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IN RE MALONEY
Petitions for Review Denied.
Ex. B.
57. Maloney testified that in connection with preparing Schedule B, she made a list of all of her personal property including all jewelry which her attorney condensed, summarized, and then included on Schedule B.
Ex. 8.
58. Maloney admitted that she received personal property from the Trust including jewelry, artwork, a fishing rod, and other miscellaneous items, but that she did not have many of these items when she filed her chapter 7 bankruptcy petition.
59. Maloney remembers receiving a few pieces of art but claims that any art was of modest value and either given to her ex-husband or donated to the mission.
60. Maloney admitted to receiving jewelry from the Trust but testified that she gave much of it away to her children or melted it down to sell the gold or to make new jewelry pieces because she did not have the same taste in jewelry as her mother.
61. Maloney testified that any jewelry that she did keep was listed on Schedule B.
62. Maloney valued the personal property listed on Schedule B based on the value it represented to her or the value it would take her as a gemologist and jewelry maker to replace, not the appraised value.
See Ex. 37 for appraisal of certain jewelry by the Debtor.
63. Maloney admitted at trial that she still had possession of the "wheat table" which was not specifically listed on Schedule B. Debtor claims that she was unaware that this table was in her basement.
64. *Plaintiffs have advised the chapter 7 trustee of Plaintiffs' claims regarding allegedly concealed or missing assets.
65. *The chapter 7 trustee has fully administered the chapter 7 estate, and has, without formal objection from Plaintiffs, abandoned all personal property assets of the Debtor, with the exception of Maloney's 2008 tax refund which was administered in the estate.
66. *Maloney was at all material times the sole shareholder of John's Jewelry, Inc. from January 7, 1998 until it ceased doing business in 2008.
67. During the course of this proceeding Maloney has produced voluminous financial books and records, including the following: personal income tax returns for 2007, 2008, and 2009; store daily sales tally sheets; inventory lists; credit card statements; business financial statements for fiscal years through September 2008; corporate income tax returns for 2006 and 2007; check ledger details for the period January 1, 2007 through July 31, 2008; 484 pages of bank statements; asset depreciation schedules; and sales tax returns for 2007 and 2008.
III. DISCUSSION
The Plaintiffs are asking this Court to find that debts owed to the Trust are nondischargeable under § 523(a) and to deny Maloney her discharge under § 727(a). The Court will examine each claim for relief.
A. Section 523
The Plaintiffs' initial claims for relief arise under § 523(a). The Plaintiffs have the burden of proof in establishing the elements of § 523(a) claims. To prevail, the Plaintiffs must establish each of the requisite elements by a preponderance of the evidence. The preponderance standard requires the Court to believe that the existence of a fact is more probable than its nonexistence before the Court may find in favor of the party who has the burden to persuade the court of the fact's existence. The exceptions to discharge contained in § 523(a) "are to be narrowly construed, and because of the fresh start objectives of bankruptcy, doubt is to be resolved in the debtor's favor."
Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373 (10th Cir. 1996); Mitsubishi Motors Credit of Am., Inc. v. Longley (In re Longley), 235 B.R. 651, 655 (10th Cir. BAP 1999) (citing Grogan v. Garner, 498 U.S. 279, 291 (1991)).
Alside Supply Ctr. Salt Lake City, Div. of Alside Supply, Inc. v. Aste (In re Aste), 129 B.R. 1012, 1015 n. 8 (Bankr. D. Utah 1991).
Bellco First Fed. Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10th Cir. 1997).
1. Section 523(a)(2)(A)
To establish that a claim is nondischargeable under § 523(a)(2)(A), a creditor must prove the following elements: (1) the debtor made a false representation; (2) the debtor made the representation with the intent to deceive the creditor; (3) the creditor relied on the representation; (4) the creditor's reliance was justifiable; and (5) the debtor's representation caused the creditor to sustain a loss. Plaintiffs assert that Maloney committed actual fraud by entering into the Settlement Agreement with Plaintiffs knowing that she would be closing the store shortly thereafter and attempting to discharge any debt owed to the Trust in her bankruptcy case. Specifically, the Plaintiffs point to the close proximity of the date the Settlement Agreement was executed (March 24, 2008) and the time that Maloney made the decision to close the store (April 2008) as evidence of fraud. The facts presented at trial dictate a different conclusion.
