DEBTOR CASE NO. 97-20511







VS. ADV. NO. 97-2043






This matter is before the Court on the issue of whether the defendant should be denied a discharge pursuant to 11 U.S.C. '727(a)(2)(A) and (4). An Agreed Order of Submission in this regard was entered on January 21, 1998. While this case is being litigated in an adversary proceeding objecting to discharge, it is basically a dispute between two brothers involving the liquidation of a business in which they were involved. The motivation in filing the case clearly is to defeat the two claims being prosecuted by his brother. As such a good faith question is involved since it might well be argued that the state court is the appropriate forum for this matter but that has not been pursued here. Therefore, on into the fray.

Previously, the Court had sustained plaintiff Erlanger Abrasives and Supply Co., Inc.=s Motion for Summary Judgment, and ruled that the defendant=s debt to that plaintiff corporation was nondischargeable pursuant to 11 U.S.C. '523(a)(6). The Court further found that the defendant=s debt to his brother the plaintiff Jerry Longo, Jr. was in the nature of a claim for contribution and so was dischargeable. For whatever reason the Court allowed the parties to try the cart (dischargeability) before the horse (discharge) so now we will decide about the horse. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(J).

The parties have entered into Joint Stipulations which set out facts pertinent to this issue. Included therein are the defendant=s testimony under oath on two different occasions that he was the owner and sole shareholder of City-Wide Abrasives and Supplies, Inc. (ACity-Wide@). At the first meeting of creditors conducted in his case on June 18, 1997, however, he testified that he owned no shares of stock in City-Wide, and that all shares were owned by his wife (Certificate No. 1, issued December 15, 1994). The defendant is the sole officer, director and registered agent for City-Wide, has the sole responsibility for conducting all its business, and has filed all its corporate records. Within two years immediately preceding the filing of the defendant=s bankruptcy petition, he was an officer, director and managing executive of City-Wide and Erlanger Abrasives and Supply, Inc.

On or about December 8, 1994, the defendant and his wife purchased their residential realty in Boone County, Kentucky, for the purchase price of $75,000.00. Title was taken by the defendant and his wife as tenants by the entirety. They executed a note for $71,000.00 and entered into a mortgage to secure that amount with Fort Thomas Building and Loan Association. Since that time the defendant and his wife have made monthly installment payments on the note, the balance currently being $69,000.00 to $70,000.00. On September 15, 1995, the defendant conveyed all his right, title and interest in this property to his wife by a quit claim deed for the stated consideration of one dollar. The fair market value of the realty was approximately %75,000.00. The defendant testified in schedules filed with his petition that he had made no gifts or transfers of property within one year of filing his petition on March 27, 1997. At the first meeting of creditors he testified under oath that this transaction with his wife took place because she had paid for the property with her own funds. The defendant=s wife had provided the $4,000.00 down payment with her own funds. Subsequent monthly installment payments have been made from the joint funds of the defendant and his wife. The defendant has only four creditors: his brother, the company formerly operated by the brothers, one unliquidated debt and the obligation on his home mortgage.

The Court will first address the issue of whether the defendant transferred or concealed property within the meaning of 11 U.S.C. '727(a)(2)(A). As set out above, this statute acts to deny a debtor a discharge if he commits the prohibited acts in regard to his property within one year before the filing of his bankruptcy petition. The transfer in question here, of all the defendant=s right, title and interest in the real property to his wife without consideration, occurred well outside the one year limit. While the defendant apparently takes the position that this automatically removes it from consideration under '727(a)(2)(A), this position is not supported in case law.

Courts have held that a debtor transferred property outside the one year limit with intent to defraud creditors where the property was transferred for no consideration, at a time when the debtor feared collection action by a creditor, and the debtor maintained control of the property and received benefits from it even after the transfer. In In re Penner, 107 B.R. 171 (Bkrtcy.N.D.Ind. 1989), the court discussed the

imprecise boundary between concealment and transfer as condemned by section 727(a)(2). In part, this imprecision arises out of the one year limitation of section 727(a)(2)(A). Despite this seemingly absolute limitation on the timing of debtor=s conduct, existing case law recognizes that a transfer of property, which occurred more than one year prior to the petition may warrant the denial of a discharge if the transfer is concealed or beneficial interests are retained into the magic one year period. (Cites omitted.)

