba World Plus
Bankruptcy No. F95-00897
Unofficial Web Site
The trustee has asked the bankruptcy court to grant summary judgment in favor of the trustee on the trustee's complaint to deny Raejean Bonham a discharge in bankruptcy. A "discharge" is typically granted to a person filing or involuntarily placed into bankruptcy, and excuses them from being required to repay their debts due at the time of the petition. However, a discharge may be denied where a debtor has engaged in prohibited conduct. If the trustee's motion for summary judgment is granted, Bonham will emerge from bankruptcy owing essentially all of the $60 million in claims filed against, and possibly more.
James D. DeWitt
Guess & Rudd P.C.
100 Cushman Street, Suite 500
Fairbanks, Alaska 99701
(907) 452-8986
Attorneys for the Trustee
|
In re |
) |
|
RAEJEAN BONHAM, aka JEAN |
) Case No. F95-00897-HAR |
|
BONHAM, aka JEANNIE BONHAM, |
) Chapter 7 |
|
dba WORLD PLUS, |
) |
|
Debtor |
) |
|
LARRY D. COMPTON, Trustee, |
) |
|
Plaintiff, |
) |
|
) |
|
|
vs. |
) Adv. No. F95-00897-005-HAR |
|
) |
|
|
RAEJEAN S. BONHAM, |
) |
|
Defendant. |
) |
|
|
Plaintiff, Larry D. Compton, by and through his attorneys, Guess & Rudd P.C., pursuant to Bankruptcy Rule 7056 and Federal Civil Rule 56, hereby moves for summary judgment in his favor as a matter of law. This motion is supported by the memorandum and exhibits filed herewith.
|
Dated: January ____, 1998 |
GUESS & RUDD P.C.
|
James D. DeWitt
Guess & Rudd P.C.
100 Cushman Street, Suite 500
Fairbanks, Alaska 99701
(907) 452-8986
Attorneys for the Trustee
|
In re |
) |
|
RAEJEAN BONHAM, aka JEAN |
) Case No. F95-00897-HAR |
|
BONHAM, aka JEANNIE BONHAM, |
) Chapter 7 |
|
dba WORLD PLUS, |
) |
|
Debtor |
) |
|
LARRY D. COMPTON, Trustee, |
) |
|
Plaintiff, |
) |
|
) |
|
|
vs. |
) Adv. No. F95-00897-005-HAR |
|
) |
|
|
RAEJEAN S. BONHAM, |
) |
|
Defendant. |
) |
|
|
I. Introduction
The trustee seeks, by motion for summary judgment, to deny the debtor a discharge under 11 U.S.C. 727. As will be shown in this memorandum, the defendant-debtor, at one time or another during the course of administration of this case and events leading to this case, has engaged in conduct meeting the requirements of most of the subsections of 727(a).
Bankruptcy Rule 7056 permits motions for summary judgment for all "adversary proceedings" according to F.R.C.P. Rule 56. Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Once the moving party sets forth a basis for summary judgment, the responding party may not rely on his pleadings or vague assertions of fact to defeat summary judgment, but must come forward with specific facts supported by admissible evidence which raise genuine issues of material fact. In re Kelton Motors, Inc., 153 B.R. 417 (Bankr. D. Vt. 1993).
Where, as here, the issues raised on a motion for summary judgment may all be determined by review of a written court decision and there are no facts in dispute, then there is nothing to try and summary judgment is warranted. In re Grasmann, 28 C.B.C.2d 105 (Bankr. E.D.N.Y. 1992).
The trustee recognizes that there are ordinarily questions of fact that preclude summary judgment on a complaint to deny a discharge. But the facts in this case are so egregious, and in many cases this court and the U. S. District Court have already made specific determinations, that the trustee is entitled to summary judgment as a matter of law.
Section 727(a) provides, in relevant part:
The court shall grant the debtor a discharge, unless -(1) the debtor is not an individual;
(2) the debtor, with the 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 -
(A) property of the debtor, within one year before the date of filing of the petition; or(B) property of the estate, after the date of the filing of the petition;
(3) 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 transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;
(4) the debtor knowingly and fraudulently, or in connection with this case -
(A) made a false oath or account;(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to debtor's property or financial affairs;
(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liability;
(6) 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;(B) on the ground or privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or
(C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify;
Through this Memorandum and the exhibits to this motion, the trustee will demonstrate that the debtor, through the course of administration of this Chapter 7 case and its predecessor involuntary Chapter 7 case and voluntary Chapter 11 case, has engaged in conduct meeting the requirements of subsections (1), (2), (3), (4), (5), and (6) and, therefore, should be denied a discharge.
II. Statement of Facts
The facts in support of this motion are broken down by the statutory subsections for the convenience of the court. Exhibits are identified by letter and page number; i.e., "Exhibit A, page 3."
A. Debtor is Not an Individual
The trustee has shown through this case that while the debtor may have attempted to create and act through two corporations, World Plus, Inc. and Atlantic Pacific Funding Corporation, in fact those corporations are without separate legal existence and should either be disregarded entirely or, if they have independent existence, substantively consolidated with the instant case. See, in particular, the trustee's Motion for Substantive Consolidation and related pleadings in Adv. Proc. No. F95-00897-168 HAR and the trustee's Amended Proposed Findings of Fact and Conclusions of Law in the preference action against Steve Bonham, Adv. Proc. No. F95-00897-184 HAR.
