Gargula v. House (In re House)

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IN RE: JONATHAN B. HOUSE, Debtor.

NANCY J. GARGULA, UNITED STATES TRUSTEE, Plaintiff, v. JONATHAN B. HOUSE, Defendant.

No. 23-00063-JMC-7A

Adversary Proceeding No. 23-50045

United States Bankruptcy Court, S.D. Indiana, Indianapolis Division

September 30, 2024

James M. Carr, Judge.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This adversary proceeding came before the Court for a bench trial on May 30, 2024 (the "Trial"). Plaintiff Nancy J Gargula, United States Trustee ("UST"), appeared by counsel Matthew Miller. Defendant Jonathan B. House ("Debtor") appeared pro se. At the conclusion of the Trial, the Court announced that UST has sustained her burden to prove the required elements to support denial of Debtor's discharge.

The Court, having reviewed and considered the evidence admitted at the Trial and the other matters of record, having weighed the credibility of the witnesses, having heard the representations of Debtor and counsel for UST, and being otherwise duly advised, now ENTERS the following findings of fact and conclusions of law as required by Fed.R.Civ.P. 52 made applicable to this adversary proceeding by Fed.R.Bankr.P. 7052.

Findings of Fact

The Court makes the following findings of fact:

1. On or about November 26, 2021, Belle Tire Distributers, Inc. ("Belle") serviced Debtor's vehicle. (UST's Ex. 6, ¶ 1.) On November 26, 2021, Debtor was injured and his vehicle was damaged in a vehicle crash, allegedly due to Belle's negligence which caused the brakes to malfunction. (UST's Ex. 1; UST's Ex. 6, ¶¶ 2-10.)

2. Before December 2021, Jeanette M. Etnier ("Etnier") and Zachary Brugger ("Brugger", and collectively with Etnier, "Homeowners") each hired Debtor to perform work on their respective homes. (Homeowners' Test.) Homeowners each made a deposit payment to Debtor. Id. Debtor failed to complete the work on their homes and subsequently agreed to issue refunds of the deposit payments to Homeowners. Id. Debtor delivered checks to Homeowners, but the checks were dishonored due to insufficient funds (in the case of Etnier) or an invalid account (in the case of Brugger). Id.

3. On May 5, 2022, Debtor was charged with criminal felony fraud against Homeowners in Johnson Circuit Court under Cause No 41C01-2205-F6-000320 (the "Fraud Case"). (UST's Ex. 17, ¶¶ 29-30.) On May 18, 2022, the Johnson Circuit Court issued an arrest warrant against Debtor for felony fraud. (UST's Ex. 22.) Debtor was detained and subsequently released on bond. (UST's Ex. 17, ¶34.)

4. At some point between November 26, 2021 and the Petition Date Debtor, with assistance of counsel, explored a possible cause of action against Belle (the "Belle Claim"). (Debtor's Test.) That counsel determined that Debtor did not have a winnable case against Belle. Id.

5. At some point after his former counsel abandoned representation of Debtor with respect to the Belle Claim,^[1] Debtor received advertising materials from Ken Nunn Law Office and reached out to them to discuss a potential recovery against Belle. Id. Debtor testified at the Trial that he had no intention of re-pursuing a potential cause of action against Belle until he received the advertising materials from Ken Nunn Law Office and that he would not believe that he had a case against Belle until Ken Nunn Law Office told him he did because of his former counsel's determination that Debtor did not have a winnable case against Belle. Id.

6. On January 9, 2023 (the "Petition Date"), Debtor filed a voluntary petition under chapter 7 of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. (the "Bankruptcy Code"),^[2] in the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division (Bankruptcy Case Docket No. 1) (the "Bankruptcy Case").

7. On the Petition Date, Debtor filed Schedule A/B: Property (Bankruptcy Case Docket No. 1) ("Schedule A/B"). Question 33 of Schedule A/B asks whether Debtor owns or has any legal or equitable interest in "[c]laims against third parties, whether or not [Debtor] ha[s] filed a lawsuit or made a demand for payment". Debtor answered "No". Question 34 of Schedule A/B asks whether Debtor owns or has any legal or equitable interest in "[o]ther contingent and unliquidated claims of every nature, including counterclaims of [D]ebtor and rights to set off claims". Debtor answered "No".

8. On the Petition Date, Debtor filed Schedule E/F: Creditors Who Have Unsecured Claims (Bankruptcy Case Docket No. 1) ("Schedule E/F", and collectively with Schedule A/B, the "Schedules"). Debtor did not list Homeowners on Schedule E/F.

9. On the Petition Date, Debtor filed the Declaration About an Individual Debtor's Schedules (Bankruptcy Case Docket No. 1) where he declared, under penalty of perjury, that "the summary and schedules ... are true and correct."

10. The meeting of creditors under § 341 (the "341 Meeting") was initially set for February 3, 2023 but was continued to February 17, 2023 due to Debtor's absence. (Bankruptcy Case Docket Nos. 10 and 19.)

