Meabon v. Johnson

Filing 10

ORDER granting 6 Motion to Dismiss Case as Frivolous with prejudice. The clerk of court is directed to close this case. Signed by District Judge Robert J. Conrad, Jr on 7/30/2014. (eef)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:14-cv-208-RJC
IN RE:

)
)
RICHARD P. MEABON AND EVELYN L.
)
MEABON,
)
)
Debtors.
)
_________________________________________ )
)
RICHARD PAUL MEABON, AND MARTHA )
MEDLIN, in her capacity as Trustee under
)
that Certain Trust Agreement of Raymond B. )
Meabon and Nancy E. Meabon dated
)
May 10, 1991,
)
)
Appellants,
)
)
v.
)
)
R. KEITH JOHNSON, Trustee for the
)
Bankruptcy Estate of Richard P. Meabon
)
and Evelyn L. Meabon,
)
)
Appellee.
)
__________________________________________)

ORDER

THIS MATTER comes before the Court on Appellants’ Notice of Appeal from
Bankruptcy Court, (Doc. 1), Appellants’ Brief, (Doc. 4), and Appellee’s Motion to Dismiss,
(Doc. 6). It is ripe for review.
I.

BACKGROUND
On February 23, 2010, Richard Meabon and Evelyn Meabon (debtors) filed a voluntary

Chapter 7 case (No: 10-30455) in the Bankruptcy Court of this district. On June 11, 2010, the
Bankruptcy Court granted discharge under 11 U.S.C. § 727 (the Bankruptcy Code). However,
on April 8, 2014, the Bankruptcy Court revoked Richard Meabon’s Discharge. Thereafter,
Appellants appealed the Bankruptcy Court’s Order Revoking Discharge.

(Docs. 1, 1:1).

Appellee has filed a motion to dismiss as frivolous Appellants’ appeal, which this Court now
reviews. (Doc. 6).
II.

STANDARD OF REVIEW
Under 28 U.S.C. § 158(a), district courts have jurisdiction to hear appeals of the decisions

of bankruptcy courts. A bankruptcy court’s findings of fact are reviewed for clear error, and
conclusions of law are reviewed de novo. In re J.A. Jones, Inc., 492 F.3d 242, 249 (4th Cir.
2007). Findings of fact are 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 been committed. In re Weiss, 111 F.3d 1159, 1166 (4th Cir. 1997). “Stated differently, a
choice between two permissible views of the evidence cannot be clearly erroneous,” 9 JAMES
WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE - CIVIL § 52.31[1] (3d ed. 1997), and “so long
as the trial court’s factual finding is plausible, the appellate court may not reverse it.” 19 JAMES
WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE - CIVIL § 206.03[4] (3d ed. 1997); see also
Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-74 (1985).
Under rule 9011 of the Federal Rules of Bankruptcy Procedure, the Court may dismiss a
claim as frivolous if the allegations and other factual contentions don’t have evidentiary support
and, if specifically so identified, are not likely to have evidentiary support after a reasonable
opportunity for further investigation or discovery, (FED. R. BANKR. P. 9011(b)(3)), or if the
denials of factual contentions are not warranted on the evidence, or, if specifically so identified,
are not reasonably based on a lack of information or belief. FED. R. BANKR. P. 9011(b)(4). See
Law v. Siegel, 134 S.Ct. 1188, 1198 (2014) (noting that rule 9011 is “bankruptcy’s analogue to
Civil Rule 11”). “An appeal is frivolous when the result is obvious or when the appellant's

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argument is wholly without merit.” In re Lapke, 428 B.R. 839, 844 (B.A.P. 8th Cir. 2010)
(internal citation omitted).
III.

ANALYSIS
A.

Findings of Fact

The Bankruptcy Judge made several findings of fact, stated hereafter. On February 23,
2010, Richard Meabon and Evelyn Meabon filed a voluntary Chapter 7 bankruptcy case, and
Keith Johnson was appointed Trustee. (Doc. 1:1 at 2). Prior to filing bankruptcy, the Meabons
consulted with attorney Rick Mitchell who informed them that they would need to disclose, as an
asset in his bankruptcy schedules, Richard Meabon’s interest in a trust formed by his parents on
October 1, 1985, (the 1985 trust). (Id.). As a result of Mr. Mitchell’s advice, they chose not to
hire him as their bankruptcy attorney. (Id.).
Next, the Meabons consulted with Martin Hunter, another bankruptcy attorney. During
the consultation, the Meabon’s declined to mention Richard Meabon’s interest in the 1985 Trust
because Mr. Meabon decided, notwithstanding Mr. Mitchell’s advice, that the 1985 Trust was
not an asset.1 He feared that if disclosed, he might lose his Trust interest in bankruptcy. (Doc.
1:1 at 2-3). As a result, Mr. Hunter filed the Debtors’ bankruptcy case absent knowledge of
Richard Meabon’s interest in the 1985 Trust. (Doc. 1:1 at 3). Consequently, the Meabons’
original bankruptcy schedules did not disclose this interest, despite the requirement in Section 20
of Schedule B that a debtor list any contingent and noncontingent interests in a trust.
Furthermore, Richard Meabon did not correct this omission during his testimony at his Section
341 Creditors meeting on March 31, 2010; nor did he amend his schedules to correct the
omission. (Id.)
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The Court has since held that “the vested interest [in the 1985 Trust] of Richard Meabon became property of the
bankruptcy estate upon the filing of his bankruptcy claim. . . .” In re Meabon, No. 3:13-cv-317-RJC, 2014 WL
1309093, at *6 (W.D.N.C. March 28, 2014).

