LWBC, LLC v. Rosenberg (In re Rosenberg)

642 B.R. 711

IN RE: Samuel A. ROSENBERG and Christine E. Rosenberg, Debtors.

LWBC, LLC, as successor in interest to Dollar Bank, Federal Savings Bank, Plaintiff,

v.Samuel A. Rosenberg and Christine E. Rosenberg, Defendants.

Bankruptcy No. 21-20791-CMB

Adversary Pro. No. 21-02092-CMB

United States Bankruptcy Court, W.D. Pennsylvania.

Signed August 26, 2022

Justin Tuskan, Pittsburgh, for Plaintiff LWBC, LLC, as successor in interest to Dollar Bank, Federal Savings Bank.

Francis Corbett, Pittsburgh, for Defendants Samuel A. Rosenberg and Christine E. Rosenberg.

MEMORANDUM OPINION

Carlota M. Böhm, Chief United States Bankruptcy Judge

The matter before this Court is the Complaint to Determine Dischargeability of Debts ("Complaint," Doc. No. 1)¹ filed by LWBC, LLC, as successor in interest to Dollar Bank, Federal Savings Bank ("LWBC"). Upon consideration of the credibility of the witness, the plausibility of the testimony, the record in this case, and for the reasons set forth herein, this Court finds that both Debtor Samuel A. Rosenberg and Debtor Christine E. Rosenberg must be denied a discharge pursuant to 11 U.S.C. § 727(a)(4)(A).

Background and Procedural History

On April 2, 2021, Samuel A. Rosenberg ("Debtor Husband") and Christine E. Rosenberg ("Debtor Wife") (collectively, the "Debtors"), filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code (the "Main Case," Case No. 21-20791-CMB). The Chapter 7 Trustee ("Trustee"), Rosemary C. Crawford, held a Meeting of Creditors, as required under 11 U.S.C. § 341, on May 10, 2021 ("Meeting of Creditors"). At or around the tune of the Meeting of Creditors, assets were discovered that were either not initially disclosed or were disclosed but there was a question as to their value. The Trustee was involved in investigating these assets.

In the meantime, on August 23, 2021, LWBC, as a creditor of the Debtors, commenced this adversary proceeding (the "Adversary Case") by filing the Complaint objecting to Debtors’ discharge under 11 U.S.C. § 727(a)(4)(A) pursuant to 11 U.S.C. § 727(c)(l). In the Complaint, LWBC identifies several purported misstatements and omissions in Debtors’ schedules and initial statement of financial affairs ("SOFA") including: (1) the acreage and value of property owned by Debtors located in Ligonier, Pennsylvania ("Ligonier Property") in Debtors’ Schedule A/B; (2) the omissions of an oil and gas lease and related royalties in Debtors’ Schedules G and I, respectively; and (3) the initial omission of three firearm transfers in Debtors’ SOFA. Debtors deny and/or try to explain away these allegations. See Answer to Complaint , Doc. No. 8.²

While the Adversary Case was pending, the Trustee entered into a settlement agreement ("Settlement Agreement") with the Debtors, which was approved by Order Approving Trustee's Motion to Approve Settlement entered by default on November 17, 2021. See Doc. No. 52 in the Main Case. The Settlement Agreement provided for a sum to be paid to the bankruptcy estate in lieu of the Trustee selling certain assets identified therein. Further, there was no mention of a 11 U.S.C. § 727 action or dischargeability set forth therein.

A trial ("Trial") on this matter was held via video conference on June 2, 2022. Dining the Trial, LWBC's Counsel presented LWBC's case primarily through the presentation of exhibits and the examination of Debtor Husband as a witness. Debtor Husband was sworn in and offered testimony that either refuted the allegations made by LWBC in the Complaint or attempted to provide justifications for the Debtors’ actions. After LWBC concluded its case, Debtors presented their own exhibits to the Court and again called Debtor Husband as a witness. While the Court found Debtor Husband's testimony at Trial related to the alleged misstatements about the acreage and value of the Ligonier Property to be credible, it did not find his statements related to the initial omission of the firearm transfers and the complete omissions of the oil and gas lease and accompanying royalties credible. Although Debtor Wife was present in the same room as Debtor Husband and Debtors’ Counsel during the Trial, she was not called as a witness by LWBC or Debtors’ Counsel.³

After the Trial, LWBC was instructed to file a statement with the Court clarifying whether the relief sought under 11 U.S.C. § 727(a)(4)(A) was against both Debtor Husband and Debtor Wife, or only Debtor Husband. See Order , Doc. No. 32. Pursuant to the filed Notice Clarifying Relief Sought by Plaintiff (Doc. No. 36), LWBC is seeking relief under 11 U.S.C. § 727(a)(4)(A) against both Debtor Husband and Debtor Wife. Thereafter, on July 29, 2022, Defendants’ Proposed Findings of Fact and Conclusions of Law (Doc. No. 39) and Plaintiff's Proposed Findings of Fact and Conclusions of Law (Doc. No. 40) were filed. At that time, this matter was taken under advisement. This matter is now ripe for decision.

