Hatch v. Hatch

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

IN RE

GLENN ALLEN HATCH,

JEFF HATCH,

VS.

GLENN ALLEN HATCH,

! CHAPTER 7
DEBTOR. : BANKRUPTCY No. 07-11453( SR)
PLAINTIFF,
DEFENDANT. : Apvs. No. 07-214
OPINION

BY: STEPHEN RASLAVICH, CHIEF UNITED STATES BANKRUPTCY JUDGE.

Introduction

Defendant, Glenn Hatch (“Debtor”) moves for partial summary judgment on the

claims filed against him by Plaintiff, Jeffrey Hatch (“Plaintiff”), under Bankruptcy Code

§§ 523(a)(2), 523(a)(4), 727(a)(4)(A) and 727(a)(5). Upon consideration of the

matter, summary judgment shall be granted as to Plaintiff's claims under 11 U.S.C.

§§523(a)(2)(B) and 727(a)(5) but denied in all other respects.

Background

Procedural History

On March 9, 2007, the defendant, Glenn Hatch (“Debtor”), filed a Voluntary

Petition for Relief under Chapter 7 of the Bankruptcy Code.1 Plaintiff filed a proof of
claim in Debtor's bankruptcy case listing an unsecured nonpriority claim of
$632,746.10. Plaintiff subsequently amended the claim, reducing the amount thereof
to $394,990.00.
On June 15, 2007, Plaintiff commenced this adversary proceeding by filing a
complaint which he subsequently amended two times in response to motions by the
Debtor for a more definite statement. Plaintiff's second amended complaint (the
"Complaint") contains three counts. In Counts I and II, Plaintiff objects to a discharge
of Debtor's debt to him pursuant to 11 U.S.C. § 523(a)(4)(A) and 11 U.S.C. §
523(3X2), respectively. In Count III, Plaintiff objects to Debtor's discharge pursuant to
11 U.S.C. § 727(a)(4) and (a)(5).2 The allegations in the Complaint focus on Debtor's
actions vis-a-vis three real estate transactions involving property in: (i) Lower Hampton,
Pennsylvania (the "Creek Road Property"); (ii) Hulmeville, Pennsylvania (the "Playwicki
Property"); and (iii) Ship Bottom, New Jersey (the "Ship Bottom Property").
On April 20, 2009, Debtor filed his motion for partial summary judgment (the
"Motion"). Shortly thereafter, Plaintiff filed his response in opposition to the Motion and
the parties stipulated to having the Motion resolved on the papers in lieu of having oral
: The Court takes judicial notice of the dockets from Debtor's case and of their
contents. Fed.R.Evid. 201; see Maritime Electric Co., Inc. v. United Jersey Bank, 959
F.2d 1194, 1200 n. 3 (3d Cir.1991).
2 In Count III, Plaintiff also alleged that Debtor should be denied a discharge
under 11 U.S.C. §727(a)(2)(A) but has since conceded that he cannot prevail on a claim
under this subsection. See Plaintiff's Response to Defendant's Motion for Partial
Summary Judgment CPIaintiff's Response") at f3.
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argument. To this end, they subsequently filed briefs in support of their positions on
the Motion. The depositions, affidavits and answer to interrogatories which the parties
filed in support of or in opposition to the Motion focus primarily on the facts pertaining
to the Ship Bottom Property.
Factual History
Plaintiff and Debtor are brothers. Over the years, the parties have developed
real estate together. Complaint U 7; Answer f7. For some period of time, the brothers
conducted their real estate operations through a company named Bucks County
Modular Homes. See Plaintiff's Answer to Defendant's Interrogatories, which are
attached as an exhibit to the Motion, at ]2.
Creek Road Property
On or about August 27,1996, Plaintiff entered into an agreement ("Agreement")
for the purchase of two properties located on Creek Road known as tax parcel 21-34-
202 and 21-34-203 in Lower Hampton, Pennsylvania. Complaint f8; Answer $8.
Pursuant to the terms of the Agreement, Plaintiff subdivided the two properties into
three lots. Complaint f9; Answer $9, Plaintiff subsequently obtained title to Lot 2 by
deed and was granted a right of first refusal to purchase Lot 3 per a written agreement.
Complaint flO; Answer fllO. The source of funds which Plaintiff used to make these
purchases (of Lot 2 and the right of first refusal of Lot 3) is unclear. In Plaintiff's
Answers to Defendant's Interrogatories, Plaintiff states that the funds to purchase Lot 2
and the right of first refusal on Lot 3 came from him or Bucks County Modular Homes.
See Plaintiff's Answer to Defendant's Interrogatories $2.
3
