Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907 (Bk.S.D.Fla., 1998).
Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907 (Bk.S.D.Fla., 1998).
United States Bankruptcy Court, S.D. Florida, Miami Division.
In re Stephan Jay LAWRENCE, Debtor.
Alan L. GOLDBERG, Chapter 7 Trustee for the bankruptcy estate of Stephan Jay Lawrence, Plaintiff,
Stephan Jay LAWRENCE, Defendant.
Bankruptcy No. 97–14687–BKC–AJC.
Adversary No. 98–1211–BKC–AJC–A.
Sept. 23, 1998.
Attorneys and Law Firms
PAGE_909 Paul Steven Singerman, James H. Fierberg, Berger, Davis & Singerman, Miami, FL, for Plaintiff.
Robert A. Stok, Rosenthal, Rosenthal, Rasco, Stok & Wolf, Aventura, FL, for Defendant.
ORDER GRANTING RELIEF REQUESTED IN SUPPLEMENT TO TRUSTEE'S MOTION TO COMPEL ANSWERS TO INTERROGATORIES PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 37 AND FEDERAL RULE OF BANKRUPTCY PROCEDURE 7037
THOMAS S. UTSCHIG, Bankruptcy Judge.
THIS CAUSE came on for hearing before the Court, sitting by designation at Miami, Florida, on July 21, 1998, at 10:00 a.m., on the Trustee's Motion to Compel Answers to Interrogatories Pursuant to Federal Rule of Civil Procedure 37 and Federal Rule of Bankruptcy Procedure 7037 (Court Paper # 29–1) (the "Motion to Compel") and the Supplement to Trustee's Motion to Compel Answers to Interrogatories Pursuant to Federal Rule of Civil Procedure 37 and Rule 7037 of the Federal Rules of Bankruptcy Procedure (Court Paper # 41–1) (the "Supplement").
In the Motion to Compel, the Trustee sought non-evasive answers to three interrogatories1 concerning the Debtor's creation *910 of and his continuing interest in a certain self-settled, spendthrift-type trust.2 The Supplement to the Motion to Compel seeks sanctions against the Debtor for his failure to answer the interrogatories and follow such other orders as may have been issued by this Court.
The subject interrogatories and the Debtor's answers are as follows:
3. Please state in detail and with particularity the purpose behind the creation of the Lawrence Family 1991 Intervivos Trust ("the Trust") and include in your answer the name and last known address of each and every individual with whom you consulted or who provided assistance to you in connection with the creation of the Trust.
3. For Estate Planning purposes and retirement security. I consulted with Kapil Dev Joory and several of his associates whose names I cannot recall. His address is 4th Floor, Ken Lee Building, Edith Cavell Street, Port Louis, Mauritius.
4. Please state in detail and with particularity the amount of the corpus of the Trust as of this date and as of the date of the Debtor's Chapter 7 case (June 12, 1997). If there is any reason why you believe that you cannot answer this interrogatory or make the requisite inquiry to obtain the information necessary to answer this interrogatory, please set forth any such reasons in detail and with particularity.
4. I have no knowledge of the amount of the corpus of the Trust as of June 12, 1997. I cannot acquire knowledge of the corpus of the Trust without being provided such information by the Trustee. Such information has never been provided to me in the past. I have made recent inquiry through my attorney who inquired of the Trustee's attorney. Herbert Stettin in Miami for the information. However, the Trustee refused to provide the information.
5. Please set forth in detail and with particularity each and every disbursement that you have received from the Trustee from 1991 to the present date, including in your answer, without limitation the amount and date of each such distribution and indicate precisely what you did with each such distribution (i.e., identify the specific accounts into which the distribution was deposited or the parties to whom the distribution was disbursed).
5. I don't know if there were any distributions to me from the Trust. If there were distributions they were between 1991 and 1994 and the funds would have been deposited in a bank account maintained for me or my related companies. Such deposits would have been accounted for by my former bookkeeper, Valerie Bach who maintained those accounts.
The Debtor settled the trust on January 8, 1991, in the Jersey Channel Islands. On February 7, 1991, the trust was amended. Among the purposes of the amendment was to change the governing law to the Republic of Mauritius, an island nation located some 1,200 miles off the coast of Madagascar. Mauritius is considered one of the most densely populated areas in the world, with its nearly 1.2 million people jammed into an area of not quite 788 square miles. While it today boasts a thriving financial community, it is perhaps best known in scientific circles as the one-time home of the dodo bird, one of the first species driven to extinction by mankind.
The Court found the Debtor's interrogatory answers to be incomplete and evasive and granted the Trustee's Motion to Compel. As such, pursuant to Federal Rule of Civil Procedure 26(d), incorporated by reference in Federal Rule of Bankruptcy Procedure 7026(d), this Court ordered the Debtor to appear at an evidentiary hearing commencing at 1:30 p.m. on July 21, 1998. At that time, the Trustee would have an immediate, supervised opportunity to obtain responsive answers from the Debtor. This hearing was intended to provide the Debtor with every possible opportunity to meet not only his general discovery obligations but also his ongoing obligation under the Bankruptcy Code to provide assistance to the Trustee. See generally, 11 U.S.C. § 521(3) and (4).3
Counsel for the Debtor objected to such proceedings in their entirety and argued that because the Motion to Compel was granted at the outset, the testimony of the Debtor did not relate to any pending motion. This Court overruled the Debtor's objection because part of the Trustee's requested relief included compelling the Debtor to answer the questions. The questioning was conducted before this Court pursuant to Rules 26(d) and 37(b)(2)(B) of the Federal Rules of Civil Procedure and Rules 7026(d) and 7037(b)(2)(B) of the Federal Rules of Bankruptcy Procedure.
The hearing continued over a three (3) day period during which this Court had a unique opportunity to observe the Debtor, who was the sole witness.4 This Court endured eleven hours of what can candidly only be described as disingenuous and untruthful testimony from the Debtor. It seems clear that over the course of the Debtor's testimony he committed perjury on several occasions. Such conduct serves only to undermine not only the discovery process but also the integrity of the judicial system and the Bankruptcy Code. The Debtor voluntarily sought the protection of the Bankruptcy Code, yet seems unwilling to play by the rules and offer up full financial disclosure.5 Even after numerous admonishments, the Debtor chose not to testify truthfully.6
The Debtor did attempt to call another witness, namely, the attorney for the trustee of the Mauritian trust (who, incidentally, has resisted any attempt by United States courts to exercise jurisdiction over the trust). The Court denied the Debtor's request to call this witness as the only relevant inquiry at the hearing was the Debtor's personal knowledge and this witness would have offered little, if any, information in this regard.
The Debtor filed a voluntary Chapter 7 petition on June 12, 1997. The Debtor was not forced into bankruptcy by virtue of an involuntary petition under 11 U.S.C. § 303; as a result, he cannot complain that the primary burden placed upon him is to engage in an honest and forthright disclosure of his assets. The punishment for failure to abide by these obligations is clear—the denial of the Debtor's discharge. See 11 U.S.C. § 727(a)(2), (a)(3), (a)(4), and (a)(5).
Tr. at pp. 126, 130, 362, 389–395, 399, 400, 476.
The record in this case reveals a plethora of motions filed by the Debtor for protective orders, motions to quash subpoenas issued by the Trustee, voluminous pleadings to defeat *911 the Trustee's attempts to depose the Debtor's mother in Mexico, an unorthodox Bankruptcy Rule 2004 examination of the Trustee by the Debtor, and two motions seeking to disqualify the Trustee and his counsel.7
Chief Bankruptcy Judge A. Jay Cristol entered an Order Denying Debtor's Motion to Compel Disclosure of Actual or Potential Compensation Agreements and to Disqualify Trustee and His Counsel dated March 25, 1998 (Court Paper # 195–1), in response to the Debtor's Motion to Compel Disclosure of Actual or Potential Compensation Agreements and to Disqualify Trustee and His Counsel (Court Paper # 94–1). In the March 25, 1998 Order, Chief Judge Cristol made specific findings that the Debtor's efforts to disqualify the Trustee and his counsel were "vicious, outrageous, baseless and unsupported by credible evidence." March 25, 1998 Order at paragraph (1)(n). In his March 25, 1998 Order, Chief Judge Cristol found the testimony of both the Debtor and his counsel at the hearing to be not credible and not believable. March 25, 1998 Order at paragraph (1)(e). The Debtor did not appeal or seek reconsideration of these findings.
In addition, the Debtor's Memorandum in Opposition to the Continued Retention of Berger Davis & Singerman, P.A. as Counsel to the Trustee (Court Paper # 129–1) sought to disqualify Trustee's counsel on grounds of an unproved and non-existent conflict of interest claim. Chief Judge Cristol, in his February 5, 1998 Order Granting in Part and Denying in Part Trustee's Supplemental Motion for Employment of Berger Davis & Singerman, P.A. as Attorneys for the Trustee, published at 217 B.R. 658 (Bankr.S.D.Fla.1998), once again found the Debtor's testimony to be not believable. Chief Judge Cristol's February 5, 1998 Order, including its sixteen (16) specific findings of fact, have been upheld in their entirety upon the Debtor's appeal to the United States District Court for the Southern District of Florida (Court Paper # 278–1). The Debtor's substantial lack of veracity in his voluntary bankruptcy case is amply demonstrated. He continued this lack of truthfulness throughout the hearings which are the subject of this Order.
This is a case of a sophisticated Debtor engaged in a pitched battle against the Trustee. The Debtor apparently believed that this case would simply slip through the cracks of the bankruptcy system. That did not happen, and the record in this case is not only a testimonial to the Trustee's efforts to get at the truth, but also to the Debtor's unrelenting campaign to conceal crucial information. Having witnessed the Debtor's tactics firsthand, this Court enters its findings of fact and conclusions of law.
B. FINDINGS OF FACT
This Order is entered as the findings of fact and rulings of law required under Federal Rules of Bankruptcy Procedure 7052(a) and (c), which incorporate by reference Federal Rules of Civil Procedure 52(a) and (c). The Court makes the following specific findings of fact:
a) The Debtor filed a voluntary chapter 7 petition on June 12, 1997, thereby invoking the jurisdiction of this Court and rendering the Debtor bound by the obligations and responsibilities imposed upon him by the Bankruptcy Code.
b) Prior to October 19, 1987 (the day referred to in the securities industry as "Black Monday"), the Debtor was a successful options trader and had utilized Bear, Stearns & Co., Inc. ("Bear, Stearns") as his trading clearinghouse.8 Tr. at p. 382. The Debtor testified that he graduated from the Massachusetts Institute of Technology. Tr. at p. 379. The Court finds this Debtor to be extremely sophisticated.
The Debtor testified that prior to the stock market crash of October 19, 1987, his trading company was one of the largest on the Chicago Board of Trade and a major player on other national exchanges. Tr. at p. 432. He has also testified that he has attempted to expand his business into international markets in Asia and Europe. Tr. at p. 75.
c) Following the stock market crash on October 19, 1987, the Debtor and his companies experienced a margin deficit with Bear, Stearns. The Debtor and Bear, Stearns disagreed about the extent of the margin deficit. As a result, the Debtor commenced an arbitration proceeding against Bear, Stearns. Bear, Stearns counterclaimed against the Debtor. The arbitration proceeding spanned some forty-two (42) months.
d) The arbitrator's award in favor of Bear, Stearns in an amount in excess of $20 Million was handed down on or about March 15, 1991. The arbitrator's award was confirmed by the United States District Court for the Southern District of New York on or about February 17, 1993, and thereafter, on or about April 7, 1993, a corrected final judgment *912 in favor of Bear, Stearns against the Debtor and certain of his trading companies was entered by the United States District Court for the Southern District of New York in the amount of $20,412,115.00.
e) On or about January 8, 1991, just 66 days prior to the arbitration award against the Debtor and in favor of Bear, Stearns in excess of $20 Million, the Debtor allegedly settled the Lawrence Family 1991 Intervivos Trust (ultimately the "Mauritian Trust") in the Jersey Channel Islands.9 Trustee's Exhibit 4 in evidence.
The Debtor did not produce a copy of the original Trust Indenture bearing evidence of execution by the Debtor. Thus, the Chapter 7 Trustee questions whether a valid trust ever, in fact, existed. Further, none of the amendments to the trust at Trustee's Exhibits 4 B, C or D bear any evidence of execution by the Debtor.
f) The trust was amended on or about February 7, 1991, some 36 days before the handing down of the arbitration award. Trustee's Exhibit 4B in evidence.10 The Debtor testified that the original Trust Indenture of January 8, 1991, and the February 7, 1991, amendment constitute but one document. Tr. at p. 107. The Court cannot accept the Debtor's testimony that the original Indenture and the February 7, 1991, amendment were but one document or that they were executed at the same time. The Debtor's testimony in this regard is disjointed and confusing. The original Trust Indenture appears to be a "form" document which refers to the Debtor only once by name, and then only by a typewritten insertion. The only conclusion to be drawn from the documents and testimony is that the original trust document did not provide the Debtor with sufficient protection from his creditors, necessitating the subsequent execution of the amendment.11
The February 7, 1991, amendment to the trust is important to the Debtor's position because it (i) contains specific spendthrift language and (ii) moves the proper law of the trust to the Republic of Mauritius.
The protections included in the amendment which were omitted from the original Indenture include the spendthrift provisions and the shift of the trust and its governing law to Mauritius. Mauritian law appears to be even more "debtor-friendly" than the Jersey Channel Islands. For example, the Debtor has emphasized his belief that Mauritian law imposes criminal penalties upon anyone, including the Mauritian trustee, who discloses information about the trust. Tr. at p. 45. Mauritius also has the added benefit of its location—the other side of the world. Candidly, it appears the Debtor would have set the trust up on Mars if he could have.
g) The Debtor repeatedly testified before this Court that the Mauritian Trust was set up for his estate planning and retirement security purposes, and that an important motive was the knowledge that the money would be available for him in his old age. Tr. at p. 77. Yet, when questioned by the Court, the Debtor refused to acknowledge that shielding his assets from his creditors was an important aspect of the arrangement. This is absurd, given the fact that absent this shielding effort, there would be no money left for his retirement as creditors would have taken every penny they could find. The Trustee and the Court repeatedly asked the Debtor to acknowledge that shielding assets is the primary, if not only, reason for setting up an offshore trust. He refused to do so.
h) The Debtor could not identify any specific retirement goals, other than to state that they were to protect him in his old age. Tr. at p. 77. More importantly, the Debtor could not reconcile how the apparent divestiture of his interest in the Mauritian Trust, and the Mauritian trustee's apparent ability to select additional beneficiaries and to thereafter distribute the entire trust to these new beneficiaries, was in any manner consistent with his retirement security goals.12
The Mauritian trustee has numerous powers which are inconsistent with the Debtor's avowed motives for creating the trust, including the power to exclude the Debtor, the power to name new beneficiaries, the ability to distribute the entire trust corpus as he sees fit, and the right to disregard any inquiries for information from the beneficiaries. Nonetheless, the Debtor retained substantial powers as settlor of the trust, for example, to remove and replace trustees in his absolute discretion. Further, while the March 22, 1995, Declaration purports to disenfranchise the Debtor as a beneficiary and clarifies him as an "Excluded Person," it does not appear that the clarification was irrevocable. It appears that the Mauritian trustee could again amend the trust, for example, after the Debtor were to obtain a discharge by this Court—and again deem the Debtor to be a beneficiary.
PAGE_913 i) Despite his claim that the trust was for his retirement, the Debtor testified that he had no feelings one way or the other concerning the alleged independent decision by the trustees of the Mauritian Trust to divest the Debtor of his beneficial interests in the trust. Tr. at p. 208–209. The Debtor testified that while it was "difficult" to deliver the trust assets to virtual strangers, he simply accepted that the Mauritian trustees were merely exercising their "fiduciary duties" in subsequently excluding him from his own trust. According to the Debtor, there was nothing that he could do about it. Tr. at p. 359. Yet at the same time, the Debtor testified that neither he nor his representatives took any substantive actions to protect his interests in the trust, or to protest his alleged divestiture and exclusion from the trust. Tr. at p. 221, 228. This Court finds it impossible to believe the Debtor's testimony that he simply walked away from virtually all of his assets without any sort of struggle.13
At one point during the hearing, the Debtor stated he had not even thought about the trust in years. Tr. at p. 111. Given the ongoing litigation which the Debtor stated had ruined his health, this flippant statement only further highlights the Debtor's cavalier attitude toward the judicial process and his obligations under the Bankruptcy Code.
j) The Debtor also testified that a purpose behind the creation of the Mauritian Trust was to provide for charities. Tr. at p. 77. This Court has reviewed the original Trust Indenture and the amendments (Trustee's Exhibits 4A, 4B, 4C and 4D, which the Debtor has testified are all of the amendments to the trust). Neither the initial Trust Indenture nor any of the amendments indicate any charities as beneficiaries of the Mauritian Trust.
k) As with much of the Debtor's testimony, there are significant discrepancies regarding the value of the assets placed into the trust. Still, the Debtor testified that when the trust was settled, the assets transferred to the trust represented in excess of ninety percent (90%) of his liquid assets. Tr. at p. 184. This Court finds it impossible to believe that the Debtor surrendered ninety percent (90%) of his assets to a stranger on the other side of the world without maintaining some control over the assets. His assertion that he has "no feelings" about the loss is wholly inconsistent with his only stated purpose for the creation of the Mauritian Trust—namely, estate planning and retirement security.
l) The Debtor testified that he only met and/or spoke with the intended trustee of the Mauritian Trust, Kapil Dev Joory ("Joory"), a resident Mauritian, four or five times over a two-year period in London, England. Tr. at p. 74. The Debtor testified that he did not undertake any due diligence, such as confirming Joory's qualifications with other clients, and he could not recall if he contacted any bank references provided by Joory. Tr. at p. 184–186. The Debtor further testified that he was introduced to Joory at a social function (Tr. at p. 75), and that based upon his instinctual assessment of Joory's capabilities (Tr. at p. 184–186), he decided to designate Joory as the trustee of his trust.14 The Debtor also testified that he did not know how much the Mauritian trustee charged for his services, either to establish the trust or to administer and maintain it, and that the Debtor did not have or maintain any fee schedule. Tr. at p. 192. Again, this testimony is not credible or believable.
