In re Romero

• Decision Date: 16 September 2016
• Docket Number: Case No. 15-23570-TJC
• Citation: 557 B.R. 875
• Parties: In re: Peter Romero, Debtor
• Court: U.S. Bankruptcy Court — District of Maryland

557 B.R. 875

In re: Peter Romero, Debtor

Case No. 15-23570-TJC

United States Bankruptcy Court, D. Maryland, at Greenbelt .

Signed September 16, 2016

Filed September 19, 2016

Kevin G. Hroblak, Whiteford, Taylor et al., Baltimore, MD, for Debtor.

MEMORANDUM OF DECISION

THOMAS J. CATLIOTA

, U.S. BANKRUPTCY JUDGE

Before the court is a motion to dismiss the bankruptcy case of the debtor Peter Romero filed by Ralph S. Janvey, in his capacity as a court-appointed receiver for the Stanford International Bank Ltd. (the “Receiver”). ECF 91. The debtor opposes the motion. ECF 105. For the reasons in this Memorandum, the court will deny the motion.

The court has jurisdiction over this matter under 28 U.S.C. §§ 1334

and 157(a) and Local Rule 402 of the United States District Court of the District of Maryland. This is a core proceeding that the court may hear and determine pursuant to 28 U.S.C. § 157(b).

Findings of Fact

The debtor filed a petition for relief under Chapter 7 on September 30, 2015. Monique Almy was initially appointed as interim trustee and serves as the Chapter 7 trustee in the case.

The Debtor's Background and the Receiver's Judgment .

The debtor began working for the United States Department of State in 1977. Over the ensuing 24 years, he rose to become an Ambassador and the Assistant Secretary of State for Western Hemisphere Affairs. There is no dispute he received numerous awards and otherwise had an exemplary career.

He retired from foreign service in 2001 and worked for a time in investment banking. He then formed a consulting company to assist clients with mitigating or avoiding overseas problems and consulting on foreign relations matters. He also served on a number of boards of nonprofit organizations on a pro bono basis. For approximately seven years he worked as a consultant for Stanford Financial Group (“Stanford”). He advised Stanford on overseas markets and political risk and stability, gave speeches on U.S. policy, and provided them with investment opportunities. He severed ties with Stanford the day he learned of the Receiver's appointment and that fraud activities had occurred.

The Receiver brought suit against the debtor in the U.S. District Court for the Northern District of Texas. The debtor's relationship with Stanford, the Receiver's claims against the debtor, and the judgment obtained by the Receiver were described by the Fifth Circuit Court of Appeals as follows:

For almost twenty years, R. Allen Stanford [ ] and his co-conspirators perpetrated a multi-billion dollar Ponzi scheme. The Ponzi scheme involved a network of numerous entities owned by Stanford [ ] that sold fraudulent certificates of deposit (“CDs”) to investors.

After [the debtor] retired from the United States Department of State in 2001, he began working part-time as a member of the Stanford International Advisory Board (the “IAB”). Although the nature of [the debtor's] job functions are disputed, there is evidence to support that his job essentially was to market the Stanford brand internationally. He worked on the IAB for almost eight years, resigning in January 2009. He received $700,000 as advisory board fees for his work on the IAB, distributed in periodic installments over the span of these eight years, plus travel expense reimbursement and payments on his own Stanford CDs.

On February 16, 2009, the Securities and Exchange Commission filed a lawsuit against Stanford, Stanford's Chief Financial Officer James M. Davis (“Davis”), various other individuals, and various Stanford entities. That same day, the court appointed Ralph S. Janvey to be the Receiver for those defendants. On August 27, 2009, Davis pled guilty to criminal charges. In October 2010, the Receiver began investigating payments made to the members of the IAB, including [the debtor]. On February 15, 2011, which was approximately four and a half months after the Receiver began investigating the IAB, the Receiver filed the underlying lawsuit against [the debtor].

In the underlying lawsuit, the Receiver sought to recover the monies paid by the Stanford entities to [the debtor] under a fraudulent transfer claim or, alternatively, an unjust enrichment claim. After a four-day jury trial in February 2015, the jury found in favor of the Receiver on both the fraudulent transfer and unjust enrichment claims. [The debtor] then filed a motion for judgment as a matter of law, alleging that a portion of the fraudulent transfer claim is barred by the statute of repose and that unjust enrichment is not an independent cause of action. The district court denied [the debtor's] motion and entered a final judgment awarding the Receiver $788,655.01 in damages under the fraudulent transfer claim only; no damages were awarded under the alternative unjust enrichment claim.

Janvey v. Romero , 817 F.3d 184, 186–187 (5th Cir. 2016)

.

The judgment included damages of (1) $700,000 in fees paid for the debtor's service on the IAB, (2) $55,000 in expense reimbursement, and (3) $3,018.37 in CD interest payments, but not the return of principal. Id.

