Crystal Blue, LLC v. Delgado (In re Delgado)

In re: Andrew Oscar Delgado and Ivette Mercedes Delgado, Debtors.

Crystal Blue, LLC, Plaintiff, v. Andrew Oscar Delgado and Ivette Mercedes Delgado, Defendants.

Case No. 9:18-bk-01732-FMD

Adv. Pro. No. 9:18-ap-583-FMD

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA FORT MYERS DIVISION

July 14, 2020

Chapter 7

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION

THIS PROCEEDING came before the Court for trial on February 18 and February 21, 2020, on Plaintiff's Amended Complaint objecting to Debtors' discharge under 11 U.S.C. §§ 727(a)(2), 727(a)(3), 727(a)(4), and 727(a)(5).¹ The Court, having carefully considered the evidence and the parties' post-trial briefing, finds that Plaintiff has not met its burden under Federal Rule of Bankruptcy Procedure 4005 to prove its objections to Debtors' discharge by a preponderance of the evidence.

A. Facts

The evidence at trial established the following facts:

In 2013, Debtors, Andrew Delgado and Ivette Delgado ("Debtors") formed Andrew Hunter Holdings, LLC ("AH Holdings").² In 2013 and 2014, AH Holdings entered into land sale contracts to purchase three properties from Tracey and Mara Dewrell (the "Dewrells"): a lot in Naples, Florida, for $50,000.00,³ a second lot in Naples for $7,000.00⁴ (together, the "Naples Lots"), and 1.17 acres on Everglades Blvd. in Naples (the "Everglades Property") for $7,000.00.⁵ In March 2016, AH Holdings entered into a contract to purchase a parcel of land and a mobile home in Fair Play, South Carolina (the "South Carolina Property") for $170,000.00.⁶ Together, these contracts are referred to as the "Land Sale Contracts."

Prior to 2015, Debtors formed Andrew Hunter Homes, LLC ("AH Homes"). AH Homes was in the business of constructing custom single-family homes. On March 10, 2017, in connection with a business relationship with Crystal Blue, LLC ("Plaintiff"), AH Homes executed a promissory note in favor of Plaintiff's principal, Chen K. Su ("Mr. Su"), in the amount of $500,000.00 (the "Promissory Note"). Debtors signed a guaranty of the Promissory Note. On February 9, 2018, Mr. Su executed an assignment of the Promissory Note to Plaintiff.⁷

Debtors testified at trial that, by agreement, Mr. Su assumed certain management responsibilities for AH Homes, including funding its operational expenses through moneys advanced under the Promissory Note.

AH Homes and another entity owned by Debtors, Marco Island Design Center, LLC ("Design Center") conducted business in a showroom located in Marco Island, Florida (the "Showroom"). But by September 2017, AH Homes no longer conducted its business in the Showroom.

In September 2017, Hurricane Irma devastated Southwest Florida, including Marco Island, damaging the Showroom and destroying a storage unit where Debtors stored books and records. Debtors testified at trial that the books and records stored in the storage unit were completely destroyed. Photographs of the destruction, including what appear to be Bankers Boxes of documents, were admitted into evidence.⁸

AH Homes and Design Center were the named insureds on an insurance policy covering the Showroom. The damage to the Showroom caused by Hurricane Irma gave rise to an insurance claim (the "Insurance Claim").⁹

In September 2017, Debtors changed AH Holdings' name to Residential Renovation and Restoration, LLC.¹⁰ Later, in February 2018, Debtors changed the name a second time, to RRR Management & Consulting LLC.¹¹ Mrs. Delgado testified at trial that the second name change was because the name "Residential Renovation and Restoration, LLC," was too cumbersome. This single entity is referred to herein as "RRR."

In October 2017, RRR opened a bank account at Wells Fargo, Account #5507.¹² Between October 5, 2017 and December 22, 2017, numerous checks were written on Wells Fargo Account #5507 made payable to Mr. Delgado or to Mrs. Delgado. Some of the checks included the notation "Member Draw."¹³ Other checks included notations such as "Materials Hurricane,"¹⁴ "Materials,"¹⁵ "Design Center Cleanup,"¹⁶ and "Materials Pickup."¹⁷

On November 29, 2017, Mr. Delgado emailed Mrs. Dewrell regarding documents needed to sell the Everglades Property.¹⁸ On November 30, 2017, Mrs. Dewrell emailed Mr. Delgado and the closing agent to advise that the Dewrells would sign a quitclaim deed of the Everglades Property in exchange for the payoff amount of $1,811.17.¹⁹ On December 11, 2017, RRR paid $1,954.00 to the Dewrells, and they delivered a quitclaim deed transferring title to the Everglades Property to Mr. Delgado.²⁰

The email correspondence between Mr. Delgado and Mrs. Dewrell prior to the date of the quitclaim deed indicates that Mrs. Dewrell suggested the intermediate deed to Mr. Delgado in response to his inquiry about the closing documents, based on her mistaken belief that Debtors had been the original buyers.²¹ On December 19, 2017, Mr. Delgado signed a quitclaim deed of the Everglades Property to Joseph J. Billi ("Mr. Billi"), a former business associate.²² At his deposition,Mr. Billi testified that RRR owed money to his business, Duke's Appliances, and that the Everglades Property was deeded to him in payment of that debt.²³