This is in direct contradiction of an affidavit filed in earlier litigation where the Debtor stated he had never met or spoken with Joory. This is only one of the instances where the Debtor appears to have perjured himself in a blatant attempt to continue the charade of an "independent" trust over which he has no control.
m) On numerous occasions the Debtor swore that the initial corpus of the Mauritian Trust was approximately $7.0 Million. See, e.g., Debtor's schedule B, item 18. During the evidentiary hearing, however, the Debtor testified that the original corpus of the Mauritian Trust was no more than $4.0–$4.5 Million. Tr. at p. 169. The Debtor testified that the $7.0 Million figure was based upon uncertain "valuations" derived from a "list" of available assets which he had been willing to commit to the Mauritian Trust. Tr. at p. 162. The Debtor testified that as the earmarked trust assets were liquidated, he would remit the proceeds, or a portion thereof, to the Mauritian trustee. This Court is *914 struck by the inability of the Debtor to produce such a list, by the Debtor's alleged inability to recall what assets were on the list, and by the apparent failure of the Debtor to have maintained a copy of such an important list. Tr. at p. 163. In addition, the Court finds it remarkable—and unbelievable—that when the Debtor was shown a copy of his amended schedules, listing some twenty-one (21) partnerships and business entities, the Debtor could identify only one, IPC–Smith/Stratford Assoc., Ltd., as a partial source of the initial corpus of the Mauritian Trust. Tr. at p. 265.
n) The Debtor testified several times in direct response to questions posed by both this Court and Trustee's counsel that the pendency of the arbitration proceedings with Bear, Stearns played absolutely no role whatsoever in his decision to transfer between $4.0 Million and $7.0 Million to the trust. Tr. at pp. 70, 363, 365. Whether one characterizes the motive as "retirement security" or not, placing assets this far from the reach of creditors inherently evidences a singular intention. The purpose of the trust was clearly to shield the Debtor's assets from a creditor which the Debtor feared was about to obtain a staggering $20 Million arbitration award against him. The timing of the trust's creation is further evidence of this intent.
o) The Debtor testified several times before this Court that he did not contact the Mauritian trustees about his financial difficulties in the United States. He claims to have no idea as to why the March 22, 1995, Declaration labeled him an "Excluded Person" under the trust. Trustee's Exhibit 4A (last two pages) in evidence. The Debtor also claimed ignorance about the other amendments to the Mauritian Trust and their apparent effect upon his rights thereunder as either settlor or beneficiary. Tr. at pp. 195–197, 201–202, 204. The Debtor's counsel suggested to this Court that perhaps the trustee of the Mauritian Trust, from his location outside the United States,15 was monitoring the Debtor's circumstances. Tr. at p. 484. This suggestion requires the Court to believe that the Mauritian trustee simply acted on his own account when excluding the Debtor as a beneficiary from the Debtor's own trust. This conclusion begs the question—why would the Mauritian trustee pursue such a course of action? It does not benefit the Debtor, to whom the Mauritian trustee would arguably owe fiduciary responsibilities, since the Debtor was a beneficiary of the trust. Unless of course to do so did indeed further the Debtor's interests—namely, his interest in never letting his creditors have the money. The Court finds both the Debtor's testimony in this respect and the argument of his counsel to be unbelievable.
The trustee claims the United States has no jurisdiction over him and apparently does no business inside the United States.
p) As indicated previously, the Debtor's lack of candor concerning the Mauritian trustee is further demonstrated by the affidavit he filed in the pending proceedings in the United States District Court for the Southern District of Florida (Civil Action No. 93–6489–CIV–KING). In that affidavit, the Debtor swore unequivocally that "I do not have nor have I ever had any communications or dealings with Kapil Dev Joory who is a resident Mauritian and the trustee of the Trust." Trustee's Exhibit 2 in evidence. This sworn affidavit is in direct contravention to the Debtor's sworn response to interrogatory no. 3 ("I consulted with Kapil Dev Joory and several of his associates whose names I cannot recall") and his testimony throughout the instant evidentiary hearing. The Debtor also admitted numerous contacts with Joory during his testimony in these proceedings.
q) The record is clear, both in the main case and in the adversary proceeding, that the Debtor and his representatives have gone out of their way to avoid meeting their affirmative obligation to cooperate with the Trustee. The evasive and incomplete answers to interrogatories concerning the Mauritian Trust are but the most recent example of the purposeful recalcitrance of this Debtor. During the course of the three (3) day evidentiary hearing, this Debtor squandered numerous opportunities to provide honest answers *915 regarding the Mauritian Trust. Tr. at pp. 126, 130, 362, 389–395, 399, 400, 465.
C. CONCLUSIONS OF LAW
Based upon the record and the foregoing findings of fact, this Court makes the following conclusions of law:
1. The Debtor has an affirmative obligation to participate in discovery in an honest, non-evasive and complete manner. Dollar v. Long Mfg., 561 F.2d 613 (5th Cir.1977).16
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc ), the Eleventh Circuit Court of Appeals adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.
2. As the United States Supreme Court noted in United States v. Procter & Gamble, 356 U.S. 677, 683, 78 S.Ct. 983, 2 L.Ed.2d 1077 (1958), it is axiomatic that the purpose of discovery is to make a trial "less a game of blind man's bluff and more a fair contest with the basic issues and facts disclosed to the fullest extent possible."
3. The Trustee asked for responses to several simple interrogatories from the Debtor. The Trustee's task is to locate assets and make distributions to creditors, a job which obligates the Trustee to learn about the Mauritian Trust. And it is the Debtor's obligation upon filing bankruptcy to be forthright in providing financial information. No one is obligated to recreate the Debtor's financial affairs; that task is his alone. See 11 U.S.C. § 521(3) and (4); In re Schick, 215 B.R. 4 (Bankr.S.D.N.Y.1997). The legislative history is clearly supportive of this notion. H.R.Rep. No. 95–595, 95th Cong., 1st Sess. (1977), U.S.Code Cong. & Admin.News, 1978, p. 5787. In short, the Bankruptcy Code makes complete financial disclosure a "condition precedent" to the privilege of a discharge. Broad Nat'l Bank v. Kadison, 26 B.R. 1015, 1018 (D.N.J.1983).
4. Rule 37(a)(3) of the Federal Rules of Civil Procedure and Rule 7037(a)(3) of the Federal Rules of Bankruptcy Procedure treat evasive or incomplete answers to interrogatories, such as those submitted and filed by the Debtor, as a complete failure to respond. Dollar v. Long Mfg., 561 F.2d 613 (5th Cir.1977).
5. Upon the Debtor's submission of the deficient answers to interrogatories, the Trustee filed the Motion to Compel. The Trustee filed the Supplement to the Motion to Compel seeking sanctions to the extent that the Debtor failed to abide by any Orders entered regarding the Motion to Compel. This Court has previously ruled that the answers which the Debtor gave to the subject interrogatories were evasive and incomplete, justifying the entry of an Order Granting Trustee's Motion To Compel Answers To Interrogatories Pursuant To Federal Rule of Civil Procedure 37 and Federal Rule of Bankruptcy Procedure 7037.
6. In the context of nondischargeability, the Court is mindful that the objections to discharge found in § 727 are to be construed strictly against the Trustee and liberally in favor of the Debtor. See Matter of Juzwiak, 89 F.3d 424, 427 (7th Cir.1996); In re Pimpinella, 133 B.R. 694, 697 (Bankr.E.D.N.Y.1991); In re Rusnak, 110 B.R. 771, 776 (Bankr.W.D.Pa.1990). It is important to note, however, that a discharge in bankruptcy is a privilege, not a right, and should only inure to the benefit of the honest debtor. Juzwiak, 89 F.3d at 427; Pimpinella, 133 B.R. at 697. The sections of 11 U.S.C. § 727 cited by the Trustee in the Complaint and on which default judgment is sought as a sanction reflect this policy decision. For example, § 727(a)(3) provides that a debtor who has "concealed, destroyed, mutilated, falsified or failed to keep or preserve" records regarding his financial condition shall be denied a discharge. Debtors must supply records which provide creditors "with enough information to ascertain the debtor's financial condition and track his financial dealings with substantial completeness and accuracy for a reasonable period past to present." In re Martin, 141 B.R. 986, 995 (Bankr.N.D.Ill.1992); see also Juzwiak, 89 F.3d at 427; Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir.1992); In re Cox, 904 F.2d 1399 (9th Cir.1990). The provision ensures that trustees *916 will receive sufficient information to reconstruct the debtor's financial dealings. The burden is not on the trustee to organize and reconstruct the debtor's business affairs. Juzwiak, 89 F.3d at 429; Pimpinella, 133 B.R. at 698. The debtor has an affirmative duty to "maintain and retain" comprehensible records. Juzwiak, 89 F.3d at 429; see also In re Frommann, 153 B.R. 113, 118 (Bankr.E.D.N.Y.1993).
7. The other sections of § 727(a) cited by the Trustee place similar obligations on the Debtor. Under § 727(a)(4)(A), a debtor shall not receive a discharge if he has hidden or transferred property within the year prior to the bankruptcy. The debtor may not make a "false oath or account" or withhold any "recorded information" regarding the debtor's financial affairs. See 11 U.S.C. § 727(a)(4)(A) and (a)(4)(D). Finally, the debtor may not receive a discharge if he fails to satisfactorily explain a loss of assets. See 11 U.S.C. § 727(a)(5). The global purpose of these sections is clear. A debtor must come into this Court and make full disclosure of his finances. He may not place the burden of "discovering" assets upon others. Section 727 makes "complete financial disclosure a 'condition precedent' to the privilege of discharge." Juzwiak, 89 F.3d at 429.
8. In this case, the Debtor has been shockingly less than candid with the Trustee and with the Court. A default judgment such as is sought by the Trustee is a severe penalty for discovery abuse. Yet the Debtor's web of deception strikes at not only the requirement of honesty mandated by the discovery rules, but also at the foundation of the bankruptcy system. As the Supreme Court explained:
... the most severe in the spectrum of sanctions provided by statute or rule must be available to the District Court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent.
National Hockey League, et al. v. Metropolitan Hockey Club, Inc., et al., 427 U.S. 639, 642–43, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976). He would have this Court countenance a complete lack of financial disclosure of absurdly epic proportions. A bankruptcy discharge for a debtor who engages in this type of conduct should be as rare as the dodo bird which once graced the shores of Mauritius. Put another way, to grant the Debtor a discharge, the Court would not only be required to ignore his discovery abuses, but to rip § 727 from the United States Code as well.
9. This Court is not required to provide a string of meaningless opportunities to the Debtor to further evade his responsibilities. Pursuant to Rule 26(d) of the Federal Rules of Civil Procedure and Rule 7026(d) of the Federal Rules of Bankruptcy Procedure, the Court may, in the interest of justice, make such orders as are appropriate in respect of the timing and sequence of discovery. See Crawford v. Britton, 523 U.S. 574, 118 S.Ct. 1584, 1597, 140 L.Ed.2d 759 (1998) (the provisions of Rule 26(d) "create[s] many options for the district judge."). See also In re Sardo Corp., 1995 WL 871168 *5, 1995 U.S. Dist. LEXIS 16885 at 13 (E.D.Mich.1995) ("It would be far too simple for this Court to simply ... extend the discovery deadline, because to do so would be to grant to the defendant unwarranted further delay, and delay which was of his own making."). To ascend through a progression of interim sanctions would have absolutely no effect other than to further delay and trivialize the judicial process. See Phipps v. Blakeney, 8 F.3d 788, 790 (11th Cir.1993).
10. This Court concludes that the Debtor's repeated failure to answer the Trustee's questions in anything but evasions and half-truths constitutes a willful and bad faith failure to obey this Court's discovery orders. National Hockey League, et al. v. Metropolitan Hockey Club, Inc., et al., 427 U.S. 639, 642–43, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976); Societe Internationale Pour Participations Industrielles et Commerciales v. Rogers, 357 U.S. 197, 212, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958); Malautea v. Suzuki Motor Co., Ltd., et al., 987 F.2d 1536, 1542 (11th Cir.1993).
11. When the Court reviews the evidence presented and determines that a litigant *917 has engaged in willful and bad faith failure to meet his discovery obligations, the Court is empowered to impose sanctions in accordance with Rule 37(b) of the Federal Rules of Civil Procedure and Rule 7037(b) of the Federal Rules of Bankruptcy Procedure. Such sanctions include striking the Debtor's pleadings and entering a default judgment against the Debtor. Rule 37(b)(2) of the Federal Rules of Civil Procedure and Rule 7037(b)(2) of the Federal Rules of Bankruptcy Procedure. National Hockey League, et al., supra; Phipps v. Blakeney, 8 F.3d 788, 790–91 (11th Cir.1993).
12. Accordingly, the facts alleged in the Trustee's Complaint, including without limitation those alleged in Count I of the Complaint regarding the Debtor's interest in the Mauritian Trust and his continuing concealment thereof, are deemed to be established. Fed.R.Civ.P. 37(b)(2)(A) and Fed. R. Bankr.P. 7037(b)(2)(A); see also Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982); Brook, Weiner, Sered, Kreger & Weinberg v. Coreq, Inc., 53 F.3d 851 (7th Cir.1995).
13. The purpose of the Bankruptcy Code is to allow debtors to reorganize their affairs and enjoy a new opportunity in life. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991). However, this fresh start is limited to the "honest but unfortunate" debtor. Id., 498 U.S. at 287, 111 S.Ct. 654. When in bankruptcy, debtors may claim exempt property, and they may engage in pre-bankruptcy "exemption planning." Indeed, debtors will not be penalized for making "full use" of available exemptions. Matter of Smiley, 864 F.2d 562, 567 (7th Cir.1989). Exemption planning, however, is a far cry from the type of hide-the-ball, "catch me if you can" conduct evidenced by the Debtor in this case. Unfortunately, he is apparently not alone in his belief that this conduct is acceptable. There is a growing body of case law surrounding debtors who have secreted their assets in distant jurisdictions with laws which would make the stereotypical Swiss banker proud. For example, in In re Portnoy, 201 B.R. 685 (Bankr.S.D.N.Y.1996), a case with strikingly similar facts, the court held that to apply the law of the chosen offshore trust situs, in that case the Jersey Channel Islands, would "offend strong [state] and Federal bankruptcy policies if applied." Id. at 698.
14. The Portnoy court further stated that "while under normal circumstances parties are free to designate what state's or nation's law will govern their rights and duties, where another state or nation has a dominant interest in the transaction at issue, and the designated law offends a fundamental policy of that dominant state, the court may refuse to apply the foreign law." Id. The court held that equity would not countenance a debtor unilaterally removing "the characterization of property as his simply by incorporating a favorable choice of law provision into a self settled trust of which he is the primary beneficiary." Id. at 701.17
This issue was also recently addressed in In re Brooks, 217 B.R. 98 (Bankr.D.Conn.1998). In Brooks, the court held that certain assets placed in an offshore trust in Bermuda and the Jersey Channel Islands were nevertheless assets of the bankruptcy estate and subject to the Court's jurisdiction, and refused to allow the laws of the foreign jurisdiction to control because these laws were repugnant to the public policy of Connecticut and the United States.
15. In the United States Bankruptcy Court for the Southern District of Florida, the holding and the reasoning of Portnoy has recently been adopted by Judge Paul G. Hyman, Jr., in In re Cameron, 223 B.R. 20 (Bankr.S.D.Fla.1998). Judge Hyman applied New York trust law and noted that "it is irrelevant that in creating the discretionary trust for her benefit the settlor did not intend to defraud her creditors or was solvent at the time of the creation of the trust. It is against public policy to permit the settlor beneficiary to tie up her own property in such a way that she can still enjoy it but prevent her creditors from reaching it." Id. at 24. This Court is persuaded by the decisions of Portnoy, Brooks and Cameron. The Debtor's rights and obligations under the Mauritian Trust are governed by Florida and federal bankruptcy law, which have an overriding interest in the trust, and not the law of the Republic of Mauritius. Accordingly, the *918 trust corpus is property of the estate under 11 U.S.C. § 541.18
The Court has reviewed the proffered testimony of Herbert Steffin, the attorney for the Mauritian Trust. Tr. at p. 486. Had Mr. Steffin testified, nothing contained in his proposed testimony would have altered the Court's conclusions in this regard or in connection with any other matter covered in this Order.
16. This Court believes that the Debtor perjured himself during the course of the evidentiary proceeding. This Court will make an appropriate reference to the Office of the United States Attorney for further investigation in connection with this finding.
17. Based upon the evidence presented in the course of the three (3) day evidentiary hearing, the record before the Court in this case, the argument of counsel, a review of the citation of law from the parties and the foregoing conclusions and findings, the relief sought in the Trustee's Supplement to Trustee's Motion to Compel is hereby GRANTED.19
At the July hearing, the Court informed the parties that prior to the Court's entry of its order in this matter, the Debtor might consider assisting the Trustee in gaining control of the trust corpus, since returning the money could help resolve his present difficulties. On August 18, 1998, the Debtor filed an "emergency motion" seeking instructions from the Court on how he could avoid denial of his discharge by "assisting" the Trustee. As a preliminary matter, the Court would observe that the Court was merely suggesting that the parties had the ability to resolve the matter themselves through settlement. Nonetheless, the Court conducted a telephone hearing on the motion, at which time the Court denied the Debtor's motion. The Debtor's argument remains the same. While he purports that he will do "anything" to assist the Trustee in recovering the money, he refuses to offer any suggestions or affirmative steps. He provides no additional information beyond his obviously incomplete prior testimony. During the telephone hearing, the Court asked the Trustee what additional provisions the Trustee desired in this order. Based upon the Trustee's request, the Court continues its prior order that the Debtor may not contact the trust or its representatives without the Trustee's permission or order of this Court. Nothing in this order precludes the Trustee from seeking further orders regarding the Mauritian Trust.
18. A separate Order granting a final default judgment against the Debtor, Stephan Jay Lawrence, under Counts I through XVIII, inclusive, of the Trustee's Complaint Objecting to Debtor's Discharge (11 U.S.C. §§ 727(a)(2)(A), (a)(3), (a)(4)(A), (a)(4)(D), and (a)(5)) will be entered by this Court.
19. This Order is without prejudice to the rights of the Trustee to seek sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure, Rule 9011 of the Federal Rules of Bankruptcy Procedure, or the provisions of 28 U.S.C. § 1927.
In re Lawrence, 238 B.R. 498 (Bk.S.D.Fla. 1999).
United States Bankruptcy Court, S.D. Florida, Miami Division.
In re Stephan Jay LAWRENCE, Debtor.
Bankruptcy No. 97–14687–BKC–AJC.
Sept. 8, 1999.
Attorneys and Law Firms
PAGE_499 Paul Steven Singerman, James H. Fierberg, Berger, Davis & Singerman, P.A., Miami, FL, for the Chapter 7 Trustee.
Mark D. Cohen, Mark D. Cohen P.A., Hollywood, FL, for Bear, Stearns & Co., Inc.
Susan E. Trench, Richard Goldstein, Goldstein & Tanen, P.A., Miami, FL, for Mauritian Trustee.
Brian Behar, Behar, Gutt & Glazer, P.A., Aventura, FL, for the Estate of Frederica Lawrence.
Michael S. Budwick, Kozyak, Tropin & Throckmorton, Miami, FL, for Chapter 7 Trustee.
Harold D. Moorefield, Jr., Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, Miami, FL, for Lynn Gann.
Ronald G. Neiwirth, Fowler, White, et al., Miami, FL, Allen P. Reed, Miami Beach, FL, Robert A. Stok, Aventura, FL, Paul J. McMahon, Paul Joseph McMahon, P.A., Miami, FL, for the debtor.
Howard N. Kahn, Kramer, Green, Zuckerman & Kahn, P.A., Hollywood, FL, for Bear, Stearns & Co., Inc.
Alan Goldberg, Trustee Crisis Management, Inc., Miami, FL.
Jill Traina, South Hollywood, FL, for Bear, Stearns & Co., Inc.
Gary S. Glasser, Miami, FL, for Elissa de Moreno.
