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In Re Joseph J. O'hara v. Joseph J. O'hara

April 23, 2013




On July 14, 2011, Appellant Joseph J. O'Hara ("Appellant") filed a Notice of Appeal from an Order of the Honorable Robert E. Littlefield, Jr., Chief U.S. Bankruptcy Judge, on April 18, 2011, granting Appellees Clare Bronfman and Sara Bronfman's (collectively "Appellees") Motion for summary judgment denying Chapter 7 discharge. Dkt. No. 1. For the following reasons, the decision of the bankruptcy court is affirmed.


A. Bankruptcy Proceeding

Appellant filed a voluntary Petition for relief under Chapter 7 of the Bankruptcy Code on June 30, 2008. Dkt. Nos. 7-1, 7-2. Appellant listed real estate assets of over $1,700,000 and personal property of over $60,000 with the value of several items to be determined. Dkt. No. 7-1 at 5, 8. Appellant scheduled unsecured debt of $5,641,868, unsecured priority debt of approximately $50,000, and secured debt of $2,253,658. Id. at 14-22. Appellees are both listed on Schedule F of the bankruptcy petition as creditors holding unsecured claims in the amount of $1,250,000 each in connection with a settlement agreement. Id. at 19-20. Appellees commenced an adversary proceeding on May 26, 2009, objecting to the discharge of Appellant on the grounds of 11 U.S.C. § 727(a)(2), (3), (4), and (6). Dkt. Nos. 1 at 2; 6-6 at 2.

Both parties moved for summary judgment.*fn1 Dkt. No. 1 at 6-7; see Dkt. Nos. 3-2; 4-2. Judge Littlefield issued an oral decision on June 30, 2010, denying both parties' motions with respect to § 727(a)(2), (4), and (6) causes of action based on questions of fact surrounding intent. Dkt. No. 13-1 at 4-5, 20; see also Bronfman v. O'Hara (In re O'Hara), No. 09-90055, 2011 WL 1467927, at*1 (Bankr. N.D.N.Y. Apr. 18, 2011).*fn2 As to § 727(a)(3), Judge Littlefield directed the parties to file additional memoranda of law and adjourned the motions for a subsequent oral decision. See Dkt.No. 13-1. On July 16, 2010, Judge Littlefield orally granted Appellees' motions with respect to 11 U.S.C. § 727(a)(3) and denied Appellant's motion. In re O'Hara, 2011 WL 1467927, at *1. A written decision followed on April 18, 2011. Id. Appellant filed a notice of appeal on July 14, 2011.*fn3 See Dkt. No. 1.

B. Factual History

Appellant is an attorney admitted to practice in Washington, D.C. Dkt. No. 2-4 at 1. He has a B.A. in economics from the College of the Holy Cross, an M.P.A. from Cornell University's Graduate School of Business and Public Administration, and a J.D. from Cornell Law School. Dkt. No. 9-9 at 16. According to Appellant's resume, he has owned or operated numerous business enterprises and charitable organizations. Id. at 14-16. These include being president of at least three different management consulting firms since 2000 where he was "[r]esponsible for monitoring all of the projects that were undertaken" by the companies, as well as being "responsible for the development of new business." Id. at 14.These firms provided services to government agencies, including state, county, and school districts "throughout the country." Id. The services provided to government agencies included financial consulting. Id. Since 1979, Appellant has owned or operated twenty-four different entities. Dkt. Nos. 9-9 at 20-21; 9-10 at 1. Appellant also owned an interest in a real estate development company that had plans to develop a vineyard and hotel. Dkt. No. 12-4 at 19-20.

Appellant has owned and operated at least two multi-million-dollar operations. One, Strategic Governmental Solutions, Inc. ("SGS"), filed for bankruptcy in April 2008 with listed assets of $54.48 and liabilities of $14,093,166.96. Dkt. No. 14-1 at 22. The other, Educational Services & Products, LLC ("ESP"), also filed for bankruptcy in April 2008 with listed assets of $31,571,921.50 and liabilities of $13,611,680.68. Dkt. No. 14-2 at 12. At the time of filing, ESP had monthly income and expenses of $250,000 and $200,000, respectively. Id. at 40-41.

