1 Plaintiffs are: Apartments at Cambridge Company, L.L.C., Mickey Shapiro Trust, Asa Shapiro Declaration of Trust, ILA I, L.L.C., ILA II, L.L.C., APTCAM, L.L.C., CAMAPT, L.L.C., Richards-Pitt, L.L.C., Gregory Richards CS Trust, Gregory Richards Marital Trust, Daniel J. Smith, Richard B. Smith, Joanne Smith Purther, Kevin Spizizen, Neil Spizizen, Kevin Spizizen Declaration of Trust, Neil Spizizen Revocable Living Trust, Nick Balberman, and Nominal Plaintiff Gene R. Kohut, Chapter 7 Trustee. UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: Chapter 7 Richard Martin Lewiston, Case No. 12-58599 Debtor. Hon. Phillip J. Shefferly / Apartments at Cambridge Adversary Proceeding Company, L.L.C., et al., 1 No. 12-6010-PJS Plaintiffs, v. Richard Martin Lewiston, Defendant. / OPINION OVERRULING OBJECTIONS TO DISCHARGE I. Introduction Richard M. Lewiston (“Debtor”) is a lawyer and real estate developer who has been in the business of developing, managing and representing real estate projects for over 50 years. During that time, he participated as an officer, manager, investor, and partner in many complex structures and transactions, involving dozens of entities in various forms, enjoying a high income and 12-06010-pjs Doc 244 Filed 09/10/15 Entered 09/10/15 13:00:22 Page 1 of 62
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1 Plaintiffs are: Apartments at Cambridge Company, L.L.C., Mickey Shapiro Trust, AsaShapiro Declaration of Trust, ILA I, L.L.C., ILA II, L.L.C., APTCAM, L.L.C.,CAMAPT, L.L.C., Richards-Pitt, L.L.C., Gregory Richards CS Trust, Gregory Richards MaritalTrust, Daniel J. Smith, Richard B. Smith, Joanne Smith Purther, Kevin Spizizen, Neil Spizizen,Kevin Spizizen Declaration of Trust, Neil Spizizen Revocable Living Trust, Nick Balberman,and Nominal Plaintiff Gene R. Kohut, Chapter 7 Trustee.
UNITED STATES BANKRUPTCY COURTEASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In re: Chapter 7
Richard Martin Lewiston, Case No. 12-58599
Debtor. Hon. Phillip J. Shefferly /
Apartments at Cambridge Adversary ProceedingCompany, L.L.C., et al.,1 No. 12-6010-PJS
Plaintiffs,
v.
Richard Martin Lewiston,
Defendant. /
OPINION OVERRULING OBJECTIONS TO DISCHARGE
I.
Introduction
Richard M. Lewiston (“Debtor”) is a lawyer and real estate developer who has been in the
business of developing, managing and representing real estate projects for over 50 years. During
that time, he participated as an officer, manager, investor, and partner in many complex structures
and transactions, involving dozens of entities in various forms, enjoying a high income and
2 On June 24, 2015, the Court issued an opinion and entered an order in adversaryproceeding no. 14-5115, disagreeing with the Debtor’s description on schedule B and insteadholding that the Lewiston Trust is an unenforceable self-settled trust under applicable Michiganlaw and that the Lewiston Trust and its assets are property of the Debtor’s bankruptcy estate.
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13 and 14 on schedule B, which require disclosure of any interests in any businesses, the Debtor
listed interests in 20 separate business entities, consisting of limited liability companies,
corporations, and partnerships, each of them having an “unknown” value. On line 16 on schedule B,
which requires disclosure of any accounts receivable, the Debtor listed nine separate accounts
receivable, each with a specific value, which together total $10,596,111.00. On line 35 on
schedule B, which requires disclosure of any other personal property, the Debtor listed an interest
in the Lois and Richard Lewiston Living Trust, dated September 10, 1986 (“Lewiston Trust”). Here,
the Debtor elaborated that he listed the Lewiston Trust for notice purposes only, and that it is not
property of his bankruptcy estate.2 The Debtor also listed on line 35 three claims that he previously
filed in three separate bankruptcy proceedings, all relating to one of his former business associates,
Jeffrey Brown (“Brown”). The Debtor listed the value of these claims (collectively, the “Brown
Bankruptcy Claims”) as “unknown.”
