Ruiz v. Kennedy (In re Kennedy)
Ruiz v. Kennedy (In re Kennedy)
Opinion of the Court
OPINION
This matter is before the Court following a consolidated trial of three adversary proceedings by plaintiffs challenging the rights of Stewart and Samantha Kennedy (the “Debtors”) to discharge their debts under chapter 7 of the Bankruptcy Code. Laila Cristobal (“Cristobal”), Frank Ruiz (“Ruiz”), and John Lira (“Lira”) and, together with Ruiz and Cristobal, the “Plaintiffs”) also assert that the Debtors’ obligations to them are nondischargeable under 11 U.S.C. § 523(a) because they were incurred by way of fraud, false pretenses or embezzlement. Cristobal, Lira and Ruiz (at least initially) further asserted that the Debtors are not entitled to a discharge under 11 U.S.C. § 727(a) because they fraudulently failed to disclose assets in their bankruptcy petition, made unauthorized post-petition transfers of property, made false oaths in connection with the case, and failed to properly maintain and destroyed records from which their financial dealings can be ascertained.
As set forth below, the Court will enter judgment denying Stewart Kennedy’s discharge pursuant to sections 727(a)(2), (a)(3), (a)(4) and (a)(7). Judgment denying Samantha Kennedy’s discharge under sections 727(a)(3), (a)(4) and (a)(7) will also be entered. Because this Court has determined that Mr. and Mrs. Kennedy are not entitled to a discharge, it is not technically necessary to decide whether any of Plaintiffs’ individual claims are nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (4) or (6), except to the extent that (i) the Plaintiffs seek a determination as to the amount of their claims; and (ii) the Kenne-dys have asserted that Lira released his claims against them. Cristobal’s' claim against Mr. and Mrs. Kennedy is determined to be in the amount of $155,037, plus legal interest from January 1, 2012 going forward. Ruiz’s claim against Mr. Kennedy is determined to be in the amount of $503,101, plus legal interest from January 1, 2014 going forward. The
JURISDICTION
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), and the Standing Order of Reference from the United States District Court for the District of New Jersey. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) (determination as to dischargeability of certain debts) and (J) (objections to discharge). Venue is proper under 28 U.S.C. §§ 1408 and 1409(a). The following constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
FACTS AND PROCEDURAL HISTORY
1. Overview of Debtors’ Business
On May 12, 2010, the Debtors filed a joint petition under chapter 7 of the Bankruptcy Code. The petition listed assets of $239,000 and debts of $8,662,387, approximately three million of which was scheduled as secured.
In the late 1990s, Mr. Kennedy, then a full-time detective sergeant for the City of Passaic Police Department, began acquiring properties at foreclosure sales with his friend Danny Colon, rehabilitating them, and selling them for profit.
In the years leading up to the filing of their petition, the real estate business expanded and, at times, appeared to thrive. Mr. Kennedy participated in the purchase and rehabilitation of thirty to forty properties, ranging from single-family homes to an eighty-three-unit condominium complex at 447 Van Houten Avenue in Passaic. Some of these properties were developed by entities in which one of the Kennedys held an interest, including:
*697 • 447 Van Houten, LLC: eighty-three-unit condominium complex at 447 Van Houten Avenue in Passaic. Owned in equal one-third shares by Mrs. Kennedy, John Lira and Suzette Colon.7
• DCL, LLC: twelve-townhome development on Lafayette Street in Pas-saic. Mrs. Kennedy owned a twenty-five percent interest.8
• Lircostew, LLC: owned in equal shares by Mr. Kennedy and Lira to develop various properties in Passaic.
Although these entities were not' listed in the Debtors’ petition, they were added in a January 2011 amendment which also included entities known as: Shannon G, LLC, GGL Capital, and Bella Vista Estates.
In addition to the properties owned by the above-mentioned entities, Mr. or Mrs. Kennedy acquired real estate in their individual capacity, owning certain properties outright (such as their home in Wayne) or through informal partnerships with others, such as their shore house in Ocean Gate, New Jersey. Loans and investments in the properties were administered through the Debtors’ personal bank accounts with Valley National Bank.
Mr. Kennedy also did not employ any mechanism for tracking or allocating expenses among different projects. Adding to the confusion, he and Mrs. Kennedy commingled business and personal expenses in the S & S Development account, as was noted above. Of the $2,286,950.27 deposited into the S & S Development account between April 2005 and May 2010, $488,430 came from the Kennedys’ personal funds. However, during the same period approximately $859,463 of S & S Development funds — some $400,000 more than the Kennedys’ deposits — were devoted to the Kennedys’ personal expenses, including, among other things, $321,244 on renovations to their home, $58,700 on jewelry, and $62,321 on their beach house.
The Plaintiffs filed separate adversary proceedings against the Debtors in December 2010.
The record also reflects that the Kenne-dys produced virtually nothing in response to Plaintiffs’ discovery requests, except certain foreclosure complaints and then, much belatedly, the check register at trial. As a result, Plaintiffs were forced to attempt to reconstruct the Kennedys’ financial affairs and records by subpoenas to third parties, the testimony and other evidence provided by the Kennedys’ accountant and, ultimately, the testimony of the Kennedys themselves. But even the Ken-nedys’ own accountant was unable to prepare complete financial statements for S & S Development because of the Debtors’ deficient record-keeping.
II. Cristobal Complaint
Laila Cristobal worked as a police officer for the City of Passaic with Mr. Kennedy, who was her front-line supervisor. Mr. Kennedy regularly conducted business in the police station and would often speak of the success of his real estate business and the luxurious homes, cars, and vacations it enabled him to enjoy. In July 2004, after an inquiry from Cristobal as to whether she could invest with him, Kennedy invited Cristobal to participate in a project at 70-72 Palmer Street in. Passaic (“Palmer Street”). Kennedy told her that a construction loan was needed to complete the project, which involved the construction of two duplex homes, and that he had already located buyers to purchase the units for $550,000 each.
Cristobal told Kennedy that she would be able to loan him up to $150,000 for the development of Palmer Street by taking out a second mortgage on her home. Kennedy told her that her investment would be repaid in one year, with $35,000 in interest, and asked her to write a check out to Samantha Kennedy.
On August 1, 2004, Cristobal brought a $150,000 check payable to Mr. and Mrs. Kennedy to the police department headquarters, which was funded by a $150,000 line of credit in Cristobal’s name, secured by a mortgage on her home.
Despite the representations that Cristo-bal’s loan would be used for the Palmer Street property, Plaintiffs’ analysis of the Debtors’ account with Valley National Bank shows that in the two weeks after the loan was made, none of it was spent on Palmer Street.
The following colloquy between the Court and Cristobal summarizes her case under section 523(a)(2) and confirms that Cristobal made the $150,000 loan in 2004 on the basis of the representations of Mr. Kennedy:
THE COURT: I understand your testimony to be that you lent the money at the request of Mr. Kennedy to be used to rehabilitate or develop Palmer Street, correct?
THE WITNESS: Yes.
THE COURT: Would you have lent the money if any of that money is going to be used for any other expense?
THE WITNESS: No.
THE COURT: And you relied upon him when you lent the money?
THE WITNESS: Yes.
THE COURT: Would you have lent the money if you knew that he was going to write a check to the Colons?
THE WITNESS: No.
THE COURT: Would you have lent the money if you knew any of those funds was going to be spent for personal expenses of the Kennedys?
THE WITNESS: No.
THE COURT: Would you have lent the money if you knew any of those funds were going to be used for anything other than the rehabilitation of Palmer Street? THE WITNESS: No.
THE COURT: All right. And just so I’m clear, when you spoke with Mr. Kennedy, and he indicated he had, you know, a project and he needed some funding for it, on Palmer Street, did he say at any time to you that look, some of these monies may be used on some other project I’m behind on?
THE WITNESS: No.
THE COURT: Or pay for my leases on my Cadillacs, did he say anything like that?
*701 THE WITNESS: No.36
After a year passed and she had not yet received any payments of principal or interest, Cristobal began making inquiries of Mr. Kennedy as to repayment. Although Kennedy assured her that her loan was secured and that she would be repaid, more time passed without any payments. The urgency of Cristobal’s inquiries intensified in 2007 when the interest rate on her mortgage increased and she left work on maternity leave. Mr. Kennedy made further assurances she would be repaid and attempted to allay her concerns by giving her a series of checks between June and November 2008 in the total amount of $12,500. Cristobal was also put in contact with, the Debtors’ attorney, Stephen Gru-hin, and was assured that a sale of Palmer Street was imminent and that she would be paid at closing.
In December 2008, Cristobal learned that Palmer Street had been sold without her knowledge or consent or any payment to her. She learned this after speaking to William Paranto, a former police officer for Passaic, who obtained a mortgage against the property fifteen months after Cristobal made her loan.
Notwithstanding these assurances, Mrs. Kennedy had executed a settlement agreement on November 25, 2008 — a week earlier — pursuant to which the property was sold to Charles Shulman, a principal of New Jersey Lenders Corp., for $802,639.12.
Cristobal did not receive any portion of the sale proceeds from Palmer Street.
As to Mrs. Kennedy, Cristobal acknowledged that she was not involved in the initial loan transaction.
III. Ruiz Complaint
Dr. Frank Ruiz worked with Mrs. Kennedy at the Clifton Surgical Center, where she was employed as Director of Nursing. Ruiz learned of the Debtors’ real estate business through social visits to the Ken-nedys’ residence.
A. The Third Street Property
In late 2006, Mr. Kennedy proposed that Ruiz invest in the development of a six-unit apartment building located at 243 Third Street in Passaic (“Third Street”).
On May 2, 2006, Ruiz went to the office of the Kennedys’ attorney, Carl Zoecklein, and delivered a $100,000 check payable to Mr. Kennedy. In exchange, Ruiz received a note and mortgage on the Third Street property in the same amount.
B. The Howard Street Property
In the fall of 2006, before Ruiz became aware of the issues with the Third Street property, he entered into a “partnership” with Kennedy to subdivide and develop a two-family residence at the corner of Howard Street and Idaho Street in Passaic (“Howard Street”). The understanding was that Ruiz would contribute the funds to purchase the property, while Mr. Kennedy was responsible for arranging the construction financing, the construction itself and payment of the bills. The profits would be divided equally after Ruiz was repaid his initial contribution.
Howard Street was purchased by Kennedy and Ruiz in December of that year for $325,000.
During discovery, the only evidence as to how these loan proceeds were used came from bank records subpoenaed by the Plaintiffs and records prepared by the Debtors’ accountant for the purpose of filing tax returns.