Young, 91 F.3d at 1373; see also Field v. Mans, 516 U.S. 59, 70-72 (1995) (establishing that the appropriate standard is justifiable reliance instead of reasonable reliance).
It is correct that the Settlement Agreement was executed shortly before Maloney decided to close the store, but the terms of the Settlement Agreement were reached in December 2007 at the mediation. After the mediation, Maloney continued to operate the store and continued to make monthly payments to the Trust. Sales declined in February and March of 2008, and the cost of gold began to rise in early 2008, which resulted in the prospect of a high cost inventory purchase for the upcoming Christmas season. To maximize the increasing gold value of existing inventory and to avoid the expense of purchasing new inventory, Maloney made a business decision to close the store and to liquidate the remaining inventory, equipment, and furniture in order to pay all creditors, including the Trust. The Court finds Maloney's explanation of her decision to close the store to be credible. The Plaintiffs may not agree with Maloney's decision and may question her business judgment, but exercising questionable business judgment is not a basis for establishing fraud. Furthermore, Maloney's continued payments to the Trust after the December mediation support Maloney's contention that her decision to close the store was based on the economics of the situation and was not made with the intent to harm the interests of the Plaintiffs. It is the Plaintiffs' burden to establish by a preponderance of the evidence that Maloney made a false representation with the intent to deceive the Plaintiffs, and the Plaintiffs have failed to do so.
2. Section 523(a)(4)
Next, the Plaintiffs assert that the debt owed to the Trust should be found nondischargeble under § 523(a)(4). "[A] finding of nondischargeability under section 523(a)(4) requires a showing of (1) the existence of a fiduciary relationship between the debtor and the objecting party, and (2) a defalcation committed by the debtor in the course of that fiduciary relationship." Whether Maloney is a fiduciary under § 523(a)(4) is a question of federal law, and the Defendant is only considered a fiduciary if an express, technical, or statutory trust is present.
Antlers Roof-Truss Builders Supply v. Storie (In re Storie), 216 B.R. 283, 286 (10th Cir. BAP 1997) (internal citation omitted).
The Plaintiffs assert two theories under which a fiduciary relationship would arise. First, the Plaintiffs assert that paragraph 3.5 of the Purchase Agreement which required Maloney to maintain the inventory of the store at a certain level created a fiduciary relationship between the Trust and Maloney. The Court disagrees. To establish an express trust, the Plaintiffs must show "(1) sufficient words to create a trust, (2) a clearly defined trust res, and (3) an intent to create a trust relationship." The plain language of the Purchase Agreement establishes that this was a purchase contract. The Purchase Agreement does not include sufficient words to create a trust, it does not clearly define a trust res, and there is nothing in the Purchase Agreement showing that Maloney and John J. Christiansen intended to create a trust relationship. Furthermore, "[n]either a general fiduciary duty of confidence, trust, loyalty, and good faith . . . nor an inequality between the parties' knowledge or bargaining power . . . is sufficient to establish a fiduciary relationship for the purposes of dischargeability." The relationship between Maloney and the Trust was a contractual one, and "[a] merely contractual relationship is less than what is required to establish the existence of a fiduciary relationship."
Orem Postal Credit Union v. Twitchell (In re Twitchell), 91 B.R. 961, 965 (D. Utah 1988) (citing In re Kwiat, 62 B.R. 818, 821 (Bankr. D. Mass 1986)) rev'd on other grounds by In re Twitchell, 892 F.2d 86 (10th Cir. 1989) (table). The Tenth Circuit reversed the district court's Twitchell decision but the standard cited in this opinion is still the applicable standard in the Tenth Circuit.