In March 2000, Appellant founded SGS. Dkt. No. 9-10 at 1. From 2003 to 2006, SGS developed the Student Tracking and Reporting System ("STARS") for the El Paso Independent School District to assist public schools in the collection of federal reimbursements. In re O'Hara, 2011 WL 1467927, at *4; Dkt. Nos. 5-5 at 14; 9-5 at 1. SGS developed this software at a cost of approximately $2,700,000, and SGS was the sole owner of the STARS program. Dkt. Nos. 5-4 at 8; 9-5 at 1. Appellant tried to market this software for SGS by employing the services of Administrative & Financial Services, Inc. ("AFS"), another business entity founded by Appellant. Dkt. No. 5-4 at 5. SGS transferred the software to AFS, and it was booked as a million-dollar asset. Dkt. Nos. 5-5 at 15; 12-5 at 18. Liabilities of $1,000,000, including a $250,000 shareholder loan, were also recorded in the tax return for AFS for calendar year 2006. Dkt. No. 12-5 at 18. Marketing efforts failed, and at some point prior to 2008, either AFS, SGS, or both transferred the STARS software to Professional Assistance & Support Services, LLC ("PASS"). See Dkt. Nos. 5-4 at 8; 5-5 at 15. PASS was established by Appellant to "isolate the [STARS] software." Dkt. No. 12-4 at 8. PASS is not wholly owned by Appellant, who has a 25 to 30% interest in the company. Dkt. No. 7-1 at 11. See also Adv. Pro. Case No. 09-90056, Dkt. No. 17-3 at 2. According to Appellant, he was also "the only individual who had ever invested any money in PASS." Dkt. No. 9-5 at 2. PASS's obligation to SGS was later transferred from SGS to ESP. Dkt. No. 9-5 at 1. Appellant does not wholly own ESP. Dkt. No. 7-1 at 11.

In an attachment to Appellant's Schedule B of his voluntary petition, Appellant lists ownership interests in the following entities: 50% ownership interest in ESP; 30% ownership interest in PASS; 100% ownership interest in Properties Development & Management, Inc.; 100% ownership interest in SGS; 100% ownership interest in The O'Hara Group & Associates, Inc.; 100% ownership interest in The O'Hara Group & Associates, PLLC. Dkt. No. 7-1 at 11. Each of these interests were listed as a value of "TBD." Id. at 7, 11. Appellant indicated in his Petition that he was unable "to access all of [his] financial records and/or tax returns for the time periods in question." Id. at 39. In response to numerous questions in the Statement of Financial Affairs ("SOFA"), Appellant stated that the information requested in the forms would be provided because he lacked sufficient access to his records. Id. at 28-29, 31-33, 35-36, 39-40; Dkt. No. 7-2 at 12-13, 16-18. When Appellant amended his schedules and SOFA, a few of his responses to these questions were changed to "Indeterminate" or "None." Dkt. No. 7-6 at 2, 9, 11, 13.

Prior to the commencement of this adversarial proceeding, Respondents had obtained a series of orders pursuant to Federal Rule of Bankruptcy Procedure 2004 on September 11, 2008. Dkt. Nos. 7-3, 7-4, 7-5. These three orders permitted Appellees and the Trustee to subpoena documents and conduct examinations of Appellant and third parties to ascertain the state of Appellant's financial affairs and material business transactions.*fn4 Id. While Appellees attempted to collect the requested information from Appellant and others, Appellees and the Trustee had to seek several extensions of time to object to Appellant's discharge. See Bankr. Case No. 08-12108, Dkt. Nos. 39; 52; 64; 108; 109; 112. Appellees allege that they filed the objection despite Appellant having not fully complied with the bankruptcy court's orders for discovery. Dkt. No. 4-5 at 3-4. Appellees served discovery requests in the context of the adversarial proceeding on or about March 3, 2010. Dkt. No. 8-10. Appellant did not timely respond to the discovery demands.*fn5

In an affidavit by Appellant, Appellant stated that he has "continuously acted as the Managing Partner and Chair of the Board of Directors for PASS since its inception." Dkt. No. 9-5 at 1. "A subsequent accounting transaction reflected in the financial records of PASS and SGS transferred the STARS software to PASS. To [Appellant's] knowledge, there was no written assignment executed for this transfer." Id. "In conjunction with the accounting transaction that transferred the STARS software to PASS from SGS, PASS was to pay SGS a percentage of all fees that it earned in all future sales of the STARS software." Id. Appellant also stated that as of July 1, 2007, "SGS' assets were transferred to Educational Services & Products, LLC." Id. Further, "PASS' obligation to SGS was assigned to ESP." Id. Appellees alleged that "no records have been produced to [Appellees] consistent therewith." Dkt. No. 104 at 11-12. However, a balance sheet from January 31, 2008, has ESP holding the note for the STARS program in the amount of $750,000.*fn6 Dkt. No. 5-12, Vol. 16, File No. 920. Appellees further alleged that Appellant "has produced to the [Appellees] no documents regarding PASS let alone the assignment." Id. at 12. Appellant made various admissions as to his lack of records, including the following in a February 2, 2009, deposition:

