Forrest Allred v. Gilbert Vilhauer ( 2011 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
_______________
No. 11-6038
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In re: Gilbert Calvin Vilhauer; *
Kay Lynn Vilhauer *
*
Debtors *
*
Forrest C. Allred, Trustee * Appeal from the United States
* Bankruptcy Court for the
Plaintiff - Appellee * District of South Dakota
*
v. *
*
Gilbert Calvin Vilhauer; *
Kay Lynn Vilhauer *
*
Defendants - Appellants *
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Submitted: August 24, 2011
Filed: October 11, 2011
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Before KRESSEL, Chief Judge, SCHERMER, and FEDERMAN, Bankruptcy Judges
FEDERMAN, Bankruptcy Judge
Debtors Gilbert Calvin Vilhauer and Kay Lynn Vilhauer appeal from the
Judgment of the Bankruptcy Court1 denying their discharge pursuant to 11 U.S.C. §
727(a)(5). For the reasons that follow, the Bankruptcy Court’s Judgment is
AFFIRMED.
FACTUAL BACKGROUND
Debtors Gilbert and Kay Vilhauer owned and operated a farm and ranch near
Hosmer, South Dakota, where they raised cattle and fed cattle for others. They also
owned and operated a corporation known as Vilhauer Sales, Incorporated. They filed
a voluntary Chapter 11 bankruptcy petition on January 4, 2010.
On January 14, 2010, Plains Commerce Bank, who held a security interest in
the Debtors’ real and personal property, including livestock, moved for relief from
the automatic stay. By letter dated January 21, 2010, in connection with the motion
for relief from stay, the Debtors’ attorney advised the Court regarding the condition
and welfare of the livestock, and represented that there were 1,134 head of cattle
located on the Vilhauer farm at that time.2 Counsel further represented that:
Gilbert Vilhauer has assured me that all of the livestock are receiving
the best of care. I personally visited the Vilhauer farm last week along
with representatives of Plains Commerce Bank. There is plenty of feed
and water on hand to see the livestock through the remainder of the
winter. All of the livestock also have excellent protection from winter
1
The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for
the District of South Dakota.
2
Similarly, attached to the Exhibit List for the hearing on the motion for
relief from stay, the Debtors included a chart dated January 14, 2010, and signed
January 22, 2010, showing 1,134 head of cattle. It would appear from the record
that some of the 1,134 head of cattle located on the farm was owned by others.
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weather, including protection from the possible snow storm forecast for
this weekend.
On February 1, 2010, the parties filed a Stipulation on the motion for relief from stay
which, inter alia, called for liquidation of the livestock and certain other collateral
and, further, required the Debtors to file a Plan on or before February 9, 2010. The
Court approved the Stipulation on February 2, 2010. After the Debtors failed to file
a Plan by the February 9 deadline, the Bankruptcy Court lifted the stay on February
18, 2010. Apparently, the Bank liquidated all of the cattle located on the Debtors’
farm, totaling 1,017 head, by March 10, 2010.3
On April 6, 2010, at the request of the United States Trustee, and with the
Debtors’ subsequent consent, the Bankruptcy Court converted the case to Chapter 7.
On July 7, 2010, the Chapter 7 Trustee filed an adversary proceeding seeking
denial of the Debtors’ discharge under § 727.4 As relevant here, he asserted that 117
head of cattle, constituting approximately 10% of the Debtors’ herd, were
unaccounted for, and that the Debtors had failed to satisfactorily explain the shortage.
3
It is not clear from the record, but it would appear that the Bank was
permitted to liquidate not only the cattle owned by the Debtors themselves, but
also the cattle which was owned by a third party, Producers Livestock, which had
been located at the Debtors’ farm. As discussed more fully below, however, the
Debtors do not dispute that there was a discrepancy of 117 head between the 1,134
they said they held in January and the 1,017 sold by the bank in March. The
Bank’s representative testified at trial that, as between the Bank and Producers
Livestock, the Bank absorbed all of that shortfall.
4
On July 2, 2010, Plains Commerce Bank also filed an adversary complaint
against the Debtors, seeking denial of the Debtors’ discharge under § 727(c), (d),
and (e), and asserting nondischargeability of its debt under § 523(a)(2)(A). That
adversary proceeding has essentially been placed on hold pending final judgment
in this adversary proceeding.
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He asserted that the Debtors’ discharge should thus be denied under § 727(e)(5), as
well as § 727(a)(2), alleging that the Debtors transferred, removed, destroyed,
mutilated or concealed the missing cattle with the intent to hinder, delay, or defraud
creditors.
At the conclusion of the trial on the matter, the Bankruptcy Court ruled in favor
of the Trustee and denied the Debtors’ discharge under § 727(a)(5). The Debtors
appeal.
STANDARD OF REVIEW
We review the Bankruptcy Court’s factual findings for clear error and its
conclusions of law de novo.5 The Debtors do not assert that the Bankruptcy Court
erred in its application of § 727(a)(5); rather, they assert that the Court’s factual
findings were clearly erroneous. “A finding is ‘clearly erroneous’ when although
there is evidence to support it, the reviewing court on the entire evidence is left with
a definite and firm conviction that a mistake has been committed.”6 If the Bankruptcy
Court’s account of the evidence is plausible in light of the record viewed in its
entirety, we may not reverse merely because we might have decided the issue
differently.7 “Where there are two permissible views of the evidence, the factfinder’s
choice between them cannot be clearly erroneous.”8
5
Floret, L.L.C. v. Sendecky (In re Sendecky), 283 B.R. 760, 763 (B.A.P. 8th
Cir. 2002).
