Spiridigliozzi v. Grammenos (In re Grammenos)

469 B.R. 535

In re James M. GRAMMENOS, Debtor.Americo Spiridigliozzi, Plaintiff,

v.James Grammenos, Debtor/Defendant.

Bankruptcy No. 09–18548(RG).

Adversary No. 09–2777(RG).

United States Bankruptcy Court, D. New Jersey.

March 23, 2012.

Karen E. Bezner, Esq., Scotch Plains, NJ, for the Plaintiff, Americo Spiridigliozzi.

James M. Grammenos, Mountainside, NJ, Debtor–Defendant, Pro Se.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

Matter Before the Court

Before the Court is a Motion for Summary Judgment filed by Plaintiff Americo Spiridigliozzi, pursuant to Federal Rule of Civil Procedure 56, as made applicable by Federal Rule of Bankruptcy Procedure 7056, in an adversary proceeding seeking to deny the chapter 7 discharge of Debtor James M. Grammenos pursuant to 11 U.S.C. § 727(a)(2), (a)(3), and (a)(5).

Hearings were held on August 10, 2011, and November 29, 2011. This Court reserved decision. The following constitutes the Court's findings of fact and conclusions of law.

Statement of Facts and Procedural History

I. Background

James M. Grammenos (“Debtor”) filed a voluntary petition under for relief under chapter 7 of the Bankruptcy Code on April 6, 2009 (“Petition Date”). Pet., In re Grammenos, No. 09–18548 (Bankr.D.N.J. Apr. 6, 2009), ECF No. 1; Adv. Compl., ECF No. 1.

On April 7, 2009, Charles A. Stanziale was appointed Trustee, No. 09–18548, ECF No. 3, and on June 9, 2009, the Trustee filed a Report of No Distribution. On September 21, 2009, the Trustee filed a letter with this Court withdrawing the Report of No Distribution, stating that it had come to his attention that Debtor held an “interest in a sizeable asset that will more than likely yield a distribution to creditors.” No. 09–18548, ECF No. 16. Debtor was formerly represented by counsel Michael Schwartzberg, Esq. in the filing of his chapter 7 case, but is currently representing himself pro se in the Adversary Proceeding.¹

Plaintiff here is a judgment creditor of Debtor, alleging a debt owed with a balance of approximately $37,000.00, consisting of damages from a willful breach of a contract for the sale of real estate.² A case against Debtor was heard in New Jersey Superior Court and is captioned Spiridigliozzi et al. v. Grammenos, UNN–L–2302–07. The case is listed on Debtor's statement of financial affairs, Pet. at 23,³ and Schedule F of the Petition lists an unsecured nonpriority claim of $42,000.00 owed to Americo and Karen Spiridigliozzi and total scheduled unsecured claims of $68,655.00, Pet. at 15–16.

1. The Instant Adversary Complaint

On November 13, 2009, Plaintiff Americo Spiridigliozzi filed an Adversary Complaint seeking to deny Debtor's discharge pursuant to 11 U.S.C. § 727(a)(2), (a)(3), and (a)(5). By the Complaint, Plaintiff alleges that Defendant engaged in certain fraudulent conduct and failed to produce certain required records and documents. Specifically, Plaintiff alleged that on or about May 30, 2006, Debtor represented, in a mortgage application made to the Bank of America, that he owned liquid assets in the form of bank accounts in the form of certificates of deposit and a 2005 Chevrolet Corvette, having a total value of $568,505.00. Plaintiff alleged that the vast amount of the proceeds from a personal injury recovery remain unaccounted for, that the Corvette—valued at $50,000.00—was purchased by Debtor with those proceeds and titled in his father's name was traded in for an Infiniti—valued at $70,000.00 and also titled in his father's name, and that the Infiniti was not included in Debtor's bankruptcy schedules. These acts, Plaintiff urges, establish that Debtor transferred, removed, destroyed, mutilated, or concealed, with intent to hinder, delay, or defraud a creditor or the Trustee, property of the estate within one year of the Petition Date, in violation of § 727(a)(2)(A) and (B).

Plaintiff further alleges that within one year of the Petition date, Debtor fraudulently transferred property of the estate and Debtor failed to provide documentation to account for the vast majority of his pre-petition assets and explain the loss of his assets, in violation of § 727(a)(3) and (a)(5).

On November 16, 2009, the Clerk of the Bankruptcy Court issued a summons directed to Debtor. Accordingly, the time within which Debtor was required to file an Answer or otherwise respond to the Complaint was December 16, 2009. On December 17, 2009, Plaintiff filed a request to enter default against Debtor, asserting that Debtor failed to file an answer or otherwise respond to the Complaint. On January 4, 2010, the Clerk of the Court entered default against Debtor.

