New Falls Corporation v. Phillips

ORDERED.

Dated: March 01, 2021

Ct A

RobertayA. Colton

United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

www.flmb.uscourts.gov

In re

John J. Phillips, Case No. 8:17-bk-02415-RCT

Chapter 7

Debtor.

New Falls Corporation,

Adv. No. 8:18-ap-00483-RCT

Plaintiff,

Vv.

John J. Phillips,

Defendant.

MEMORANDUM DECISION AND

ORDER DENYING DISCHARGE PURSUANT TO 11 U.S.C.

§ 727(a)(4)(A), SUSTAINING IN PART AND DENYING IN PART

OBJECTIONS TO EXEMPTIONS, AND DENYING MOTION FOR TURNOVER

Plaintiff New Falls Corporation (“New Falls”) commenced this proceeding by filing a

seven-count complaint.' New Falls asks the court to deny Defendant-Debtor John J. Phillips

(“Debtor”) his chapter 7 discharge pursuant to 11 U.S.C. § 727(a)(4)(A)’ (for false oaths or

'Doe. 1.

? Statutory references are to 11 U.S.C. §§ 101-1532 (“Code” or “Bankruptcy Code”), unless otherwise noted.

omissions), (a)(2) (for concealment of property), (a)(3) (for failure to keep or preserve records),

(a)(5) (for failure to explain loss or deficiency of assets), and (a)(6)(A) (for failure to obey a lawful

order of the court). New Falls further objects to Debtor’s claimed exemptions and seeks turnover

of any non-exempt property. Debtor answered the complaint and denied the material allegations.3

Following a one-day trial the parties were instructed to submit written closing arguments. Having

heard the testimony of Debtor, reviewed the exhibits proffered by New Falls,4 considered the

arguments of the parties, and being otherwise fully advised in the premises, the Court finds as

follows.

Introduction

Debtor is a self-described entrepreneur and salesman. In 1993 he started Southeast Print

Programs, Inc. (“SE Print”), a direct-mail sales and printing company. SE Print primarily did

business with Domino’s Pizza franchises, providing them with printing and direct-mail services. In

early 2013 Debtor bifurcated SE Print and sold the marketing/sales side of the company to his ex-

son-in-law Sean Johnson. Mr. Johnson operated the split-off entity as Deliver Media, LLC while

Debtor retained the printing side of the business.5

This proved to be a bad business decision for Debtor, and over the next few years SE Print

became unprofitable as Deliver Media took its printing jobs elsewhere. The business failed and

Debtor faced a mountain of guaranteed debt. As a result, Debtor was sued by his creditors from

2013 to 2016.6

New Falls is Debtor’s largest creditor.7 They are the successor in interest to Regions Bank.

In late 2013, SE Print borrowed over $500,000 from Regions Bank, which Debtor personally

3 Doc. 8.

4 New Falls’ Exs. 1–6, 16–23, 25, 27–30, 32, 35–37, 45–53, 60–72, 79, 81–82, 87–89, and 94 were admitted.

Though not offered as exhibits, the Court takes judicial notice of the Debtor’s section 341 meeting and continued

section 341 meeting transcripts, Docs. 89 and 90 respectively.

5 Doc. 65, New Falls’ Exhibit List (hereafter “New Falls’ Ex.”), Ex. 20.

6 New Falls’ Exs. 16, 18, 19.

7 New Falls’ Ex. 17.

guaranteed.8 SE Print defaulted on its loan obligations and in October 2016 New Falls filed a state

court complaint.9 In early March of 2017 New Falls obtained a Florida state court judgment against

SE Print, Debtor, and Debtor’s wife for $549,432.41.10 Shortly thereafter, Debtor filed for

bankruptcy.

This proceeding arises because Debtor’s bankruptcy schedules and statement of financial

affairs, filed under oath, paint an inaccurate picture of his financial affairs. A reader of Debtor’s

bankruptcy schedules and statements would be unaware of Debtor’s extensive history of

entrepreneurial ventures. They would also be ignorant of Debtor’s prior ownership interest in his

now-employer BBI or that he created and transferred property to a revocable living trust in 2016

and 2017, including undisclosed commission payments.

Facts and Background

Initial Disclosures

Debtor filed his chapter 7 petition on March 24, 2017.11 About a month later, Debtor filed

his Schedules A–J, Statement of Financial Affairs (“SOFA”), statement of current monthly income,

and Official Form 106Dec attesting to the accuracy of his bankruptcy papers.12

Debtor scheduled four real properties on his Schedule A/B, all single-family homes.13 They

were the Carrollbrook Property,14 the Hiawatha Property,15 the Centralia Property,16 and the

Richbarn Property.17 All but Debtor’s homestead, the Carrollbrook Property, were underwater.18

8 New Falls. Ex. 16 at 11–33.

9 New Falls’ Ex. 16.

10 New Falls’ Ex. 17 at 7–8.

11 New Falls’ Ex. 1.

12 New Falls’ Ex. 2.

13 New Falls’ Ex. 2 at 4–6.

14 10616 Carrollbrook Lane, Tampa, Florida 33618.

15 19944 Hiawatha Road, Odessa, Florida 33556.

16 14173 Centralia Road, Brooksville, Florida 34614.

17 26502 Richbarn Road, Brooksville, Florida 34601.

