BOKF, N.A. v. Simmons
MEMORANDUM OPINION affirming the decision of the Bankruptcy Court. Signed by Honorable Jimm Larry Hendren on December 28, 2012. (jn)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
IN RE: PATSY SIMMONS, DEBTOR
Civil No. 12-5105
bankruptcy appeal comes on for consideration, and from the briefs
of the parties, the transcript of the evidentiary hearing, and the
documents of record, the Court finds and orders as follows:
In the Chapter 7 proceedings of debtor Patsy Simmons,
one of her creditors, BOKF, NA d/b/a Bank of Arkansas ("BOKF"),
filed a Complaint To Determine Dischargeability Of Debt (the
"Complaint"). BOKF alleged that its predecessor in interest, Bank
of Arkansas, made several loans totaling over $8,000,000 to
Simmons Limited Partnership ("Simmons LP") that were guaranteed by
The Complaint further alleged that Ms. Simmons had
given materially false financial statements and tax returns in
support of the loans, and transferred property to others with
intent to defraud creditors.
The Complaint alleged that neither Simmons LP nor Ms. Simmons
paid the loans in question, and further alleged that:
Ms. Simmons' debt to BOKF was not dischargeable pursuant
to 11 U.S.C. § 523(a)(2)(B), and
Ms. Simmons was not entitled to a discharge pursuant to
11 U.S.C. §§ 727(a)(2), (3), or (5).
Following an evidentiary hearing, the Bankruptcy Court
found that BOKF had abandoned its claims under § 523(a)(2)(B) and
§ 727(a)(2), and denied the objections to discharge asserted under
§§ 727(a)(3), (a)(4)1, and (a)(5).
elected -- pursuant to 28 U.S.C. § 158(c)(1)(A) and Fed.R.Bankr.P.
8001(c) -- to have the appeal heard by this Court.
The matter is
fully briefed, and ripe for decision.
On appeal, this Court reviews the Bankruptcy Court's
findings of fact for clear error, and its conclusions of law de
DeBold v. Case, 452 F.3d 756, 761 (8th Cir. 2006). A
finding of fact is clearly erroneous "when although there is
evidence to support it, the reviewing court on the entire evidence
is left with the definite and firm conviction that a mistake has
U.S. v. U.S. Gypsum Co., 333 U.S. 364, 395
The denial of discharge provisions in § 727 are strictly
construed in favor of debtors, as they impose harsh and drastic
This claim was asserted in BOKF's post-trial brief, and the Bankruptcy Court
elected to resolve it.
sanctions, but the section is also intended to "prevent the
debtor's abuse of the Bankruptcy Code."
464, 471 (8th Cir. BAP 2001).
objecting to discharge.
In re Korte, 262 B.R.
The burden of proof is on the party
The facts found by the Bankruptcy Court may be briefly
summarized as follows:
Ms. Simmons had an on again/off again marriage to
Charles Simmons, who remained her business partner even during
times when they were divorced.
Ms. Simmons operated multiple corporate entities, two of
which -- Simmons LP and Walter White, LLC ("White LLC") -- figure
in the events of this case.
At some point before her bankruptcy, Ms. Simmons (or
Ride Rite, Inc. ("Ride Rite"), a used car dealership
with locations in Rogers and Springdale;
the real property underlying and adjacent to Ride Rite;
sixteen parcels of real property set out in a prenuptial
agreement between Ms. Simmons and Mr. Simmons dated August 11,
Ms. Simmons transferred control of Ride Rite to her son
Walter White in the early 1990's, but retained title to all stock
and all tax liabilities and benefits, pursuant to a handwritten
Agreement provided that the stock would transfer to Mr. White ten
years from the date of the Business Agreement.
In 1997 or 1998, Ms. Simmons transferred the real
property on which Ride Rite was situated to White LLC.
On January 1, 2008, Ms. Simmons transferred additional
real property to White LLC.
She then "stepped down" from White
LLC, leaving Mr. White as its owner, and executed a document
entitled Minutes of the Directors and Shareholders Meeting of
Ride-Rite, Inc., transferring the Ride Rite stock to Mr. White.
remarriage, Ms. Simmons and Mr. Simmons entered into a handwritten
Prenuptial Agreement which allocated nine real properties owned by
Simmons LP to Mr. Simmons in the event of Ms. Simmons's death or
properties to be retained by Ms. Simmons in the event of divorce,
or by her estate upon her death.
On February 22, 2010, Ms. Simmons and Mr. Simmons were
divorced, and Mr. Simmons received, by way of settlement, the same
property allocated to him in the Prenuptial Agreement.
On July 19, 2010, Ms. Simmons filed her Chapter 7
On the basis of the evidence presented, the Bankruptcy
Court reached the following conclusions:
BOKF failed to meet its burden of showing that Ms.
Simmons' record-keeping was "so deficient as to make it impossible
to determine her financial condition and business transactions,"
as required for its § 727(a)(3) claim.
BOKF failed to show that Ms. Simmons made a false
statement in connection with her bankruptcy, as required for its
§ 727(a)(4) claim.