B. Debtor Transferred and Concealed Property of the Estate
On numerous occasions, the debtor has transferred property of the estate with the intent to allow that property to escape administration in bankruptcy. Examples include, but are not limited to:
1. Private "garage sale"
The debtor conducted a "private" or "invitation only" garage sale. At her Rule 2004 examination on December 5, 1996,
Melanie Cook testified:Q: Are you aware of any garage sales, or other dispositions of personal property, that Steve and Raejean may have conducted since December 19, 1995?
A: I heard through the grapevine in Fox, that she had a private garage sale. Must have been three or four months ago. I was not invited.
Rule 2004 Examination of Melanie Cook, page 57, lines 19-24, attached as Exhibit A, p. 3.
Stephanie R. Bonham, the debtor's daughter, at her Rule 2004 Examination on December 9, 1996, testified:
Q: Returning to the garage sale for a moment, what -- do you know whether or not your mom gave invitations, or written or oral invitations to people -- to the people who should come to the garage sale?A: All I can say is that I believe it was by appointment. You called and made an appointment. Other than that, I don't know how she ran it. But I know you had to call and make an appointment to come out.
Q: Do you know when that garage sale took place? Was it summer? Was it fall?
A: It -- it was summer.Rule 2004 Examination of Stephanie Bonham, page 93, lines 8-18, attached as Exhibit B, p. 3.
2. Transfer of Automobile Titles Post-petition
At the date of the involuntary Chapter 7 petition, the debtor and her husband were co-owners of numerous automobiles. At least three of those automobiles were transferred by the debtor, post-petition:
(a) 1985 Porsche 914. This vehicle was the subject of the personal property action, although the trustee was never able to effect service on James Todd Lirette, the transferee of the vehicle. This vehicle, at the date of the December 19, 1995 involuntary petition, was titled to Steve and Raejean Bonham. Exhibit C. Shortly after the bankruptcy petition, on or about December 28, 1995, it was transferred to James Todd Lirette. Exhibit D, p. 1-3. The debtor has failed and refused, despite demand, to return her interest in the 1985 Porsche 914 to the trustee.(b) 1975 Chevrolet Utility Truck. This vehicle, at the date of the December 19, 1995 involuntary petition, was titled to Steve and Raejean Bonham. Exhibit E. Shortly after the bankruptcy petition, on or about December 29, 1995, it was transferred to Douglas E. Campbell. Exhibit F. The debtor has failed and refused, despite demand, to return her interest in the 1975 Chevrolet Utility Truck to the trustee.
(c) 1967 Chevrolet Camaro. This vehicle, at the date of the December 19, 1995 involuntary petition, was titled to Steve and Raejean Bonham. Exhibit G. Shortly after the bankruptcy petition, on or about December 29, 1995, it was transferred to Douglas E. Campbell. Exhibit H, p. 1-2. The debtor has failed and refused, despite demand, to return her interest in the 1967 Chevrolet Camaro to the trustee.
3. Conversion of American Funds Group Monies
At trial in Compton v. Bonham et al., Case No. F95-00897-184-HAR (the preferences claims against Steve and Raejean Bonham), the debtor admitted to converting monies the Bonhams kept and maintained in an account at The American Funds Group, Account No. 6103-9143-40, as joint owners. As detailed in the Plaintiff's Amended Proposed Findings of Fact and Conclusions of Law, lodged April 28, 1997, at or about the date of the bankruptcy petition, December 19, 1995, there were 112.998 shares with a share price of $15.470 on deposit in that account in the names of the account owners. Exhibit I. The total value of that asset was $1,748.00.
The monies in the American Funds Group Account can be traced in substantial part to check number 4803 for $1,500.00 drawn on November 3, 1994 on the joint account of Steve Bonham and Raejean Bonham at Key Bank of Alaska account number 07-501914-0. Exhibit J.
On or about April 1, 1996, the Bonhams caused the sum of $1,700.00 to be withdrawn from that account. Steve Bonham and Raejean Bonham endorsed that check to the order of Yvette Curtis. Exhibit K.
The trustee made demand for the return of those monies. The Bonhams have failed without response, excuse or justification, to respond to that demand or to return those monies. Exhibit L, p. 1-2.
Raejean Bonham has claimed the monies in the American Funds account are exempt as retirement monies. There is no evidence to support that claim. The monies were not included as exempt assets in any of the debtor's schedules.
4. Decker Lien on Real Property
On or about February 22, 1996, the debtor consented to a "lien" against her interests in the real property on which she resides in favor of James T. "Tim" Decker. Exhibit M. The lien was almost certainly invalid under Alaska lien laws. The lien has been removed through the efforts of the trustee in the action involving the real property, Adversary No. F95-00897-185-HAR, by the default of Decker. Exhibit N, p. 1-3.
5. Steve Bonham Lien on Real Property
On or about August 7, 1997, the debtor consented to the entry of a second "lien" against her interests in the real property on which she resides, this time in favor of Steve Bonham in the amount of $80,500.00. Exhibit O. The lien was expunged on the application of the trustee on September 18, 1997. Exhibit P, p. 1-3.
