1 United States v. Swisher (In re Swisher)

617 B.R. 826

IN RE: Melvin E. SWISHER, Jr., Debtor 1

United States of America, Acting Through The Farm Service Agency, U.S. Department of Agriculture, Plaintiff(s)

v.Melvin E. Swisher, Jr., Defendant(s)

Case No.: 4-19-bk-03846 RNO

Adversary No.: 4-19-ap-00121 RNO

United States Bankruptcy Court, M.D. Pennsylvania.

Signed July 30, 2020

James Warmbrodt, Philadephia, PA, for Plaintiff.

Daniel J. Rheam, Lewisburg, PA, for Defendant.

Nature of Proceeding: Motion for Summary Judgment

OPINION ¹

Robert N. Opel, II, Bankruptcy Judge (BI)

The Plaintiff/Creditor filed a two-count Complaint Objecting to Discharge and to Determine Non-Dischargeability ("Complaint"). The Complaint seeks a denial of a Chapter 7 discharge or a finding that the Plaintiff's claim is non-dischargeable. After the pleadings were closed, the Plaintiff moved for summary judgment. The Motion will be denied, and the matter will proceed to trial.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(I) & (J).

II. FACTS AND PROCEDURAL HISTORY

Melvin E. Swisher, Jr. ("Debtor" or "Defendant") filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code on September 10, 2019. Schedule D lists a secured claim in favor of the United States of America, acting through the Farm Service Agency, U.S. Department of Agriculture ("Plaintiff" or "FSA"). The claim is scheduled for $267,110.11 and the collateral is described as "second mortgage" and "security agreement". To date, the Plaintiff has not filed a proof of claim.

This adversary proceeding was commenced by a two-count Complaint filed by the Plaintiff on December 13, 2019. Count I requests that the Debtor be denied a Chapter 7 bankruptcy discharge. Count II requests that the Plaintiff's claim be excepted from any discharge because the claim allegedly stems from willful and malicious injury to the Plaintiff or its property. Complaint, ECF No. 1 ¶ 25. The Complaint alleges that, pre-petition, the Debtor sold certain livestock and equipment ("FSA Collateral"). It is further alleged that the proceeds of those sales were not paid to the Plaintiff. The FSA Collateral was used on a farm which the Debtor maintains ceased operations in December 2018.

On January 9, 2020, the Debtor answered the Complaint. Answer, ECF No. 5. Many of the factual averments of the Complaint are admitted. However, the Answer includes "[w]illful and malicious injury and failure to account are denied." Answer, ECF No. 5, ¶ 24. The Answer also asserts several affirmative defenses, including estoppel, laches, and waiver.

The Plaintiff filed a Motion for Summary Judgment ("Motion") on May 28, 2020. Motion, ECF No. 8. The parties have filed their respective statements of fact and briefs in support of and in opposition to the Motion.

III. DISCUSSION

A. Summary Judgment Standard Under F.R.B.P. 7056

Federal Rule of Bankruptcy Procedure 7056 incorporates, and makes applicable to bankruptcy adversary proceedings, Rule 56 of the Federal Rules of Civil Procedure ("F.R.C.P."). Pursuant to F.R.C.P. 56(a), the movant has the burden of proving that no genuine dispute exists as to any material fact and that the movant is entitled to judgment as a matter of law. Beard v. Banks , 548 U.S. 521, 529, 126 S. Ct. 2572, 2578, 165 L.Ed.2d 697 (2006) ; Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). "As to materiality ... [o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby Inc. , 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The absence of any genuine issue of material fact may be demonstrated by the pleadings, supporting affidavits, and discovery materials – such as depositions, answer to interrogatories, and admissions which are part of the record. In re Premium Motor Cars, Inc. , 404 B.R. 128, 130 (Bankr. W.D. Pa. 2009).

After the movant satisfies its burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." In re LandSource Communities Dev. LLC , 485 B.R. 310, 314 (Bankr. D. Del. 2013) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). Instead, the nonmoving party is required to "set forth specific facts showing that there is a genuine issue for trial." Anderson , 477 U.S. at 248, 106 S.Ct. 2505. The nonmoving party must go "beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex , 477 U.S. at 324, 106 S.Ct. 2548 (internal citations and quotations omitted). Throughout its analysis, the Court may not make credibility determinations or engage in any weighing of the evidence. Montone v. City of Jersey City , 709 F.3d 181, 191 (3d Cir. 2013) (citations omitted). Instead, the Court must view the facts in the light most favorable to the nonmoving party, the Debtor, and draw all inferences in his favor. Santini v. Fuentes , 795 F.3d 410, 419 (3d Cir. 2015) (citation omitted); Abramson v. William Paterson Coll. of N.J. , 260 F.3d 265, 276 (3d Cir. 2001) (citation omitted).

