IN RE: ELMER WILMOT NO. 93-50039

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

ELMER WILMOT

d/b/a Hotshot Wilmot; Garrard

Auto Sales; Wilmot Auto Sales CASE NO. 93-50039

DEBTOR (INVOLUNTARY)

MEMORANDUM OPINION

The issue before the court is whether to order relief against the debtor Elmer Wilmot on an involuntary petition filed by the sole creditor of the debtor.

On November 11, 1993, Printess Campbell and Kathy Campbell, husband and wife, commenced an involuntary case under chapter 7, title 11 United States Code, against Elmer Wilmot a/k/a Hotshot Wilmot, Garrard Auto Sales, and Wilmot Auto Sales. The debtor and others are jointly and severally liable to the Campbells on a judgment rendered after trial by jury in Boyle Circuit Court on June 17, 1992 in the amount of $1,000,000 as compensatory damages for conspiracy and breach of fiduciary duty. The debtor is individually liable to the Campbells for an additional $5,000 as compensatory damages for malicious prosecution and $25,000 as punitive damages.

On February 5, 1993, the debtor by counsel filed a motion to dismiss the involuntary petition on the grounds that the debt to the Campbells, which is the only debt the debtor acknowledges owing, is contingent as to liability and is the subject of a bona fide dispute. 11 U.S.C. § 303(b)(1). The court in a memorandum opinion and order entered March 2, 1993 overruled the debtor's motion to dismiss this case on that ground. The court found that the debtor had not superseded the judgment against him pending an appeal to the Kentucky Court of Appeals, that the Campbells as judgment creditors are entitled under state law to enforce the judgment pending appeal, and that the judgment is neither contingent as to liability nor the subject of a bona fide dispute within the meaning of 11 U.S.C. § 303(b)(1).

On March 12, 1993 the debtor filed an answer to the involuntary petition and denied that he is generally not paying debts as they become due and specifically alleged that the only debt he owes is the claim of the petitioning creditors.

Trial was conducted in this matter on August 19, 1993 pursuant to 11 U.S.C. § 303(h)(1), which provides:

11 U.S.C. § 303(h)(1).

At trial petitioning creditor Kathy Campbell testified that the debtor Elmer Wilmot has not paid the debt owing to her and her husband. The debtor testified the debt owing to the Campbells is his only debt.

In his testimony at trial Wilmot described certain conveyances of property which were effected after the date on which the Campbells obtained judgment against him and which are the subject of an avoidance action in the Boyle Circuit Court. The conveyances are hereafter described based solely on the testimony of Elmer Wilmot which is in large part uncorroborated. It is to be remembered that this was not a trial in which the parties were expected or required to prove or refute allegations of fraudulent conveyances or preferential transfers.

In November of 1986 the debtor acquired from a J. T. Broaddus an interest in Garrard County Wood Works Products, Inc. and received in addition thereto the sum of $35,000 in cash in exchange for which the debtor transferred to Broaddus the debtor's interest in 75 shares of common stock in People's Bank of Paint Lick, Paint Lick, Kentucky. Simultaneously therewith the debtor transferred 66 2/3 shares of stock in Garrard County Wood Works Products, Inc. to his son, Eddie Wilmot. As consideration therefor Eddie Wilmot agreed to pay to Elmer Wilmot any and all dividends declared and paid on the stock. The debtor received payment of all dividends on the stock until "a year or so" before trial on the involuntary petition, which presumably was after the date on which the Campbells commenced the civil action in Boyle Circuit Court against Elmer Wilmot and might have been after the date on which the Campbells were awarded judgment. Eddie Wilmot now receives dividends paid on the stock. The value of stock transferred to Eddie Wilmot and the amount of dividends received by Elmer Wilmot are not ascertainable from the record now before the court.

In August of 1992 the debtor Elmer Wilmot conveyed to his son Eddie Wilmot a 1988 Chevy van and instructed his son to sell the van. Eddie Wilmot sold the van for $11,500 and gave the proceeds to his mother, Elmer Wilmot's wife, who deposited the proceeds into a checking account on which Elmer Wilmot lacks signatory authority.

In 1991 Elmer Wilmot and his wife jointly acquired for $15,000 a house and lot in Pulaski County formerly owned by Wilmot's brother. In June of 1992 the debtor and his wife reconveyed the property to the brother for $16,500; $8,250 was paid to the debtor and $8,250 was paid to the debtor's wife.

In July of 1991 debtor purchased six and two-thirds shares of stock in Garrard County Wood Works Products, Inc. and ten shares of stock in Garrard County Rentals for the aggregate sum of $10,384. On August 6, 1992 debtor sold the stock to Chester Turner for $10,384.

In 1991 the debtor and Chester Turner commenced operation of a used car lot known as Garrard Auto Sales. The debtor did not make a capital contribution to the business but shared equally with Chester Turner expenses and the cost of purchasing automobiles for resale. On August 22, 1992, debtor sold his interest in Garrard Auto Sales to Chester Turner for $4,000.