ORDER ADJUDICATING DEBTOR IN CIVIL CONTEMPT FOR VIOLATION OF THE AUGUST 26, 1999 ORDER GRANTING TRUSTEE'S MOTION TO COMPEL DEBTOR TO TURN OVER TRUST RES AND TO FULLY DISCLOSE ALL TRUST TRANSACTIONS AND ORDER TO SHOW CAUSE NOTICE PURSUANT TO FED.R.BANKR.P. 9020(b)
A. JAY CRISTOL, Chief Judge.
THIS CAUSE came on for hearing before the Court at Miami, Florida on Thursday, September 2, 1999 at 2:30 p.m., pursuant to the Status Conference scheduled in paragraph 4 of the August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose All Trust Transactions (Turn Over Order) (Court Paper # 670). The terms of the Turn Over Order, which are incorporated herein by reference, required the Debtor, Stephan Jay Lawrence, on or before 2:00 p.m. on September 2, 1999 to, inter alia, turn over to the Chapter 7 Trustee the res of the putative Lawrence Family 1991 Inter Vivos Trust ( the so-called Mauritian Trust) (hereafter the "Alleged Trust"), and to provide a full accounting of all transactions in respect of the Alleged Trust. Pursuant to the Turn Over Order, in the absence of the Debtor's compliance therewith, the Debtor would be adjudged in contempt of this Court and the of the Turn Over Order. In attendance at the Status Conference were the Debtor and two of his counsel, counsel for the Debtor's sister, the Trustee and his counsel and Robert Anguiera, Assistant United States Trustee. In addition, United States Bankruptcy Judge Thomas Utschig, who has presided over numerous proceedings in this case1 and who entered *500 the August 26, 1999 Turn Over Order, also participated in the Status Conference via telephone. The Court, having quite an extensive institutional memory of this case, has reviewed the record in both the main case and in the adversary proceeding previously commenced by the Trustee against the Debtor (Adv.Pro. 98–1211–BKC–AJC–A) (the "Adversary Proceeding") and has considered the testimony of the witnesses at the Status Conference and the argument of counsel, and being otherwise fully advised in the premises, hereby incorporates herein by reference all of the findings and rulings entered in the record on August 26, 1999 by Judge Utschig and Judge Utschig's findings and rulings in In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998) and makes the following findings and rulings:
Judge Utschig previously conducted a three-day evidentiary hearing on July 21–23, 1998 in respect of the Trustee's Complaint Objecting to Debtor's Discharge. The detailed findings and rulings derived from the Debtor's testimony are published in In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998). Judge Utschig also adjudicated cross-motions for summary judgment in respect of the Trustee's objection to the Debtor's claimed exemption in the Standardized Computer Services of Boca Raton, Inc. Defined Benefit Pension Plan.
1. This Court concurs with the previous findings by Judge Utschig that the Debtor is not credible,2 except that the Court does accept the Debtor's testimony that establishment or settlement of the Alleged Trust in 1991 was done by the Debtor voluntarily.
This Court has previously had the opportunity to observe the demeanor and candor of the Debtor in evidentiary proceedings before this Court. See, In each of the two prior instances in which the Debtor has testified before this Court, the Court has specifically made findings that the Debtor's testimony to be not credible and not believable. See, In re Lawrence, 217 B.R. 658, 660 and this Court's Order Denying Debtor's Motion to Compel Disclosure of Actual and Potential Compensation Agreements and to Disqualify Trustee and His Counsel (Court Paper # 195–1). The Court notes that Judge Utschig has made similar findings concerning the Debtor's testimony before Judge Utschig.
2. This Court therefore has no doubt that the Debtor retains the requisite power to cause the return of the trust res to the United States in compliance with the Turn Over Order. The foregoing is based, in part, on Paragraph 12 of the Trust Indenture which purportedly established the Alleged Trust specifically reserves to the Settlor, the Debtor, the right to change the Trustee(s) of the Alleged Trust. Thus, the Court does not believe the Debtor's conclusory denials that he cannot undo what he did and that he is powerless to repatriate the trust res to the Chapter 7 estate and that compliance with the Turn Over Order is impossible.
3. This Court's finding in respect of the Debtor's power and ability to cause compliance with the Turn Over Order is not limited to paragraph 12 of the Indenture of the Alleged Trust, or to any other provision of the Alleged Trust. Indeed, this Court's finding is based as well on the entirety of the record before the Court in this case and in the Adversary proceeding, and the Court's own common sense: it defies reason—it tortures reason—to accept and believe that this Debtor transferred over $7,000,000 in 1991, an amount then constituting over ninety percent of his liquid net worth,3 to a trust in a far away place administered by a stranger—pursuant to an Alleged Trust which purports to allow the trustee of the Alleged Trust total discretion over the administration and distribution of the trust res. The Court declines to abandon common sense and to torture reason in the manner urged by the Debtor.
See, In re Lawrence, 227 B.R. 907, 913 (Bankr.S.D.Fla.1998).
4. This Court disagrees with the Debtor that it is the Trustee's burden to establish that the Debtor can, in fact cause compliance with the Turn Over Order. It is the Debtor's burden to establish the defense of impossibility. U.S. v. Rylander, 460 U.S. 752, 760, 103 S.Ct. 1548, 75 L.Ed.2d 521 (1983). The Court concurs with the position recently taken by the Ninth Circuit Court of Appeals in *501 Federal Trade Commission v. Affordable Media, LLC, Denyse Lindaalyce Anderson and Michael K. Anderson, 179 F.3d 1228 (9th Cir.1999), another case involving the use of an offshore asset protection trust. There, the Court of Appeals correctly observed that it is the very purpose of these types of offshore asset protection trusts to create a scenario whereby a "defendant can assert that compliance with a court's order to repatriate the trust assets is impossible". See, Anderson at 1240. Indeed, in the context of an offshore asset protection trust, the Anderson Court held that "the burden of asserting an impossibility defense will be particularly high because of the likelihood that any attempted compliance with the court's orders will be merely a charade rather than a good faith effort to comply. Foreign trusts are often designed to assist the settlor in avoiding being held in contempt of a domestic court while only feigning compliance with the court's orders." Id. at 1241. This is precisely the Debtor's intention before this Court. The Debtor has not met his burden.
5. The Court rejects the Debtor's contention that under the facts of this case he cannot be compelled to do an act that is impossible, to wit: repatriate the res of the Alleged Trust. While impossibility is a recognized defense to a civil contempt order, the law does not recognize the defense of impossibility when the impossibility is self created. Pesaplastic, C.A. v. Cincinnati Milacron Co., 799 F.2d 1510, 1521–1522 (11th Cir.1986). The Debtor has testified that he voluntarily established the Alleged Trust in 1991. Since the provisions which he now relies upon in order to substantiate his inability to comply with the Turn Over Order were of his own creation, he may not claim the benefit of the impossibility defense. Giving credence to the Debtor's argument would be tantamount to succumbing to the pleas for sympathy from an orphan who has killed his own parents!
6. The efforts by the Debtor to claim an impossibility defense are nothing more than a part of his continuing efforts to hinder, delay and defraud the creditors of his bankruptcy estate.
Based upon the foregoing findings and the record before the Court in this case and in the Adversary Proceeding, it is ORDERED and ADJUDGED as follows:
A. The Debtor is adjudged in civil contempt for his wilful failure to comply with the specific and definite provisions of the August 26, 1999 Turn Over Order which, inter alia, required the Debtor to turn over to the bankruptcy trustee the res of the Alleged Trust on or before 2:00 p.m. on Thursday, September 2, 1999.
B. The Debtor is ordered to pay $10,000 per day commencing on September 2, 1999 and continuing for each day until the day he purges his contempt, by turning over to the Chapter 7 Trustee the entire res of the Alleged Trust. The debtor is also ORDERED incarcerated until he turns over the Trust res, but, the Court will allow the debtor until September 14, 1999 to purge his contempt before implementing the incarceration.
C. Notwithstanding the monetary fine provided herein, in the event that the Debtor fails to have purged his contempt at or before 12:00 p.m. (Miami, Florida time) on Tuesday, September 14, 1999, this Court shall conduct a further status conference pursuant to 11 U.S.C. § 105(d) at 2:00 p.m. on Tuesday, September 14, 1999 (Miami, Florida time) in Courtroom 1410, Claude Pepper Federal Building, 51 S.W. First Avenue, Miami, Florida, 33130 to determine whether the Debtor has purged his contempt by complying with this Order and the Turn Over Order. The Debtor is ordered to be in attendance at the September 14, 1999 status conference.
D. If the Debtor shall not have purged his contempt by the time of the September 14, 1999 status conference, at the status conference the Debtor shall tender the sum of $130,000 by cashier's check or in the form of other immediately available funds, such sum constituting the amount of the monetary sanction imposed hereby that will then be due, and the Debtor shall be prepared to surrender himself to the *502 United States Marshal Service to be commended to the custody of the United States Bureau of Prisons to be held in custody until such time as the Debtor purges his contempt.
E. This Court notes that the Debtor did not comply with that provision of the August 26, 1999 Turn Over Order which required a full accounting of all transactions in respect of the Alleged Trust by 2:00 p.m. on September 2, 1999. At this time, the Court makes no findings or rulings on this issue. The Court reserves on the issue of the Debtor's contempt in respect of the accounting of the transactions of the Alleged Trust.
F. The Debtor and his representatives are hereby authorized to contact the trustee(s) of the Alleged Trust and the Trustee(s) advisors in order to facilitate the Debtor's compliance with the terms of this Order.
G. These provisions of this Order are effective as of the time that it was rendered from the bench on September 2, 1999 at approximately 3:30 p.m., notwithstanding any delay in the entry of this written Order.
Lawrence v. Trustee (In re Lawrence), 251 B.R. 630 (S.D.Fla. 2000).
United States District Court, S.D. Florida.
In re Stephan Jay LAWRENCE, Debtor.
Stephan Jay Lawrence, Appellant,
Chapter 7 Trustee, Appellee.
Nos. 99–2764–CIV–GOLD/SIM, 99–2768–CIV–GOLD/SIM.
July 31, 2000.
Attorneys and Law Firms
PAGE_635 Ronald Geroge Neiwirth, Miami, FL, for Appellant.
Paul Steven Singerman, Miami, FL, for Appellee.
ORDER AFFIRMING BANKRUPTCY COURT'S AUGUST 26, 1999 TURN OVER ORDER, SEPTEMBER 8, 1999 CONTEMPT ORDER, AND OCTOBER 5, 1999 INCARCERATION ORDER
GOLD, District Judge.
THIS CAUSE is before the court in Case No. 99–2764–CIV–GOLD upon appeal of the Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Notice Pursuant to Fed.R.Bankr.P. 9020(b) (the "Turn Over Order"), entered August 26, 1999, by the Honorable Thomas S. Utschig, United States Bankruptcy Court Judge. The appellant has argued that the Turn Over Order was inappropriately entered and should be reversed. Jurisdiction of this court is invoked pursuant to 28 U.S.C. § 158(a). Also pending before this court in Case No. 99–2678–CIV–GOLD is the appellant's appeal of the Bankruptcy Court's September 8, 1999 Order Adjudicating Debtor in Civil Contempt for Violation of the August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Pursuant to Fed.R.Bankr.P. 9020(b) (the "Contempt Order") and October 5, 1999 Order Directing United States Marshal to Incarcerate Debtor for Failure to Turn Over Property of the Bankruptcy Estate Pursuant to Prior Court Orders (the "Incarceration Order").
A hearing was held before this court on January 14, 2000, at which the parties chose not to present additional evidence or testimony and to base their appeal and arguments on the underlying record. Pursuant to the court's instructions, the parties submitted additional memoranda after the hearing. After careful review of the record in this appeal, the transcripts of the hearings before the Bankruptcy Court designated in the record on appeal, the parties' briefs, the Orders entered by the Bankruptcy Court, and the relevant law, this court finds that the Bankruptcy Court's August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Notice Pursuant to Fed.R.Bankr.P. 9020(b) should be affirmed. Furthermore, this court has gone on to affirm both the Contempt and Incarceration Orders that were subsequently entered by the Bankruptcy Court.
I. Factual and Procedural Background
This matter revolves around an offshore trust settled by the appellant on or about January 8, 1991, two months prior to the conclusion of a 42 month arbitration dispute with Bear, Stearns & Co., Inc. ("Bear, Stearns") that resulted in a $20.4 million award in favor of Bear, Stearns. See Pompano–Windy City Partners, Ltd., et al. v. Bear, Stearns & Co., et al., No. 87–Civil–7159, S.D.N.Y., Corrected Final Judgment entered April 7, 1993, confirming arbitration award of March 15, 1991. The appellant settled the offshore trust, titled the Lawrence Family 1991 Inter Vivos Trust (the "Trust"), in the Jersey Channel Islands with an initial res of approximately $7 million. See The Declaration of Trust, Ex. A to Complaint Objecting to Debtor's Discharge; Dep. of Stephan J. Lawrence, Sept. 5, 1996, p. 72. The Trust was amended on or about February 7, 1991, adding specific spendthrift language and moving the proper law of the Trust to the Republic of Mauritius. See The Declaration of Trust. There were two subsequent amendments made to the Trust by the Trustee. On January 23, 1993, the Trust was amended so that the Settlor's powers could not be executed under duress or coercion and so that the life interest *636 of the Settlor would terminate in the event the Settlor became bankrupt. In March 1995, an amendment was added to the Trust declaring the appellant to be an "Excluded Person." See id.1
"Asset protection planning" has become more problematic in recent years. As noted in a recent law review article [which discussed the Lawrence case], "Stephan Lawrence's efforts to avoid his creditors—euphemistically called 'asset protection planning' by its practitioners—have become increasingly common in recent years. Although determining with any precision the value of assets that debtors have transferred offshore to avoid creditor claims is nearly impossible, conservative estimates exceed one trillion dollars. One lawyer, prominent in the asset protection business, represents that his firm alone has clients with more than three billion dollars in asset protection trusts." Stewart E. Sterk, Asset Protections Trusts: Trust Law's Race to the Bottom? 85 Cornell L.Rev. 1035, 1036 (2000) (footnotes omitted). See also Randall J. Gingiss, Putting a Stop to "Asset Protection" Trusts, 51 Baylor L.Rev. 987 (1999).
In June 1993, Bear, Stearns registered in the Southern District of Florida the $20.4 million judgment which it had obtained in the Southern District of New York against the appellant. See Pompano–Windy City Partners, Ltd., et al. v. Bear, Stearns & Co., Inc., et al., No. 93–6489–CIV–KING (the "Bear, Stearns Lawsuit"). The Trust, through its then-trustee, Kapil Dev Joory, was impled into the Bear, Stearns Lawsuit in November, 1996. See 93–6489–CIV–KING, D.E. # 126, 179. On August 28, 1998, Judge King stayed any further attempts to transfer the assets of the Trust pending further action by the bankruptcy court. See id., D.E. # 205.
Meanwhile, on June 12, 1997, the appellant filed a Voluntary Petition under Chapter 7, Title 11, United States Code, for bankruptcy discharge in the U.S. Bankruptcy Court, Southern District of Florida. See In re Stephan Jay Lawrence, No. 97–14687–BKC–AJC. Alan J. Goldberg, the bankruptcy trustee, filed a Complaint Objecting to Debtor's Discharge on or about April 13, 1998. See Goldberg v. Lawrence, 227 B.R. 907 (Bkrtcy.S.D.Fla.1998). The Trust was not joined as a party in Goldberg's action.
During the course of that proceeding, a discovery dispute arose between the appellant and the appellee over the sufficiency of appellant's answers to interrogatories. The appellee, Goldberg, moved to compel better answers. In response, the bankruptcy court conducted a three-day evidentiary hearing in order to obtain responsive answers from the appellant. See 7/21–23/98, Tr.; In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998). The bankruptcy court made extensive factual and legal findings, and issued an opinion on September 23, 1998, concluding that 1) there were numerous factual inconsistencies in the appellant's testimony, 2) the appellant lacked credibility,2 3) the appellant purposely avoided his obligation to cooperate with *637 the Trustee, 4) appellant's willful and bad faith failure to obey discovery orders make striking of the insufficient response appropriate, 5) the facts alleged in the Trustee's complaint are therefore deemed established, 6) the appellant's rights and obligations under the Trust are governed by Florida and federal bankruptcy law, and not the law of Mauritius, and 7) the trust corpus is property of the estate under 11 U.S.C. § 541. See In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998). The appellant filed a notice of appeal but failed to timely designate a record and otherwise perfect his appeal. The bankruptcy court entered an order dismissing the appeal and denied a motion for reconsideration. The appellant subsequently appealed that denial to the district court, and the district court affirmed. A subsequent appeal to the Eleventh Circuit was voluntarily abandoned by the appellant. See 8/26/99 Turn Over Order Tr. at 29–30.
Judge Utschig conducted a three day hearing during which he had a unique opportunity to observe the Appellant, who was the sole witness. Lawrence, 227 B.R. at 910. In his findings of fact, he concluded on a number of occasions that Lawrence's testimony lacked credibility. Likewise, he cited prior orders issued by Chief Judge Cristol who found the testimony of both Lawrence and his counsel to be not credible and not believable. Id. at 910 n. 7. He concluded that: "The Debtor's substantial lack of veracity in his voluntary bankruptcy case is amply demonstrated. He continued his lack of truthfulness throughout the hearings which are the subject of this Order." Id. Of most significance, Judge Utschig found it "... impossible to believe the Debtor's testimony that he simply walked away from virtually all of his assets without any sort of struggle." Id. at 912. He further stated: "This Court finds it impossible to believe that the Debtor surrendered ninety percent (90%) of his assets to a stranger on the other side of the world without maintaining some control over the assets." Id.
As noted in Federal Trade Commission v. Affordable Media, 179 F.3d 1228, 1231 (9th Cir.1999), "An old adage warns that a fool and his money are easily parted. This case shows that the same is not true of a district court judge and his common sense." The same adage and conclusion equally applies to both Judge Utschig's analysis as well as to Judge Cristol's subsequent comments in In re Lawrence, 238 B.R. 498, 500 (Bankr.S.D.Fla.1999).
In July 1999, the appellee filed a motion seeking to order the appellant to turn over the assets of the Trust. Following oral argument before the Honorable Thomas Utschig on August 26, 1999, the bankruptcy court ordered the appellant to turn over the assets of the Trust, account for its transactions, and surrender his passport (the "Turn Over Order").3 Appellant filed an appeal of the Turn Over Order, which is currently pending before the court.
In his Turn Over Order, Judge Utschig stated that he "reviewed the voluminous pleadings which have been filed by the parties in this Court and in the United States District Court, including the Debtor's Motion to Continue Hearing ..., the Trustee's Response to Debtor's Motion to Continue Hearing ..., and the Debtor's Response to the Trustee's Motion to Compel, With Supporting Memorandum of Law ..., the record before the Court in this case and in the adversary proceedings previously commenced by the Trustee against the Debtor ..., the Court's prior ruling in this case and in the adversary proceedings...." This record included the three days of hearing before Judge Utschig which commenced on July 21, 1998 and culminated in his findings and conclusions in In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998). At the Turn Over hearing, Lawrence did not appear, notwithstanding efforts by the Trustee to produce the Debtor through cooperation of counsel and with a subpoena on eight separate occasions. In his oral findings of fact, Judge Utschig concluded: (1) the Turn Over proceeding was not an adversary proceeding under Rule 7001; (2) the Trust Corpus was part of the estate created at the commencement of the case under Section 541(a)(1) of the Bankruptcy Code; (3) the Debtor has a duty under Section 521(4) of the Bankruptcy Code to surrender to the Trustee all property of the estate; (4)(5) the key holdings in In re Lawrence, 227 B.R. 907, including that the Trust Corpus is property of the estate under 11 U.S.C. § 541 and that the Debtor's rights and obligations are governed by Florida and Federal Bankruptcy Law, are not dicta; (5) Lawrence's trust arrangement is a "farce," designed to obfuscate and hide assets, and (6) Lawrence tried to hide even the existence of the trust, and his prior testimony was replete with perjury. 8/26/99 Turn Over Order Tr. He codified his findings in a written order, dated August 26, 1999, which ordered the Debtor to turn over to the Bankruptcy Trustee the entire res of the Mauritian Trust, and to provide a full and complete accounting of all transactions in respect to the alleged Mauritian Trust. He stated: "[T]his Court has previously held that the res of the so-called Lawrence Family 1001 Intervivos Trust (the 'Mauritian Trust') is property of the bankruptcy estate. See In re Lawrence, 227 B.R. 907, 917–918 (Bankr.D.Wyo.1998). The Debtor remains under a continuing obligation to turn over all property of the estate. This Court concurs with the holding in In re Crabtree, 39 B.R. 702, 710 (Bankr.E.D.Tenn.1984) that the provisions of 11 U.S.C. § 521 constitute the 'functional equivalent of a specific and definite order of the court.' This Debtor has been under the actual knowledge of the Court's holding that the res of the alleged Mauritian Trust was property of the estate since at least July 23, 1998." Turn Over Order at 2.