18 New Falls’ Ex. 2 at 13–15.

Debtor’s only other scheduled assets were a 2004 Sundance boat valued at $2,000; a

checking account with a balance of $1,000; a $900 utility prepayment, and $775 of personal and

household items.19 Debtor’s income, as disclosed on Schedule I, consisted of $2,600/month as

“Director of Sales” of BBI Marketing.20 Debtor also reported $400/month in net rental income,

though he did not list any leases or executory contracts on his Schedule G.21 On his statement of

current monthly income Debtor represented receiving $1,300/month in rent against expenses of

$900.22

On his Schedule J, Debtor did not include the mortgage payments or associated expenses of

the Richbarn Property or the Hiawatha Property.23 Debtor listed $45,000 of unpaid tax debt to the

IRS on his Schedule E/F along with 33 other unsecured creditors, many with claims of “unknown,”

including New Falls.24 On his Schedule D, Debtor identified Bonnie Brown as having a $12,000

lien on a 2008 BMW 750li (the “2008 BMW”). Debtor did not disclose any automobiles on his

schedule A/B.25

In response to question 25 of Schedule A/B, which asks whether a debtor has “Trusts,

equitable or future interests in property…, and rights or powers exercisable for your benefit,”

Debtor answered no.26 In response to question 19 of his SOFA, which addresses transfers of

property to a “self-settled trust or similar device of which you are a beneficiary” within ten years of

filing for bankruptcy, Debtor answered no.27 In response to question 27 of his SOFA, which

19 New Falls’ Ex. 2 at 6–8.

20 New Falls’ Ex. 2 at 31–32.

21 New Falls’ Ex. 2 at 29, 32, 45.

22 New Falls’ Ex. 2 at 45.

23 New Falls; Ex. 2 at 33–34.

24 New Falls’ Ex. 2 at 16–27.

25 New Falls’ Ex. 2 at 13.

26 New Falls’ Ex. 2 at 8.

27 New Falls’ Ex. 2 at 40.

concerns ownership or connections to businesses within four years of filing for bankruptcy, Debtor

listed SE Print, but no other entities.28

Section 341 Meeting of Creditors

On May 11, 2017 Chapter 7 Trustee Beth Ann Scharrer (the “Chapter 7 Trustee”) and U.S.

Trustee bankruptcy analyst Loring Daniel examined Debtor at his section 341 meeting.29 The focus

of the inquiry was on Debtor’s real and personal property. Debtor told the Chapter 7 Trustee his

estranged wife was living at the Centralia Property with her boyfriend, but a short-sale or

foreclosure was on the horizon.30 He also stated when he filled out his bankruptcy papers, he was

renting the Richbarn Property for $1,300/month but the house is now vacant because his soon-to-

be ex-wife is moving there.31

Debtor told the Chapter 7 Trustee that he rents the Hiawatha Property to Bonnie Brown, his

friend and employer at BBI for $1,500/month.32 Debtor explained he borrowed heavily against the

Hiawatha Property and the Centralia Property to fund the acquisition and operation of eight

Domino’s Pizza franchises. Debtor further explained he lost money on the transaction, and he

divested himself of his interest over two years ago.33 Debtor did not disclose this entity or the

divestiture on his sworn schedules.

Debtor testified that he drives the 2008 BMW listed on his Schedule D.34 He told the

Chapter 7 Trustee that SE Print previously owned the car, but he transferred the title “into my

children’s trust” around the first of the year [2017].35 Debtor also stated that Bonnie Brown had a

28 New Falls’ Ex. 2 at 41–42.

29 Doc. 89, Section 341 Meeting Transcript (hereafter “341 Tr.”).

30 341 Tr. at 9:21–10:17.

31 341 Tr. at 19:3–20:14; 31:16–33:3.

32 341 Tr. at 8; 31:23–32:21.

33 341 Tr. at 8–12; 17.

34 341 Tr. at 20.

35 341 Tr. at 21:8–13; 23.

$12,000 lien on the 2008 BMW because she gave him money to pay delinquent property taxes on

the Hiawatha Property.36

Debtor then explained he created the previously undisclosed trust in 2016,37 and further

disclosed transferring a 2004 F-250 with 170,000 miles to the Trust38 that his wife drives (the

“Truck”).39 The Truck previously was in SE Print’s name. When asked if the Trust owns “any

other property” Debtor said no.40 The Chapter 7 Trustee asked for the payoffs on the real property,

the title documents for the cars, and a copy of the Trust.41

On May 25, 2017 the Chapter 7 Trustee held a continued 341 meeting.42 Many of the same

topics were discussed. Debtor acknowledged there was furniture at the Centralia Property, but he

and his wife had been separated for five years, and the deal was “this is yours. I need nothing

here.”43 Debtor explained even though they were not formally divorced they had an informal

settlement in place. Debtor clarified they were waiting to formalize their divorce until after selling

the Centralia Property on the advice of their joint counsel, Robert Carr.44 The Chapter 7 Trustee

revisited the Trust and asked“[w]hat all is in the Phillips Family Trust?”45 Debtor again identified

just the 2008 BMW and the Truck.46 The Chapter 7 Trustee was unsure if she had a copy of the

Trust but asked Debtor to email it to her.47 It is unclear if he ever did.

On July 26, 2017, the Chapter 7 Trustee filed her interim report, listing Debtor’s real and

personal property.48 The Trust was not included in the report. On October 31, 2017 Debtor filed

36 341 Tr. at 21:23–22:7.

37 341 Tr. at 25.

38 Defined supra.

39 341 Tr. at 24.

40 341 Tr. at 30.

41 341 Tr. at 27.

42 Doc. 90, Continued Section 341 Meeting Transcript (hereafter “Cont. 341 Tr.”).

43 Cont. 341 Tr. at 15.

44 Cont. 341 Tr. at 16.

45 Cont. 341 Tr. at 12:12–13.

46 Cont. 341 Tr. at 12–13.

47 Cont. 341 Tr. at 12, 18.

48 In re John J. Phillips, Case No. 8:17-bk-02415-RCT (“Main Case”) Doc. 36.

an amended Schedule E/F, adding Deliver Media, LLC and Sean Johnson as creditors.49 On March

12, 2018 Debtor filed an additional amended Schedule E/F adding two more creditors.50

On April 24, 2018 the Chapter 7 Trustee filed a Report of No Distribution. Per the report,

Debtor had exempt assets of $61,000– the $60,000 he claimed in his homestead, the Carrollbrook

Property, and $1,000 in personal property he claimed in the 2004 Sundance boat’s engine. The

Chapter 7 Trustee abandoned the remaining $887,845.00 of Debtor’s scheduled assets, which

included his four real properties and the rest of his scheduled personal property. On June 15, 2018

New Falls conducted a Rule 2004 Examination of the Debtor. On September 12, 2018 New Falls

conducted its Continued Rule 2004 Examination of the Debtor. On June 12, 2019, Debtor filed an

amended Schedule A/B, listing a 2.5% interest in Call M.D. Plus, Inc. (“Call M.D.”) with an

unknown value.51

Debtor’s Non-disclosures

At trial, New Falls produced evidence and elicited testimony from Debtor regarding the

following nondisclosures or inaccurate disclosures on his bankruptcy papers.