On his statement of financial affairs (exhibit 1), in answer to question 10a, which requires
disclosure of any transfers outside of the ordinary course of business made by the debtor in the two
years before bankruptcy, the Debtor stated that he made no such transfers. In answer to question 18,
which requires disclosure of all businesses in which the debtor was an officer, director, managing
executive, partner or 5% equity owner in the six years before bankruptcy, the Debtor listed 19 such
As previously noted, the Plaintiffs allege that the Debtor’s discharge should be denied under
§ 727(a)(2), (3), (4), (5), and (7). The Court will address each subsection in sequence.
Section 727(a)(2) of the Bankruptcy Code provides as follows:
The court shall grant the debtor a discharge, unless . . . the debtor, with intent tohinder, delay, or defraud a creditor or an officer of the estate charged with custodyof property under this title, has transferred, removed, destroyed, mutilated, orconcealed, or has permitted to be transferred, removed, destroyed, mutilated, orconcealed –
(A) property of the debtor, within one year before the date of the filing of thepetition; or
(B) property of the estate, after the date of the filing of the petition.
Section 727(a)(2) “encompasses two elements: 1) a disposition of property, such as
concealment, and 2) a subjective intent on the debtor’s part to hinder, delay or defraud a creditor
through the act disposing of the property.” Keeney v. Smith, 227 F.3d at 683 (internal quotation
marks and citation omitted).
The Plaintiffs allege that the first element is met because the Debtor disposed of property by
concealing his interests in some entities, transferring his interests in some entities and failing to
disclose both pre-petition and post-petition transfers of his interests in some entities. Altogether,
Plaintiffs identified 45 different entities that the Debtor failed to disclose. In support, the Plaintiffs
adduced an enormous volume of exhibits consisting of documents, letters and memoranda going
back over 30 years, as well as excerpts of prior testimony given by the Debtor in other proceedings.
The Plaintiffs built their case by pointing out each instance in these exhibits where the Debtor may
have referred to himself either generally or specifically as holding some interest, position or
3 Some of the evidence adduced by the Plaintiffs to support their § 727(a)(2) objection isalso relevant to and overlaps with the Plaintiffs’ other objections to discharge, and will bediscussed again to a limited extent with respect to those objections later in this opinion.
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relationship. At a minimum, these exhibits, and the Debtor’s extensive testimony about them,
establish that the Debtor’s business and financial affairs were very complex, involving many
business entities, in a variety of forms, and having multiple layers of ownership. Over the 30 years
covered by the Plaintiffs, it is clear that the Debtor signed hundreds of documents, letters and
memoranda regarding the different business entities that he was involved in.
As for the specific interests that the Debtor is alleged to have concealed or transferred, the
Debtor does not deny that he is familiar with them, or the exhibits that describe and refer to them.
However, except for a couple of instances where the Debtor acknowledges that he may have made
an inadvertent mistake, he insists that he did not list certain interests and transfers on his schedules
and statement of financial affairs because he did not believe that he was required to do so. Because
he fully expected when he filed his bankruptcy case that the Plaintiffs would try to portray him as
untruthful, the Debtor testified that he carefully made a “conscious decision” regarding what entities
and transfers were required to be disclosed and what entities and transfers were not.
Although the Court has sifted through all of the Plaintiffs’ exhibits and the Debtor’s
testimony about them, it is not necessary to recite in this opinion all of the evidence regarding each
and every one of the 45 entities identified by the Plaintiffs. However, to properly understand the
Plaintiffs’ case – which depends so heavily on the Debtor’s testimony about the Plaintiffs’ many
exhibits – and to ascertain whether the Plaintiffs have met their burden of proof, the Court must
discuss at least those exhibits, and the Debtor’s testimony about them, that relate to the entities and
transfers that the Plaintiffs have identified as the largest, most valuable or otherwise most important.3
6 Although the Plaintiffs rely in their post-trial brief on the Debtor’s federal income taxreturns for 2006 to 2012, the returns for 2009 (exhibit 63) and 2010 (exhibit 64) were not
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both hold interests in Stratford Apartments, L.L.C. The Lewiston Trust holds its interest through
3490 Company, L.L.C. LJR Associates, L.L.C. obtained its interest from the Lewiston Trust.
Because the evidence does not prove that the Debtor holds any interest in Stratford
Apartments, L.L.C., LJR Associates, L.L.C. or 3490 Company, L.L.C., he was not required to
disclose any interest in them on his schedules and statement of financial affairs. Because the
evidence does not prove that the Debtor held an interest in Stratford Apartments, L.L.C., LJR
Associates, L.L.C. or 3490 Company, L.L.C., it also follows that the evidence does not prove that
the Debtor transferred any interest in these entities.