Although the register purportedly shows the use óf the $120,100 draw on the construction loan, its entries conflict with the testimony of William Cunningham, the general contractor on the project. While Kennedy claimed that he paid approximately $33,800 to a subcontractor called EROS Construction to demolish the burned-down structure at Howard Street,
Examples of these checks include check No. 1790, which is a check for $3,500 made payable to Cunningham that was cashed at a check cashing store in Passaic. Cunningham testified that it was not his signature on the back of the check and that he never received this money.
Further, Ruiz examined the register and testified that only two monthly payments were made on the construction loan from Sun Home Loans, which he believes caused it to go into foreclosure.
As to Mrs. Kennedy, the testimony and evidence presented at trial demonstrated that she had no direct or indirect involvement in the loan or “partnership” transactions between Mr. Kennedy and Ruiz, and was not a signatory to the loan or other transactions between Mr. Kennedy and Ruiz.
IV. Lira Complaint
John Lira is a retired deputy chief for the Police Department for the City of Pas-saic and was formerly a very close friend of Mr. Kennedy. Along with Mrs. Kennedy and Suzette Colon, Lira was an equal one-third owner of 447 Van Houten, LLC and a half-owner of Lircostew, LLC with Mr. Kennedy. With respect to both 447 Van Houten, LLC and Lircostew, LLC, Mr. Kennedy handled the financial aspects of the business and controlled the bank accounts and Lira managed the construction aspects.
The eighty-three-unit condominium development at 447 Van Houten was initially financed by a $5.5 million construction loan from LG Capital Funding, LLC (“LG Capital”). In March 2006, Mr. Kennedy, Lira and Danny Colon decided to use some of these construction loan funds to invest in the stock market.
Mr. Kennedy made an initial deposit of $68,300 from the 447 Van Houten, LLC bank account into the Oppenheimer account on Mareh 23, 2006.
Records subpoenaed by Plaintiffs from Oppenheimer & Co. show that Mr. Kennedy withdrew $321,532.18 from the account prior to the petition and withdrew $7,552.63 after the case was filed. Of these withdrawals, $54,061.71 was deposited into the Debtors’ S & S Development account by way of checks made payable to Mr. Kennedy.
At trial, Mr. Kennedy explained this depletion by stating he only withdrew personal funds invested in the account through S & S Development. He asserted that the securities purchased with the $55,700 investment from S & S Devélopment increased in value (enabling him to withdraw funds for his ■ own purposes), while stocks purchased with funds invested from 447 Van Houten, LLC and Lir-costew, LLC “went to zero balances” and were total losses.
447 Van Houten, LLC ran out of funding in 2007 and LG Capital threatened to foreclose the property. The Debtors, Lira, and the Colons negotiated a settlement in which the property was transferred to Mrs. Kennedy and deeded to LG Capital in lieu of foreclosure. In exchange, the parties were released from personal guarantees of the mortgage loans in the amount of approximately $9.5 million.
Releasors [defined to include Lira] knowingly, voluntarily and without duress, do hereby in perpetuity, jointly, severally, and irrevocably release, acquit, and forever discharge Releasees [defined to include Mr. and Mrs. Kennedy] ... from any and all claims, rights, actions, causes of action, suits, [etc,] ... from the beginning of time to the date of this Release ....
Lira executed the release in an individual capacity and in his capacity as a member of 447 Van Houten, LLC.
At trial, Lira claimed he was fraudulently induced to enter into the release as to Mr. and Mrs. Kennedy (but not the Bank)
Y. Section 727 Claims
Cristobal and Lira’s claims under section 727 are based on the same allegations that the Debtors concealed assets by failing to disclose them in their bankruptcy petition, transferred estate assets after the petition, failed to keep adequate records from which their financial history can be assessed, and made false statements in connection with the case. Many of the facts supporting these claims are included in the discussion section of this Opinion.
YI. Trial
Trial in these adversary proceedings was conducted over nine days, commencing on November 14, 2013 and concluding on September 24, 2015.
DISCUSSION
I. Section 727 Claims
Section 727 of the Bankruptcy Code grants the “honest but unfortunate” debtor a discharge of his or her pre-petition obligations in exchange for complete and truthful disclosure of one’s assets, liabilities, and financial history to creditors. The bankruptcy discharge has been described as the “heart” of the bankruptcy code’s fresh-start provisions.
While exceptions to discharge are narrowly construed, “good faith and candor” are necessary prerequisites for a discharge.
Cristobal and Lira’s claims under sections 727(a)(2), (a)(3), (a)(4) and (a)(7) will be addressed together because they involve the same facts and allegations. Because Cristobal and Lira set forth a prima
A. 11 U.S.C. § 727(a)(2)
A debtor will be denied a discharge under section 727(a)(2) if he or she:
with 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 the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition;
11 U.S.C. § 727(a)(2). To establish a claim under this section, a plaintiff must show: (1) the debtor transferred, removed, or concealed property; (2) the property belonged to the debtor or was property of the estate; (3) the act occurred within one year of the filing of the petition or after the filing of the petition; and (4) the act was done with intent to hinder, delay, or defraud a creditor.
The Plaintiffs’ claims under section 727(a)(2) focus on three acts of concealment or nondisclosure by the Debtors
1. Oppenheimer & Co. Brokerage Account
The Debtors did not mention the Oppenheimer & Co. account that was opened in .Mr. Kennedy’s name to invest over $300,000 in March 2006 anywhere in their initial filings with the Bankruptcy Court, including their petition and schedules. But one month before the case was filed, two separate withdrawals of approximately $5,000 were made from that account,
After the Plaintiffs brought the Oppenheimer account to the attention of the Court, the Debtors amended their Statement of Financial Affairs, scheduling it as a “closed financial account” on January 17, 2011.
• $4,771.27 on April 21, 2011;
• $2,300 on July 14, 2011;
• $481.36 on July 29, 2011.105
The Debtor’s argument that this was a “closed” financial account is refuted by the post-filing checks noted above. Further, the alleged lack of any balance in the ■account does not justify the failure to disclose it. The Court also notes that the alleged lack of a balance does not necessarily mean the account was closed. The same exhibit, P-83, shows that checks totaling over $16,000 were written from that same account in late March and April 2010, just prior to the filing. No explanation was provided at trial as to how this allegedly closed account could have had checks written against it after (and just prior to) the Kennedys’ bankruptcy filing.
Despite amending their schedules seven times, the Debtors never included the Oppenheimer account as an active account. Compounding the false oaths, in the Debtors’ joint certification in opposition to the Plaintiffs’ motion for summary judgment, the Kennedys certified that the Oppenheimer and Smith Barney accounts were “put on as an amendment and because there was no balance in those accounts at the time of the bankruptcy filing, there was no import for their being initially being left off.”
In sum, even with the multiple amendments, this Court finds that Mr. Kennedy concealed the Oppenheimer account and made false statements under oath in connection with that account, that the conceal-
2. 40 Sleepy Hollow Drive
On June 14, 2010, approximately one month after the petition date, Mr. Kennedy deeded his one-half interest in residential property located at 40 Sleepy Hollow Drive, Wayne, New Jersey (“40 Sleepy Hollow”) to Anne. Federico, Mrs. Kennedy’s mother and the other half-owner of the property, for one dollar.
After the Plaintiffs questioned Mr. Kennedy about 40 Sleepy Hollow during his Rule 2004 examination, the Debtors filed an amended Schedule A listing a joint interest in fifty percent of the property, valued at $421,000 subject to a secured claim of “0.00.”
Further, notwithstanding the sworn assertion that this property was transferred so that Federico could refinance it, a November 2013 title search — done more than three years after the Debtors’ filing— shows .that the only outstanding mortgage against the Property was a $417,000 mortgage from Mr. Kennedy and Federico to MERS, dated June 14, 2007.
Thus, this Court finds the Debtors knowingly and fraudulently concealed this property and made false statements in their schedules, as repeatedly amended, and in their certification with respect to the following additional material matters: (1) Mr. Kennedy’s ownership interest on 40 Sleepy Hollow, which was not initially disclosed; (2) Mr. Kennedy’s post-petition transfer of this property; (3) the refinancing of the mortgage on that property, which did not occur; and (4) the reason for the undisclosed post-petition transfer, i.e., to effect the refinancing, was also false. The knowing, fraudulent and false nature of these actions and statements is highlighted by the fact that the 40 Sleepy Hollow property is owned by Mrs. Kennedy’s mother, who lived there with her own mother (and Mrs. Kennedy’s grandmother) and that it is located on the very same street as the Debtors’ home. The Court further finds that these transfers, actual and alleged, and false statements, which were never fully or accurately explained, were made with the intent to hinder, delay and/or defraud their creditors.
3. DCL, LLC
DCL, LLC was formed to develop twelve townhouses on Lafayette Street in Passaic. Mrs. Kennedy owned a twenty-five percent interest in DCL, along with Mark Casamassina, Michael Simone, and Joseph Simone. Lira testified that DCL was an active business on the petition date and that two townhouses were sold after the petition date.
The Plaintiffs’ proofs with respect to whether townhouse units from DCL were sold post-petition is equivocal, as they rely principally on Lira’s testimony and Mr. Kennedy’s inability to deny Lira’s assertions with certainty. No documentary evidence was provided by either party in this regard. Taken alone, this claim may not have been sufficient to deny the Debtors’ discharge. However, the failure to list this business, the lack of clarity as to whether it continued to operate all, the way through trial and in the face of multiple amendments to the Debtors’ schedules, demonstrates the lack of care the Debtors consistently displayed in preparing their bankruptcy schedules and multiple amendments, and the lack of adequate record-keeping by Debtors. These failures made Plaintiffs’ case extremely burdensome to prove and required them to go to third parties to obtain what should have been available to and produced by the Debtors
4. The Debtors’ Justifications
All of the elements of a prima facie claim under section 727(a)(2) are established by the omission of the Oppenheimer account because: (1) Mr. Kennedy concealed the account by failing to list it in the initial schedules, by failing to produce account records in response to the Plaintiffs’ subpoena, and by inaccurately describing it as a “closed account” in amended schedules; (2) Mr. Kennedy’s interest in the account and any stocks or other assets held in the account constitutes property of the estate under section 541 ;
A prima facie claim under this section was also established by the omission of 40 Sleepy Hollow because: (1) the Debtors concealed the property by failing to list it on their initial schedules and failing to mention the post-petition transfer of Mr. Kennedy’s interest in the property in their initial schedules until and at their 341(a) meeting; (2) Mr. Kennedy’s interest in 40 Sleepy Hollow is property of the estate;
Having established a prima facie case under section 727(a)(2), the burden shifts to the Debtors to offer a satisfactory explanation for their outwardly wrongful conduct. In a certification filed with the Court on January 12, 2012, the Debtors offered the following explanation for their omission of the Oppenheimer account: “[a]s to Oppenheimer and Smith Barney they were put on as an amendment and because there was no balance in those accounts at the time of the bankruptcy filing, there was no import for their initially being left off.”