The determination of a motion for summary judgment considers whether the evidence, when viewed in the light most favorable to the nonmoving party, is sufficient to show the essential elements of the movant's case.

In re Metro Shippers, Inc. , 78 B.R. 747, 750 (Bankr. E.D. Pa. 1987) (citations omitted); In re Herrera , 2008 WL 5157938 at *2 (Bankr. D.N.M. Oct. 8, 2008).

B. Objection to Chapter 7 Discharge Under § 727(a)(2)(A)

Count I of the Complaint objects to the Debtor's discharge, first alleging that he violated § 727(a)(2)(A) of the Bankruptcy Code.² This subsection provides that the court shall not grant a chapter 7 discharge when:

(2) the debtor, 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;

(emphasis added)

Case law requires a narrow construction of objections or exceptions to discharge. This is because one of the primary purposes of the Bankruptcy Code is to allow the debtor a financial fresh start. Exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors. Insurance Co. of N. Am. v. Cohn (In re Cohn) , 54 F.3d 1108, 1113 (3d Cir. 1995) (citation omitted); In re Gotwald , 488 B.R. 854, 865 (Bankr. E.D. Pa. 2013) (citation omitted); Customers Bk. v. Roman P. Osadchuk , 2018 WL 4562403, at *2 (D.N.J., Sept. 24, 2018) (citation omitted); In re Adalian , 474 B.R. 150, 160 (Bankr. M.D. Pa. 2012) (citation omitted).

The Complaint alleges that the Debtor sold the FSA Collateral through a number of sales between March 2018 and November 2018. Complaint, ECF No. 1, ¶ 15. The Court takes judicial notice, pursuant to Federal Rule of Evidence 201, that the Debtor's petition was filed on September 10, 2019.

A required element of a § 727(a)(2)(A) objection to discharge is that the complained of transfer of property occurred within one year of the filing of the bankruptcy petition. In re von Kiel , 550 Fed. Appx. 105, 108 (3d Cir. 2013) ; In re Spitko , 357 B.R. 272, 299 (Bankr. E.D. Pa. 2006) ; In re Dawley , 312 B.R. 765, 782 (Bankr. E.D. Pa. 2004) (citations omitted); In re Kisberg , 150 B.R. 354, 357 (Bankr. M.D. Pa. 1992) (citations omitted). It appears that, at worst, two sales occurred within one year of the petition. Those two sales totaled $9,300.00. Another required element of this objection to discharge is that the Debtor made the transfers with the intent to hinder delay or defraud a creditor. Spitko , 357 B.R. at 299 ; Dawley , 312 B.R. at 782 ; Kisberg , 150 B.R. at 357. A more fulsome record, after trial, will provide the Court a more adequate basis to determine the Debtor's intent when the sales were made.

The Complaint does not specifically allege that the Debtor concealed any assets. However, a portion of the Plaintiff's argument suggests that a concealment doctrine is relevant here. Mem. of Law in Supp. of Mot. for Summ. Judgment, ECF No. 9, 8 fn.1. This case is readily distinguishable from a classic concealment case. For example, Rosen v. Bezner , 996 F.2d 1527 (3d Cir. 1993), where the debtor transferred away title to his residence, but retained the benefits of ownership. Here, there is no suggestion that the Debtor is continuing to use or benefit from any of the FSA Collateral which was sold to third parties. Nor has there been any showing that assets were hidden or secreted.

The failure to plead a required element of the cause of action for a denial of discharge leads to the conclusion that the Plaintiff is not entitled to judgment as a matter of law. A movant for summary judgment must meet its burden to demonstrate undisputed facts entitling it to judgment as a matter of law. In re Gonzalez , 2017 WL 1968626, at *1 (Bankr. D.P.R., May 11, 2017) (citation omitted); In re Jacks , 415 B.R. 536, 538 (Bankr. D.N.M. 2008) (citations omitted). The Plaintiff has not met its burden under § 727(a)(2)(A). Further, there are outstanding material issues of fact as to when the sales occurred, whether FSA consented to any sales, as well as the Debtor's intent at the time of the transfers.

The Motion is denied as to the § 727(a)(2)(A) objection to discharge.

C. Objection to Discharge Under § 727(a)(5)

Count I of the Complaint also objects to a discharge by alleging the Debtor violated § 727(a)(5) of the Bankruptcy Code. Complaint, ECF No. 1, ¶ 22. That Subsection provides that the court shall...