Estate of Drabik v. Drabik (In re Drabik)

581 B.R. 554

IN RE: James T. DRABIK, Debtor.

Estate of Rose M. Drabik, Mary Elizabeth Smith, Mary Katherine Paul, and Brenda Porter Helms, not individually but as chapter 7 trustee for the bankruptcy estate of James T. Drabik, Plaintiffs,

v.James T. Drabik, Defendant.

Bankruptcy Case No. 15 B 07325

Adversary Case No. 15 A 00866

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed February 7, 2018

Ronald D. Menna, Jr., Peter Schmiedel, Fischel & Kahn, Ltd., Chicago, IL, for Plaintiffs.

James T. Drabik, Naperville, IL, pro se.

MEMORANDUM OPINION

Janet S. Baer, United States Bankruptcy Judge

This matter is before the Court on the adversary complaint filed against James T. Drabik (the "Debtor") by plaintiffs Brenda Porter Helms, the chapter 7 trustee for the bankruptcy estate of the Debtor (the "Trustee"); the Estate of Rose M. Drabik (the "Estate"); and Mary Elizabeth Smith and Mary Katherine Paul, the executors of that Estate (collectively, the "Plaintiffs"). The Plaintiffs object to the Debtor's discharge pursuant to 11 U.S.C. §§ 727(a)(3) and (a)(4) of the Bankruptcy Code.¹ For the reasons outlined below, the Court finds in favor of the Plaintiffs and against the Debtor and holds that the Debtor is not entitled to a discharge under both statutory provisions of § 727(a).

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).

BACKGROUND

The Debtor is the youngest of ten children of Rose Mary Drabik, who passed away on June 28, 2006. (Pl. Ex. 1 ¶ 4.² ) At the time of the trial in this matter, the Debtor was a fifty-nine-year-old man who had been a self-employed independent contractor for many years and had earned income from repairing printing machines. (Bankr. Dkt. No. 1; Adv. Dkt. No. 34, p. 9 ¶ 15; Tr. 109:11; D. Ex. I, p. 13.) Plaintiffs Mary Elizabeth Smith and Mary Katherine Paul (the "Executors") are two of the Debtor's sisters and the independent executors of their mother's Estate. (Pl. Ex. 1 ¶¶ 2 & 4.)

On October 8, 2007, the Estate, through the Executors, filed a three-count complaint against the Debtor for fraud, breach of unwritten contract, and unjust enrichment in the Circuit Court of Illinois, 18th Judicial Circuit, in DuPage County, Illinois (the "Circuit Court"), case no. 2007 L 1048 (the "Estate Case"). (Adv. Dkt. No. 34, p. 7 ¶ 4; Pl. Ex. 1 ¶¶ 2 & 4.) In the Estate Case, the Executors alleged that, beginning in 1999 and continuing to his mother's death, the Debtor charged hundreds of thousands of dollars' worth of expenses on his mother's accounts for his own use and benefit and not for the benefit of his mother. (Adv. Dkt. No. 34, p. 7 ¶ 5; Pl. Ex. 1 ¶ 7.)

On August 18, 2011, the Estate filed an amended complaint in the Estate Case, seeking, among other things, a money judgment against the Debtor for breach of unwritten contract. (Adv. Dkt. No. 34, p. 8 ¶ 7.) Specifically, the Executors sought repayment of money that their mother allegedly loaned to the Debtor during the last seven years of her life. (Pl. Ex. 1 ¶ 2.) A bench trial was held in the Estate Case from September 12 to 14, 2011. (Adv. Dkt. No. 34, p. 8 ¶ 8; Pl. Ex. 1 ¶ 10). Thereafter, on October 5, 2011, the Circuit Court entered a judgment in favor of the Debtor in the Estate Case, and an appeal followed. (Adv. Dkt. No. 34, p. 8 ¶¶ 9 & 10.)

On March 18, 2014, the Illinois Appellate Court (the "Appellate Court") entered an order reversing the Circuit Court's judgment as to the breach of unwritten contract claim and remanded the case for further proceedings. (Adv. Dkt. No. 34, p. 8 ¶ 11.) In reaching its decision, the Appellate Court explained that the Circuit Court had erred in finding that funds given to the Debtor by his late mother were gifts rather than loans. (Pl. Ex. 1 ¶¶ 1 & 75–79.)

On remand, the Circuit Court gave the parties an opportunity to submit additional written briefs in support of their positions and set the matter for decision on March 5, 2015. (Pl. Ex. 2, p. 1.) Subsequently, the Estate filed a motion for entry of judgment, as well as a reply. (Id. ) The Debtor did not file a response. (Id. )

On March 2, 2015, the Debtor filed a petition for relief under chapter 7 of the Bankruptcy Code. (Bankr. Dkt. No. 1.) On March 5, 2015, the Circuit Court, after having reviewed its original memorandum opinion, the transcript from the trial it had conducted, the Appellate Court's ruling, the Estate's motion and reply, a recording of the closing arguments, the evidence admitted, and relevant statutes and case law, issued its Memorandum Opinion. (Pl. Ex. 2, p. 1.) This time, the Circuit Court found in favor of the Estate and indicated that it would enter judgment on the breach of unwritten contract claim in the Estate's favor in the amount of: "$130,000 in repayment of credit card debt, $17,763 plus pre-judgment interest of $6,587.11 for repayment of the auto loan for a total of $154,350.11 plus costs." (Pl. Ex. 2, p. 12.) No judgment order was entered, however, due to the Debtor's chapter 7 filing. (Adv. Dkt. No 34, p. 9 ¶¶ 13 & 14.)