On January 8, 2010, Debtor filed an Answer to the Complaint. By his Answer, Debtor asserts he purchased the vehicle, a 2005 Corvette, in 2004 with the use of a line of credit, several years prior to filing the bankruptcy petition, and he gifted the vehicle to his father at that time. Debtor asserts the original vehicle was traded in for a different vehicle of equivalent value, an Infiniti, which Debtor describes as an “even trade off estimated value of $30,000,” and that title to the new vehicle remained in his father's name. Also, Debtor asserts delays in providing financial records were the result of Bank of America's failure to cooperate in providing him with the requested records and that he had at the time of the Answer already provided certain records to Plaintiff's counsel. Moreover, Debtor asserts in his Answer he is not concealing any assets, and credit card records demonstrate that over $370,000.00 was spent from May 2006 to the date when the account was closed.

After receiving notice delivered by the Clerk of Court that he was required to sign his Answer, on February 2, 2010, Debtor re-filed his signed Answer, and on March 12, 2010, Debtor filed a Motion to Set Aside Default Judgment, by which he sought to set aside the entry of default. On March 19, 2010, the Court held a status conference and entered a scheduling order establishing deadlines for the submission of arguments and a hearing date. On March 24, 2009, Plaintiff filed opposition to the Motion to Set Aside Default, asserting therein that Debtor received the service of summons and that Debtor does not have a meritorious defense to the Complaint, but rather that Debtor's Answer states Debtor spent over $370,000.00 from and after May 2006, gifted his father a $30,000 car, and on May 30, 2006 had in his possession cash in the form of certificates of deposit totaling $598,505.00, so cannot account for some $168,505.

On April 12, 2010, this Court entered an Order vacating the Default.

2. The Motion for Summary Judgment

On August 31, 2010, Plaintiff filed a Motion for Summary Judgment (“SummaryJudgment Motion”). ECF No. 20. Plaintiff argues that this Court should grant summary judgment because Plaintiff has established Debtor made financial transactions without explanation of business activity or source of funds and without providing information about the disposition of other funds sufficient to rise to the level of “a genuine issue of material fact,” sufficient to defend against summary judgment.

The Summary Judgment Motion argues that Debtor failed to produce recorded information from which his financial condition or business might be determined within the meaning of 11 U.S.C. § 727(a)(3). Plaintiff relies on Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir.1992), in which the Third Circuit held that a debtor must provide reasons to “sufficiently identify the transactions so that an intelligent inquiry can be made of them,” and to provide evidence “from which the present financial condition of the [debtor] and his business transactions for the reasonable past may be ascertained.” 958 F.2d at 1230. Plaintiff argues that Debtor's failure to account for $291,534.61 of deposits between 2006 and 2009 and a $220,000.00 withdrawal in 2007 makes it impossible to ascertain Debtor's true financial condition, and thus, under Meridian Bank, discharge must be denied pursuant to § 727(a)(3). Pl.'s Mem. of Law 6–7, ECF No. 20–3.

The Motion further argues that Debtor failed to explain the loss of his assets—or the deficiency of his assets to meet his liabilities—within the meaning of 11 U.S.C. § 727(a)(5). In making that argument, Plaintiff relies on Riehm v. Park (In re Park), 272 B.R. 323 (Bankr.D.N.J.2001) (Wizmur, J.), and the test set forth therein, which states:

1. Plaintiff bears the burden of showing “that the Debtor at one time had the assets, but [that] they are no longer available for the creditors,” id. at 332;

2. Plaintiff must “produce some evidence of the disappearance of substantial assets or of an unusual transaction which disposed of assets,” id.;

3. Denial of discharge under § 727(a)(5) does not require that the debtor acted fraudulently or intentionally; and

4. Once a prima facie case is made, the burden shifts to the debtor to explain the loss or deficiency.

Id.⁴ Plaintiff alleges Debtor's “squandering” of at least $525,000.00 in purchases from 2006 to 2009 and his failure to account for the receipt of $291,000.00 in additional monies during that time meets the statutory standard, and discharge must be denied pursuant to § 727(a)(5).

Plaintiff does note that claims under § 727 are to be construed liberally in favor of the debtor, under Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir.1993), but asserts in conclusion that Plaintiff's pleadings have shown Debtor's failure to provide any explanation or information regarding his disputed transactions, and therefore Debtor now has the burden of providing such explanation or information. Pl.'s Mem. at 11–13.

On August 10, 2011, this Court held a hearing at which Debtor represented to the Court that he had an explanation of the purchases sufficient to answer Plaintiff's questions. Specifically, Debtor stated that on August 29, 2007, he withdrew $220,000 in cash from his Bank of America Money Market Savings Account # 3486, kept the cash in his home and made...