The Debtors’ alleged justifications do not negate the inference and evidence of fraudulent intent. Mr. Kennedy was clearly aware of the account’s existence since he withdrew more than $16,000 from the account during the six weeks before filing the petition. Even if it had a zero balance on the petition date, this would not excuse its omission since question 11 of the Statement of Financial Affairs also calls for financial accounts closed in the past six years to be disclosed. The Debtors also never offered an explanation for why, upon realizing the account had a positive bal-
With respect to the omission of 40 Sleepy Hollow, the Debtors explained that Mr. Kennedy did not consider himself to own the property because he merely helped Federico (“Federico”) — Mrs. Kennedy’s mother — obtain financing for its acquisition.
Additionally, Mr. Kennedy’s explanation that he did not consider himself an owner of the property because he was on the deed solely for financing purposes makes little sense in light of the other facts of this case. First, it is directly contradictory to the Debtors’ explanation as to why Mrs. Kennedy’s name only was on many of the properties and entities they developed; i.e., Mr. Kennedy’s prior bankruptcy and poor credit rating.
Q: Now there’s a reference here to 40 Sleepy Hollow. What is that?
A: That’s my mother’s home.
Q: Right. And your husband owns a half interest in it, correct?
A: Yes.
*714 Q: You knew that when you went into the bankruptcy, when you signed the petition, correct?
A: I did. I just didn’t realize that was on there. I didn’t look over the whole thing.126
The Court finds that this omission was not due to mere carelessness, given that Federico is Mrs. Kennedy’s mother, and that the Debtors lived just a few doors down from Federico on the petition date, at 56 Sleepy Hollow Road. Further, the financial information prepared by the Debtors’ own accountant shows that $60,650 was disbursed from the Kennedys’ S & S Development account in connection with the 40 Sleepy Hollow property.
Additionally, despite the repeated amendments made by the Debtors, they failed to at least initially disclose and/or falsely stated that: (i) Stewart Kennedy transferred his fifty-percent interest in this property to Federico on June 14,2010, shortly after they filed their petition on May 12, 2010; (ii) Stewart Kennedy’s liability on the $417,000 mortgage on 40 Sleepy Hollow; (iii) Federico’s joint liability on the mortgage (as required by Schedule H); (iv) Mr. Kennedy was also an owner of the property; and (v) the debtors were removed from the 40 Sleepy Hollow deed so that Federico could refinance the mortgage on the property and that the mortgage was in fact refinanced. The documentary evidence admitted at trial shows that the 40 Sleepy Hollow property was not refinanced by Federico after the transfer from Mr. Kennedy and confirms that Mr. Kennedy transferred his interest to Federico after he and his wife filed for bankruptcy, without approval of the transfer.
Given that: (i) Federico is Mrs. Kennedy’s mother; (ii) both Federico and her mother, Mrs. Kennedy’s grandmother, lived at 40 Sleepy Hollow; (iii) the Debtors amended their schedules no less than seven times with several of those amendments relating directly to the 40 Sleepy Hollow property; and (iv) more than $60,000 was disbursed from the Kennedys’ S & S Development account with respect to 40 Sleepy Hollow, this Court cannot accept and does not believe that these omissions and misstatements were mere negligence or inadvertent. Instead, this Court finds that these misstatements were fraudulently made with knowledge of their falsity and/or a reckless disregard for the truth. The substantial benefits afforded by the Bankruptcy Code, including particularly the discharge, are provided only to honest but unfortunate debtors, not reckless or dishonest ones, who callously disregard their obligation of full and accurate disclosure.
Finally, although the Kennedys argued that this omission should be excused because the property was subsequently disclosed and abandoned by the
Similarly, the Debtors attempted to explain the omission of DCL, LLC by indicating in a certification that “all the business names were defunct and closed enterprises, therefore, there was nothing to be gained by not listing them.”
Thus, judgment will be entered against Mr. Kennedy under section 727(a)(2)(B) denying his discharge.
B. 11 U.S.C. § 727(a)(3)
Section 727(a)(3) provides that discharge will be denied if;
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.
11 U.S.C. § 727(a)(3). This section requires debtors to maintain and preserve sufficient and accurate record-keeping so that creditors and the trustee may ascertain their financial history and business dealings.
1. Failure to Preserve Records
The Debtors (primarily through Mr. Kennedy) operated a substantial real estate business. Mr. Kennedy estimated that, including joint ventures and partnerships, he participated in the redevelopment of forty different properties. Approximately fifteen different projects were administered through the S & S Development account, which received $2,286,950 in deposits in the four years leading up to the petition date.
Despite the scope of operations under his control, the only records maintained by Mr. Kennedy for any of these businesses were the check registers and copies of checks maintained in the trunk of his vehicles.
Few records were turned over to the chapter 7 trustee upon the filing of the petition. Almost eight months after the petition date, the trustee moved to dismiss the case due to the Debtors’ failure to provide valuations and other information regarding certain properties.
The Debtors’ failure to produce these documents required the Plaintiffs to go to great lengths to reconstruct the Debtors’ affairs. The Plaintiffs were forced to subpoena copies of checks and statements from the various entities and attempt to determine how their investments were used by analyzing the notations on each check. This task was made even more difficult by the commingling of funds between different entities and projects and between personal and business expenses. The Debtors’ lack of coherent recording-keeping, their comingling of funds between projects and between personal and business expenses and their failure to voluntarily provide almost any information or documentation made it impossible for creditors to determine exactly how their funds and assets were used. Thus, the Plaintiffs have easily established a prima facie claim under this section.
Since the failure to preserve appropriate records has been demonstrated, the burden shifts to the Debtor to provide an adequate justification.
Thus, even if it is true that some small construction companies use only one account, the Debtors’ record-keeping falls well short of what is required by section 727(a)(3). Debtors may not avoid producing information regarding their financial history “under cover of a chaotic or incomplete set of books or records.”
2. Post-Petition Destruction of Records
While Mr. Kennedy’s failure to maintain appropriate records without justification is sufficient grounds for denial of discharge under section 727(a)(3), his admitted post-petition destruction of records, combined with his last minute ability to “find” some of those destroyed records, provides additional and separately sufficient grounds for denial of discharge. Instead of turning over documents in response to the Plaintiffs’ December 2010 subpoena, the Debtors indicated that many of them had been given to their accountant, Justin Pisano. At
Q: The only records that you maintained on these real estate ventures were checkbooks. Is that correct?
A: Yea, I believe so, yeah ... everything that Mr. Pisano obtained was all the information that I had given him.
Q: Now, as far as those checking records go, you gave them to Mr. Pisa-no, correct?
A: Yes.
Q: And he gave them back to you?
A: Yes.
Q: And you destroyed them, correct?
A: I believe so, yes.
Q: So you have no records to refer to, other than to what Mr. Pisano has produced at this point in time, correct?
A: Correct.
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Q: And all of the registers and checks have been destroyed by you. Isn’t that correct?
A: Destroyed, whatever—
Q: Well, you discarded them?
A: I — right. After I did all my taxes, whatever I didn’t need, I discarded, yes.150
The only explanation for why these rec-. ords were destroyed or discarded was that he did not believe they needed to be preserved after Pisano reviewed them and filed their tax returns, even though he was involved at that time in this bankruptcy case and these pending nondischargeability actions, as well as at least one other state court action. In short, the only “justification” offered for the destruction or discarding of these important records was that he did not think he needed them anymore. But Mr. Kennedy’s asserted ignorance is simply not a valid justification for his actions. Even if it were, it would not apply under the facts here since the Debtors knew or should have appreciated the significance of these documents to the case, especially when they were served with the Plaintiffs’ complaint and subpoena in December 2010 and they were involved in various litigations before this Court and the state court. Those documents were directly relevant and under subpoena, but they were discarded and/or concealed anyway.
The very real harm that was caused by Mr. Kennedy’s admitted destruction or “discarding” of all the business records he turned over to his accountant when they were returned to him was compounded on the very next trial day, June 15, 2015. Then, Mr. Kennedy suddenly produced a portion of the S & S check registry (missing sixteen months) that he had testified had been destroyed or discarded just three days earlier, resulting in another false oath and a separate violation of section 727(a)(4) as discussed below.
Here, the colloquy between counsel, Mr. Kennedy, his counsel and the Court is material and revealing. On redirect on June 15, 2015, when Mr. Kennedy was being questioned regarding the issues with the Oppenheimer account, Mr. Kennedy produced for the very first time in five years of litigation, a portion of the check registers which he testified had been destroyed just three days earlier.
THE COURT: I know. And that’s P49. Right?
MR. BONANNO: Well, no. It’s the— P49, yes, is in the book. But he has a separate ledger that he [Kennedy] told me he found three or four months ago, which he went back, and looked*719 at, and saw he could now answer where these different deposits came from.
⅜ ‡ ⅜
THE WITNESS: This ledger book is basically everything that the accountant was given.
MR. BONANNO: The documents are the same as was given to us by Mr. Romans on P49. It’s the ledger, the check register that he [Kennedy] never had.
THE COURT: But Mr. — okay. Mr. Romans never had that.
MR. BONANNO: That’s correct. And we’re not putting it into evidence. We’re just — he’s just going to now refresh his recollection and say where each of the deposits came from, from what source.151
This testimony demonstrates that Mr. Kennedy testified falsely on June 12, 2015 when he stated that he had destroyed or discarded all the documents that he had given his accountant, which was in and of itself a material violation of 727(a)(3) and (4). This testimony also demonstrates that Mr. Kennedy: (i) failed to produce this extremely relevant information when it was under subpoena; (ii) that he had “found” the allegedly destroyed document “three or four months ago” and failed to produce it at that time; and (iii) produced it at trial on June 15, 2015 only when he wanted to support and/or supplement prior testimony (from June 12, 2015) that Mr. Kennedy and/or his attorney apparently felt was incomplete and/or potentially harmful.
