Heizer v. Waggoner (In re Waggoner)

619 B.R. 258

IN RE: Roy Mitchell WAGGONER and Jewel Kay Waggoner, Debtors.

Rebecca L. Heizer, Plaintiff,

v.Roy Mitchell Waggoner and Jewel Kay Waggoner, Defendants.

Case No. 17-11381-ta7

Adv. Pro. No. 18-01033-t

United States Bankruptcy Court, D. New Mexico.

Signed April 24, 2020

Leslie D. Maxwell, Maxwell Law, P.C., Albuquerque, NM, for Plaintiff.

Michael K. Daniels, Albuquerque, NM, for Defendants.

OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

Plaintiff Rebecca Heizer brought this proceeding in June 2018, seeking a determination that Roy and Jewel Waggoner's debt to her was nondischargeable and that the Waggoners should not be granted a discharge. At trial, Heizer had dropped the nondischargeability count but asked for denial of discharge on two grounds: an alleged fraudulent pre-petition transfer of property and alleged false oaths. Both grounds related to a pre-petition sale, for $30,000, of land in Carlsbad, New Mexico.

It is undisputed that the Waggoners sold the property on a real estate contract a few months before they filed this case, and that they failed to schedule the contract as an asset or disclose it to the trustees assigned to this case. However, Heizer did not show that the Waggoners acted with fraudulent intent. The Court therefore concludes that the Waggoners should be granted a discharge.

I. FACTS

The Court finds:¹

The Waggoners live in Aztec, New Mexico. Mrs. Waggoner is a secretary for Koogler Middle School in Aztec, New Mexico. She has worked for the Aztec school district for more than 20 years. Mr. Waggoner has worked in the oil and gas industry for more than 30 years, mostly in service businesses that provide trucking, hauling, and other transportation to exploration and production companies. While Mr. Waggoner is knowledgeable about his trade, he is not versed in legal, accounting, or business administration matters. Mr. Waggoner testified at trial. His testimony was credible.

In 2012, Mr. Waggoner decided to start his own business, Pops Enterprises, LLC, in the Permian Basin area of southeastern New Mexico and west Texas. Pops was an oilfield trucking company that hauled water to and from oil rigs in the Permian Basin. It was Mr. Waggoner's opinion that the Permian Basin provided more opportunities for him than the Four Corners area.

Mr. Waggoner set up operations in Carlsbad, New Mexico. He lived onsite in a SunnyBrook RV. Mr. Waggoner would stay in Carlsbad for a few weeks at a time, go back to Aztec for a few days every now and then, and return to Carlsbad.

Pops began operations about April 1, 2012. In the beginning, it owned two trucks. From 2012 through early 2014, Mr. Waggoner expanded his business. Pops borrowed money to buy trucks and water tanker trailers. At its peak, Pops owned ten trucks.

Pops borrowed $195,000 from Heizer in June 2013, evidenced by a promissory note, which included interest at 8%. The Waggoners personally guaranteed payment of the note. The purpose of the loan was to buy trucks so Pops could expand its business. Pops bought two trucks with the loan proceeds.

In March 2015 the Waggoners acquired a two-acre parcel of land south of Carlsbad (the "Yard"). The Waggoners did not pay cash for the Yard. Instead, Mr. Waggoner made improvements to contiguous property so the owner could move a mobile home onto it and live there. Mr. Waggoner estimated that he spent about $24,000 improving the owner's property. In exchange, the owner deeded the Waggoners the Yard on March 26, 2015. Pops used the Yard to park and maintain its trucks, trailers, and other equipment. Mr. Waggoner also parked his RV at the Yard.

In September 2015 the Waggoners bought another two acre parcel of land near the Yard. It does not appear to have been used by Pops.

Starting in mid-2014, the price of crude oil fell sharply, causing a severe downturn in the Permian Basin. Pops' business fell off over time and its operating losses mounted. Mr. Waggoner worked very hard to get Pops through the downturn as a going concern. He was not able to do so.

On or about January 1, 2017, Pops ceased operating. In February 2017 the Waggoners sold the Yard to Jerold and Stephanie Campos for $30,000 on a real estate contract (the "Real Estate Contract").

Monthly payments were $500. The parties signed a document entitled Notice of Escrow Contract. The Camposes signed the document on February 16, 2017 while the Waggoners signed on March 8, 2017. The notice was recorded in the Eddy County records on April 26, 2017. Under the deal, the Camposes received any personal property that remained on the Yard. That included an "EZ Shed" and three large metal shipping containers.

Around March 2017 the truck and trailer finance companies and banks repossessed their collateral. Pops or Mr. Waggoner sold three old pickup trucks to Mr. Campos for $6,000. The money was kept by the Waggoners. Mr. Waggoner sold the SunnyBrook RV to Mr. Campos' father in exchange for his agreement to take over payments on the trailer.