C. Debtor Falsified and Concealed Records
In this area, too, the debtor has on numerous occasions engaged in conduct which prohibits her from receiving a discharge in bankruptcy. Those occasions include, but are not limited to:
1. Falsified and Fraudulent Documents Relating to Purported Mileage Sales
On several occasions in her testimony to this court, the debtor has described purported sales and other trafficking in large volumes of frequent flier mileage. At her Section 341 examination, at her Bankruptcy Rule 2004 examination (Exhibit Q, p. 2-6), at the hearing on conversion of the case from Chapter 11 to Chapter 7 (Exhibit R, p. 2-9) and at trial in the preferences claim, Adversary No. F95-00897-184-HAR, she described purchases of large amounts of mileage with her investors' monies. The financial records of the debtor fail to demonstrate a single credible sale of miles; rather, the records uniformly demonstrate a pattern of purchase of tickets derived from frequent flier mileage on an as-needed basis, with the price of those tickets paid by checks drawn on World Plus accounts. In support of those fraudulent claims of trafficking in large volumes of frequent flier miles, the debtor has offered falsified and concealed records.
As summarized in the Plaintiff's Amended Proposed Findings of Fact and Conclusions of Law, lodged April 28, 1997, Raejean Bonham offered evidence suggesting that there was a large volume of sales of FFP mileage or FFP coupons. That evidence is fraudulent. For example, purported contract purchase of miles from "Apple Corporation" was "paid" by a check issued to "Terry Franklin," Raejean Bonham's brother. Exhibits S and T. Bonham testified that it was a coincidence that her brother and the putative employee of "Apple Corporation" had the same name, including middle initial. The court should not find her testimony credible, particularly since the check was deposited to First National Bank of Anchorage. Exhibit T.
As another example, a check drawn to "Patriot Management Corporation" has a memorandum stating it was for the purchase of travel miles. Exhibit U. But a microfilm copy of the check, from the bank processing the instrument, does not show any such memorandum. Exhibit V. Obviously, that memorandum was added after the check had been negotiated by the bank.
Even if the court attached any credibility to "Apple Corporation" and "Patriot Management Corporation" mileage contracts, the prices allegedly paid by APFC for those miles result in a loss to WPI or APFC in the sale of tickets generated with those alleged miles. The "Apple Corporation" contract describes 2,500,000 miles for $60,000, or $0.0240 cents per mile. Exhibit S. A Delta coach class ticket required 25,000 to 20,000 miles. Exhibit W, p. 2-3. The cost of a ticket from "Apple Corporation" miles would then be $600-$720. WP and WPI sold coach class tickets for $550, a loss of $50-$170 per ticket sold.
The "Patriot Management Corporation" contract describes 3,000,000 miles for $75,000, or $0.0250 cents per mile. Exhibit X. The cost of a ticket from "Patriot Management Corporation" miles would then be $625-$750, which when sold at WP's and WPI's price of $550 per ticket would result in a loss of $75-$200 per ticket sold.
It is probable that the "Apple Corporation" and "Patriot Management Corporation" were used to launder money. Even if the court believed that the two contracts were authentic, and the court should not, they still operate as proof that the alleged mileage purchase business did not make economic sense.
At trial, the court invited Bonham to describe the largest mileage purchase she had made. She stated she paid $450,000 to $500,000 for a single block of miles. The court asked her to described how many miles she obtained for that price. After a moment with pen and paper, she stated she had obtained 5,000,000 miles for that price. Using the lower purchase price, based upon her testimony she would have paid nine cents per mile, for a FFP ticket cost of $2,250 at 25,000 miles for a coach class ticket, which WP and WPI would then sell for $550.
As another example, Raejean Bonham caused WPI to issue check number 4896 to Stephanie Bonham on May 15, 1992 for $7,500. Exhibit Y. The file copy of the check bears the memorandum "Alaska Plus Mileage Purchase." The microfiche copy of the check obtained from Key Bank, while not a clean copy, plainly does not bear that memorandum. Exhibit Z. Obviously, that memorandum was added after the check had been negotiated by the bank.
Most notoriously, perhaps, or at least most voluminously, the debtor offered an impressive stack of 14 column accounting paper, purporting to show hundreds of airline tickets sold per quarter. In her deposition, Melanie Cook has described in specific detail how those phony ledgers were created. Exhibit AA, p. 2-8 and exhs. 9-11. According to Cook, she and World Plus employee Carol Walrath were instructed by the debtor to take names from all available sources and create a series of fraudulent documents purporting to show the debtor made "astronomical" amounts of money.
There are many other badges of fraud on the ledgers. The lists of names for "Domestic Travel 1992" and "Domestic Travel 4th Quarter 1995" were in fact identical. Dead persons are shown as traveling. Persons who flatly deny traveling in 1995 appear on the ledger.
While Raejean Bonham attempted to create evidence of purchases and sales of large volumes of FFP mileage and coupons, in fact those records are false and were created to perpetrate a fraud on the trustee and this court.
The debtor and her corporations are defendants in an action brought by the U.S. Securities & Exchange Commission, Securities & Exchange Commission v. Bonham et al., Case No. F96-0023-CV (HRH) in the U.S. District Court for the District of Alaska. On November 24, 1997, the court entered findings of fact and conclusions of law (Exhibit AB) and summary judgment (Exhibit AC) in favor the SEC. The U.S. District court specifically found that there were no purchase of large volumes of either frequent flier mileage or frequent flier tickets, that investor monies were not used for that purpose but rather were used primarily to pay monies to other investors, and that in fact the debtor operated a Ponzi scheme. Exhibit AB, pages 2-3, Findings 8-12.
As the District Court noted, the debtor did not dispute her liability for engaging in a Ponzi scheme. Exhibit AC, p. 3. Rather, she disputed only the amount of money she should be required to disgorge.
The court's determinations in this regard operate as a determination of law that the documents offered by the debtor in support of her claims of mileage sales were and are false and fraudulent.
