IN RE RUSS TINGLER CASE NO. 99-30387 ADV. NO. 00-3021 Motions for Summary Judgment

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

FRANKFORT

IN RE:

RUSS TINGLER CASE NO. 99-30387

DEBTOR

JAMES W. GARDNER, trustee PLAINTIFF

5. ADV. NO. 00-3021

RUSS W. TINGLER DEFENDANT

MEMORANDUM OPINION

This adversary proceeding is before the court on competing motions for summary judgment (Documents # 7 & 9). The motions have been briefed (Documents # 9, 11, & 12), and argument of counsel heard on February 21, 2001 (Document # 13).

FINDINGS OF FACT:

On July 29, 1999 the debtor, Russ Tingler (Tingler"), represented by his same counsel in this adversary proceeding, Stephen C. Sanders ("Sanders"), filed in this court a petition for relief under chapter 7 of the U. S. Bankruptcy Code. (Document # 1). That same day an order was issued directing the debtor within ten days to turnover/ produce to the trustee specified categories of documents including, as # 7, "Contracts or title papers pertaining to any property of the debtor." The order concludes with the language "Counsel for the debtor is responsible for seeing that the debtor complies with this order." Copies of the order went to Tingler and Sanders. (Document # 5).

James W. Gardner ("Gardner") was duly appointed and qualified as trustee in this case. (Document # 10, main case). The Section 341 Meeting of Creditors was conducted on September 2, 1999 (Document # 12, main case), was continued to October 7, 1999 but not attended by Tingler or Sanders (Document # 14, main case), and concluded on February 23, 2000 as a Rule 2004 examination of the debtor (Document # 23, main case).

On September 3, 1999, the day following the Section 341 meeting, Gardner wrote Sanders a letter in which he requested certain documents including information concerning the debtor's entitlement to monies ("$10,000 or so") from his employment with Ford Motor Company ("Ford"). The trustee states this issue was discussed at the meeting on September 2, 1999 (Document # 11, Adv. No. 00-3021). In his letter Gardner not only directs Sanders to "instruct" Tingler to deposit the money in Sanders' escrow account until "that issue," presumably ownership of the money, was resolved, but Gardner also states "or I will move to withhold the discharge." (Attachments to Document # 15, main case, and Document # 11, Adv. No. 0-3021).

On November 1, 1999 an ex-wife of the debtor filed Adversary Proceeding No. 99-3028, Joselyn S. Tingler v. Russell W. Tingler, in which she asserts nondischargeability of debts owed by the debtor to her as a result of a domestic relations action. (Document # 1, A.P. No. 99-3028). In her Complaint Mrs. Tingler states the debtor failed to disclose assets to the Bankruptcy Court, but she is not specific as to what those assets are. Attachments to the Complaint include reference to a "moving bonus" from Ford.

On November 17, 1999 the trustee filed a motion to compel the debtor to turnover to the trustee approximately $10,000 paid him from Ford and for examination of the debtor under Bankruptcy Rule of Federal Procedure ("FRBP") 2004. (Document # 15, main case). The trustee cited as his basis for the motion that he believed the debtor had not complied with the trustee's instruction to Debtor's counsel in the letter of September 3, 1999 to escrow the funds from Ford and that the debtor had failed to provide complete information at or following the September Section 341 meeting. The motion was sustained and an order entered on December 17, 1999 directing turnover of all funds received by the debtor from Ford in the approximate amount of $11,000 and ordering the debtor to appear before the trustee in order to produce the requested documents. (Document # 17, main case). The trustee filed notice of a Rule 2004 examination to be conducted on January 25, 2000 with a copy of the letter of September 3, 1999 attached as listing of the documents requested. (Document # 18, main case). The record does not provide information regarding the Rule 2004 examination other than notation on Document # 23 of the main case that on February 23, 2000 a Section 341 meeting was "continued as a 2004 deposition and held at Trustee's office." (Document # 23, main case).

Discharge of the debtor was entered on June 7, 2000. (Document # 25, main case).

Trial in the adversary proceeding brought by Mrs. Tingler was conducted on July 18, 2000. An order was entered on July 19, 2000 sustaining her motion for summary judgment on the issue of nondischargeability of a maintenance award by the state court in the parties' dissolution action. (Document # 29, A.P. No. 99-3028). As result of the court's directive at conclusion of trial (See Document # 27), counsel for the debtor in that action, also Sanders, on August 3, 2000 filed the debtor's affidavit providing information regarding the "Relocation Bonus" from Ford (Documents # 31 & 30).