(a) The Trust

The Debtor did not disclose the existence of the Phillips Living Family Trust (the “Trust”),

its bank account, or transfers he made or caused to be made to the Trust on his bankruptcy schedules.

Debtor formed the Trust in March 2016, about a year before he filed for bankruptcy, when

admittedly he could not pay his expenses as they came due.52 Per its terms, the Trust is a “revocable

living trust that contains [Debtor’s] instructions for [his] own well-being and that of [his] loved

49 Main Case Doc. 45.

50 Main Case Doc. 59.

51 Main Case Doc. 91.

52 New Falls’ Ex. 23; Doc. 83, Trial Transcript (hereafter “Trial Tr.”) at 35:10–16.

ones.”53 It is a self-settled trust and during his life Debtor has “the express and total power to

control and direct payments, add or remove trust property, and amend or revoke” the Trust.54

The Trust was established by attorney Robert Carr, a longtime friend of the Debtor who

also handled Debtor’s divorce and various other legal matters, who has since been disbarred.55 No

doubt the Trust was established by Mr. Carr as an asset protection device to insulate Debtor from

pending lawsuits. As discussed below, it was not the first such “asset protection” device employed

by Mr. Carr.

Debtor used Trust funds to pay for, among other things, the gas and maintenance for the

2008 BMW,56 expenses for his children,57 two loans to himself, 58 the mortgage on the Richbarn

Property,59 the mortgage on the Carrollbrook Property, and the retainer for his bankruptcy lawyer.60

At trial, Debtor testified he thought the Trust was a separate entity and it did not have to be

listed on his schedules.61 He did not bother to ask for clarification because he “… was just wanting

to get this thing filed and get it over with.”62

Debtor explained, notwithstanding his failure to include the Trust on his bankruptcy papers,

he “disclosed the [T]rust to the Trustee … I made that mistake and, you know, I owned it. I didn’t

realize that I had to do that. I didn’t understand, you know, that requirement.”63

When asked by New Falls’ counsel why he did not amend his bankruptcy papers to reflect

the existence of the Trust or transfers made to the Trust, Debtor noted, “… I’m not really sure why.

53 New Falls’ Ex. 23 at 6.

54 Id. at 12.

55 Trial Tr. at 47:5–13.

56 New Falls’ Ex. 89.

57 Trial Tr. at 60:4–8.

58 Trial Tr. at 176:2–12.

59 New Falls’ Ex. 87.

60 New Falls’ Ex. 88.

61 Trial Tr. at 254:2–20.

62 Trial Tr. at 255–256.

63 Trial Tr. at 52:11–14.

I mean, we have given you all the paperwork on it, so we weren’t hiding it from you in any way at

all …”64

(b) Transfers to the Trust

(i) Vehicles

On December 30, 2016, Debtor titled the two cars formerly in the name of SE Print to the

Trust– the 2008 BMW and the Truck.65 Debtor did not disclose the vehicles on his Schedule A/B

or the transfer of them to his Trust. At the time of the transfer, SE Print owed hundreds of thousands

of dollars of unpaid debt to creditors.66

Debtor explained “…the rationale was that car[s] [were] in the name of S[E] Print. S[E]

Print was a defunct company, and so the only reason I transferred the title was because all the

information that was on the title was wrong, and so it seemed that the [T]rust was the logical place

to put it.”67 With respect to the Truck, which was in his wife’s possession, Debtor explained, “I

didn’t feel I had to list it. It wasn’t my truck. I didn’t have the truck; I never drove the truck. The

truck’s a 2004. It’s got, I think 180,000 miles on it. It’s her truck.”68

(ii) BBI Commission Payments

At some point in 2016 Debtor entered into a verbal agreement with BBI to be paid a weekly

commission based on the number of pieces of direct mail BBI sent out. Debtor instructed BBI to

make the payments payable to the Trust.69 Debtor received his first commission payment on

January 12, 2017, and received ten more payments pre-petition, for a sum of $13,727.42.70 Debtor

64 Trial Tr. at 54:24–55:2.

65 New Falls’ Exs. 25, 26.

66 Trial Tr. 58:19–24.

67 Trial Tr. at 58:13–18.

68 Trial Tr. at 70:5–8.

69 Trial Tr. at 115:15–18.

70 New Falls’ Ex. 69.

deposited ten of the checks in the Trust’s checking account,71 and one check into his personal

checking account.72

Debtor confirmed that he did not include these commission payments on his Schedule I or

anywhere else on his bankruptcy papers.73 Debtor stated he did not disclose the checks because

they were paid to a separate entity, the Trust.74

Notwithstanding Debtor’s omission of the payments from his bankruptcy papers, Debtor

included $2,200/month in commission income on his Family Law Financial Affidavit which he

submitted to state court for his divorce.75 Debtor signed the affidavit about a month after filing his

schedules. Debtor reported gross income of $5,100/month on the affidavit while he reported just

$3,000/month on his bankruptcy papers.

(iii) Energy Textiles, LLC

In the latter half of 2016, Debtor transferred his 50% membership interest in Energy

Textiles, LLC to the Trust.76 Debtor did not disclose his interest in Energy Textiles or its transfer

on his bankruptcy papers. Debtor formed Energy Textiles with Susan Wozniak in 2015. It is a two-

person company that makes apparel out of fabric with infrared properties. Debtor explained Energy

Textiles only had one “decent” client, Hammacher Schlemmer.77 Energy Textile’s tax returns

showed ordinary business income of $9,144 in 2015, $579 in 2016, $47,257 in 2017, and a loss of

$73,493 in 2018.78

71 The sum of the ten checks is $12,759.60. Debtor opened the Trust’s checking account on January 13, 2017,

two-and-a-half months before filing for bankruptcy. New Falls’ Ex. 72.