Legendary Loan Link, LLP v. Glatt (In re Glatt), 315 B.R. 511, 521 (Bankr. D.N.D. 2004). See also Fowler Peth, Inc. v. Regan (In re Regan), 311 B.R. 271, 275 (Bankr. D. Colo. 2004) (stating that "Federal law limits [§ 523(a)(4)'s] application to express and technical trusts, and debts alleged to be non-dischargeable must arise from breach of trust obligations imposed by law, separate and distinct from any breach of contract" but finding that a statutory trust existed under Colorado's mechanic's lien law).
Second, Plaintiffs assert that a fiduciary relationship should be imposed upon Maloney because she was the only corporate officer of John Jewelry, Inc., she owes a fiduciary relationship to the creditors of the corporation, and she abused that fiduciary relationship when she used her position to gain personal benefits. This is known as the trust fund doctrine, and it is established under Utah state law. The trust fund doctrine provides that "the assets of a dissolved corporation become a trust fund against which the corporation's creditors have a claim." In order to establish a claim under the trust fund doctrine, the Plaintiffs must show that the corporation was insolvent at the time of the transfer. The Plaintiffs have failed to do so. The Plaintiffs did establish that Maloney liquidated the store and closed its doors in June 2008. The Plaintiffs also established that numerous auctions were held resulting in the sale of the store's inventory. Brad Christiansen testified that as of November 15, 2010, the Trust was owed approximately $177,000. But in response, Maloney testified that it was her opinion, as the individual who had operated the store for over 10 years, that at the time she decided to close the store, there was sufficient inventory to liquidate and pay all creditors including the Trust. Maloney's liquidation plans were thwarted by the Trust's collection efforts, and Maloney was not allowed to further liquidate the store's assets after the Trust commenced the Second State Court Action. The Trust has established that Maloney did not pay the debt owed to it, but the Trust has failed to establish at what point the store became insolvent and which transfers occurred after insolvency. Without such evidence, the trust fund doctrine cannot be established and cannot be used as a basis for a claim under § 523(a)(4). Furthermore, courts in the Tenth Circuit have narrowly construed § 523(a)(4) and have been slow to extend its application beyond anything other than an express or statutory trust. Consequently, this Court will not extend its application to the facts of this case. Based on this analysis, the Court finds that the Plaintiffs have failed to prove that they are entitled to relief under § 523(a)(4).
"Courts have consistently considered state law relevant in determining whether a technical [or statutory] trust relationship exists for purposes of the Bankruptcy Code." M-R Sullivan Manufacturing Co., Inc. v. Sullivan (In re Sullivan), 217 B.R. 670, 675 (Bankr. D. Mass. 1998). In Brigham Young University v. Tremco Consultants, Inc., 156 P.3d 782, 791 (Utah 2007), the Utah Supreme Court indicated that Utah Code Ann. § 16-10a-1408 codified the equitable theory known as the trust fund doctrine. That provision of the Utah Code provides that "[a] claim may be enforced . . . against the dissolved corporation, to the extent of its undistributed assets; or against a shareholder of the dissolved corporation, if the assets have been distributed in liquidation."
Tremco Consultants, Inc., 156 P.3d at 791 (internal citations and quotations omitted).
3. Section 523(a)(6)
The Plaintiffs argue that the debt to the Trust should be found nondischargeable under § 523(a)(6) because Maloney converted the collateral she had pledged as security to the Trust in the Purchase Agreement then disposed of it without remitting payment to the Trust. The Plaintiffs allege that she did so with the specific intent to injure the Trust's security interest in the collateral and that her actions were without justification or excuse. In response, Maloney asserts three defenses: that the store was not a party to the Purchase and Security Agreements and that only Maloney's assets were pledged as security to the Trust; that Maloney did not injure the Trust's security interest by pledging the store's inventory as collateral to secure subsequent loans; and that Maloney's actions were neither willful nor malicious.
Section 523(a)(6) excepts debts from discharge "for willful and malicious injury by the debtor to another entity or to the property of another entity." The Plaintiffs must prove by a preponderance of the evidence that the alleged injury was both willful and malicious. As the United States Supreme Court has explained, the word "willful" in § 523(a)(6) modifies the word "injury," indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. In order to establish that the injury was willful, the Plaintiffs must show that Maloney knew of and intended to cause an injury either to the Plaintiffs or to their property rights.