The harm here was further amplified by the fact that the Debtors produced virtually nothing in discovery, forcing the Plaintiffs to attempt to reconstruct the Debtors’ unorganized and complicated financial history by subpoenaing documents from third parties. As was stated by Plaintiffs’ counsel:
MR. ROMANS: Your Honor, I did just want the Court to understand that we were not given any documents at all in this case, other than the foreclosure complaints that Mr. Bonanno gave me. All of these records that I obtained, I had to subpoena from banks. This ledger sheet should have been produced and given to me in discovery.152
Plaintiffs’ counsel was correct that the check register should have been produced in discovery, but was not. The concealing of the register sheet until the sixth day of a nine-day trial, when Mr. Kennedy allegedly “found” it three or four months prior and allegedly destroyed or discarded it long before, is by itself a section 727(a)(3) violation. And although knowledge is not an element of section 727(a)(3) violation, the Court finds that this was a knowing and admitted violation since Mr. Kennedy first admitted the destruction or discarding of these documents and then did not produce the ledger until he thought it could benefit him at trial, even though he had “found” it months before. And even when finally produced, it was missing approximately sixteen months of checking transactions.
Section 727(a)(4) provides that the Court shall grant a debtor a discharge unless:
(4) the debtor knowingly and fraudulently, in or in connection with the 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 the debtor’s property or financial affairs.
11 U.S.C. § 727(a)(4). The elements of a claim under this section are: “(1) the debt- or made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.”
A false oath or omission is material if it relates to assets or transactions relevant to creditors.
Here, the Debtors amended their bankruptcy schedules seven times.
1. Oppenheimer & Co. Account
As was noted above, the omission of the Oppenheimer account from the schedules was a false oath, as was the statement in the amendment that the Oppenheimer account was a “closed account.” The Debtors also failed to schedule a closed stock brokerage account with Smith Barney in Mr. Kennedy’s name, although they later disclosed it in an amendment.
As discussed above, the Debtors failed to offer a reasonable justification for why the Oppenheimer account was not initially disclosed. The Debtors also offered no explanation for why the Oppenheimer account was subsequently described as a closed account, especially when Mr. Kennedy made withdrawals from that account both shortly before filing for bankruptcy protection and shortly after amending his Statement of Financial Affairs to list the account as closed. In short, this Court finds that the main reason for Debtors’ failure to offer a satisfactory explanation for these omissions and inaccuracies is that one does not exist.
2. 40 Sleepy Hollow
As was also noted above, the Debtors made numerous false and inexplicably inaccurate statements related to 40 Sleepy Hollow, which was originally not even scheduled by the Debtors, even though it was titled in Mr. Kennedy’s name (with Federico), is located on the same block as the Kennedys’ home and Mrs. Kennedy’s mother and grandmother lived there. After the omission was discovered by Plaintiffs’ attorney, the Debtors amended their schedules several times, adding: “Refinanced by Anne Tederico [sic], mother-in-law, after filing of petition. Previous mortgages paid by refinance after debtors removed from deed.”
3. Anne Federico
Anne Federico is not scheduled in the Debtors’ bankruptcy filings, either as a co-debtor or an insider-creditor of the Debtors. However, Federico was a co-debtor on the mortgage for 40 Sleepy Hollow, and she loaned money for the Palmer Street project that was not paid back. The Debtors explained that they did not list Federico as an insider because they only considered insiders to be those involved as owners in the real estate projects. They also stated that they listed Federico “under our unsecured debt.”
The Debtors’ claimed lack of knowledge as to who is an insider is not excusable given that the Statement of Financial Affairs expressly defines “insider” to include “relatives of the debtor.” The Debtors’ indication that they had not made any payments to insider-creditors in the one year preceding the petition was false since a $300 check from the S & S Development account was written to Federico with the notation “40 SH” less than two months before the petition. It is not clear what is meant by the Debtors’ statement that Federico was listed “under our unsecured debt” since she was not scheduled at all in the petition and related filings.
4. Howard Street Construction Loan Proceeds
This Court finds that Mr. Kennedy gave false testimony in connection with the use of the proceeds of the construction loan obtained by Ruiz for Howard Street, as was explained in more detail above. William Cunningham testified that he did not receive a substantial portion of the funds Kennedy asserted were paid to him as general contractor for the project and that his signature was forged on many of these checks.
Kennedy argued that the testimony regarding the forging of his signature on the checks is inconclusive because Cunningham was unable to identify who was responsible for his signature.
5.Failure to Disclose Business Interests
The Debtors did not schedule their interests in any of their businesses in their initial filings even though questions 13 and 14 of Schedule B ask debtors to itemize all “[sjtock and interests in incorporated and
The Debtors argue that, although not named in the petition, the businesses were effectively scheduled since the debts that applied to them were listed. They also argued that the businesses were defunct and would not have resulted in value to the estate, and thus their omission was immaterial and that they subsequently amended their schedules to include certain of these as noted above.
But the existence of these businesses was material to creditors seeking to trace the use of their investments. Especially in light of the commingling of funds between projects and business and personal expenses, the lack of disclosure presented an additional obstacle for those seeking to understand the Debtors’ financial history. The lack of disclosure as to their business interests is consistent with the Debtors’ pattern and practice of failing to disclose and/or to properly and accurately disclose pertinent matters regarding their assets, liabilities and financial condition until their failures were pointed out to them (requiring seven amendments to other schedules and Statement of Financial Affairs) and then asserting that the repeated failures did not matter. These repeated failures do matter and demonstrate intentional and/or reckless indifference to the truth sufficient to establish fraudulent intent and fraudulent conduct.
6. False Statements Regarding Business Records
As was explained in detail above, in response to the Plaintiffs’ subpoena, the Debtors indicated that many of the documents requested were in the possession of Pisano and that they were subsequently destroyed or discarded after being returned to Mr. Kennedy. However, at trial Mr, Kennedy admitted that the check register (albeit incomplete) was in fact in his possession at the time the documents were requested and this litigation was ongoing and were allegedly found by Mrs. Kennedy at a later date, as noted above.
7. Conclusion
The inaccuracies and false statements in connection with this case are, at worst, evidence of the Debtors’ intent to defraud creditors, or, at best, evidence of extreme recklessness with respect to the obligation to truthfully and accurately disclose assets on the petition. Further, this Court finds
D. Mrs. Kennedy’s Liability for Section 727 Claims
Although Mrs. Kennedy considered herself her husband’s business partner and authorized him to purchase properties in her name and sign her name on checks and other legal documents, she defended against the Plaintiffs’ claims by stating that she never inquired into and had no knowledge of her husband’s business dealings.
Here, both Mrs. and Mr. Kennedy considered themselves partners in their business, used the S & S Development account for business and personal purposes and both reaped the benefits of their business. Moreover, Mrs. Kennedy’s testimony concerning her involvement and knowledge of the business was at times evasive and contradictory. For instance, during cross-examination, Mrs. Kennedy responded to the question of whether she participated in the real estate businesses by stating: “No. I found out about them after the fact. I never had anything to do with any business ventures, never went to any meetings, no.”
Mrs. Kennedy also initially testified that she knew that the S & S Development
Finally, this Court finds Mrs. Kennedy’s conduct in connection with the Palmer Street closing demonstrated her knowledge of, involvement in, and benefit from that transaction. This is particularly true as to her assurances to a desperate Cristo-bal that she would be paid at almost precisely'the same time as Mrs. Kennedy was signing the closing documents relating to the sale of that property that would result in $40,000 of proceeds to her and Mr. Kennedy and more than $100,000 going to the Kennedys’ attorney, Gruhin, while Cristobal received nothing. Accordingly, this Court finds that Mrs. Kennedy’s conduct towards Cristobal further demonstrates not only her direct involvement in the real estate business, but also her participation in the benefits of that business and her knowledge of Mr. Kennedy’s wrongful and/or fraudulent conduct.
Mrs. Kennedy’s knowledge of and involvement in the businesses — even though it was not as extensive as Mr. Kennedy’s— means that she also bears responsibility for the false statements and omissions in the' petition and during the course of this case, as well as the Debtors’ failure to maintain or preserve adequate books and records and produce documents relating to their financial condition and transactions.
Mrs. Kennedy also shares accountability and responsibility for the failure to preserve adequate business records. Each time Mrs. Kennedy signed her name, or allowed her husband to sign her name in a loan or real estate transaction, creditors were entitled to rely on her promise to repay and the availability of her assets in the event of default. She had a duty to make records regarding the assets and transactions made in her name available to creditors and failed to do so.
For the same reasons, Mrs. Kennedy shares direct responsibility for making many of the false oaths in the amended schedules and failing to preserve records, particularly as they related to both S & S Development account and 40 Sleepy Hollow.
II. Section 523 Claims
Because the Debtors will not receive a discharge under section 727, evaluation of the Plaintiffs’ claims under section 523 is technically not necessary, since their claims will not be discharged. However, for the purposes of making a full record and establishing the amount, if any, of the Plaintiffs’ damages, the Court will address these claims below.
A. Cristobal Complaint
Cristobal asserts that her claim for $155,037 (plus attorneys’ fees) is nondis-chargeable under sections 523(a)(2)(A), (4) and (6).
1. 11 U.S.C. § 523(a)(2)(A)
A debt is nondischargeable under section 523(a)(2)(A) if it is obtained by false pretenses, a false representation, or actual fraud. To prevail on a claim under this section a creditor must show:
(1) the debtor obtained money, property. or services through a material misrepresentation;
(2) the debtor, at the time, knew the representation was false or made with gross recklessness as to its truth;
(3) the debtor intended to deceive the creditor;
(4) the creditor [justifiably] relied on the debtor’s false representations; and
(5) the creditor sustained a loss and damages as a proximate result of the debtor’s materially false representations.186
Mr. Kennedy’s defense to Cristo-bal’s claims is that he did not defraud her because she initially approached him about investing in the project. But even if Cristo-bal initially approached Kennedy about investing in this project, that has nothing to do with whether her loan was obtained through misrepresentations about how it would be used or secured. Mr. Kennedy also argues that Cristobal was negligent or partially responsible for failing to obtain a lawyer to represent her interests in the initial financing transaction and later on when the Palmer Street property closed. Cristobal testified that Mr. Kennedy told her no attorney was necessary, that his attorneys would take care of the documentation, and that she trusted Mr. Kennedy to properly document the transaction and her security.
In these regards, the Court credits the testimony of Cristobal, rather than Mr. Kennedy, particularly based on the circumstances of their relationship, as described above; i.e., Mr. Kennedy was her supervisor, openly ran an apparently successful real estate business from the Pas-saic Police Station and lived a high lifestyle. In these circumstances, the Court also finds Cristobal’s reliance on Mr. Kennedy’s representations was justifiable. Further, although Mr. and Mrs. Kennedy’s • conduct relating to the sale of the Palmer Street property is not directly relevant to the initial extension of credit, this Court finds this testimony and conduct to be relevant for other reasons.