Findings of Fact

LWBC and the Debtors stipulated to the following background facts in then Joint Status Report (Doc. No. 18) ("Stipulation"). In 2018, Dollar Bank, Federal Savings Bank (the "Original Lender") extended a standby line of credit to INPAX Academy, LLC⁴ (the "Borrower"). See Stipulation at ¶ 4. At that time, the Borrower operated a shooting range in McCandless, Pennsylvania. See id. at ¶ 11. Subsequently, the standby line of credit was converted to a term loan and a note evidencing the standby term loan was executed. See id. at ¶¶ 4, 5. As security for repayment of all monies owed. Debtors executed an Open-End Mortgage ("Mortgage") in favor of the Original Lender granting a mortgage lien on Debtors’ residence located at 911 Cedarcrest Court, Wexford, PA 15090. See id. at ¶ 6. Per the terms of their agreement, the Debtors personally guaranteed all obligations and liabilities of the Borrower under the Mortgage. See id. at ¶ 7. "In or about April of 2020, the Borrower ceased substantially all of its business operations." See id. at ¶ 11. Afterwards, the Mortgage was assigned by the Original Lender to LWBC. See id. at ¶ 10. The dispute between Debtors and LWBC arose when Borrower and Debtors defaulted under the terms of the various agreements for, among other reasons, their failure to pay LWBC. See id. at ¶ 12.

As indicated above, on April 2, 2021, Debtors filed a voluntary Chapter 7 bankruptcy petition along with the required schedules and SOFA. See Exhibit A at 1-45; Exhibit B at 46-51.⁵ LWBC is challenging the Debtors’ discharge due to numerous alleged misstatements and omissions in the Debtors’ schedules and SOFA. Debtor Husband testified at Trial that he provided the information contained within the filed schedules; as stated, Debtor Wife did not testify at Trial.⁶ However, the Debtors filed a Declaration About An Individual Debtor's Schedules acknowledging that "[i]f two married people are filing together, both are equally responsible for supplying correct information," and both Debtor Husband and Debtor Wife signed under penalty of perjury to the truthfulness of the information contained within the schedules. See Trial Transcript at 14-15; Exhibit A at 45. This same language appears within the filed SOFAs, which Debtors also signed under penalty of perjury that the answers contained therein were true and correct. See Trial Transcript at 34-35; Exhibit B at 46, 51.

Acreage and Value of the Ligonier Property

Part 1 of a Schedule A/B form requires a debtor(s) to disclose whether they own or have any legal or equitable interest in any residence, building, land, or similar property, and to accurately describe each specific asset in detail. In their filed Schedule A/B, Debtors list the Ligonier Property as being ten acres and having a current value of $10,000. See Exhibit A at 3. However, LWBC alleges that "[t]he Debtors’ statements regarding the total size and value of the Ligonier Property were knowingly false." See Complaint at ¶ 19.

By deed dated November 26, 2008 ("Deed"), the Ligonier Property was conveyed to the Debtors by "Christine E. Knupp, now by marriage Christine E. Rosenberg," being Debtor Wife, and Donald G. Knupp and Brenda M. Knupp, husband and wife, being the Debtor Wife's parents.⁷ See Exhibit C at 52-53. Despite listing the Ligonier Property as only ten acres on their Schedule A/B, the Deed describes the Ligonier Property as containing 13.449 acres. See id. at 53. Although Debtor Husband acknowledged that he is a party to the Deed and the Ligonier Property is indeed 13.449 acres, he testified that at the time the bankruptcy schedules were completed he did not know that the Ligonier Property was larger than ten acres and he did not have the deed in his possession at that time to state the contrary. See Trial Transcript at 16-18.

Relating to the value of the Ligonier Property, LWBC argued at Trial that the Debtors knew at the time they filed their schedules that the Ligonier Property was worth significantly more than $1000 per acre based on the comparative market analyses from Loyalhanna Realty and Vernon Realty. See Trial Transcript at 21-29; Exhibit D at 56-69; Exhibit E at 70-96. The Loyalhanna Realty and Vernon Realty comparative market analyses (collectively, the "Market Analyses") estimated the sale price of the Ligonier Property to be approximately $2868 and $3417 per acre, respectively. See Exhibit D at 62, 65-66; Exhibit E at 75, 77-78. However, Debtor Husband clarified that the Market Analyses were not in the Debtors’ possession at the time they completed their bankruptcy petition and were not obtained until after the Meeting of Creditors when questions were raised by LWBC's Counsel as to the value of the Ligonier Property. See Trial Transcript at 26. Further, Debtor Husband credibly testified that he estimated the Ligonier Property's value as being approximately $10,000, or $1000 an acre, after seeking guidance on the value from his father-in-law, Donald G. Knupp. See Trial Transcript at 20-21. Mr. Knupp not only lives on the...