Before determining whether Maloney has injured a property right of the Plaintiffs, the Court must first decide whether or not the Trust had a property right that could be damaged. After reviewing the Purchase Agreement, including the Promissory Note and the Security Agreement, the Court finds that the document is ambiguous. The Purchase Agreement was entered into between Felecia Maloney as Buyer and John J. Christiansen as Seller, shareholder of John's Jewelry, Inc. (Corporation). The Security Agreement which was attached to the Purchase Agreement as Exhibit B was entered into between John J. Christiansen, Seller, and Felicia Maloney, Buyer. The Security Agreement provides: "Buyer hereby grants to Seller a security interest in all Collateral (as defined in paragraph 2 of this Agreement) that has been sold by Seller to Buyer." Paragraph 2 defines the collateral as "all stock certificates of John's Jewelry, Inc., all assets and equipment located in the jewelry store at 3920 Washington Boulevard, Ogden, Utah, all inventory located in the premises of John's Jewelry, Inc. at 3920 Washington Boulevard, Ogden, Utah, and all proceeds, increase and products of said collateral." The Security Agreement was signed by Maloney and John J. Christiansen as "Seller" and "for John's Jewelry, Inc." Paragraph 3.b. of the Security Agreement indicates that "the Buyer [Maloney] shall not sell or encumber any of the Collateral until the Promissory Note has been paid in full or until she has received written permission from Seller to sell a particular item of equipment," but the Security Agreement itself doesn't list the store as a party. Absent from the first paragraph of the Security Agreement is any specific reference to the store. To further confuse matters, the Security Agreement is signed by John J. Christiansen personally and on behalf of the store. "[I]t is axiomatic that a contract should be interpreted so as to harmonize all of its provisions and all of its terms, which terms should be given effect if it is possible to do so." In attempting to read the Purchase Agreement as a whole, the Court finds that it is ambiguous and because the agreement is ambiguous, the Court will consider parol evidence to ascertain the intent of the parties.
Gillmo v. Macey, 121 P.3d 57, 65 (Utah App. 2005) (internal citations and quotations omitted).
The provisions cited above make the contract susceptible to two contrary yet equally tenable interpretations: the first being that John J. Christiansen and Maloney intended to grant John J. Christiansen a security interest in all of the store's assets; the second being that the parties to the agreement intended to grant John J. Christiansen a security interest only in Maloney's personal assets. At trial, Maloney denied that she intended to grant her father a security interest in the store's assets, but the UCC-1 filed on January 8, 1998 indicates that Maloney granted to John J. Christiansen a security interest in "[a]ll stock in John's Jewelry Inc. All equipment and inventory located at John's Jewelry, Inc., 3920 Washington Blvd., Ogden, Utah and all proceeds thereof." This document reflects that Maloney and John J. Christiansen were the parties to the agreements but that the security interest granted to John J. Christiansen extended to all of the equipment and inventory located at the store and its proceeds. Having considered all of the evidence before it, and in attempting to read the Purchase Agreement which includes the Security Agreement and the Promissory Note together as a whole and giving effect to all of its provisions, the Court finds that Maloney and John J. Christiansen (personally and as the owner and only shareholder of the store before January 7, 1998) intended that Maloney grant to John. J. Christiansen a security interest in the store's assets as well as any proceeds derived therefrom.
Having found that the Trust had a security interest in the assets of the store, the Court must now examine whether Maloney willfully and maliciously injured that security interest. In order to establish that the injury was willful, the Trust must show that Maloney knew of and intended to cause an injury either to the Trust or to its property rights. The Trust contends that Maloney injured its security interest when she caused the corporation to pledge the store's assets as collateral for other loans contrary to paragraph 3.b. of the Security Agreement and when she misappropriated and dissipated the store's assets for her own personal benefit.