In short, at a time when Cristobal was in dire financial straits and pressing Mr. Kennedy and her good friend, Mrs. Kennedy, for payment, she was assured by Mrs. Kennedy, Mr. Kennedy and Gruhin, the Kennedys’ attorney, that payment would be forthcoming in connection with the imminent sale of the Palmer Street property. Instead, the payment of a substantial portion of the net proceeds of the closing of the sale of the Palmer Street property went to Mr. and Mrs. Kennedy ($40,000), their attorney Gruhin (more than $100,000) and the Colons ($110,000), while Cristobal received nothing. The Court finds this conduct demonstrates both Kennedys’ involvement in their real estate business and the scheme to avoid paying Cristobal with the proceeds of the sale of the Palmer Street property that she believed secured her mortgage. The use of those sale proceeds for their personal benefit without repaying Cristobal was, in this Court’s view, in furtherance of the fraudulent conduct that led to Cristobal’s loan in the first place. By their conduct, the Kennedys, including Mrs. Kennedy, who was the obligor on the note, convinced Cristobal to wait on repayment and delay legal action (i.e., an extension of credit and forbearance), at a time when she could have received at least a substantial repayment of her loan. In sum, if required to determine whether Cristo-bal’s debts were dischargeable under 11 U.S.C. § 523(a)(2)(A), for this or any future proceeding, this Court would find that
2. The Amount of Cristobal’s Claim
Cristobal presented evidence at trial that the total amount of damages she suffered as the result of her $150,000 loan was $230,037, as of December 2011. Cristo-bal thereafter received $75,000 in settlement of a related claim against a third party, leaving a balance due of $155,037.
The Debtors do not directly contradict or challenge these calculations. Instead, they note the $75,000 settlement payment and the $12,500 paid to her by the Kenne-dys and generally assert that neither Kennedy is liable to Cristobal. However, this Court has already found that the Kenne-dys are not entitled to a discharge generally under section 727 and that Cristobal’s loan is not dischargeable under section 523(a)(2)(A). Further, Cristobal’s damage calculation gives credit for the $75,000 plus $12,500 payments. Thus, this Court accepts Cristobal’s damages calculation and awards judgment to Cristobal and against the Debtors in the amount of $155,037, plus interest at the legal rate (under State Court Rules) from January 1, 2012 going forward.
3. 11 U.S.C. §§ 523(a)(4) and (6)
Section 523(a)(4) renders nondischargeable any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). Given the Court’s prior findings and rulings, there is no need to address this claim. However, the Court does not believe that Cristobal provided sufficient proof that Mr. Kennedy (or Mrs. Kennedy) was acting as a fiduciary with respect to her or that he embezzled or stole money from her as those terms are commonly understood and construed under section 523(a)(4). Similarly, there was no proof of willful or malicious injury to Cristobal’s property or person, as required by 11 U.S.C. § 523(a)(6). Cristobal’s actual claim — and the one she proved at trial — was for fraud, false pretenses and false representations under section 523(a)(2)(A).
B. Ruiz Complaint
Ruiz also seeks a determination that the Kennedys’ obligations to him in the amount of $595,101.45 are nondis-chargeable under sections 523(a)(2)(A), (4) and (6). Much like Cristobal, Ruiz believed that his separate loans and investments with respect to the Third Street and Howard Street properties would be used in connection with the acquisition and development of those properties.
1. Third Street
As to the Third Street property, at the time of making his $100,000 loan that he thought was secured by a mortgage, Ruiz was unaware that the property was purchased with the proceeds of that $100,000 loan and a $200,000 mortgage loan from Norman Barna that was recorded prior to Ruiz’s mortgage. Ruiz thought he was the sole lender.
The evidence produced at trial showed that proceeds of the $100,000 loan from Ruiz were deposited by Mr. Kennedy into the 447 Van Houten account at Valley National Bank which was to be used exclusively for the 447 Van Houten project.
Thus, Kennedy’s fraud with respect to this loan included both material misstatements as to the use of the loan proceeds, the status and priority of Ruiz’s mortgage, including particularly, the existence of pri- or mortgages in favor of Barna and Sa-maan. Mr. Kennedy’s “defense” that his signature was “forged” on the mortgage and mortgage note in Lira and Mr. Kennedy’s name given to Ruiz at the office of Mr. Kennedy’s own attorney and witnessed by that same attorney is not a viable or credible defense; instead, it is a further acknowledgement of a knowing and continuing fraud. In sum, the Court finds that Mr. Kennedy’s misrepresentations and omissions as to the use of the proceeds of Ruiz’s $100,000 loan, and the existence of mortgages that were prior to Ruiz were material and were knowingly made or omitted by Kennedy to induce Ruiz to make the loan. The Court further finds that Ruiz justifiably relied on those misrepresentations and omissions and that they resulted in substantial damages to him. Thus, to the extent this may be relevant to any future proceedings, this Court finds that the debt from Mr. Kennedy to Ruiz relating to the $100,000 would be nondischargeable pursuant to section 523(a)(2)(A).
2. Howard Street
As was noted above, prior to hearing all of the problems with the Third Street property, Mr. Kennedy and Ruiz entered into another “partnership” with respect to the Howard Street property. Ruiz contributed the $32,500 deposit to acquire the property with a $292,500 mortgage from N.J. Lenders and then took out a $315,000 second mortgage on his home to pay off the N.J. Lenders mortgage. As was acknowledged by both sides, the payoff of N.J. Lenders was necessary to obtain the construction loan financing needed to complete the project.
In fact, the construction loan was obtained from Sun Home Loans and an ini
The Howard Street mortgage soon defaulted and went into foreclosure. Ruiz and Mr. Kennedy, as guarantors, were sued personally as well. A judgment was entered against Ruiz and his wages were garnished,
Based on the records obtained by Plaintiffs, the analysis prepared by Pisano and the testimony of Cunningham, approximately $28,000 of the proceeds were expended on the Debtors’ personal expenses, including income taxes, college tuition, cash, the Kennedys’ home pool repair, home mortgage payment and a mortgage payment relating to the 40 Sleepy Hollow property. An analysis of the use of the loan proceeds by Pisano showed that the major part of the remaining balance — over $90,-000 — was used for other projects.
As was also noted above, Kennedy’s attempt to tie the expenditure of these funds to the Sun Home loan fails of its own weight as his explanation; (i) did not account for all the funds; (ii) included funds spent on other projects; (iii) included checks that were cashed by other nonrelat-ed parties (e.g., Tiger Schulmann, Maria’s Sweet Shop); (iv) included payments of personal expenses; (v) included payments allegedly made to Cunningham over what Cunningham says was his forged signature that were cashed at Passaic check-cashing facilities; and (v) added payments attributable to expenses that relate to the period before the loan was made (e.g., $12,810 paid to the attorney who closed the acquisition of Howard Street from the Lireos-tew account). To add to the continuing misrepresentations, most of Mr. Kennedy’s defense was based on the purportedly destroyed records that he conveniently found (in part) and belatedly produced at trial.
Based on the evidence adduced at trial, the Court finds that Mr. Kennedy’s representations as to the use of the Sun Home loan proceeds and investments as to Howard Street property were knowingly false when made and were justifiably relied upon by Ruiz in entering into the Sun Home loan. Accordingly, the Court finds Mr. Kennedy’s debts to Ruiz as to the Howard Street property would be nondis-chargeable under section 523(a)(2)(A). The Court rejects as without merit Mr. Kennedy’s argument that: (i) Ruiz is only entitled to one-half damages as his wife was on the deed to their marital property when Ruiz was fully liable on the underlying obligations; and (ii) Ruiz was somehow responsible for his losses because he “walked away” from the Howard ‘ Street project and did not want to throw good money after bad. As to “walking away” from the project, that only occurred after two projects failed, went into foreclosure,
As to the extent of his damages, it was Ruiz who was on the notes and mortgages, who was sued and who had his wages garnished. Thus, it is irrelevant that Mrs. Ruiz was on the deed to their marital home. Accordingly, to the extent necessary, this Court would find that Mr. Kennedy’s debt to Ruiz is nondischargeable under section 523(a)(2)(A). The Court would also find that Ruiz did not meet his burden of proof with respect to the section 523(a)(4) and (6) claims. First, the fiduciary standard of section 523 has been limited to express or technical trusts, rather than the fraud of partners.
This Court further finds that, as was acknowledged by Ruiz, Mrs. Kennedy had no known involvement in the Third or Howard Street property loans and investments and did not personally sign any of the related documentation. Therefore, she bears no personal responsibility for Ruiz’s losses. Accordingly, to the extent (if any) that this may be relevant to this or any future proceeding, this Court finds that Ruiz did not satisfy his burden of proof to establish that Mrs. Kennedy had any personal obligation to him as to these loans and transactions or that any such personal obligation is nondischargeable.
3. The Amount of Ruiz’s Claim
Ruiz is entitled to recover for all his losses, less any appropriate credits. He submitted a damages calculation that showed losses of $578,101, after giving credit for Ruiz’s settlement with a third party ($225,000) and for the proceeds of sale of the Howard Street property ($19,-9gg),
C. Lira Complaint
Lira seeks a judgment of nondischarge-ability for fraud in a fiduciary capacity and embezzlement and willful and malicious injury under sections 523(a)(2)(A), (4) and (6). The Debtors argue that Lira’s claims are barred under the irrevocable general release.
1. Whether Lira’s Section 523(a) Claims are Barred by the Release
The release executed by Lira on October 29, 2007 states, in relevant part:
*732 Releasors [defined to include Lira] knowingly, voluntarily and without duress, do hereby in perpetuity, jointly, severally, and irrevocably release, acquit, and forever discharge Releasees [defined to include Mr. and Mrs. Kennedy] ... from any and all claims, rights, actions, causes of action, suits, [etc.] ... from the beginning of time to the date of this Release ... .201
Lira executed the release in an individual capacity and in his capacity as a member of 447 Van Houten, LLC in connection with the settlement of LG Capital’s foreclosure action against 447 Van Houten, LLC. In exchange, and as part of a related series of transactions, LG Capital released Lira from all personal liability on its approximately $9.5 million claim.
A release is binding if it was willingly and knowingly entered into, “unless there is a showing of fraud, misrepresentation or overreaching by the releasee, or a showing that the releasor was suffering from an incapacity affecting his ability to understand the meaning of the release or on any other equitable ground.”
But Lira admitted at trial that he and his attorney received all of the release documents on October 24, 2007 and that he reviewed them with his attorney prior to signing the release, as is recited in the Release itself.
