In re Brown

• Decision Date: 18 June 2014
• Docket Number: 13–36411.,Nos. 13–35892,13–36408,13–36390,13–36410,Misc. No. 14–00302.,13–36407,s. 13–35892
• Citation: 511 B.R. 843
• Parties: In re Michael Glyn BROWN, Lionhart Company, Inc., Castlemane, Inc., Prorentals, Inc., Superior Vehicle Leasing Co., Inc., MG Brown Company, LLC, Debtors. In re Carol Paredes and Michael J. Aviles.
• Court: U.S. Bankruptcy Court — Southern District of Texas

511 B.R. 843

In re Michael Glyn BROWN, Lionhart Company, Inc., Castlemane, Inc., Prorentals, Inc., Superior Vehicle Leasing Co., Inc., MG Brown Company, LLC, Debtors. In re Carol Paredes and Michael J. Aviles.

Nos. 13–35892, 13–36390, 13–36407, 13–36408, 13–36410, 13–36411.

Misc. No. 14–00302.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

Signed June 18, 2014.

Joel M. Androphy, Ashley Gargour, Berg & Androphy, Charles A. Beckham, Jr., Patrick L. Hughes, Haynes & Boone LLP, Houston, TX, for Debtors.

Geoffrey S. Aaronson, Matthew S. Kish, Tamara D. McKeown, Lawrence M Schantz, Aaronson Schantz PA, Miami, FL, for Carol Paredes and Michael J. Aviles.

MEMORANDUM OPINION

(Docket Nos. 15 and 16, Misc. No. 14–0302)

DAVID R. JONES, Bankruptcy Judge.

Before the Court for consideration is the Emergency Motion for Order Setting Hearing and Compelling Carol Paredes and her Counsel to Appear and Show Cause Why They Should not be Sanctioned for Contempt and Spoliation of Evidence [Docket No. 15] and the Court's Order Setting Hearing and Compelling Carol Paredes and her Counsel to Appear and Show Cause Why They Should not be Sanctioned for Contempt and Spoliation of Evidence. [Docket No. 16]. After considering the evidence, the applicable law and the arguments of the parties, the Court will grant limited relief as set forth below. An order consistent with this opinion will issue.

FACTUAL BACKGROUND

On January 23, 2013 (the “Petition Date”), Dr. Michael Brown filed a voluntary chapter 11 petition in the United States Bankruptcy Court for the Southern District of Florida. [Docket No. 1 ¹]. On September 24, 2013, the Florida Bankruptcy Court ordered the appointment of a chapter 11 trustee and transferred the case to the Southern District of Texas. [Docket No. 435]. Upon receipt by the Clerk of the Court, the case was assigned to the Hon. Jeff Bohm, Chief United States Bankruptcy Judge for the Southern District of Texas. By Order entered September 30, 2013, the Court approved the appointment of Ronald Sommers as the chapter 11 trustee in the case. [Docket No. 457].

From its origin, the case was problematic. Dr. Brown was less than forthcoming in his required disclosures to the Court, the trustee and his creditors. He failed to disclose the existence of significant assets as well as multiple transfers made both before and after the bankruptcy filing. The trustee discovered substantial property, including cash, jewelry, art and furniture that Dr. Brown failed to disclose in his schedules. With the aid of private investigators, the trustee documented a pattern of collusive behavior by Dr. Brown to hide estate property from the trustee using a network of former mistresses, friends and employees. The trustee's efforts were complicated in October 2013 when Dr. Brown died as a result of an apparent suicide.

Carol Paredes is a French citizen living in Miami, Florida. Ms. Paredes is one of Dr. Brown's former girlfriends. During their relationship, Dr. Brown gave Ms. Paredes a number of expensive gifts. Dr. Brown also provided Ms. Paredes with two cell phones, an international iPhone for use abroad and an iPhone 4S for use in the United States.

Although Ms. Paredes' relationship with Dr. Brown ended in early 2013, she remained in contact with Jean–Paul Marongin, Dr. Brown's driver. The trustee believes that Mr. Marongin played a critical role in Dr. Brown's efforts to conceal assets from the estate. After Dr. Brown's suicide, Mr. Marongin reportedly sent Ms. Paredes a text message stating, “I know where everything is” (the “Marongin Text”).

The trustee's investigators visited Ms. Paredes on October 24, 2013. Ms. Paredes allowed the investigators into her home and met with them for approximately four hours. During the interview, Ms. Paredes showed her iPhone 4S to the trustee's investigators and offered them the opportunity to read and copy the Marongin Text. [January 9, 2014 Transcript, 94:15–94:23]. Inexplicably, the investigators left Ms. Paredes' home without taking possession of the iPhone 4S or making a copy of the Marongin Text. [January 9, 2014 Transcript, 94:12–95:9; 131:4–132:16].

Approximately two days later, Ms. Paredes spoke to the trustee. Ms. Paredes again offered to send him a copy of the Marongin Text. [January 9, 2014 Transcript, 84:23–85:21; 95:19–96:1]. The trustee replied “[n]ot now.” [January 9, 2014 Transcript, 84:23–85:21; 95:19–96:1].