It is undisputed that Maloney caused the corporation to grant Zions Bank a security interest in the store's collateral contrary to paragraph 3.b. of the Security Agreement. The question the Court must answer is whether she did so with the intent to injure the Trust's security interest. The Court finds that Maloney did not intend to injure the Trust's interest for two reasons. First, granting a creditor a security interest in collateral that is already encumbered does not do violence to the original creditor's security interest. The original creditor (if it has properly perfected its security interest) remains in first position and will receive the first distribution if the collateral is sold. The issue here is whether Maloney's failure to comply with paragraph 3.b. of the Security Agreement was willful and malicious.
Second, paragraph 3.b. of the Security Agreement required Maloney to obtain written permission from the Seller before encumbering the collateral. There is no evidence before the Court showing that Maloney complied with this provision. But at the outset, it should be noted that this was not a typical commercial transaction. This was the purchase of a family business with the founder and father as the seller and the daughter as the buyer. John J. Christiansen had groomed his daughter to take over the store. He trained her in business operations, sales, and finance. Specifically, he taught her how to keep a line of credit available to the store for operations by encumbering its assets. In executing the August 21, 2007 Zions Bank documents (which renewed an existing obligation dating back to at least 2002), Maloney was merely attempting to continue business operations as usual. There is no evidence that she did so with the intent to injure the Trust's security interest in the store's assets — she was merely doing what her father had taught her to do. Furthermore, Maloney's actions were justified because she encumbered the assets of the store in an attempt to maintain the store's access to cash that may have been needed to continue business operations. As a result, her action of encumbering the collateral was not willful and malicious.
The Court also finds that Maloney did not misappropriate and dissipate the store's assets with the intent of destroying the Trust's security interest. Maloney adequately explained her use of the American Express corporate card and the system of accounting she used to reimburse the store for her personal charges, a practice employed by other family members when they worked at the store. She sufficiently explained the $10,500 cash distribution reflected on the 2007 corporate tax returns and the increase in the debt she owed to the store. The testimony regarding the missing inventory after the store was closed was inconclusive. A small amount of inventory appeared to be missing and the Plaintiffs attempted to place the blame on Maloney, but the testimony regarding the missing items was vague and was based on a document not produced to Maloney's counsel and not admitted into evidence.
The evidence before the Court also shows that Maloney had legitimate business reasons for closing the store and beginning the orderly liquidation of its assets. The final stocklist Maloney prepared after the store closed shows inventory with a cost value of $241,242.01 and a retail price value of $584,868.56. As stated before, the Trust may not have agreed with Maloney's decision to close the store or her course of action in initiating liquidation, but Maloney was not required to continue to operate a failing business in omne tempus (forever) just so she could make good on her obligation to the Trust. Such a requirement would be akin to indentured servitude and is an untenable position. Maloney exercised her business judgment in deciding to close the store, and the preponderance of the evidence does not establish that she did so with the specific intent of injuring the Trust's security interest.
The Plaintiffs make much of Maloney's statement that she wanted "to get her siblings off her back." But a review of the case shows that the parties have been in litigation since 2005. All must be suffering from litigation fatigue. This isolated statement made during cross examination is not itself sufficient to establish that Maloney's alleged misappropriation of corporate funds and her decision to close the store were done with the specific intent of harming the Trust and its security interest. Having reviewed all of the evidence, the Court finds that the Trust has failed to shoulder its burden of establishing by a preponderance of the evidence that Maloney willfully and maliciously injured the Trust's property.
B. Section 727
The Plaintiffs assert that Maloney is not entitled to a discharge under three provisions of § 727(a) of the Bankruptcy Code: failure to maintain adequate books and records under § 727(a)(3); making a false oath or account under § 727(a)(4); and failure to explain the loss of assets under § 727(a)(5). The Plaintiffs bear the burden of proof, and they must prove each element of § 727(a)(3), (a)(4), or (a)(5) by a preponderance of the evidence.
First Nat'l Bank of Gordon v. Serafini (In re Serafini), 938 F.2d 1156, 1157 (10th Cir. 1991).