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On or about November 18,1999, Plaintiff executed a second right of first refusal
for "Lot 3" in his name and Debtor's name. Complaint Till; Answer fll. According to
Plaintiff, he did so with the understanding and representation of Debtor that the
purpose of the second right of first refusal was to give Debtor the right to acquire "Lot
3" if, but only if, Plaintiff elected not to do so and that, in all other respects, the right of
first refusal was solely Plaintiff's right. Complaint 1111. Debtor denies having made
such a representation to the Plaintiff. Answer $11,
On or about October 4, 2001, Debtor executed an assignment of Plaintiff's right
of first refusal for "Lot 3" granting Debtor the sole and exclusive right of first refusal.
Complaint f!3; Answer $13, See also the Assignment of Interest in Agreement of the
Right of First Refusal, dated October 4, 2001, which is attached as Exhibit E to
Plaintiff's Response to Defendant's Motion for Partial Summary Judgment. Plaintiff
contends that Debtor fraudulently forged his name on this assignment and that the
forgery was done without Plaintiff's knowledge, authority or consent. Complaint ffl 13
& 14, Debtor denies that he signed Plaintiff's signature without his consent and
authorization. Debtor's 2008 Dep. at 12,
Debtor subsequently assigned the right of first refusal to a third person by the
name of Anthony Michael Martino ("Martino") who exercised the right and acquired title
to "Lot 3." Complaint $15; Answer $15. Martino granted Debtor a mortgage lien on
"Lot 3" in the amount of $37,000. Complaint $15; Answer $15; Debtor's Schedule B.
Plaintiff contends that the right of first refusal was assigned to Martino as a straw party
to exercise the right and purchase the lot. Complaint H15. Debtor denies that Martino
4
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was a straw party, alleging that he was an active participant in the parties' business
and "was entitled to the benefits conferred by virtue of his activity and contribution."
Answer $15.
Playwicki Property
Plaintiff contends that Debtor wrongfully obtained sole title to real estate on
Playwicki Street in Hulmeville, Pennsylvania and that the title to the property (the
"Playwicki Property") should have been put in the names of both Plaintiff and Debtor
because the funds that were used to purchase the property were joint funds of Plaintiff
and Debtor. Complaint flf 19-20; See Plaintiffs Answer to Defendant's Interrogatories
atn3
Debtor thereafter assigned rights in or transferred the Playwicki Property to Bob
Manzo, who is a realtor with whom Debtor "worked closely." Complaint f21; Answer
H21. Plaintiff contends that the transfer was made in "return for [the] forgiveness of
[a] $35,000 loan" which Manzo made to the Debtor. Complaint $25, Debtor denies
that allegation and asserts that the transfer was made for consideration which he
"believes was $50,000." Answer f2S. After the transfer, Manzo developed the property
with Debtor working as a "consultant" for which Debtor was paid approximately
$35,000. Complaint $22. Plaintiff filed a lis pendens and litigation regarding the
Playwicki Property. Complaint $24; Answer f24. The $35,000 which Debtor was paid is
3 In Plaintiff's Answers to Defendant's Interrogatories, Plaintiff states that *[t]he
funds [to purchase the Playwicki Property] were joint funds whether they came from
the Corporation, the fictitious name, or the individual parties directly." See Plaintiff's
Answers to Defendant's Interrogatories H3.
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being held in an escrow account pending the outcome of the aforementioned litigation.
Id, Debtor denies that he held title to the property in his own right but, instead, says
that he obtained the property to further the purposes of the real estate development
company owned by him and his brother. Answer M19-20.
Ship Bottom Property
In March of 1999, real estate located at 2615 Central Avenue in Ship Bottom,
New Jersey was purchased with the following money: (i) $105,000 from Martino and
Richard Monach; (ii) $30,000 from John Hatch who is a brother of Debtor and Plaintiff;
(iii) $34,135 or $60,000 from Debtor or Bucks County Modular Homes; and (iv)
approximately $546 from Brenda and John Hatch (paid by a check at the closing). See
