D, S & S Enterprises, Inc. v. Sakmar (In re D, S & S Enterprises, Inc.)

155 B.R. 691, 1993 Bankr. LEXIS 830
CourtDistrict Court, W.D. Pennsylvania
DecidedJune 23, 1993
DocketBankruptcy No. 91-1986-BM; Adv. No. 92-2477-BM
StatusPublished

This text of 155 B.R. 691 (D, S & S Enterprises, Inc. v. Sakmar (In re D, S & S Enterprises, Inc.)) is published on Counsel Stack Legal Research, covering District Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
D, S & S Enterprises, Inc. v. Sakmar (In re D, S & S Enterprises, Inc.), 155 B.R. 691, 1993 Bankr. LEXIS 830 (W.D. Pa. 1993).

Opinion

MEMORANDUM OPINION

BERNARD MARKOVITZ, Bankruptcy Judge.

The complaint brought by debtor against defendant Daniel Sakmar consists of two counts. Count I seeks to recover in excess of $170,000.00 which Daniel Sakmar allegedly borrowed from debtor prior to the filing of the bankruptcy petition and has failed to repay. Count II seeks damages [693]*693for inventory, funds, and other estate assets which Daniel Sakmar allegedly removed from debtor’s place of business subsequent to the filing of the bankruptcy petition.

Daniel Sakmar’s trial testimony was offered in an inconsistent fashion. Initially he appeared to acknowledge the debt as loans from debtor-in-possession. When it became clear that this position was not a defense in Count I, he edged away from said position and described it as compensation in lieu of payroll. As neither position will change the result, we will treat Daniel Sakmar’s legal argument to be that the debt was compensation in lieu of payroll. In support thereof, Daniel Sakmar points out that a court of competent jurisdiction previously determined that the funds in question constituted income for purposes of imposing support obligations upon him in a divorce proceeding. Daniel Sakmar also denies that he is responsible for the removal of the assets referred to in Count II of the complaint.

Daniel Sakmar has joined Daria Sakmar, his former spouse, as an additional defendant with respect to Count I of debtor’s complaint. He maintains that a portion of the debt arising in Count I constitutes marital debt. Daniel Sakmar asserts that Da-ria Sakmar is jointly and severally liable to debtor for up to $130,000.00 of any debt he owes to debtor or, at the very least, that he is entitled to contribution or indemnity from her.

Daria Sakmar denies that the debt in question constitutes a marital debt for which she is liable.

Judgment in the amount of $250,069.25 will be entered in favor of debtor and against Daniel Sakmar. Daria Sakmar is not liable either to debtor or to Daniel Sakmar for any portion of the judgment which arises out of Count I of debtor’s complaint.

I

FACTS

Debtor operates a retail pharmacy which has been in business since 1978.

Daniel Sakmar is a registered pharmacist. At all times relevant to this cause of action he owned ninety-nine percent (99%) of debtor’s stock and was its sole officer. Additionally, he had exclusive control until January of 1992 over debtor’s business affairs, including his draw, purchasing of inventory, and accounting procedures.

Daria Sakmar and Daniel Sakmar were married in 1982. They have three (3) minor children. Daria Sakmar has raised their children and had no involvement in debtor’s operations until January of 1992.

The Sakmars maintained an opulent lifestyle during their marriage. The monthly mortgage payments on the marital residence, which was valued at more than $200,000.00, were in excess of $1,600.00. They also owned several automobiles, including a Lotus and a Corvette driven by Daniel, and leased a Cadillac Eldorado which Daria drove.

Their living expenses were paid with funds drawn from the business account maintained by debtor. Daniel wrote checks drawn on debtor’s account to pay the family’s bills, including mortgage and automobile payments, and also wrote checks payable to Daria from debtor’s account which she then used to maintain the household. Daniel gave her as much as $2,000.00 per month for such purposes.

Daniel Sakmar obtained funds from debt- or in either of two ways. He withdrew funds from debtor’s account in the manner just indicated. These transactions were recorded on debtor’s business ledger as “shareholder loans” and were listed as an asset of debtor. Also, Daniel Sakmar received payroll checks from debtor which were issued by a service which debtor retained for that purpose and for issuing W-2 statements for tax purposes.

Daniel Sakmar sometimes deposited his payroll checks into debtor's business account in partial repayment of the “shareholder loans”. These deposits were recorded as such on debtor’s business ledger.

The payroll checks were treated as income by Daniel Sakmar on his tax returns. [694]*694The “shareholder loans” were not treated as income.

The terms of repayment of the “shareholder loans” were not set forth in any written document. Daniel Sakmar, as sole officer of debtor, had complete discretion in determining such matters. As such, he determined that debtor would not assess interest upon the unpaid balance of these loans. The unpaid balance due and owing on the “shareholder loans” is $184,121.00.

Daria Sakmar commenced acrimonious divorce proceedings against Daniel Sakmar in state court on October 24, 1990. Her complaint sought alimony pendente lite, child support, and counsel fees.

Hearings on her claim against Daniel Sakmar were held before a court-appointed hearing officer in February and March of 1991. Two (2) issues pertaining to Daniel Sakmar’s earning capacity were raised at the hearings. Daria Sakmar maintained that Daniel Sakmar’s earning capacity was greater than the amount reflected on his W-2 statements. She asserted that the “shareholder loans” should be included in calculating his earning capacity. Daniel Sakmar argued that his earning capacity should be decreased “due to sour business conditions”.

The hearing officer treated the “shareholder loans” as part of Daniel Sakmar’s earning capacity and recommended that Daria Sakmar receive $3,412.00 per month in alimony pendente lite and an additional $3,122.00 per month in child support. Both sides took exception to the recommendations.

Debtor filed a voluntary chapter 11 petition on June 10, 1991. The bankruptcy petition and attached documents were signed by Daniel Sakmar under penalty of perjury in his capacity as debtor’s president.

According to the bankruptcy schedules, debtor owns no real property and has no secured creditors or unsecured priority creditors. Schedule B-2, Personal Property, lists assets totalling approximately $280,000.00. Of that amount, $170,000.00 is described as “loans due from Daniel Sak-mar and Daria Sakmar”. Schedule C, Unsecured Claims Without Priority, lists a total of $274,036.95 in general unsecured debt.

An order of court was entered in the divorce proceeding on July 10, 1991, directing Daniel Sakmar to pay $4,900.00 per month in unallocated alimony pendente lite and child support. The court determined that household expenses paid through debt- or’s business account were a reliable measure of Daniel Sakmar’s cash flow and thus constituted an appropriate basis upon which to calculate his support obligations. The court also rejected Daniel ■ Sakmar’s argument that his earning capacity should be decreased because of deteriorating business conditions.

The state court reaffirmed its decision on October 23, 1991. It held that Daniel Sak-mar’s income was correctly measured by his cash flow and held that the debt of the business had been given due consideration. Daniel Sakmar appealed this order to the Superior Court of Pennsylvania.

The required monthly reports filed by debtor in this court for October and November of 1991 indicate an account receivable in the amount of $180,000.00 “due from officer”. As has been noted, Daniel Sak-mar was debtor’s only officer.

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Related

Temple University v. White
941 F.2d 201 (Third Circuit, 1991)
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502 U.S. 1032 (Supreme Court, 1992)

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Bluebook (online)
155 B.R. 691, 1993 Bankr. LEXIS 830, Counsel Stack Legal Research, https://law.counselstack.com/opinion/d-s-s-enterprises-inc-v-sakmar-in-re-d-s-s-enterprises-inc-pawd-1993.