72 New Falls’ Ex. 70 at 6.

73 Trial Tr. at 131:21–132:1.

74 Trial Tr. at 132:19–20.

75 New Falls’ Ex. 29 at 2; Trial Tr. at 131:14–20.

76 Trial Tr. at 85:14–17.

77 Trial Tr. at 220:22–24.

78 Exs. 49–52.

Debtor acknowledged handling the day-to-day operations, which he noted were limited, and

served as the designated representative of the company at its Rule 7030 examination.79

Notwithstanding the above, Debtor testified that when he filed for bankruptcy the company was not

on his radar.

(c) BBI Ownership Interest and Transfer

Debtor gave up his 49% interest in his present employer BBI for no consideration sometime

after late-March 2015 despite indicating he did not “sell, trade, or otherwise transfer any property

to anyone” within two years before he filed for bankruptcy on question 19 of his SOFA.80 Similarly,

Debtor did not disclose his former interest in the company on question 27 of his SOFA. Pursuant

to a personal financial statement Debtor provided Regions Bank, Debtor still held his interest in

BBI as of March 25, 2015.81

Shortly after giving up his interest in the company, Debtor began working for BBI and

orchestrated its transition from a hotel key card marketing company to a direct-mail sales and

printing company similar to SE Print.82

At trial, Debtor testified he had a conversation with the Chapter 7 Trustee about his

ownership interest in BBI and she did not care.83 That discussion, if it happened, was not at the

section 341 meetings.

(d) Marital Property

79 Trial Tr. at 80:7–18.

80 New Falls’ Ex. 2 at 40; “2015 I relinquished my shares, so that’s all I know. When we had to file the tax

return, I didn’t have any shares.” Trial Tr. at 102:5–7.

81 New Falls’ Ex. 32 at 2.

82 As Debtor explained, “And it was at that point in time where I met with [Ms. Brown] and I said BBI is a hotel-

marketing company, it’s destined to go out of business, it doesn’t have any revenue and, I said, your only chance

is that we put together a deal and get into the direct mail business using my proprietary knowledge.” Trial Tr. at

105:5–12.

83 Trial Tr. at 224:6–10.

Debtor’s Marital Settlement Agreement (“MSA”) listed personal property that Debtor did

not disclose on his bankruptcy papers.84 The MSA was executed in June 2017, about a month and

a half after Debtor filed his bankruptcy schedules. Per the MSA, Debtor’s spouse retained the

following property that Debtor did not disclose on his bankruptcy papers:

• the “2004 F-250” valued at $6,000;

• “Art” valued at $8,000;

• “Furniture and furnishings in the home” valued at $5,000;

• a “Flat Bed Trailer” valued at $6,000;

• a “Tractor” valued at $3,500; and

• a “Generator” valued at $1,000.85

Debtor explained he had been separated from his wife for five years before their divorce

and these were “assets that belonged to my wife … they weren’t mine. They were hers.”86 Debtor

noted he “had moved out of that house years before and told my wife, ‘You can have everything. I

don’t want any of this.’ So it was wasn’t mine. In my eyes, it was not mine.”87

(e) Rental Agreements

Debtor did not disclose the rental agreement for the Hiawatha Property on his bankruptcy

papers.88 Debtor and Bonnie Brown executed the rental agreement on December 1, 2016, which

called for monthly rent of $1,500.89 Based on the copies of rent checks submitted by New Falls,

Ms. Brown usually paid less: in the two months preceding Debtor’s bankruptcy she paid

$1,300/month.90

When asked about the nondisclosure Debtor noted “[t]here was no money there. There was

no proceeds to me… this was a sister-in-law type deal. [Ms. Brown] lived in that house for several

years paying no rent at all because she couldn’t afford it and BBI didn’t have any money. … So at

84 New Falls’ Ex. 30.

85 New Falls’ Ex. 30 at 3–4.

86 Trial Tr. at 136:11–13.

87 Trial Tr. at 139:9–11.

88 Trial Tr. at 148:6–11.

89 New Falls’ Ex. 28.

90 New Falls’ Ex. 45.

this point in time [December 2016] … we started to collect rent, but all that money went to paying

the mortgage, property taxes, insurance, and maintenance. The house is 50 years old. So I was

paying all the maintenance on that. So there was not money. So that’s why I omitted it.”91

Similarly, Debtor did not list the rental agreement for the Richbarn Property he entered with

Margaret Pylant for approximately $1,300/month.92 It is unclear when this agreement started, or

when it ended.93 Debtor testified at his section 341 meeting that it was rented when he prepared his

papers, but vacant by the time of the meeting. At trial, Debtor suspected the Richbarn Property was

vacant as far back as 2014 or 2015.94

(f) Prior Business Interests

On question 27 of his SOFA, which asks about prior business interests within four years of

filing for bankruptcy, the Debtor only listed SE Print. However, New Falls identified several other

entities Debtor did not disclose.

(i) Patriot Pizza, LLC

The Debtor previously held a 49% ownership interest in Patriot Pizza, LLC.95 In May 2015,

the entity sold its stores and administratively dissolved.96 Patriot Pizza owned the Domino’s Pizza

franchises Debtor discussed at his section 341 meeting.

