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SPIRK v. SULLIVAN

August 28, 2003

TERRY L. SPIRK, DEBTOR-APPELLANT,
v.
THOMAS B. SULLIVAN, CHAPTER 7, TRUSTEE, PLAINTIFF-APPELLEE



The opinion of the court was delivered by: Harry Leinenweber, District Judge

MEMORANDUM OPINION AND ORDER

Before the Court is Appellant Terry L. Spirk's ("Spirk") appeal of two Bankruptcy Court orders, one granting a Motion for Summary Judgment filed by the appointed trustee in this case, and the other denying Spirk's subsequent Motion for Reconsideration. The Court has jurisdiction pursuant to 28 U.S.C. § 158. For the following reasons, the Court affirms.

I. BACKGROUND

This appeal arises out of Spirk's individual Chapter 7 bankruptcy action, which he voluntarily filed on February 6, 2001 (the "Spirk Action"). At the time, Spirk was the chief executive officer and a 98.6% stockholder of American Benefits Group, Inc., a holding company for four affiliated entities. One of those entities was a wholly-owned subsidiary known as Lancaster Annuities Services Co., Inc. ("LASCO"), a company that sold annuities and insurance products through a network of independent agents. [ Page 2]

Between December 1996 and November 2000, LASCO issued more than 300 promissory notes (the "LASCO Notes") to some 200 investors, borrowing $9.033 million (an amount which reflects both principal. and certain sums of capitalized interest) (the "Note Proceeds"). Spirk was a cosigner on all of the LASCO Notes, personally guaranteeing their repayment. Indeed, Spirk listed more than $9,000,000 owing to 204 LASCO investors in the schedules of debt he filed in the Spirk Action. On March 13, 2001, a group of LASCO's creditors filed an involuntary petition for relief against it under Chapter 7 of the Bankruptcy Code based on LASCO's failure to repay the LASCO Notes. On March 22, 2001, the Bankruptcy Court granted the petition and entered an order for relief against LASCO.

In an effort to determine whether Spirk or LASCO owned any property which could be administered for the benefit of their creditors, Thomas B. Sullivan ("Sullivan"), the appointed trustee in both bankruptcy actions, asked that Spirk turn over LASCO's books and records. In response, in May 2001 Spirk submitted to Sullivan fourteen boxes containing the requested documents, including tax returns, bank statements, computer printouts of check registers, cancelled checks, accounts payable listings, investor files, correspondence, and vendor files.

On October 15, 2001, Sullivan filed a five-count Complaint (the "Sullivan Complaint") objecting, under 11 U.S.C. § 727, to Spirk's discharge in the Spirk Action. Count One, under [ Page 3]

§ 727(a)(2), alleged that Spirk concealed his property within one year of his individual bankruptcy petition with the intent to hinder creditors. Count Two, under § 727(a)(3), alleged that Spirk failed to (i) turn over certain bank documents for LASCO and its affiliated entities, (ii) file schedules in the LASCO Chapter 7 action, and (iii) provide certain narrative descriptions of, and documentation for, transactions with individual LASCO investors. Count Three, under § 727(a)(4), alleged that Spirk knowingly gave a false oath by failing to reveal the existence or transfer of the Note Proceeds in the schedules and statement of affairs filed in the Spirk Action. Count Four, under § 727(a)(5), alleged that Spirk had failed to explain satisfactorily the loss of the Note Proceeds. Count Five, under § 727(a)(7), alleged that Spirk committed these acts on behalf of LASCO, an "insider" in a concurrent pending Chapter 7 bankruptcy case. Spirk answered the Sullivan Complaint on November 19, 2001.

On February 12, 2002, Sullivan moved for summary judgment on Counts Four and Five of the Sullivan Complaint, arguing that there was no dispute about the nature of the "voluminous documents" turned over by Spirk and yet still Spirk had failed to explain satisfactorily the dissipation of the Note Proceeds. Spirk filed a Response on May 10, 2002.

On July 29, 2002, the Bankruptcy Court issued a 13-page memorandum opinion and order granting Sullivan's Motion for Summary [ Page 4]

Judgment and denying Spirk a discharge pursuant to § 727(a)(5) and (7). On August 8, 2002, Spirk filed a "Motion for Reconsideration and Leave to File Amended Statement of Facts." Following two separate hearings, on November 8, 2002 the Bankruptcy Court denied the Motion for Reconsideration in an oral ruling.

On November 22, 2002, Spirk timely filed this appeal.

II. DISCUSSION

A. Motion for Summary ...


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