In re Crabtree

• Decision Date: 14 March 1984
• Docket Number: Bankruptcy No. 3-83-01116.
• Citation: 39 BR 702
• Parties: In re David A. CRABTREE, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

39 B.R. 702 (1984)

In re David A. CRABTREE, Debtor.

Bankruptcy No. 3-83-01116.

United States Bankruptcy Court, E.D. Tennessee.

March 14, 1984.

COPYRIGHT MATERIAL OMITTED

Cadwalader, Wickersham & Taft, Murray Drabkin, Mark C. Ellenberg, Washington, D.C., Walker & Walker, P.C. John A. Walker, Jr., Mary C. Walker, Knoxville, Tenn., for trustee Norwood.

Zusmann, Small, Stamps & White, S.J. Zusmann, Jr., Atlanta, Ga., Ritchie, Chadwell & Eldridge, P.C., Robert W. Ritchie, Wilson S. Ritchie, P.C. Wilson S. Ritchie, Knoxville, Tenn., for debtor Crabtree.

Morton, Lewis, King & Krieg, Mary M. Farmer, Knoxville, Tenn., for Federal Deposit Ins. Corp.

Heiskell, Donaldson, Bearman, Adams, Williams & Kirsch, Craig J. Donelson, Knoxville, Tenn., for First Tennessee Bank.

MEMORANDUM ON TRUSTEE'S MOTIONS FOR CONTEMPT

CLIVE W. BARE, Bankruptcy Judge.

At issue is whether the involuntary debtor's failure to comply with both his statutory duties, arising under 11 U.S.C.A. § 521 (1979), and two orders of this court is contemptuous. If so, the court must also determine whether it has authority, pursuant to either 11 U.S.C.A. § 105 (1979) or 28 U.S.C.A. § 1481 (Supp.1983), to grant any relief to the trustee.

I

An involuntary bankruptcy petition, 11 U.S.C.A. § 303 (1979), was filed against the debtor on July 14, 1983. A restraining order was entered at 5:20 p.m. on August 16, 1983, prohibiting the debtor, in part, from transferring or entering into any transaction involving property having a value in excess of $1,000.00. The restraining order expressly provides that the debtor is also enjoined from effecting any of the proscribed acts through an "agent, employee, associate, acquaintance, or entity." An order for relief under chapter 7 was entered on August 22, 1983. Asserting various constitutional privileges, the debtor tardily filed schedules and a statement of financial affairs providing no information whatsoever. The statement of financial affairs and the schedules, filed on September 28, 1983, appear to have been signed by the debtor; however, these documents do not satisfy his duty under 11 U.S.C.A. § 521(1) (1979). The debtor's only response to questions in the statement and schedules is: "Debtor, upon advice of counsel, asserts his rights under the First, Fourth, Fifth, Sixth and Fourteenth Amendments to the United States Constitution and respectfully refuses to answer questions on the grounds that the answers might tend to incriminate him." When examined at the meeting of his creditors the debtor has likewise declined to answer questions concerning his financial affairs.

The trustee of the debtor's estate, Francis W. Norwood, was chosen at a meeting of creditors on September 29, 1983. See 11 U.S.C.A. § 702 (1979 & Supp.1983). His election as trustee was approved by the court on September 30, 1983.

On January 13, 1984, the trustee filed an application¹ to hold the debtor in contempt for failure to: (1) turn over property of the estate, including recorded information;² (2) provide required information about his financial affairs;³ and (3) submit to an examination by his creditors and the trustee.⁴ Further, the trustee asserts that the debtor has concealed assets that are property of the estate, 11 U.S.C.A. § 541 (1979), and that the debtor's "consistent pattern of contumacious conduct" warrants a finding of civil contempt. Imposition of a daily fine of $1,000.00, payable to the estate from postpetition assets of the debtor, and imprisonment of the debtor until his alleged contempt is purged is sought by the trustee. Additionally, the trustee seeks recovery of his expenses, including attorney fees, incurred as a result of contempt proceedings and two adversary proceedings commenced to recover motor vehicles. A motion filed on February 6, 1984, to dismiss the trustee's application to hold the debtor in contempt was denied.