2. Retention of 11 Boxes of Records Until April 16, 1997
During trial in the preferences claims against Steve and Raejean Bonham in Adversary No. F95-00897-184-HAR on April 16, 1997, the debtor admitted for the first time that she still retained not less than eleven boxes of books and records. This disclosure came after repeated statements, sworn and unsworn, including sworn testimony in open court in response to the court's direct questions, that all of the books and records of herself, World Plus and Atlantic Pacific had been turned over to the trustee.
Once the trustee had an opportunity to examine those records, the reason for the 17 month delay in surrendering them became obvious: they provided plain proof that much of the debtor's representations and sworn testimony to the court were patently false. Examples include, but are not limited to:
See generally, Supplemental Declaration of Larry D. Compton filed May 23, 1997 in Adversary No. F95-00897-185-HAR, attached as Exhibit AD.
The damning nature of this evidence shows the debtor was strongly motivated to conceal the records from the trustee.
3. Checks Drawn to Fictitious Payees
The debtor drew numerous checks in very substantial amounts to fictitious payees, to entirely non-existent persons. Those fictitious payees include G. B. Bush, Clinton Jameson, Madori Green, J. B. Bush, A. Goodwin, Phil McGroin, Matt Lenox, and Martin Linn are some examples. None of these persons appear anywhere as investors in World Plus or Atlantic Pacific, or as vendors to them. Almost all of the checks are negotiated through bars in the Fairbanks area.
Among the business records found at the debtor's premises was a "sticky note" fastened to an investment contract of Avan Brees providing, "Don & Avan Each take interest in 2 checks. Make out to phony name. Matures 12/27/93." Exhibit AE.
There are equally fictitious ticket vendor checks. The debtor was careful to track the persons from whom she purchased frequent flier tickets and those records appear in a series of five or six notebooks. None of the following names appear among those records: Award Travel, Tickets Are Us, Worldwide Travel, Creative Travel, One Stop Travel, Ace One Travel and Five Starr [sic] Coupons. Essentially all of these checks were cashed through local bars. One of two conclusions is inescapable: either the debtor used this mechanism of fictitious payees and fictitious ticket vendors to direct monies to herself, or, at the instructions of investors, she did so to conceal the delivery of monies to investors. Under either conclusion, the debtor has offered falsified documents.
4. Failure to Produce 1993 Checking Records
Finally in this category, the debtor has failed to produce significant portions of her 1993 checking records. The following table summarizes what has been found:
Year
Debtor's business records
1988
Yes
1989
Yes
1990
Yes
1991
Yes
1992
Yes
1993
No
1994
Yes
1995
January only
The debtor blames the Federal warrant seizure of her records for the missing records, but the Federal authorities have assured the trustee and the U.S. District Court that all of the records taken by the Federal government have been returned. The Federal government has no discernible motive for lying; the opposite is true for the debtor. The most probable inference is that the debtor has either destroyed or concealed those missing checks.
D. Debtor Made False Oaths
In the area of debtor fraud, the debtor has probably engaged in the most numerous occasions of conduct which prohibits her from receiving a discharge in bankruptcy. For example, the debtor has been proven to have lied to the court repeatedly as to material issues of fact. Some of those instances are detailed earlier in this memorandum, particularly with regard to the alleged existence of bulk purchases and sales of frequent flier miles. See pages 12 - 17 above.
The debtor lied about having delivered all of her records to the court: she repeatedly assured the court, in sworn testimony, that she had delivered over all of the records. On April 16, 1997, as described at pages 17 - 19 above, she admitted she had eleven boxes of additional records not previously surrendered.
The debtor lied about the source of funds for the initial rent payments to Allen Dale Cartwright; the monies indisputably trace to World Plus funds, not to Steve Bonham's retirement monies. See pages 18 above.
The debtor lied about the gross profit notebooks, claiming they represented only her "quick sales," sales of tickets where World Plus sold a frequent flier-based ticket to a customer on less than two weeks notice. In fact, the notebooks represented all of her sales of tickets, as confirmed by every other record of the debtor. The reconstructed bank account records of the debtor, the frequent flier ticket vendor records, the frequent flier notebooks and the actual number of tickets based upon reservation cards are all consistent with the range of sales shown in the gross profit notebooks.
E. Debtor Has Presented or Used False Claims
The debtor has created or attempted to create at least two false claims in this case. As described at page 11 above, in the case of both James T. Decker, Sr. and Steven A. Bonham, she attempted to create secured claims in their favor in the form of bogus liens against her interests in the real property that is her residence.
F. Debtor Made Promises to Third Parties of Money, Property or Advantage
The debtor, through her attempted conspiracy with Maria Caporicci and Allen Dale Cartwright, attempted to fraudulently obtain money from the estate. As detailed in the Second Renewed Motion for Order to Show Cause filed February 20, 1997 in the main case, and the depositions of Maria Caporicci and Allen Dale Cartwright filed with that motion, the debtor attempted to persuade Caporicci and Cartwright to defraud the bankruptcy estate of the real property interests of the estate in the debtor's residence. The scheme the debtor proposed was to have worked like this: the Bonhams would stop making payments of "rent" to Alaska USA, the first lien holder. The Bonhams would continue to make "rent" payments "under the table," directly to Cartwright or anonymously over the counter at Alaska USA, so that Alaska USA would not foreclose. Cartwright would declare them in default under the lease. The debtor's "lawyer," Don Hart, would ghost write a motion for relief from stay for Cartwright to sign. The debtor or Hart would file the motion. After obtaining relief from stay, Cartwright would sell the property, and the net proceeds would be divided among Steve Bonham, Raejean Bonham, Cartwright and Caporicci. The bankruptcy estate would thereby be defrauded out of the debtor's equity.