Subsequent to the Turn Over Order, the bankruptcy court held a hearing on September 2, 1999,4 after which Chief Bankruptcy *638 Judge A. Jay Cristol issued an opinion on September 8, 1999 (the "Contempt Order"), holding the appellant in civil contempt for violating the court's previous Turn Over Order and fining the appellant $10,000 per day until he purged his contempt. In re Lawrence, 238 B.R. 498 (Bankr.S.D.Fla.1999).5 On or about September 16, 1999, the appellant filed a timely objection pursuant to Fed.R.Bankr.P. 9020 to the bankruptcy court's Contempt Order. In addition, the bankruptcy court held two further status conferences to monitor compliance with the August 26, 1999 Turn Over Order. At the second, on October 5, 1999, the bankruptcy court found that the appellant's alleged attempts to comply with the Turn Over Order were entirely unacceptable and ordered the appellant incarcerated by the U.S. Marshal until such time as he complies with the order requiring him to turn over the Trust res (the "Incarceration Order").
At the September 2, 1999 hearing, the Debtor testified and admitted that he neither turned over the Trust res nor provided an accounting as required by the Turn Over Order. [T.R. 5, at 28; C.P. # 684]. The Debtor further testified that he did not know whether he could compel the trustee(s) of the Trust to do anything, but that whatever rights and powers he had were set forth in the Trust Indenture, which was offered into evidence once again at the September 2, 1999 hearing. [T.R. 5, at 28–29; C.P. # 684]. At the conclusion of the hearing, the Bankruptcy Judge again found that the Debtor had control over the Trust through, inter alia, his retained power to remove and appoint trustees and to add and exclude beneficiaries. [T.R. 4, at 48–49; C.P. # 684]. The Bankruptcy Judge found that the Debtor had the present ability to cause the turn over and provide an accounting as required by the Turn Over Order. The Bankruptcy Judge's finding was based on the Debtor's testimony and the specific terms of the Trust which provided that the Debtor, as settlor, had the absolute right to remove and appoint trustees and to control beneficiaries.
After considering the entire record, Judge Cristol concurred with the previous findings of Judge Utschig that the Debtor was not credible. He concluded without doubt that the Debtor retains the requisite power to cause the return of trust rest to the United States in compliance with the Turn Over Order. He stated: "The foregoing is based, in part, on Paragraph 12 of the Trust Indenture which purportedly established the Alleged Trust specifically reserves to the Settlor, the Debtor, the right to change the Trustee(s) of the Alleged Trust. Thus, the Court does not believe the Debtor's conclusory denials that he cannot undo what he did and that he is powerless to repatriate the trust res to the Chapter 7 estate and that compliance with the Turn Over Order is impossible." In re Lawrence, 238 B.R. at 500. He further explained, "[T]his Court's finding in respect to the Debtor's power and ability to cause compliance with the Turn Over Order is not limited to paragraph 12 of the Indenture of the Alleged Trust, or to any other provision of the Alleged Trust. Indeed, this Court's finding is based as well on the entirety of the record before the Court in this case and in the Adversary proceeding, and the Court's own common sense: it defies reason—it tortures reason—to accept and believe that this Debtor transferred over $7,000,000 in 1991, an amount then constituting over ninety percent of his liquid net worth, to a trust in a far away placed administered by a stranger—pursuant to an Alleged Trust which purports to allow the trustee of the Alleged Trust total discretion over the administration and distribution of the trust res. The Court declines to abandon common sense and to torture reason in the manner urged by the Debtor." Id.
An emergency motion to vacate the bankruptcy court's October 5, 1999 Incarceration Order was brought before this court, and oral arguments on the appeal of the Contempt Order and Incarceration Order were heard on November 12, 1999. The court issued an Interim Order on November 19, 1999, deferring a final ruling until the completion of the Turn Over Order appeal. See 99–2678–CIV–GOLD, D.E. 31.
II. Standard of Review
This court denied appellant's motion to consolidate the appeal of the Turn Over Order with the appeal of the Contempt Order because of the different standards of review involved in the two appeals and the likelihood that consolidation would lead to unnecessary confusion of the issues. See 99–2678–CIV–GOLD, D.E. 26. Generally, review of the bankruptcy court's Contempt Order is de novo for all findings of fact or conclusions of law, whereas review of the Turn Over Order, which is currently before the court, is clearly erroneous for findings of fact and de novo for conclusions of law.6
For a more detailed discussion of the standard of review for contempt orders see the court's November 19, 1999 Interim Order.
PAGE_639 The bankruptcy court's Turn Over Order is a final order within the meaning of 28 U.S.C. § 158(a)(1). As such, the appeal is governed by Fed.R.Bankr.P. 8001–8019, which dictates procedures for district court or bankruptcy appellate panel review of a final judgment, order, or decree of a bankruptcy judge. Rule 8013 states that: "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed.R.Bankr.P. 8013. A finding of fact is clearly erroneous when, after reviewing the evidence, a court is left with the definite and firm conviction that a mistake was made. See In re Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP 1994). A bankruptcy court's conclusions of law are reviewed de novo. See In re William Schneider, Inc., 175 B.R. 769 (S.D.Fla.1994).
A. Turn Over Standard
The Supreme Court stated the principles underlying turn over and contempt proceedings in bankruptcy court and set forth the applicable burdens and required standard of proof to sustain a turn over order in Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948). The issuance of a turn over order by the bankruptcy court "is appropriate only when the evidence satisfactorily establishes the existence of the property or its proceeds, and possession thereof by the defendant at the time of the proceeding." Maggio, 333 U.S. at 63–64, 68 S.Ct. at 405.
As noted by the Supreme Court in Maggio, the burden of proof is of critical importance in a turn over proceeding. The trustee must support the motion for a turn over order by clear and convincing evidence,7 and that includes proof that the property has been abstracted from the bankrupt estate and is in the possession of the party proceeded against. Id., 333 U.S. at 64, 68 S.Ct. at 405. Mere proof that the property was in possession or control of the accused party at some prior time is insufficient to justify turn over, unless the time element and other factors make that a fair and reasonable inference. Id., 333 U.S. at 65, 68 S.Ct. at 406. It is important for the court to consider the whole record and to exercise reason and sound judgment, "mindful that the order should issue only as a responsible and final adjudication of possession and ability to deliver, not as a questionable experiment in coercion which will recoil to the discredit of the judicial process if time proves the adjudication to have been improvident and requires the courts to abandon its enforcement." Id., 333 U.S. at 67, 68 S.Ct. at 407.
A growing minority of cases have concluded that the older pre-Code Supreme Court cases have been superseded by the Bankruptcy Code and are no longer consistent with more recent Supreme Court pronouncements on the appropriate burden of proof in other types of bankruptcy proceedings. See discussion in In re Alofs Manufacturing Company, 209 B.R. 83, 89–91 (Bankr.W.D.Mich.1997) (applying the preponderance of the evidence standard instead of the clear and convincing evidence standard in a turnover proceeding). Appellee in this case did not contest the Maggio clear and convincing standard until footnote 1 in its Supplemental Brief. As the appellant fails to prevail even under the more stringent clear and convincing standard, it is not necessary at this time for the court to determine whether the minority preponderance of the evidence standard should be applied.
Although the Maggio Court was analyzing contempt and turn over proceedings under the old Bankruptcy Act, 11 U.S.C. § 11, repealed in 1979, which did not expressly create a turn over procedure, their rationale for requiring present possession to support a turn over order is still relevant, since failure to comply can be enforced, as in this case, by contempt proceedings. See Maggio, 333 U.S. at 62–64, 68 S.Ct. at 405; In re U.S.A. Diversified Prod., Inc., 193 B.R. 868, 876–77 (Bankr.N.D.Ind.1995).
PAGE_640 In analyzing the burden of proof in a Chapter 7 turn over proceeding against involuntary Chapter 7 debtors, the Eighth Circuit noted that burden shifting is appropriate. See Evans v. Robbins, 897 F.2d 966, 968 (8th Cir.1990). "The burden of proof in a turnover proceeding is at all times on the receiver or trustee; he must at least establish a prima facie case. After that, the burden of explaining or going forward shifts to the other party, but the ultimate burden or risk of persuasion is upon the receiver or trustee." Id. (quoting Gorenz v. Illinois Dept. of Agriculture, 653 F.2d 1179, 1184 (7th Cir.1981) (further cites omitted)). Although the amount of evidence necessary to satisfy the trustee's burden will vary on a case by case basis, the trustee must prove its case by clear and convincing evidence. Evans, 897 F.2d at 968.
B. Property of the Estate
The appellant has attacked the Turn Over by arguing that, in finding that the Trust res is property of the bankruptcy estate, the Bankruptcy Judge incorrectly relied on the bankruptcy court's prior holding in In re Lawrence, 227 B.R. 907 (Bankr.S.D.Fla.1998) (the "Discovery Sanction Order"). According to the appellant, the findings of the Discovery Sanction Order constituted dicta and are not binding on later decisions of the bankruptcy court. After a thorough review of the bankruptcy proceedings and the applicable law, this court respectfully disagrees.
As noted in the factual and procedural background, supra, the bankruptcy court's Discovery Sanction Order was based on three days of testimony by the appellant brought about by the trustee's motion to compel answers to interrogatories in 98–1211–BKC–AJC–A, an adversary proceeding initiated by Trustee's Complaint Objecting to Debtor's Discharge under 11 U.S.C. § 727. Default was entered due to the direct actions of the Debtor, who, in the opinion of the bankruptcy court below, sought to "undermine not only the discovery process but also the integrity of the judicial system and the Bankruptcy Code." In re Lawrence, 227 B.R. 907, 910 (Bankr.S.D.Fla.1998). Default final judgment is an appropriate sanction when a party wilfully and in bad faith abuses the litigation process. See National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 642–43, 96 S.Ct. 2778, 2781, 49 L.Ed.2d 747 (1976); American Motorists Ins. Co. v. Beaver, 1994 WL 597612 at *3 (E.D.Pa.1994) ("[I]t is well-settled that the Court is permitted, under appropriate circumstances, to exercise its discretion to control its docket by imposing the ultimate sanction of dismissal or default for a party's failure to comply with discovery orders or to otherwise unjustifiably delay disposition of the action.") (citing Link v. Wabash Railroad, 370 U.S. 626, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962)); United States v. Wilfley, 1997 WL 759581 at *5 (D.Or.1997) (granting motion for default judgment based on party's ongoing and repeated noncompliance with court orders concerning pre-trial discovery and preparation of pre-trial order). It is significant in this case that the default was not entered solely on the papers filed, but after eleven hours of hearings where the Bankruptcy Judge had a first-hand opportunity to consider the candor and demeanor of the appellant. The Bankruptcy Judge found Lawrence's testimony to be "disingenuous and untruthful," and his actions to be part of an "unrelenting campaign to conceal crucial information." Id. at 910–11. The decision was thorough and well reasoned. Based on Lawrence's default, it was held that "the facts alleged in the Trustee's Complaint, including without limitation those alleged in Count I of the Complaint regarding the Debtor's interest in the Mauritian Trust and his continuing concealment thereof, are deemed to be established." Id. at 917. The bankruptcy court went on to find that the debtor's rights and obligations under the Trust are governed by Florida and federal bankruptcy law, and that the trust corpus is property *641 of the estate under 11 U.S.C. § 541.8 Id. It then stated that a final default judgment against the appellant would be entered under Counts I through XVIII of the Trustee's Complaint Objecting to Debtor's Discharge. Id. at 918. The Default Judgment is now a final, nonappealable order.9
11 U.S.C. § 541 defines Property of the Estate as:
(a) The commencement of a case under section 301 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
The appellant failed to timely file a designation of the record on appeal as required by Fed.R.Bankr.P. 8006 and Local Rule 806(A), resulting in the issuance of an Order Dismissing Bankruptcy Appeal by the bankruptcy court on October 28, 1998. The district court affirmed the dismissal order on January 25, 1999. The appellant initially sought further review of the district court's order in the Eleventh Circuit but elected to voluntarily dismiss his appeal with prejudice.
The appellant argues that the holding in the Discovery Sanction Order regarding the Trust as property of the bankruptcy estate is dicta because it was not necessary to the holding in that case. This interpretation fails to take into account the specific allegations of the Complaint and the import of the bankruptcy court's holding that final default judgment should be entered against the appellant under all the counts, including Count I, the trustee's objection to discharge for continuing concealment of property of the estate.10 Count I had specifically alleged that Lawrence maintained a continuous, concealed managerial and beneficial interest in the Trust, as it must in order to state a valid claim for denial of discharge. See Thompson v. Eck, 149 F.2d 631, 633 (2d Cir.1945) ("[T]he bankrupt must have some legal interest in the property before he can be charged with its concealment.") The bankruptcy court's finding that the Trust was property of the estate was thus a necessary component of the denial of discharge under Count I, and was not dicta. As such, it became the law of the case, and should continue to govern the issue of whether the Trust corpus is property of the estate under 11 U.S.C. § 541. The essence of the appellant's arguments at this juncture are impermissible collateral attacks on the validity of the judgment which should not be heard or validated. See, e.g., Maggio v. Zeitz, 333 U.S. 56, 68, 68 S.Ct. 401, 407, 92 L.Ed. 476 (1948) (holding that the final order in a turnover proceeding becomes res judicata and not subject to collateral attack in a later contempt proceeding).
11 U.S.C. § 727(a)(2) denies discharge if the debtor concealed (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition. Although Count I of the Complaint Objecting to Debtor's Discharge is labeled 11 U.S.C. § 727(a)(2)(A), it is also entitled "Continuing concealment of property of the estate," and it is evident from reading it that it is intended to refer to 11 U.S.C. § 727(a)(2)(B).
Furthermore, the bankruptcy court had good reason at the time of the Discovery Sanction Order to conclude that the trust corpus was property of the estate when the Debtor declared bankruptcy, independent of the default finding.11 Despite the March 22, 1995 amendment to the Trust purporting to declare the appellant an "Excluded Person," it does not appear that the declaration was irrevocable.12 *642 See In re Lawrence, 227 B.R. at 912 n. 12. The Bankruptcy Court correctly surmised that the Trust language would permit the Mauritian trustee to amend the trust at his or her discretion to deem Lawrence to be a beneficiary once again, and that Lawrence retained the power as settlor to change the trustee.13 Id. The Bankruptcy Court went on to cite and discuss In re Portnoy, 201 B.R. 685 (Bankr.S.D.N.Y.1996), In re Brooks, 217 B.R. 98 (Bankr.D.Conn.1998), and In re Cameron, 223 B.R. 20 (Bankr.S.D.Fla.1998) in support of its finding. In re Lawrence, 227 B.R. at 917–18. The Court specifically restated the holding in In re Brooks for the proposition "that certain assets placed in an offshore trust [are] nevertheless assets of the bankruptcy estate and subject to the Court's jurisdiction," and for the idea that the court should "refuse[ ] to allow the laws of the foreign jurisdiction to control because these laws [are] repugnant to ... public policy." Id. at 917 n. 17. This analysis, and the decisions cited by the Bankruptcy Court, support the finding that the Trust is governed by Florida and federal bankruptcy law. Florida and federal bankruptcy law both prohibit individuals from setting up self-settled spendthrift type trusts and maintaining the benefits of and ability to significantly control same, while keeping the assets away from creditors. See In re Cattafi, 237 B.R. 853, 856 (Bkrtcy.M.D.Fla.1999) ("The general rule is that when one has an interest in property which he may alien or assign, that interest, whether legal or equitable, is liable for the payment of his debts.") (citing Croom v. Ocala Plumbing & Electric Co., 62 Fla. 460, 465, 57 So. 243, 244 (1911)). Indeed, when a person creates a discretionary trust for his own benefit, as Lawrence did in this case, "his creditors can reach the maximum amount which the trustee under the terms of the trust could pay to him or apply for his benefit, even though the trustee in the exercise of his discretion wishes to pay nothing to the beneficiary or to his creditors, and even though the beneficiary could not compel the trustee to pay him anything." In re Cameron, 223 B.R. at 25. The Bankruptcy Court was therefore justified and correct in concluding that the Trust was property of the estate, given the ability of the trustee to summarily revoke Lawrence's excluded status and appoint the whole of the trust and its income to Lawrence, and Lawrence's ability to dismiss the trustee and appoint another. The Debtor's managerial control over the Trust on the Petition Date, arising from, among other things, his ability to remove and replace trustees and to add or exclude beneficiaries, constitutes a legal or equitable interest in property, sufficient to bring such property within the scope of property of the estate.
The United States Supreme Court has given a very expansive interpretation to the meaning of property of the estate. See United States v. Whiting Pools, Inc., 462 U.S. 198, 204–05, 103 S.Ct. 2309, 2313–14, 76 L.Ed.2d 515 (1983). Property of the estate is generally defined by state law. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). Once the nature and extent of the debtor's interest is determined under state law, federal bankruptcy law dictates to what extent that interest is property of the estate. Bavely v. United States (In re Terwilliger's Catering Plus, Inc.), 911 F.2d 1168, 1172 (6th Cir.1990).
The fact that the trustees of the Lawrence Family Trust are aware of the distinction between a revocable and an irrevocable exclusion of a beneficiary is demonstrated by the June 16, 1999 amendment seeking to make the appellant's exclusion irrevocable, even though that amendment is void as being in violation of 11 U.S.C. § 362(a)(3) and the stay order entered by Judge King in Pompano–Windy City Partners, Ltd. v. Bear, Stearns & Co., No. 93–6489–CIV–KING.
Paragraph 12 of the Deed of Appointment grants the Settlor, the appellant, the right to remove and appoint Trustees at his discretion. This power does not appear to be affected by the 1995 Declaration making Lawrence an excluded person.
Once the bankruptcy court deemed the Trust property of the estate, the appellant came under an obligation to turn over the Trust res and any recorded information related to it to the trustee. See 11 U.S.C. § 521(4) ("The debtor shall ... surrender to the trustee all property of the estate and any recorded information, including books, documents, records, and papers, relating to the property of the estate, whether or not immunity is granted under section 344 of this title."). This obligation was in effect at the time of the turn over hearing.
*643 C. Present Ability to Comply
In order for the Turn Over Order to be valid, the evidence before the Bankruptcy Court must have clearly and convincingly shown not only that the Trust corpus was in the possession or under the control of the appellant at the time of bankruptcy, but also that the appellant had the ability at the time of the Turn Over Order to comply by turning over the Trust res. See Maggio, 333 U.S. at 65, 68 S.Ct. at 406 ("[T]urnover orders should not be issued, or approved on appeal, merely on proof that at some past time property was in possession or control of the accused party, unless the time element and other factors make that a fair and reasonable inference."). The Bankruptcy Court found implicitly in the August 26, 1999 Turn Over Order, and explicitly in the September 8, 1999 Contempt Order, that "the Debtor retains the requisite power to cause the return of the trust res to the United States in compliance with the Turn Over Order." In re Lawrence, 238 B.R. 498, 500 (Bankr.S.D.Fla.1999).
The primary support for the finding that the appellant had the present ability to comply with the Turn Over Order is found in the Trust Indenture itself. The Trust Indenture establishes that the appellant had the power and the authority to exercise substantial control over the Trust at the time of the Turn Over Order.14
For purposes of this analysis, the Trust Indenture consists of the January 8, 1991 Declaration of Trust; the February 7, 1991 Deed of Appointment; the January 21, 1993 Supplemental Deed; May 10, 1993 Supplement Deed; March 22, 1995 Declaration; and June 16, 1999 Declaration of Intent.