Ms. Simmons satisfactorily explained the diminution of
assets that she experienced before filing her bankruptcy petition,
so as to withstand BOKF's § 727(a)(5) claim.
BOKF alleges that each of these findings was error, and that
the Bankruptcy Court erred when it failed to find that Ms.
Simmons' personal guaranty to BOKF was non-dischargeable under §§
727(a)(3), (a)(4), and (a)(5).
Section 727(a)(3) provides that the bankruptcy court
"shall grant the debtor a discharge" unless
the debtor has . . . failed to keep . . . any recorded
information, including books, documents, records, and
papers, from which the debtor's financial condition or
business transactions might be ascertained, unless such
act or failure to act was justified under all of the
circumstances of the case. . . .
BOKF had the initial burden of proving that Ms. Simmons had
inadequate records from which her financial condition could be
ascertained. Upon such proof, the burden would shift to Ms.
Simmons to justify her recordkeeping, but BOKF would retain the
ultimate burden of proof on this claim.
In re Swanson, 476 B.R.
236, 240 (8th Cir. BAP (Minn.)) 2012).
These are factual issues
reviewed for clear error.
In re Sendecky, 283 B.R. 760, 764 (8th
Cir. BAP (Minn.) 2002).
The Bankruptcy Court found that BOKF failed to prove Ms.
Simmons had inadequate records. It stated that "[w]hen considered
together, various documents over a span of 11 years show that it
was [Ms. Simmons'] long-time intention to fully transfer the Ride
Rite business and the Ride Rite real properties to her son Mr.
White. . . . In the same way, the prenuptial agreement between
[Ms. Simmons] and Mr. Simmons , dated August 11, 2008, clearly
allocated assets in the event of their divorce, which subsequently
occurred in 2010."
BOKF contends that Ms. Simmons' financial records were
nothing more than a "shoebox accounting system" which commingled
her assets with those of Simmons LP and Mr. Simmons, conveniently
allowing her to claim ownership when it was in her best interest,
and to disclaim ownership when it was not.
BOKF points out that
the only documentation of the transfers to Mr. White and Mr.
Simmons were handwritten notes that surfaced after the bankruptcy
proceedings began, that the assets were transferred to close
family members, and that the transfers were inconsistent with
other evidence, such as:
the 2008 federal income tax returns of Ms. Simmons, Ride
Rite, and White LLC, showing that Ms. Simmons was 100% shareholder
of Ride Rite and owned 99.8088% of White LLC in 2008;
Dealers Application for Ride Rite (Springdale location) showing
that Ms. Simmons had an interest in the corporation;
Dealers Application for Ride Rite (Rogers location) showing that
Ms. Simmons had an interest in the corporation;
a Loan Offering Memorandum prepared by Simmons First
Bank on January 5, 2009, in connection with Ms. Simmons' request
to renew a loan there, stating that the majority of Ms. Simmons's
cash flow comes from Ride Rite, which "is managed by Mr. Walter
White, her son," and which she "has agreed to sell . . . to her
son, Mr. White, sometime in the next 24 months.
As with other
children she'll be 'gifting' a portion of the business to him, as
she has agreed to a sales price of $600k."
A Term Loan Agreement for Simmons First Bank signed by
Ms. Simmons on 03/04/09 which included a "negative pledge" that
contingencies were met.
A 12/04/09 e-mail from David Bartlett of Simmons First
Bank, recapping a 12/03/09 meeting with Ms. Simmons, which noted
that Ms. Simmons was filing for divorce and had said in the
meeting that "there was no prenuptial agreement."
The Court is not persuaded that the Bankruptcy Court
erred in finding that Ms. Simmons kept sufficient records to
satisfy § 727(a)(3). The fact that documents are handwritten does
not invalidate them, and it is not particularly surprising that
discrepancies in the various documents, and the Bankruptcy Court
accepted those explanations.
For example, Ms. Simmons testified
that she transferred Ride Rite to Mr. White on January 1, 2008,
pursuant to the Business Agreement, but listed income from Ride
Rite on her 2008 federal income tax return to true up a reporting
error on previous years' returns.
She testified that after
transferring Ride Rite to Mr. White, she signed -- before reading
it -- a document for Simmons First Bank agreeing not to transfer
Ride Rite until certain contingencies occurred.
that she then read the document, and said the provision would have
to be stricken, and that the bank agreed to substitute a corrected
page, but failed to do so.
The Bankruptcy Court found Ms. Simmons' explanations for the
inconsistencies satisfactory. While the discrepancies pointed out
by BOKF do raise questions in the Court's mind, it cannot say that
it is left with "the definite and firm conviction that a mistake
has been committed" by the Bankruptcy Court in accepting Ms.
Thus, BOKF has not met its substantial
burden of demonstrating clear error on the part of the Bankruptcy
Court in connection with the § 727(a)(3) issue.
Section 727(a)(4) provides that the bankruptcy court
"shall grant the debtor a discharge" unless "the debtor knowingly
and fraudulently, in or in connection with the case -- (A) made a
false oath or account . . . ."
