United States District Court, D. Nebraska
RHETT R. SEARS, RHETT SEARS REVOCABLE TRUST, RONALD H. SEARS, RON H. SEARS TRUST, and DANE SEARS, Plaintiffs/Appellees,
KORLEY B. SEARS, Defendant/Appellant
[Copyrighted Material Omitted]
Bankruptcy Case No. 10-40277. Adversary Proceeding No. 12-04034.
For Rhett R. Sears, Rhett Sears Revocable Trust, Ronald H. Sears, Ron H. Sears Trust, Dane Sears, Plaintiffs: Brian J. Koenig, Donald L. Swanson, Kristin M.V. Krueger, KOLEY, JESSEN LAW FIRM, Omaha, NE.
For Korley B. Sears, Defendant: Jerrold L. Strasheim, STRASHEIM LAW FIRM, Omaha, NE.
For U.S. Bankruptcy Court, Interested Party: U.S. Bankruptcy Clerk - Lincoln, U.S. BANKRUPTCY COURT - LINCOLN, Lincoln, NE.
For U.S. Trustee, Trustee: Patricia M. Fahey, U.S. TRUSTEE - OMAHA, Omaha, NE.
MEMORANDUM AND ORDER
Richard G. Kopf, Senior United States District Judge.
This is an appeal from a final order entered by the United States Bankruptcy Court for the District of Nebraska on September 26, 2014, in an adversary proceeding within the Chapter 11 bankruptcy case of Korley B. Sears (" Appellant," referred to below variously as " Debtor," " Defendant," or " Korley" ). The bankruptcy court denied Appellant a discharge under 11 U.S.C. § 727. For the reasons discussed below, the bankruptcy court's order will be affirmed.
I. Statement of the Case
On May 9, 2012, Appellees (referred to below variously as " Plaintiffs," " Sears Family Members," or " RR& D" ), Rhett R. Sears and Rhett Sears Revocable Trust (collectively, " Rhett" ), Ronald H. Sears and Ron H. Sears Trust (collectively, " Ron" ), and Dane Sears (" Dane" ) filed a " complaint to determine discharge" in In re Korley B. Sears, Bankruptcy Case No. 10-40277, Adversary Proceeding No. 12-04034. Appellees sought " a determination that Debtor violated 11 U.S.C. § 727 by failing to disclose any possessory and beneficial interest in a certain 'fiberglass fishing boat' that he allegedly transferred to Jason Good and April Good (collectively, the 'Goods'), but actually retained for his own personal use and benefit and by filing a false claim in the AFY, Inc. bankruptcy proceeding [ In re AFY, Inc., Bankruptcy Case No. 10-40875]." (Doc. 1, ¶ 4). Appellees alleged:
1. The Sears Family Members are creditors of the Debtor in the above-referenced chapter 11 bankruptcy proceeding.
2. Debtor filed his Voluntary Petition under chapter 11 of the United States Bankruptcy Code on February 2, 2010 (" Petition Date" ).
3. The Court has authority to grant the relief requested herein pursuant to Fed. R. Bankr. P. 4004(a) because this Complaint to Determine Discharge has been filed no later than the first date set for the hearing on confirmation, and this Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § § 157 and 1334 and 11 U.S.C. § § 727(a)(2), (4), and (7). This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).
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5. Debtor filed his Statement of Financial Affairs on the Petition Date, claiming in paragraph 10 that he transferred a " fiberglass fishing boat" to the Goods in May of 2009.
6. In paragraph 14 of Debtor's Statement of Financial Affairs filed on the Petition Date, Debtor failed to list that he held the " fiberglass fishing boat" in his possession.
7. Debtor also failed to list or describe in his Schedules and Statement of Financial Affairs that he held any beneficial
interest in the " fiberglass fishing boat."
8. Pursuant to an Order of this Court requiring Debtor to " reveal[ ] every interest in assets or potential assets," Debtor subsequently filed an Amended Statement of Financial Affairs on or about October 24, 2011, making the same disclosures described above regarding the " fiberglass fishing boat" that he had made previously.
9. On or about January 24, 2012, counsel for the Official Unsecured Creditors' Committee of Korley B. Sears (" Committee" ) demanded that Debtor bring a preference claim against the Goods for the return of the " fiberglass fishing boat" or its value.