During the course of the Debtor's chapter 7 bankruptcy case, the Trustee conducted an initial 341 meeting (D. Ex. I), made written demands for documents (Pl. Ex. 3), conducted a second 341 meeting (D. Ex. II), and then continued the meeting four times (see Bankr. Dkt. Nos. 14, 25, 28, 39). The Estate served several 2004 subpoenas for documents on various parties (Pl. Ex. 4) and conducted a 2004 examination of the Debtor (D. Ex. III). The following key facts emerged from this extensive questioning and discovery, the results of which were subsequently introduced and admitted into evidence during the hearing on October 25, 2017:

• The Debtor has not filed income tax returns or paid income taxes since around 1996 (Adv. Dkt. No. 34, p. 11 ¶ 29; D. Ex. II, pp. 57–58; D. Ex. III, p. 15), despite his admission that he had income from employment in at least three years: $20,640 in 2012 (Pl. Ex. 5, p. 1; Bankr. Dkt. No. 55, p. 1); $43,544 in 2013 (Pl. Ex. 5, p. 2; Bankr. Dkt. No. 55, p. 1); and $52,980 in 2014 (Pl. Ex. 5, p. 3; Bankr. Dkt. No. 55, p. 1).

• The Debtor does not retain and in fact shreds all documents that contain his name or any other identifying information, including business documents, and has done so essentially all of his life. (Adv. Dkt. No. 34, p. 11 ¶ 30; D. Ex. III, pp. 14–15, 119–121; Tr. 21:18–20, 101:16–18, 103:15–104:2.)

• The lack of financial and business documents prevented the Debtor from providing a full and complete understanding of his financial affairs in the time period up to the filing of his chapter 7 petition. (Adv. Dkt. No. 34, p. 11 ¶ 31; Tr. 23:24–24:3.)

• The Debtor does not know whether the income listed in his statement of financial affairs is correct because he did not have records regarding that income at the time he filed his chapter 7 petition. (Adv. Dkt. No. 34, p. 11 ¶ 32; D. Ex. III, pp. 14–15, 24, 32–40.)

• The Debtor failed to list or otherwise disclose in his original statement of financial affairs his receipt of over $248,000 from the estate of his aunt, Lydia Tyler. (Adv. Dkt. No. 34, p. 12 ¶ 33; D. Ex. III, pp. 40–66, 69–75; Tr. 21:24–22:2, 105:1–106:9.)

• The Debtor did not disclose in his bankruptcy filings that he transferred/gifted $25,000 to a friend, and there was no writing that memorialized the transfer, other than two cancelled checks. (Adv. Dkt. No. 34, p. 12 ¶ 34; D. Ex. III, pp. 67–70; Tr. 22:12–17, 106:20–108:4.)

• The Debtor owned, transferred, gifted, and/or sold several firearms for which he has no records. (Adv. Dkt. No. 34, p. 12 ¶ 35; D. Ex. III, pp. 13–14, 85–119; Tr. 22:3–6, 23:15–18.)

• The Debtor did not list his 2015 income on his initial chapter 7 petition. (Tr. 22:7–11; D. Ex. III, pp. 10–11.)

• The Debtor did not list the Internal Revenue Service (the "IRS") or the Illinois Department of Revenue on his schedules, even though he knew that he had not filed or paid income tax for over twenty years and he was aware of at least one tax lien in the amount of $140,000. (Tr. 22:23–23:2.)

• The Debtor did not list Timothy Walsh as a creditor on his schedules despite testifying that he obtained an $8,000 loan from Walsh and transferred the title to his car to Walsh after he obtained the loan. (Tr. 23:3–14.) The Debtor also had no records relating to such loan. (D. Ex. III, pp. 20–21.)

• The Debtor did not disclose 2012 and 2013 income that he received from OEC Graphics or other potential sources. (Pl. Ex. 8; Tr. 23:19–20; D. Ex. III, pp. 34, 36–39, 77.)

On November 30, 2015, the Plaintiffs filed the adversary complaint at issue here pursuant to § 727 of the Bankruptcy Code. In Count I of the complaint, the Plaintiffs allege that the Debtor should be denied a discharge pursuant to § 727(a)(3) because he unlawfully concealed, destroyed, mutilated, falsified, or failed to keep or preserve information, books, documents, or records from which his financial condition might be ascertained. In Count II, the Plaintiffs allege that the Debtor should be denied a discharge pursuant to § 727(a)(4) because he made a false oath or account, presented or used a false claim, and knowingly failed to produce documents to which the Trustee is entitled under the Code. (Adv. Dkt. No. 1.)

On December 17, 2015, over nine months after the Debtor filed his chapter 7 petition and after extensive questioning by his creditors and the Trustee, the issuance of document subpoenas, two 341 meetings, one 2004 examination, and the filing of the instant adversary complaint, the Debtor filed amended schedules B and C and an amended statement of financial affairs to address some of the issues outlined above. (Bankr. Dkt. Nos. 54 & 55.)

On December 31, 2015, the Debtor, through counsel, filed his answer to the adversary complaint, denying that he violated §§ 727(a)(3) and (a)(4). (...