In re Bradley

• Decision Date: 11 November 2009
• Docket Number: No. 08-50587.,08-50587.
• Citation: 588 F.3d 254
• Parties: In the Matter of: Gary L. BRADLEY, Debtor. Ronald E. Ingalls, Chapter 7 Trustee, Appellee, v. Tommy Thompson, as Trustee of the Lazarus Exempt Trust, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

588 F.3d 254

In the Matter of: Gary L. BRADLEY, Debtor.

Ronald E. Ingalls, Chapter 7 Trustee, Appellee, v. Tommy Thompson, as Trustee of the Lazarus Exempt Trust, Appellant.

No. 08-50587.

United States Court of Appeals, Fifth Circuit.

November 11, 2009.

Michael Paul Massad, Jr. (argued), Winstead, P.A., Jarrett Lee Hale, Jesse Tyner Moore, Hunton & Williams, L.L.P., Dallas, TX, for Appellee.

Eric Jay Taube (argued), Sarah J. Starnes, Hohmann, Taube & Summers, L.L.P., Austin, TX, for Appellant.

Appeal from the United States District Court for the Western District of Texas.

Before BARKSDALE, DENNIS and ELROD, Circuit Judges.

JENNIFER W. ELROD, Circuit Judge:

Appellant Tommy Thompson, in his capacity as trustee of the Lazarus Exempt Trust, presents this appeal to challenge a ruling of the bankruptcy court, affirmed by the district court, holding Thompson's predecessor Bradley Beutel in contempt of court and imposing monetary sanctions. We conclude that Beutel's conduct in the time period between the district court's announcement of an injunction and its reduction to writing was contemptuous, and accordingly affirm.

I. FACTS AND PROCEEDINGS

This appeal grows out of the circumstances described in our previous decision in Bradley v. Ingalls (In re Bradley), 501 F.3d 421 (2007), concerning the bankruptcy of Gary Bradley:

In the mid-1980's, the FDIC obtained a judgment for over $50 million against Bradley, [his business partner James] Gressett, and their large real estate development company, Circle C Development Corp. Gressett filed for Chapter 7 bankruptcy protection in the early 1990's and received a discharge. In 1999, Bradley and Gressett decided to separate their business interests by dividing, transforming, and transferring assets representing Bradley's share into a trust to be formed for the purpose of protecting his assets from creditors.

Bradley Beutel, Bradley's cousin and close business associate, was chosen to identify, reconfigure, and transfer assets of values equivalent to Bradley's share into the trust.

Id. at 426. In May, 2000, Bradley's sister created the Lazarus Exempt Trust (the "Trust"). She named Beutel—the predecessor to current Appellant Thompson—as trustee.

After substantial assets had been transferred to the Trust, Bradley declared bankruptcy. The bankruptcy court concluded that the Trust was part of a fraudulent scheme:

For those of us looking in, this is an incredibly fraudulent scheme engaged in primarily by Gary Bradley, the Debtor, Gressett, the Debtor's business partner, and, with the Trust's formation, Bradley Beutel, the Trustee, as well, to hide the assets Bradley owned, to place them into the Trust when formed and to preserve them from the clutches of Bradley's creditors, the FDIC and the IRS.

See Bradley v. Ingalls (In re Bradley), 371 B.R. 782, 785 (2007) (quoting earlier opinion); see also 501 F.3d at 427 (detailing the bankruptcy court's more specific findings regarding the Trust). The bankruptcy court denied Bradley discharge from bankruptcy for transferring, removing, destroying, mutilating, or concealing property of the debtor with intent to hinder, delay, or defraud a creditor, pursuant to 11 U.S.C. § 727(a)(2)(A). It concluded that the Trust was largely "self-settled" under Texas law and was therefore not protected from creditors. See 501 F.3d at 427. The bankruptcy court allowed the bankruptcy trustee—current Appellee Ronald E. Ingalls—to recover from the Trust those self-settled assets that he could demonstrably trace from Beutel's possession to the Trust's possession at the time. Some other assets were ruled beyond Ingalls's reach, however, because "although Ingalls had traced [them] from Bradley to the Trust, he had failed to show that those identical assets or products of those assets were still in the Trust; or that they had become commingled with Trust assets." Id. at 430. Ingalls, Beutel, and Bradley all appealed aspects of the bankruptcy court's 145-page ruling. The district court affirmed, and we did as well. See id. at 426.