In his affidavit Tingler states that "[u]pon receipt" he "cashed" and "disbursed" the money. He then itemizes how the money was spent. Notably, $10,000 of the $11,565 he received on September 22, 1999 was spent on a hot tub, a tanning bed, and a trip to Las Vegas with an ex-wife and, using the dates given in Tingler's affidavit, was done within nineteen days after his receipt of the money (9/2/99 Section 341 Meeting to 10/11/99 separation from ex-wife). Additionally, despite his having been instructed by the trustee three weeks prior to receiving it not to spend any of the money, he not only spent all of it but did so in less than two months (9/2/99 Section 341 Meeting to 9/22/99 receipt of bonus, 9/22/99 to 11/17/99 turnover motion).

On August 21, 2000, upon review of the affidavit, the court entered an order in the main case directing the debtor to show cause why the discharge order should not be set aside and the case dismissed. (Document # 26, main case). Counsel for the debtor filed a response and a motion to set aside the turnover order of December 17, 1999 asserting that the "Relocation Bonus" was not property of the bankruptcy estate. (Document # 28, main case). A hearing was conducted on September 13, 2000 and on September 19, 2000 an order entered holding the show cause order in abeyance and directing the trustee to file an adversary proceeding against the debtor seeking revocation of the discharge and dismissal of the debtor's bankruptcy case. (Document # 30, main case).

Complaint initiating the herein adversary proceeding was filed on November 14, 2000. (Document # 1, A.P. No. 00-3021).

On October 23, 2000 the court entered an order in Adversary Proceeding No. 99-3028 holding in abeyance a ruling on the merits of the proceeding for a period of one year during which time the debtor would submit, in January and in July, detailed reports regarding the condition of his health. (Document # 32, A.P. No. 99-3028). The first of these filings has been made. (Document # 33, A.P. No. 99-3028).

CONCLUSIONS OF LAW:

The trustee's complaint herein is brought under 11 U.S.C. ' 727(d)(2), (d)(3), and (a)(6)(A). Section 727(d)(2) states that the discharge of the debtor shall be revoked if

"the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of, or entitlement to, such property, or to deliver or surrender such property to the trustee[.]" Subsection (d)(3) provides that the discharge shall be revoked if the debtor has committed an act specified in (a)(6) of the section which states in (A) the debtor has refused in the case "to obey any lawful order of the court, other than an order to respond to a material question or to testify[.]"

A debtor is under an absolute duty to fully disclose. The Petition, Schedules, and Statement of Financial Affairs must include signature of the debtor under penalty of perjury that he has read the documents and verifies the accuracy of the information contained in them. FRBP 1008; 28 U.S.C. ' 1746. The Petition is required to be signed by counsel to the debtor and is representation that its contents are accurate to the best of counsel's knowledge after reasonable inquiry. FRBP 9011(b).

11 U.S.C. ' 521 and FRBP 4002 provide outline of a debtor's duties. The provisions in Section 521 which seem particularly relevant here are subsection (3), "if a trustee is serving in the case, [the debtor shall] cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title," and subsection (4) "if a trustee is serving in the case, [the debtor shall] surrender to the trustee all property of the estate and any recorded information, including books, documents, records, and papers, relating to property of the estate, whether or not immunity is granted under section 344 of this title." Rule 4002 states that in addition to the other duties prescribed by the Code and Rules, the debtor shall (3) "inform the trustee immediately in writing as to . . . the name and address of every person holding money or property subject to the debtor's withdrawal or order if a schedule of property has not yet been filed" and (4) "cooperate with the trustee in the preparation of an inventory, the examination of proofs of claim, and the administration of the estate." As one court put it, "[d]ebtors have an absolute duty to report whatever interests they hold in property, even if they believe their assets are worthless or are unavailable to the bankruptcy estate." In re Yonikus, 974 F.2d 901, 904 (7th Cir. 1992). See also In re Farmer, 237 B.R. 210 (Bankr. M.D.Fla. 1999) (explaining debtor's mandatory duty to relinquish financial books and records to chapter 7 trustee without need for formal discovery request, hearing or order.)