Deposition of Debtor from August 29, 2005 CDebtor's 2005 Dep."), attached as Exhibit
A to Plaintiff's Response to Defendant's Motion for Partial Summary Judgment at 47-49;
Deposition of Debtor from November 13, 2008 ('Debtor's 2008 Dep."), attached as
Exhibit B to Plaintiff's Response to Defendant's Motion for Partial Summary Judgment at
43; Deposition of Brenda Hatch, dated November 13, 2008 CBrenda Hatch Dep. ")f
attached as Exhibit C to Motion, at 8. The $34,135 or $60,000 which was paid by the
Debtor or Bucks County Modular Homes was obtained by Debtor through a line of
credit on his home and was loaned or otherwise given to the company to fund the
purchase of the Ship Bottom property.4 Debtor's 2005 Dep. at 47-49; Debtor's 2008
4 In his 2005 deposition, Debtor testified that he contributed $60,000 toward
the purchase of the Ship Bottom Property and that he obtained the $60,000 from a line
of credit on his home. Debtor 2005 Dep. at 49. However, at Debtor's 2008 deposition,
(continued...)
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Dep, at 43. According to the Debtor/ Plaintiff was supposed to repay the Debtor for
one-half of the funds ($30,000), but Plaintiff never did. Debtor's 2005Dep. at 50. As a
result, Debtor maintains that Plaintiff has no interest in the property. Id. at 48-49.
Title to the Ship Bottom Property is and has always been in the names of
Martino and Brenda Hatch who is John Hatch's wife. See Debtor's 2005 Dep. at 49.
However, the understanding at the time the property was purchased was that: (i) one-
third of the property would be owned by collectively by the Hatch family members who
contributed to the purchase thereof; and (ii) two-thirds of the property would be owned
by Martino and Monarch. Brenda Hatch Dep. at 7; Debtor's 2005 Dep. at 48; Debtor's
2008 Dep. at 43.
The Ship Bottom Property has two homes on it. Debtor 2005 Dep. at 52; Debtor
2008 Dep, at 25. One is a duplex which is considered to be the property of Martino
and Monarch (for their 2/3 ownership of the Ship Bottom Property). Id. at 26; Debtor
2005 Dep. at 52. The other is a small two-person cottage of 342 square foot which is
considered to be the property of the Hatches (for the 1/3 ownership of the Ship Bottom
\... continued)
he clarified or changed his testimony, stating that the money that was contributed
towards the Ship Bottom Property on behalf of himself and Plaintiff was from their
company's account (Bucks County Modular Homes) and was not paid directly by him.
Debtor 2008 Dep. at 24. As Debtor explained in more detail at his deposition in 2008,
he:(i) borrowed the money which he contributed to the purchase of the Ship Bottom
Property from a line of credit (secured by his home) from William Penn Savings and
Loan; (ii) put the money into their company's account (Bucks County Modular Homes);
(iii) wrote a check for $34,135 payable to "Cash" on the company's account; and (iv)
cashed the check and obtained a certified check from the bank to contribute towards
the purchase of the Ship Bottom Property on behalf of himself and Plaintiff. Id. at 24-
27.
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Property). Debtor 2008 Dep. at 52. Plaintiff and Debtor worked on renovating the Ship
Bottom Property. Debtor's 2005 Dep. at 50-51. According to the Debtor, they hired
numerous subcontractors to do the work. Id.
Since the purchase of the Ship Bottom Property in 1999, Brenda and John Hatch
have paid for the "Hatch" portion of the taxes on the property and have paid all of the
utilities, etc., with regard to the two-person cottage. Brenda Hatch Dep. at 19-20;
Affidavit of Glenn Hatch in Support of Defendant's Motion for Partial Summary
Judgment ("Debtor Affidavit") at fl4; Debtor 2008 Dep. at 31. Neither Plaintiff nor
Debtor have paid for any of the taxes or any of the other day-to-day costs associated
with the property.5 Id.; Brenda Hatch Dep. at 19-20. For this reason, according to
Debtor, his brother John and John's wife, Brenda, Debtor does not own an interest in
the Ship Bottom Property. John Hatch Deposition, dated January 23, 2009 ("John
Hatch Dep."), at 23-24; Brenda Hatch Dep. at 18. However, John Hatch testified that,
in the event the Ship Bottom Property was sold, the individuals who contributed to the
purchase price of the property would "probably" get back what they had put into it.