The Bankruptcy Court noted in the September 8, 1999 Contempt Order that Paragraph 1215 of the Deed of Appointment specifically reserves to the Settlor (Lawrence) the right to change the Trustee(s) of the Trust. See In re Lawrence, 238 B.R. at 500. This power is not affected by the subsequent Declaration that Lawrence is an Excluded Person. Furthermore, there was no specification in the March 1995 Declaration whether the exclusion of Lawrence was revocable or irrevocable. The overall tenor and intent of the Trust Indenture is clearly to grant nearly unfettered discretion and authority in the Trustees. Accordingly, the Trustees can exercise the powers granted to them "as they shall think most expedient for the benefit of all or any of the persons actually or prospectively interested under this Settlement and may exercise (or refrain from exercising) any power or discretion for the benefit of any one or more of them without being obliged to consider the interests of others or other." January 8, 1991 Declaration of Trust, Clause 20(a). The discretion of the Trustees is absolute and uncontrolled and they have complete control over how they exercise their power. Id., Clause 20(b). The import of these clauses and provisions, when read together, is that the appellant, as settlor and prospective beneficiary, retained de facto control over the Trust through his ability to appoint Trustees who could in their absolute discretion reinstate the appellant as a beneficiary and assign the entire proceeds to him.
Paragraph 12 states:
Power of Removal and Appointment of Trustees
(a) The Settlor may in his absolute discretion by deed at any time or times during the Trust Period remove all or any of the Trustees hereof and appoint one or more other persons or companies to be a Trustee or Trustees hereof in place of the Trustee or Trustees so removed.
(b) The Settlor may in his absolute discretion by deed at any time or times during the Trust period appoint new and additional Trustees hereof and Schedule 4 of the Settlement [Retirement and Appointment of New and Additional Trustees] shall be amended by the insertion after the words "existing Trustees" of the words "and in the Settlor."
The appellant has highlighted a number of Trust provisions which he believes demonstrate that he does not have, and did not have at the time of the Turn Over Order, the power to effect a turn over of the Trust corpus. These include Clause 16 of *644 the January 21, 1993 Supplemental Deed, the March 22, 1995 Declaration excluding Lawrence as a beneficiary, and the June 16, 1999 Declaration of Clarification of Intent. However, an analysis of these provisions reveals that they do not diminish the appellant's power to control distribution of the trust property into his own hands.
Clause 16 of the January 21, 1993 Supplemental Deed, entitled Exercise of Settlor's Powers and Discretions, states that "The powers and discretions hereby conferred upon the Settlor shall not be exercisable by him if in any purported exercise thereof he is in any way subject to duress or coercion of any kind (whether such duress or coercion arises from a process of law for the benefit of his creditors or otherwise) and any purported exercise of his powers or discretions which appears to have been made under such duress or coercion shall be of no force or effect and neither the Trustees nor any other person shall give any cognisance thereto." The January 21, 1993 Supplemental Deed also inserts a Clause 17 into the Trust Indenture for the purpose of terminating the life interest of the Settlor in the event of bankruptcy or some other legal process for the benefit of creditors. These anti-duress provisions are attempting to establish the Lawrence Family Trust as a spendthrift trust.
Florida law recognizes and enforces spendthrift clauses and trusts. In re Lichstrahl, 750 F.2d 1488, 1490 (11th Cir.1985); Fehlhaber v. Fehlhaber, 850 F.2d 1453, 1455 (11th Cir.1988). However, as noted in Fehlhaber, "if a settlor creates a trust for his own benefit and inserts a spendthrift clause, the spendthrift clause is void as far as then existing or future creditors are concerned, as they can reach his interests under the trust." Fehlhaber, 850 F.2d at 1455 (quoting Matter of Witlin, 640 F.2d 661, 663 (5th Cir.1981)).16 Where the settlor retains the power to acquire all of the trust estate upon request, the interest is not exempt from the claims of creditors. Fehlhaber, 850 F.2d at 1455. There is a strong public policy against allowing any person to place his property in what amounts to a revocable trust for his own benefit that would be exempt from the claims of his creditors. Matter of Witlin, 640 F.2d at 663.
All Fifth Circuit decisions prior to October 1, 1981 are binding precedent on the Eleventh Circuit. Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir.1981).
In this case, the logical and inevitable inference created by the timing of the Trust's creation, only two months prior to the Bear, Stearns arbitration judgment, is that Lawrence was seeking to shelter his assets in a protected offshore trust. The Bankruptcy Court below found the appellant's denials that the offshore trust was set up to shield assets to be incredible, and it noted that the appellant admitted to placing the money in the trust so that it would be available to him in his old age. In re Lawrence, 227 B.R. at 912. This court finds that the Bankruptcy Court's factual conclusions that the appellant set up the Trust for his own benefit were not clearly erroneous. In addition, the January 21, 1993 spendthrift provisions were enacted while the appellant, the Settlor of the Trust, clearly had the discretion under Clause 12 of the Deed of Appointment to remove and appoint trustees. The Trustees, in turn, had the ability to grant the entire corpus of the Trust to the settlor. Therefore, the appellant effectively had dominion over the property of the Trust, and the spendthrift provisions are not enforceable as a shield against creditors.
It appears that Clause 16 of the January 21, 1993 Supplemental Deed was carefully worded so as to avoid permanently revoking the powers of the Settlor. The divestiture is episodic in nature and vests with the Settlor and his hand-picked off-shore trustees the subjective ability to determine which instances of alleged duress or coercion will render the Settlor's powers inoperative. The effect of such a clause, if validated, is to permit the trustees to ignore *645 each and every action requested or demanded by the Debtor that may aid or satisfy the claims of creditors or advance the processes of law issued by courts of the United States against the Debtor in respect to the Trust. As the Ninth Circuit has recognized, debtors commonly design offshore asset protection trusts to assist the settlor in attempting to avoid being held in contempt of court while only feigning compliance with the court's orders: "[A] clause could be inserted in the trust contract which specifically directs the trustee to ignore any instruction, exercise of a power, and the like where the direction is given under the compulsion of a court order. Thus, the settlor could comply with the court order and 'order' his trustee to turn over the funds, knowing full well that the trustee will not comply with his request." Federal Trade Commission v. Affordable Media, LLC, 179 F.3d 1228, 1241 (9th Cir.1999) (quoting James T. Lorenzetti, The Offshore Trust: A Contemporary Asset Protection Scheme, 102 Com.L.J. 138, 158–59 (1997)). In this case, Lawrence's attempts to employ such a strategy contravenes the clear public policy against allowing a debtor to shield money placed in a trust for his or her own benefit from creditors, defies common sense, and is undermined by the language in the Trust granting the Settlor power to remove and appoint trustees.
Furthermore, Appellant's reliance on the March 22, 1995 Declaration of exclusion and the June 16, 1999 Declaration of clarification of intent is also unavailing. The March 22, 1995 Declaration states that "the Trustee hereby excludes the Settlor as a Beneficiary of the Trust, and therefore Mr. Stephan J. Lawrence is as and from this date (sic) an Excluded Person as defined by Clause 10 iii." Pursuant to the May 10, 1993 Supplemental Deed, the power of exclusion "may be irrevocable or revocable during the Trust period." Conspicuously absent from the declaration of exclusion in 1995 is any mention of whether the exclusion of Lawrence was to be revocable or irrevocable. Additionally, the May 10 exclusion very carefully excluded the settlor as a beneficiary, and thus goes to the appellant's rights as a beneficiary and not as a settlor.
Appellant's attempts to point to the June 16, 1999 clarification of intent are not convincing. The June 16, 1999 clarification of intent, issued ten months after the stay entered by Judge King in the Pompano–Windy City Partners suit and immediately after the appellee filed a motion seeking to order the appellant to turn over the assets of the Trust, was a transparent attempt by the appellant/trustees to further shield the Trust assets and avoid liability. As such, it is invalid and carries no weight in these proceedings. Even if it were valid, it does not go to the reserved powers of the appellant as settlor of the Trust.
Accordingly, a careful reading of the Trust Indenture reveals that the alleged exclusion of Lawrence in 1995 was nothing more than a smoke screen meant to obfuscate the issues and hide Lawrence's latent control over the Trust; control sufficient, as shown by clear and convincing evidence, to render him capable of complying with the Bankruptcy Court's Turn Over Order.
D. Due Process Rights
The appellant's position in this appeal has been that the Bankruptcy Court and appellee erred by not joining or impleading the Mauritius Trust and the beneficiaries named in the trust documents, and in not conducting a full-fledged evidentiary hearing prior to issuing the Turn Over Order. These arguments are unfounded. The Bankruptcy Court had jurisdiction to order the turn over and was not in error by not impleading or joining the additional parties, and the appellant's failure to appear at the turn over hearing represents nothing more than the appellant's continued effort to thwart the judicial process.
1. Joinder of the Mauritius Trust
Appellant has repeatedly argued that the bankruptcy proceedings, and the Turn *646 Over Order in particular, are invalid because of appellee's failure to join the Mauritius Trust, an indispensable party, in violation of the due process rights of the Trust. Appellant argues that, since the district court required impleader of the Trust in Bear, Stearns' action to enforce its arbitration award by voiding the fraudulent transfer of money to the Trust, the Trust must be impled in this action. See Pompano–Windy City Partners v. Bear Stearns & Co., No. 93–6489–CIV–KING, D.E. 101. According to the appellant, because the 1991 Mauritius Trust was a valid trust under Florida law, notwithstanding its spendthrift provisions, the title to the assets in question is in the hands of the Trust and the Trust must be impled into the bankruptcy action to acquire control over that title.
The court respectfully disagrees with the Debtor's analysis. The foreign trustee was intentionally chosen, and the trust created, by the Debtor in an attempt to thwart the jurisdiction of the bankruptcy court. The foreign trustee enjoys no rights independent of the Trust Indenture, under which he can be replaced at any time at the whim of the Debtor. As such, he does not qualify as even a necessary party under Fed.R.Civ.P. 19(b) standards, where "equity and good conscience" would nonetheless require the turn over to proceed without his joinder. The Trustee can hardly claim standing to represent the beneficiaries' interests, where the Debtor, as Settlor, empowered him, in his sole discretion, to add a beneficiary or class of beneficiaries, while at the same time, the Trustee has the absolute right to exclude a beneficiary or class of beneficiaries from the Trust. See January 8, 2000 Declaration of Trust, Clauses 9 and 10(a)(ii). His power in that regard is directly affected by the Debtor, as Settlor, who also enjoys these unfettered, absolute rights of appointment and exclusion pursuant to Sections 10 and 11 of the February 7, 1991 Deed of Appointment. Under the Settlor's reservation of powers, which is property of the estate, it is the Debtor/Settlor who remains the sole indispensable party. What we are left with is a foreign alleged trust with "at will" trustees, and "at will" beneficiaries, who serve or benefit at the power of the Settlor/Debtor, who created the foreign trust to hide assets and protect himself from creditors. In these proceedings, the Debtor's "indispensable party" argument represents a guise to further shield himself from complying with the Turn Over Order, when, in reality, the so called 'rights of third parties' are no more than smoke.
Within this circuit, at least one recent district court case has not required joinder of the trust in a Chapter 7 turnover proceeding where the trust was held not to be a valid spendthrift trust. See In re Cattafi, 237 B.R. 853, 856 (M.D.Fla.1999). In Cattafi, the Chapter 7 trustee objected to the debtor's claim of exemption in his beneficial interest in a family trust, and sought turnover of the interest. Id. at 855. The debtor was the settlor and a named beneficiary of the trust, but was not the trustee. The court found that the trust was not a valid spendthrift trust because the debtor created the trust for his own benefit and, as settlor, had the power to revoke, amend, or terminate the trust, in large part because the debtor/settlor had the power to change the trustee. Id. at 856. Neither the trust nor the trustee were named as parties in the Cattafi case, and the court proceeded to find the trust void as to debtor's creditors without discussing their absence. This case arises under a similar factual scenario as Cattafi, and the court's process in that case is instructive.
Furthermore, the appellee was not a party to the Bear, Stearns litigation before Judge King, and has never attempted to advance the fraudulent transfer theories argued by Bear, Stearns in that litigation. The appellant has highlighted Judge King's order affirming the Magistrate's recommendation that Bear, Stearns' motion to set aside the transfer of assets to *647 the Trust as fraudulent be denied because the Trust had not been impled into the action. See Pompano–Windy City Partners v. Bear, Stearns & Co., Case No. 93–6489–CIV–KING, D.E. 101 & 111. Those orders, however, took place prior to the Chapter 7 bankruptcy proceedings at issue in this case. The appellee, in seeking turnover of the Trust res, is relying upon the unique powers vested in him pursuant to the provisions of 11 U.S.C. § 521(4), which requires that the debtor surrender to the trustee all property of the estate; no adversary proceeding was filed nor was one required by Fed.R.Bankr.P. 7001. Given that the Bankruptcy Court previously found that the debtor maintained a continued, concealed managerial and beneficial interest in the Trust and that the debtor's interest was part of the estate (see In re Lawrence, 227 B.R. at 917), the trustee was justified and empowered to seek turnover of the Trust assets without the need to implead or join the Trust.
In addition, the Mauritius trustees were in fact served with the turn over motion and given notice of the turn over hearing. Their election not to seek to intervene pursuant to Fed.R.Bankr.P. 7024 (incorporating Fed.R.Civ.P. 24) or to otherwise participate in the proceedings to assert their interests effectively waived their right to appear and to be heard. Accordingly, based on case precedent, the facts of the case, and the effective waiver by the Mauritius trustees, failure to join or implead the Mauritius Trust was not reversible error in this case.
2. Joinder of beneficiaries named in the Trust
In the court's view, the interests of the beneficiaries named in Schedule 1 of the February 7, 1991 Deed of Appointment are too speculative to cause them to be indispensable parties to the turn over litigation. The court requested briefing on this issue at the January 14, 2000 hearing, yet the appellant chose not to address it, instead concentrating on the failure to implead the Trust itself into the bankruptcy proceeding. The appellant's failure to argue this issue effectively waives it from consideration by this court. Nevertheless, the court finds that the named beneficiaries were not indispensable parties to the turn over proceeding.
As noted, the beneficiaries may be added or replaced at the whim, and at the absolute discretion, of the Trustee or the Settlor/Debtor, and the Debtor explicitly reserved the right to cause them to be wholly or partially excluded from future benefit under the trust. See February 7, 1991 Deed of Appointment, Clause 11. Under Section 32 of the Trust Indenture, the trustee has no obligation to communicate with any of the beneficiaries or contact any such beneficiaries or to advise them in respect of the settlement of the Trust or matters in relation thereof or that they are "now or at any time hereafter included in such expression." January 8, 1991 Declaration of Trust, Clause 32. Further, even if beneficiaries are added or excluded pursuant to sections 10 or 11 of the Trust Indenture, by virtue of section 32, the trustee has no obligation to provide any notice to the beneficiaries who have been added or excluded from the Trust. Suffice it to say that the specific terms of the Trust created by the Debtor make the interests of any of the beneficiaries, assuming they could be found, so remote, so shrouded in secrecy even unto themselves, as to render them virtually meaningless.
In In re Cameron, 223 B.R. 20, 26 (Bankr.S.D.Fla.1998), Judge Hyman discussed the issue of the need to join certain contingent beneficiaries in a bankruptcy trustee's adversary proceeding to compel a turnover of a self-settled spendthrift trust. After finding, as in this case, that the subject trust was the property of the estate, the court determined that as the interest of the contingent remaindermen had never vested prior to the Trust becoming *648 property of the estate, their joinder was not necessary.17
A vested interest is one that is limited to a certain person at a certain time, and in which no condition other than the termination of a preceding estate postpones its enjoyment. Williams v. Northern Trust Bank of Florida/Sarasota, N.A., 819 F.Supp. 1042, 1045 (M.D.Fla.1993) (citing In re Estate of Martin, 110 So.2d 421, 423 (Fla. 2d DCA 1959)). In interest is contingent where the right to a future interest depends upon a condition precedent. Williams, 819 F.Supp. at 1045.
The question of the indispensability of named beneficiaries arises in light of the fact that Elissa Lawrence de Moreno, one of the appellant's sisters, has filed a separate adversary proceeding in the Bankruptcy Court, Case No. 99–1339–BKC–AJC–A, seeking a declaratory judgment of her rights in and to the Trust. Like the Mauritius trustees' counsel, counsel for Moreno was on the service list for the turn over motion in this case and received notice of the August 26, 1999 turn over hearing. In fact, Mr. Glasser attended the hearing and participated to some degree. See August 26, 1999 Tr. at 47–48. Yet counsel for Moreno did not seek to protest the bankruptcy court's action at the hearing, apparently finding that her interests in avoiding repatriation of the Trust res by the appellant to the appellee were adequately represented by Lawrence and his attorneys. See In re Towe, 173 B.R. 197, 211 (Bankr.D.Mont.1994) ("Joinder is not required where the absent parties' interests are adequately protected by those who are present.").
The Bankruptcy Court had an opportunity to address this issue prior to this appeal. At the October 5, 1999 hearing on Trustee's Motion to Stay Hearing on Plaintiff's Renewed Motion for Summary Final Judgment and Moreno's Emergency Motion for Injunctive Relief, Bankruptcy Judge Cristol recognized that if the Chapter 7 Trustee, Goldberg, were to recover the Trust res, Moreno would have an opportunity to make her claim, if any, against the estate before the assets were distributed to creditors. See October 5, 1999 Tr. at 24–26 (attached as Ex. E to Appellee's Supplemental Brief) ("[I]f [Moreno has] a beneficial interest, I don't see a problem with Mr. Goldberg being in a position to turn over what her interest is if her interest is superior to his, and that's a matter that we can determine, but I don't see any emergency here."). There is no reason to disturb the Bankruptcy Court's holding on this issue at this time.
3. Evidence presented and appellee's appearance at the turn over hearing
The appellee argues that the turn over order was improper because "no evidence whatsoever was presented regarding Lawrence's present capability to turn over the assets" of the Trust. See Initial Brief of Appellant re: Turnover, p. 16 & 33. This argument, however, fails to acknowledge that the Bankruptcy Court properly took notice of the court file to make its findings. As the Bankruptcy Court stated in its August 26, 1999 Turn Over Order:
The Court has reviewed the voluminous pleadings which have been filed by the parties in [the Bankruptcy] Court and in the United States District Court; including the Debtor's Motion to Continue Hearing (Court Paper # 651), the Trustee's Response to Debtor's Motion to Continue Hearing (Court Paper # 660), and the Debtor's Response to the Trustee's Motion to Compel, With Supporting Memorandum of Law ("Debtor's Response") (Court Paper # 658), and has considered the argument of counsel, the record before the Court in this case and in the adversary proceeding previously commenced by the Trustee against the Debtor (Adv.Pro. No. 98–1211–BKC–AJC–A), the Court's prior rulings in this case and in the adversary proceeding, and being otherwise advised in the premises, the Court hereby incorporates herein by reference all of the findings and rulings entered in the record on August 26, 1999.
PAGE_649 August 26, 1999 Turn Over Order at 1. There was no evidence in this case that the Trust documents had validly changed between the Bankruptcy Court's September 23, 1998 Order finding the debtor in default and the August 26, 1999 turn over hearing. The record included the debtor's default pursuant to the September 23, 1998 Order, with its clear effect, as well as the trust indenture documents which establish on their face that the appellant, as Settlor of the Trust, has certain absolute, retained powers that constitute substantial rights in and to the Trust and that provide substantial control over the Trust. Therefore, the Bankruptcy Court had sufficient evidence before it to find that the appellee had established by clear and convincing evidence that the Trust res was property of the estate, and that Lawrence had sufficient control over the property to effect a turn over.
Lawrence was given the opportunity to rebut the appellee's prima facie case but chose not to attend the turn over hearing. See Evans v. Robbins, 897 F.2d at 968 (acknowledging that burden shifting is appropriate in a Chapter 7 turn over hearing). Although the hearing was not noticed as an evidentiary hearing and the bankruptcy judge never required the appellant's presence, the Chapter 7 Trustee asked the appellant's attorney to have him attend the hearing and attempted unsuccessfully to subpoena him. The appellant cannot now turn around and attempt to argue that he was denied his due process rights because he did not present any evidence at the hearing. It is evident on appeal that the appellant's position was and is part of a contrived plan to thwart the Chapter 7 Trustee and the bankruptcy court from resolving issues pertinent to his interest in the offshore Mauritian Trust, and this court will not condone or endorse such actions.
