IN RE GOODIN

661 B.R. 705

IN RE: Jason B. GOODIN, Debtor Susan LeBel, Plaintiff, v. Jason B. Goodin, Defendant.

Case No. 21-40562-EDK

Adversary Proceeding No. 21-4030-EDK

United States Bankruptcy Court, D. Massachusetts, CENTRAL DIVISION

Signed August 22, 2024

James P. Ehrhard, Ehrhard & Associates, Worcester, MA, for Defendant Jason B. Goodin.

Troy D. Morrison, Morrison & Associates, P.C., Worcester, MA, for Defendant J & D Investment Group Inc.

MEMORANDUM OF DECISION

Elizabeth D. Katz, United States Bankruptcy Judge.

Before the Court, after trial, is a complaint filed by judgment creditor Susan LeBel ("LeBel") against Jason B. Goodin, the debtor in the underlying Chapter 7 bankruptcy case (the "Debtor").¹ In this adversary proceeding, LeBel seeks a denial of the Debtor's discharge under 11 U.S.C. §§ 727(a)(2)(A), (a)(3), and (a)(4) and/or a ruling that a judgment previously entered in favor of LeBel against the Debtor is nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2) and (6) as a debt incurred by fraud and/or on account of a willful and malicious injury.²

Pursuant to Bankruptcy Rule 7052, the following constitute the Court's findings of fact and conclusions of law.

I. FACTS AND POSITIONS OF THE PARTIES

The factual findings contained in this Memorandum are based on trial testimony, the admitted evidence, and the Court's own records. See LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir. 1999). The following is a brief summary of the relevant facts; more detailed findings of fact are incorporated in the Discussion section, Part II, below.

In 2015, Boneat Goodin ("Boneat," the Debtor's then spouse) approached Kevin Bevis, (Boneat's father and LeBel's long-term partner) seeking funds to assist the Debtor in opening a restaurant. After a meeting between Bevis, LeBel, Boneat, and the Debtor, LeBel agreed to a loan for $50,000, and the Debtor, Boneat, and J&D Investment Group, Inc. ("J&D Investment")³ signed a promissory note to LeBel in the amount of $50,000. Pursuant to the promissory note, the loan term ran from January 1 to December 31, 2016, with monthly payments of $500, which payments included 6% interest and a portion of the principal.

On February 29, 2016, LeBel loaned the parties an additional $10,000, and the same parties executed a second promissory note for that loan on April 9, 2016. The second promissory note had a loan term of March 1, 2016 to December 31, 2016, with monthly payments of $232.32, representing a one-time 6% interest payment of $600 and reimbursement to LeBel of $1,500 for capital gains taxes that she was going to owe after liquidating stocks to fund the loan. On December 31, 2016, the balance of the note ($10,000) would be due. The promissory note included a statement that the parties were "already in arrears $1,000 on the other note." Pl. Ex. 2, 5.

Both promissory notes contained sections entitled "Security," stating that the notes would be secured by a deed of trust covering the Debtor's and Boneat's home in Dracut, Massachusetts (the "Dracut home"), and in the case of a default, the borrowers agreed to transfer the ownership of J&D Investment, doing business as East Street Grille (the "Restaurant") to LeBel. There was no evidence that any purported security interest under the notes was properly perfected, although the parties stipulated that the loans were secured by the Dracut home and the Restaurant's assets.

Despite repeated requests from LeBel, including written demands for payment, the Debtor never made any of the required monthly payments or the final payments on the notes when they came due on December 31, 2016.

Subsequently, the Debtor and Boneat filed for divorce, which was finalized in June 2018. In connection with the divorce, the probate court ordered the sale of the Dracut home and the Restaurant. The divorce decree stated, in part, that "until the [Dracut home] is conveyed ..., the Wife shall continue to have sole and exclusive use of the [Dracut home], and the Wife shall be financially responsible to pay all the utilities, current mortgage, and taxes for the [Dracut home]." Pl. Ex. 18. The decree also ordered the sale of the Restaurant to pay "meals taxes and any other restaurant-related taxes, in regard to transferring the business in the sales transaction." Id.

In August 2018, the Debtor introduced LeBel to a potential buyer for the Restaurant. The individual claimed to be an attorney and indicated that he would assume the debts owed to LeBel. LeBel says that, through online research, she discovered an article regarding that individual's criminal history. She alerted the Debtor to her reservations regarding the buyer's character and did not proceed with the sale.

In October 2018, the Restaurant was under a sales agreement with a different buyer, contingent on the transfer of the Restaurant's liquor license to the purchaser. However, due to outstanding meals taxes, the Massachusetts Department of Revenue (the "MDOR") declined to issue a Certificate of Good Standing required for the liquor license transfer. Thereafter, in November 2018, the MDOR placed a lien on all J&D Investment's property.

