CIB Marine Capital, LLC v. Herman (In re Herman)

• Decision Date: 06 August 2013
• Docket Number: Adv. Pro. No. 12–1785–JKO,Case No. 12–13989–JKO
• Citation: 495 B.R. 555
• Parties: In re Peter G. Herman, Debtor. CIB Marine Capital, LLC, as assignee of CIB Marine Bancshares, Inc., successor by merger to Citrus Bank, N.A., and Kenneth A. Welt, solely in his capacity as chapter 7 trustee of the estate of Peter G. Herman, Plaintiffs, v. Peter G. Herman, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

495 B.R. 555

In re Peter G. Herman, Debtor.CIB Marine Capital, LLC, as assignee of CIB Marine Bancshares, Inc., successor by merger to Citrus Bank, N.A., and Kenneth A. Welt, solely in his capacity as chapter 7 trustee of the estate of Peter G. Herman, Plaintiffs,

v.Peter G. Herman, Defendant.

Case No. 12–13989–JKO

Adv. Pro. No. 12–1785–JKO

United States Bankruptcy Court, S.D. Florida Fort Lauderdale Division

August 6, 2013

Bart A. Houston, Houston Law Group, P.A., Fort Lauderdale, FL, for Defendant.

Neil P. Linden, Kristopher E. Pearson, Miami, FL, for Kenneth A. Welt, Intervenor–Plaintiff.

Kristopher E. Pearson, Miami, FL, for CIB Marine Capital, LLC, Plaintiff.

Chapter 7

John K. Olson, Judge United States Bankruptcy Court

FINDINGS OF FACT AND CONCLUSIONS OF LAW

In this Adversary Proceeding, Plaintiffs, CIB Marine Capital, LLC, as assignee of CIB Marine Bancshares, Inc., successor by merger to Citrus Bank, N.A. (“ CIB Marine ”) and Kenneth A. Welt, as the duly appointed, authorized, qualified and acting Chapter 7 Trustee (“ Trustee Welt ”) for the bankruptcy estate of Peter G. Herman (the “ Debtor ”), object to and seek denial of the Debtor's discharge based upon intentional concealment of prepetition assets, nondisclosure of prepetition transfers and related false oaths.

For years prior to his bankruptcy filing, the Debtor acted as an originating Director and co-lead trial counsel in two separate contingency fee cases against The Home Depot U.S.A., Inc. (the “Home Depot Case”) and Security Mutual Life Insurance Company of New York (the “Security Mutual Case”), respectively (collectively, the “ Contingency Fee Cases ”). The Debtor's trial victories in the Contingency Fee Cases, which occurred prior to the commencement of his Chapter 7 bankruptcy proceeding, resulted in the receipt of approximately $10 million in fees (the “ 10 Million Fee ”) by his law firm, Tripp Scott, P.A. (“ Tripp Scott ”), and ultimately in post-petition compensation to the Debtor in the amount of $2.7 million on account of, among other things, his prepetition services and his status as a Director of Tripp Scott. Although the record in this case reflects numerous prepetition communications in which the Debtor stated his expectation and belief that he was entitled to a substantial share in the $10 Million Fee, the Debtor's interest in the $10 Million Fee was not disclosed in any of the Debtor's submissions in his Chapter 7 bankruptcy case, including in his Schedules and Statement of Financial Affairs.

The Debtor's omissions in this regard must be juxtaposed with his obligations to CIB Marine, which held an approximately $4.5 million prepetition deficiency judgment against the Debtor on account of his guarantee of a failed real estate loan, and was actively attempting to collect such debt at the time of the Debtor's bankruptcy filing, including through the garnishment of the Debtor's wages. Taken together, the Court finds the evidence reflects a scenario where, as of the date of his bankruptcy filing, the Debtor fully expected to receive millions of dollars in earnings in the near term (which he ultimately did), but sought to shield those earnings from his largest creditor through his Chapter 7 bankruptcy filing and related non-disclosure in his bankruptcy Schedules.

For the reasons set forth below, the Court concludes that the Debtor's interest in the $10 Million Fee is property of the Debtor's bankruptcy estate, and concludes that the Debtor concealed his interest in the $10 Million Fee in his bankruptcy Schedules with the intent to hinder, delay or defraud Trustee Welt and his creditors, most particularly CIB Marine. The Court further concludes that the Debtor committed false oaths or accounts in his bankruptcy Schedules and Statement of Financial Affairs relating to the $10 Million Fee. Based upon the foregoing, the Debtor's discharge is denied. Additionally, because the Court also concludes that the Debtor transferred money to his ex-wife within the year prior to the date on which he filed bankruptcy with the intent to hinder, delay or defraud his creditors, concealed such transfer, and also committed false oaths or accounts in his bankruptcy Schedules and Statement of Financial Affairs relating to such transfer, the Debtor's discharge is denied.

This Adversary Proceeding was tried before the Court on June 5 and 6, 2013 (the “Trial”). The Debtor testified at Trial, along with two of his colleagues, Edward J. Pozzuoli, Esq. (“Pozzuoli”) and Alexander D. Brown, Esq. (“Brown”), both of whom are attorneys at Tripp Scott.