G. Debtor Withheld Records
The debtor has withheld records from the trustee and has admitted to withholding records. The obvious instance is the April 16, 1997 production described supra at pages 17 - 19.
In addition, the debtor has failed to deliver over checks, deposits and bank statements for almost all of calendar year 1993 and the gross profit notebook for 1993, as described supra at page 21. Finally, no investor contracts prior to 1991 have been found among the debtor's records, although discovery in the BRA cases has demonstrated there were many, many contracts issued by the debtor prior to 1991.
The trustee anticipates that the debtor will claim that the Federal government has those missing documents. But the Federal government has told the trustee that it has turned over to the trustee all of the books and records of the debtor taken by the Federal government under both the search warrant and the grand jury subpoena. There is no reason to believe that the Federal government would be less than completely candid in this regard, since a failure to turn over all of the records might jeopardize its criminal case. The only reasonable inference is that the debtor, as was the case with the April 16, 1997 production, has failed to turnover all of her books and records.
H. Debtor Failed to Adequately Account for Losses
The debtor has failed to account for missing assets. The debtor skimmed approximately $2.4 million from monies taken from investors in the Ponzi scheme. See findings of fact and conclusions of law in Securities & Exchange Commission v. Bonham et al., Exhibit AB, p. 9, ¶ VI, Exhibit AC, p. 3. The trustee can only account for the expenditure of about $1.5 million.
|
Year |
Owner's Draws |
Credit Cards |
Total |
|
1988 |
103,031 |
17,018 |
120,049 |
|
1989 |
152,558 |
33,306 |
185,864 |
|
1990 |
145,558 |
72,238 |
217,796 |
|
1991 |
115,725 |
86,088 |
201,813 |
|
1992 |
151,807 |
90,608 |
242,415 |
|
1993 |
133,878 |
128,129 |
262,007 |
|
1994 |
73,043 |
69,223 |
142,266 |
|
1995 |
33,626 |
71,841 |
105,467 |
|
Total |
909,226 |
568,451 |
1,477,677 |
See Affidavit of Larry D. Compton, ¶¶ 3 - 11. Note that all inferences are drawn in favor of the debtor here: this analysis assumes, for the purposes of this motion only, that all of the credit card charges were draws. In fact, some of the credit card draws were business expenses incurred when the debtor purchased replacement tickets for customers who were discovered by Delta Air Lines and other carriers to be using tickets derived from violations of the rules of the frequent flyer programs.
If a portion of the checks drawn to fictitious payees are in fact disbursements, in whole or in part, to the debtor, then the unaccounted for monies are greater. The debtor's schedules and statements are no help in resolving these unanswered questions. The debtor's sworn testimony is unhelpful.
Generally, the debtor has claimed she cannot answer the trustee's questions without access to her records, but she has made no effort to obtain access to those records. She did not keep any meaningful financial records - as the court knows, the trustee has rebuilt those records at considerable effort.
As is clear from the findings that this court and other courts have made in this proceeding, the debtor operated a Ponzi scheme. However, if the case was not a Ponzi scheme, then the debtor has failed to account for millions of dollars in purchased travel miles. The debtor has attempted to describe to the court in some detail how she purchased travel miles. If those travel miles exist - and the trustee has no reason to believe they do - then the debtor has failed to account for them.
There are specific assets for which the debtor has failed to account. Those include two pieces of jewelry valued at more than $10,000 which the debtor has failed to produce. Copies of the appraisals found among the debtor's records are attached as Exhibits AG and AH. The debtor, at her Bankruptcy Rule 2004 examination, told an incredible story of how she sold those items of jewelry by posting a notice on a bulletin board at a grocery store - she could not say which grocery store - at a date she could not remember except that it was in the winter of 1994-1995, resulting in a sale on terms she could not remember specifically, although she thought for $1,000, to a couple from somewhere in the East - she could not remember where. Fairbanks doesn't get that many east coast visitors in mid-winter. The number who read notices on bulletin boards in grocery stores is certainly a minuscule fraction of that small number. The number who purchase jewelry under those circumstances must approach zero. More tellingly, there is no evidence of a cash deposit to the S & S Services account of $1,000.
I. Debtor Failed to Comply with Court Orders
The debtor's failure to comply with court orders is already familiar to the court. Two motions to compel the debtor to file her schedules and statements were required; to this date, she has made only a half-hearted effort to comply, resulting in a pending motion for turnover of personal property filed October 3, 1997. The trustee notes that the debtor, more than two years into this case, has yet to surrender a single item of personal property, or redeem a single item of personal property.
Four motions were required to market the real property, resulting in ongoing obstructive efforts by the debtor, despite fines and threatened fines. Those issues are completely unresolved, and are subject to a pending motion in the context of the trustee's Report to Court filed December 4, 1997. The debtor's disregard of court orders involving the real property and pattern of misconduct has been so serious and pervasive that she has created a reputation for the property that has made it very difficult to market, as detailed in the trustee's report.
As described at page 11 above, the debtor consented to the imposition of two liens against the property, in violation of the automatic stay.