E. The Contempt Order
On November 19, 1999, this court entered an Interim Order Concerning Review of Bankruptcy Court's September 8, 1999 Contempt Order and October 5, 1999 Incarceration Order [D.E. 13 in Case No. 99–2764–Civ–Gold; D.E. 31 in Case No. 99–2678–Civ–Gold]. That Order deferred a final ruling upon the consolidated appeal in Case No. 99–2678–Civ–Gold of the Bankruptcy Court's September 8, 1999 Order Adjudicating Debtor in Civil Contempt for Violation of the August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Pursuant to Fed.R.Bankr.P. 9020(b) and October 5, 1999 Order Directing United States Marshal to Incarcerate Debtor for Failure to Turn Over Property of the Bankruptcy Estate Pursuant to Prior Court Orders until after resolution of this court's review of the August 26, 1999 Turn Over Order. It was noted in the November 19, 1999 Order that justice, logic, and sound judicial policy required the court to determine the propriety of the Bankruptcy Court's Turn Over Order before ruling upon the validity of the Contempt Order.
As this Order has illustrated, the Bankruptcy Court's August 26, 1999 Turn Over Order was properly entered by the Bankruptcy Court. Therefore, it is appropriate at this time for the court to consider the merits of the appellant's appeal of the Contempt and Incarceration Orders.
1. Standard of Review
Rule 9020(c) of the Federal Rules of Bankruptcy Procedure mandates that if timely objections are made to a bankruptcy judge's order of contempt, "the order shall be reviewed as provided in Rule 9033." Fed.R.Bankr.P. 9020(c). Rule 9033, which is entitled "Review of Proposed Findings of Fact and Conclusions of Law in Non–Core Proceedings," thus provides the operable standard of review for all contempt orders, regardless of whether they are core or non-core proceedings. See In re Sun–Island Realty, Inc., 177 B.R. 391, 395 (S.D.Fla.1994); In re *650 Williams, 213 B.R. 189, 195–96 (Bankr.M.D.Ga.1997). According to Rule 9033(d):
(d) Standard of Review. The district judge shall make a de novo review upon the record or, after additional evidence, of any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made in accordance with this rule. The district judge may accept, reject, or modify the proposed findings of fact or conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions.
Fed.R.Bankr.P. 9033(d). The Advisory Committee Notes to Rule 9033 observe that subdivision (d) adopts the de novo review provisions of Fed.R.Civ.P. 72(b) governing district court review of dispositive motions and prisoner petitions by magistrate judges.
Under de novo review, the district judge considers the matter anew, with no assumption of validity of the bankruptcy judge's findings or recommendations, and is free to substitute his own view for that of the bankruptcy judge without any threshold finding whatsoever. See United States v. First Nat'l Bank of Atlanta, 628 F.2d 871 (5th Cir.1980). The district judge may not simply "rubber stamp" the disposition recommended by the bankruptcy judge, but must conduct a thorough review. See Vekamaf Holland, B.V. v. Pipe Benders, Inc., 671 F.2d 1185 (8th Cir.1981). The district court need not rehear live testimony prior to adopting findings of fact where credibility plays a central role. See United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980) (permitting the district court to adopt a magistrate judge's credibility findings in a criminal suppression hearing). Here, both Judges Utschig and Cristol conclusively concluded that the Debtor's testimony was not credible. At the de novo proceeding, the Debtor did not testify. Accordingly, the Court adopts the credibility findings of both bankruptcy judges in conducting its review.
2. The Prima Facie Case
In a civil contempt proceeding, the party seeking the contempt bears the initial burden of proving by clear and convincing evidence that the respondent violated a court order. Commodity Futures Trading Comm'n (CFTC) v. Wellington Precious Metals, Inc., 950 F.2d 1525, 1528 (11th Cir.1992), cert. denied, 506 U.S. 819, 113 S.Ct. 66, 121 L.Ed.2d 33 (1992); In re Shore, 193 B.R. 598, 601 (S.D.Fla.1996). This burden of proof is more exacting than the "preponderance of the evidence" standard but, unlike criminal contempt, does not require proof beyond a reasonable doubt. United States v. Rizzo, 539 F.2d 458, 465 (5th Cir.1976). Once a prima facie showing of a violation has been made, the burden of production shifts to the alleged contemnor, who may defend his failure on the grounds that he was unable to comply. CFTC, 950 F.2d at 1528. If the alleged contemnor makes a sufficient showing of impossibility, the burden of proving ability to comply then shifts to the party seeking to show contempt. See id.
In this case, it is undisputed that the Chapter 7 Trustee met its initial burden of proving by clear and convincing evidence that the appellant did not comply with the terms of the bankruptcy court's August 26, 1999 Turn Over Order. At the September 2, 1999 hearing, the appellant stipulated that he had not turned over assets or caused them to be turned over and that he had not provided an accounting, and Goldberg testified that he had not received the res or the accounting. 9/2/99 Tr. at 9, 22. At the September 16, 1999 status conference, Goldberg informed the court that he had not received any assets from the Trust. 9/16/99 Tr. at 22. Furthermore, at the October 5, 1999 status conference, Goldberg testified that he had still not received any of the Trust's assets from the appellant or from anyone else. 10/5/99 Tr. at 101. The burden of production thus shifted to the appellant to prove that he was unable to comply.
*651 3. Impossibility
Once a prima facie showing of a violation has been made, the burden of productions shifts to the alleged contemnor, who may defend his failure on the grounds that he was unable to comply. CFTC, 950 F.2d at 1529; United States v. Rylander, 460 U.S. 752, 757, 103 S.Ct. 1548, 1552, 75 L.Ed.2d 521 (1983) ("Where compliance is impossible, neither the moving party nor the court has any reason to proceed with the civil contempt action. It is settled, however, that in raising this defense, the defendant has a burden of production."); United States v. Roberts, 858 F.2d 698, 701 (11th Cir.1988); United States v. Hayes, 722 F.2d 723, 725 (11th Cir.1984). The burden shifts back to the initiating party only upon a sufficient showing by the alleged contemnor. CFTC, 950 F.3d at 1529. The party seeking to show contempt, then, has the burden of proving ability to comply. Id.
The Eleventh Circuit has held that, to succeed in an inability defense, an alleged contemnor must "go beyond a mere assertion of inability and establish that he has made in good faith all reasonable efforts to meet the terms of the court order he is seeking to avoid." CFTC, 950 F.2d at 1529. The court rejected the contemnor's defense, asserted in response to a disgorgement order, that "all the money ... was gone," finding that the contemnor had failed to make "in good faith all reasonable efforts" to secure repayments of amounts he had paid to others. Id. at 1527.
Thus, in order to prove his inability to comply with the Turn Over Order, the appellant must show "a present inability to comply that goes beyond a mere assertion of inability." Howard Johnson Co. v. Khimani, 892 F.2d 1512, 1516 (11th Cir.1990). The alleged contemnor, in this case the appellant, has the burden, which he has failed to meet, of showing he made "in good faith all reasonable efforts" to meet the terms of the court order he is seeking to avoid. United States v. Roberts, 858 F.2d 698, 701 (11th Cir.1988). This requirement is construed strictly, such that substantial, diligent, or good faith efforts are not sufficient to rebut the prima facie showing if "all reasonable efforts" were not made to comply. See United States v. Hayes, 722 F.2d 723, 725 (11th Cir.1984); Combs v. Ryan's Coal Co., 785 F.2d 970, 984 (11th Cir.1986).
At the September 2, 1999 status conference in which the bankruptcy court held the appellant in civil contempt, the appellant introduced a letter sent by him to the Trust's counsel in Miami, Ms. Trench, requesting that the assets of the Trust and a full accounting be turned over to Mr. Goldberg. The appellant also introduced Ms. Trench's reply, which stated that her firm no longer represents International Financial Services (IFS), and that it is IFS' position that the United States Bankruptcy Court does not have jurisdiction over them. The appellant also testified at the hearing and reiterated his prior position that he has no control over or communication with the Trust. His testimony was found to lack credibility.
This evidence was insufficient to carry the appellant's burden of proving inability to comply with the court's order to turn over the Trust res. In his testimony the appellant referred to the bankruptcy court's September 23, 1998 order, which forbade communication by the appellant with the Trust without permission of the court, as the reason he took no steps other than the letter the day before the hearing to acquire the money from the Trust. 9/2/99 Tr. at 34. The Order clearly left open the option of moving for the court's permission to contact the Trust, but the appellant never took any steps to gain permission for such contact from the bankruptcy court or the Chapter 7 trustee. In addition, the bankruptcy court found the appellant not credible, and there is nothing in the testimony to dispute that finding. From the record before the court, it is clear that the appellant presented virtually no evidence at the September 2, 1999 hearing *652 to substantiate his contention that he did not have the present ability to comply with the court's previous Turn Over Order. Accordingly, the appellant failed to meet his burden of proving the impossibility defense, and the burden of production did not shift back to the appellee to prove that compliance was possible.
a. Self-created impossibility
The bankruptcy court also found that any impossibility claimed by the defendant was self-created, and, therefore, was an invalid defense.18 The bankruptcy court relied specifically on Pesaplastic, C.A. v. Cincinnati Milacron Co., 799 F.2d 1510 (11th Cir.1986), which stated that "where the person charged with contempt is responsible for the inability to comply, impossibility is not a defense to the contempt proceedings." Id. at 1521. Recently, the Eight Circuit, citing to the Eleventh Circuit's decision in CFTC, also confirmed that a mere assertion of "present inability" is insufficient to avoid a civil contempt finding. Chicago Truck Drivers v. Brotherhood Labor Leasing, 207 F.3d 500, 506 (8th Cir.2000). Rather, the Eight Circuit stated that "alleged contemnors defending on the ground of inability to comply must establish: (1) that they were unable to comply, explaining why 'categorically and in detail,' Federal Trade Commission v. Affordable Media, LLC, 179 F.3d 1228, 1241 (9th Cir.1999); (2) that their inability to comply was not 'self-imposed,' In re Power Recovery Sys., Inc., 950 F.2d 798, 803 (1st Cir.1991); and (3) that they made 'in good faith all reasonable efforts to comply,' CFTC, 950 F.2d at 1529." Id.
The Court specifically adopts Judge Cristol's legal analysis and findings on the defense of impossibility as they appear in In re Lawrence, 238 B.R. at 500. Judge Cristol stated, in part: "The Court rejects the Debtor's contention that under the facts of this case he cannot be compelled to do an act that is impossible, to wit: repatriate the res of the Alleged Trust. While impossibility is a recognized defense to a civil contempt order, the law does not recognize the defense of impossibility when the impossibility is self created. [citation omitted]. The Debtor has testified that he voluntarily established the Alleged Trust in 1991. Since the provisions which he now relies upon in order to substantiate his inability to comply with the Turn Over Order were of his own creation, he may not claim the benefit of the impossibility defense. Giving credence to the Debtor's argument would be tantamount to succumbing to the pleas for sympathy from an orphan who has killed his parents." Id.
This Court also concludes that the appellant's argument lacks merit, is not supported by the evidence, and does not meet any of the Chicago Truck Drivers three-prong test. The only case cited in support of appellant's argument is Federal Trade Commission v. Blaine, 308 F.Supp. 932 (N.D.Ga.1970). Blaine involved the seeking of a contempt citation for failure to produce documents not shown to be in the possession or control of the defendant. The court stated that previous good faith disposal and current unavailability would not make the respondent responsible for the unavailability, but that he could be found in contempt for bad faith disposal of the documents prior to service of the subpoena. See id. at 933–34. In this case, the appellant testified that he voluntarily settled the Trust. 9/2/99 Tr. at 35. As both Judge Utschig and Judge Cristol stated in their published opinions as well as numerous times from the bench during the course of these proceedings, it defies common sense and logic to believe that the appellant did not settle this Trust in a bad faith effort to shelter his money from creditors. Thus the prior good faith transfer exception to the self-created impossibility bar is not available to the appellant, and his claim of impossibility is likewise barred by this fact.
b. Appellant's continuing attempts to purge the contempt
The contemnor in a civil contempt proceeding retains the ability to purge himself of the contempt, or to otherwise excuse himself from the imposition of sanctions. See *653 In re Shore, 193 B.R. 598, 603 (S.D.Fla.1996). Compliance "to the fullest extent possible, regardless of whether such efforts result in compliance in whole or in part" is necessary to purge the contempt. Piambino v. Bestline Products, Inc., 645 F.Supp. 1210, 1214 (S.D.Fla.1986).
It is the appellant's contention that he took every means possible to effectuate the turnover of the Trust res. At the status conference on September 16, 1999, the appellant introduced a letter that was sent on September 13, 1999, one day before the originally scheduled date of the hearing, by regular mail only, to the unknown current trustee of the Trust, care of International Financial Services, Ltd. in Mauritius, asking that the trust res be turned over, a full accounting given, and Paul Singerman appointed as the new trustee. See Appellee's Ex. G. In order to see whether the appellant was making sufficient efforts to purge the contempt, a further status conference was set for the first week in October. At the October 5, 1999 follow-up hearing before the bankruptcy court, a Declaration and Supplemental Deed of Appointment, executed on October 4, 1999 by Mr. Goldberg and stating that he is now the sole successor trustee of the Trust, was admitted into evidence. Goldberg testified that he did not execute the Deed of Appointment as a joke or sham. 10/5/99 Tr. at 102. The appellant also represented at the October 5th hearing that the September 13th letter of instruction was faxed to International Financial Services, that the appellant requested his passport from the bankruptcy court and Goldberg so as to travel to Mauritius to enforce compliance, and that the appellant made preliminary contact with several Mauritian attorneys through the Internet seeking advice about how to obtain the trust res. See 10/5/99 Tr. at 104–108; Appellee's Ex. H.
The court finds that these actions do not constitute sufficient steps to purge the contempt finding. The Ninth Circuit's holding in Federal Trade Commission v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir.1999) is instructive. Affordable Media involved an attempt by a couple, the Andersons, to hide money in an offshore trust based in the Cook Islands, claiming that they had willingly relinquished all control over millions of dollars to unaccountable overseers. The trust was set up with the Andersons as co-trustees, together with a trustee company, and contained a provision that revoked their trustee status in the event of duress, such as the court's order to turn over the trust's assets. In finding that the Andersons' burden of proving impossibility could not be met, the Ninth Circuit set forth language that is particularly relevant in this case:
In the asset protection context, moreover, the burden on the party asserting the impossibility defense will be particularly high because of the likelihood that any attempted compliance with the court's order will be merely a charade rather than a good faith effort to comply. Foreign trusts are often designed to assist the settlor in avoiding being held in contempt of a domestic court while only feigning compliance with the court's orders.
Affordable Media, 179 F.3d 1228, 1241. The court went on to explain that:
With foreign laws designed to frustrate the operation of domestic courts and foreign trustees acting in concert with domestic persons to thwart the United States courts, the domestic courts will have to be especially chary of accepting a defendant's assertions that repatriation or other compliance with a court' order concerning a foreign trust is impossible. Consequently, the burden on the defendant of proving impossibility as a defense to a contempt charge will be especially high. Id.
Id. When placed in context, appellant's half-hearted, last-minute attempts to purge the contempt finding are plainly insufficient and do not demonstrate that compliance is impossible.
PAGE_654 The appellant has attempted to distinguish the Affordable Media case, arguing that the facts are inapposite because Lawrence was never a trustee, there is no "protector" or any such person with power to give instructions to the trustee in this case, and the Andersons had repatriated a large sum of money a short time before the litigation. Affordable Media, however, still stands for the proposition that "the burden on the defendant of proving impossibility as a defense to a contempt charge will be especially high" when the defendant is attempting to shield assets from creditors in an offshore trust, and for a strong public policy against permitting a party to avoid contempt by feigning compliance with the court's orders. Affordable Media, 179 F.3d at 1241. The appellant was not able to meet the heightened burden of proof called for by Affordable Media in this case.
4. Judicial Estoppel
Judicial estoppel is an equitable doctrine that prevents a party from contradicting previous declarations made during the same or a later proceeding if the change in position would adversely affect the proceeding or constitute a fraud on the court. Black's Law Dictionary 571 (7th ed.1999). At its core, the doctrine of judicial estoppel ensures that a party will not argue "inconsistent positions to gain an unfair advantage over its adversary." Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 540 (9th Cir.1991), cert. denied, 503 U.S. 977, 112 S.Ct. 1603, 118 L.Ed.2d 316 (1992).
The appellant contends that Goldberg should be estopped from pursuing contempt against the appellant in light of his prior and subsequent contradictory positions taken before various other tribunals. Appellant argues that Goldberg has taken the previous position of insisting that there is no Trust, while simultaneously acting as if the Trust does exist and trying to take advantage of its elements offensively against third parties.
The application of judicial estoppel is not warranted in this case. It is not inconsistent for Goldberg to seek turn over of the assets of the Trust, while noting to the court that the trust instrument provided by the appellant does not contain the appellant's signature. It is also not inconsistent for Goldberg to assert the Trust's "excluded person" provision offensively in a declaratory proceeding brought by Elissa Lawrence de Moreno, Case No. 99–1339–BKC–AJC–A, while maintaining in the underlying Chapter 7 proceeding, Case No. 97–14687–BKC–AJC, that Stephan Jay Lawrence is not an excluded person, but even if he was, the provision was not effective as to him. Throughout these proceedings, Goldberg has maintained that, as settlor of the Trust, the appellant retained pervasive power and control which is tantamount to constructive possession, custody and control over the Trust, regardless of the Trust's 1995 amendment, unilaterally enacted by the Trust's trustee, declaring Stephan Lawrence an excluded person. Accordingly, the defense of judicial estoppel is devoid of merit.
A thorough review of the record before the court, the applicable case law, and the arguments of the parties reveals that the Bankruptcy Court's August 26, 1999 Turn Over Order, September 8, 1999 Contempt Order, and October 5, 1999 Incarceration Order should all be affirmed. Accordingly, the following Final Order is entered by the undersigned U.S. District Court Judge with respect to Bankruptcy Appeal Case No. 99–2678–CIV–GOLD and Bankruptcy Appeal Case No. 99–2764–CIV–GOLD.
FINAL ORDER AND JUDGMENT ON APPEAL
Based on the Order set forth above, it is
ORDERED AND ADJUDGED that the Bankruptcy Court's August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to *655 Fully Disclose all Trust Transactions and Order to Show Cause Notice Pursuant to Fed.R.Bankr.P. 9020(b) (the "Turn Over Order"), September 8, 1999 Order Adjudicating Debtor in Civil Contempt for Violation of the August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Pursuant to Fed.R.Bankr.P. 9020(b) (the "Contempt Order") and October 5, 1999 Order Directing United States Marshal to Incarcerate Debtor for Failure to Turn Over Property of the Bankruptcy Estate Pursuant to Prior Court Orders (the "Incarceration Order") are AFFIRMED. It is further
ORDERED AND ADJUDGED that these matters are REMANDED to the Bankruptcy Court to take all the necessary and proper steps to act in accordance with this Order. It is further
ORDERED AND ADJUDGED that Case Nos. 99–2764–CIV–GOLD and 99–2678–CIV–GOLD are CLOSED. Any pending motions in either of those two cases not disposed of by this Order are dismissed as moot. It is further
ORDERED AND ADJUDGED that the Bankruptcy Court's implementation of the Incarceration Order shall be STAYED for thirty (30) days from the date of this Order to permit the appellant to seek review and an additional stay in the Court of Appeals.