1. Section 727(a)(3)
Under § 727(a)(3), the Court must deny a debtor's discharge if:
[T]he debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case.
In order to prevail on their § 727(a)(3) claim for relief, the Plaintiffs must prove (1) that Maloney failed to maintain and preserve adequate records; and (2) that the "failure made it impossible to ascertain [her] financial condition and material business transactions." If Plaintiffs can establish these elements, the burden shifts to Maloney to justify her failure to maintain financial records. The Tenth Circuit has further explained that "`[r]ecords need not be so complete that they state in detail all or substantially all of the transactions taking place in the course of the business. It is enough if they sufficiently identify the transaction that intelligent inquiry can be made respecting them.'" Other than comments made in passing that it was not provided with the store's final tax returns and apparent confusion regarding the dissipation of the store's assets, the Plaintiffs fail to point the Court to any specific financial documents that were missing which made it impossible to ascertain the financial condition of either Maloney or the corporation. Maloney provided volumes of documents to the Trust evidencing the store's financial and accounting records. Maloney employed a CPA to reconcile the store's accounting records and to prepare tax returns, and there was no evidence or argument presented indicating that Maloney failed to keep other personal financial records. The accountant and/or Maloney were able to provide explanations regarding the transfer of certain assets. The financial records produced by Maloney were not so incomplete as to make it impossible to ascertain the financial condition of Maloney or the corporation. As a result, the Trust's claim for relief under § 727(a)(3) fails.
Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1295 (10th Cir. 1997) (emphasis in original); Cadle Company v. Stewart (In re Stewart), 263 B.R. 608, 615 (10th Cir. B.A.P. 2001). See also United States v. Ellis, 50 F.3d 419, 425 (7th Cir. 1995) (holding that § 727 makes a complete financial disclosure a condition precedent to discharge).
Stewart, 263 B.R. at 615 (citing Hedges v. Bushnell, 106 F.2d 979, 982 (10th Cir. 1939)).
2. Section 727(a)(4)
Under § 727(a)(4)(A), "a creditor must demonstrate by a preponderance of the evidence that the debtor knowingly and fraudulently made a false oath and that the oath relates to a material fact." "A debtor will not be denied discharge if a false statement is due to mere mistake or inadvertence. . . . Moreover, an honest error or mere inaccuracy is not a proper basis for denial of discharge." Once the plaintiff has established that a false oath has been made regarding a material fact, it is incumbent upon the defendant to provide a credible explanation for her actions.
First Nat'l Bank, Larned v. Davison, no. KS-04-013, 01-23974-7, 02-6018, 2004 WL 2852352, *3 (10th Cir. BAP June 29, 2004) (citing Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1294 (10th Cir. 1997)).
Gullickson 108 F.3d at 1295-6 (internal citations omitted).
Trustee v. Halishak (In re Halishak), 337 B.R. 620, 627 (Bankr. N.D. Ohio 2005).
The Plaintiffs allege that Maloney knowingly and fraudulently made a false oath when she failed to list or to accurately value the following in her Statement of Financial Affairs and Schedules: jewelry given to her by the Trust; dolls from her mother's collection; artwork; a fishing rod; and the wheat table. The Plaintiffs also assert that Maloney failed to accurately list the value of her home on Schedule A because she later testified that she thought the home might actually be worth $380,000. This testimony was given during a deposition and after Maloney had reexamined the value of the home in conjunction with her pending divorce. The Plaintiffs brought this discrepancy to the attention of the chapter 7 trustee, who determined that the home was encumbered and of inconsequential value to the estate. At the time Maloney completed Schedule A, it was her honest belief that her home was worth $300,000 and, therefore, Maloney did not make a false oath.
See In re Omang, 403 B.R. 647, 653 (Bankr. D. Minn. 2009) (indicating that a debtor's value of property disclosed on the schedules, if made in good faith, is not a basis for denial of discharge simply because the valuation turns out to be wrong).