At her Section 341 meeting of creditors on March 14, 1996, the debtor, under oath, committed to attend a Rule 2004 examination on March 18, 1996. Transcript of Rule 2004 Examination of Raejean Bonham, Exhibit AI, p. 2. She failed to do so. The trustee was forced to bring a motion to compel attendance in order to conduct that Rule 2004 examination.
The court is all too aware of the number of motions the trustee has been forced to bring to compel or attempt to compel the debtor to perform tasks required by the bankruptcy code and rules, or to compel or attempt to compel her to cease actions forbidden by the bankruptcy code. The following table summarizes just some of the specific orders of this court that the debtor has violated or ignored:
Case Number
Order
F95-00897-HAR (Main Case)
Order to compel the debtor to attend Bankruptcy Rule 2004 Examination filed 2/27/96
F95-00897-HAR (Main Case)
Order to compel the filing of statements and schedules by debtor dated 3/1/96
F95-00897-HAR (Main Case)
Order compelling access to premises and awarding costs filed 6/27/97
F95-00897-HAR (Main Case)
Order compelling debtor to attend creditors' meeting filed March 12, 1996
F95-00897-HAR (Main Case)
Order re trustee's renewed motion to hold debtor in contempt filed 8/14/96
F95-00897-185 HAR (real property case)
Order re trustee's third renewed motion for order to show cause (regarding marketing of real property ) filed 9/18/97
The trustee emphasizes this is merely a selection of instances in which the debtor has disobeyed court orders; the court can undoubtedly find many other instances in its docket.
III. Argument
The Court must deny a discharge to a Chapter 7 debtor where one or more of the statutory grounds enumerated in § 727(a)(1)-(10) are proven to exist. The trustee need only prove one ground for nondischargeability. Matter of Krehl, 86 F.3d 737 (7th Cir. 1996). As a matter of law, this Court should summarily deny the debtor defendant a discharge in bankruptcy based upon nine separate and distinct statutory grounds. As this court will see, debtor defendant: (a) is not an individual; (b) transferred and concealed property; (c) falsified and concealed records; (d) made false oaths; (e) presented false claims; (f) made promises to third parties of money and property; (g) withheld records; (h) failed to adequately account for losses; and (i) failed to comply with numerous court orders.
The provisions denying a discharge to a debtor are generally construed liberally in favor of the debtor. However, "[w]hile the law favors discharges in bankruptcy, it will not ordinarily tolerate the [debtor's] intentional departure from honest business practices where there is a reasonable likelihood of prejudice." Kentile Floors, Inc. v. Winham, 440 F.2d 1128 (9th Cir. 1971). Complaints objecting to a debtor's discharge in bankruptcy generally involve questions of fact and thus should be tried on their merits, except when it is clear that there is no evidence in the record which could support such an action In re Stuerke, 61 B.R. 623 (9th Cir. 1986). For example, where, as here, discovery and prior hearings have revealed that debtor does not have adequate financial records, creditor may join ultimate issue by making preemptive summary judgment motion. In re Mathern, 137 B.R. 311 (Bankr. D. Minn. 1992).
A. Grounds for Opposing Discharge &endash; Debtor Not an Individual (§ 727(a)(1))
Section 727(a)(1) provides that unless the debtor is an individual, she will not be granted a discharge in bankruptcy. And, while individuals may be discharged of their debts under Chapter 7, corporations may not. In Re Goodman, 873 F.2d 598, 602 (2d Cir. 1989) ("Congress deliberately excluded corporations from eligibility for discharge under Chapter 7 to avoid trafficking in corporate shells and in bankrupt partnerships"). To the extent that the debtor is or may be one or more corporations, then the debtor is not entitled to a discharge under 11 U.S.C. § 727(a)(1). And, to the extent that the debtor represented herself to be one or more corporations, then she should be estopped from claiming a right to discharge.
B. Grounds for Opposing Discharge - Fraudulent Transfer or Concealment of Property (§ 727(a)(2))
Section 727(a)(2) prohibits the granting of a discharge to a debtor who, "with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under [Title 11], has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed" property of the debtor or the estate at any time subsequent to one year before the date of the filing of the petition. There are four elements to this provision:
(1) that the act complained of was done at a time subsequent to one year before the date of the filing of the petition;(2) with actual intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under the Bankruptcy Code;
(3) that the act was that of the debtor or his duly authorized agent;
(4) that the act consisted of transferring , removing, destroying, or concealing any of the debtor's property, or permitting any of these acts to be done.
4 Robert D'Agostino et al., Collier on Bankruptcy § 727.02 (Lawrence P. King ed., 15th ed. 1993).
A debtor is unlikely to admit that her intent is fraudulent; therefore, a finding of actual "intent to hinder, delay, or defraud" may be based on circumstantial evidence or on inferences drawn from a course of conduct. In re Devers, 759 F.2d 751, 753-54 (9th Cir. 1985) (denial of discharge is proper where debtors continued to sell secured assets without reporting the sales and commingled the proceeds of the sales in their regular bank accounts). For example, a continuing pattern of wrongful behavior is one indication of fraudulent intent. Id. at 754. Debtor transferred three automobiles within just ten days of the involuntary petition and conducted an invitation only garage sale of her personal belongings several months later.
Several months ago and while the instant bankruptcy proceedings were pending, debtor made unsuccessful attempts to transfer her interest in her home to her husband, by way of an $80,500 lien. Fraudulent intent is inferred where a transfer is to someone in the debtor's family or related to the debtor. Matter of Chastant, 873 F.2d 89 (5th Cir. 1989). Also, if litigation of a serious nature is pending against the debtor at the time of the transfer to a third party, courts will infer fraudulent intent. Ford v. Poston, 773 F.2d 52 (4th Cir. 1985).