John Hatch Dep. at. 23. Moreover, at Debtor's 2005 deposition, he testified that he
and his brother (presumably John) intended to keep the Ship Bottom Property for their
"personal use." Debtor2005 Dep. at 51-52.
According to the Debtor and his counsel, Debtor decided not list the Ship Bottom
5 According to Plaintiff's Answers to Defendant's Interrogatories, Plaintiff and his
wife attempted to pay $5,000 to John and Brenda Hatch in 2005 toward real estate
taxes for the Ship Bottom Property but that they did not accept the check. See
Plaintiff's Answer to Defendant's Interrogatories at
8
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Property or any ownership interest therein on his Bankruptcy Schedules based on his
counsel's advice but, rather, to wait until the 341 meeting of creditors to disclose the
details concerning the purchase and ownership of property. Affidavit of Matthew R.
Nahrgang, Esquire, in Support of Defendant's Motion for Partial Summary Judgment
CNahrgung Affidavit"), attached to the Motion as Exhibit D; Debtor Affidavit MJ5-6.
What Debtor told his counsel regarding the Ship Bottom Property before he was
advised not to list any ownership therein on his Schedules is not contained in the
record,
Discussion
I. Standard of Review
Federal Rule of Civil Procedure 56(c) provides that summary judgment should be
granted if, drawing all inferences in favor of the nonmoving party, "the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).6 A
motion for summary judgment will not be defeated by the mere existence of some
disputed facts, but will be defeated when there is a genuine issue of material fact.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A genuine issue exists
when the trier of fact "could return a verdict for the nonmoving party." Cooley v.
Merski, 2009 WL 742692, at * 2 (W.D. Pa. March 20, 2009) (citing Anderson v. Liberty
6 Rule 56 of the Federal Rules of Civil Procedure is applicable hereto pursuant to
Rule 7056 of the Federal Rules of Bankruptcy Procedure.
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Lobby, Inc., 477 U.S. 242, 248 (1986)).
In deciding a motion for summary judgment, it is not the court's role to weigh
the disputed evidence and decide which is more probative, or to make credibility
determinations. Benchmark Group, Inc. v. Penn Tank Lines, Inc., 612 F. Supp.2d 562,
573 (E.D. Pa. April 8, 2009) (citing Boyle v. County of Allegheny, Pa., 139 F.3d 386,
393 (3d Cir.1998) (citing Petruzzi's IGA Supermarkets, Inc. v, Darling-Del. Co, Inc., 998
F.2d 1224, 1230 (3d Cir.1993)). Rather, the court must consider the evidence, and all
reasonable inferences which may be drawn from it, in the light most favorable to the
non-moving party. Benchmark Group, Inc., 612 F. Supp.Zd at 573 (citing Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing U.S. v. Diebold,
Inc., 369 U.S. 654, 655 (1962)); Tigg Corp. v. Dow Coming Corp., 822 F.2d358, 361
(3d Or. 1987)). If a conflict arises between the evidence presented by both sides, the
court must accept as true the allegations of the non-moving party and draw all
justifiable inferences in his favor. Benchmark Group, Inc., 612 F. Supp.2d at 573 (citing
Anderson, 477 U.S. at 255).
The moving party bears the initial responsibility of informing the court of the
basis for its motion and identifying those portions of "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,"
which it believes demonstrate the absence of a genuine issue of material fact. Celotex
Corporation v. Catrett, 477 U.S. 317, 323 (1986). If the moving party meets its
burden, then "the nonmoving party must set forth 'specific facts showing that there is a
genuine issue for trial' or the factual record will be taken as presented by the moving
10
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party and judgment will be entered as a matter of law." Zahavi v. The PNC Financial
Services Group, Inc., 2009 WL 904699, at *6 (W.D. Pa., March 31, 2009;* (quoting
Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting
Fed.R.Civ.P. 56(e))).
II. Count I - §523(a)(2)(A)
A debt may be excepted from discharge under §523(a)(2)(A) if it was "for
money, property, services, or an extension, renewal, or refinancing of credit, to the
extent it was obtained by ... false pretenses, a false representation or actual fraud[.]"
