Roberta A. Deangelis U.S. Tr. v. Capponi (In re Capponi)

508 B.R. 908

In re Andrew Thomas CAPPONI, Debtor.Roberta A. DeAngelis United States Trustee, Plaintiff,

v.Andrew Thomas Capponi, Defendant.

Bankruptcy No. 11–17727 (JKF).

Adversary No. 12–0595.

United States Bankruptcy Court, E.D. Pennsylvania.

Signed March 25, 2014.

Filed March 26, 2014.

George Conway, Esquire, Office of the U.S. Trustee, Philadelphia, PA, for Plaintiff.

David B. Smith, Esquire, Smith Kane, LLC, Malvern, PA, for Defendant.

MEMORANDUM OPINION

JEAN K. FITZSIMON, Bankruptcy Judge.

I. INTRODUCTION

Before the Court is the motion of the plaintiff, Roberta A. DeAngelis, the United States Trustee (“UST”), for summary judgment on her Complaint Objecting to Debtor's Discharge Under Section 727. The UST moves for summary judgment pursuant to 11 U.S.C. § 727(a)(3).¹ The UST supports her motion for summary judgment (“Motion”) with the transcript (“Transcript”), dated August 20, 2012, of the Chapter 7 Trustee's continued 11 U.S.C. § 341 meeting of creditors which was coupled with a 2004 examination of the Debtor.² As support for his opposition to the Motion, the Debtor relies upon: (i) his Schedules and Statement of Financial Affairs(“SOFA”); (ii) the Transcript; ³ (iii) an affidavit of his own; and (iv) an affidavit by his attorney, David B. Smith, Esquire. Upon consideration of the record on summary judgment, the Court shall grant summary judgment in favor of the UST and deny the Debtor a discharge pursuant to 11 U.S.C. § 727(a)(3). There is no genuine dispute as to any issue of material fact and the UST is entitled to judgment as a matter of law.

II. BACKGROUND

The Debtor has been in the construction business since he was twenty years old. Affidavit of Andrew Capponi (“Debtor Aff.”) ¶ 4. During this period, he acquired and invested in real estate and real estate-related projects. Id. ¶ 5. Sometimes, he was financially successful; other times, he was not. Id. ¶ 6.

For estate planning purposes, the Debtor created an irrevocable trust for his son and an irrevocable trust for his wife. Id. ¶ 41. One of the trusts was created in 1998; the other one was created in 2003. Id. ¶ 41. These trusts (“Trusts”) eventually acquired commercial rental properties in Bensalem, Pennsylvania. Id. ¶ 42. The details of this acquisition will be explained below. Significantly, the Debtor contends that he is neither a trustee nor a beneficiary of the Trusts. See Response ¶ 8(d).

In 2005, the Debtor was “sustaining mounting losses from unprofitable construction projects and he was not able to address” some of his liabilities as they became due. Id. ¶ 8. As a consequence, lawsuits were filed against him and/or the entities with which he was associated. Id. The Debtor opted not to defend many of the lawsuits because: (i) he acknowledged that he owed the money at issue; and (ii) anticipated an increase in his earnings which would enable him to address the liabilities and judgments. Id. ¶ 9.

Subsequently, some of the Debtor's judgment creditors escalated their efforts to collect against him. Id. ¶ 10. In some instances, the creditors levied or attached some of the Debtor's assets. Id. The Debtor concluded that he could no longer own a business because the payment stream from his self-employment could be attached and his business would otherwise be at risk. Id. ¶ 12. As a result, the Debtor “explored the possibility of being employed by a third party but creating a compensation structure that would enable [him] to reap the economic benefits of work that [he] originated.” Id. ¶ 13.

In or around 2009, the Debtor accepted a position as “estimator/project manager” with a company known as 4–Winds Construction Services, LLC (“Four Winds”). Id. ¶ 14. According to the Debtor, he reached an “oral understanding” with Brian Taylor who was the sole member/owner of Four Winds that the Debtor “would be compensated on a job by job basis based upon the level of profitability from jobs” that the Debtor “brought to Four Winds.” Id. ¶ 15. Despite being asked, the Debtor never disclosed the specific percentage of profits to which he was entitled from Four Winds.⁴ Transcript (“Tr.”) at 53–54; 108. He specifically denied that he agreed to a 65/35 split in favor of Four Winds and that a written agreement existed regarding the division of profits. Tr. at 108; ⁵ Debtor's Aff. ¶ 15. In his affidavit, the Debtor asserts that “most of the jobs performed by Four Winds were not profitable” and, therefore, he was “paid very little of what [he] otherwise would have earned” if the jobs had been profitable. Id. During the § 341 meeting/2004 exam, the Debtor testified that he received some money from working for Four Winds but, in the next breath, he contradicted himself by stating that he never made any money. The aforementioned testimony is set forth in the following colloquy from the § 341 meeting/2004 exam:

Trustee: Do you remember the last time you received any money as a result of a 4 Winds job?

Debtor: No.

Trustee: No?

Debtor: That one I definitely don't remember, no.

