Tuffy Associates Corp. v. Yeager

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
DONALD V. YEAGER
Debtor
TUFFY ASSOCIATES CORP.
Plaintiff
vs.
DONALD V. YEAGER
Defendant
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Case No. 05-24818
Chapter 7
Judge Hopkins
Adversary Case No. 06-1112
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: July 02, 2007
____________________________________________________________
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MEMORANDUM ON ENTRY DENYING DISCHARGE
This matter was tried before the Court upon an evidentiary hearing. 	The
Plaintiff, Tuffy Associates Corp. ("Tuffy"), seeks, under 11 U.S.C. § 727(a)(4)(A) and
related subsections, to have the Debtor’s discharge denied. After reviewing the entire
record, the Court finds that Tuffy has sustained its burden of proof. The discharge
sought in this case will be denied.
RELATIONSHIP OF THE P ARTIES
Tuffy is a franchiser of automotive repair products and services. 	The
Defendant, Donald Yeager ("Debtor"), became a Tuffy franchisee in 1997. 	The
Debtor formed a corporation known as Automotive 1, Inc. ("Automotive") to operate
a Tuffy Auto Service Center in Fairfield, Ohio. Shortly after Tuffy initiated eviction
proceedings against the Debtor, he sought protection under chapter 7. The petition
was filed on November 15, 2005.
ELEMENTS OF § 727(a)(4)(A)
To prevail under § 727(a)(4)(A) Tuffy must prove that: (1) the Debtor made a
statement under oath; (2) the statement was false; (3) the Debtor knew the statement
was false; (4) the Debtor made the statement with fraudulent intent; and (5) the
statement related materially to the bankruptcy case. In re Keeney, 227 F.3d 679, 685
(6 th Cir. 2000).
ANALYSIS
1. 	Statement Under Oath
The debtor 	made no less than ten pre-trial statements that evince false
testimony under oath. 	See In re Hamo, 233 B.R. 718, 725 (B.A.P. 6 th Cir.
1999)(statement in schedules is a "statement under oath"); In re Babb, 358 B.R. 343,
355 (Bankr. E.D. Tenn. 2006)(statement at Rule 2004 exam is a "statement under
oath"). The several statements under oath that the Debtor made which have proven
to be false and materially related the bankruptcy case are recounted below:
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LOANS TO AUTOMOTIVE
According to the Debtor's testimony, he loaned more than $100,000 to
Automotive during the two-year period prior to the filing of his bankruptcy petition.
Despite this assertion, the Debtor never disclosed on Schedule B that he made any
loans to Automotive. Nor did the Debtor disclose the loans in response to Question
10 on his Statement of Financial Affairs, which asked him to "[l]ist all other property
. . . transferred either absolutely or as security within two years immediately preceding
the commencement of this case." The Debtor’s silence to these questions in the face
of an affirmative duty imposed by the Bankruptcy Code and Rules to state complete
and truthful answers is tantamount to giving false testimony. 	See 11 U.S.C.
§521(a)(1)(B)(iii); Interim Rule 1007(b)(1)(D).
GLENWOOD COURT TRANSACTION
It is undisputed that the Debtor sold his residence located at 25 Glenwood
Court, Fairfield, Ohio, in February of 2005. The Debtor owned the property jointly
with Cheryl Pepper. That sale generated net proceeds for the Debtor and Ms. Pepper
in the amount of $29,252.71.
Similar to before, Debtor did not disclose the Glenwood Court transfer in
response to Question 10 on his Statement of Financial Affairs. Moreover, Debtor's
later testimony about the disposition of the sale proceeds totally lacks credibility.
One of the closing agents knowledgeable about the transaction, Kym Sycks,
testified that she issued a check jointly payable to the Debtor and Ms. Pepper. The
Debtor testified that he endorsed the check and then mailed it to Ms. Pepper. 	In
return, according to the Debtor, he received multiple checks from Ms. Pepper that
represented his share of the proceeds. 	These statements completely contradict the
Debtor's testimony at his March 27, 2006 Fed. R. Bankr. P. 2004 examination, where
the following exchange occurred:
Q: 	She [ Ms. Pepper] cashed the check and sent the proceeds back to you?
A: 	Yes.
Q: 	And by mail?
A: 	Yes.
Q: 	Did you cash the check?
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A: 	Did I cash it? Yes, I did.
Q: 	Where did you cash it?
A: 	Where?
Q: 	Yes.
A: 	US Bank, I believe. Whatever bank it was drawn on.
Both accounts given by the Debtor are difficult to square with Kim Sycks' more
credible testimony. Ms. Sycks, a completely unbiased witness in the case, testified that
the check issued to the Debtor and Ms. Pepper has not been cashed and that her
company still holds $29,252.71 in escrow. That Ms. Pepper would write one or more
checks to the Debtor if she never cashed the check that the Debtor allegedly mailed
to her in the first place belies his entire testimony on the subject.
HENRY YOUNG
At a January 16, 2006 Rule 2004 examination, counsel for Tuffy inquired as to
the whereabouts of certain equipment used at the Fairfield store. The Debtor testified
that some of the equipment belonged to a man named Henry Young, who purchased
the equipment by means of cashier's checks payable to various equipment vendors.