11. On February 14, 2023, three days before the 341 Meeting, Ken Nunn Law Office faxed a letter (the "Letter") to Liberty Mutual, an insurance carrier for Belle, informing that Ken Nunn Law Office is representing Debtor in pursuit of the Belle Claim.^[3] (UST's Ex. 1.)

12. On February 17, 2023, the 341 Meeting was conducted by NiCale L. Rector, chapter 7 trustee ("Trustee"), at which Debtor appeared. (UST's Ex. 2, p. 1.) At the 341 Meeting, Debtor attested that, to the best of his knowledge, "the information contained in the petition, schedules, statements and related documents [is] true and correct" and that there are no errors or omissions in such documents. (Id. at p. 4:21-5:2.) When specifically asked whether he "listed all of [his] creditors on the schedules", Debtor answered "Yes". (Id. at p. 5:5-6.) When asked whether "anyone owe[s] [him] money, or is ... holding any of [his] property", Debtor answered "No". (Id. at p. 6:19-21.) Further, when asked whether he is "suing anyone now or ... plan[s] on suing anyone in the future [or] ha[s] type of claim that [he] can file for money", Debtor answered "No". (Id. at p. 6:22-7:2.) At no time during the 341 Meeting did Debtor provide information about the Belle Claim or Homeowners.

13. On February 19, 2023, Trustee, being unaware of the Belle Claim and Ken Nunn Law Office's representation of Debtor, filed Chapter 7 Trustee's Report of No Distribution (Bankruptcy Case Docket No. 21), which serves, pursuant to S.D. Ind. B-6007-l(a), as the "notice of proposed abandonment under Fed.R.Bankr.P. 6007 of all property of the estate listed on the Debtor's schedules".

14. On March 6, 2023, Debtor, by counsel Ken Nunn Law Office, filed the Complaint for Damages against Belle in the Johnson Superior Court under Cause No. 41D01-2303-CT-000051 (the "Belle Case") seeking damages with respect to the Belle Claim. (UST's Ex. 6.)

15. On March 16, 2023, UST filed United States Trustee's Motion for Order Directing Debtor to Appear for Examination Pursuant to Fed.R.Bankr.P. 2004 and to Produce Documents (Bankruptcy Case Docket No. 29). Later that same day, the Court entered the Order Directing Debtor to Produce Documents and Appear for Examination Pursuant to Fed.R.Bankr.P. 2004 (Bankruptcy Case Docket No. 32) (the "2004 Order") requiring Debtor to appear for examination on April 27, 2023 and to produce to UST by April 20, 2023 certain documents (the "Documents") including but not limited to copies of documents relating to the Belle Case and any and all criminal matters in which Debtor is a defendant on or after May 30, 2022. While a review of the Bankruptcy Case docket does not show a certificate of service with regard to the 2004 Order, UST alleges in the Complaint that the 2004 Order was served to Debtor by first class U.S. Mail on March 16, 2023 (UST's Ex. 17, ¶ 36) and was emailed to Debtor on April 26, 2023 (UST's Ex. 16). Despite Debtor's assertions that he emailed the Documents to UST, UST did not receive any of the Documents. (UST's Ex. 16; UST's Ex. 17, ¶ 42.)

16. On March 26, 2023, Trustee filed Trustee's Report of Possible Assets and Notice of Proposed Abandonment (Bankruptcy Case Docket No. 36), proposing to abandon all scheduled assets except the Belle Case and Debtor's Venmo account.

17. On June 5, 2023, UST timely filed the Complaint to Deny Discharge (Docket No. 1) (the "Complaint") commencing this adversary proceeding and seeking denial of Debtor's discharge pursuant to § 727(a)(2)(A),^[4] (a)(4)(A) and (a)(6)(A).

18. On September 7, 2023, Debtor filed the Response to Complaint to Deny Discharge (Docket No. 14), denying the material allegations of the Complaint.

19. On January 4, 2024, the State of Indiana and Debtor filed in the Fraud Case the Agreement to Withhold Prosecution whereby Debtor agreed to pay restitution in the amount of $3,250 for the benefit of Etnier and pay restitution in an amount to be determined for the benefit ofBrugger. (UST's Ex. 4.)

20. On April 15, 2024, the Order on Restitution was entered in the Fraud Case, requiring Debtor to pay restitution in the amount of $10,932.95 to Brugger. (UST's Ex. 10.)

21. Based on the Court's review of the Bankruptcy Case docket, Debtor did not file any amendment to the Schedules to list the Belle Claim, the Belle Case and Homeowners.

Conclusions of Law

The Court makes the following conclusions of law:

A. Any finding of fact above will also be a conclusion of law, and any conclusion of law will also be a finding of fact, to support the judgment of the Court.

B. This Court has jurisdiction in this matter pursuant to 28 U.S.C §§ 1334 and 157.

C. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J).

D. Venue is proper...