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With the Trustee and creditors unaware of Richard Meabon’s trust interest, the June 1,
2010 deadline to object to discharge passed without incident. (Id.). Then, on June 2 or 3, Mr.
Mitchell e-mailed Mr. Hunter alerting him to the existence of the 1985 Trust, and, over the
objections of his client, Mr. Hunter alerted the Trustee to Richard’s interest in the 1985 Trust.
(Id.) Meanwhile, the Clerk processed the Debtor’s discharge, which was entered on June 11,
2010. (Id.).
On June 21, 2010, the Meabons amended Schedule B to disclose the interest. (Id.). With
knowledge of the existence of this interest, the Trustee obtained a copy of the 1985 Trust
document, which indicated that Richard Meabon held a vested remainder interest in an
irrevocable trust. (Id.). Mr. Meabon informed the Trustee that Richard Meabon’s sister, Martha
Medlin, was the Trustee under the 1985 Trust, and the Bankruptcy Trustee received from her a
statement of the trust assets showing that the trust held stocks valued at the petition date in
excess of $350,000. (Doc. 1-1 at 3-4).
These findings of fact are largely undisputed, and have been covered in previous orders
from this Court. (See In re Meabon, 2014 WL 1309093 at * 2-3). Appellants contend that the
Bankruptcy Judge erred because the “only logical and realistic conclusion is that the Trustee had
to have known about the trust and acquired all, or at least some, of th[e] detailed information
[about] [the] [trust] prior to June 1, 2010.” (Doc. 4 at 6). Appellants base their contention on
two letters drafted by the Bankruptcy Trustee on June 3, 2010, to Ms. Medlin and Mr. Hunter,
wherein the Trustee evinces knowledge of the 1985 Trust’s existence and amount and Richard
Meabon’s vested remainder interest in the Trust, in addition to rejecting a settlement offer of
$10,000 for the Debtor’s interest in the trust corpus from the Debtors. (Doc. 4 at 5). Appellants

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argue that the Trustee could not have drafted two separate letters and gained such knowledge
about the 1985 Trust within two days. (Doc. 4 at 5-6).
Appellants’ argument is wholly without merit and lacks evidentiary support. The essence
of Appellants’ argument is that the Bankruptcy Trustee could not have accomplished the
aforementioned tasks in a matter of two days. 11 U.S.C. § 704(1) requires “the bankruptcy
trustee to balance the need for expeditious conduct against the ‘best interests of parties in
interest.’” In re Hutchinson, 5 F.3d 750, 754 (4th Cir. 1993). Neglecting to do such could result
in liability for the Bankruptcy Trustee. Id. at 757 (noting that “[t]he basis for holding bankruptcy
trustees liable is the equitable power of courts to enforce fiduciary duties”) (citations omitted). It
therefore follows as a reasonable inference that, confronted with a previously undisclosed trust of
substantial size, a Bankruptcy Trustee would act quickly to exercise due diligence about the
matter. Here, there is no evidence that the Trustee did otherwise: he drafted two letters to gain
additional information about the Trust and rejected a $10,000 offer for the interest in the trust
corpus for a trust that valued in excess of $350,000.
Based on the foregoing, the Bankruptcy Judge did not commit clear error in holding that
even though “[i]t is unclear when exactly the Trustee learned of the trust . . . both parties agree
that it was after June 1, 2010 and likely before June 11, 2010.” (Doc. 1:1 at 8). There is no
evidence to dispute call into questions the actions of the Trustee.

Accordingly, the

preponderance of the evidence supports the Bankruptcy Judge’s finding that the discharge was
obtained by fraud insofar as the Appellant failed to disclose the existence of the 1985 Trust
within the appropriate time to do so.
Conclusions of Law

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11 U.S.C. § 727(d)(1) provides that a discharge shall be revoked if “such discharge was
obtained through the fraud of the debtor, and the requesting party did not know of such fraud
until after the granting of such discharge.” It is undisputed that Richard Meabon obtained his
discharge through fraud. (Doc. 1:1 at 11) (the Bankruptcy Judge found that Richard Meabon
“willfully made several false oaths under §727(a)(4) by failing to list his interests in the1985 and
1991 Trusts”).
IV.

CONCLUSION
In light of the applicable and rigorous clearly erroneous standard and a lack of

evidentiary support for Appellants’ argument, the Court finds Appellants’ argument frivolous
and finds that the revocation of discharge by the bankruptcy court was proper.
IT IS, THEREFORE, ORDERED that:
1.

Appellee’s Motion to Dismiss (Doc. 6) is GRANTED and this case is dismissed
with prejudice.

2.

The clerk of court is directed to close this case.

Signed: July 30, 2014

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