Lawrence v. Goldberg (In re Lawrence), 279 F.3d 1294 (11th Cir., 2002).
United States Court of Appeals, Eleventh Circuit.
In re Stephan Jay LAWRENCE, Debtor.
Stephan Jay Lawrence, Plaintiff–Appellant,
Alan L. Goldberg, Trustee, duly authorized and acting Chapter 7 Trustee for the bankruptcy estate of Stephan Jay Lawrence, Defendant–Appellee.
Stephen Jay Lawrence, Plaintiff–Appellant,
Alan L. Goldberg, Defendant–Appellee.
Jan. 23, 2002.
Attorneys and Law Firms
PAGE_1296 Ronald G. Neiwirth, Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., Miami, FL, for Lawrence.
Paul A. Avron, James Harris Fierberg, Paul Steven Singerman, Berger, Davis & Singerman, PA, Miami, FL, for Goldberg.
Appeal from the United States District Court for the Southern District of Florida.
Before EDMONDSON, DUBINA and POLITZ*, Circuit Judges.
Honorable Henry A. Politz, U.S. Circuit Judge for the Fifth Circuit, sitting by designation.
POLITZ, Circuit Judge:
Stephen Lawrence appeals the bankruptcy court's order adjudging him in contempt and ordering his imprisonment until the contempt is purged. For the reasons assigned, we affirm.
In January 1991, Lawrence settled an offshore Trust, with an estimated value of $7 million dollars. According to the Trust, Lawrence had the sole power to appoint Trustees. Two months later, an arbitration judgment was issued against him in the amount of $20.4 million dollars. Over time, several amendments were made to the Trust. In February 1991, a spendthrift provision was added. In January 1993, the Trust was amended so that settlor's powers could not be executed under duress or coercion and his life interest would terminate in the event of his bankruptcy. In March 1995, an amendment was added declaring Lawrence to be an "excluded person" under the Trust, thus proscribing his ever becoming a beneficiary of the Trust. Finally, in 1999, the Trustees issued a "Declaration of Intent" stating that the excluded person status was irrevocable.1
We agree with the district court that this 1999 Declaration is to be given no effect herein. It was done in violation of 11 U.S.C. § 362(a)(3) and the stay order entered by the district court.
PAGE_1297 In June 1997, Lawrence filed a voluntary petition in bankruptcy. The Bankruptcy Trustee objected to the debtor's discharge. During that proceeding, a discovery dispute arose over the sufficiency of Lawrence's answers to interrogatories. After a hearing, the court issued a default judgment deeming the facts alleged in the Trustee's complaint established, found that the rights and obligations of the Trust were governed by Florida law, not the law of Mauritius, which is the law chosen by the Trust documents, and found that the Trust was property of the estate. That order is now final.
In July 1999, the Bankruptcy Trustee sought an order directing Lawrence to turn over the assets of the Trust. The order was granted and the court set a September status conference to determine Lawrence's compliance therewith. At that conference the court found that Lawrence had control over the Trust, through his retained powers to remove and appoint Trustees and to add and exclude beneficiaries, and it rejected Lawrence's impossibility defense. It then held Lawrence in contempt for failing to turn over the Trust assets. On September 8, 1999, the court issued its contempt order. Lawrence declined to comply and on October 5, 1999, the bankruptcy court ordered his incarceration pending compliance. On July 31, 2000, the district court affirmed both the Turn Over Order and the contempt orders. Lawrence timely appealed.
Lawrence remains incarcerated at this time. According to the terms of the contempt order, he is fined $10,000 per day until he purges his contempt. Lawrence claims that on September 13, 1999, he executed a document naming Goldberg as Trustee of the Trust and advised the previous Trustees of this action. He insists that this is the limit of his power to turn over the assets of the Trust to the bankruptcy Trustee.
A Bankruptcy Court has the power to imprison a debtor for contempt of court when the debtor fails to comply with a Turn Over Order.2 Once a proper showing of a violation of the order has been made, "the burden of production then shifts to the alleged contemnor, who may defend his failure on the grounds that he was unable to comply.... In order to succeed on the inability defense, the alleged contemnor must go beyond a mere assertion of inability and establish that he has made in good faith all reasonable efforts to meet the terms of the court order he is seeking to avoid."3 On appeal, the district court's finding that the contemnor has not met his burden of proof in presenting his impossibility defense is a factual determination subject to review under the clearly erroneous rule.4 The courts a quo determined that Lawrence's testimony was not credible and that the Trust documents did not preclude his exercise of control over the Trust. Accordingly, both the bankruptcy court and the district court found that Lawrence failed to support his proffered impossibility defense.
In Re Hardy, 97 F.3d 1384 (11th Cir.1996).
Commodity Futures Trading Comm'n v. Wellington Precious Metals, 950 F.2d 1525, 1529 (11th Cir.1992) (citations omitted).
In a similar case, Federal Trade Commission v. Affordable Media, LLC,5 the Ninth Circuit held that the district court did not err in finding that the contemnors' compliance was not impossible because they remained in control of an offshore Trust. In that case the contemnors, the *1298 Andersons, created a Trust in the Cook Islands which contained a duress clause providing that in the event of duress the Andersons would be terminated as co-trustees and, accordingly, control over the Trust assets would appear to be exclusively in the hands of a foreign Trustee. After the Andersons were ordered to repatriate the Trust assets to the United States, they, as protectors of the Trust, sent a notice to the foreign Trustee ordering it to repatriate the funds based on the court order. The Trustee then removed the Andersons from their positions as co-trustees and refused to comply with the order to repatriate, basing the decision on the duress provision of the Trust.
179 F.3d 1228 (9th Cir.1999).
The Andersons claimed that compliance with the court's order would be impossible because they no longer had control over the Trust. Our appellate colleagues found that the "protector's" powers over an offshore Trust were significant when given "affirmative" powers such as the power to appoint a new Trustee. The Andersons' recognized this power and attempted to resign as the protectors. The appellate court found this to be compelling evidence demonstrating their ability to control the Trust. The court held that the "asset protection Trust" was designed to frustrate the power of the courts to enforce judgments, and found that there was "little else that a district court judge can do besides exercise its contempt powers to coerce people like the Andersons into removing the obstacles they placed in the way of a court."6 The court also pointedly observed that, "While it is possible that a rational person would send millions of dollars overseas and retain absolutely no control over the assets, we share the district court's skepticism."7
Id. at 1243.
Id. at 1241.
In Commodity Futures Trading Commission v. Wellington Precious Metals, Inc., we examined the impossibility defense and held that the contemnor did not present evidence sufficient to establish same. The contemnor claimed that the court's $2.8 million figure was inaccurate, asserting that he only made $1.4 million from his illegal activities, and he produced documents stating that the money was no longer in his possession. He maintained that he had used the money for payment of various unsecured loans. We voiced a skepticism that the contemnor, a sophisticated businessman, took no steps to secure the loans and made no meaningful attempts to collect on debts due him. We stated that, "Even more important, however, is the fact that the district court found [contemnor's] explanations unworthy of belief."8 Accordingly, we held that the district court did not err in finding a failure of proof of the asserted defense.
Commodity Futures Trading Comm'n, 950 F.2d at 1530.
In the instant action, the bankruptcy court determined that the Trust was part of the estate. That order is final and is not subject to collateral attack in this appeal.9 Upon the issuance of that judgment, Lawrence came under a continuing statutory duty to turn the Trust res over to the Trustee.10 Lawrence contends that the Turn Over Order should be reversed because there was no evidence presented at the hearing on the turn over motion. This argument is without merit. The bankruptcy court properly took notice of and considered the evidence placed into the record in the underlying bankruptcy litigation.11 The district court did not err in relying on this underlying action in its *1299 determination that the Turn Over Order at issue was appropriate.
Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948).
11 U.S.C. § 521(4).
State of Florida, Board of Trustees of the Internal Improvement Trust Fund v. Charley Toppino & Sons, Inc., 514 F.2d 700 (5th Cir.1975).
The district court found that:
The primary support for the finding that appellant had the present ability to comply with the Turn Over Order is found in the Trust Indenture itself. The Trust Indenture establishes that the appellant had the power and authority to exercise substantial control over the Trust at the time of the Turn Over Order.
The district court recognized that the Deed of Appointment for the Trust specifically reserves to the Settlor (Lawrence) the right to appoint future Trustees. This power was not affected by the subsequent Declaration that Lawrence was an excluded person under the Trust. In addition, the 1995 Declaration that Lawrence was an excluded person did not state whether that exclusion was revocable or irrevocable.12 The discretion of the Trustees is absolute and unfettered, thus leaving them with the ability to later revoke their decision to make Lawrence an excluded person and reinstate him as a beneficiary. We agree with the district court that, "The import of these clauses and provisions, when read together, is that the appellant, as settlor and prospective beneficiary, retained de facto control over the Trust through his ability to appoint Trustees who could in their absolute discretion reinstate the appellant as a beneficiary and assign the entire proceeds to him."
The 1999 Declaration of Intent declaring the status of Lawrence as an excluded person to be irrevocable was, as the district court noted, "nothing more than a smoke screen meant to obfuscate the issues and hide Lawrence's latent control over the Trust."
We also find that the district court did not clearly err when it determined that the 1993 Duress Amendment is void as to current and future creditors under Florida law where the settlor creates a Trust for his own benefit and inserts a spendthrift clause.13 The bankruptcy court and the district court both concluded that Lawrence clearly established this Trust for his own benefit and to shelter these assets from an anticipated adverse arbitration judgment. Further, this provision was specifically designed to prevent permanent revocation of the settlor's powers. Rather, it leaves to the settlor and the Trustees the discretion to determine when an event of duress has occurred. The sole purpose of this provision appears to be an aid to the settlor to evade contempt while merely feigning compliance with the court's order. We agree with our colleagues in the Ninth Circuit, and with the district court herein, that validation of such a provision would contravene public policy proscribing a debtor from shielding money placed in a Trust for his or her own benefit and to the prejudice of legitimate creditors. We cannot say that the district court's determination that Lawrence had the ability to comply with the Turn Over Order was clearly erroneous. Absent such a finding, the Turn Over Order may not be deemed inappropriate.
Fehlhaber v. Fehlhaber, 850 F.2d 1453, 1455 (11th Cir.1988).
It is undisputed that Lawrence failed to comply with the Turn Over Order. Once it has been shown that a violation of the order has occurred, the burden shifts to the contemnor to demonstrate an impossibility of compliance. As stated above, the record does not support a conclusion that the district court clearly erred in finding that Lawrence has the requisite ability to control the distribution of the Trust.
Lawrence claims that he has done all that he has the power to do by attempting to appoint the Bankruptcy Trustee as the *1300 new Trustee. He insists that the fact that this attempt was met with silence (presumably due to the duress provision) is beyond his control. This contention is not persuasive for several reasons. In order to prevail on an impossibility defense, Lawrence must demonstrate that he has made "in good faith all reasonable efforts" to meet the terms of the court order he is attempting to avoid.14 We agree with the district court that Lawrence's last minute appointment of Goldberg as Trustee does not meet the requirement of "all reasonable efforts," nor do any of Lawrence's actions appear to have been made in "good faith." He had to be aware that his attempted appointment would be ignored by the Trustees under the duress clause. Further, the district court found that his testimony that he retained no control over the Trust and that he had not maintained communication with the Trustees lacked credibility. There is no support in the record before us to warrant a rejection of that credibility determination.
United States v. Roberts, 858 F.2d 698, 701 (11th Cir.1988).
Even if we were to find that Lawrence had set forth sufficient evidence of impossibility, we must agree with the trial court that Lawrence's claimed defense is invalid because the asserted impossibility was self-created. We previously have held that, "where the person charged with contempt is responsible for the inability to comply, impossibility is not a defense to the contempt proceedings."15 Lawrence insists that his impossibility is distinguishable from other cases finding that self-created impossibility is not a defense because his actions, if any, creating the impossibility occurred prior to the instant action. This contention clearly lacks merit. We agree with the district court that Lawrence created this Trust in an obvious attempt to shelter his funds from an expected adverse arbitration award. In addition, at the time Lawrence became an excluded person under the Trust he retained the ability to appoint a new Trustee who would have the power to revoke the excluded person status at any time. We, perforce, must conclude that the district court did not err in holding that Lawrence failed to establish his defense of impossibility.
Pesaplastic, C.A. v. Cincinnati Milacron Co., 799 F.2d 1510, 1521 (11th Cir.1986).
As we affirm the challenged orders, we are constrained to remind the district and bankruptcy courts that civil contempt sanctions are intended to coerce compliance with a court order.16 In Wellington we acknowledged that, "[W]hen civil contempt sanctions lose their coercive effect, they become punitive and violate the contemnor's due process rights."17 The district court must make an individual determination in each case whether there is a realistic possibility that the contemnor will comply with the order. We are mindful that, "although incarceration for civil contempt may continue indefinitely, it cannot last forever."18
Commodity Futures Trading Comm'n v. Wellington Precious Metals, Inc., 950 F.2d 1525, 1530 (11th Cir.1992).
United States v. O.C. Jenkins, 760 F.2d 736, 740 (7th Cir.1985) (Contemnor in that case was imprisoned for 15 months at the time of that opinion. The court stated: "If after many months, or perhaps even several years, the district judge becomes convinced that, although Thom is able to pay he will steadfastly refuse to yield to the coercion of incarceration, the judge would be obligated to release Thom since incarceration would no longer serve the purpose of the civil contempt order—coercing payment." The court then ordered the district court to reconsider his incarceration at "reasonable intervals.").
PAGE_1301 Lawrence has not specifically requested the district court to review whether his continued incarceration has lost its coercive effect. This issue, however, should be considered under the context of his claim of impossibility. If the bankruptcy judge determines that, although Lawrence has the ability to turn over the Trust res, he will steadfastly refuse to do so, the judge will be obligated to release Lawrence because the subject incarceration would no longer serve the civil purpose of coercion.
For the reasons assigned, the judgment appealed is AFFIRMED. We instruct the bankruptcy court to reconsider Lawrence's incarceration at reasonable intervals in order to assure that the contempt sanction continues to serve, and is limited to, its stated purpose of coercion.
In re Lawrence, 2006 WL 8436247 (S.D.Fla., 2006).
United States District Court, S.D. Florida.
IN RE: Stephan Jay LAWRENCE, Appellant/Debtor,
CASE NO: 05-20485-CIV-GOLD/TURNOFF
Attorneys and Law Firms
Stephan Jay Lawrence, Aventura, FL, pro se.
Paul A. Avron, Berger Singerman, Miami, FL, for Appellee.
ALAN S. GOLD, UNITED STATES DISTRICT JUDGE
PAGE_1 THIS MATTER is before this Court on the Magistrate Judge's Report and Recommendation [DE # 131], the "Limited Objection of Trustee Alan L. Goldberg to Magistrate Judge Turnoff's October 6, 2006 Report and Recommendation" [DE # 135], Lawrence's "Preliminary Objections to Magistrate's Report and Recommendation" [DE # 138], and Appellant's "Amendment to Appellant's Preliminary Objections to Magistrate's Report and Recommendation [DE # 151]. The Magistrate Judge's Report and Recommendation and the Objections address a Motion filed by Stephan Jay Lawrence ("Lawrence"), the Appellant/Debtor in this matter, for his "Release from Contempt Incarceration" [DE # 119] as well as a number of related Motions [DE #120 and 121].
On August 10, 2006, Lawrence filed a Motion for "Release from Contempt Incarceration" [DE #119]. On August 25, 2006, I referred this Motion along with a series of other Motions filed by Lawrence to the Magistrate Judge [DE # 124]. On September 25, 2006, the Magistrate Judge held an evidentiary hearing. After the matter was referred to the Magistrate Judge, Lawrence filed a "Motion for Sanctions" [DE # 127] and a "Motion to Withdraw Voluntarily as Judge" [DE # 130].
In the Magistrate Judge's Report and Recommendation dated October 10, 2006, the Magistrate Judge found that "Stephen Jay Lawrence has failed to meet his burden to show that the contempt order has lost its coercive effect; 2) Stephen Jay Lawrence has failed to meet his burden to show that there exists no realistic possibility of compliance; and 3) [t]he matter should be revisited by the bankruptcy court at reasonable intervals." In the Report and Recommendation, the Magistrate Judge specifically recommended that Lawrence's "Motion for Release from Contempt Incarceration" [DE # 119] should be denied. Thereafter, Lawrence and Trustee filed a series of Objections [DE # 135, 138, and 151]. I held a hearing on December 8, 2006 to address the Report and Recommendation and Objections.
For the reasons stated in this Order, I grant Lawrence's Objections [DE # 138 and 151], reject the Trustee's Objections [DE # 135] and I decline to accept the Magistrate Judge's Report and Recommendation [DE # 131] in part. Specifically with regard to the Magistrate Judge's Report and Recommendation, I adopt the portion of the Report and Recommendation which recommended that I deny "Appellee's Emergency Motion to Strike/Response in Opposition to Motion by Appellant for Release from Incarceration" [DE # 120] and Lawrence's "Emergency Request for a Hearing on the Motion for Release of Contemnor and an Order to Compel Production of Witnesses for Hearing" [DE # 121]. However, I reject the portion of the Report and Recommendation that recommends that I deny Lawrence's Motion for "Release from Contempt Incarceration" [DE # 119]. Having denied Lawrence's "Emergency Request for a Hearing on the Motion for Release of Contemnor and an Order to Compel Production of Witnesses for Hearing" [DE # 121], I also deny Lawrence's Motion for Sanctions related to this Motion as moot [DE # 127]. Lastly, I deny Lawrence's "Motion to Withdraw as Judge" [DE # 130].
PAGE_2 The Court is quite familiar with the facts of the instant case. As such, I will only address the history of this matter by way of summary. Lawrence is a Debtor who was incarcerated for civil contempt based on his failure to comply with a bankruptcy court order to turn over the res of an inter vivos trust to a Chapter 7 trustee in 2000. The history of this long and unfortunate case is set forth in the following opinions: In re Lawrence, 251 B.R. 630 (S.D. FIa. 2000); In re Lawrence, 279 F.3d 1294 (11th Cir. 2002), and Lawrence v. United States Bankruptcy Court, 153 Fed.App. 552 (11th Cir. 2005).
The essence of the matter before me is framed by the Eleventh Circuit Court of Appeals:
As we affirm the challenged orders, we are constrained to remind the district and bankruptcy courts that civil contempt sanctions are intended to coerce compliance with a court order. In Wellington we acknowledged that, "[W]hen civil contempt sanctions lose their coercive effect, they become punitive and violate the contemnor's due process rights." The district court must make an individual determination in each case whether there is a realistic possibility that the contemnor will comply with the order. We are mindful that, "although incarceration for civil contempt may continue indefinitely, it cannot last forever."
Lawrence has not specifically requested the district court to review whether his continued incarceration has lost its coercive effect. This issue, however, should be considered under the context of his claim of impossibility. If the bankruptcy judge determines that, although Lawrence has the ability to turn over the Trust res, he will steadfastly refuse to do so, the judge will be obligated to release Lawrence because the subject incarceration would no longer serve the civil purpose of coercion.
For the reasons assigned, the judgment appealed is AFFIRMED. We instruct the bankruptcy court to reconsider Lawrence's incarceration at reasonable intervals in order to assure that the contempt sanction continues to serve, and is limited to, its stated purpose of coercion.
In re Lawrence, 279 F.3d at 1300-1301 (internal footnotes and citation omitted).
Lawrence has now been incarcerated for contempt for more than six years. During that time, he has steadfastly refused to comply with this Court's contempt order. Upon examination of the entire record, including the Report and Recommendation of the Magistrate Judge dated October 10, 2006, I now conclude that there is no realistic possibility that he will comply. As such, it is the law of the case that I am obligated to release Lawrence because the subject incarceration no longer serves the civil purpose of coercion.
