[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 09-11854 ELEVENTH CIRCUIT
DECEMBER 3, 2009
Non-Argument Calendar
THOMAS K. KAHN
________________________
CLERK
D. C. Docket No. 08-81332-CV-CMA,
BKCY No. 06-1592-BKC-PGH
In Re: JAMES M. COADY,
Debtor.
__________________________________________________
JAMES M. COADY,
Plaintiff-Appellant,
versus
D.A.N. JOINT VENTURE III, L.P.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(December 3, 2009)
Before BLACK, PRYOR and KRAVITCH, Circuit Judges.
PER CURIAM:
In 2005, James Coady filed a voluntary bankruptcy petition under Title 11,
Chapter 7 of the United States Code. In 2006, D.A.N. Joint Venture III, L.P.
(“D.A.N. III”) initiated an adversary proceeding to contest the discharge of
Coady’s debts under 11 U.S.C. § 727(a)(2)(A). In 2008, the bankruptcy court
granted D.A.N. III’s motion for “an order correcting the name of the Plaintiff” to
D.A.N. Joint Venture, L.P. (“D.A.N.”) and entered a final judgment sustaining
D.A.N.’s objection to discharge.1 The district court affirmed the bankruptcy
court’s orders in their entirety, and Coady now appeals.
I. BACKGROUND
This case arises from D.A.N.’s attempts to recover as the assignee of a 1991
judgment for $290,000 entered against Coady in Connecticut. Coady had formerly
been a successful real estate developer with a net worth of approximately $10
million, but an economic downturn left him $27 million in debt. While so
indebted, Coady married, moved into his wife’s house, drove a car leased in her
1
D.A.N. III also filed a § 727(a)(3) objection, which the bankruptcy court overruled, but D.A.N.
has not appealed to this court, and we therefore need not address the merits of that objection.
2
name, and for over ten years worked exclusively as an “uncompensated
independent contractor” for business entities under her sole ownership. He drew
no salary,2 but his wife allowed him to write checks in her name on the businesses’
accounts to pay personal expenses. She also paid for his country club and golf
club memberships, the latter of which he used to promote a golf consulting and
marketing business that she owned. Although Coady had neither income nor an
individual bank account, in 1999 he personally executed a $164,000 promissory
note to fund a real estate development for one of the businesses.
In 2004, D.A.N. sued Coady in Connecticut to recover the $290,000
judgment. Coady filed his petition for bankruptcy in Florida before the conclusion
of those proceedings. Even though D.A.N. was the assignee of the underlying
judgment, D.A.N. III, one of D.A.N.’s related entities, initiated this adversary
proceeding, claiming that Coady had “concealed” an equitable interest in his
wife’s businesses under § 727(a)(2)(A) of the Bankruptcy Code, which provides:
The court shall grant the debtor a discharge, unless— . . .
(2) the debtor, with intent to hinder, delay, or defraud a creditor or
an officer of the estate charged with custody of property under this
title, has transferred, removed, destroyed, mutilated, or concealed, or
has permitted to be transferred, removed, destroyed, mutilated, or
concealed—
2
Coady did apparently receive $5,000 per month in consulting fees from one of the businesses in
2005.
3
(A) property of the debtor, within one year before the date of the
filing of the petition . . . .
11 U.S.C. § 727(a). Coady appeals the denial of his discharge under this section.
II. STANDARD OF REVIEW
In bankruptcy appeals, we independently examine the bankruptcy court’s
factual and legal determinations, applying the same standards of review as the
district court. In re Sublett, 895 F.2d 1381, 1384 (11th Cir. 1990). We therefore
review the bankruptcy court’s factual findings for clear error and its resolution of
any legal questions de novo. Id. “The Bankruptcy Code favors discharge,” but
“[t]he general policy that provisions denying such a discharge are construed
liberally in favor of the debtor and strictly against the creditor applies only to the
honest debtor.” In re Jennings, 533 F.3d 1333, 1338–39 (11th Cir. 2008) (citing
In re St. Laurent, 991 F.2d 672, 680 (11th Cir. 1993)).
III. DISCUSSION
On appeal, Coady denies that he had any equitable interest in his wife’s
property and argues, in any event, that such an interest could not constitute
“property of the debtor” under § 727(a)(2)(A). He also contends that he could not
have “concealed” assets from D.A.N. within the one-year look-back period of
§ 727(a)(2)(A) because D.A.N. had already learned about his alleged equitable
4
interests during the Connecticut litigation. Finally, Coady challenges various
orders of the bankruptcy court giving D.A.N. III additional time to file its first
complaint, allowing it to file three amended complaints, and allowing it to
“substitute” D.A.N. as the plaintiff.
We agree with the district court that the bankruptcy court correctly denied
Coady’s discharge.
To successfully object to a discharge under § 727(a)(2)(A), a creditor
must establish (1) that the act complained of was done within one
year prior to the date the petition was filed, (2) with actual intent to
hinder, delay, or defraud a creditor, (3) that the act was that of the
debtor, and (4) that the act consisted [of] transferring, removing,
destroying, or concealing any of the debtor’s property.
Jennings, 533 F.3d at 1339. The bankruptcy court found that Coady had, with the
intent to shield assets from his creditors, diverted the fruits of his labor to increase
the value of his wife’s businesses and then used business assets to support his
personal lifestyle. Coady has identified no clear error in these factual findings,
and we see none.