As for the personal property that was allegedly omitted from the Schedules or was undervalued on the Schedules, the Court finds that any omissions were either due to mistake and/or inadvertence or were immaterial. Maloney testified that she prepared a list of all of the jewelry she had received from the Trust that was still in her possession when she filed her chapter 7 petition, that she gave this list to her attorney, and that he condensed it, summarized it, and used it to prepare Schedule B. Maloney testified that before filing, she had given some of the jewelry to her children and had melted down some of the other pieces to either sell or to refabricate. She also testified that the values assigned to the jewelry pieces were based on the cost it would take for her as a gemologist and jewelry maker to replace those items. Maloney did list her mother's doll collection on Schedule B but valued those pieces of the collection at $50. Plaintiffs attempted to establish that the collection was grossly undervalued by admitting a ledger prepared by their mother showing the dates she purchased the dolls and the price of each doll and by showing that Maloney herself had appraised the dolls at a higher value for the purpose of the Trust's distributions. Maloney explained that the Trust beneficiaries agreed to use the values reflected in their mother's ledger for the purposes of calculating the Trust distributions, but that these values did not actually reflect what the dolls were worth. The Court finds that these explanations are sufficient to demonstrate that Maloney did not knowingly or fraudulently make a false oath as to these specific items.
Maloney testified that she was given a lot of "stuff" from the Trust and that it continually cluttered up her garage. So, she took what she wanted, she told her kids and ex-husband to come over and get what they wanted, then she donated the rest of the items to the mission. Maloney admits that she failed to include the wheat table on Schedule B because she was not aware that the table was still in her basement. This omission was due merely to her mistaken belief that she had donated the wheat table and is not a sufficient basis upon which to deny Maloney her discharge. Maloney also admits that she failed to include the fishing rod on Schedule B. No explanation was given regarding the failure to include the fishing rod, but the Court finds this omission to be immaterial. Finally, Maloney explained that she did receive some artwork from the Trust but that she considered it to be "junk," that she gave one piece to her ex-husband, and that the she simply forgot to include the other valueless pieces on Schedule B. Again, Maloney's failure to list one or two pieces of art which she considered to be of little value was merely due to inadvertence. This omission does not show that Maloney knowingly and fraudulently made a false oath. As they had with the home valuation issue, the Plaintiffs brought these alleged omissions to the attention of the chapter 7 trustee and again, the chapter 7 trustee has, without formal objection from the Plaintiffs, abandoned all of Maloney's personal property assets. These alleged omissions are simply insufficient to show that Maloney knowingly and fraudulently made a false oath or account. As a result, the Plaintiffs' claim for relief under § 727(a)(4) fails.
3. Section 727(a)(5)
Section 727(a)(5) requires this Court to deny the Debtor's discharge if she has failed to satisfactorily explain any loss of assets or deficiency of assets to meet her liabilities. The § 727(a)(5) claim requires this Court to examine whether Maloney's explanation satisfactorily describes what happened to assets, not whether what happened to assets was proper. The Court has summarized at length Maloney's explanations regarding the dissipation of the assets from the store and the dissipation of the assets she received from the Trust and need not repeat its findings here. The Court finds that Maloney has satisfactorily described what has happened to the store's assets and her own personal assets and that no claim for relief under § 727(a)(5) has been established.
Shappells, Inc. v. Perry (In re Perry), 252 B.R. 541, 550 (Bankr. M.D. Fla. 2000); Buckeye Retirement Props. of Indiana, LLC v. Tauber (In re Tauber), 349 B.R. 540, 564 (Bankr. N.D. Ind. 2006) (stating that, for purposes of § 727(a)(5), "the debtor does not need to justify the wisdom or prudence in the disposition of assets").
IV. CONCLUSION
This case of family conflict has involved years of litigation and unfortunately ends now with a family business closed and siblings divided. The Court has found that the Trust has failed to establish by a preponderance of the evidence that it is entitled to relief under § 523 and § 727. As a result, the Court DENIES the relief requested and DISMISSES the amended complaint. An order reflecting this ruling will be issued contemporaneously with these Findings of Fact and Conclusions of Law.
Dated: December 07, 2010
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