While the Magistrate Judge is correct that Lawrence has failed to address the issue during the hearings below, and has failed to carry and meet his burden as a result, I cannot ignore what is self-evident. Six years is longer than most terms of imprisonment for serious federal crimes. In my view, further reviewing the matter at additional "reasonable intervals" will simply not change the result.
Trustee asks this Court to resist concluding that the subject incarceration no longer serves the civil purpose of coercion. In support, the Trustee cites to the Eleventh Circuit's opinion in Commodity Futures v. Wellington Precious Metals, Inc., 950 F.2d 1525 (11th Cir. 1992), where the Court stated: "Prison time, in and of itself will not satisfy Weiss's burden of proving that there exists no 'realistic possibility' that he can comply with the court's contempt order." Id. at 1531. The Trustee echoes the district court's comments in Wellington [quoted by the Eleventh Circuit], that: "... it is far more plausible that Weiss's refusal to pay means simply that Weiss deems the detriments of incarceration outweighed by the concomitant benefits of holding onto his ill-gotten Wellington monies." Id.
PAGE_3 In Wellington, Weiss, after "several months" in prison, filed a motion to terminate the civil contempt order claiming that the time he had spent in jail was proof that he did not have the funds required to pay the amount at issue. The time between incarceration and the denial of his motion was approximately three months. The time between incarceration and the Eleventh Circuit's opinion was less than two years. In assessing the situation in Wellington, the Eleventh Circuit noted that "While each passing month of incarceration may strengthen Weiss's claim of inability (citations omitted), many months or perhaps even years may pass before it becomes necessary to conclude that incarceration will no longer serve the purpose of the civil contempt order." This is because "[I]t can be assumed that at a certain point any man will come to value his liberty more the [the amount of money the order requires him to pay] and the pride lost in admitting that he has lied." United States ex rel. Thom, v. Jenkins, 760 F.2d 736, 740 (7th Cir. 1985)(cited in Wellington ).
I do not base my ruling only on the fact that Lawrence has spent more than six years in jail. Nonetheless, the long period of incarceration is a factor when viewed in the context of the entire record. Based on the totality of the circumstances, I conclude that Lawrence has come to value his money (whatever may be left) more than his liberty. Clearly he is not to be rewarded, but, at the same time, our Constitution prohibits imprisonment for unlawful debt. Because I find that there is no realistic possibility that Lawrence will comply with the contempt order, although he still has the ability to do so, his incarceration may not last indefinitely. In light of the fact that Lawrence has "steadfastly" refused to comply, regardless of the number of "intervals" I have reviewed the matter, I am obligated to adhere to the holding of the Eleventh Circuit that "... the judge will be obligated to release Lawrence because the subject incarceration would no longer serve the civil purpose of coercion." Lawrence, 279 F.3d at 1301. Under this holding, I must release Lawrence from his confinement despite his failure to purge himself of contempt.
Nothing in this Order lessens or diminishes the concerns evidenced by this Court and the Bankruptcy Court in prior opinions or orders. Accordingly, the Trustee may file with the Bankruptcy Court within ten days of this Order a request for such additional protections as the Trustee deems necessary to prevent Lawrence from wrongfully having access to the Trust Res. Any failure by Lawrence to comply with a further order of the Bankruptcy Court may be subject to further contempt proceedings.
Nothing in this Order shall affect the monetary portion of the contempt sanction entered by the Bankruptcy Court.
For the reasons stated above,
It is hereby ORDERED AND ADJUDGED:
1) The Magistrate Judge's Report and Recommendation is REJECTED IN PART and ADOPTED IN PART [DE # 131]. To the extent that the Report and Recommendation recommends that Lawrence's Motion for "Release from Contempt Incarceration" [DE # 119] should be denied, I REJECT that portion of the Report. To the extent that the Report and Recommendation recommends that Trustee's "Emergency Motion to Strike/Response in Opposition to Motion by Appellant for Release from Incarceration" [DE # 120] be denied and that Appellant's "Emergency Request for a Hearing on the Motion for Release of Contemnor and an Order to Compel Production of Witnesses for Hearing" [DE # 121] be denied as moot, I ADOPT these portions of the Report and Recommendation.
2) Lawrence's "Motion for Release from Contempt Incarceration" [DE # 119] is GRANTED.
3) Trustee's "Emergency Motion to Strike/Response in Opposition to Motion by Appellant for Release from Incarceration" [DE # 120] is DENIED.
4) Lawrence's "Emergency Request for a Hearing on the Motion for Release of Contemnor and an Order to Compel Production of Witnesses for Hearing" [DE # 121] is DENIED as moot.
PAGE_4 5) Lawrence's request that sanctions be imposed for noncompliance with his "Emergency Request for a Hearing on the Motion for Release of Contemnor and an Order to Compel Production of Witnesses for Hearing" [DE # 121] contained in a Reply Brief [DE # 127] is DENIED as moot
6) Lawrence's "Motion to Withdraw Voluntarily as Judge" [DE # 130] is DENIED.
7) Lawrence's Objections [DE # 138 and 151] to the Magistrate Judge's Report and Recommendation are GRANTED.
8) Trustee's Objections [DE # 135] to the Magistrate Judge's Report and Recommendation are DENIED.
9) The Federal Detention Center is hereby directed to forthwith release Stephen Jay Lawrence, Inmate #49061-004, from incarceration.
10) Nothing in this Order shall affect the monetary portion of the contempt sanction entered by the Bankruptcy Court.
11) The Clerk of Court is Directed to CLOSE this case.
12) All pending dates are CANCELED and all pending motions not addressed specifically in this Order are DENIED as moot.
DONE AND ORDERED, in Chambers, in Miami, Florida, this 12th day of December, 2006.
Lawrence v. Goldberg, 573 F.3d 1265 (11th Cir., 2009).
United States Court of Appeals, Eleventh Circuit.
Stephan Jay LAWRENCE, Plaintiff–Appellant,
Alan L. GOLDBERG, Crisis Management, Inc., Berger Singerman, P.A., Paul S. Singerman, James H. Fierbert, Paul Avron, Meland Russin & Budwick, P.A., Michael Budwick, et al., Defendants–Appellees.
July 10, 2009.
Attorneys and Law Firms
PAGE_1266 Stephan Jay Lawrence, Miami, FL, pro se.
Mark D. Cohen, Mark D. Cohen, P.A., Hollywood, FL, pro se.
Edward Tillinghast, Daniel Aharoni, New York, NY, Steven Singerman, Berger Singerman, P.A., Michael S. Budwick, Meland Russin & Budwick, PA, Miami, FL, Noah Scott Bender, Mitrani, Rynor & Adamsky, P.A., Weston, FL, Matthew E. Wolper, Bressler Amery & Ross, P.C., Miramar, FL, for Edward Tillinghast.
Paul A. Avron, Berger Singerman, P.A., Miami, FL, for Goldberg, Crisis Management, Inc.
Isaac J. Mitrani, Mitrani, Rynor, Adamsky & Toland, P.S., Miami, FL, for Berger Singerman, P.A., Paul Singerman, Fierbert, Avron.
Stephen Frederick Rosenthal, Podhurst Orseck, P.A., Miami, FL, for Interfor, Inc., Juval Aviv.
PAGE_1267 Cheryl Elyse Zuckerman, Meland Russin & Budwick, P.A., Miami, FL, for Meland Russin & Budwick, PA.
Bennett Falk, Bressler, Amery & Ross, P.C., Miramar, FL, for Bear Sterns & Co., Taub, Lehman.
Howard N. Kahn, Kahn, Chenkin & Resnik, PL, Dania, FL, for Zuckerman.
Appeal from the United States District Court for the Southern District of Florida.
Before DUBINA, Chief Judge, and CARNES and WILSON, Circuit Judges.
DUBINA, Chief Judge:
Appellant Stephan Jay Lawrence, appearing pro se, appeals the district court's dismissal of his civil suit for lack of subject matter jurisdiction under Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881) ("the Barton doctrine"). For the reasons that follow, we affirm.
The present appeal arises out of events occurring in connection with Lawrence's ongoing Chapter 7 bankruptcy proceeding, which has been the subject of litigation before the bankruptcy court in the Southern District of Florida since 1997.
Lawrence, an options trader, incurred a large margin default debt with the investment firm Bear Stearns & Co., Inc. ("Bear Stearns"). An arbitrator entered an award of $20.4 million against Lawrence in favor of Bear Stearns. Bear Stearns confirmed this arbitration award in the Southern District of New York and then registered the New York judgment in the Southern District of Florida. Because Lawrence admitted that he had placed $7 million of his assets in an offshore spendthrift trust ("the Mauritian trust"), the district court in Bear Stearns's suit to enforce the $20.4 million judgment granted Bear Stearns leave to implead a trust representative. Lawrence responded in June 1997 by voluntarily filing for bankruptcy. Thereafter, all collection efforts were pursued under the aegis of the Chapter 7 trustee for Lawrence's estate, Alan L. Goldberg ("the Trustee").
The bankruptcy proceeding has been contentious. Lawrence unsuccessfully sought to have the Trustee's counsel disqualified. In addition, Lawrence represented that although he initially reserved authority to appoint trustees and designate himself as a beneficiary of the Mauritian trust, a March 1995 amendment to the trust labeled him an "excluded person," depriving him of any beneficial interest in, control over, or knowledge of, the trust's assets or activities. The Trustee disputed Lawrence's characterization of the effect of the 1995 amendment to the Mauritian trust and argued that the Mauritian trust's assets belonged in Lawrence's bankruptcy estate.
Because the bankruptcy court concluded that Lawrence's failure to respond to discovery requests concerning the Mauritian trust was willful and in bad faith, the bankruptcy court entered a default judgment against Lawrence, finding that the Mauritian trust was property of the estate. In July 1999, the Trustee sought an order directing Lawrence to turn over the assets of the Mauritian trust ("the Turn Over Order"), which the bankruptcy court granted.
At a status conference convened to determine Lawrence's compliance with the Turn Over Order, the bankruptcy court rejected Lawrence's impossibility defense and found that Lawrence controlled the Mauritian trust through his retained powers to remove and appoint trustees and to add and exclude beneficiaries. The bankruptcy court issued a contempt order against Lawrence for failing to turn over the assets of the Mauritian trust, fining *1268 Lawrence at the rate of $10,000 per day if he did not comply.
In October 1999, after Lawrence's continued failure to comply with the Turn Over Order and the related contempt order, the bankruptcy court ordered Lawrence incarcerated pending compliance. In July 2000, the district court affirmed both the Turn Over Order and the contempt order, and Lawrence was incarcerated in September 2000. This court affirmed the district court's rulings on the Turn Over Order and the contempt order. Lawrence v. Goldberg (In re Lawrence), 279 F.3d 1294, 1296 (11th Cir.2002).
Seeking release from prison, Lawrence filed a petition for mandamus or prohibition in March 2004. The district court denied Lawrence's petition, and this court affirmed. Lawrence v. U.S. Bankruptcy Court, 153 Fed.Appx. 552, 553 (11th Cir.2005) (unpublished). Despite the district court's order prohibiting Lawrence from making further filings with the district court, Lawrence's bankruptcy proceeding remained pending. Id. at 554.
Lawrence filed the instant 18–count amended complaint in August 2006, alleging, inter alia, that the Trustee and a group of creditors conspired to enforce the Turn Over Order and to gain a litigation advantage by: wrongfully obtaining orders authorizing the filing of sealed ex parte pleadings, hiring private investigators, holding in camera discovery hearings, and obtaining Lawrence's tape-recorded telephone conversations from prison. Lawrence alleged that such conduct violated federal wiretapping law, 18 U.S.C. §§ 2510–2522, 2701(a), 2702(a), 2703 and 2707(g); the Racketeer–Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962; the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692d(1), 1692e(10) and 1692f; federal and constitutional rights under 42 U.S.C. § 1983 and Bivens v. Six Unknown Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971); and Florida state laws.
Lawrence named twelve "Trustee" defendants: the Trustee; Crisis Management, Inc. ("CM"), the Trustee's consulting firm;1 Berger Singerman, P.A. ("Berger"), a law firm that represented the Trustee; Paul S. Singerman, a Berger partner; James H. Fierberg, a Berger attorney who allegedly filed a false affidavit; Paul Avron, a Berger attorney who presented arguments to the bankruptcy court; Michael Budwick, the Trustee's special counsel; Budwick's law firm, Meland Russin & Budwick, P.A. ("MRB"); Edward Tillinghast III, an attorney with the Coudert Brothers law firm; the Coudert Brothers law firm;2 Interfor, Inc., an investigative services firm; and Juval Aviv, an investigator and Interfor's owner.
While Lawrence lists CM as a party in the statement of facts in his appellate brief, he does not challenge the district court's dismissal of CM in his arguments to this court. Accordingly, he has waived any claim in this respect. See Lucas v. W.W. Grainger, Inc., 257 F.3d 1249, 1255 n. 1 (11th Cir.2001) (holding that claims not raised in an initial brief on appeal are deemed waived).
Lawrence dismissed his claims against the Coudert Brothers law firm after it declared bankruptcy.
Lawrence also named seven "Creditor" defendants: Bear Stearns; Daniel Taub, a Bear Stearns managing director; Mark Lehman, a Bear Stearns managing director; Mark Cohen, a creditors' attorney; Mark D. Cohen, P.A., Cohen's law firm; Howard Kahn, a second creditors' attorney; and Kahn, Zuckerman, P.A.3
Kahn, Zuckerman, P.A. is not an existing law firm.
PAGE_1269 The district court dismissed Lawrence's amended complaint in its entirety for lack of subject matter jurisdiction under Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). Lawrence then perfected this appeal.4
Although Lawrence challenges the district court's order denying his post-dismissal motion to quash judicial notice with regard to the district court's alternative dismissal of his amended complaint under Federal Rule of Civil Procedure 12(b)(6), it is not necessary for us to resolve the validity of that order in light of our disposition of this appeal on other grounds.
"We review a dismissal for lack of subject matter jurisdiction de novo." Carter v. Rodgers, 220 F.3d 1249, 1252 n. 3 (11th Cir.2000).
The district court dismissed Lawrence's complaint on the basis of the Barton doctrine. In Barton, a court in equity had appointed a receiver "of all the property, rights, and franchises" of a railroad company. Barton, 104 U.S. at 126–27. While the receiver was operating the railroad, one of the company's train cars derailed, and a passenger sustained personal injuries. Id. at 127. The injured passenger attempted to sue the receiver without obtaining the leave of the court that had appointed the receiver. Id. The Supreme Court reasoned that allowing the plaintiff's action to proceed without leave of the appointing court would have been "an usurpation of the powers and duties which belonged exclusively to [the appointing] court." Id. at 136. Therefore, the Supreme Court held that a court does not have "jurisdiction, without leave of the court by which the receiver was appointed, to entertain a suit against him for a cause of action ... based on his negligence or that of his servants in the performance of their duty in respect of [the property administered by the receiver]." Id. at 137.
In 2000, we held—in our only published case interpreting the Barton doctrine—that, as a matter of federal common law, "a debtor must obtain leave of the bankruptcy court before initiating an action in district court when that action is against the trustee or other bankruptcy-court-appointed officer, for acts done in the actor's official capacity." Carter, 220 F.3d at 1252. We also held that the Barton doctrine applies to actions against officers approved by the bankruptcy court when those officers function "as the equivalent of court appointed officers." Id. at 1252 n. 4; cf. Lowenbraun v. Canary (In re Lowenbraun), 453 F.3d 314, 321 (6th Cir.2006) (holding that the Barton Doctrine "applies to trustees' counsel as well as to trustees themselves"). In Carter, we explained that the Barton doctrine helps to ensure the proper functioning of the bankruptcy process:
If [the trustee] is burdened with having to defend against suits by litigants disappointed by his actions on the court's behalf, his work for the court will be impeded.... Without the requirement [of leave], trusteeship will become a more irksome duty, and so it will be harder for courts to find competent people to appoint as trustees. Trustees will have to pay higher malpractice premiums, and this will make the administration of the bankruptcy laws more expensive.... Furthermore, requiring that leave to sue be sought enables bankruptcy judges to monitor the work of the trustees more effectively.
Carter, 220 F.3d at 1252–53 (alteration in original) (quoting In re Linton, 136 F.3d 544, 545 (7th Cir.1998)).
Lawrence argues that the district court should not have applied the Barton doctrine to all of the defendants in his civil *1270 suit. We disagree. It is undisputed that Lawrence did not obtain leave of the bankruptcy court before filing his amended complaint in the district court. The Trustee was appointed by the bankruptcy court, and the Trustee's court-approved counsel—the Berger firm and attorneys Singerman, Berger, Fierberg, and Avron; the MRB firm and attorney Budwick; and attorney Tillinghast of the Coudert Brothers firm—functioned as the equivalent of court-appointed officers by helping the Trustee execute his official duties. While Lawrence claims that the Trustee, through counsel, abused his official position, he concedes that the Trustee ostensibly undertook the challenged actions in his official capacity and for the purpose of enforcing the bankruptcy court's Turn Over Order. See 11 U.S.C. § 704(a)(1) (The Trustee has a duty to "collect and reduce to money the property of the estate."). The bankruptcy court also approved the Trustee's hiring of investigator Aviv and his company Interfor, Inc. to help him discharge his duty to locate assets belonging to the bankruptcy estate. Thus, Aviv and Interfor, Inc. also functioned as the equivalent of court appointed officers, and Lawrence's claims that they violated the terms of their retainers concerned actions taken in their official capacities.
With regard to the creditor defendants, the bankruptcy court approved a financing arrangement in which the creditors—namely Bear Stearns, acting through managing partners Taub and Lehman—would advance the costs necessary to recover property of the estate and would receive repayment from recovered assets, if any. Thus, to the extent the creditors financed the Trustee's efforts to locate hidden assets on behalf of the estate, they likewise functioned as the equivalent of court appointed officers, as did their counsel. By alleging that the creditors, through counsel, hired professionals for their own benefit but billed their fees to the estate, Lawrence essentially claimed that they breached their official fiduciary duties to the Trustee and the bankruptcy court.
Lawrence next contends that the Barton doctrine does not apply because his civil suit is unrelated to his bankruptcy proceeding.5 We disagree. Bankruptcy courts have jurisdiction to hear "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11," upon referral by a district court. 28 U.S.C. § 157(a) (2006). " 'Arising under' proceedings are matters invoking a substantive right created by the Bankruptcy Code. The 'arising in a case under' category is generally thought to involve administrative-type matters...." Cont'l Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1345 (11th Cir.1999) (citations omitted). We have adopted the following guidelines for determining whether a civil proceeding is "related to" a bankruptcy proceeding:
In Carter, we left open the question "whether leave of the bankruptcy court is required when a debtor sues a trustee [or other bankruptcy-court-approved officer] for a tort completely 'unrelated to' and 'outside the scope' of the bankruptcy proceeding." Carter, 220 F.3d at 1253. Because we conclude that Lawrence's civil claims are related to his bankruptcy proceeding, we need not answer the question left open in Carter.
The ... test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy. The proceeding need not necessarily be against the debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any *1271 way impacts upon the handling and administration of the bankrupt estate.
Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir.1990) (quoting Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)).
Although Lawrence raises claims under a variety of state and federal laws, the essence of Lawrence's complaint is that the Trustee and the other defendants colluded to enforce the Turn Over Order, an order of the bankruptcy court, and otherwise unlawfully attempted to bring assets into the bankruptcy estate. The outcome of Lawrence's civil suit clearly could have an effect on the handling and administration of his bankruptcy estate. All of Lawrence's civil claims fall within the scope of the Barton doctrine because they are "related to" his bankruptcy proceeding.
For the reasons set forth above, we affirm the district court's order dismissing Lawrence's amended complaint in its entirety.6
Because of our disposition of this appeal, we decline to consider the parties' remaining arguments.