C. Grounds for Opposing Discharge - Failure to Keep or Preserve Recorded Information: (§ 727(a)(3))
11 U.S.C. § 727(a)(3) provides for denial of discharge if the debtor has unjustifiably "concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information . . . from which the debtor's financial condition or business transactions might be ascertained." Wrongful intent on the part of the debtor is not required. In In re Underhill, 82 F.2d 258 (2d Cir. 1936), the court explained the policy underlying this particular ground for opposing discharge:
The law is not unqualified in imposing a requirement to keep books or records, and it does not require that if they are kept they shall be kept in any special form of accounts. It is a question in each instance of reasonableness in the particular circumstances. Complete disclosure is in every case a condition precedent to the granting of the discharge, and if such a disclosure is not possible without the keeping of books or records, then the absence of such amounts to that failure to which the Act applies. . . . Records of substantial completeness and accuracy are required so that they may be checked against the mere oral statement or explanations made by the bankrupt.
82 F.2d at 259, 260 (2d Cir. 1936) (citations omitted). The requirement is imposed "to ensure that the trustee and creditors receive sufficient information to trace a debtor's financial history for a reasonable period past to present." In re Trogdor, 111 B.R. 655, 658 (Bankr. N.D. Ohio 1990). In In re Mascolo, 505 F.2d 274, 278 (1st Cir. 1974), the court noted that "the successful functioning of the bankruptcy act hinges both upon the bankrupt's veracity and his willingness to make a full disclosure."
On numerous occasions, debtor has falsified and concealed records from which her business transactions might be ascertained. Debtor retained and concealed eleven boxes of records from the trustee for over seventeen months, drew numerous checks payable to the order of fictitious payees and failed to produce a significant portion of her checking account records. While the issue of falsified records has not arisen often, the trustee has been able to locate two cases for the point. In re Helfgott, 245 F. 358 (D.C. N.Y. 1917), held that the making of false entries in books was, of course, a failure to keep true books of the most glaring sort, since only from true books could the bankrupt's true condition be ascertained, and the making of false entries justified denial of discharge. And In re Anderson, 35 F.Supp. 717, 718 (D.C. N.Y. 1940), held where the records of the bankrupt containing his assigned receivables was falsified, denial of his discharge was justified. While both these cases arose under predecessors to the current Bankruptcy Code, in this regard the law does not appear to have changed.
In addition, the debtor has failed to demonstrate a single credible sale of miles from her unusually large trafficking of frequent flyer miles. Absent a showing of exceptional circumstances, such as that the debtor's business is so small that records would not ordinarily be kept, a substantially complete record of financial condition and business records is required or discharge will be denied . In re Ridley, 24 C.V.C.2d 163 (Bankr. D. Mass. 1990). There are no exceptional circumstances which would justify a complete lack of credible business records. Debtor's failure to turn over complete records together with the fact that her records are insufficient to explain her individual and business financial conditions, warrants a denial of discharge. In re Jones, 175 B.R. 994 (Bankr. E.D. Ark. 1994).
The simple fact that the trustee was put to the extraordinary delay and expense of reconstructing the debtor's records is sufficient by itself to deny the debtor a discharge. Courts and creditors should not be required to speculate as to the financial history or condition of the debtor, nor should they be compelled to reconstruct the debtor's affairs. Matter of Juzwiak, 89 F.3d 673 (7th Cir. 1996). Juzwiak is particularly compelling in this regard. There the debtor operated a grain trucking business. The trustee reported the debtor was unable to attribute income to specific deposits, document expenses, identify how much inventory was held at any time, or describe what was a personal expense and what was a business expense. The court noted that "Although Juzwiak did furnish a lot of paper to Cargill (the trustee) and the court, the disorder and nature of the records did not allow meaningful reconstruction of Juswiak's business transactions." Juzwiak, 311. Like the records in Juzwiak, Bonham's records were voluminous and in complete disarray. Even presupposing the absence of bad intent, the Juzwiak court held, a discharge should be denied. In the instant case, where the absence of bad intent is evident; it is a more compelling instance.
The U.S. District Court specifically found that the debtor operated a fraudulent Ponzi scheme and that the documents offered by the debtor in support of her claims of mileage sales were false and fraudulent. Clearly, when a debtor destroys or falsifies books which are necessary to a proper understanding of her financial condition, her discharge should be denied. 4 Robert D'Agostino et al., Collier on Bankruptcy § 727.03 (Lawrence P. King ed., 15th ed. 1993). Debtor's discharge should be denied since the Court's determination in this regard operates as a finding as a matter of law that debtor falsified records and therefore failed to accurately disclose the debtor's financial condition and business transactions. Matter of Herzog, 121 F.2d 581 (2d Cir. 1941), cert. denied, 315 U.S. 807 (1942).
D. Grounds for Opposing Discharge - False Oath or Account: (§ 727(a)(4)(A))
If a debtor "knowingly and fraudulently, in or in connection with the case . . . made a false oath or account," a debtor will be denied a discharged by virtue of section 727(a)(4)(A) of the Code. Section 727(a)(4)(A) is essentially a form of perjury, and this requires the false oath or account to be "an untrue statement in a manner material as to an issue which was itself material to the bankruptcy proceeding." In re Melnick, 360 F.2d 918 (2d Cir. 1966). Discharge will be denied if a false oath is made relating to the debtor's business transactions, disclosure of assets, business dealings or disposition of property. 4 Collier Bankruptcy Practice Guide § 75.17 (Asa S. Herzog and Lawrence P. King eds., 11th ed. 1991).