The Debtor then offered to provide a list of the equipment owned by Mr. Young.
Subsequently, the Debtor provided a list of six pieces of equipment. The list
contains a signature line for Mr. Young. 	A signature appears on that line. 	At a
February 17, 2006 Rule 2004 exam, the Debtor testified that Mr. Young owned the
equipment on the list; that Young had signed the list; and, that Young had removed
the equipment from the Fairfield store in January of 2006.
Contrary to the Debtor's Rule 2004 testimony, Mr. Young testified, quite
credibly at trial, that he has never owned any of the equipment on the list; that he
never signed the list; that he never bought any equipment for the Tuffy Auto Service
Center in Fairfield, Ohio, by means of cashier's checks or otherwise; and that he never
removed equipment from the Fairfield store in January of 2006. Mr. Young further
testified that the Debtor twice asked Young to claim that the equipment was his which
Young has consistently refused to do.
Even with these inconsistencies, the Debtor also contradicted his own Rule
2004 testimony. At his February 17, 2006 Rule 2004 exam, the Debtor testified that
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Mr. Young signed the list at the Debtor's house. At trial, the Debtor testified that Mr.
Young signed the list at the Fairfield store.
Even if Mr. Young owned the equipment, the Debtor did not list the equipment
in response to Question 14 on his Statement of Financial Affairs as he was required
to do. Question 14 mandates that the Debtor "[l]ist all property owned by another
person that the debtor holds or controls." 	This omission was material and was a
violation of the Debtor’s duties to respond truthfully on the Official Bankruptcy
Forms, which were all signed under the penalty of perjury.
2. 	Statement Was False
Five of the Debtor's pre-trial statements were contradicted at trial by witnesses
whose testimony was far more credible than his. 	Ms. Sycks testified that the
Glenwood Court property was transferred in February of 2005. Mr. Young testified
credibly that: he never owned any of the equipment on the list; that he never signed
the list; that he never bought any equipment for the Tuffy Auto Service Center in
Fairfield, Ohio, by means of cashier's checks; and that he never removed equipment
from the Fairfield store in January of 2006. 	The Court finds that the pre-trial
statements made by the Debtor under oath in connection with these events to be
utterly without veracity.
The other five pre-trial statements (no loans to Automotive disclosed on
Schedule B; no loans to Automotive listed in Statement of Financial Affairs; the Rule
2004 testimony that Debtor received one check from Ms. Pepper; the Rule 2004
testimony that Young signed the equipment list at Debtor's house; the lack of any
statement in the Statement of Financial Affairs that lists any property of Mr. Young
being held in custody of Debtor) were contradicted by the Debtor's own testimony at
trial. 	Given the Debtor's propensity to fabricate testimony, the Court is unsure
whether to believe his trial testimony, his pre-trial statements, or neither. Either way,
the Debtor has falsely testified under oath.
3. 	Debtor Knew Statement Was False
"A statement is made with knowledge if it is known to the debtor to be false,
or made without a belief in its truth, or made with a reckless disregard of its truth."
In re Downey, 242 B.R. 5, 13 (Bankr. D. Idaho 1999).
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At trial, the Debtor was asked if he knew that a couple of his pre-trial
statements were false. The Debtor said he did not know they were false. However,
based upon the totality of the circumstances, the Court finds that the Debtor knew that
his statements were false. At the very least, they were made with a reckless disregard
for the truth. The Court certainly finds it inconceivable that all ten false statements
were made by mistake or inadvertence. 	See Keeney, 227 F.3d at 686 ("a debtor is
entitled to discharge if false information is the result of mistake or inadvertence").
4. 	Debtor Made False Statement With Fraudulent Intent
Fraudulent intent may be inferred from circumstantial evidence or from the
Debtor's course of conduct. 	Hamo, 233 B.R. at 724. 	A reckless disregard as to
whether a representation is true will also satisfy the intent requirement. Keeney, 227
F.3d at 686. Debtor's conduct throughout these proceedings has been obstreperous
and anything but honest and forthright. Accordingly, the Court finds that the Debtor
made the false statements with fraudulent intent or, at the very least, with total
reckless disregard for the truth.
5. 	Statement Related Materially To The Bankruptcy Case
The subject of a false oath is material if it bears a relationship to the Debtor's
business transactions or estate, or concerns the discovery of assets, business dealings,
or the existence and disposition of the Debtor's property. Keeney, 227 F.3d at 686;
Hamo, 233 B.R. at 725. The false statements in this case related to the bankruptcy
estate (the loans to Automotive), the Debtor's business dealings (the equipment used
in the Fairfield store), and the disposition of the Debtor's property (the sale of the
Glenwood Court residence). By virtue of these findings, the Court determines that
these false statements were material to the bankruptcy case.
CONCLUSION
Based upon the foregoing, the Court concludes that the Debtor's discharge
should be DENIED pursuant to 11 U.S.C. § 727(a)(4)(A). An entry to this effect will
be docketed separately.
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Copies to:
Michael J. Wiethe, Esq.
mjwiethe@fuse.net
Steven F. Alexsy, Esq.
salexsy@seyburn.com
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
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