Tellingly, Lira derived a significant benefit from the Release — a release from liability of $9.5 million or more to LG Capital — which Lira does not in any way seek to challenge or avoid. It is only the release in favor of the Kennedys that he challenges. In assessing the fraud and embezzlement claim, the Court also notes that Lira and Kennedy had a long and at one time positive personal business relationship with each other that deteriorated dramatically for various reasons. In addition to knowing each other very well, the Court finds that, based on the testimony of both Lira and Kennedy and its observation of their demeanor, Kennedy and Lira are savvy, street-smart and toughened parties who know very well how to protect themselves. By nature of their profession' and experience, as police officers and real estate investors/developers, they would ap
2. 11 U.S.C. § 523(a)(4) and (6)
Section 523(a)(4) renders nondischargeable any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). Lira also alleges that Kennedy embezzled funds or committed fraud in a fiduciary capacity based on his misuse of funds transferred from 447 Van Houten, LLC and Lircostew, LLC. But those transfers occurred before the date of the Release and therefore cannot support a claim against Kennedy, as was noted above. In fact, Plaintiffs’ proposed findings of fact and their exhibit P-65 indicate that all the deposits in the Oppenheimer account from 447 Van Houten and Lircostew occurred in 2006, which was prior to the release. Though somewhat less clear, the same appears to be true as to the Smith Barney account (i.e., all deposits before 2007). Thus, based on the evidence produced at trial, the Court holds that the broadly worded Release also applies to moneys deposited into the Oppenheimer and Smith Barney accounts by 447 Van Houten and Lircostew and the subsequent transactions in those accounts relating to those deposits. Further, to the extent (if any) that Lira is claiming that his causes of action relate to post-release matters, the Court finds that he did not meet his burden of proof on that issue as a matter of law or fact.
In addition to the Release, Lira’s claims as to the alleged transfer of funds from 447 Van Houton and Lircostew are separately barred because Lira assigned his interest in 447 Van Houten to Mrs. Kennedy as part of the Release transaction and thus has no right or standing to bring claims on 447 Van Houten’s behalf.
As to Lircostew, the Court also finds that Lira’s fraud and defalcation claims under section 523(a)(4) are barred because courts have limited the scope of this section to fiduciary duties imposed by express or technical trusts.
CONCLUSION
For all the foregoing reasons, the Court will enter an Order and Judgment as follows:
1. Sustaining the objections to the discharge of Stewart Kennedy under 11 U.S.C. §§ 727(a)(2)(B), 727(a)(3), 727(a)(4) and 727(a)(7) and denying Mr. Kennedy a discharge;
2. Sustaining the objections to the discharge of Samantha Kennedy under 11 U.S.C. §§ 727(a)(3), 727(a)(4) and 727(a)(7) and denying Mrs. Kennedy a discharge;
3. Determining that Mr. and Mrs. Kennedy’s debt to Cristobal would also be nondischargeable under 11 U.S.C. § 523(a)(2)(A), that their liability to Cristobal is joint and several, and is in the amount of $155,037, plus interest at the legal rate (under State Court Rules) from January 1, 2012 going forward;
4. Determining that Mr. Kennedy’s debt to Ruiz would also be nondis-chargeable under 11 U.S.C. § 523(a)(2)(A) and is in the amount of $503,101, plus interest at the legal rate (under State Court Rules) from January 1, 2014 going forward;
5. Determining that Ruiz has no monetary claims against Mrs. Kennedy with respect to the causes of action raised in his Complaint and those claims are denied;
6. Determining that Lira, individually and on behalf of 447 Van Houton LLC, released his claims against Mr. and Mrs. Kennedy pursuant to the Irrevocable General Release dated October 29, 2007, from Lira. Accordingly, Lira’s Complaint to determine: (i) that the alleged debts owed to him by Mr. and Mrs. Kennedy under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4) and 523 (a)(6) (Counts I, II and III) are non-dischargeable; and (ii) the amount of those debts, is dismissed and his monetary claims against Stewart and Samantha Kennedy, as set forth in his Complaint, are denied.
7. Denying any remaining other claims and causes of action.
An Order and Judgment consistent with this Opinion is being entered by the Court.
. (Frank Ruiz Compl., Adv. No. 10-02633); (John Lira Compl., Adv. No. 10-2634); (Laila Cristobal Compl., Adv. No. 10-02635). Ruiz ultimately agreed to voluntarily dismiss his section 727 claims against the Debtors. See Adv. No. 10-02633, ECF No. 53, Plaintiffs’ Post-Trial Summation and Br. at 1. Plaintiffs' section 523(a)(4) (embezzlement or defalcation while acting in a fiduciary capacity) and section 523(a)(6) (willful and malicious injury) claims against Mrs. Kennedy and the section 727(a)(2) claims by Cristobal and Lira against Mrs. Kennedy were dismissed by Judge Steckroth at the close of Plaintiffs’ case on April 17, 2014. (Trial Tr. 173:18-174:15). The motion to dismiss the claims against Mr. Kennedy made at the same time was denied in all respects. Id. at 174:16-23.
. (Case No. 10-24535, Pet. and Am. Schedules, ECF Nos. 1, 7, 43, 48, 58, 69, 92, 107, 117).
. (Trial Tr. 5:18-6:3, June 12, 2015).
. (Trial Tr. 65-67, Apr. 17, 2014) (quoting from deposition); (Trial Tr. 25:19-21, June 10, 2015); (cross-examination of Samantha Kennedy) (Trial Tr. 27:6-15, June 10, 2015); (Danny Colon Trial Tr, 85:8-16, Apr, 17, 2014). See also ECF No. 54, Defendants’ Post-Trial Summation at 2, ("Because of a previous bankruptcy filing and a poor credit rating, [Mr. Kennedy] put many of the properties and contracts in the name of his wife, Samantha”).
. (Trial Tr. 25:13-21; 27:6-28:1; June 10, 2015).
. (See, e.g., Trial Tr. 27:16-18, June 10, 2015).
. (Trial Tr. 42:14-22, June 12, 2015 (referring to ninety-three units); Trial Tr. 135:2-20, June 15, 2015). Suzette Colon was Danny Colon's wife.
. {Id. at 75:3-4). Mark Casamassina, Michael Simone, and Joseph Simone owned the remaining interests. DCL stood for "Deputy Chief Lira.”
. (Am. Schedules, ECF No. 69).
. (Trial Tr. 11:6-10; 75:3-10, June 12, 2015). Banking records for DCL were maintained by Michael Simone.
. (See Trial Tr. 11:6-10; 18:11-19; Sept. 23, 2015).
. (See Trial Tr. 10:3-13, Sept. 23, 2015).
. (See Trial Tr. 46:4-11; 47:19-21, Sept. 23, 2015); (P-49). These properties included: 127 Linden Street; 271 Third Street; 382 Highland Avenue; 171 Burgess Street; 243 Third Street; 34 Central Avenue; 169 Passaic Street; 267 Howard Street; 199 Lafayette Street; 167 Burgess Place; 165 Passaic Street; 155 Howard Avenue; 154 Broadway; 70-72 Palmer Street; 228 Autumn Street; and 230 Autumn Street. (See Trial Tr. 16:14— 17:13, Sept. 23, 2015).
. (Trial Tr. 48:2-7, Sept. 23, 2015).
. (Trial Tr. 26:16-27:5; 28:20-22; 29:25-30:23; 40:22-42:7 (P-49); 43:12-45:7; 45:8-24; 49:13-25; 52:25 (P-72); 55:13-62:7 (P-78 and 77); 63:2-67:1, June 10, 2015).
. (See Trial Tr. 19:8-20; 19:24-20:11, Sept. 23, 2015); (Trial Tr. 74:14-15, June 12, 2015).
. (Trial Tr. 64:12-23, June 12, 2015); (Trial Tr. 93:24-25; 94:1-2, Sept. 23, 2015).
. (P-63); (Trial Tr. 98:2-24, Mar. 7, 2014); (Trial Tr. 71:12-16, June 10, 2015),
. Although Mr. Kennedy apparently wrote all business-related checks from these accounts, Mrs. Kennedy wrote a $5,000 check on the 447 Van Houten account (see P-70), and testified that she used the S & S Development account to write checks .for personal expenses, (Trial Tr. 101:7-17, June 10, 2015).
. See Ruiz v. Kennedy, Adv. No. 10-02633; Lira v. Kennedy, Adv. No, 10-02634; Cristobal v. Kennedy, Adv. No. 10-02635). The Debtors scheduled Cristobal and Lira’s claims at $300,000. Ruiz’s secured claim was scheduled at $100,000.
. (Trial Tr. 9:3-18, Sept. 23, 2015)
. (Trial Tr. 63:20-64:8; '65:10-15, June 12, 2015),
. (Trial Tr. 102:1-21, June 15, 2015).
. (See, e.g., P-49, noting of various points that source as "unknown” and “need”); (P-63); (Trial Tr. 93:1-94:9, Sept. 23, 2015).
. (Trial Tr. 132-136, Nov. 14, 2013; Trial Tr. 142:12-143:17, June 15, 2015):
. {Id. at 135:6-25; 141:10-142:10, Nov. 14, 2013) (P-27),
. (Trial Tr, 135:5-20, June 15, 2015); {Id. at 141;22-25, Nov. 14, 2013). When Cristobal and Kennedy first began discussing an investment in Palmer Street, the property was owned in equal fifty percent shares by Mrs, Kennedy and Suzette Colon. Unbeknownst to Cristobal, on July 30, 2004, two days before she brought her $150,000 check to the police station, 70 Palmer Street was sold to third-party purchasers, Anacony and Cathy Morales for $470,000. (See P-32, Deed dated July 30, 2004 and recorded August 18, 2004).
. (Trial Tr. 134:25-136:10, Nov. 14, 2003).
. (Trial Tr, 131:14-132:8, June 15, 2015; Id. ■ at 142:3-22; 144:2-145:6, Nov. 14, 2013).
. (P-26, check and related bank statement).
. ñm?r27)' (&⅛1 149:21“150:6; June 15'
. (Trial Tr. 134:2-135:20, June 15, 2015).
. (Trial Tr. 142:25-144:20, Nov. 14, 2013).
. (P-29). (Trial Tr. 123-125, Mar. 7, 2014).
. Id.
. (Trial Tr. 36:25-38:7, Nov. 15, 2013).
. (Trial Tr. 136:5-12, June 15, 2015); (see also P-35).
. (See P-41 and P-43).
. (Trial Tr. 144:24-145:12, Nov. 14, 2013).
. (Trial Tr. 136:19-139:22, June 15, 2015; Trial Tr. 6:15-23, Nov. 15, 2013).
. (P-35). ("You will get what’s owed to you. I just can’t promise you how soon that will be”).
. (See P-36). Schedule A to Gruhin’s letter dated Sept. 17, 2008 shows that these "Affected Third Party Interests” had total debt in the amount of $571,000 against Palmer Street, including the $150,000 owed to Cristobal.