(ii) Ultimate Lifestyle Marketing, LLC

Debtor previously held an interest in Ultimate Lifestyle Marketing, LLC which

administratively dissolved in 2014.97

(iii) Deliver Designs, LLC

91 Trial Tr. at 144:24–145:12.

92 Trial Tr. 149:24–150:15.

93 Trial Tr. at 148:12–149:8.

94 Trial Tr. at 236:8–24.

95 Trial Tr. at 181:18–20.

96 New Falls’ Ex. 81; Trial Tr. 182:11–13.

97 Trial Tr. at 184:17–185:22.

Debtor previously held an ownership interest in Deliver Designs, LLC.98 Deliver Designs

administratively dissolved in 2015.99 Debtor acknowledged he did not list his interest on his SOFA

because “[i]t became part of Energy Textiles, so there was no reason to list it.”100 However, Debtor

did not disclose Energy Textiles either. Debtor explained his partner in Deliver Designs, the owner

of the infrared textile technology, turned back his interest.101 Debtor then formed Energy Textiles

with Ms. Wozniak.102

(g) Miscellaneous

(i) Call M.D.

Debtor held a 2.5% interest in Call M.D. as of the petition date.103 Debtor did not list his

interest on his initial schedules. Debtor explained Call M.D. was a multilevel marketing company

that he invested $35,000 in for 2.5% of the stock. Debtor testified that he did not know the company

was still in business until his Rule 2004 Examination.104 He amended his Schedule A/B to list his

interest after the fact.105

(ii) Investment Income from Gaylord Properties Group

On March 3, 2017, Debtor received $1,200 from Brett Gaylord, which he deposited in his

personal checking account.106 Debtor received ten more checks for the same amount post-petition

on a monthly basis.107 The money apparently was an investment in a pizza bag liner invention.

Debtor does not own the technology.108 His relationship with the business is unclear but was not

98 Trial Tr. at 186:19–21.

99 New Falls’ Ex. 79.

100 Trial Tr. at 189:2–6.

101 Trial Tr. at 187:19–23.

102 Trial Tr. at 187:19–23.

103 Trial Tr. at 189:7–17.

104 Trial Tr. at 241:22–25.

105 Trial Tr. at 190:13–15.

106 Trial Tr. at 170:1–9.

107 New Falls’ Ex. 46.

108 Trial Tr. 261:7–9.

disclosed in any of his schedules or at his section 341 meetings. Debtor testified “there’s nothing

to report. It’s an idea. That’s it.”109

(iii) Promissory Note from Vincent Stona

New Falls identified a promissory note from Debtor’s friend Vincent Stona to Debtor for

$307,000.110 At his deposition, Mr. Stona testified that he ran into some financial difficulties in

2010-2011 and had credit card companies pursuing him for money owed.111 He went to Robert

Carr, “who created some type of judgment document that basically said I owed [Debtor] $300,000,

which I didn't, but he said that this will keep creditors away from me, and protect me. It had nothing

to do with [Debtor], other than that he used [Debtor]’s name.”112 When shown the document at

trial, Debtor noted “This is the first time I’ve ever seen this. …. I’ve never loaned Vince any money

on this at all. … There is no money, this just never happened.”113

(iv) Tax Returns

On question 28 of his Schedule A/B Debtor indicated no tax refunds were owed to him.114

However, in 2018 Debtor amended his 2014 federal individual income tax return. This resulted in

changing what was previously a $21,747 tax deficit to a refund of $38,271.115 New Falls also

identified on Debtor’s 2016 federal income tax return, filed in 2019, Debtor overpaid his taxes by

$3,025 and directed that the overpayment be applied to his 2017 taxes.116 Debtor insists irrespective

of these filings, he did not receive any money and still owes the IRS money.

Discussion

109 Trial Tr. at 286:21–22,

110 Trial Tr. 177:14, 15, 22–25.

111 Doc. 75 at 57:2–9.

112 Doc. 75 at 58:11–15.

113 Trial Tr. at 177:16–21.

114 New Falls’ Ex. 2 at 9.

115 Exs. 35, 94; Trial Tr. at 158:1–7.

116 Trial Tr. at 166:21–167:14.

New Falls seeks denial of Debtor’s discharge under five provisions of § 727(a). As a general

proposition, the Court will grant a debtor a discharge unless a plaintiff establishes one of the specific

exceptions to discharge found in § 727(a).117 The burden must be carried by a preponderance of

the evidence,118 and in evaluating these exceptions Courts recognize that the complete denial of a

discharge is a harsh sanction.119 Consequently, exceptions to discharge are construed strictly

against a plaintiff and liberally in favor of a debtor.120

Denial of Discharge Pursuant to 11 U.S.C. § 727(a)(4)(A)

Pursuant to § 727(a)(4), a court shall grant a debtor a discharge unless the debtor: (1)

knowingly and fraudulently; (2) makes a false oath or account in connection with the bankruptcy

proceeding.121 Courts have also imposed a materiality requirement.122 A false oath or account is

material “if it relates to the debtor's business transactions or aids in the discovery of his assets.”123

Omitting or making false statements on bankruptcy papers can constitute a false oath sufficient to

trigger denial of discharge under § 727(a)(4)(A).124 The fraudulent intent component “requires

actual subjective intent, not objective or constructive intent.”125 Since debtors typically do not

testify to their own misconduct, a debtor’s fraudulent intent can be established by multiple

inaccuracies in a debtor's schedules showing the debtor engaged in a pattern of concealment.126

117 Welch v. Lapace (In re Lapace), 614 B.R. 911, 915 (Bankr. M.D. Fla. 2020).

118 Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991).

119 Jones v. DiVenere (In re DiVenere), Case No. 3:11-9122-PMG, Adv. No. 3:13-ap-270-PMG, 2014 WL

1883998, at *2 (Bankr. M.D. Fla. May 8, 2014).

120 In re Lapace, 614 B.R. at 915; White v. White (In re White), 568 B.R. 894, 909-910 (Bankr. N.D. Ga. 2017).

121 11 U.S.C. § 727(a)(4)(A); Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984).