Although the evidence is insufficient to prove that the Debtor individually holds an
ownership interest in any of these entities, or that he made a transfer of any interest in these entities,
the exhibits that the Debtor signed as either “member” or “managing member” for Stratford
Apartments, L.L.C. and LJR Associates, L.L.C., do establish that the Debtor held management
positions with each of those entities.
10. BLS Lathrup Associates, BLS Rosemack Associates, BLS Shopping CenterAssociates, LP, Income Advisors Company and Pat-Jack Associates
This is a group of related entities that owned shopping centers in metro Detroit. The
Plaintiffs allege that the Debtor failed to disclose his interests in these companies in his schedules
and statement of financial affairs.
The evidence adduced by the Plaintiffs concerning these entities consists of documents
obtained from LARA going back to the early 1980’s, and references to line items on the Debtor’s
federal income tax returns.6 The LARA records show that Debtor signed the certificates of limited
7 As discussed earlier in this opinion, Income Investors Corporation is owned byLewiston-Smith Realty Corporation, which the Debtor disclosed on schedule B and in responseto question 18 of his statement of financial affairs.
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partnership for BLS Lathrup Associates (exhibit 44), BLS Rosemack Associates (exhibit 45) and
BLS Shopping Center Associates, LP (exhibit 46) on behalf of Income Advisors Company and
Income Investors Corporation,7 which were partners of these three entities. There are no LARA
records showing that the Debtor signed any documents on behalf of these three entities themselves.
BLS Rosemack Associates and BLS Shopping Center Associates, LP appear only in the Debtor’s
2006 tax return (exhibit 60) in a reconciliation schedule. However, the Debtor was not questioned
about the significance or meaning of this schedule. The only evidence concerning Pat-Jack
Associates is also in the Debtor’s 2006 federal income tax return, which states that the Debtor had
a non-passive loss of $285.00 for this entity in 2006.
The Debtor offered a number of explanations for why he did not disclose any ownership
interest in these entities. The Debtor testified that the shopping centers owned by these entities were
sold years ago, and that none of these entities had any current business operations when he filed
bankruptcy. The Debtor also testified that he did not disclose any ownership interest in Income
Advisors Company because it is owned by the Lewiston Trust, but this testimony is somewhat
contradicted by the Plaintiffs’ exhibits. According to a QuickBooks report (exhibit 160) for the
Debtor’s personal bank account for the years 2006 through 2011, the Debtor twice deposited
distributions from Income Advisors Company into his personal bank account in 2006 and 2007,
instead of into the Lewiston Trust bank account. The Debtor admitted that at one time he did hold
an interest in Pat-Jack Associates, which he inherited when his mother passed away. He testified
(other than the Trustee), the Debtor fully expected that everything that he did in this case would be
meticulously scrutinized by them. Nor is there any testimony to contradict the Debtor’s testimony
that he had no incentive to be deceitful, and was well aware that any errors in his schedules and
statement of financial affairs would be magnified. Further, the Debtor’s attention to detail in the
preparation of his schedules and statement of financial affairs, and the correspondence that he sent
to the Trustee explaining his various interests, are not the hallmarks of someone who is trying to
deceive his creditors and the Court by concealing assets and transfers of them.
In sum, the Court accepts the Debtor’s testimony about why he did or did not disclose
interests and transfers. The Debtor’s testimony was credible, even when mistaken. The Court finds
that the Plaintiffs failed to meet their burden to prove by a preponderance of the evidence the second
element of § 727(a)(2) – that the Debtor had subjective intent to defraud when he failed to list all
of his interests and transfers in his schedules and statement of financial affairs.
VII.
Section 727(a)(3)
Section 727(a)(3) provides for denial of discharge if “the debtor has . . . 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 . . .
was justified under all the circumstances of the case . . . .”
