Bishop v. Kinard (In re Kinard)

518 B.R. 290

In re Nina Marie KINARD, Debtor.

Tracy Bishop and Pamela Brooks and Peggy Cunningham and Natividad Reyes, Plaintiffs

v.Nina Marie Kinard, Defendant.

Bankruptcy No. 13–15224 JKF.

Adversary No. 13–0485.

United States Bankruptcy Court, E.D. Pennsylvania.

Signed Sept. 30, 2014.

Joshua P. Rubinsky, Brodie & Rubinsky, P.C., Philadelphia, PA, for Plaintiffs.

Christian A. DiCicco, Philadelphia, PA, for Defendant.

MEMORANDUM OPINION

JEAN K. FITZSIMON, Bankruptcy Judge.

I. INTRODUCTION

The plaintiffs (“Plaintiffs”) in this adversary proceeding are former home health care aides who worked for Lee's Industries, Inc. (“Lee's Industries”), which the debtor, Nina Marie Kinard (“Debtor”) and her brother, Eric Lamback (“Eric”), co-owned. As will be explained in more detail below, Plaintiffs filed a class action lawsuit in state court (“State Court Litigation”) against, inter alia, Lee's Industries, the Debtor and her brother (collectively the “State Court Defendants”). After a default was entered against the State Court Defendants but before a monetary judgment was entered against the Debtor, she filed a bankruptcy case under Chapter 7 of the Bankruptcy Code.

Plaintiffs subsequently commenced this nondischargeability action against the Debtor alleging that she should be denied a discharge, pursuant to 11 U.S.C. §§ 727(a)(3) and 727(a)(4)(A),¹ because she: (i) failed to preserve documents from which her financial condition and/or business transactions might be ascertained; and (ii) made false statements in her Schedules and Statement of Financial Affairs (“SoFA”).

Before the Court is the Plaintiffs' motion (“Motion”) for summary judgment. Upon consideration, the Court concludes that there is no genuine dispute as to any material fact and that the Plaintiffs are entitled to judgment in their favor as a matter of law. Accordingly, the Plaintiffs' Motion shall be granted.

II. FACTUAL AND PROCEDURAL BACKGROUNDPlaintiffs, Lee's Industries, Lee's Home Services and Lee's Companies

Plaintiffs are former employees of Lee's Industries, Inc. (“Lee's Industries”). Complaint ¶ 4; Deposition of Nina Kinard, dated September 27, 2007 (“Dep. 2007”) at 26–33. The company, which originally provided janitorial and light pest control services, was founded in 1986 by the Debtor and her mother. Id. at 26–27. When her mother died in 1996, the Debtor and her brother, Eric, became equal owners of the company. Dep. 2007 at 28–29. The Debtor became the President of the company and Eric became the Vice President.² Id. At all relevant times, Lee's Industries was owned and operated by the Debtor and Eric. Id.

In 2003 or 2004, Lee's Home Health Services, Inc. (“Lee's Home Service”) was formed so that the home health aides could, according to the Debtor, “be put under the right category.”³ Complaint ¶ 4; Deposition of Nina Kinard, dated September 27, 2007 (“Dep. 2007”) at 26–33. After Lee's Home Services was formed, the payroll and books pertaining to the home health care aides was transferred from Lee's Industries to Lee's Home Services. Id. at 31. According to the Debtor's 2007 testimony, yet another company was subsequently created, named Lee's Companies, to which the payroll and books pertaining to the home health care aides were next transferred.⁴ Id. at 32–33. At her deposition in 2007, the Debtor was asked to explain the reason for transferring the payroll and books for the home health aides from one company to another. This colloquy is set forth below:

Q. And sometime in 2003 or 2004, did you transfer employees who were doing the home health aide—

A. Yes.

Q. —from Lee's Industries, Inc., to the payroll on the books of Lee's Home Health Services?

A. Yes.

Q. And are the home health care aides today on the payroll of Lee's Home Health Services?

A. No.

Q. And you transferred them back to Lee's Industries at some point?

A. No. Lee's Companies.

Q. And what was the purpose of the transfer?

A. It's just that we have different facets and we feel as though being a Pennsylvania company, we can open up another company, you know when we get good and ready, so we did.

So we transferred Lee's Home Health Aides to Lee's Companies. It's just the way our business goes. We change in facets, so we change the way we do things.

Q. And the purpose of doing that was an internal corporate purpose?

A. Yes.

Q. And you moved the home health aides for the purposes of payroll from Lee's Industries, Inc., to Lee's Home Health to Lee's Companies?

A. Yes.

Q. And are they on Lee's Companies now?

A. Yes.

Q. And they are separate EIN numbers?

A. Yes.

Q. And they are separate unemployment numbers?

A. Yes.

Dep. 2007 at 32–33.