122 In re Leffingwell, 279 B.R. 328, 348 (Bankr. M.D. Fla. 2002)

123 In re Phillips, 187 B.R. 363, 370 (Bankr. M.D. Fla. 1995).

124 In re Chalik, 748 F.2d at 618; Musselman v. Malave (In re Malave), Case No. 6:18-001355-KSJ, Adv. No.

6:18-ap-00063-KSJ, 2019 WL 259427, *2 (Bankr. M.D. Fla. Jan 17, 2019) (citing In re Whitehill, 514 B.R. 687,

692 (Bankr. M.D. Fla. 2014)); SunTrust v. Mitchell (In re Mitchell), 496 B.R. 625, 632 (Bankr. N.D. Fla. 2013);

and Colon v. De La Caridad Molina (In re De La Caridad Molina), Case No. 19-40119-KKS, Adv. No 19-

04034-KKS, 2020 WL 4001042, at *2 (Bankr. N.D. Fla. June 26, 2020).

125 In re Downey, 242 B.R. 5, 13 (Bankr. D. Idaho 1999).

126 In re Mitchell, 496 B.R. at 640.

New Falls contends that Debtor’s discharge should be barred under this provision because

he failed to disclose assets and made numerous omissions or false statements on his bankruptcy

papers. Specifically, New Falls cites Debtor’s failure to disclose:

• the Trust and its assets:

o the 2008 BMW, the Truck, the 50% ownership interest in Energy Textiles, and the

commission payments from BBI;

• the rental agreements and rental income from the Hiawatha Property and the Richbarn

Property;

• the marital assets that went to his wife on their MSA;

• his prior interest in Patriot Pizza, Ultimate Lifestyle Marketing, Deliver Media, and BBI;

• his current interest in Call M.D.;

• the transfer of his 49% interest in BBI within two years of filing for bankruptcy;

• his reduction in liability to the IRS from his post-petition amendment to his 2014 federal

individual income tax return and post-petition filing of his 2016 federal individual income

tax return;

• the 307,000 promissory note from Vincent Stona; and

• “his pizza bag invention” and related investment income from Brett Gaylord.

As an initial matter, the Court finds Debtor’s alleged omissions concerning the promissory

note from Vincent Stona to be meritless. Mr. Stona testified, and Debtor confirmed, that Mr. Stona

never actually owed Debtor any money under the note. Mr. Stona’s attorney Robert Carr created

the note as a rouse to dissuade creditors from pursuing Mr. Stona when he was having financial

problems. As such, there was no asset to list.

Similarly, Debtor made no false oath or omission concerning what New Falls calls “his”

pizza bag invention. The invention was not his. Debtor has no rights in the bag or the technology

underlying it. Debtor deposited one pre-petition check he received from Brett Gaylord into his

personal checking account which Debtor disclosed the balance of on his schedules.

Notwithstanding the above, Debtor made false oaths and omissions on his sworn bankruptcy

schedules. In addition, these omissions and false statements were material because their disclosure

would have provided creditors and the Chapter 7 Trustee a more complete picture of Debtor’s

business relationships.127

The determinative issue is Debtor’s intent. New Falls asserts the “cumulative, material false

oaths” Debtor made establish his fraudulent intent.128 New Falls correctly identifies that “a series

or pattern of errors or omissions [can have] a cumulative effect giving rise to an inference of an

intent to deceive.”129 But, in determining whether a debtor has the requisite fraudulent intent, a

court also should analyze whether the omissions or nondisclosures are “part of a scheme ... to retain

assets for [the debtor's] own benefit at the expense of his creditors.”130

The Court is persuaded from the circumstances of this case that Debtor intended to hide his

assets, albeit meager assets, from his creditors and the Chapter 7 Trustee. Debtor’s failure to list

the Trust in response to direct questions on his bankruptcy papers is particularly troublesome, as

was his failure to identify the transfer of his commission checks and his interest in Energy Textiles

into the Trust on direct questioning by the Chapter 7 Trustee.

Debtor’s Trust was not designed or used as a trust for Debtor’s children. It was a revocable

trust created and designed to shelter Debtor’s remaining and future assts. Indeed, Debtor’s asset

planning began early (with Mr. Carr’s assistance), as the litigation against him continued to

multiply. He faced substantial personal liability because of his failed business ventures and hoped

to move smoothly to his next “big deal.” What is truly unfortunate is that the Bankruptcy Code is

designed to facilitate such a fresh start for an honest debtor. If Debtor simply and carefully disclosed

his assets and prior businesses he could have discharged the debt he ran up from his unsuccessful

business ventures and received his fresh start. But, he did not.

127 “The subject matter of a false oath is ‘material,’ and thus sufficient to bar discharge, if it bears a relationship

to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the

existence and disposition of his property.” In re Chalik, 748 F.2d at 618.

128 Doc. 87 at 34.

129In re Phillips, 418 B.R. at 461 (quoting In re Guthrie, 265 B.R. 253, 263 (Bankr. M.D. Ala. 2001) (citations

omitted).

130 In re Dupree, 336 B.R. 520, 529 (Bankr. M.D. Fla. 2005).

As fraudulent intent depends in large part on an assessment of a debtor’s credibility,

ultimately, this case came down to how credible Debtor and Debtor’s testimony was as to his

omissions of the Trust, the commission payments, and Energy Textiles (viewed against the

backdrop of his more numerous “minor” nondisclosures in the bulleted list above).131

Despite Debtor’s contention that he “owned” his nondisclosure of the Trust by disclosing it

to the Chapter 7 Trustee, Debtor only made a partial and misleading disclosure. At his initial section

341 meeting, Debtor disingenuously referred to the Trust as “my children’s trust” despite using its

funds for all manner of personal expenses. This same mischaracterization of the Trust was made to

the Court at the August 2017 hearing on New Falls’ motion to compel, albeit by Debtor’s counsel.132

At Debtor’s initial and continued section 341 meetings he was asked about the totality of the Trust’s

assets on two separate occasions. Rather than “owning” his nondisclosures, Debtor doubled down

on them. Each time Debtor only identified the 2008 BMW and the Truck. And each time Debtor

failed to reveal the commission payments from BBI and the 50% ownership interest in Energy

Textiles– the Trust’s more significant assets.