On January 29, 2018, Mr. Delgado wrote a $250.00 check to his bankruptcy attorney with "personal 13" written on the subject line.²⁴ On February 1, 2018, just three days after he apparently consulted with a bankruptcy attorney, Mr. Delgado signed three "Contract/Agreement Assignments" (the "Assignments") in which "Andrew Hunter Holdings LLC/Andrew Delgado" assigned the two Land Sale Contracts for the Naples Lots to Mrs. Delgado's mother, Mercedes Medina,²⁵ and the Land Sale Contract on the South Carolina Property to Mr. Delgado's mother, Belkis Delgado.²⁶

On February 7, 2018, Debtors deposited their 2016 income tax refund in the amount of $25,082.24 into their joint bank account ("Joint Account #3941") at Fifth Third Bank ("Fifth Third").²⁷

Between February 8 and February 12, 2018, $17,860.00 was transferred from Debtors' Joint Account #3941 to Mrs. Delgado's separate account at Fifth Third ("Account #3612").²⁸

On February 27, 2018, Mr. Delgado caused AH Homes to file a Chapter 7 petition.²⁹ Robert Tardif was appointed as the Chapter 7 trustee. AH Homes' bankruptcy schedules, signed by Mr. Delgado, did not list the Insurance Claim as an asset.

On March 1, 2018, Mr. Delgado took a cash withdrawal of $31,126.14 from RRR's checking account ("Account #5507") at Wells Fargo Bank ("Wells Fargo").³⁰ Debtors contend that most of thewithdrawn funds were used to pay a subcontractor of RRR and to pay rent for the Showroom. Debtors' Exhibit 26 consists of four cashier's checks dated March 1, 2018:

Andrew Delgado

$450.00

Belkis Delgado

$2,000.00

One Step Handy Man

$26,700.00

Stey Dreams Investments (rent)

$1,936.14.31

On March 7, 2018 (the "Petition Date"), Debtors filed a petition under Chapter 13 of the Bankruptcy Code.³² Fifth Third's records indicate that on the Petition Date, Debtors' Joint Fifth Third Account #3941 had a balance of $22.51, and Mrs. Delgado's Fifth Third Account #3612 had a negative balance of ($5.01).³³ This means that between February 8, 2018, and March 7, 2018, Debtors spent nearly all of the $25,082.24 tax refund deposited to Joint Account #3941, $17,860.00 of which had been transferred Mrs. Delgado's Account #3612 at Fifth Third.

The bank statement for Account #3612 for February 10 through March 9, 2018, indicates that Mrs. Delgado wrote checks on the account totaling $12,918.25, with the largest being $3,400.00 to RRR and two checks totaling $2,995.00 to Debtors' bankruptcy attorney. The balance of the disbursements from the account were made by debit card to purchase groceries, fast food, clothing, and to pay State Farm and Verizon.³⁴

In their initial bankruptcy schedules, Debtors stated that Mr. Delgado was employed by RRR as its construction manager/consultant and Mrs. Delgado was employed as RRR's office manager. In their Schedule I: Income, Debtors stated that they each received gross wages from RRR in the amount of $4,767.00 per month and that Mrs. Delgado receives regular support payments of $1,015.40 permonth.³⁵ On their Schedule J: Expenses, Debtors listed four dependents and monthly expenses that exceeded their income by over $2,500.00 per month.

Debtors' monthly expenses included rent of $2,200.00, food of $1,000.00, medical and dental of $500.00, life insurance of $256.00, health insurance of $2,857.62, vehicle insurance of $989.00, car payments on three cars totaling over $1,100.00 per month, and transportation expenses (gas and maintenance) of $600.00.³⁶

Debtors' schedule of assets reveals that they do not own a home.³⁷ Debtors disclosed cash in the amount of $20.00 and four bank accounts containing a total of $315.00. Debtors also disclosed their interests in four limited liability companies,³⁸ including RRR, each having a value of "$0.00," with descriptive information as follows:

Kage Holdings LLC [referred to herein as "Kage"] (never operated)

Andrew Hunter Homes LLC ["AH Homes"] (in Chapter 7, 9:18-bk-01399, liabilities exceed assets)

RRR Construction Management and Consulting LLC ["RRR"]

(assets - $300 bank account, possible $20,000 insurance claim for hurricane damage)

(debts - 24-month building lease $1900/month, 22 months left)

Andrew Hunter Holdings LLC ["AH Holdings"]

(assets: Agreement for Deed for vacant lot at Summer Breeze Ct., Lot 41, Cedar Grove Estates, Townville, SC - value approx. $12,000)

(debts: money owed on above Agreement of $19,233.76)

For some reason, although RRR and AH Holdings are the same entity, Debtors listed them in their bankruptcy schedules as separate entities.³⁹

In response to Question 18 on their initial Statement of Financial Affairs ("SOFA"),⁴⁰ Debtors disclosed that they had made the following transfers within two years of filing for bankruptcy:

Person Who Received

Transfer

Address

Person's relationship to

you

Description and value of

property transferred

...