11 U.S.C. §523(a)(2)(A). The elements of a claim under §523(a)(2)(A) for false or
fraudulent representations are the following: (1) the debtor made a representation
knowing at the time that it was false; (2) the debtor made the representation with the
intent and purpose of deceiving the plaintiff; (3) the plaintiff justifiably relied on the
debtor's false representation; and (4) the plaintiff suffered a loss or damage as a
proximate consequence of the representation having been made. Stevens v, Antonious
(In re Antonious), 358 B.R. 172, 182 (Bankr. E.D. Pa. 2006).
In the Complaint, Plaintiff alleges that he executed the second right of refusal on
the Creek Road Property based on the representation of the Debtor that its "purpose
was to give [the Debtor] the right to acquire Lot 3 if, and only if, [Plaintiff] elected not
to do so, and that in all other respects, the right of first refusal was solely the right of
the [Plaintiff]." Complaint H 11. In his answer to the Complaint, Debtor generally
denies that the purpose of the second right of first refusal was to be "construed in any
way other than what is suggested by its plain language," however, Debtor offers no
11
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evidence in support of his denial in the instant Motion. Consequently, Debtor has not
carried his burden of demonstrating the absence of a genuine issue of material fact as
to Plaintiff's claim under §523(a)(2)(A), and the Motion in this respect will be denied.
II. Count I - §523(a)(4)
Under §523(a)(4), a debt will be excepted from discharge if it is for: (i) fraud or
defalcation while acting in a fiduciary capacity; (ii) embezzlement while acting in any
capacity; or (iii) larceny while acting in any capacity. See 11 U.S.C. §523(a)(4); see
also Ginsburg ex re/. The Vertical Group, Inc. v, Birenbaum, 2009 WL 304045, at *9
n.23 (W.D. Pa. Feb. 9, 2009) (observing that the phrase "while acting in a fiduciary
capacity" in §523(a)(4) "modifies only the "fraud or defalcation' exception and not the
'embezzlement or larceny' exception."). In his complaint, Plaintiff asserts, in conclusory
fashion, that "Debtor's actions as described herein constitute fraud or defalcation while
acting in a fiduciary capacity, embezzlement, or larceny." Complaint 5|36. The Court
shall examine each prong of §523(a)(4).
Fraud or Defalcation while acting in a Fiduciary Capacity
Debtor contends that he is entitled to summary judgment on the claim that he
committed fraud or defalcation while acting in a fiduciary capacity because the facts, as
alleged in the Complaint, do not support such a cause of action. See Motion H9. In
response, Plaintiff argues that summary judgment cannot be granted because there is
evidence in the record that Debtor committed fraud or defalcation while acting in a
fiduciary capacity by taking assets of the corporation in which they both had a
ownership interest and converting them "to his own use." See Response to Motion
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119-10.
The Court agrees with Plaintiff that there is evidence in the record (albeit
disputed evidence) that Debtor converted assets of the brothers' corporation, namely
the right of first refusal which was in both of their names for Lot 3 and the Playwicki
Property, for his own use. However, even construing such evidence in the light most
favorable to the Plaintiff, there is the legal issue of whether Debtor was acting in a
fiduciary capacity when he allegedly converted the assets. Neither party has addressed
this pivotal issue in their brief. The Court views the record before it as insufficiently
developed on this key pint. Accordingly, the Court will defer ruling on it and the Debtor
shall not be granted summary judgment on this portion of Plaintiff's §523(a)(4) claim.
Embezzlement
Embezzlement is the '"fraudulent appropriation of property by a person to whom
such property has been entrusted, or into whose hands it has lawfully come.'"
Borchardt v. Ferrell(In re Ferrell), 2006 WL 1997423, at * 9 (Bankr. E.D. Pa. June 14,
2006) (quoting Moore v. United States, 160 U.S. 268, 269 (1895)). To prove a debtor
committed embezzlement within the meaning of §523(a)(4), a plaintiff must establish
that: (1) the debtor was entrusted; (2) with property; (3) of another; (4) which the