Debtor has been proven to have lied to the court on numerous occasions regarding her business dealings and disposition of property. This is perhaps the clearest justification for the instant summary judgment motion. Where a debtor knowingly and fraudulently makes "false oaths" at hearings during the case, courts will generally deny a discharge in bankruptcy. United States v. Gray, 255 F. 98 (D.C. N.Y. 1918) (failure to mention property owned before the bankruptcy judge); In re Trauger, 101 B.R. 378 (Bankr. S.D. Fla. 1989) (committing perjury during sworn depositions in effort to conceal fraudulent petition and schedules).
E. Ground for Opposing Discharge &endash; Presentment or Use of a False Claim (§ 727(a)(4)(B))
Section 727(a)(4)(B) prohibits the granting of a discharge to a debtor who "knowingly and fraudulently, in or in connection with the case . . . presented or used a false claim." The debtor has attempted to create secured claims in the form of two separate bogus liens against her residence in favor of James T. Decker, Sr. and Steven A. Bonham.
F. Grounds for Opposing Discharge - Promises of Money, Property or Advantage: (§ 727(a)(4)(C))
Section 727(a)(4)(C) forbids the granting of a discharge where the debtor "knowingly and fraudulently, in or in connection with the case . . . gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act." The misconduct set forth in § 727(a)(4)(C) is a form of bribery or extortion. It covers an attempt to bribe and an attempt to extort.
The debtor, through her attempted conspiracy with Maria Caporicci and Allen Dale Cartwright, attempted to defraud the bankruptcy estate of the real property interests of the estate in the debtor's residence. The debtor was a defendant in an adversary action regarding ownership of the house; there can be absolutely no question that she knew and understood what she was doing. With regard to Cartwright and Caporicci, Bonham did exactly and precisely what the law forbids: she promised money - half of the equity in the residence to Cartwright and Caporicci -- in return for Cartwright and Caporicci giving her an advantage -- value in property she would otherwise not receive.
G. Grounds for Opposing Discharge - Withholding Documents from an Officer: (§ 727(a)(4)(D))
Section 727(a)(4)(D) provides that a discharge shall be denied a debtor who "knowingly and fraudulently, in or in connection with the case . . . 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." It has been held that refusal of the debtor to comply with the trustee's request for a copy of the debtor's income tax returns was sufficient to bar discharge. In re McDonald, 7 C.B.C.2d 939 (Bankr. N.D. Ohio 1982).
Since debtor knowingly and fraudulently withheld from the trustee those books and records relating to her business and failed to immediately comply with court order to produce the same, a discharge should be denied. Matter of Saini, 34 B.R. 509 (Bankr. W.D. Pa. 1983) .
H. Grounds for Opposing Discharge - Failure to Explain Loss or Deficiency of Assets: (§ 727(a)(5))
Section 727(a)(5) provides for denial of discharge if "the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets to meet the debtor's liabilities." A satisfactory explanation has not be defined, but the explanation must be more than a vague evidentiary showing, and if the explanation is that the money has been paid to creditors, that explanation must also include the nature of the debt, the names of the creditors, how much was paid, and when. In re Martin, 698 F.2d 883 (7th Cir. 1983); In re Ridley, 24 C.B.C.2d 163 (Bankr. D. Mass. 1990). An explanation that is vague, indefinite or unsupported by documentation is unconvincing and, therefore, unsatisfactory. In re Hawley, 51 F.3d 246 (11th Cir. 1995). An explanation that consists of estimates without any form of corroborative documentary evidence has been held unsatisfactory. Matter of Beckman, 6 F. Supp. 959 (D.C. N.Y. 1933). Any unexplained disappearance or shortage of assets is unsatisfactory as well. In re Chalik, 748 F.2d 616 (11th Cir. 1984).
I. Grounds for Opposing Discharge - Refusal to Obey Lawful Order: (§ 727(a)(6)(A))
Section 727(a)(6)(A) denies a discharge to a debtor who has refused "to obey any lawful order of the court, other than an order to respond to a material question or to testify." Contempt of court provides a clear basis for an objection to discharge, if, after having been subpoenaed to give testimony and without sufficient excuse, the debtor fails to appear. Matter of Simon, 297 F. 942 (2d Cir. 1924). Another instance in which § 727(a)(6)(A) may be invoked is the debtor's refusal to turn over property. In re Garber, 2 C.B.C.2d 390 (Bankr. C.D. Cal. 1980).
IV. Conclusion
The debtor falsified an enormous amount of records in an effort to conceal the true nature of her business, an illegal Ponzi scheme from which she greatly benefited. And she attempted to retain the monetary benefits of her business through personal bankruptcy by, among other things, transferring property to others, concealing records, and refusing to obey court orders. It is evident that the debtor has violated the spirit of the bankruptcy laws and should therefore be denied the privilege of eliminating the legal obligation of her debts. In re Cohen, 47 B.R. 871 (Bankr. S.D. Fla. 1985). This court should therefore grant summary judgment in favor of the trustee as there is no evidence in the record which could support debtor's request for discharge. In re Stuerke, 61 B.R. 623 (9th Cir. 1986).
|
Dated: January ____, 1998 |
GUESS & RUDD P.C.
|
Back to Unofficial World Plus Home Page