. (Id. at 2).
. (See P-37, Title Closing Stmt.); (P-39).
. (P-39).
. Paranto received $90,000 in return for his initial investment of $135,000. (P-37); Trial Tr. 32:17-25, Nov. 15, 2013).
. (See, e.g., Trial Tr. 29:4-30:24, Nov. 14, 2013).
. 243 Third Street was owned by Mr. Kennedy and Lira (Trial Tr. 48:17-18; 92:6-7; 148:16-18, Nov. 15, 2013).
. (Trial Tr. 29:15-30:2; 33:11-18, Nov. 14, 2013).
. (P-3 and P-4). Here, the Court notes that the Kennedys’ attorney prepared the mortgage notes and mortgage and Ruiz went to his office to have the document signed and, he believed, recorded. This is similar to what Cristobal believed the process would be, although her mortgage note was given to her by Mr. Kennedy and never recorded. The Court also notes that Mr. Kennedy testified at trial that his name was “forged” on the mortgage and mortgage note that were delivered to Ruiz at the Kennedys’ attorney’s office in exchange for Ruiz’s $100,000 loan. This testimony is not credible and irrelevant in any event as the signatures were witnessed by Kennedy’s attorney and there is no evidence Mr. Kennedy’s signature was not authorized. (P-1 and P-3); (Trial Tr. 24:15-23; 25:5-16; 26:14-20; 29:15-21; 33:15-21, Nov. 14, 2013).
.(See P-8). This fact pattern is also similar to the Cristobal loan transaction. (See also ECF No. 53, Pis.’ Post-Trial Summation at 62).
. (See P-2). The deposit brought the account balance for 447 Van Houten, LLC to positive from a negative balance of $18,386.81, similar to the Cristobal transaction. Also, according to Mr. Kennedy, the 447 Van Houten account was to be used solely to fund the development of the eighty-three-unit Van Houten Avenue complex. (Trial Tr. 78:16-22; 79:8-25, June 12, 2015).
. (Trial Tr. 116:22-118:21, Mar. 7, 2014 and P-10). (See also Trial Tr. 35:16-39:8, Apr. 17, 2014).
. (Trial Tr. 38:2-10, 40:15, Nov. 14, 2013).
. (P-12).
. Id., includes deed, $32,500 check and mortgage.
. (Trial Tr. 43:21-25, Nov, 14, 2013).
. (P-14); (Trial Tr. 43:21-44:6, Nov. 14, 2013).
. (P-15 and P-16). (Trial Tr. 47:24-48:8, Nov. 14, 2013).
. (P-15 and P-16). (Trial Tr. 49:19-25; 50:25-51:5, Sept. 23, 2015).
. (See ECF No. 52, Pis,’ Facts ¶¶ 23-33).
. (P-17, Statement, Aug, 31, 2007); (Trial Tr. 49:6-51:11, 51:23-53:7, Nov. 14, 2013).
. (Trial Tr. 48:23-49:5; 49:16-19; 51:9-11, Nov. 14, 2013).
. (See, e.g., S & S Development Balance Sheet, P-49).
. (D-l). However, even this faulty and belated explanation leaves a shortfall of over $7,000.
. (Trial Tr. 110:22-111:3, June 15, 2015).
. (Trial Tr. 31:7-11, Sept. 23, 2015).
. (See Oct. 7, 2011 Dep. of Stewart Kennedy, 42:12-15, P-67).
. (Trial Tr. 17:13-24, Apr. 17, 2014).
. (Trial Tr. 22:19-23:9, Apr. 17, 2014); (Id. 54:1-15).
. (See P-67, Check No. 1790); (Trial Tr. 22:19-23:6, Apr. 17, 2014).
. M. Evans was the architect for 267 Howard (Trial Tr. 21:23-24, Apr. 17, 2014; Trial Tr. 108:22, June 12, 2015; Trial Tr. 49:4, Sept 24, 2015).
. (See P-67, Check No. 1398); (Trial Tr. 48-50, Sept. 24, 2015).
. (P-18 and P-66).
. Id.
. (Trial Tr. 38:1-39:7-13, Sept. 24, 2015).
. Id.
. (See, e.g., Trial Tr. 87:11-23; 89:24-90:5; 91:14-22).
. (Trial Tr. 106:8-10, Nov. 15, 2013); (Trial Tr. 102:6-11, June 10, 2015); (Trial Tr. 154-155, June 15, 2015); (Trial Tr. 19:8-23, Sept. 23, 2015).
. (Trial Tr. 94:3-96:3, Apr. 17, 2014).
. (P-52).
. (See P-83, Oppenheimer Consolidated Transaction Report).
. (Id.)
. (See P-52, P-64, P-65, P-83-1, P-83-3, P-83-4).
. (See P-65, P-83, P-83-4).
. (Trial Tr. 54:9-19, June 12, 2015); (Id. at 81:11-17); (Id. at 94-95).
. (Pis.' Br. in Opp’n to Debtors' Mot. for Summ. J„ Ex. 3, Adv. No. 10-02634, ECF No. 50-3).
. (Debtors’ Mot. for Summ. J., ECF No. 45-3).
. The seven other trial dates were November 15, 2013, March 7, 2014, April 17, 2014, June 10, 12, and 15, 2015, and September 23 and 24, 2015. The trial initially proceeded before Judge Steckroth, who retired in February 2015. This case was then assigned to Judge Papalia.
. (See Trial Tr. 154-167, Apr. 17, 2014).
. (Order Den. Defs.’ Mot. for Summ. J., at 2, Adv. No. 10-02634, ECF No. 60-1, Apr. 30, 2014).
. Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir. 1993).
. In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995).
. In re Matus, 303 B.R. 660, 670 (Bankr. N.D. Ga. 2004).
. In re Butler, 377 B.R. 895, 915 (Bankr. D. Utah 2006).
. In re von Kiel, 550 Fed.Appx. 105, 108 (3d Cir. 2013).
. United States v. Schireson, 116 F.2d 881, 884 (3d Cir. 1940).
. See Spyra v. Finney (In re Finney), 333 B.R. 242, 247 (Bankr. W.D. Pa. 2005).
. In re Matus, 303 B.R. at 672.
. The reference in this section is to Debtors, because they jointly filed their petition and related documents. However, because the section 727(a)(2) claims were dismissed by Judge Steckroth as to Mrs. Kennedy, the analysis and effect of the claims under this section relate only to Mr. Kennedy (Trial Tr. 174:2-6, Apr. 17, 2014).
. On April 8, 2010, the Debtors withdrew $5,000 from the account and on April 16,
. The Debtors also failed to schedule a joint account in both of their names with Smith Barney. Although this account was inactive since 2007, it was required to be disclosed on the petition since it was still an open account.
. (P-87, Schedule A at ¶¶ 1, 16; P-88).
. This was in response to question 11 of the Statement of Financial Affairs, which called for the Debtors to list "all financial accounts ... in the name of the debtor ... which were closed, sold, or otherwise transferred within one year immediately preceding the commencement of this case” including "share accounts held in ... brokerage houses and other financial institutions.” (Q. 11, ECF No. 69).
. (See P-83, Oppenheimer Consolidated Transaction Reports, and related checks).
. Debtors’ Cert, in Opp’n to Summ. J., at 5, ¶ 5, Adv. No. 10-02634, ECF No. 53, filed Jan. 16, 2012.
. (ECF No. 60 at 10).
. (P-55).
. In re Grimlie, 439 B.R. 710, 716 (8th Cir. BAP 2010).
. (Am. Schedules, ECF No. 69).
. (Id. at 1). The Debtors appear to have misspelled Federico’s last name as Tederico.
. (Id. at 5). It is not clear why or how the Debtors attempted to claim an exemption in a properly that was not their residence and that they claimed they did not consider themselves to own.
. (Am. Schedules, ECF No. 107).
. (P-55).
. (P-49 at 2).
. (Trial Tr. 94:8-96:2, Nov. 15, 2013).
.(Trial Tr. 173:14-175:4, June. 12, 2015).
. See In re LandAmerica Fin. Grp., Inc., 412 B.R. 800, 809 (Bankr. E.D. Va. 2009) ("[MJoney held in a bank account in the name of a debtor is presumed to be property of the bankruptcy estate”).
. 11 U.S.C. § 541(a)(1) (the bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case”).
. (Debtors’ Cert, in Opp’n to Summ. J., at 5, ¶ 5, Adv. No. 10-02634, ECF No. 53, filed Jan. 16, 2012).
. (Trial Tr. 26:6-11, June 12, 2015).
. (Debtors’ Cert, in Opp’n to Summ. J., at 4, ¶ 3, Adv. No. 10-02634, ECF No. 53) (“Stewart Kennedy never disclosed a 50% interest in 40 Sleepy Hollow because he never considered himself to have an interest in 40 Sleepy Hollow”); (see also Trial Tr. 172:21— 173:1, June 12, 2015).
. (See P-49 at 2).
. (See, e.g., Defs.' Summation at 2).
. The properties on Schedule D (other than their residence at 56 Sleepy Hollow Drive in Wayne and their beach house at 244 East Long Branch Avenue in Ocean Gate) were: 305 Highland Avenue, 171 Burgess Place, 243 Third Street, 17 Pine Street, 169 Burgess Place, and 274 Howard Street (all in Passaic).
. (Trial Tr. 69:25-70:9, June 10, 2015).
. (P-49 at 2).
. (See P-55, Title Report as of November 11, 2013) (which shows one outstanding mortgage against the 40 Sleepy Hollow property for $417,000 made by Stewart Kennedy and Anne Federico as “Borrowers” to New Jersey Lenders Corp., no subsequent refinance and no ownership by Mrs. Kennedy).
.(See P-48, which includes all seven amendments to the Debtors’ schedules and Statement of Financial Affairs).
. See, e.g., In re Matus, 303 B.R. at 672.
. See FN 129 supra.
. (Debtors' Cert, in Opp’n to Summ. J., at 7, ¶ 21, Adv. No. 10-02634, ECF No. 53).
. In re Ingle, 70 B.R. 979, 984 (Bankr. E.D.N.C. 1987); In re Ailetcher, 49 B.R. 681, 686 (Bankr. D. Haw. 1985).
. No judgment against Mrs. Kennedy denying her discharge under this section is being granted because Judge Steckroth dismissed Plaintiff’s section 727(a)(2) claims against Mrs. Kennedy at the close of Plaintiff’s case.
. Meridian Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir. 1992); In re Martin, 141 B.R. 986, 995 (Bankr. N.D. Ill. 1992); Holber v. Jacobs (In re Jacobs), 381 B.R. 147, 166 (Bankr. E.D. Pa. 2008).
