Texas v. Driskell (In re Driskell), CASE NO. 14-52613

IN RE: GEORGE ALLEN DRISKELL, JR.

and ALEJANDRA ALVAREZ DE DYER, Debtors.

STATE OF TEXAS, Plaintiff v. GEORGE ALLEN DRISKELL, JR.and ALEJANDRA ALVAREZ DE DYER, Defendants.

CASE NO. 14-52613

ADVERSARY NO. 15-05076

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

May 2, 2016

CHAPTER 7

ORDER GRANTING, IN PART, AND DENYING, IN PART, THE STATE OF TEXAS'S MOTION FOR SUMMARY JUDGMENT (ECF NO. 14)

Came on to be considered the above-captioned adversary proceeding and, in particular, Plaintiff State of Texas's Motion for Summary Judgment (ECF No. 14)¹ filed February 5, 2016 and Defendants George Allen Driskell, Jr. and Alejandra Alvarez De Dyer's Response thereto (ECF No. 20). The Court held a hearing on this matter on March 29, 2016, after which the Court took the matter under advisement. After considering the pleadings filed, the parties' arguments, and summary judgment evidence, the Court finds that Plaintiff State of Texas's Motion for Summary Judgment (ECF No. 14) should be GRANTED, in part, and DENIED, in part.

JURISDICTION

As an initial matter, the Court finds that it has jurisdiction over this proceeding pursuant to 28 U.S.C. § 157 and 1334. This matter is a core proceeding as defined under 28 U.S.C. § 157(b)(2)(J) (objections to discharge). The Court finds venue is proper under 28 U.S.C. § 1408(1). This matter is referred to the Court pursuant to the District's Standing Order of Reference.

BACKGROUND

George Allen Driskell, Jr. and Alejandra Alvarez De Dryer (the "Defendants") operated Alejandra Dyer D/B/A Alejandra Driskell Legal Assistance Service ("Legal Assistance Services"). At some point during 2014, the State of Texas commenced an investigation of Legal Assistance Services for alleged violations of the Texas Deceptive Trade Practices Act.

Defendants initially filed a chapter 13 bankruptcy proceeding in April 2012 that was dismissed for failure to make plan payments on October 1, 2014. Case No. 12-51371 (ECF Nos. 1 and 38). Defendants filed their chapter 7 petition on October 14, 2014. Case No. 14-52613 (ECF No. 1). Defendants filed their original Schedules and Statement of Financial affairs with their petition on October 14, 2014. Case No. 14-52613 (ECF No. 1). On December 11, 2014,Defendants filed an Amended Schedule B. Case No. 14-52613 (ECF No. 28). On April 8, 2015, Defendants filed an Amended Schedule F and Amended Schedule B. Case No. 14-52613 (ECF Nos. 73, 74). On June 23, 2015, Defendants filed an Amended Statement of Financial Affairs. Case No. 14-52613 (ECF No. 89).

The initial deadline for to object to Defendants' discharges or to move to determine dischargeablity of debt was January 12, 2015. Case No. 14-52613 (ECF No. 3). This deadline was extended by order of the Court first to June 12, 2015; then to July 13, 2015; and again to October 12, 2015. Case No. 14-52613 (ECF Nos. 3, 39, 99). On September 25, 2015, the State of Texas commenced this adversary proceeding (ECF No. 1). On October 21, 2015, Defendants filed their Answer (ECF No. 4). The State of Texas filed this Motion for Summary Judgment on February 5, 2016 and Defendants timely filed their Response thereto on February 24, 2016 (ECF Nos. 14, 20).

LEGAL STANDARD FOR SUMMARY JUDGMENT

Federal Rule of Bankruptcy Procedure 7056 applies Rule 56(c) of the Federal Rules of Civil Procedure to adversary proceedings. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If summary judgment is appropriate, the Court may resolve the case as a matter of law. Celotex Corp., 477 U.S. at 323; Blackwell v. Barton, 34 F.3d 298, 301 (5th Cir. 1994). The Fifth Circuit has stated "[t]he standard of review is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the non-moving party based upon evidence before the court." James v. Sadler,909 F.2d 834, 837 (5th Cir. 1990) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).