The proof adduced at a hearing on February 9, 1984, conclusively establishes that the debtor had theretofore failed to turn over property of the estate, despite a statutory obligation to do so. 11 U.S.C.A. § 521(3) (1979). By letter of October 7, 1983, to Wilson S. Ritchie, an attorney for the debtor, demand was made by the trustee's attorneys for turnover of particularly described firearms, jewelry, a mink jacket, a yacht, and "any and all motor vehicles presently owned, possessed or controlled" by the debtor.⁵ Additionally, demand was made for the surrender of books and records, as well as evidence of the debtor's ownership interest, relating to fifty-one (51) entities. A reply letter, dated November 4, 1983, includes a response pertaining to each item and entity identified in the October 7, 1983, demand letter.⁶ Also, a statement of net worth was attached to the reply letter. This financial statement reflects that as of July 15, 1982, the total value of the debtor's assets was $18,911,499.00, including $1,076,000.00 in cash and cash items. His net worth was reportedly $15,539,071.00. However, as of January 13, 1984, the value of assets recovered by or turned over to the trustee represents a mere fraction of the debtor's former reported net worth.⁷

A certificate of title to a 1979 Ferrari was tendered with the November 4th letter. It was also reported that the vehicle was in the possession of James Clifford, Classic Cars, Hilton Head Island, South Carolina. An adversary proceeding was commenced by the trustee on December 2, 1983, to recover the Ferrari or the proceeds from its sale.⁸ A cashier's check, dated August 17, 1983, in the amount of $10,000.00, payable to "Patty Shelby, Agent" was given to Shelby, the debtor's personal secretary at the time, as a down payment on the Ferrari. Either this cashier's check or funds from the negotiation thereof was deposited on August 18, 1983, with Wilson S. Ritchie's office manager as a payment against the debtor's legal fees. On December 22, 1983, stating that at the time of receipt he was unaware that the $10,000.00 might be property of the estate, Wilson S. Ritchie tendered a $10,000.00 cashier's check to the trustee. These funds represent the only cash directly received by the trustee from the debtor as of February 17, 1984.

On January 19, 1984, the trustee discovered that the debtor had renewed his registration of a 1973 Jaguar automobile on August 23, 1983, one day after entry of the order for relief under chapter 7. Written demand was made immediately for the turnover of the Jaguar. When the vehicle was not surrendered, an adversary complaint was filed in this court on January 27, 1984.⁹ The Jaguar was turned over on February 8, 1984.

The debtor's July 15, 1982, financial statement reflects ownership of marketable securities reportedly costing $1,499,980.00; the represented market value of these securities is $2,097,010.00. The November 4th letter of Wilson S. Ritchie recites in material part: "Referring to . . . investments and marketable securities, Mr. Crabtree represents that the stocks have either been sold or are presently being held by brokerage houses for sale." Yet, the trustee testified that none of these securities had been turned over to him as of February 9, 1984.

Additionally, the trustee testified that a $200,000.00 note payable to the debtor by Theodore H. Erck, Trustee for the David A. Crabtree Irrevocable Trust, had not been surrendered; that a counterfeit Rolex watch, valued at approximately $150.00, was tendered after demand was made for a Rolex watch insured for $7,950.00; that he took possession of a partially furnished condominium at The Pembroke in Knoxville, Tennessee; that although the contents of this unit were insured for $50,000.00 the value thereof is much less; that he had discovered a leasehold interest of the debtor for a farm in Union County, Tennessee; and that a post petition transfer of $300,000.00 to a bank account in Grand Cayman had been effected by the debtor.

The evidence is conclusive that the $200,000.00 note is property of the estate.¹⁰ With regard to the Rolex, the trustee initially received a counterfeit watch bearing the Rolex emblem. After discovering the deception and upon further demand, a genuine Rolex watch was tendered to him on November 5, 1983. There is no explanation as to the disposition of the furnishings removed from The Pembroke before possession was turned over to the trustee. There were no beds there when the trustee took possession. Further, there is no explanation respecting the leasehold interest in the Union County farm. Finally, the trustee established that the debtor in his capacity as president of Mid South Leasing Company, Inc. executed a check, dated August 6, 1983, for $300,000.00 against the corporate account with Prudential-Bache.¹¹ Mid South Leasing Company, Inc. is also the payee of the check, which is endorsed by the debtor in his official capacity. A second endorsement recites "PAY TO THE ORDER OF SWISS BANK & TRUST CORP. LTD. GRAND CAYMAN." This check was not debited against the Mid South account until September 1, 1983, subsequent to the deposit of a check for $300,000.00 issued by Norris Industries, Inc. on August 15, 1983, to the order of "Allen Crabtree, Trustee."¹² The Norris Industries check is endorsed "Allen Crabtree, Trustee" and "FOR DEPOSIT ONLY Prudential-Bache Securities, Inc."

II

Two orders were entered at the conclusion of the February 9th hearing. Order No. 49 required the debtor to forthwith surrender to the trustee all recorded information relating to property of the estate not constitutionally privileged from production. Order No. 50 required the debtor to turn over to the trustee all property of the estate within forty-eight (48) hours. Each order further required written certification of compliance by the debtor within ninety-six (96) hours. On February 14, 1984, beyond the time fixed by the court, the debtor filed separate, but similar, statements pertaining to his purported compliance with Orders Nos. 49 and 50.

Pursuant to Order No....