Trustee: So, you didn't keep track, but you did receive some money as a result of various 4 Winds—

Debtor: I did—

Trustee: —construction jobs?

Debtor: —yes. Correct.

Trustee: So, how would you keep track of whether—if what you got was appropriate vis-a-vis what Brian got. Like, you know, you said you're very good with numbers.⁶

Debtor: It was very easy; we never were in the plus.

Trustee: You were never in the plus?

Debtor: Never.

Trustee: You never made any money?

Debtor: Never.

Tr. at 48–49. During his 2004 exam, the Debtor also testified that he believed that he received a W–2 in 2010 from Four Winds, see Tr. at 99; however, in his affidavit, the Debtor states that he did not. See Debtor's Aff. ¶ 37.

Several times during the continued § 341 meeting/2004 exam, the Debtor testified that, while Taylor owned Four Winds, he did not run the company; rather, the Debtor was the one who ran the company. The following colloquy provides an example of such testimony:

Trustee: ... So, what was the settlement of a lawsuit about with U.S. Construction?

Debtor: The job that they didn't pay Brian on.

Trustee: I'm sorry; I couldn't hear you.

Debtor: A job that they did not pay Brian on; that they did not pay him for.

Trustee: Oh, what kind of job was it?

Debtor: Excavation.

Trustee: So, 4 Winds was supposed to do the excavation?

Debtor: They did and U.S. didn't want to pay them.

Trustee: They did do the excavation?

Debtor: Yes, they did.

Trustee: Were you involved in the negotiation at all of the settlement?

Debtor: A little bit, yes.

Trustee: Why?

Debtor: Because I was the one working there.

Trustee: Is it your testimony that you, I mean, did you run that business at all, 4 Winds?

Debtor: Pretty much, yes.

Trustee: You did run it?

Debtor: Yes.

Trustee: But you had no ownership interest?

Debtor: None.

Trustee: Okay. You had an understanding with Brian Taylor—

Debtor: Pretty much.

Trustee: —how to run it?

Debtor: Yes, uh-huh.

Tr. at 47 (emphasis added). At another point during the § 341 meeting/2004 exam, the Debtor testified that it was part of his job to keep track of the construction costs on Four Wind's jobs. This testimony occurred during the following colloquy:

Trustee: Okay. And did anybody keep track of the, you know, the construction costs of the job? Somebody has to, you know, somebody has to keep track of what's coming in and what's going out.

Debtor: It's in my head.

Trustee: So, you would do that?

Debtor: Yes, I would.

Trustee: Was that part of your job?

Debtor: Yes, it was.

* * *

Trustee: Is there any paperwork—

Debtor: Not really.

Trustee: —for any of these construction jobs?

Debtor: No.

Trustee: No?

Debtor: (Witness shakes his head in the negative.)

Tr. at 58–59. In an about-face to this testimony that he ran Four Winds and that it was part of his job to keep track of the construction costs incurred by the company, the Debtor asserts, in his response to the Motion, that he “was simply an employee of ‘4 Winds' and had no responsibility for record keeping or maintenance thereof.” Debtor's Response ¶ 6.

In or about December of 2009, the Debtor became aware of an opportunity to purchase commercial rental properties located on Camer Drive in Bensalem, Pennsylvania (the “Camer Properties”). According to the Debtor, he “allowed” the Trusts, which were mentioned above—of which the Debtor asserts he is neither a trustee nor beneficiary, to acquire a 51% interest in the Camer Properties.⁷ Aff. ¶ 42; Tr. at 54–55, 91. The remaining 49% interest in the two commercial buildings was purchased by Brian Taylor, the owner of Four Winds. Debtor Aff. ¶ 42. The Trusts and Taylor apparently owned the Camer Properties by way of an entity called Jolie Holdings (“Jolie”). Jolie purchased the Camer Properties from their owner, Ron Bershad, for $1,050,000. Tr. at 54–55, 91. The purchase involved a deposit of $100,000 and a mortgage loan from Bershad to Jolie. Id. at 91. The UST questioned the Debtor regarding the $100,000 deposit as follows:

Trustee: And what was the source of those funds?

Debtor: 4 Winds a/k/a my mother lent it to us.

Trustee: Well, who did she lend it to, 4 Winds or you or someone else or Jolie?

Debtor: Well, when we bought the property, Brian Taylor was a partner.

Trustee: Okay.

Debtor: And he's not any longer.

Trustee: Okay. But your mom handed someone $100,000?

Debtor: Yes.

Trustee: Who was it payable to?

Debtor: It was basically 4 Winds.

Trustee: To 4 Winds?

Debtor: 4 Winds wrote the check, I believe, yes.

Trustee: And did 4 Winds hold an ownership interest in Jolie Holdings?

Debtor: No.

Trustee: At that point? Okay. So, $100,000 went into 4 Winds and then who were the owners of Jolie?

Debtor: Brian Taylor was 49 percent and the two trusts were 51 percent.

Trustee: Okay. But all hundred thousand dollars from your mother was the initial amount of the purchase price plus the seller's mortgage; is that correct?

Debtor: That's correct.

Trustee: So, why is it that the trust had 51 percent...