To sustain an objection to a discharge under § 727(a)(3), the proof mustestablish: (1) either that the debtor failed to keep or preserve any recordedinformation, including books, documents, records and papers, or that the debtor orsomeone acting for him destroyed, mutilated, falsified, or concealed any recordedinformation including books, documents, records and papers; and (2) that as a result,it is impossible to ascertain the financial condition and material business transactionsof the debtor. The party seeking denial of a discharge has the burden of proving theinadequacy of the debtor's records. However, [o]nce a debtor’s records are
8 The Court file reflects that the Trustee has in fact administered substantial assets in thisChapter 7 case, including recovery of $600,000.00 in cash from the Apartments at CambridgeCompany, L.L.C. and $5 million from the sale of its undeveloped real property. The Trustee hasalso obtained a declaratory judgment that the Lewiston Trust and its contents are property of thisbankruptcy estate, and he is either pursuing or has pursued 15 other adversary proceedings tocontinue to recover assets for this estate.
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positions on what is discoverable in this adversary proceeding does not, by itself, mean that the
Plaintiffs have shown that the Debtor has failed to keep or preserve records or that he concealed any
records that he did have. The Plaintiffs failed to meet their burden to prove the first element of
§ 727(a)(3).
More importantly, even if the Court were to find that the Debtor failed to keep or preserve
records, or somehow concealed his records, the Debtor’s discharge can only be denied under
§ 727(a)(3) if, as a result of the Debtor’s failure to keep or preserve records, or concealment of
records, it is impossible to ascertain the financial condition and material business transactions of the
Debtor. On this element, the Plaintiffs’ proofs fall woefully short. The Plaintiffs adduced no
evidence to show that any failure to keep or preserve records, or any concealment of records, in any
way either prevented the Debtor’s financial condition from being ascertained or otherwise interfered
with the administration of this estate.
Here, the Trustee’s testimony was more powerful, and ultimately more revealing, by what
he did not say rather than what he did say. The Trustee did not offer any testimony to suggest, even
in the most remote way, that he has somehow been unable to administer this complicated Chapter 7
estate.8 Equally conspicuous is the absence of any testimony by any of the Plaintiffs other than the
Trustee. While it is not unusual for a party objecting to an individual’s discharge to rely primarily
on such individual’s own testimony, the record in this case, consisting entirely of the Debtor’s
uncontroverted testimony about the Plaintiffs’ mountain of exhibits, simply does not prove that any
failure by the Debtor to keep or preserve records, or his concealment of records, has in any way
made it impossible to ascertain the Debtor’s financial condition and material business transactions.
VIII.
Section 727(a)(4)(A)
Section 727(a)(4)(A) provides for denial of discharge if “the debtor knowingly and
fraudulently, in or in connection with the case . . . made a false oath or account.”
In order to deny a debtor discharge under this section, a plaintiff must prove by apreponderance of the evidence that: 1) the debtor made a statement under oath; 2) thestatement was false; 3) the debtor knew the statement was false; 4) the debtor madethe statement with fraudulent intent; and 5) the statement related materially to thebankruptcy case.
Keeney v. Smith, 227 F.3d at 685 (internal quotation marks and citation omitted).
[A] fraudulent statement must be made with a knowing intent to defraudcreditors. . . . The plaintiff must demonstrate actual, not constructive, fraud.However, since defendants will rarely admit their fraudulent intent, actual intent maybe inferred from circumstantial evidence. A series or pattern of errors or omissionsmay have a cumulative effect giving rise to an inference of an intent to deceive. Onthe other hand, the discharge is not to be denied when the untruth was the result ofa mistake or inadvertence.
Stevenson v. Cutler (In re Cutler), 291 B.R. 718, 726 (Bankr. E.D. Mich. 2003) (internal quotation
marks and citations omitted). “‘Even if the debtor thinks the assets are worthless, he must
nevertheless make full disclosure.’” Lewis v. Summers (In re Summers), 320 b.R. 630, 647 (Bankr.
E.D. Mich. 2005) (quoting Armstrong v. Lunday (In re Lunday), 100 B.R. 502, 508 (Bankr. D.N.D.
1989) (citation omitted)).