The present appeal concerns Beutel's diversion of property from Trust-controlled entities in the time period between the April, 2004 trial on the merits in the bankruptcy court and the issuance of the bankruptcy court's resulting ruling on October 28, 2004. Prior to the trial, the bankruptcy court had enjoined Beutel from "transferring property or money of the Trust to himself" or to entities controlled by him or represented by Bradley's attorney. That injunction expired at the trial's conclusion. At that point, Beutel began making preparations to sell significant Trust assets, particularly real estate belonging to a Trust-controlled entity called Phoenix Holdings, Ltd. This property would later be among the assets held to be self-settled.

In order to prevent Beutel from disposing of the Phoenix Properties or other trust assets, Ingalls, together with the United States and FDIC as creditors, filed a "Joint Motion to Maintain Status Quo Pending Final Ruling in Adversary Proceeding." Beutel did not attend the August 24, 2004 hearing on the motion, where Beutel's attorney admitted there were preparations to dispose of the Phoenix Property. At the hearing, the bankruptcy court informed the parties it would enter an injunction somewhat narrower than requested, stating that:

I'm going to enjoin . . . Mr. Beutel as trustee from disposing of any asset owned by any entity in which the trust owns at least 51 percent of the equity or which it controls except that the trustee may sell, through his control of any of those entities, any asset of those entities if the sale is for a fair value and at arm's length and provided further that the consideration therefore be maintained in that entity except for the payment of valid, non-insider claims of those entities and shall not be disbursed to other entities in which the trust owns an interest, to the trustee, to the beneficiary of the trust, [or to entities connected to certain other individuals associated with the debtor].

The bankruptcy court instructed Beutel's counsel to take the lead in drafting a corresponding order.

It took almost a month for the bankruptcy court to enter the order, and in the meantime Beutel effected the sale of Trust assets. On September 7, 2004, counsel for Ingalls submitted a proposed draft injunction to the bankruptcy court.¹ That same day, Beutel closed the sale of the Phoenix Property and other Trust assets. Beginning September 9, 2004, Beutel began to disperse funds received from the sale to various entities controlled by the trust, himself, and Bradley. On September 10, Beutel filed a Motion to Approve Disbursements, seeking permission to make certain transfers contrary to the injunction previously announced.² It was not until September 20, 2004, that the bankruptcy court issued its ultimate written injunction, with terms essentially corresponding to those it had announced at the hearing.

On motion from Ingalls and the government creditors, the bankruptcy court later held Beutel, personally and in his capacity as trustee, in contempt for transferring Trust property and failing to retain the consideration received in the entities that sold the property. See Bradley v. Ingalls (In re Bradley), 371 B.R. 782, 797 (2007). It concluded that Beutel transferred and diverted sale consideration away from Trust entities later determined to be property of the bankruptcy estate, by various means including the initial structuring of the sale transactions. The contempt process took several years. Ingalls, the FDIC, and the United States initially filed a motion for contempt in October, 2004. Consideration of the motion was delayed while the parties conducted discovery and litigated the appeal of the bankruptcy court's rulings from the trial on the merits. The movants filed a First Amended Joint Motion for Contempt on December 22, 2006. After a trial at which Beutel testified in his own defense, the bankruptcy court granted the motion, leading to this appeal.

The bankruptcy court rejected Beutel's testimony, in which he claimed that he had not known about the injunction until late September when the court issued the final written order. It concluded that Beutel's testimony was "either an error of memory or perjury," id. at 787, and leaned toward the latter conclusion:

This Court does not believe Mr. Beutel's testimony that he knew nothing about the injunction until September 27, 2004 in any manner, shape or form. Mr. Beutel's attempt to use the "ostrich with his head stuck in the sand" defense is not only implausible, it is patently ridiculous. His testimony cannot be believed, and the Court no longer holds any faith in Mr. Beutel's ability or desire to be truthful. He is the epitome of the non-credible witness. And, it is obvious that he chose not to attend the August 24th hearing so he would not have to testify about the pending sale.

Id. at 787-88.

The bankruptcy court enumerated other key observations, findings, and conclusions in a list of reasons for holding Beutel in contempt and sanctioning him:

1. This is a civil contempt issue not a criminal contempt issue. No imprisonment is involved.

2. Beutel had actual knowledge of the Court's oral injunction stated on the record August 24, 2004.

3. The August 24, 2004 oral injunction was clear and specific.

4. It was only after the injunction was pronounced on the record that Beutel's counsel disclosed the existence of the pending sale.

5. The remainder of the hearing was devoted primarily to Beutel's counsel clarifying the exact extent of the injunction orally pronounced on the record; approximately one-quarter of the total time of the hearing.

6. The sale in question had been Beutel's primary focus from the end of the trial on the merits—April 30, 2004— until the date of the injunction hearing.

7. Beutel did not come to the hearing —obviously so he could avoid being put on the stand and potentially have to testify...