debtor appropriated for his own use; and (5) with fraudulent intent. Ginsburg ex re/
The Vertical Group, Inc. v, Birenbaum (In re Birenbaum), 2006 WL 1997478, at *8
(Bankr. W.D. Pa. July 7, 2006).
There is scant evidence in the record to support a claim of embezzlement.
According to the Plaintiff, Debtor deceived Plaintiff into transferring the right of first
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refusal to the Creek Road Property from him to Debtor and him which means that
Debtor did not lawfully obtain the right of first refusal in both of their names.
Therefore, Debtor's alleged conversion of the right to first refusal to himself cannot
constitute embezzlement. Moreover, even assuming that Debtor used corporate funds
to purchase an interest in the Ship Bottom Property, Plaintiff has not alleged nor is
there evidence in the record that supports a finding that Debtor appropriated the funds
for his own use and with fraudulent intent. Rather, the undisputed evidence in the
record is that Debtor's original intent in contributing funds for the Ship Bottom Property
was to enable both him and Plaintiff to have an interest therein. Accordingly, the only
evidence in the record which could support a finding of embezzlement is that Debtor
used joint funds to purchase the Playwicki Property which he then had titled solely in
his name. This evidence, when viewed in the light most favorable to the Plaintiff, could
support a claim of embezzlement. Consequently, the Debtor is not entitled to summary
judgment on the embezzlement prong of §523(a)(4).
Larceny
'Larceny vis the felonious taking of another's personal property with the intent to
convert it or deprive the owner of the same." In re Schlessinger, 208 Fed. Appx. 131,
133 (2006) (citing Collier on Bankruptcy H523.10 (15th ed.2006)). '"Larceny differs
from embezzlement only in the manner in which the property comes into the hands of
the person charged with fraudulently appropriating it.'" Ginsburg, exrel. The Vertical
Group, Inc. v. Birenbaum. 2009 WL 304045, at *10 n.26 (W.D. Pa. Feb. 9, 2009)
(quoting In reSteele, 2005 WL 281154, at *3 n.5 (E.D. Bankr. Jan. 28,. 2005)).
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Larceny "occurs when "the original taking of the property was unlawful/ " In re
Kishbaugh, 399 B.R. 419 (Bankr. M.D. Pa. 2009) (quoting In re Schermer, 388 B.R.
123, 128 (Bankr. E.D. Pa. 2008) (quoting Mosierv. Oxley (In re Oxley), 2007 WL
2407266, *6 & n. 24 (Bankr. Kan. August 20, 2007))). While Debtor's actions vis-a-vis
the Playwicki Property and the Ship Bottom Property could not constitute larceny, his
alleged forging of Plaintiff's signature on the Assignment of Interest in Agreement of
the Right of First Refusal and unlawful taking of the right of first refusal, which are
disputed issues of fact, could.7 See First Liberty Bank v. Allen (In re Allen), 1999 WL
33588549, at *2 (Bankr. S.D. Ga. Sept. 23,1999) (concluding that Debtor committed
larceny when he forged a signature on his former client's check and deposited the
proceeds therefrom in his firm's bank account); Hess v, Waterholter (In re
Waterholter), 2006 WL 384986, at *2-*3 (Bankr. E.D. Va. Jan. 4, 2006) (concluding
that Debtor's conduct in forging signature on check and appropriating the proceeds
constituted both defalcation while acting in a fiducary capacity and larceny). Therefore,
Plaintiff is entitled to proceed on his claim that Debtor committed larceny under
7 In opposition to the Motion, Plaintiff submitted a letter, dated June 30, 2006,
from a certified public accountant named Patrick M. Smith, CPA. In the letter, Smith
concludes that, if certain "adjustments" to Plaintiff's account for Bucks County Modular
Homes, Inc., were incorrect and "the reclassifying of checks out of Glenn Hatch's draw
account prove to be unsubstantiated, then it appears that Glenn Hatch withdrew
approximately $150,000 more the [sic] his brother during the years 1992-2001." In his
response to the Motion, Plaintiff refers to this letter to support his assertion that Debtor
"as a corporate officer used corporate funds as his own." Plaintiff's Response H9.
Notably, the allegations of the Complaint focus on the Creek Road Property, the
Playwicki Property and the Ship Bottom Property and not on Debtor's transgressions, if
