Lassman v. Spalt (In re Spalt)

593 B.R. 69

IN RE Kristen M. SPALT, Debtor

Donald R. Lassman, Chapter 7 Trustee, Plaintiff,

v.Kristen M. Spalt, Defendant

Case No. 16-10131-JNF

Adv. P. No. 16-1150

United States Bankruptcy Court, D. Massachusetts.

Signed October 15, 2018

Jonathan Hixon, James M. Liston, Hackett Feinberg P.C., Boston, MA, for Plaintiff.

Charles R. Bennett, Jr., Murphy & King, Professional Corporation, Boston, MA, for Defendant.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Motion for Summary Judgment filed by Donald R. Lassman, the Chapter 7 Trustee (the "Plaintiff" or the "Trustee") of the bankruptcy estate of Kristen M. Spalt (the "Defendant" or the "Debtor"). Through his Motion, the Plaintiff seeks summary judgment against the Debtor on Counts I, III and IV of the "Amended Complaint Objecting to Discharge of the Debtor." Specifically, the Plaintiff seeks judgment denying the Debtor a discharge 1) pursuant to 11 U.S.C. § 727(a)(4)(D) due to her failure to furnish him with records and information that he requested (Count I); 2) pursuant to 11 U.S.C. § 727(a)(4)(A) for knowingly and fraudulently making false oath(s) or account(s) on her Schedules (Count III); and 3) pursuant to 11 U.S.C. § 727(a)(6) due to her refusal to obey a lawful order of the Court, specifically a Stipulation as approved by an Order of this Court (Count IV).

The Plaintiff filed a Statement of Undisputed Material Facts in Support of his Motion for Summary Judgment together with the Affidavit of Jonathan M. Hixon, counsel for the Plaintiff, together with a Memorandum of Law. The Defendant filed an Opposition to the Motion for Summary Judgment, a Response to the Plaintiff's Statement of Undisputed Material Facts and an Affidavit.

The Court heard the Motion for Summary Judgment on September 7, 2018 and took the matter under advisement. The Court now makes its findings of fact and rulings of law in accordance with Fed. R. Civ. P. 56, made applicable to this proceeding by Fed. R. Civ. P. 7056.

II. UNDISPUTED FACTS

The Debtor commenced a Chapter 7 case on January 15, 2016.¹ The Trustee conducted the meeting of creditors and examined the Debtor on February 17, 2016. The Trustee continued the meeting of creditors to March 16, 2016 and then continued it several more times while the Trustee awaited the production of certain financial records and documents that he had requested from the Debtor.

A. The Debtor's Production of Records to the Trustee

On January 29, 2016, the Debtor filed Schedule A/B: Property disclosing as assets ownership interests in several entities as follows:

• 80% shareholder of Jackbox, LLC;

• 14.28% interest in the Nancy Gallagher Partnership;

• Trustee/beneficiary of the KG Family Trust;

• 50% beneficiary of the J.P. Realty Trust;

• 50% beneficiary of the S & S Realty Trust;

• Interest in Narragansett Bay Towing, LLC;

• 50% interest in New Ranger, LLC;

• 20% interest in Cape Coastal Marine, LLC;

• 20% interest in Mohawk Callais, LLC;

• 10% interest in Lydonia, LLC; and

• 8% interest in Cape 10-21 LLC

On February 26, 2016, the Debtor filed a "Notice of Amended Voluntary Petition and Form 122A-1"² to which she attached, as "Schedule A," a listing of all of the above-described entities, plus Cape Oceanic LLC, Cape Coastal Landscaping LLC and "West Newbury, Ma (land)." The Debtor stated on a "Schedule A," which was not Official Form 106A/B, that "[t]he Debtor has an interest in each of the above [14 entities], either directly as a member or indirectly because the membership interest is held by a trust in which she has an interest."

The Debtor also scheduled the following bank accounts in her Schedule A/B: Property:

• Jackbox, LLC; TD Bank; Acct no. ending in 8555;

• KG Family Trust, Kristen Spalt, Trustee; TD Bank; Acct no. ending in 5541;

• Kristen M. Spalt and James E. Spalt, Charles Schwab & Co., Inc.; Acct no. ending in 5477;

• Kristen M. Spalt, Charles Schwab & Co., Inc.; Acct no. ending in 6665;

• Kristen M. Spalt, Charles Schwab & Co., Inc.; Acct no. ending in 6666;

• Kristen M. Spalt, Charles Schwab & Co., Inc.; Acct no. ending in 6670;

• TD Bank checking, Account no. ending in 1169;

• TD Bank savings, Account no. ending in 1169 ("1169" is most likely a typographical error, the actual account no. likely ends in 942);

• South Lafourche Bank - business checking for Cape Coastal Marine, LLC (20% shareholder); and

• Charles Schwab & Co., Inc. trust account – J.P. Realty Trust

The Debtor admitted listing the accounts but stated that she was not a signatory on the South Lafourche Bank account and that she did not have an interest in the account."³

On March 2, 2016, the Trustee delivered to Debtor's counsel a 3-page document entitled "List of documents to produce[.]" On March 30, 2016, Debtor's counsel delivered to Trustee's counsel approximately one and one-half banker's boxes of documents in response to the Trustee's List of documents to produce.