For a false statement to bar discharge, it must be both
material, and made with intent. These concepts are fleshed out in
In re Korte, supra:
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.
question of a debtor's knowledge and intent under §
727(a)(4) is a matter of fact.
Intent can be
established by circumstantial evidence, and statements
made with reckless indifference to the truth are
regarded as intentionally false.
262 B.R. at 474 (internal quotation marks and citations omitted).
To establish its claim under § 727(a)(4)(A), BOKF needed
to prove five things:
that Ms. Simmons made a statement under oath;
that the statement was false;
that she made the statement with fraudulent intent;
that she knew the statement was false; and
that the statement related materially to her bankruptcy.
In re Richmond, 429 B.R. 263, 307 (Bkrtcy. E.D. Ark., 2010).
The Bankruptcy Court found that BOKF failed to prove the
first two of these elements, making consideration of the remainder
It reasoned that the property transfers to Mr.
Simmons and Mr. White were made outside the time periods within
which such transfers would have been required to be listed on Ms.
Simmons's bankruptcy schedules.
Thus, her failure to list them
did not amount to a false statement.
The Bankruptcy Court further found that, to the extent other
documents indicated Ms. Simmons actually retained ownership of the
BOKF's contention that this was error is based on the
theme underlying all its arguments, i.e., that the asset transfers
to Mr. Simmons and Mr. White were a sham.
BOKF reasons, in
actually retained the assets, thus making her bankruptcy schedules
false for failing to include them.
BOKF argues that "the Bankruptcy Court recognizes that Mrs.
Simmons 'actually retained some ownership in Ride Rite and Walter
White [LLC] as late as 2009' but concludes that Mrs. Simmons
'reasonable explanations' somehow remove these owned assets from
BOKF goes on to state that the Bankruptcy Court
"reluctantly conceded" that Ms. Simmons "clearly retained control
of Ride Rite, Inc. and Walter White, LLC during 2009 (and may
BOKF misquotes the Bankruptcy Court's Order.
What the Order
actually says is "BOKF alleges that [various documents] show that
Ms. Simmons actually retained some ownership interest in the Ride
Rite business and Walter White, LLC as late as 2009." (Emphasis
The Order then immediately rejects BOKF's allegation,
stating that Ms. Simmons "offered reasonable explanations for
properties were transferred in January 2008."
BOKF has mistaken the Bankruptcy Court's description of
BOKF's trial position as the Bankruptcy's Court's finding of fact.
It has not demonstrated any error in the Bankruptcy Court's
decision on the § 727(a)(4) issue.
Section 727(a)(5) provides that the bankruptcy court
"shall grant the debtor a discharge" unless
the debtor has failed to explain satisfactorily, before
determination of denial of discharge under this
paragraph, any loss of assets or deficiency of assets to
meet the debtor's liabilities. . . .
As with the § 727(a)(3) claim, BOKF had the initial burden of
proving that Ms. Simmons failed to satisfactorily explain a
diminution in her assets.
In re Swanson, supra, 476 B.R. at 241.
The Bankruptcy court found that BOKF met this initial burden.
that she had planned the transfers to Mr. White for a
that the prenuptial agreement with Mr. Simmons was
reasonable in light of their relationship history;
that her financial statements were submitted in her name
jointly with either Mr. Simmons, Simmons LP, or both, and thus did
not provide an accurate portrait of her individual assets; and
that the financial statements do not account for the
general decline in property values resulting from the real estate
crisis that started in 2008.
The Bankruptcy Court found these explanations satisfactory.
BOKF contends that this was error, based largely on its
position that the transfers were sham; that Ms. Simmons failed to
account for the amount of her contribution toward acquisition of
assets Mr. White received under the Prenuptial Agreement; and that
the transfers to Mr. White took place when Ms. Simmons was in
default on the BOKF loans and other loans.
"The determination of whether a debtor's explanation is
satisfactory rests within the discretion of the court."
Kouangvan, 2012 WL 2931182 (Bkrtcy. S.D. Iowa, 2012).
absence of an abuse of this discretion, there is no basis to
reverse the trial court, and BOKF has shown no such abuse.
Bankruptcy Court believed Ms. Simmons when she testified that she
made the transfers to Mr. White and Mr. Simmons, and that they
were legitimate, and there was an evidentiary basis for that
belief. The assets in the Simmons' divorce were divided according
to their Prenuptial Agreement, and BOKF cites no legal precept
requiring a prenuptial agreement to allocate property to the
person who paid for it in the first place.
Because BOKF has failed to establish any error in the
Bankruptcy Court's findings relative to §§ 727(a)(3), (a)(4), and
(a)(5), it has also failed to establish that the Bankruptcy Court
erred in finding that Ms. Simmons's personal guaranty to BOKF was
The decision of the Bankruptcy Court is,
IT IS SO ORDERED.
/s/ Jimm Larry Hendren
JIMM LARRY HENDREN
UNITED STATES DISTRICT JUDGE
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