The Plaintiffs allege that the Debtor made multiple false oaths in his schedules and statement
of financial affairs in two basic ways: first, by failing to disclose business interests that he owns,
any of his statements regarding his interests, transfers or positions in business entities were false,
or that he made such statements with intent to deceive. The Court finds that the Debtor’s failures
to disclose information on his schedules and statement of financial affairs was the product of
inadvertence or just plain mistakes, but was not because of an intent to defraud.
The Plaintiffs also allege that the Debtor made false oaths by listing assets on his schedules
and statement of financial affairs that he knew he did not own, specifically the Brown Bankruptcy
Claims and certain accounts receivable. Turning first to the Brown Bankruptcy Claims, the
Plaintiffs argue that the Debtor falsely disclosed $18,565,000.00 of such claims on line 35 on his
schedule B, consisting of the following:
$7,017,000.00 Brown Properties Corporation case no. 09-55674$9,417,000.00 Jeffrey Howard Brown case no. 09-60375$2,131,000.00 Wittlesey Associates, Inc. case no. 09-55806
According to the Plaintiffs, the Debtor disclosed the Brown Bankruptcy Claims even though he
knew they did not exist in an effort to mislead the Trustee into believing that there were substantial
assets that the Trustee could recover for this estate. The Plaintiffs’ theory is that the Debtor would
somehow gain favor with the Trustee by making the bankruptcy estate appear to have substantial
assets for the Trustee to administer, while at the same time distracting the Trustee from pursuing
other more meritorious actions against the Debtor to remedy his wrongdoing.
In support, the Plaintiffs introduced the docket sheet in the Brown Properties Corporation
bankruptcy case (exhibit 67) to show that the Brown Properties Corporation bankruptcy case was
closed on February 28, 2012, before the Debtor filed his own bankruptcy. As a result, the Plaintiffs
argue that the Debtor had to have known that his claim in the Brown Properties Corporation
bankruptcy case was worthless. The Plaintiffs also introduced the discharge (exhibit 68) entered in
At trial, the Debtor did not initially recall ever retracting the March 6, 2013 letter. However,
the Debtor was then shown a June 3, 2013 letter (exhibit 77) from Brown’s attorney to the Debtor’s
attorney. This letter claimed that the Debtor’s March 6, 2013 letter had defamed Brown, and
demanded that the Debtor retract it. The basis for the demanded retraction was section (4) of a
Settlement Agreement and Mutual Release (exhibit 69) that was entered into between the Debtor,
Brown, and other parties to resolve various issues in the Brown Bankruptcy Cases. The Debtor then
acknowledged that he sent a June 4, 2013 letter (exhibit 87) to Brown’s attorney, stating “I hereby
unconditionally retract the letter of 3/6/13 and each and every statement in the letter regarding
JEFFREY H. BROWN.”
The Plaintiffs insist that the Debtor’s June 4, 2013 letter constitutes an admission by the
Debtor that the Cherry Hill Claims described in his earlier March 6, 2013 letter were false. The
Debtor disagrees, explaining that this retraction only pertained to his statements about Brown, not
about the Cherry Hill Claims. The Debtor argues that he said nothing in the retraction letter that
could be read as retracting the Cherry Hill Claims.
The second group of allegedly false accounts or loans receivable claims disclosed by the
Debtor on line 16 on his schedule B consists of claims (“Capitol Park Claims”) owed to him by the
following entities in the amounts indicated:
Capitol Park Associates, LLC $ 764,098.00West Town Line Associates, LLC $1,304,536.00Summer Park Associates, L.L.C. $1,077,000.00Peninsula Development Associates, L.L.C. $ 144,500.00
Total $3,290,134.00
According to the Plaintiffs, the falseness of these claims is established through a 2008 state
court lawsuit in Oakland County Circuit Court that ended with a voluntary dismissal with prejudice.
disclosure. There simply is no evidence that the Debtor was trying to mislead the Trustee or anyone
else when he listed them.
The Debtor does not have the burden to prove that the claims he disclosed are legitimate and
have value. Instead, the burden is on the Plaintiffs to prove that the claims are false and that the
Debtor listed them with the intent to deceive. The Court finds that the Plaintiffs failed to meet their
burden of proof that the Debtor presented or used a false claim.
X.