[Mr. Savino]: Who owned the software prior to the transfer to PASS? [Appellant]: And I'm saying it's either SGS or ESP. I don't know the time frame when that occurred. [Mr. Savino]: Okay. [Appellant]: If I was-if it was prior to July 1st of '07 it would have been SGS; if it was July 1st forward, July 1st '07 forward, it would have been ESP. [Mr. Savino]: Do you have any records that would evidence the ownership of the software? [Appellant]: I don't have any-there's a lot of records I don't have for a lot of the businesses.

Dkt. No. 12-4 at 11. Further, Appellant states in his Motion: "Could the transactions have been better memorialized? Perhaps the debtor should have signed a series of documents back and forth between his wholly controlled companies . . . ." Dkt. No. 5-4 at 8-9. Appellant does not maintain segregated business records for each of his separate entities. Dkt. No. 9-4 at 28-29. Further, PASS is not wholly owned or controlled by Appellant. Dkt. No. 7-1 at 11; Adv. Pro. Case No. 09-90056, Dkt. No. 17-3 at 2.

Appellant's accountant disagrees with Appellant as to which entity owned the STARS software prior to 2008, the year Appellant's bankruptcy petition was filed. According to Appellant's accountant as well as the tax records of PASS, PASS had assets at that time of only $36,304, consisting of cash and receivables. Dkt. No. 104-6 at 11. Additionally, according to the accountant and the tax records for AFS, AFS owned the STARS software in 2006 as well as liabilities in the full amount of the value of the software, including a $750,000 liability owed to SGS and a $250,000 shareholder loan. Dkt. No. 12-5 at 1. Appellees have provided the corporate book for AFS, which "reflected no by-laws, no minutes, no organizational documents and only blank, unissued stock certificates and blank, uncompleted stock transfer ledger." Dkt. No. 12-1 at 17. Appellant's accountant was not aware whether the STARS program was ever transferred out of AFS. Dkt. No. 12-5 at 3. Further, Appellant's accountant stated that he had seen an approximately ten-page-long document detailing this "complex transaction," but again this was not provided to the Appellees. Dkt. No. 12-5 at 2, 5, 7. Appellant produced the records maintained by his accountant only after the Appellees had subpoenaed the records of the accountant and made a copy of his hard drive. Dkt. Nos. 4-2 at 4; 5-5 at 5-7. Other parties, including twenty-one banks and financial institutions used by Appellant, did not provide records until a subpoena was issued. Dkt. No. 5-5 at 7-10. Appellant stated on July 13, 2010, that he requested that each of those entities also provide him with a copy of any documents sent to Appellees, so that he could forward those copies to Appellees to satisfy the Rule 2004 orders from September 2008 and the discovery requests from March 2010. Id. at 9.

Further, Appellant has admitted that "[t]here were lots of documents that I don't have copies of any longer," having lost track of "variety of records" after moving out of his former girlfriend's house. Dkt. Nos. 4-4 at 2; 9-6 at 7-10. When Appellant was asked what documents were not returned to him, Appellant responded that he did not recall. Dkt. No. 9-6 at 8-9. Further, his former girlfriend stated that there are no documents for Appellant at her house and that he removed all of those documents. Dkt. No. 9-6 at 15-17. Appellant also stated that he no longer had access to PASS documents when ESP's computers were sold with the business. Dkt. Nos. 4-4 at 2; 9-7 at 9. However, he never made or requested copies of these documents prior to the sale. Dkt. No. 9-7 at 9. Appellant also was using a new laptop that he obtained in 2008. Dkt. No. 9-6 at 11-13. Appellant stated he had not transferred any files onto it, and he did not know what happened to the information contained on his previous laptop. Id.

Appellant refused to answer questions posed by Appellees' counsel about certain documents that he may have authored:

Q. I'm handing you Exhibit 5, and do you see what purports to be an e-mail address for yourself?

A. Yes.

Q. And was that, in fact, your e-mail address as of the date indicated?

A. I'm not answering any questions concerning ...

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