While Debtor testified at trial that he disclosed his interests in Energy Textiles and BBI to

the Chapter 7 Trustee at some non-specific time,133 Debtor apparently only spoke with the Chapter

131 In re Miller, 39 F.3d 301, 305 (11th Cir. 1994).

132 “Debtor’s counsel: Yes, Your Honor, except that this – my client’s adult daughters have a living trust. My

client does not. It is entitled the Phillips Family Living Trust.

…

The Court: Was [Debtor] the settlor of the trust? Did – I mean, is [Debtor] the grantor?

Debtor’s counsel: I don’t believe so, Your Honor …

…

The Court: Right. But so did [Debtor] create the trust?

Debtor’s Counsel: Not to my knowledge, Your Honor. I don’t have copies of the trust. My understanding

is the daughter has – I don’t believe there’s a good relationship there.” Main Case Doc. 75 at 7:2–4, 11–13; 8:

1–6.

133 “Debtor’s counsel: Did you disclose or have a conversation with Beth Ann Scharrer, the Chapter 7 Trustee,

about Energy Textiles? Debtor: Yes. Debtor’s counsel: Did she care about the company at all? Debtor: No.

Debtor’s counsel: Did you have a similar conversation with the Chapter 7 Trustee about BBI? Debtor: Yeah.

Debtor’s counsel: Did she care about your ownership interest or – Debtor: No.” Trial Tr. at 224:1–20.

7 Trustee at the section 341 meetings.134 A review of the transcripts of these meetings confirms

Debtor did not mention Energy Textiles once and never disclosed a prior ownership interest in BBI.

As such, the Court does not find Debtor’s testimony that he made these disclosures to the Chapter

7 Trustee to be credible.

Debtor’s argument that he did not understand the meaning of question 25 of his Schedule

A/B concerning trusts is equally unavailing.135 Nor is Debtor’s quibble that he was not a beneficiary

of the Trust within the meaning of question 19 of his SOFA.136 Debtor is not an unsophisticated

person. He had Mr. Carr create the Trust for him in the year proceeding his bankruptcy and actively

was putting assets into it in the months leading up to his petition date. In any event, Debtor was

represented by counsel in this case and certainly could have asked what the questions meant or if

he needed to disclose the Trust. In addition, the “trust” question on the official bankruptcy

schedules is clear and simple. Debtor’s response was simply false.

Despite Debtor’s contention that “[he] made some mistakes. [He] tried to correct them. [He]

wasn’t trying to hide anything from anybody,”137 Debtor’s actions speak louder than his words. To

date, Debtor still has not bothered to amend his schedules to list the Trust, the commission

payments, the Hiawatha Property rental agreement, or to provide an accurate road map of his

business ventures. Section 727(a)(4)(A)’s purpose is “to ensure that sufficient facts are available

134 “Debtor’s counsel: Beth Ann Scharrer, your Chapter 7 Trustee, did you inform her of the Trust and the assets

in the Trust?

Debtor: When I – the only time I talked to the Trustee was at that meeting and I divulged those assets.” Trial Tr.

at 253:14–19.

135 “Debtor’s counsel: When you read the words ‘trust’ or ‘future interest in property,’ does that make you think

of the Trust that you set up for your daughters?

Debtor: No. … I guess I read it that, you know, if you have equitable or future property, I’m like, its’s kind of

Greek to me. So I guess I just misread and didn’t really understand the question.” Trial Tr. at 255:12–20.

136 “New Falls’ counsel: And paragraph 19 states, ‘Within 10 years before you filed for bankruptcy did you

transfer any property to a self-settled trust, or a similar device, of which you are a beneficiary,’ correct?

Debtor: I’m not the beneficiary. New Falls’ counsel: So --. Debtor: So, no. New Falls’ counsel: It’s your

testimony that you don’t believe that you have a beneficial interest in your [] Trust? Debtor: No. The word in

the document is ‘beneficiary.’ … So I read that word and I answered the question based upon that word. I wasn’t

the beneficiary.” Trial Tr. at 285:1–14.

137 Trial Tr. at 269:12–14.

to all interested persons in the administration of the estate without requiring investigations or

examinations to determine whether the provided information is correct.”138 In this case, significant

resources were expended on fact-checking a less than forthcoming debtor. While New Falls

identified a lot of smoke– particularly with respect to Debtor’s boat trailer, snorkel, and bicycle

New Falls identified at trial– there was also fire. As such, Debtor is not entitled to the shelter of the

Bankruptcy Code.139 The Court will therefore deny his discharge.140

Objection to claimed exemptions

New Falls raises three objections to Debtor’s exemptions. First, New Falls objects to the

tenant by the entirety (“TBE”) exemption Debtor claimed under § 522(b)(3)(B) as to the Hiawatha

Property and the Richbarn Property to the extent Debtor claimed this exemption.141 Section

522(b)(3)(B) enables debtors to exempt from the bankruptcy estate “any interest in property in

which the debtor had, immediately before the commencement of the case, an interest as a tenant by

the entirety….”142 In this case, Debtor was married on the date he filed his bankruptcy petition and

138 In re Mitchell, 496 B.R. at 631 (citing In re Ingersoll, 124 B.R. 116, 122 (Bankr. M.D. Fla. 1991)).

139 Section 727(a)(4) operates to deny “the shelter of the bankruptcy code” to debtors who “play fast and loose

with their assets or with the reality of their affairs.” In re Sadler, 282 B.R. 254, 264 (Bankr. M.D. Fla. 2002).

140 Because the Court denied Debtor’s discharge under 11 U.S.C. § 727 (a)(4)(A), it is unnecessary to address

New Falls’ alternative counts seeking a denial of the same discharge. See Protos v. Silver (In re Protos), 322 F.

App’x 930, 932-33 (11th Cir. 2008) (“A finding against the [debtor] under any single subsection of section 727

is sufficient to deny him a discharge.”).