We reject Coady’s argument that diverting the fruits of his labor to avoid
acquiring assets was not a transfer or concealment under § 727(a)(2). Coady “was
the sole person actually and actively involved in the [businesses,] and [their]
success depended solely on his continued efforts.” In re Frumovitz, 10 B.R. 61,
5
66 (Bankr. S.D. Fla. 1981) (denying discharge). He devoted his time and talents to
increasing the businesses’ value, but “whatever increase in equity [came] about in
the future through [his] labor [would] be protected from his creditors, while being
available for his benefit or to fulfill his legal obligations of support for his family.”
Id.3 Moreover, Coady’s personal use of business accounts, along with his wife’s
financial support, replaced any regular compensation that might otherwise have
been available to satisfy his creditors’ claims. Through this arrangement, Coady
acquired and concealed an equitable interest in his wife’s businesses. Cf. In re
Ogalin, 303 B.R. 552, 558 (Bankr. D. Conn. 2004) (denying discharge where
“there was an attempt to frustrate [the debtor’s] creditors by diverting the fruits of
his industry to . . . family members, who then provided him with the use and
enjoyment of material comforts purchased with those fruits”).
Coady also challenges the bankruptcy court’s conclusion that an equitable
interest in businesses he never legally owned could constitute “property of the
debtor” within the scope of § 727(a)(2)(A). The bankruptcy estate, however,
broadly includes “all legal or equitable interests of the debtor in property as of the
3
Coady argues that he added no value to the businesses, but even worthless assets may not be
concealed from creditors in bankruptcy. Cf. In re Chalik, 748 F.2d 616, 618 (11th Cir. 1984)
(“The recalcitrant debtor may not escape a section 727(a)(4)(A) denial of discharge by asserting
that the admittedly omitted or falsely stated information concerned a worthless business
relationship or holding; such a defense is specious. . . . Creditors are entitled to judge for
themselves what will benefit, and what will prejudice, them.”).
6
commencement of the case.” 11 U.S.C. § 541(a)(1). Equitable interests may more
typically be retained following a legal transfer than acquired through other means,
see, e.g., In re Espino, 48 B.R. 232, 236 (Bankr. S.D. Fla. 1985) (“The Debtor
must retain control or reap a substantial equitable interest from the transfer.”), but
nothing in the Bankruptcy Code prescribes a definition of equitable interests
limited solely to those “retained.” Significantly, § 727(a)(2) does not require a
transfer at all; on the contrary, it refers to the transfer or concealment of assets,
and “the atypical structure of the concealment alleged here is not reason alone to
absolve the Debtor of concealment in the one-year pre-petition period.” Ogalin,
303 B.R. at 558; cf. In re Kaiser, 722 F.2d 1574, 1583 (2d Cir. 1983) (“Fraudulent
acts are as varied as the fish in the sea.”).4
We are similarly unpersuaded by Coady’s argument that he could not have
concealed assets from a creditor who knew of their existence more than a year
before the petition was filed. The doctrine of continuing concealment provides for
situations like this, in which a debtor has kept his assets out of a creditor’s reach
during the look-back period by means of a sham ownership arrangement
established more than one year before the bankruptcy petition was filed. See In re
4
We also note that Coady personally executed the $164,000 promissory note for the benefit of
one of his wife’s businesses, and we would ordinarily expect such a transaction to give him some
interest in the company’s assets, as either a lender or a contributor of capital.
7
Gonzalez, 302 B.R. 745, 752 (Bankr. S.D. Fla. 2003). To allow a debtor to reap
the rewards of his continuing efforts to evade creditors because they learned
before the look-back period of the property on which they could not levy
execution would rob the continuing concealment doctrine of its force.
Finally, we reject Coady’s arguments concerning the bankruptcy court’s
alleged procedural errors. We review that court’s rulings on motions for an
extension of time to object to discharge, motions for leave to amend, and motions
to substitute the plaintiff for an abuse of discretion. See In re Ballas, 342 B.R.
853, 856 (Bankr. M.D. Fla. 2005) (extension of time); In re Verilink Corp., 410
B.R. 697, 700–01 (N.D. Ala. 2009) (leave to amend); Cliff v. Payco Gen. Am.
Credits, Inc., 363 F.3d 1113, 1121, 1132 (11th Cir. 2004) (substitution). For the
reasons stated in the district court’s thorough discussion of these procedural
issues, we cannot conclude on the record before us that the bankruptcy court
abused its discretion.5
5
With respect to the substitution of D.A.N. for D.A.N. III as the plaintiff, Coady has not included
in the record on appeal a transcript of the bankruptcy court’s hearing on D.A.N. III’s motion to
“correct” its name. We will not speculate as to potential errors in the bankruptcy court’s findings
or conclusions when the appellant has failed to include the relevant evidence in the record.
McGinnis v. Gustafson, 978 F.2d 1199, 1201 (10th Cir. 1992); see also Fed. R. App. P. 10(b)(2).
8
In light of our conclusion that the bankruptcy court did not err in denying
Coady’s discharge under § 727(a)(2)(A) or abuse its discretion otherwise, the
district court’s order is
AFFIRMED.
9