any, with regard to any wrongful taking of funds from the brothers' company.
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§523(a)(4).
II. Count II - §523(a)(2)((B)
A debt may be excepted from discharge under §523(a)(2)(B) if it was "for
money, property, services, or an extension, renewal, or refinancing of credit, to the
extent it was obtained by .... use of a statement in writing - (i) that is materially false;
(I) respecting the debtor's or an insider's financial condition; (iii) on which the creditor
to whom the debtor is liable for such money, property, services, or credit reasonably
relied; and (iv) that the debtor caused to be made or published with the intent to
deceive.]" 11 U.S.C. §523(a)(2)(B). In support of his motion, Debtor submitted his
affidavit wherein he states that he never "used a statement in writing regarding [his] or
an insider's financial condition to obtain any money, property or services from Plaintiff."
Debtor's Affidavit H14. Plaintiff offers no evidence to the contrary. Moreover, Plaintiff's
Complaint does not refer to a writing upon which a claim under §523(a)(2)(B) could be
based. Consequently, Debtor is entitled to summary judgment on Plaintiff's claim under
§523(a)(2)(B).
IV. Count III- §727(a)
In Count III, Plaintiff contends that Debtor should be denied a discharge in his
bankruptcy case based on §§727(a)(4)(A) and 727(a)(5). See Plaintiff's Brief at II.
These subsections provide:
(a) The court shall grant the debtor a discharge, unless -
* * *
(4) the debtor knowingly and fraudulently, in or in
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connection with the case-
(A) made a false oath or account;
* * *
(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 liabilities[.]
11U.S.C. §727(a)(4)(A)&(a)(5).
False Oath or Account under
Section 727(a)(4)(A)
Plaintiff claims that Debtor should be denied a discharge under §727(a)(4)(A)
because he failed to list his ownership interest in the Ship Bottom Property on his
Bankruptcy Schedules. As noted above, during a deposition in 2005, Debtor testified
that: (i) he contributed roughly $60,000 towards the "group" purchase of the Ship
Bottom Property on behalf of himself and his brother, Jeffrey;8 (ii) Jeffrey never repaid
Debtor for his 50% share ($30,000) of the $60,000 which Debtor contributed towards
the purchase price so he assumed that Jeffrey "had no intention of being involved" in
it; and (iii) the intent was to keep the Ship Bottom Property for personal use and not to
sell it. Debtor's 2005 Dep. at 47-53, Based on this testimony from 2005, Plaintiff
contends that Debtor should be denied a discharge under §727(a)(4) for failing to list
the Ship Bottom Property on his Schedules.
In support of his Motion, Debtor submitted an affidavit averring that he never
8 As noted above, the Ship Bottom Property was purchased by Martino and
Monarch as well as members of the Hatch family.
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personally owned any interest in the Ship Bottom Property because the money which
he contributed thereto on behalf of himself and Jeffrey was paid by Bucks County
Modular Homes and not by him. Debtor Aff. f2. In the affidavit, Debtor further avers
that: (i) he possesses no ownership interest in the Ship Bottom Property because
Brenda and John Hatch have paid all expenses pertaining to the property since its
purchase and they assert complete ownership interest therein (Id. 114.); and (ii) he
informed his bankruptcy counsel of the facts surrounding his claim of equitable
ownership in the Ship Bottom Property and that his counsel advised him not to list any
interest in the property on his Schedules but, instead, to disclose the facts surrounding
the same at the 341 meeting of creditors (Id. H5-7).
A debtor's failure to list his assets on his bankruptcy Schedules can constitute a
false oath for purposes of §727(a)(4). The Cadle Company v. Zofko, 380 B.R. 375, 382
(W.D. Pa. 2007). "Section 727(a)(4)(A) is designed to ensure that the debtor puts
dependable information in the hands of those interested in the administration of the
bankruptcy estate without the need for the trustee or a party in interest to engage in
costly, exhaustive investigations to ferret out the truth concerning the Debtor's financial
condition." In re Giquinto, 388 B.R. 152,178 (Bankr. E.D. Pa.2008). To successfully