At the end of November 2018, LeBel filed a complaint for breach of contract against the Debtor, Boneat, and J&D Investment in Massachusetts Superior Court. In March 2019, the Superior Court issued a prejudgment attachment on the Restaurant and the Dracut home, notice of which was served on the Debtor and Boneat. The Debtor, Boneat, and J&D Investment did not answer the Superior Court complaint and a default judgment in the amount of $77,851.34 was entered on September 25, 2019 (the "Judgment").

In October 2019, the MDOR foreclosed on the Restaurant's assets. The auction sale netted proceeds of $5,500, an amount insufficient to cover the meals taxes owed. LeBel received nothing from the sale of the Restaurant's assets.

In the interim, in May 2019, the Dracut home was listed for sale, but a private sale never came to fruition. The Dracut home was eventually sold at a foreclosure auction in January 2020. After payment to the mortgage holder, there were no excess proceeds, and LeBel received nothing from the sale of the Dracut home.

In December 2020, LeBel filed a motion for trustee process in the Superior Court seeking to attach the Debtor's, Boneat's and J & D Investment's bank accounts in order to satisfy the $77,851.34 judgment.

On December 29, 2020, the Superior Court ordered that the defendants were prohibited from moving any funds or in any way modifying or dissipating the accounts or property which the plaintiff was seeking to attach until the court heard from the parties at a later hearing. Subsequently, on January 4, 2021, the Superior Court granted LeBel's trustee process motion.

On July 21, 2021, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code, and, on October 26, 2021, LeBel commenced the present adversary proceeding against the Debtor by filing a five-count complaint seeking a determination that the Judgment against the Debtor is nondischargeable pursuant to §§ 523(a)(2) and (a)(6) and that the Debtor's discharge should be denied pursuant to §§ 727(a)(2), (a)(3), and (a)(4). A trial was conducted on April 25, 2024. Three witnesses testified at the trial: LeBel, the Debtor, and Bevis. The Court deemed the Debtor's and LeBel's testimony credible and forthright. Bevis, at times, appeared condescending and visibly frustrated by the Debtor's counsel. His testimony was credible in some respects but often incomplete or evasive, with opportunistic purported confusion.

In the complaint, the Joint Pre-trial Memorandum, and during trial, LeBel asserted that the Debtor engaged in fraud and willfully and maliciously caused LeBel's injury by failing to sell the Restaurant or the Dracut home and by failing to obtain a business loan in order to repay her, rendering the Judgment excepted from discharge pursuant to §§ 523(a)(2) and (a)(6). In addition, LeBel argued that the Debtor's discharge should be denied in its entirety (1) pursuant to § 727(a)(2)(A) on account of the Debtor's payment of $1,500 to another individual within the year preceding the bankruptcy filing with the intent to hinder, delay, or defraud LeBel; (2) pursuant to § 727(a)(3) on account of the Debtor's concealment, destruction, or failure to keep financial records; and (3) pursuant to § 727(a)(4)(A) as a result of various false oaths the Debtor made in or in connection with his bankruptcy case. The Debtor denies LeBel incurred an injury on account of any willful or malicious action, that the Debtor concealed or destroyed any property or records, that the Debtor failed to keep adequate financial records, or that the Debtor knowingly and intentionally made any false representations in connection with the bankruptcy case.

II. DISCUSSION

A. 11 U.S.C. § 727: Denial of Discharge

As this Court has previously stated,

Obtaining a discharge and its concomitant financial fresh start is usually the debtor's primary objective in filing a bankruptcy case under Chapter 7 of the Code. As such, a denial of discharge has appropriately been described as the "death penalty of bankruptcy." Washington 1993, Inc. v. Hudson (In re Hudson), 420 B.R. 73, 100 (Bankr. N.D.N.Y. 2009). Absent proof that one of the grounds for denial of discharge under § 727(a)(1)-(12) exists, § 727 provides that a court must grant a discharge. 11 U.S.C. § 727(a) ("The Court shall grant the debtor a discharge, unless....") (emphasis supplied). "In light of the effect on the [d]ebtor, a denial of discharge is an extreme step that should not be taken lightly ..., and, therefore, the provisions of § 727 should be construed liberally in favor of debtors. Objections to discharge should be narrowly construed in furtherance of the Bankruptcy Code's fresh start policy[.]" Warchol v. Barry (In re Barry), 451 B.R. 654, 659 (B.A.P. 1st Cir. 2011) (quoting Annino, Draper & Moore, P.C. v. Lang (In re Lang), 246

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