141 As an aside, New Falls’ objection is largely academic. It is unclear Debtor’s TBE exemption had any effect

of shielding the Hiawatha Property or the Richbarn Property from creditors in the first instance. There appear to

have been ample joint creditors of Debtor and his wife as of the petition date, including New Falls, Debtor’s

largest creditor. Therefore, from the outset the properties were available to administer for the benefit of the estate

had the Chapter 7 Trustee wished to do so. However, knowing both properties were underwater and after being

apprised of the post-petition rents the properties generated over expenses and that the Richbarn Property was no

longer rented, she abandoned them. The Court finds no reason to second guess the business judgment of the

Chapter 7 Trustee, nor did New Falls offer any basis to do so.

142 11 U.S.C. § 522(b)(3)(B).

thus was entitled to assert the TBE exemption to the extent of non-joint obligations.143 However,

about three-and-a-half months after filing his petition, Debtor and his wife divorced.144

New Falls contends Debtor’s divorce, which occurred within 180 days of his petition date,

terminated his TBE exemption and brought his after-acquired interests in the Richbarn Property and

the Hiawatha Property into his bankruptcy estate pursuant to § 541(a)(5)(B). Section 541(a)(5)(B)

provides that the bankruptcy estate includes:

Any interest in property that would have been property of the estate if such interest

had been an interest of the debtor on the date of the filing of the petition, and that

the debtor acquires or becomes entitled to acquire within 180 days after such date

… as a result of a property settlement agreement with the debtor's spouse, or of an

interlocutory or final divorce decree.145

While the intersection of § 541(a)(5)(B) and § 522(b)(3)(B) is not a well-trod area and New

Falls offers no case law in support of its argument, the Fourth Circuit Court of Appeals has

addressed the issue and held the post-petition entry of a “divorce decree within 180 days of the

filing of the bankruptcy petition renders the section 522(b)[3](B) exemption inapplicable.”146 The

Court finds the Fourth Circuit decision well-reasoned,147 and absent contrary authority in this

Circuit, will sustain New Falls’ objection to Debtor’s § 522(b)(3)(B) exemption as to the Hiawatha

Property and the Richbarn Property.

143 Under Florida law “[W]hen property is held as a tenancy by the entireties, only the creditors of both

[spouses], jointly, may attach (sic) the tenancy by the entireties property; the property is not divisible on behalf

of one spouse alone, and, therefore, it cannot be reached to satisfy the obligation of only one spouse.” In re

Sinnreich, 391 F.3d 1295, 1297 (11th Cir. 2004) (quoting Beal Bank, SSB v. Almand and Associates, 780 So. 2d

45, 53 (Fla. 2001).

144 The Court notes except for certain statutory exceptions, property of the estate and exemptions are determined

on the date the bankruptcy petition is filed. Owen v. Owen, 500 U.S. 305, 314 n. 6, 111 S.Ct. 1833, 1838 n. 6,

114 L.Ed.2d 350 (1991).

145 11 U.S.C. § 541(a)(5)(B).

146 In re Cordova, 73 F.3d 38, 41 (4th Cir. 1996). At the time of the Cordova court’s decision, § 522(b)(3)(B)

was labeled as § 522(b)(2)(B).

147 In so holding, the Court observed, “the divorce decree terminating co-ownership of the home released

[debtor] from the unique features of the tenancy by the entirety. Once those features were extinguished, so, too,

was the rationale for exempting [debtor’s] fee simple interest from the bankruptcy estate.” In re Cordova, 73

F.3d 38 at 41.

Though the Court will sustain New Falls’ objection, the Court notes New Falls did not

address the disposition of the Hiawatha Property or the Richbarn Property as a result of Debtor’s

MSA/divorce or offer any basis to conclude the new interests Debtor possesses in the properties are

of consequential value to the estate (i.e. if there are post-petition rents above expenses available for

turnover).148

New Falls’ two other objections lack merit and can be addressed expeditiously. New Falls

objects to Debtor’s personal property exemptions “to the extent that the actual value of said property

caused the Debtor to exceed the available $1,000 per person personal property exemption and the

$1,000 per person vehicle exemption … which would include any undisclosed assets.” In this case,

Debtor applied his $1,000 personal property exemption to the 50 hp engine on the 2004 Sundance

boat, which he valued at $2,000. New Falls makes no argument that half of the engine is worth

more than $1,000. In addition, Debtor did not claim a vehicle exemption and did not receive a

personal property exemption as to the balance of his checking account, utility prepayment, or the

other $775 in personal and household goods he scheduled on his Schedule C. Lastly, New Falls

objects to Debtor’s claimed exemptions in the personal property on his Schedule C to the extent it

was transferred to the Trust. But none of the property on Debtor’s Schedule C is alleged to have

been transferred to the Trust. In any event, the Trust itself was property of the estate. As such, the

Court will overrule New Falls’ objections to Debtor’s claimed exemptions.

Turnover of Property of the Estate

New Falls’ final claim seeks turnover of the Trust and “all of the property transferred into

it, together with all non-exempt property …”149 This section requires turnover of property “to the

148 In the Court’s review of the MSA, it appears Debtor’s entireties interest in the Hiawatha Property changed to

a fee simple interest while Debtor’s entireties interest in the Richbarn Property became some kind of “50%”

interest with an obligation to pay the property’s mortgage.

149 Doc. 87 at 41.

trustee” and does not authorize turnover to a creditor.150 The Court will deny New Falls’ request

for turnover, without prejudice to the Chapter 7 Trustee seeking turnover from the Debtor of any

asset described herein which she determines may have consequential value to the estate, including

the Hiawatha Property, the Richbarn Property, or proceeds from the rents of the properties.

For these reasons, it is

ORDERED:

1. Debtor is denied a discharge under 11 U.S.C. § 727(a)(4)(A).

2. New Falls’ objection to Debtor’s § 522(b)(3)(B) exemption is sustained. New Falls’

objections to Debtor’s other exemptions are overruled.

3. New Falls’ request for turnover is denied, without prejudice.

4. A separate judgment consistent with this ruling will be entered.

150 11 U.S.C. § 542(a).