Debtor and his wife purchased a lot in Lancaster, Kentucky for $6,000 and sold it to Chester Turner some 3 or 4 years later on July 7, 1992 for $6,000, $3,000 of which was paid to Elmer Wilmot, the debtor, and $3,000 of which was paid to Veda Wilmot, his wife.

In 1982 debtor and his wife sold a farm to one Earl Hickerson on a land contract pursuant to which Hickerson agreed to pay to the Wilmots a down payment in the amount of $5,000 and the remaining balance of the purchase price of $50,000 at a rate of $3,000 per year plus 12% interest per annum. The Wilmots retained a mortgage on the farm to secure repayment of the note. In September 1992 the outstanding principal balance of the note was approximately $9,000. Wilmot and his wife assigned the note and mortgage to their son Eddie Wilmot in exchange for $7,000; $2,500 was paid to Elmer Wilmot and $4,500 was paid to Elmer Wilmot's wife.

In August 1992 the debtor transferred his one-half interest in a 125-acre farm in Garrard County to his wife, with whom he owned the property jointly, in exchange for her promise to continue to pay attorneys' fees he incurred in defense of the litigation initiated by the Campbells. The debtor valued his one-half interest in the farm at $75,000.

Sometime in 1992 debtor and his wife cashed a certificate of deposit in the amount of $70,000 or $90,000. Debtor retained $15,000; the balance was redeposited in a certificate of deposit in the name of the debtor's wife. The debtor claims the certificate of deposit was always maintained in his wife's name. The petitioning creditors allege the debtor listed the certificate of deposit as an asset on his personal financial statement in 1991.

Debtor maintains he caused the above-described conveyances of his property to be made in order to obtain funds needed to pay attorneys' fees incurred in defense of the Boyle Circuit Court action filed by the Campbells. Debtor's evidence shows payments to Bobby Wombles, his attorney, after June 17, 1992, the date on which judgment in favor of the Campbells against Elmer Wilmot was entered, as follows:

All of the above payments are supported by invoices from Bobby Wombles with the exception of the $12,000 check written on August 26, 1992. The debtor testified he is not sure that the copies of canceled checks payable to and copies of invoices received from Bobby Wombles which debtor produced at trial in this matter represent complete records of the payments debtor actually made to Wombles.

The court has previously ruled that the debt owing to the petitioning creditors is not the subject of a bona fide dispute. This is the only debt the debtor acknowledges owing. The evidence shows the debtor has not paid the debt.

The only issue is whether by not paying this one debt the debtor is generally not paying his debts as they become due within the meaning of 11 U.S.C. § 303(h)(1).

The debtor argues the plain language of section 303(h)(1) requires dismissal of an involuntary petition if the evidence shows that only one debt to one creditor is owed because relief may be ordered against a debtor only if the debtor is generally not paying such debtor's "debts" (plural) as such "debts" (plural) become due.

The quick answer to the argument that the plural does not include the singular may be found in title 1 U.S.C. § 1 (the "Dictionary Act") which provides:

1 U.S.C. § 1 (underscoring added).

In its ruling in In re Concrete Pumping Service, Inc., 943 F.2d 627 (6th Cir. 1991), the court appears to reject the argument that the context of section 303(h) indicates an intent on the part of Congress to preclude entry of an order for relief on an involuntary petition against a debtor who owes only one debt.

In questioning whether there is any statutory basis for the per se rule developed by bankruptcy courts (and some district courts) against granting relief on an involuntary petition where there is only a single creditor the court noted:

In re Concrete Pumping Service, Inc., 943 F.2d 627, 630 (6th Cir. 1991).

The court might have noted that if Congress had intended to preclude relief on an involuntary petition against a debtor who owes only one debt the language of section 303(b)(2) would have restricted the commencement of an involuntary petition by a single creditor to instances in which there are two or more but fewer than twelve holders of claims.

This court is satisfied that under the language of 11 U.S.C. § 303(b)(2) and 303(h)(1) an order for relief may be granted on the petition of a single creditor that is the only creditor of the debtor. Even though the debtor in this case may owe only one liquidated debt the court finds the debtor is generally not paying his debts as they come due. Thus, the debtor is in default on 100% of his outstanding debts. It is impossible to get any more general than that. 943 F.2d at 630.

In any event, the evidence at the trial suggests the debtor has disposed of his assets in a suspicious manner as had the debtor in the Concrete Pumping case. Here as in that case the evidence does not establish conclusively that the debtor made conveyances that may be avoided by a bankruptcy trustee as preferential or fraudulent. In affirming the order for relief on the petition of the debtor's only creditor the court in the Concrete Pumping case relied on a judicially created exception to the per se rule. Assuming there is a statutory basis for the rule, the court may nevertheless order relief on an involuntary petition filed by the sole creditor of the debtor where there is evidence of "fraud, artifice or scam." 943 F.2d at 630.

Accordingly, the motion of the debtor, by counsel, to dismiss this case shall be overruled; an order for relief on the involuntary petition shall be granted.

Dated:

By the court -

Chief Judge

Copies to:

W. Thomas Bunch

Richard Clay