By April 2017 Pops had liabilities of about $1 Million and very few assets. The Waggoners filed this bankruptcy case on May 30, 2017.

The Waggoners filed their bankruptcy schedules on June 19, 2017. The schedules listed their house in Aztec, the two acre parcel purchased in September 2015, another 36-acre tract in Carlsbad, and a 57-acre tract in Gallup owned by Mrs. Waggoner, but did not include the Real Estate Contract. On the petition date the Camposes still owed about $12,000-$15,000 on the contract.² That amount was paid to the Waggoners post-petition.

The Waggoners attended their § 341 meeting on July 6, 2017, in Farmington, New Mexico. Their counsel appeared remotely by video or telephone. When the trustee asked if they needed to correct their schedules regarding real property, the Waggoners said no.

Heizer filed a proof of claim in the bankruptcy case on August 8, 2017, for $104,317.44.

The Waggoners amended their schedules on September 28, 2017, to add miscellaneous items of jewelry ($1,980); a Kubota tractor ($12,700); and miscellaneous irrigation and other equipment ($4,365).

On November 27, 2017, Heizer filed a motion to convert the Waggoners' chapter 13 case to chapter 7. Although the Waggoners initially objected to the motion, they eventually stipulated to a conversion order, which was entered on February 7, 2018.

The Waggoners and their counsel appeared at the § 341 meeting in the converted case on April 5, 2018, by video or telephone. When asked whether they had "transferred or given any property to anybody worth more than $1,000," the Waggoners said no.

The chapter 7 trustee has been active in this case. He has sold the Waggoners' house, their land in Gallup and Carlsbad, and their Kubota tractor.

Heizer filed this adversary proceeding on June 4, 2018. Her complaint asked that the Court find that the Waggoners' debt to her is nondischargeable under § 523(a)(2)³ and that the Waggoners' discharge should be denied under § 727(a)(2)(A), (a)(3) and (a)(4)(A).⁴

On June 21, 2018, the Waggoners again amended their bankruptcy schedules, this time adding the Real Estate Contract ($30,000) to schedules B and G.

On July 24, 2018, the chapter 7 trustee deposed the Waggoners. During the deposition they discussed in detail the Yard and the Real Estate Contract.

The Court tried the proceeding on March 2, 2020. At trial, Heizer abandoned her §§ 523(a)(2) and 727(a)(3) claims but pursued her § 727(a)(2)(A) and (a)(4)(A) claims.

II. DISCUSSION

A. Denial of Discharge Intent Standard.

Section 727 of the bankruptcy code states, in pertinent part:

(a) The court shall grant the debtor a discharge, unless–...

(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; or

...

(4) the debtor knowingly and fraudulently, in or in connection with the case–

(A) made a false oath or account[.]

"Both § 727(a)(2)(A) and (a)(4) [ (A) ] contain a wrongful intent requirement." In re Lobera , 2014 WL 640980, at *4 (Bankr. D.N.M.) (citing Marine Midland Bus. Loans, Inc. v. Carey (In re Carey) , 938 F.2d 1073, 1077 (10th Cir. 1991), and Gullickson v. Brown (In re Brown) , 108 F.3d 1290, 1294 (10th Cir. 1997) ). "[M]ere mistake or inadvertence is not sufficient to bar a debtor's discharge under § 727." In re Jayme , 2018 WL 3218104, at *10 (Bankr. D.N.M.) (quoting In re Garland , 417 B.R. 805, 815 (10th Cir. BAP 2009) ).

"Intent to deceive may be inferred from the totality of the circumstances, including a reckless disregard for the truth." In re Cribbs , 327 B.R. 668, 673 (10th Cir. BAP 2005) (citing Blue Ridge Bank and Trust v. Cascio (In re Cascio) , 318 B.R. 567, 575 (Bankr. D. Kan. 2004) ); see also Driggs v. Black (In re Black) , 787 F.2d 503, 506 (10th Cir. 1986), abrogated in part on other grounds by Grogan v. Garner , 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). This is so because "debtor's intent to deceive will rarely exist in the form of direct evidence." In re May , 579 B.R. 568, 584 (Bankr. D. Utah 2017) ; see also Lobera , 2014 WL 640980, at *4 (fraudulent intent often proved by attendant facts and circumstances).

A finding of reckless disregard should be very narrowly interpreted because a misrepresentation is fraudulent only if the maker "knows or believes the matter is not what he represents it to be." Chevy Chase Bank FSB v. Kukuk (In re Kukuk), 225 B.R. 778, 787 (10th Cir. BAP 1998), citing Restatement (Second) of Torts § 526(a) (1976).

In re Cribbs , 327 B.R. at 673. "The Court may infer a fraudulent intent, but there must be some facts that provide a basis for the Court to make such an inference." In re Peeples , 579 B.R. 254, 277 (Bankr. D. Utah 2017).

B. § 727(a)(2)(A).

To prevail on a § 727(a)(2)(A) claim, a...