10. Debtor refused to initiate a preference claim against the Goods.
11. Accordingly, the Committee filed a preference and fraudulent transfer action against the Goods on February 2, 2012, the day before the statute of limitation was to expire, after receiving authority from the Court to do so. See Unsecured Creditors Committee v. Good et al. (In re Korley B. Sears) Adv. Case No. 12-04009-TLS.
12. The Sears Family Members have learned, from correspondence and communications with the Goods' attorney and the Goods, the following facts:
a. Debtor transferred title to the " fiberglass fishing boat" and trailer to April Good in May of 2009.
b. Even though Debtor transferred title to the boat and trailer to April Good, Debtor retained possession of the boat and trailer for his own enjoyment and use.
c. Debtor did not pay the Goods rent for the use of the boat and trailer.
d. The boat is a twenty-one foot, 2005 Ranger, having material value.
e. Debtor holds possession of the certificate of title to the boat and trailer.
13. The Goods were business associates and friends of Debtor at the time he transferred the title of the boat and trailer to the Goods.
14. Debtor was having financial difficulties at or around the time he transferred title.
15. Debtor retained the benefits associated with the ownership of the boat after transferring title.
16. By retaining possession of the boat and its certificate of title, but not disclosing the same on his Statement of Financial Affairs or his Amended Statement of Financial Affairs, Debtor fraudulently obtained the benefit of the possession, use, and enjoyment of the boat that he allegedly transferred to his friends, the Goods, thereby perpetuating a fraud upon this Court and his creditors.
17. Debtor's omission of the information in his Schedules and Statement of Financial Affairs and his Amended Schedules and Statement of Financial Affairs has had the effect to hinder, delay, and not permit the Debtor's creditors or parties in interest to review and assess the Debtor's assets, liabilities and financial transactions.
(Doc. 1, ¶ ¶ 1-3, 5-17).
The complaint to determine discharge contained three counts. First, Appellees claimed Appellant should be denied a discharge under 11 U.S.C. § 727(a)(2) because, in the wording of the statute, " Debtor, with intent to hinder, delay, or defraud the Sears Family Creditors or an officer of Debtor's bankruptcy estate, transferred, removed, destroyed, mutilated, or concealed (a) property of the Debtor, within one year before the date of the filing of the
Petition, or (b) property of the Debtor's bankruptcy estate, after the Petition Date." (Doc. 1, ¶ 19). In the second count of the complaint, Appellees claimed Appellant should be denied a discharge under 11 U.S.C. § 727(a)(4)(A) for making a false oath because " Debtor failed to list his possessory or beneficial interest in the 'fiberglass fishing boat' in paragraph 14 of his Statement of Financial Affairs or anywhere else in his Statement of Financial Affairs, Schedules, Disclosure Statement, or Amended Disclosure Statement," and " fail[ed] to disclose his interest in, or possession of, the 'fiberglass fishing boat.'" (Doc. 1, ¶ ¶ 21, 22). It was further alleged that (1) " Debtor's omissions were made in, or in connection with, his bankruptcy proceedings," (2) " were intended to deceive the Sears Family Members and officers of the Debtor's bankruptcy estate," and (3) " are material to his bankruptcy proceedings as each omission relates to the existence of property that should be included in the Debtor's bankruptcy estate." (Doc. 1, ¶ ¶ 23-25). Finally, Appellees claimed Appellant should be denied a discharge under 11 U.S.C. § 727(a)(4)(B) for making a false claim because " Debtor filed proof of claim no. 26 in the AFY, Inc. bankruptcy proceeding" and " failed to provide any legal basis for filing such proof of claim." (Doc. 1, ¶ ¶ 27, 28).
On July 11, 2012, Appellant responded to the complaint by filing a " motion to dismiss or strike," asserting, among other things, that:
1. The Complaint fails to state a claim for relief for which can be granted. Fed.R.Civ.P. 12(b) made applicable by Fed. R. Bank. ¶ [ sic ] 7012(b).
2. Whether RR& D held enforceable claims is an issue in Case No. 12-1305 pending in the United States Court of Appeals for the Eighth Circuit; and this court has no jurisdiction of the Complaint until the Court of Appeals rules.
3. This is a Chapter 11 case in which this court has no jurisdiction to grant relief provided for in the Bankruptcy Code (the " Code" ) under § 727. Section 727 applies to Chapter 7 cases only.
4. Korley qualifies as a farmer within the meaning of the Code. Under the Code, Korley's Chapter 11 case cannot be converted to a Chapter 7 case unless Korley requests conversion of his Chapter 11 case to a ...