- Case Type:
- Case Status:
- BAP No. WO-20-004 & WO-20-005 (10th Circuit, Sep 14,2020) Not Published
- BAP for 10th Cir. affirmed ruling of bankruptcy court (WD Ok.), which entered judgment against chapter 7 debtor on avoidance claim and for denial of discharge. Totality of the circumstances supported factual finding that debtor acted with fraudulent intent notwithstanding debtor's testimony that he did not. Advice of counsel defense did not outweigh clear indicia of fraudulent intent. Lack of equity in fraudulently transferred assets, and lack of damages to unsecured creditors, did not negate actual intent. Actual intent for fraudulent transfer justified denial of discharge.
- Procedural context:
- Chapter 7 trustee sued debtor to avoid transfers under 11 USC 548 and to deny discharge under 11 USC 727. Bankruptcy court (WD Ok.) entered judgments in favor of trustee. Debtor appealed to BAP for 10th Cir.
- Sharpton owned and served as president of All Phase Roofing and Construction, LLC (“All Phase”), an entity which performed roofing and construction services in Oklahoma. All Phase operated out of Sharpton’s mobile home in Stillwater, Oklahoma. On July 2, 2013, Sharpton quitclaimed the real property upon which his home sits (“Real Property”) to All Phase. All Phase borrowed $40,000 from BancFirst in 2014, secured by a mortgage against the Real Property as well as a security interest in All Phase's inventory, accounts, and equipment. Sharpton also personally guaranteed the obligation to BancFirst. Approximately two years later, All Phase sought out additional loans, this time from Everest Business Funding (“Everest”). All Phase secured a loan of $50,000 in exchange for a $70,500 interest in the company’s accounts receivable. Sharpton personally guaranteed the obligation and executed a confession of judgment to Everest for $70,500 personally and on behalf of All Phase. All Phase authorized its bank to permit Everest to retrieve a daily payment from the proceeds of All Phase LLC’s receivables. Shortly after Everest funded the loan, All Phase removed Everest’s authorization to debit the bank account, preventing payment. All Phase defaulted shortly thereafter. Upon filing Sharpton’s affidavit of confession of judgment, Everest obtained a judgment against Sharpton and All Phase LLC in the amount of $76,218.94. After defaulting on the loan from Everest, Sharpton purported to cease doing business under the name All Phase and to operate the same business under a sole proprietorship named All Phase Roofing Systems. For no consideration, Sharpton caused All Phase to quitclaim its interest in the Real Property to him, title to a 2011 Ford F350 and a 2014 cargo trailer, equipment, and inventory. Sharpton dissolved All Phase LLC, but continued to use other equipment and materials still owned by the company, invoiced customers using All Phase LLC’s letterhead, and collected All Phase LLC’s outstanding receivables for his own account throughout 2017 and 2018. During this same period, Sharpton routinely withdrew or otherwise used funds from All Phase LLC’s bank account for personal expenses. Between June 2016 and July 2017, Sharpton took in excess of $320,000 from All Phase LLC for his own use and benefit. Money continued to move in and out of All Phase LLC’s bank accounts up to the time All Phase LLC commenced its bankruptcy case and for several months thereafter. All Phase LLC filed a chapter 7 bankruptcy petition on June 18, 2017, signed by Sharpton, as All Phase LLC’s president. All Phase LLC’s bankruptcy schedules listed property, including inventory and materials, machinery and equipment, a 2014 Ford truck, a bank account, and accounts receivables. The schedules indicate there was no equity in any of All Phase LLC’s assets. The schedules listed assets valued at $203,712.28, secured debts of $583,425.68, and unsecured debts of $350,103.39. All Phase LLC’s Statement of Financial Affairs listed the Real Property, the 2011 Ford F350, and the 2014 cargo trailer as property transferred to an insider within one year before filing the bankruptcy petition. All Phase LLC’s Statement of Financial Affairs did not disclose any of the withdrawals or transfers from its bank account by and to Sharpton. Sharpton filed his own personal chapter 7 bankruptcy petition on December 31, 2017. In his bankruptcy schedules, Sharpton listed the Real Property, and mobile home located on it, valued at $76,000; the 2011 Ford F350, valued at $5,348; and the 2014 cargo trailer, valued at $4,300. Sharpton’s personal bankruptcy case also listed other assets purportedly transferred from All Phase LLC to Sharpton, such as the accounts receivable, inventory, machinery and equipment, and a claim against a contractor who owed All Phase LLC money. Sharpton’s Schedule D, Creditors Holding Secured Claims, indicated BancFirst held liens against the Real Property in excess of its value. BancFirst and other creditors also asserted liens against personal property such as inventory, equipment, and accounts receivable, suggesting all Sharpton’s assets lacked equity.
- Romero, Somers, Jacobvitz
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