The Receiver then sought attorneys' fees and costs of $941,356.19 and was awarded $320,000. Receiver's Exhibit (“Rec. Ex.”) 2 at 1 of 9. With prejudgment interest, the judgment stands at $1.275 million. The judgment was affirmed by the Fifth Circuit Court of Appeals. Janvey , 817 F.3d at 192.

After the judgment was entered, the debtor attempted to negotiate a settlement with the Receiver. He submitted a letter and attachments dated May 19, 2015, that listed his exempt and nonexempt assets. Debtor's Exhibit (“Deb. Ex.”) A. The Receiver rejected the settlement proposal, stating “[p]ursuing the Ambassador has strategic importance beyond the amount of money involved. Trial counsel never understood that. Perhaps you can see that ....” Deb. Ex. B at 1 of 2.

The debtor's Individual Retirement Accounts (“IRAs”) are administered by Wells Fargo Bank through an office in Maryland. The Receiver attempted to garnish the debtor's IRA by filing a garnishment on Wells Fargo in California. The debtor holds no assets in California and has no other connections with the state. The debtor contends that the Receiver selected California because its laws are the most favorable to a creditor seeking to collect a debt from pension funds. The Receiver neither accepted nor disputed this contention. The debtor was required to retain California counsel to challenge the Receiver's garnishment.

The debtor again attempted to negotiate a settlement with the Receiver after he filed the petition and was again unsuccessful.

The Debtor's Financial Condition.

The debtor and his wife purchased their residence in 1996 for $388,000 as tenants by the entireties. The home is waterfront property in St. Michaels, Maryland. According to their schedules, the property is worth approximately $1.48 million today, and is encumbered by a deed of trust loan of just under $400,000. Rec. Ex. 6 at 3 of 31.

The debtor and his wife own two investment real estate properties as tenants by the entireties. One is located on Water Place in Alexandria, Virginia. According to the debtor's schedules it has a value of $815,000 and is encumbered by a deed of trust of $162,946. Id. The second is located on 22nd Street in Washington, D.C. The debtor lists the value at $525,000, and it is unencumbered. Id.

The debtor holds two IRAs administered by Wells Fargo in the total amount of $700,000. Id. at 5 of 31. His interest in the Peter F. Romero Defined Benefit Plan is valued at $1.5 million. Id.

On his Schedule C, the debtor claimed an exemption for the real estate because it is owned tenants by the entireties, and claimed an exemption for his interest in the IRAs, the defined benefit plan, and the State Department pension. Rec. Ex. 6 (Schedule C) at 8 of 13; Rec. Ex. 7 (Amended Schedule C) at 1 of 2.

The debtor's Schedule F lists the Receiver's claim of $1,275,976.61. In addition, the schedule lists a claim of $54,296.28 to the law firm of Kane Russell Coleman and Logan, and $92,000 to the law firm of Squire Patton and Boggs.¹

As of the petition date, the debtor owned a 1987 Mercedes Benz, which he valued on Schedule B at $15,000, a 25-foot Seaquest boat, valued on Schedule B at $20,000, and a 43-foot Chris Craft boat, valued on Schedule B at $200,000. The debtor acquired the Chris Craft boat for $238,500 primarily with an inheritance from his father's estate, and the boat was titled as tenants by the entireties. Rather than fight a challenge to the exemption, and as a show of good faith, the debtor did not pursue the tenants by the entireties exemption for the Chris Craft boat and surrendered it to the Chapter 7 trustee for administration. Compare Rec. Ex. 6 (Schedule C) at 8 of 13 with Rec. Ex. 7 at 1 of 2. The Chapter 7 trustee sold the Mercedes for $5,900 (ECF 82), the Seaquest for $13,000 (ECF 87), and the Chris Craft for $150,000 (ECF 109).

The Debtor's Wife's Illness .

The debtor is married to Ruth Espey-Romero. She is an attorney and was a partner with the law firm of Greenberg and Traurig, specializing in international law. She contracted a bacterial brain infection while serving as chairman of a nonprofit organization in Colombia. As a result she is 100% incapacitated for work and has impaired motor skills, balance and eyesight.

The debtor and his wife remodeled the house to allow her to maintain living arrangements on the first floor. Prior to the bankruptcy filing, the Romeros employed a live-in caregiver to tend to Ms. Espey-Romero. They subsequently reduced that to a daily home caregiver, except for Sundays and part of Saturdays when the debtor manages his wife's care on his own.

The Household Income .

The debtor's State Department pension plan generates $4,371 per month. He and his wife receive approximately $3,000 in monthly net rental income from the two investment properties, and $4,633 per month in social security income. His wife held three disability insurance policies that generated approximately $22,000 per month....