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In re Dykes

United States Bankruptcy Appellate Panel of the Eighth Circuit

October 29, 2018

In re: Daryll Christopher Dykes; Sharon Luster Dykes Debtors
v.
Daryll Christopher Dykes; Sharon Luster Dykes Defendants - Appellants James L. Snyder, U.S. Trustee Plaintiff- Appellee

          Submitted: September 21, 2018

          Appeal from United States Bankruptcy Court for the District of Minnesota - Minneapolis

          Before SCHERMER, NAIL, and SHODEEN, Bankruptcy Judges.

          SCHERMER, BANKRUPTCY JUDGE

         Daryll Christopher Dykes and Sharon Luster Dykes (Debtors) appeal the bankruptcy court's[1] judgment denying their discharge. We have jurisdiction over this appeal from the final judgment of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons that follow, we affirm.

         ISSUE

         The issue on appeal is whether the bankruptcy court properly denied the Debtors' discharge under Bankruptcy Code § 727(a). We hold that it did.

         BACKGROUND

         On July 26, 2016, the Debtors filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. Debtor Daryll Dykes (Mr. Dykes) is trained as a physician and a surgeon, and holds a law degree and a Ph.D. Sharon Dykes (Mrs. Dykes)[2] is also trained as a physician and surgeon. As of the petition date, or shortly prior to that time, the Debtors were practicing medicine, either independently or through professional corporations. Mr. Dykes served as a Robert Wood Johnson Foundation Health Policy Fellow in Washington, D.C.

         The Debtors' bankruptcy schedules showed debts exceeding $5 million. Schedule I lists monthly income of approximately $9, 700.00 for Mr. Dykes and approximately $6, 900.00 for Mrs. Dykes.

         The Debtors filed their bankruptcy cases due to debts and judgments owed to creditors including judgments against the Debtors in excess of $4, 146, 000.00 arising from the construction of their home. The Debtors lost their home to a foreclosure in 2011. Mr. Dykes testified that after the Debtors' banker was convicted of mortgage fraud, including for the mortgage loan on the Debtors' home, the bank refused to restructure the Debtors' loan, and a balloon payment became due. The Debtors were not able to make the balloon payment or obtain alternate financing to avoid the foreclosure. The Debtors were forced to move out of their foreclosed home in 2012.

         When the Debtors moved out of their home in 2012, they moved their personal property into three large 30-foot rented storage bins. The Debtors stopped paying the rent for storage, and with an amount owing of approximately $10, 000.00, the property in the bins was forfeited and sold pre-petition. Mr. Dykes testified that the property in the storage bins was worth hundreds of thousands of dollars. There has not been an accounting for the property in the storage bins.

         Because of the foreclosure of their home, Mrs. Dykes rented a house in Rosemount, Minnesota, and Mr. Dykes resided at an apartment in Minneapolis. They both moved later to a house in Minneapolis where Mrs. Dykes resided at the time of trial. At the time of trial, Mr. Dykes spent most of his time in Washington, D.C., where his fellowship was located.

         Mr. Dykes testified that the Debtors' home loan ultimately led to their bankruptcy filing. After years of litigation between the bank and the Debtors, the bank obtained a judgment against the Debtors and levied the interest of Mr. Dykes in his medical practice. According to Mr. Dykes, because of this, in 2012 his income dropped from well over a million dollars a year to "essentially zero." Although Mr. Dykes began to rebuild his medical practice, events in 2014 and 2016 caused the practice to suffer.

         Between November 2008 and March 2012, Mr. Dykes purchased dozens of watches from Bellusso Jewelers in Las Vegas, Nevada and ultimately accrued a debt of $390, 700.00 to the jeweler. Mr. Dykes testified that after an initial period during which he and Ezra Bekhor of Bellusso Jewelers followed a formal process for the purchase of watches, which included paperwork for each sale, the process became less formal, and the jeweler shipped to Mr. Dykes multiple watches worth tens of thousands of dollars by Federal Express without paperwork from the jeweler. Mr. Dykes testified that he would return unwanted watches to the jeweler the same way. According to Mr. Dykes, he once received a time piece worth approximately $107, 000.00 without paperwork, payment, or signature, and he returned the timepiece the same way. By the end of his relationship with the jeweler, Mr. Dykes had little to no paperwork concerning many of the watches still in his possession.

         According to Mr. Dykes, the watches he collected were not as valuable without their original boxes or paperwork. At trial Mr. Dykes no longer had the ...


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