Vara v. Clark (In re Clark)

In re DANIEL H. CLARK, Debtor

ANDREW R. VARA, ACTING UNITED STATES TRUSTEE, Plaintiff v. DANIEL H. CLARK, Defendant

Bky. No. 17-10067 ELF

Adv. No. 17-194

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

October 10, 2018

Chapter 7

OPINION

I. INTRODUCTION

On January 5, 2017, Daniel Clark ("the Debtor") filed this voluntary chapter 7 bankruptcy case. On July 7, 2017, the U.S. Trustee ("the UST") filed an adversary complaint objecting to the Debtor's discharge.¹

In the complaint, the UST objects to the Debtor's discharge under 11 U.S.C. §§ 727(a)(2)(A) and (a)(4)(A). The UST alleges that the Debtor concealed transfers of property during the year preceding the filing of this bankruptcy case and that he did so with the intent to hinder, delay and/or defraud his creditors and/or the chapter 7 trustee. The UST also alleges thatthe Debtor knowingly and fraudulently made false oaths in his bankruptcy schedules and Statement of Financial Affairs.

The Debtor answered the complaint on August 9, 2017. Trial of this adversary proceeding was held and concluded on March 15, 2018. Thereafter, the parties submitted proposed findings of fact and conclusions of law in support of their positions, the last of which was filed on May 11, 2018.

For the reasons set forth below, I find that the UST has proven his case under §727(a)(4). Therefore, the Debtor's discharge will be denied.

II. FINDINGS OF FACT

Based on the credibility and demeanor of the trial witnesses, the plausibility of their testimony, the existence of corroborating circumstantial, testimonial or documentary evidence, the totality of the evidentiary record presented at the trial, and my consideration of the parties' post-trial submissions, I make the following findings of fact:

A. The Debtor

1. The Debtor is 59 years old. (Audio 2:13:20).²

2. Since 1984, the Debtor has been receiving veteran disability benefits of approximately $1,079.00 on a monthly basis. (Ex. T-21; Audio 41:30).

3. In 1985, the Debtor went back to school through a disabled veterans program and earned a

bachelor's degree in civil engineering from the University of California at Davis. (Audio 2:13:20).

4. Between 1990 and 1997, the Debtor worked for the federal highway administration, which paid for him to attend Villanova University where he earned a masters degree in civil engineering. He also did some postgraduate work at Drexel University. (Audio 2:14:25).

5. Following his work for the highway administration, the Debtor worked as a transportation engineering consultant in Pennsylvania. In early 2003, he stopped working for a brief period because of a medical condition that required surgery. (Audio 2:14:25).

6. In 2004, the Debtor became the president and majority shareholder of M.D. Clark, Inc., d/b/a First Service Restoration ("M.D. Clark"), a fire and water restoration and remediation company that operated as a franchise of PuroSystems, Inc. (Audio 34:50-35:24).

7. M.D. Clark ceased operations in 2016. (Ex. T-20; Audio 2:11:40).

8. Presently, the Debtor works as a civil engineer doing project management for a veteran's hospital. (Audio 2:16:57).

9. He generally works from 2:30 p.m. to 11:00 p.m., overseeing contractors as a technical representative or contracting officer, but not overseeing any staff. Id.

10. The Debtor suffers from chronic pain and sees Dr. Jay Mergaman, M.D. for pain management. Dr. Mergaman prescribes Tylenol 60/300 to the Debtor, which he can use once every six (6) hours. (See Ex. D-7).

11. The Debtor feels his memory is deteriorating and that this decline affects his work because he must write things down to remember; however, the Debtor has not been subjected to any disciplinary action related to memory problems or cognitive dysfunction. (Audio 2:18:38).

B. Mrs. Clark

12. The Debtor has been married to Vavara Clark ("Mrs. Clark") for twenty-six (26) years. (Audio 2:00).

13. Mrs. Clark is a trained dentist and has operated her own private dental practice for approximately seventeen (17) years. (Audio 18:30).

C. The Insider Loans to M.D. Clark

14. The Debtor owned and operated M.D. Clark for approximately twelve (12) years prior to filing this bankruptcy case. (Audio 35:27).

15. Mrs. Clark was neither an owner, officer or director of M.D. Clark. (Audio 15:00).

16. In October and November 2015, the Clarks jointly lent $137,000.00 to M.D. Clark.³

17. There are no written loan documents evidencing the loan transaction or transactions between Mr. and Mrs. Clark (collectively, "the Clarks") and M.D. Clark. (Audio 1:21:00).

18. The source of the loan funds was a home equity loan provided by Malvern Federal Savings Bank. (Audio 2:03:10 - 2:05:00).

19. On his bankruptcy Schedule D, the Debtor listed Malvern Federal Saving Bank as a secured creditor with a claim of approximately $132,000.00. (Ex. T-3).

D. The M.D. Clark Bankruptcy Case

20. On February 5, 2016 (eleven (11) months before the Debtor's personal bankruptcy filing), M.D. Clark filed a voluntary petition under chapter 11 of the Bankruptcy Code in this court.

21. The Debtor signed the petition as President of M.D. Clark under chapter 11. (See Bky 16-10800; Ex. T-9).

22. Three (3) days after commencing its chapter 11 case, M.D. Clark filed an expedited motion to sell assets. (See Bky. 16-10800, Doc. # 12).