challenge a debtor's discharge under §727(a)(4), a creditor must prove that: (1) the
debtor made a false oath or statement, (2) the debtor knew the statement was false,
(3) the debtor made the statement with the intent to deceive, and (4) the statement
was material to the bankruptcy case. The Cadle Company, 380 B.R. at 382.
Based on the record currently before the Court, there are material factual
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questions which remain unanswered regarding the Ship Bottom Property. For example,
did the Debtor contribute $60,000 or $34,135 to the purchase of the property? Was all
of the money funneled through the brothers' corporation or was some of it paid directly
by the Debtor? What did the Debtor disclose to his counsel about the Ship Bottom
Property in soliciting his advice on whether to list an interest or potential interest in it
on his Schedules? Debtor's affidavit does not address this point. Furthermore, while
Brenda and Jeffrey Hatch may take the position that no one from the Hatch family,
except themselves, possesses an interest in the Ship Bottom Property, their position on
the subject is irrelevant to whether Debtor indeed possesses such an interest. Since
the facts concerning the Ship Bottom Property have not been clearly set forth, Debtor's
request for summary judgment on Plaintiff's §727(a)(4) claim shall be denied.
Satisfactory Explanation of Loss
of Asset Under Section 727(a)(5)
Plaintiff's argument for nondischargeability under §727(a)(5) is that Debtor, who
admits that he once owned an interest in the Ship Bottom Property, has not
satisfactorily explained the loss of that interest. However, the record on summary
judgment proves otherwise.
The determination of what constitutes a "satisfactory" explanation for the loss of
assets under §727(a)(5) is within the Court's discretion. In re Mezvinsky, 265 B.R. 681,
689 (Bankr. E.D. Pa.2001). "In making this assessment, the court does not concern
itself with the propriety of the disposition of the assets, but only whether the
explanation is satisfactory." In re Jacobs, 381 B.R. 147, 168 (Bankr. E.D. Pa. 2008).
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See also In re Mezvinsky, 265 B.R. at 690 ("It is important to note that, for the
purposes of a § 727(a)(5) inquiry, the court is not concerned with whether the
disposition of the assets was proper under the Bankruptcy Code, but rather only
whether the explanation satisfactorily describes what happened to the assets.").
"Courts in this circuit have held that the explanation must convince the judge that the
explanation is worthy of belief." In re Jacobs, 381 B.R. at 168. "The explanation must
appear reasonable such that the court no longer wonders what happened to the
assets." In re Shepherd, 2005 WL 4147868, at *3 (Bankr.D.Kan. Oct. 7, 2005) (citation
omitted).
As noted above, the facts concerning the Ship Bottom Property have not been
fully explained. However, even assuming that Debtor personally contributed $60,000 to
the purchase of the Ship Bottom Property and that he no longer possesses any interest
therein, Debtor has explained that his brother and sister-in-law have paid all expenses
associated with such property since its purchase and that, while Debtor apparently is
allowed to use the property, neither his brother, John Hatch, John's wife, Brenda, or
the Debtor believe that he currently owns any interest in it. Debtor's explanation of this
situation is corroborated by the deposition testimony of his brother, John, and his
sister-in-law, Brenda. Plaintiff has submitted no evidence which undermines this
explanation. Therefore, assuming that Debtor possessed an interest in the Ship Bottom
Property that has been diminished or lost, he has provided a satisfactory explanation
for the same and is, therefore, entitled to summary judgment on Plaintiff's §727(a)(5)
claim.
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V. Summary
For the reasons set forth above, Debtor's Motion shall be granted as to Plaintiff's
claims under 11 U.S.C. §§523(a)(2)(B) and 727(a)(5) but shall be denied in all other
respects. An Order consistent with this Opinion shall be issued.
By the Court:
Stephen Raslavich
Chief U.S. Bankruptcy Judge
Dated: September 30. 2009
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