On June 3, 2016, the Trustee requested, by letter from his counsel to Debtor's counsel, that the Debtor produce additional documents, including, among other things, the following:

(i) All schedules, consents, votes, directions, certificates or other documents evidencing the ownership of beneficial interests or membership interests or evidencing or constituting transfers of beneficial interests or membership interest in various entities the Debtor held a beneficial or membership interest in;

(ii) Organizational documents for Cape 10-21 LLC and 10-21 Nominee Trust;

(iii) Bank records for the Debtor's TD Bank checking and savings accounts, Cape Coastal's South Lafourche account and a Charles Schwab & Co. trust account for JP Realty Trust;

(iv) Source documents for Jackbox's TD Bank account;

(v) Source documents for KG Family Trust's TD Bank Account;

(vi) Records of deposits and withdrawals from the Debtor's 5477 Account;

(vii) Records of deposits and withdrawals from the Debtor's Charles Schwab account ending in 6665;

(viii) Records of transfers in and out of JP Realty Trust;

(ix) Operating agreements for Jackbox, Cape 10-21 LLC, Cape Coastal, Lydonia, Mohawk Callais, Narragansett, New Ranger and Veatch LLC;

(x) Federal tax returns for Cape Coastal, Veatch and Debtor's other entities;

(xi) The most recent income statements for Cape Coastal, Mohawk Callais, Lydonia, New Ranger and Narragansett and the most recent balance sheet and income statements for Cape 10-21, LLC and Veatch, LLC;(xii) Exhibits to the Statement of Undisputed Fact with Plaintiff and Defendant Responses filed in the Suffolk County Superior Court action 12-04539; and

(xiii) A schedule of payments of tuition, room, board, fees and any other charge or expenses with respect to any of the Debtor's children.

The Debtor failed to timely produce the documents, records or communications responsive to the Trustee's request. Nevertheless, the Defendant contends that "Counsel for the Debtor and Counsel for the Trustee had various conversations regarding the documents, the Debtor's efforts to obtain the documents from third parties and the nonexistence of certain of the documents." The Defendant did not point to any specific part of the record to support that assertion. The Court notes that the Defendant in her Affidavit stated, on the one hand, that she attempted to comply with the Trustee's requests but because the information was in the possession of third parties she relied on her husband to produce the documents. On the other hand, she represented that she produced one and one-half banker boxes of documents as well as a memory stick containing 50,000 pages of documents. She did not indicate in her Affidavit whether any of the documents she produced were responsive to the Trustee's requests.

On July 10, 2016, and again on August 12, 2016, Trustee's counsel followed up with emails to Debtor's counsel requesting the same documents that he had requested in the June 3, 2016 letter. The Debtor again failed to timely produce the documents, records or communications responsive to the Trustee's follow-up requests. Trustee's counsel testified that he alerted Debtor's counsel that he had not received documents from the Debtor's accountants and attorneys; the Defendant attempted to deny the testimony with reference to "conversations regarding the documents" between counsel to the Debtor and counsel to the Trustee.

On August 25, 2016, the Trustee filed his Complaint Objecting to Discharge of the Debtor on the grounds that, inter alia, the Debtor failed to produce records to the Trustee related to her property and financial affairs. Approximately four months later, on or around January 2017, the Debtor produced a thumb drive to counsel for the Trustee consisting of approximately 40,000 to 50,000 pages of documents that were produced to the Debtor by Massachusetts Housing Finance Authority ("MHFA").

In support of his position that he did not obtain the documents requested, the Plaintiff relies upon the testimony of his counsel during the trial held in Massachusetts Housing Finance Agency v. Spalt, Adv. P. No. 16-1127. Specifically, during the trial, his counsel, James M. Liston, Esq., testified that, although he may have exchanged telephone calls with Debtor's counsel, he did not obtain all the documents requested until after August 25, 2016 when the Trustee filed an adversary proceeding objecting to the Debtor's discharge, adding "[s]ubsequent to that, we probably received most of these documents at different points in time from different sources - - from a number of different sources including the debtor. The debtor did submit - - give [sic] us certain of the documents after the adversary had been commenced." Notably, the Trustee was required to obtain pertinent documents from third parties.

On February 14, 2017, the Trustee served his Request for Admissions in this matter. The Debtor never responded to the Request for Admissions.⁴

On January 3, 2018, the Trustee filed his Motion to Deem Admitted and Conclusively Establish the Matters Set Forth in ...