To the extent that the non-moving party asserts the existence of factual disputes, the evidence offered by the non-moving party to support those factual contentions must be of a quality sufficient so that a rational fact finder might, at trial, find in favor of the non-moving party. Matsushita, 475 U.S. at 585-87 (1986) (non-moving party "must do more than simply show that there is some metaphysical doubt as to material facts"); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) ("adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial"). If the record "taken as a whole, could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue for trial." LeMaire v. Louisiana, 480 F.3d 383, 390 (5th Cir. 2007). In determining whether a genuine issue of material fact exists, the non-moving party must respond to a proper motion for summary judgment with specific facts demonstrating that such genuine issue exists. A genuine issue of material fact is not raised by mere conclusory allegations or bald assertions unsupported by specific facts. Leon Chocron Publcidad Y Editoria, S.A. v. Jymm Swaggart Ministries, 990 F.2d 1253 (5th Cir. 1993).

Defendants are appearing without the assistance of counsel in this adversary proceeding. Courts generally construe pro se litigants' pleadings liberally. Mutuba v. Halliburton Co., 949 F. Supp. 2d 677, 681 (S.D. Tex. 2013). Nonetheless, pro se parties must still comply with the rules of procedure and make arguments capable of withstanding summary judgment. Id. (internal citations omitted). The State of Texas notes that because Defendants have not provided answers to Requests for Admission, these requests are deemed admitted pursuant to Federal Rule of Bankruptcy Procedure 7036 and Federal Rule of Civil Procedure 36(a)(3). See F.R.C.P. 36(a)(3)(providing that a "matter is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney") and State of Texas's Discovery Requests, December 22, 2015 ("TX Ex. C") (indicating that discovery requests were served on Defendants on December 22, 2015 and as of February 4, 2016 no responses were provided). The Court finds that it can grant summary judgment on deemed admissions even where a litigant is appearing pro se. Cottrell v. Career Inst. Inc., 1 F.3d 1237, at *1 (5th Cir. 1993) (unpublished).

DISCUSSION

The State of Texas alleges that Defendants' discharges should be revoked under 11 U.S.C. §§ 727 (a)(3) for failure to keep or preserve books and records; (a)(4)(A) for false schedules, statements of financial affairs, and false testimony; (a)(5) for failure to provide a satisfactory explanation for the loss or deficiency of assets; and (a)(2) for failure to disclose assets. Section 727(a)² provides that a court must grant a discharge unless one or more grounds for denial of discharge under § 727(a)(1)-(12) is proven to exist. The burden of proving a denial of discharge under § 727(a)(1)-(12) is by a preponderance of the evidence. Beaubouef v. Beaubouef, (In re Beaubouef), 966 F.2d 174, 178 (5th Cir. 1992).

I. Defendants are denied a discharge pursuant to § 727(a)(3).

Section 727(a)(3) entitles individual debtors to a discharge unless "the debtor has . . . failed to keep or preserve any recorded information . . . from which the debtor's financial condition . . . might be ascertained, unless such . . . failure . . . was justified under all the circumstances." In doing so, a plaintiff must show by a preponderance of the evidence that the defendant failed to keep or preserve financial records and the failure to do so prevented a party from ascertaining the defendant's financial condition or business transactions. Robertson v.Dennis (In re Dennis), 330 F.3d 696, 703 (5th Cir. 2003). Once a plaintiff establishes a prima facie case, the defendant has the burden of establishing that his failure to keep adequate records was justified under all circumstances of the case. Atofina Petrochemicals, Inc. v. Lee (In re Lee), 309 B.R. 468, 477-78 (Bankr. W.D. Tex. 2004). A debtor's financial records need not contain "full detail," but "there should be written evidence" of the debtor's financial condition. Goff v. Russell Co. (In re Goff), 495 F.2d 199, 201 (5th Cir. 1974).

Both Defendants conceded in their sworn testimony that they did not keep records for Legal Assistance Services. Defendant Alejandra De Dyer stated that there were no books and records in either a computer or paper form. Oral Deposition of Alejandra Alvarez De Dyer, June 11, 2015 ("TX Ex. A") at pp. 105-06. Additionally, Defendant Alejandra De Dyer stated that she did not "keep" income and expenses. Id. at p. 106. Defendant George Driskell, Jr. also stated that "[t]here was no real bookkeeping" in conjunction with Legal Assistance Services. Oral Deposition of George Allen Driskell, Jr., June 11, 2015 ("TX Ex. B") at p. 19. Going further, Defendant George Driskell, Jr. explained that "it's kind of a -- a mess to try to figure out financially exactly what the profit and loss was." Id.

While § 727(a)(3) is not appropriately used to deny a discharge to a debtor who through inadvertence maintains less than pristine business records, the Bankruptcy Code does not condone a complete default in maintaining and preserving records from which basic information regarding a debtor's business and financial affairs can be obtained. United States Trustee v. Caron (In re Caron), 411 B.R. 706, 711 (Bankr. D. Or. 2008). The Court...