23. The court granted the motion approving the asset sale on February 22, 2016, (Id. at Doc. # 49), and the sale closed that day.

24. Specifically excluded from the assets being sold was M.D. Clark's right, title or interest in "[a]ny cash, and cash equivalents" owned by M.D. Clark on the closing date. (Ex. T-14, Asset Purchase Agreement at 5).

25. The unadjusted balance in M.D. Clark's bank account on the date of closing was approximately $138,000.00. (Ex. T-25 at 415).

26. Two (2) days after the sale closed, a motion to dismiss the bankruptcy case was filed. The motion provided for payment of a dividend of approximately 3% to the unsecured creditors of M.D. Clark from the escrowed funds upon dismissal. (Ex. T-14).

27. The motion to dismiss was granted on March 31, 2016. An order was entered requiring M.D. Clark to make $10,000.00 in distributions to its unsecured creditors as set forth in Exhibit A to the order. (Ex. T-15).

28. Upon dismissal of the M.D. Clark bankruptcy, the Debtor remained liable as a guarantor of many of M.D. Clark's unpaid debts.

E. The Transfers from M.D. Clark to the Clarks

29. In January 2016, one month prior to the M.D. Clark bankruptcy filing, M.D. Clark transferred a total of $57,000.00 from its account at TD Bank ("the M.D. Clark TDAccount") to the Clarks' joint banking account ("the Joint TD Account") through the following two (2) transfers:

a. January 4, 2016 - $30,000.00

b. January 29, 2016 - $27,978.76

(See Ex. T-25, at 408).

30. On March 29, 2016, following the February 22, 2016 M.D. Clark asset sale, but prior to the dismissal of the M.D. Clark bankruptcy case, $10,000.00 was transferred from the M.D. Clark TD Account to the Joint TD Account. (Id. at 418).

31. On March 31, 2016, the date the M.D. Clark bankruptcy case was dismissed, $47,000.00 was transferred from the M.D. Clark TD Account to the Joint TD Account.⁴ Id.

32. On April 22, 2018, (after dismissal of the M.D. Clark bankruptcy), $1,400.00 was transferred from the M.D. Clark TD Account to the Joint TD Account. (Id. at 419).⁵

F. The Clarks' Banking Habits

33. For nearly seventeen (17) years, following 1999, the Clarks held a joint checking account with Bank of America into which they regularly deposited their respective paychecks and the Debtor's veteran's disability check. They used that account to pay household expenses. (Audio 20:00; Ex. T-21).

34. The Clarks conducted banking with TD Bank through the following three (3) accounts:

a. the Joint TD Account (Ex. T-22);

b. Mrs. Clark's own individual account ("Mrs. Clark's Individual TD Account") (Exs. T-7 & T-8); and

c. an account maintained by M.D. Clark (Ex. T-25).⁶

G. Transfers from and between the Clarks' Bank Accounts

35. Between February 22, 2016 and March 29, 2018, the Clarks withdrew a total of approximately $51,000.00 from the Joint TD Account as follows:

a. February 27, 2016 - $22,000.00

b. February 27, 2016 - $18,339.68

c. March 20, 2016 - $1,200.00

d. March 29, 2016 - $10,000.00

(Ex. T-22 at 486, 481, 489).

36. In April 2016, the Clarks withdrew $9,200.00⁷ from the Joint TD Account. (Ex. T-22 at 482, 484 and 487).

37. The Debtor could not explain at trial the reason for, or the disposition of, the more than $50,000.00 in transfers listed in Finding of Fact Nos. 35-36. (Audio 1:49:00).

38. On April 4, 2016, the Clarks electronically transferred $40,000.00 from the TD Joint Account to Mrs. Clark's Individual TD Account ("the TD Joint Account Transfer"). (Ex. T-22 at 444).

39. Sometime in the next month (May 2016), the Debtor and Mrs. Clark ceased using Bank of America for their household expenses and, instead, used their joint and individual accounts at TD Bank for that purpose. (Audio 17:00; 21:00).⁸

H. Transfers of Two (2) Pocono Properties

40. On May 13, 2016, the Clarks sold a jointly owned property, 6 Mountain Ash Drive, Lake Harmony, PA, and received net proceeds of $35,937.73. (Ex. T-8).

41. They deposited the proceeds from the sale of the Mountain Ash Drive property in Mrs. Clark's Individual TD Account on May 18, 2016. Id.

42. A few months later, on September 30, 2016, the Clarks sold another jointly owned property, 46 Hickory Drive, Lake Harmony, PA and received net proceeds of $36,598.76. (Ex. T-7).⁹

43. They also deposited the proceeds from the second sale into Ms. Clark's TD Account. Id.

44. Attached as Appendix I is a summary in table format of the transfers described above in Parts II. E, G, and H.I. The Debtor's Personal Bankruptcy; the Omissions in the Debtor's

Bankruptcy Schedules, SOFA; and the Debtor's Subsequent Disclosures

45. When the Debtor filed this individual bankruptcy case on January 5, 2017, he was a defendant in an action filed by PuroSystems, which was seeking a judgment in the...