Section 727(a)(4)(D)
Section 727(a)(4)(D) provides for denial of discharge if “the debtor knowingly and
fraudulently, in or in connection with the case . . . withheld from an officer of the estate entitled to
possession under this title, any recorded information, including books, documents, records, and
papers, relating to the debtor’s property or financial affairs[.]”
[T]he party objecting to discharge under 11 U.S.C. § 727(a)(4)(D) has the initialburden of proving that: 1) the withholding of documents was done by the debtor orsomeone for whose conduct the debtor is legally responsible; 2) was in connectionwith a case; 3) was withheld from an officer of the estate entitled to possession; 4)was done knowingly and fraudulently; and 5) relates to the debtor's property orfinancial affairs.
Olson v. Slocombe (In re Slocombe), 344 B.R. 529, 534 (Bankr. W.D. Mich. 2006) (citations
omitted).
The Plaintiffs rely on the Trustee’s minimal testimony concerning the Debtor’s bank
statements to prove that the Debtor knowingly and fraudulently withheld documents from an officer
of the estate. On the one hand, the Trustee was asked about bank statements that he had requested,
and he testified the Debtor had provided some, but did not provide others. On the other hand, as
noted, the Debtor testified without contradiction that neither the Trustee nor the Trustee’s counsel
Section 727(a)(5) provides for denial of discharge if “the debtor has failed to explain
satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets
or deficiency of assets to meet the debtor’s liabilities . . . .”
Section 727(a)(5) is broad enough to include any unexplained disappearance orshortage of assets. The initial burden is on the objecting party to introduce someevidence of the disappearance of substantial assets or of unusual transactions. Thedebtor must then satisfactorily explain what happened. To be satisfactory, anexplanation must convince the judge.
Solomon v. Barman, 244 B.R. at 900 (internal quotation marks and citation omitted). Thus, a debtor
need not have acted reasonably in dissipating assets, but he must have an explanation that is
reasonably supported by the evidence.
The Plaintiffs allege that the Debtor has not adequately explained his loss of income
consisting of $32 million in income reported on the Debtor’s 2006 tax return, and $9 million
received from the Debtor’s liquidation of U.S. Treasury bills in 2007.
Without a doubt, the evidence shows that the Debtor had income of up to $32 million in 2006
and that, when he filed bankruptcy in 2012, he disclosed on schedule B only $253.00 in his
Comerica Bank checking account. An explanation from the Debtor as to what became of the
$32 million is certainly warranted.
The Debtor testified that most of the income reported on his 2006 federal tax return was from
the sale of RSJC Associates and the Affiliated Partnerships that year. Of that income, the Debtor
testified that the $32 million reported income included non-cash items, such as deferred depreciation
recapture, and that he received only approximately $27.1 million in actual income. This testimony
The Plaintiffs met their initial burden by introducing the Debtor’s tax returns reflecting
significant income in 2006 and 2007, and showing that only $253.00 remained in his checking
account when he filed bankruptcy in 2012. The Plaintiffs then examined the Debtor at length about
the income that was shown on the tax returns and the substantial sums that were reflected on his
bank statements. It is clear from the Debtor’s testimony that he did spend enormous amounts of
money during this time. And the Plaintiffs were successful in showing through the Debtor’s
testimony that he enjoyed a lavish, even extravagant lifestyle during this period. But the Debtor
answered all of the Plaintiffs’ questions. The Debtor’s explanation was complicated, no doubt. But
it was believable. And, significantly, the Plaintiffs did not offer any evidence to contradict the
Debtor’s explanation. The Plaintiffs may not have liked the Debtor’s explanation, but the Court
finds the Debtor’s explanation to be satisfactory. The Court finds that the Plaintiffs failed to meet
their burden to prove that the Debtor has failed to explain satisfactorily a loss of assets.
XII.
Section 727(a)(7)
Section 727(a)(7) provides for denial of discharge if
“the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) ofthis subsection, on or within one year before the date of the filing of the petition, orduring the case, in connection with another case, under this title or under theBankruptcy Act, concerning an insider . . . .”
Barclays/American Business Credit, Inc. v. Adams (In re Adams), 31 F.3d 389, 394 n.2 (6th Cir.