6
Id.; Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511,
84 L.Ed.2d 518 (1985).
7
Anderson v. Bessemer City, 470 U.S. at 573-74, 105 S.Ct. at 1511.
8
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DISCUSSION
Section 727(a)(5) of the Bankruptcy Code provides that “[t]he 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.”9 As the Debtors suggest, denial
of a debtor’s discharge is a harsh penalty and, accordingly, § 727 is to be strictly
construed in favor of the debtor.10 In order to prevail, the Trustee, as the objecting
party, must prove each element of § 727 by a preponderance of the evidence.11 If the
objecting party demonstrates a deficiency of assets, the burden shifts to the debtor
to explain the loss.12
The Debtors do not assert on appeal that the Bankruptcy Court erred finding
that 117 animals were lost between mid-January and March 10, 2010. And, they
concede that, since the Trustee met his burden of demonstrating that loss of property,
the burden shifted to them to provide an adequate explanation of the loss.
“If the explanation is too vague, indefinite, or unsatisfactory then the debtor is
not entitled to a discharge. The explanation given by the debtor must be definite
enough to convince the trial judge that assets are not missing.”13 “An important
component in ascertaining the reasonableness of any explanation is its capacity for
verification; that is, is the explanation sufficient to enable either the trustee or a
9
11 U.S.C. § 727(a)(5).
10
In re Sendecky, 283 B.R. at 763.
11
Id.12
Id. at 766.
13
Id. (citations and internal quotation marks omitted).
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creditor to properly investigate the circumstances surrounding the loss or
deficiency.”14 Unsubstantiated, uncorroborated and undocumented testimony from
the debtor is not likely sufficient.15
The Debtors assert that the 117 animals died due to extreme weather in the area
in the winter months of early 2010, and that all of the carcasses were burned in a burn
pit on the farm by July 1, 2010. In support of that assertion, Gilbert Vilhauer testified
that, after the thaw in 2010, he saw many carcasses on and around the property. He
produced photographs of 103 dead animals at trial.16 He asserts that the photos
constitute clear and credible evidence corroborating the explanation of the loss of at
least 103 of the cattle. Another witness, Dewayne Siebrasse, who arranged the feed
rations to feed the Debtors’ livestock in the spring of 2010, also testified that he
witnessed significant numbers of cattle deaths that year, both at the Debtors’ property
and at other farms in the area. He also said he saw dead carcasses on the Debtors’
property, although he did not count them.
The Trustee produced contrary evidence. As part of the discovery relating to
the adversary proceeding, the burn pit was exhumed on May 11, 2011, using a large
track hoe digger. Dr. Greg Adolph, a licensed veterinarian, testified at trial that he
was personally present and supervised the exhumation process. He testified that they
dug down to virgin soil at the bottom of the pit and that all of the carcasses remaining
in the pit were removed and inspected by him. He further testified that there were 56
14
Baker v. Reed (In re Reed), 310 B.R. 363, 370 (Bankr. N.D. Ohio 2004).
15
See Schieffler v. Beshears (In re Beshears), 196 B.R. 468, 473 (Bankr.
E.D. Ark. 1996).
16
Although the parties submitted a transcript of the trial as part of this
appeal, they did not furnish copies of the exhibits admitted at trial. Consequently,
we were unable to view the photographic and other documentary evidence on
appeal.
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carcasses in the pit at the time of exhumation, and that, based on the level of
decomposition at that time, roughly seven of the 56 could possibly have been in the
burn pit before July 1, 2010 – the rest must have been placed in the pit after July 1,
2010. He testified that there was no evidence of burning, other than of household
waste. He further testified that, even though it is easier to incinerate cattle whose
carcasses have been decomposed, it is difficult to fully incinerate cattle remains in
any condition, explaining that some bones will remain after incineration.
Dr. Adolph also testified that, given the conditions of the farm and weather in
the winter of early 2010, a normal death loss rate over 60 days would be one to two
percent of adult animals, whereas the Debtors alleged they sustained a loss of over
10% in only 48 days.
In ruling in favor of the Trustee, the Bankruptcy Court specifically found Dr.
Adolph’s testimony about the number of carcasses burned in the pit to be credible.
The Court further specifically found the photographs to be unpersuasive because
there was no independent corroboration as to whose cattle they were, when they died,
where they were located when the photos were taken, or when the photographs
themselves were taken. In addition, although Mr. Siebrasse’s testified he saw some
dead cows, that testimony did not corroborate the number of dead cows the Debtors
asserted there were.
This case boils down to credibility. On appeal, we do not sit in judgment of the
credibility or demeanor of witnesses and it is not our role to second guess a trial
court’s decision to credit the testimony of one side’s witness and discredit the
testimony of witnesses proffered by another.17 The Debtors presented testimony and
evidence that over 100 head of cattle had died and were burned in the pit. The
17
See Dullea Land Co. v. Ideal Ag Corp (In re Dullea Land Co.), 269 B.R.
33, 36 (B.A.P. 8th Cir. 2001).
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Trustee presented evidence that, while some cattle may have been burned in the pit,
the number was nowhere near what the Debtors asserted. In the end, the Bankruptcy
Court found the Trustee’s evidence to be more credible and articulated its reasons for
doing so. As stated above, “[w]here there are two permissible views of the evidence,
the factfinder’s choice between them cannot be clearly erroneous.”18 Consequently,
we hold that the Bankruptcy Court did not clearly err in finding that the Debtors
failed to adequately explain the loss of cattle.
Accordingly, the Bankruptcy Court’s Judgment denying the Debtors’ discharge
under 11 U.S.C. § 727(a)(5) is AFFIRMED.
18
Anderson, 470 U.S. at 574
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