. In re French, 499 F.3d 345, 354 (4th Cir. 2007).
. In re Juzwiak, 89 F.3d 424, 430 (7th Cir. 1996).
. (Trial Tr. 48:4-7, Sept. 23, 2015).
. (Trial Tr. 48:17-49:1, Sept. 23, 2015).
. (Trial Tr. 9:3-24; 30:2-31:14, Sept. 23, 2015).
. (Trial Tr. 63:12-64:1, June 12, 2015); (Trial Tr. 49:3-4, 93:21-94:9, Sept. 23, 2015); (Trial Tr. 73:22-24, June 12, 2015).
. (Trial Tr. 109, June 12,2015).
. (Trial Tr. 102, June 12, 2015).
. (Trustee’s Mot. to Dismiss for Lack of Cooperation, Jan. 6, 2011, ECF No. 66). The motion was withdrawn and the trustee ultimately abandoned the Debtors’ interests in the properties. (See ECF Nos. 81, 83, 84, 85, 86, 89, 103, 104, 105, 106, 110, 112, 118, 120).
. (See P-87, Schedule A at ¶¶ 1, 6, 13).
. (See P-89).
. Meridian Bank, 958 F.2d at 1233.
. Id. at 1230.
.In re Juzwiak, 89 F.3d at 428.
. (Trial Tr. 63:20-64:8; 65:10-15, June 12, 2015).
.(Trial Tr. 102:1-21, June 15, 2015) (emphasis supplied).
. (Trial Tr. 103:9-15, June 15, 2015).
. (D-l),
. Plaintiffs did not expressly plead the section 727(a)(4) claims as causes of action in their Complaints, although they were included in the demands for relief in the Lira and Ruiz Complaints. However, the Plaintiffs' section 727(a)(4) claims were expressly (and extensively) raised at trial and in the Plaintiffs' pre- and post-trial submissions (including summary judgment motions and cross-motions) without objection. Thus, the Complaint is deemed amended pursuant to Fed. R. Civ. P. 15(b)(2), made applicable here by Fed. R. Banker. P. 7015, as an issue tried by express or implied consent of the parties.
. In re Retz, 606 F.3d 1189, 1197 (9th Cir. 2010).
. In re Grondin, 232 B.R. 274, 276 (1st Cir. BAP 1999); In reBeshears, 196 B.R, 468, 476 (Bankr. E.D. Ark. 1996) (false statement includes false testimony during the section 341 meeting); In re Gannon, 173 B.R. 313, 320 (Bankr. S.D.N.Y. 1994); see also Fed. R. Bankr. P. 1008.
. In re Ingle, 70 B.R. at 983 (“A material omission from a debtor’s sworn statement of affairs or schedules presents grounds for denying a discharge under 11 U.S.C. § 727(a)(4)(A)”).
. In re Murray, 249 B.R. 223, 228 (E.D.N.Y. 2000).
. In re Beaubouef, 966 F.2d 174, 178 (5th Cir. 1992) (to be material an omission need ' not relate to value of omitted asset but rather the omission must merely be related to “the bankrupt’s business transactions or estate, or concern[] the discovery of assets, business dealings, or the existence and disposition of property”); Williams v. Hoza (In re Hoza), 373 B.R. 409, 416 (Bankr. W.D. Pa. 2007).
. In re Chalik, 748 F.2d 616, 618 (11th Cir. 1984) ("The recalcitrant debtor may not escape a section 727(a)(4)(A) denial of discharge by asserting that the admittedly omitted or falsely stated information concerned a worthless business relationship or holding; such a defense is specious ... Creditors are entitled to judge for themselves what will benefit, and what will prejudice, them”); DeAngelis v. Williams (In re Williams), 2012 WL 3564027, *7, 2012 Bankr. LEXIS 3804, *24 (Bankr. M.D. Pa. Aug. 17, 2012).
. In re Kinard, 518 B.R. 290, 306 (Bankr. E.D. Pa. 2014); Keeney v. Smith (In re Keeney), 227 F.3d 679, 685-86 (6th Cir. 2000).
. (See Am. Schedules ECF Nos. 1, 7, 43, 48, 58, 69, 92, 107, 117).
. (P-48).
. (Trial Tr. 107:19-25, June 10, 2015); (Trial Tr. 27:9-18, June 12, 2015).
.(See P-55).
. (Debtors’ Cert, in Opp’n to Summ. X, at 6-7, ¶¶ 14 and 19, Adv. No. 10-02634, ECF No. 53).
. (Pet., Main ECF No. 1, and P-48, Amendments).
. (Debtors’ Post-Trial Br. at 10, Adv. No. 10-02635, ECF No. 64).
.See Pis.' Post-Trial Summation at'66-70, Adv. No. 10-02633, ECF No. 92 (detailing personal items paid from Howard Street loan proceeds, information and Cunningham testimony). (See also P-18),
. In re Kinard, 518 B.R. at 305.
. (Trial Tr. 108:6-8; 109:24-111:3, June 15,2015; Trial Tr. 6:9-8:3; 31:7-11, Sept. 23, 2015).
.See Bankruptcy Rules 2004 and 9016 (requiring turnover of documents and information in party’s possession, custody or control).
. (Trial Tr. 65-67, Apr. 17, 2014) (quoting from Mrs. Kennedy’s deposition).
. In re Antonious, 358 B.R. 172, 184 (Bankr. E.D. Pa. 2006) (”[F]raud pursuant to 11 U.S.C. § 523(a)(2)(A) can be imputed between spouses based on agency principles when there is evidence that the 'innocent' spouse was involved in a business relationship with the ‘wrongdoing’ spouse that gave rise to the debt”) (internal citations omitted); In re Tsurukawa, 287 B.R, 515, 521 (9th Cir. BAP 2002) (finding spouse liable where she had partnership with debtor/husband and helped spend the funds generated through the fraud); see also In re Copeland, 291 B.R. 740, 769 (Bankr. E.D. Tenn. 2003) ("[t]here is no doubt that a marital person [might] be authorized to act for the other spouse, but [that] authority ... will not be implied from the marital relation.”)
. (Trial Tr. 21:25-22:24, June 10, 2015).
. (Trial Tr. 109:9-16, June 10, 2015).
. (Trial Tr. 22:11-24; 26:5-24, June 10, 2015).
. (Trial Tr. 28:17-22, June 10, 2015).
. (Trial Tr. 45:11-18; June 10, 2015).
. (Trial Tr. 75-76; Sept. 23, 2015).
. (P-54, 2007 Tax Return); (Trial Tr. 49:13-53:23, June 10, 2015).
. Sonders v. Mezvinsky (In re Mezvinsky), 265 B.R. 681, 701 (Bankr. E.D. Pa. 2001) ("[i]t is not for this Court to pass judgment on how the Debtor chose to manage her financial affairs prior to this bankruptcy case. However, when she filed for bankruptcy relief and invoked the protection of this Court, she forfeited the right to remain ignorant of the disposition of her assets”).
.(Id.; see also David v. Annapolis Banking & Trust Co., 209 F.2d 343, 344 (4th Cir. 1953) (“[a] wife who allows her husband to do business in her name and signs without question any sort of paper that he presents to her is not entitled to a discharge in bankruptcy merely because she has relied upon him where she signed a statement as to her financial condition with reckless indifference to the facts without examining the available source of knowledge which lay at hand, and with no reasonable ground to believe that it was in fact correct").
. See In re Tanglis, 344 B.R. 563, 569, 572 (Bankr. N.D. Ill, 2006).
. The Court, however, does not believe that Mrs. Kennedy was responsible for false oaths, including those relating to the Oppenheimer account. However, the recklessness or outright falsity of the statements as to the S & S Development account, 40 Sleepy Hollow and the various business entities in which Mrs. Kennedy held an interest is sufficient to find section 727(a)(4) violations as to Mrs. Kennedy.
. In re Cohen, 191 B.R. 599, 604 (D.N.J. 1996), aff'd 106 F.3d 52 (3rd Cir. 1997), aff’d Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998); Field v. Mans, 516 U.S. 59, 72-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995).
. (P-44 and supplement).
. (Trial Tr. 29:5-30:2; 33:11-18, Nov. 14, 2013).
. Id. (P-12, 15 and 16); (Trial Tr. 49:19-25; 50:25-51:5; Sept. 23, 2015),
. (P-12). (Trial Tr. 63:11-20, Nov. 14, 2013).
. (P-8 and P-9).
. (P-2); (Trial Tr. 72:18-20, Nov. 14, 2013).
. (P-2, Account Statement dated May 31, 2006).
. (Trial Tr. 116:22-118:21, March 7, 2014 and P-10, analysis of Van Houten check register). (See also P-16 and Trial Tr. 72:6-73:16, Nov. 14, 2013).
. (Trial Tr. 35:16-37:24, Apr. 17, 2014); (Id. at 38:1-25; 28:6-22).
. (Trial Tr. 49:15-25, Sept. 23, 2015; Trial Tr. 48:23-49:5; 51:5-11, Nov. 14, 2013).
. (Trial Tr. 39:2-13, Sept. 24, 2015).
.(See P-18 and P-66). (Trial Tr. 22:6-14; 54:1-15, Apr. 17, 2014),
. See FN 194 and FN 195.
. (P-25(a)),
. (Debtors’ Mot. for Summ. L, Adv. No. 10-02634, ECF No. 45-4).
. Wojcik v. Pollock, 97 N.J.Super. 319, 324, 235 A.2d 58 (L. Div. 1967).
.(Trial Tr. 24:23-25:4, Mar. 7, 2014). (See also P-56, settlement documents, including Irrevocable General Release by Lira and others in favor of the Kennedys).
.(See P-69).
. (See P-56 and Proposed Findings at 69-70, Adv. No. 10-02633, ECF No. 91).
. See In re Casini, 307 B.R. 800, 817 (Bankr. D.N.J. 2004); In re Angelle, 610 F.2d 1335, 1339 (5th Cir. 1980) ("[IJmplied or constructive trusts and trusts ex maleficio are not deemed to impose fiduciary relationships under the Bankruptcy Code”).
. In re Spector, 133 B.R. 733, 739 (Bankr. E.D. Pa. 1991).
Reference
- Full Case Name
- IN RE: Stewart and Samantha KENNEDY, Debtors. Frank Ruiz v. Stewart and Samantha Kennedy, Defendants John Lira v. Stewart and Samantha Kennedy, Defendants Laila Cristobal v. Stewart and Samantha Kennedy
- Cited By
- 7 cases
- Status
- Published