The debtor and his counsel assert, and have asserted at certain junctures along the long path leading to this point, that the debtor was not entitled to any of the "moving bonus"/ "Relocation Bonus" until he completed one year of service with Ford at its Louisville, Kentucky plant which he did post-petition on September 22, 1999 and that he did not receive the funds until post-petition. However, these facts do not excuse the debtor or his counsel from failing initially to disclose this entitlement, from failing upon request of the trustee to provide information regarding entitlement, or from failing upon receipt of the funds to deposit them. The debtor and his counsel were instructed twice the first few days of September of 1999-- at the Section 341 conducted on September 2, 1999 and by letter of September 3, 1999-- to turnover the bonus when it was received, in fact to deposit it in the attorney's escrow account until the issue of whether it was property of the bankruptcy estate was resolved. Further, they were told that if the money was not deposited the trustee would "move to withhold the discharge."

Counsel seeks to excuse his and his client's not following the directive of the trustee by asserting the bonus was not property of the estate. The debtor seeks to excuse himself by stating, in his affidavit in the adversary proceeding commenced by an ex-spouse, that he was not aware of the trustee's motion for turnover or the court's order for turnover of the bonus "until provided copies by his attorney in late February, 2000." (Document # 30, A.P. No. 99-3028). Rather than being persuaded by the debtor's and his counsel's factual and legal arguments, the court is astounded at their flagrant disregard for the authority of this court and of the Bankruptcy Code, a disregard which is emphasized by the reluctance, even delinquency, with which the debtor and his counsel have provided information on this issue. One such example is the debtor's affidavit with information on the bonus, information which did not come until August 3, 2000 after instruction by the court to do so within fifteen days. The court-directed filing was made just under one year from the date the trustee first sought information regarding the bonus and instructed that the money when received be deposited in counsel's escrow account.

Viewed in their best light, the facts demonstrate that after lack of cooperation by the debtor and his attorney, the trustee moved for and obtained an order directing turnover of the funds and, at best, that more than half a year later the court sua sponte issued a show cause order at which point the debtor and his attorney began seeking resolution of the issue of whether or not the funds were property of the estate. Even if none of the property were determined to be property of the estate, the debtor and his counsel have violated their duties to this court.

As to the question of whether the "moving bonus"/ "Relocation Bonus" is property of the estate, 11 U.S.C. ' 541(a)(1) defines property of a bankruptcy estate "wherever located and by whomever held" as "all legal or equitable interests of the debtor in property as of the commencement of the case."

Counsel argues the debtor was not entitled to any of the bonus if he did not complete the year. Therefore, since there was no entitlement to the bonus on the date of filing, the money was not property of the bankruptcy estate.

However, a debtor's contingent interest is considered to be property of his bankruptcy estate. In re Nicholson, 90 B.R. 64 (Bankr. W.D.N.Y. 1988). Severance pay received by a debtor after the filing of the petition is considered to be property of his bankruptcy estate for that portion which is for the value of services performed prepetition. In re Ryerson, 739 F.2d 1423 (9th Cir. 1984). Furthermore, as stated by the court in In re Golde, 253 B.R. 843, 848 (Bankr. N.D.Ohio 2000):

[M]erely because a debtor has to perform a postpetition service to become entitled to an item of property, [sic] does thereby mean that such property does not have prepetition attributes which become property of the estate under ' 541(a). Stated differently, payments for prepetition services are not excludable from the estate simply because postpetition services are required to receive payment.

In Golde the court held that apportioning the property in question there, insurance renewal commissions, between prepetition and postpetition components is the appropriate solution, "strikes the proper balance."

This court concludes that to the extent of the debtor's employment with Ford from September 22, 1998 until July 29, 1999, the date of filing of his bankruptcy petition, the net amount of the Relocation Bonus received by Tingler is property of his bankruptcy estate. In addition, Tingler sought to avail himself of the benefits of the bankruptcy system then "thumbed his nose" at the process. Simply put, it was neither the debtor's place nor that of his counsel to determine whether the bonus was property of the bankruptcy estate, and they disregarded the efforts of the trustee to safeguard the funds until a determination by this court could be made. In conclusion, the discharge entered June 7, 2000 (Document # 25, main case) should be revoked.

Dated:

By the court B

__________________________

JOSEPH M. SCOTT, JR.

U. S. BANKRUPTCY JUDGE

Copies to:

James W. Gardner, Esq.

Stephen C. Sanders, Esq.