The Plaintiffs' Class Action Lawsuit in State Court

In 2007, Plaintiffs filed the State Court Litigation. Complaint ¶ 4; Exhibit E to Motion for Summary Judgment. Plaintiffs alleged that the State Court Defendants violated the Pennsylvania Minimum Wage Act, 43 P.S. § 333.10 et seq., and the Wage Payment and Collection Law, 43 P.S. § 260.1 et seq., by failing to pay them, and others similarly situated, for time spent traveling between clients and by failing to pay them an overtime premium for hours worked over forty per week. Complaint ¶ 4; Exhibit E to Motion for Summary Judgment; Dep. 2007 at 26–33.

Lee's Industries Ceased Operating in Summer of 2012

In or about July of 2012, Lee's Industries ceased doing business and closed its office.⁵ Dep. 2014 at 24. When the office was closed, some of the company's manual records were discarded in the trash because they had been destroyed by a flood which occurred in March of 2012. Id. at 22–24. The remainder of the company's manual records were boxed up and put into a rented space located in Huntington Park. Id. The Debtor testified, in particular, that the manual records from 2011 and 2012 were destroyed by the flood. Id. However, she denied having any other knowledge regarding “what's at Huntington Park and what's not at Huntington Park.” Id. at 23.⁶

At her deposition in 2014, the Debtor was specifically asked whether any financial information for Lee's Industries was kept on a computer. Dep. 2014 at 24. The Debtor testified that the company used Quickbooks to issue checks and record payments owed to it. Id. at 24–26. However, she also disclosed that the company's subscription to Quickbooks lapsed in 2012 when the company failed to pay its annual fee. Id. at 24–25.⁷

Default Judgment and Stipulation in Plaintiffs' State Court Class Action Lawsuit

On or about December 28, 2012, a default was entered against the State Court Defendants. Exhibit E to Motion for Summary Judgment. A hearing to assess damages against the State Court Defendants was scheduled for June 19, 2013, but two days prior to that date, the Debtor and the other State Court Defendants entered into a stipulation (“Joint Stipulation”) with the Plaintiffs regarding damages.⁸ Id. According to the Joint Stipulation, the parties agreed to the entry of a judgment in favor of the Plaintiffs and against the State Court Defendants “jointly and severally.”⁹

Cren, Inc.

During her 2014 deposition, the Debtor was questioned regarding a Pennsylvania corporation named Cren, Inc. (“Cren”). See Dep. 2014 at 36–41. The Debtor testified that Cren is a company solely owned by her sister, Cynthia Lamback. Id. at 36. According to the Debtor, Cren is a “family business” which is or was primarily used by her sister to sell real estate. Id. at 36–38. When Cren was formed and through the date of her 2014 deposition, the Debtor was the Secretary of the company. Id. at 38–40. The Debtor never earned any income from Cren. Id. at 40. According to the Debtor, no financial records, bank accounts or checkbooks were kept for the company and, if any records happen to exist, her sister would have them. Id. at 41.

The Debtor's Bankruptcy Filing

On June 13, 2013, which was four days before the Debtor entered into the Damages Stipulation, she filed a pro se Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. The Debtor thereafter obtained counsel and, on July 18, 2013, she entered her appearance on the Debtor's behalf. One day later, the Debtor filed her Schedules and SoFA.¹⁰

Item # 13 on Schedule B requires a debtor to list his or her “[s]tocks and interests in incorporated and unincorporated businesses.” Debtor's response to this item was none.

On Schedule F, the Debtor listed the Plaintiffs' counsel, Brodie and Rubinsky, P.C., as an unsecured creditor. She listed the amount of the firm's claim as zero. Interestingly, the Debtor did not list the Plaintiffs as creditors anywhere on her Schedules.

Question # 1 on the SoFA requires debtors to list their gross income from employment or business for the year in which they file bankruptcy as well as for two prior years. In response to Question # 1, the Debtor stated that she had rental income in 2011 in the amount of $11,120. She did not list any income from wages. However, payroll records for Lee's Industries showed that, in 2011, the Debtor earned $24,150 from the company.

Question # 2 on the SoFA requires a debtor to list “all suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing” of his or her “bankruptcy case.” While the Debtor listed five other lawsuits in response to Question # 2, she did not list the State Court Litigation.

Question # 18 on the SoFA states, in relevant part:

18. Nature, location and name of business

a. If the debtor is an individual, list the names, addresses, taxpayer identification numbers, nature of the businesses, and beginning and ending dates of all businesses in which the debtor was an officer, director, partner, or managing executive of a corporation, partner in a partnership, sole proprietor, or was self-employed in a trade, profession, or other activity either full- or part-time within six years immediately preceding the commencement of this case, or in which the debtor owned 5 percent or more of the voting or equity securities within six years immediately preceding

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