1994) (quoting 11 U.S.C. § 727(a)(7)). There are four elements to § 727(a)(7): (1) the act must be
committed by the debtor; (2) the act must be within those described in § 727(a)(2) through (a)(6);
(3) the time frame is limited to one year pre-petition, or during the case; and (4) the act must have
9 The complaint alleges that Jennifer Lewiston is the Debtor’s daughter-in-law. Over thecourse of the four-day trial, her name came up only once, when she was identified as a co-defendant in an adversary proceeding brought by the Trustee to avoid fraudulent conveyances.
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been committed in connection with another case concerning an insider. “Insider” is determined by
applying the definition in § 101(31).
This basis for denial of discharge received very little attention throughout the trial. The
Plaintiffs allege in their complaint that, using the definitions under § 101(31)(A) and § 101(45), the
Etterbeeks, Jason, Lois and Jennifer Lewiston9 are insiders of the Debtor. The complaint then
simply concludes that the Debtor’s transfer of his ownership in several, if not all, of the business
entities described above, to these insiders, prevents him from receiving a discharge. The Plaintiff’s
post-trial brief is just as conclusory, quoting § 727(a)(7) and listing the acts committed by the Debtor
that form the grounds for denial of discharge under § 727(a)(2), (3), (4) and (5).
The evidence adduced at trial unquestionably demonstrates that the Etterbeeks, Jason and
Lois are insiders of the Debtor. However, there is no testimony or other evidence to show that any
of these individuals have ever filed for bankruptcy. It is not enough under § 727(a)(7) that the
Debtor took actions that may form the basis for denial of discharge under paragraphs (2), (3), (4),
(5), or (6). In order to form a basis for denial of discharge under § 727(a)(7), those acts must be in
connection with another case concerning an insider. There is no such case here. Accordingly, the
Court finds that the Plaintiffs have failed to meet their burden to prove that any of the acts alleged
to have been committed by the Debtor were committed in connection with another case concerning
10 The Court did not specifically mention each of the Plaintiffs’ exhibits in this opinion,but it examined and considered all of them in making its findings of fact and conclusions of law.
11 The Plaintiffs also asked the Debtor at trial about some other potential discrepancies inthe schedules and statement of financial affairs but the Court need not address them because theywere not the subject of any of the allegations in the complaint.
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XIII.
Conclusion
In many ways this is an extraordinary case. In part that is due to the nature, duration and
complexity of the Debtor’s business affairs, which for many years were very successful. In part, it
is due to the level of animosity that, unfortunately, developed as the Debtor’s financial condition
deteriorated and now firmly exists between the Plaintiffs (other than the Trustee) and the Debtor.
The legal issues raised by the Plaintiffs in their objections to the Debtor’s discharge are neither
complex nor difficult. But the facts are. The parties developed a very substantial evidentiary record
at trial. But it basically boils down to two witnesses, the Debtor and the Trustee, and the many
documents10 that the Plaintiffs culled from records of the Debtor and others, that the Plaintiffs used
to build their case that the Debtor is not truthful.
The Debtor testified for four days and was examined regarding many documents spanning
decades. The Plaintiffs succeeded in picking out many errors and inconsistencies in those
documents.11 The Plaintiffs also succeeded in proving that the Debtor made some omissions and
errors in his schedules and statement of financial affairs. However, there is no evidence in the
record to contradict the Debtor’s explanations for any inconsistencies, errors and omissions. As a
result, this case turns on the credibility of the Debtor’s explanations. For the reasons already
explained, the Court found the Debtor’s testimony to be credible. The Court also found the Trustee
12 The Trustee was only asked questions about the Plaintiffs’ objections under§ 727(a)(3). He was not asked a single question about the facts that the Plaintiffs alleged tosupport their other objections to discharge under § 727(a)(2), (4), (5) and (7).
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to be credible, but his brief testimony hardly touched upon, let alone proved, any of the Plaintiffs’
claims.12 By any measure, the Debtor’s bankruptcy case has not been perfect. However, in the final
analysis, the Plaintiffs’ evidence does not convince the Court that the Debtor should be denied a
Chapter 7 discharge.
The Court will enter a separate order consistent with this opinion.
.
Signed on September 10, 2015 /s/ Phillip J. Shefferly
Phillip J. Shefferly United States Bankruptcy Judge