I. FINDINGS OF FACT¹

The issues in this Adversary Proceeding, including the Plaintiffs' claims that the Debtor intentionally concealed his interest in the $10 Million Fee, are best understood by assessing the facts and the Debtor's state of mind as of the date he filed his Chapter 7 bankruptcy case, including as to his existing liabilities and anticipated earnings as a Director of the law firm of Tripp Scott. Accordingly, the discussion that follows: (i) begins by addressing the facts surrounding CIB Marine's prepetition judgment against the Debtor in the amount of approximately $4.5 million; (ii) next addresses the Debtor's rights to compensation as a Director of Tripp Scott as they existed and as he understood them as of the date of his bankruptcy filing; (iii) then discusses the Contingency Fee Cases, their resolution and the Debtor's $2.7 million bonus from the $10 Million Fee; and, (iv) sets forth the facts surrounding the Debtor's concealment of assets and improper transfers in connection with his Chapter 7 bankruptcy case, which form the basis for the Plaintiffs' request for denial of the Debtor's discharge pursuant to §§ 727(a)(2) and (a)(4).

A. CIB Marine's Prepetition Judgment Against the Debtor

In January 2007, the Debtor owned certain membership interests in Esquire Ventures, LLC, a Florida limited liability company (“ Esquire ”). In January 2007, Esquire obtained a loan from Citrus Bank in the principal amount of $6,787,500.00 (the “ Esquire Loan ”). The Esquire Loan was secured by, inter alia, a first mortgage encumbering real property owned by Esquire in Indian River County, Florida (the “ Esquire Property ”). On January 25, 2007, the Debtor executed an Unconditional Guaranty in favor of Citrus Bank guaranteeing the Esquire Loan (the “ Debtor Guaranty ”).² In the Debtor Guaranty, the Debtor waived the benefits of all exemptions except any homestead exemption.

On January 24, 2009, the Esquire Loan matured, and Esquire failed to pay the loan balance. On February 19, 2009, CIB Marine instituted an action in the Circuit Court for the 19th Judicial Circuit Court for Indian River County, Florida seeking to enforce the Esquire Loan and the Debtor Guaranty (the “ Esquire Action ”). On June 23, 2011, CIB Marine obtained a final judgment against Esquire, inter alia, foreclosing the mortgage encumbering the Esquire Property. On December 6, 2011, the court in the Esquire Action conducted a hearing on CIB Marine's request for entry of a deficiency judgment against the Debtor. The Debtor testified at Trial that he did not attend the hearing or oppose the request for a deficiency judgment because the deficiency amount was already established prior to the hearing.

On December 8, 2011, the Court in the Esquire Action entered a final judgment of deficiency in the amount of $4,569,464.48 against the Debtor (the “ CIB Marine Judgment ”). On March 6, 2013, the Fourth District Court of Appeal affirmed the CIB Marine Judgment. On April 16, 2013, the Fourth District Court of Appeal denied the request for rehearing and rehearing en banc, and for a written opinion relating to the affirmance of the CIB Marine Judgment.

Prior to the Debtor filing bankruptcy, CIB Marine was the only creditor actively pursuing collection efforts against the Debtor. On December 29, 2011, the court in the Esquire Action, at the request of CIB Marine, issued a Continuing Writ of Garnishment against Salary or Wages to Tripp Scott.

B. The Debtor and Tripp Scott

1. The Debtor

The Debtor is a practicing attorney, was admitted to the Florida Bar in 1982 and is “AV” rated by Martindale–Hubbell. The Debtor is employed by and is a non-shareholder “Director” at Tripp Scott. He has been employed by Tripp Scott since 1982. The Debtor testified that he is a trial lawyer. His areas of practice have included: (i) Intellectual Property Litigation; (ii) General Commercial Litigation (but, specifically excluding any matters relating to bankruptcy practice); (iii) Healthcare; and (iv) Personal Injury. According to the Debtor's biography from Tripp Scott's website, a copy of which was admitted into evidence at Trial as Ex. 1, (i) the Debtor has represented Fortune 500 companies and several prominent Florida businesses; (ii) he has been successful in litigation claims that have resulted in significant changes in the law, specifically in the area of negligence law relating to pharmacists and prescription pharmaceuticals; and (iii) he has served as chair as well as co-chair of the firm's litigation department. The testimony at Trial also reflects that the Debtor is a former member of the Compensation Committee at Tripp Scott.

The Court concludes on the basis of his testimony and the entire record made at Trial that Mr. Herman is a highly skilled, experienced, and sophisticated trial lawyer.

On February 18, 2012 (the “ Petition Date ”), the Debtor filed a voluntary petitionunder Chapter 7 of Title 11 of the United States Code, which initiated the bankruptcy case from which this Adversary Proceeding arises.

2. Tripp Scott and Director Compensation

Tripp Scott is a law firm, which is organized as a subchapter C corporation under Florida law. Trial Tr. 127:5–8. Tripp Scott is structured in a manner such that the firm has only two actual shareholders, Norman Tripp and Dennis Smith, each of whom acts as a trustee of a voting trust which has beneficial ownership of...