. . . . . .

Concealing property under circumstances sufficient to warrant denial of the discharge is....somewhat broader than simply hiding assets in a secret place or failing to disclose them. It can also be found in >a transfer of title coupled with the retention of the benefits of ownership.= In re Olivier, 819 F.2d 550, 553 (5th Cir. 1987). See also Matter of Kauffman, 675 F.2d 127, 128 (7th Cir. 1981)(transfer with the bankrupt continuing to use the property as his own).

At 173-74. This is the Acontinuous concealment@ doctrine. The standard of proof applicable to justify a denial of discharge based on the debtor=s transfer or concealment of property with intent to hinder, delay or defraud a creditor is a preponderance of the evidence. In re Essres, 139 B.R. 958, 959 (D.Colo. 1992).

The requirement that the transfer be made with intent to hinder, delay or defraud a creditor is emphasized in Rosen v. Bezner, 996 F.2d 1527 (3rd Cir. 1993), in which the court stated

Under the continuing concealment doctrine, a concealment initiated prior to the one year period but continuing into that period will fulfill the act requirement. However, the party objecting to discharge must still prove an improper subjective intent during the year before bankruptcy in order to succeed. .... Section 727(a) requires the party seeking denial of discharge to prove an intent to hinder or defraud creditors during the year immediately preceding bankruptcy; the fact that the original transfer of the property prior to the one year period was accompanied by an improper intent may provide some evidence of an improper intent during the critical period, but it does not, by itself, require a conclusion that the debtor=s continuing concealment during that period was motivated by an intent to hinder or defraud creditors.

At 1532-33.

The record in this case indicates that the debtor transferred property to his wife while retaining a beneficial interest in it, so as to invoke the continuous concealment doctrine. While his wife had legal title to their home, the debtor continued to live in it. He made mortgage payments on it, and claimed the mortgage interest paid as a deduction on their joint tax return. The tax return reflects that his wife was a housewife and establishes that he was the breadwinner of the family. In examining the debtor=s intent, the Court notes that the transfer took place during a period when the debtor was embroiled in a controversy over the split-up of his business with his brother. This controversy eventually became the subject of litigation, as set out above, in which a judgment was entered against the debtor.

The debtor, in an apparent attempt to make it appear that he retained no interest in the property, testified at the 341 meeting in this case that he conveyed his interest to his wife because she had paid for it. The record and the stipulations show that his wife provided $4,000.00 for a down payment on the property, but certainly not that she Apaid for@ the property. These acts and statements by the debtor indicate to the Court that the debtor not only had the requisite subjective intent to hinder, delay or defraud his creditors when he transferred the property, but that such intent continued into the year before he filed his bankruptcy case.

The stipulations also demonstrate that the defendant was, in fact, a corporate officer, director and managing executive within two years contrary to the sworn statement in defendant=s statement of affairs filed in this case (Question 16). While these facts were or should have been known to the complaining creditor and his counsel in this case it does not relieve the defendant of the obligation to file accurate information in the case. A false oath clearly can be the basis for the denial of a discharge pursuant 11 U.S.C. '727(a)(4)(A). As set out in Rosen v. Bezner, supra at 1531, A[c]ompletely denying a debtor his discharge, as opposed to avoiding a transfer or declining to discharge an individual debt pursuant to '523, is an extreme step and should not be taken lightly.@ This Court finds that it has been demonstrated by a preponderance of the evidence that this debtor did transfer and conceal property within the meaning of 11 U.S.C. '727(a)(2) and make false oath in the case pursuant to 11 U.S.C. '727(a)(4)(A) and that his discharge should be denied. Having so found, the Court finds it unnecessary to address the plaintiffs= other allegations under '727. An order in conformity with this opinion will be entered separately.


By the Court -



Chief Judge


Copies to:


Stephen P. Huddleston, Esq.

Richard A. Sadoff, Esq.