On November 19, 2013, the Court entered its Second Order Compelling Certain Parties to Appear for Bankruptcy Rule 2004 Examination (the “2004 Exam Order”). [Docket No. 854]. The 2004 Exam Order required Ms. Paredes to appear for her examination no later than November 22, 2013. Pursuant to the 2004 Exam Order, the trustee issued his Notice of Taking Rule 2004 Video Conference Deposition of Carol Paredes (the “Notice”) on November 19, 2013. [Docket No. 882]. The Notice also requested the production of documents, including a request for all electronic communications between Ms. Paredes and Mr. Marongin. The Notice required Ms. Paredes to appear for her examination at the offices of the trustee's Florida counsel at 9:30 a.m. on November 22, 2013.

Ms. Paredes retained Michael Aviles of the firm DeSimone, Aviles, Shorter & Oxamendi, LLP in New York, New York to represent her. Mr. Aviles is an attorney licensed to practice law in the State of New York. Mr. Aviles is not licensed in the State of Texas and is not admitted to practice law in the Southern District of Texas. Mr. Aviles did not seek to be admitted pro hac vice in the Southern District of Texas. Mr. Aviles did not charge Ms. Paredes for his time nor did he enter into an engagement letter with Ms. Paredes. Ms. Paredes did agree, however, to cover Mr. Aviles' travel expenses from New York to Miami.

On November 22, 2013, Mr. Aviles contacted the trustee's counsel. [Trustee's Exhibit 5]. After informing the trustee's counsel that Ms. Paredes would not be appearing, Mr. Aviles and the trustee agreed Ms. Paredes' examination would be conducted on December 5, 2013. On November26, 2013, the trustee issued his Amended Notice of Taking Rule 2004 Video Conference Deposition of Carol Paredes (the “Amended 2004 Notice”). The Amended 2004 Notice designated December 5, 2013 as the date for the examination and contained the same document requests as the Notice.

On December 5, 2013, Ms. Paredes appeared for her examination. Mr. Aviles represented Ms. Paredes in the examination. Ms. Paredes did not produce any documents at the examination. Ms. Paredes testified that her iPhone 4S suffered a data loss approximately three days prior to the examination and that all text messages had been erased from her phone. Ms. Paredes further testified she did not know the reason for the loss but speculated the culprit was either her six-year old child or a recent software update. Again, the trustee failed to take possession of the iPhone 4S. Instead, the trustee extracted a promise from Ms. Paredes that she would attempt to recover the lost data from the phone. [January 9, 2014 Transcript, 89:19–90:22].

The trustee's counsel spoke to Mr. Aviles on December 5, 2013 to confirm that the text messages were lost. On December 6, 2013, the trustee's counsel sent an e-mail to Mr. Aviles concerning Ms. Paredes' agreement that she would attempt to recover the data lost from her phone. The trustee's counsel also made multiple requests for an update from Mr. Aviles prior to a December 11, 2013 status conference. [Trustee's Exhibits 9 and 10]. Mr. Aviles failed to respond to the trustee's inquiries.

Ms. Paredes testified that she did not use a back-up service for her iPhone 4S. [January 9, 2014 Transcript 97:24–95:11]. She further testified that she called her cellular service provider for assistance in recovering the text messages and was informed that the data was irretrievable. [January 9, 2014 Transcript 96:17–19].

On December 10, 2013, Ms. Paredes “lost” the iPhone 4S while on a shopping trip. She immediately purchased a replacement phone, an iPhone 5S. Although Ms. Paredes informed Mr. Aviles of the loss of the iPhone 4S, Mr. Aviles chose not to convey this information to the trustee or the Court.

On December 12, 2013, the trustee's counsel contacted Mr. Aviles and told him the Court had ordered Ms. Paredes to appear before the Court on December 18, 2013. [Trustee's Exhibit 11]. An order reflecting the Court's directive was entered on December 13, 2013. [Docket No. 1007].

On December 13, 2013, the trustee also filed his Emergency Motion to Compel Carol Paredes to Turn Over Cellular Telephone to Facilitate Data Recovery. [Docket No. 1006]. The Court scheduled a hearing on the motion for December 18, 2013. The trustee's counsel sent a copy of the Order Compelling Carol Paredes to Appear at the December 18, 2013 Status Conference and a copy of the Emergency Motion to Compel Carol Paredes to Turn Over Cellular Telephone to Facilitate Data Recovery to Mr. Aviles. [Docket No. 1006].

On December 18, 2013, the Court conducted a hearing on the trustee's Emergency Motion to Compel Carol Paredes to Turn Over Cellular Telephone. Mr. Aviles appeared by telephone on behalf of Ms. Paredes. [December 18, 2013 Transcript, p. 6, lines 22–24]. Contrary to his assertion that he was little more than a passive bystander in the hearing, Mr. Aviles argued that the turnover of the phone violated Ms. Paredes' Fourth Amendment rights and that the Amended 2004 Notice was unconstitutionally overbroad. Once it became evident the trustee's motion would be granted, Mr. Aviles argued over the process for recovery of the data from the iPhone 4S. Mr. Aviles ultimately agreed that the iPhone 4S would be turned over to the trustee at his local counsel's office in Miami on December 26, 2013. At no time did Mr. Aviles inform the Court that the iPhone 4S was already lost. The Court entered an order consistent with its oral directive on December 19, 2013. [Docket No. 1006].

On ...