Davis v. Davis (In re Davis)

Don Davis (defendant) (debtor) and Roe Davis (plaintiff)—who were unrelated—opened a pharmacy in 1983 and signed promissory notes for money they borrowed to operate the business. The business failed and was shut down in 1985. After the final loan for the pharmacy financing came due in October 1986, Don told his lawyer that he could not pay on the promissory note and was afraid of losing his home. At his lawyer’s suggestion, Don deeded his interest in his home to his wife. In November 1986, Roe paid the outstanding balance of the bank loan and sued Don for contribution. Roe obtained a default judgment against Don for roughly $59,000 and then brought a fraudulent-conveyance action against Don, seeking to set aside Don’s transfer of his interest in his home. After consulting a bankruptcy lawyer, Don reversed the transfer of the interest and subsequently filed a Chapter 7 bankruptcy petition. In April 1987, Roe commenced an adversary proceeding against Don in the bankruptcy case, asserting under 11 U.S.C. § 727(a)(2)(A) that Don should be denied discharge. Under that provision, a court may refuse to grant a debtor’s discharge if, within one year before the filing of a bankruptcy petition, the debtor transferred the debtor’s property with the intent to hinder, delay, or defraud a creditor. Don asserted that discharge should not be denied, because the transfer of his interest in the home had been reversed and had not actually diminished any assets available to creditors. The bankruptcy court rejected Don’s argument and found that Don had transferred his interest in the home to his wife with the intent to hinder, delay, or defraud a creditor. The court thus denied discharge. The district court affirmed, and Don appealed.