Facts

Plaintiff holds a claim against debtors totaling approximately $7,722,713 through a $6,185,734 judgment entered against defendants on April 18, 2011 in Kings County Superior Court. Defendants then filed a Chapter 7 bankruptcy case on Oct. 20, 2011, listing over $57 million in general unsecured claims in their bankruptcy schedules.

Plaintiff filed a Complaint for Objection to Discharge pursuant to 11 U.S.C. section 727(a)(2), (3), (4), (5) against defendants claiming, among other things, that defendants attended several judgment debtor examinations, but failed to settle with plaintiff and were very evasive and didn't participate in good faith.

The adversary proceeding sought to deny the debtors' discharge entirely.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that defendants admitted at the judgment debtor examinations that they were managers of an LLC and testified earlier that they had no personal interest in the LLC. Defendants couldn't remember what an $800 check, dated June 17, 2011, was for and the state court ordered that plaintiff could take a picture of the $800 check.

Plaintiff subpoenaed a broad range of documents from defendants that weren't complied with and there were also numerous other sets of documents which plaintiff couldn't classify. The state court ordered that defendants mail the documents to plaintiff. At the 341(a) meeting of creditors, defendants admitted to depositing checks for consulting work in bank accounts controlled by defendants to avoid creditors levies.

Plaintiff's complaint included claims of transfers made with intent to hinder delay or defraud; failure to keep records; false oath or account; and failure to explain loss of assets.

Plaintiff contended that after the parties engaged in discovery, the debtors provided a plausible explanation to counter the allegations made by plaintiff in its claims for relief under 11 USC section 727.

DEFENDANT'S CONTENTIONS:
Defendants contended they are actually attending several judgment debtor examinations and aren't avoiding them. Defendants were asked questions of them at the judgment debtor examinations and participated in good faith. Defendants' lack of recall of what an $800 check was for, when held against the backdrop of approximately $70 million in defendants' debts as recorded in their bankruptcy, bears no relationship whatsoever to defendants' current business transactions, nor did it concern the discovery of assets, business dealings, or the existence and disposition of defendants' property. Defendants argued that although they were confused about their 57 business entities, it isn't a fraud on the court. Defendants asserted they produced numerous documents, complied with the subpoenas, and at the judgment debtor examinations, produced to plaintiff a wealth of documentation and therefore there was no fraud to the court and hadn't shortchanged plaintiff by producing no documents. Defendants claimed that plaintiff didn't take the time to properly review all of the documents that defendants produced at the judgment debtor examinations and had only briefly looked through the first few folders. Defendants also argued that if the assets are accounted for, there is no requirement of defendants to voluntarily place their assets into their creditor levies.

Result

On the eve of the pretrial, the parties settled. Debtors will execute a reaffirmation agreement reaffirming $1.5 million of the judgment entered on April 18, 2011, and debtors agree to pay $200,000. The reaffirmed balance of $1.5 million shall be forgiven so long as the above payment schedule is met.

Other Information

Plaintiff has made multiple requests to the Chapter 7 Trustee and the U. S. Trustee to substitute in as plaintiff. FILING DATE: Jan. 20, 2013.