In re McCallan

• Decision Date: 07 May 2021
• Docket Number: Case No. 17-30961-WRS
• Citation: 629 B.R. 491
• Parties: IN RE Timothy Thomas MCCALLAN, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Alabama

629 B.R. 491

IN RE Timothy Thomas MCCALLAN, Debtor.

Case No. 17-30961-WRS

United States Bankruptcy Court, M.D. Alabama.

Signed May 7, 2021

Michael A. Fritz, Sr., Montgomery, AL, for Debtor.

Bradley Saxton, Winderweedle, Haines, Ward & Woodman, Winter Park, FL, Carly B. Wilkins, Carly B. Wilkins, P.C, Montgomery, AL, for Trustee.

MEMORANDUM DECISION

William R. Sawyer, United States Bankruptcy Judge

This matter came before this Court on November 8 and 9, 2018 for an evidentiary hearing on Trustee Carly Wilkins' Objection to Debtor's Claim of Exemptions (Doc. 51). For the reasons set forth below, the Trustee's Objection is sustained in part and overruled in part.

I. FACTS

A. Procedural Background

The Debtor, Timothy Thomas McCallan, commenced this case on November 18, 2016, filing a voluntary petition under Chapter 7 in the Middle District of Florida.¹ McCallan's Chapter 7 case was transferred to this District on March 30, 2017, pursuant to FED. R. BANKR. P. 1014(b). (Docs. 61-62). McCallan first filed a Schedule C claim of exemption on December 9, 2016. (Doc. 13). An Amended Claim of Exemption was filed on June 23, 2017. (Doc. 178). An Evidentiary Hearing on the Trustee's Objection was held on November 8-9, 2018. (Doc. 282). On January 10, 2019, the Court entered an "Order: (1) Denying Debtor's Motion to Pay College Tuition; (2) Deferring Ruling on Trustee' Objection to Debtor's Claim of Exemption; and (3) Denying Trustee's Motion to Strike." (Doc. 294). In the January 10, 2019 Order, the Court stated that "[w]hen this Court hears Wilkins v. Jeanne McCallan , Adv. Pro. 18-3084, it will reopen evidence on the Trustee's Objection to Claim of Exemption. At that time, Timothy McCallan may offer such evidence as he finds appropriate, subject to the Trustee's right to cross-examine, or offer further evidence of her own." (Doc. 294, p. 3).

At the time this Court entered the January 10, 2019 Order, it was of the view that Adv. Pro. 18-3084 would be tried in this court. After entry of that Order, Jeanne McCallan filed an Answer demanding a jury trial (Adv. Pro. 18-3084, Doc. 20) and a Motion for Withdrawal of the Reference. (Adv. Pro. 18-3084, Doc. 22). In response to that motion, the District Court denied the motion to withdraw the reference and ordered this Court to conduct discovery and pretrial proceedings in Adv. Pro. 18-3084. (Case No. 19-MC-3854, Order entered March 18, 2019) (Watkins, D.J.). The District stated that "Defendant's right to a jury trial is deemed preserved." Id. at 3. In light of these developments, it does not appear to be advisable to delay ruling on the Trustee's Objection any longer.

B. A Brief History of Proceedings

This case comes with a long history, which will be briefly summarized here.²

For greater detail, one may read this Court's Memorandum Decision entered on February 16, 2016, in Adversary Proceeding 11-3007 at in Wilkins v. AmeriCorp Inc., et al. , 545 B.R. 675 (Bankr. M.D. Ala. 2016). Adversary Proceeding 11-3007 resulted in a money judgment against McCallan in the amount of $102,949,220.72. After entry of the money judgment against McCallan, the Trustee began proceedings in an effort to collect the judgment. After considerable proceedings were had, McCallan was found in contempt of court for failing to comply with Orders from this Court to respond to Trustee's requests for discovery and to turn over the ill-gotten gains from his fraudulent debt settlement scheme, and later jailed. On September 16, 2019, this Court handed down a Memorandum Decision denying one of McCallan's attempts to free himself from incarceration for contempt of court. (11-3007, Doc. 818) Wilkins v. AmeriCorp Inc., et al. , Adv. Pro. No. 11-3007-WRS, 2019 WL 4411822 (Bankr. M.D. Ala. Sept. 16, 2019). An earlier decision concerning McCallan's contempt may be found at Wilkins v. AmeriCorp, Inc., et al. , Adv. No. 11-3007, 2018 WL 2373639 (Bankr. M.D. Ala. May 23, 2018). McCallan has prosecuted several appeals to the District Court. The decision with the most detailed discussion of the case was handed down by the District Court on March 19, 2018. McCallan v. Wilkins , Case No. 2:18-CV-117-WKW, 2018 WL 1384107 (M.D. Ala. Mar. 19, 2018).

C. McCallan and the Debt Settlement Schemes

For many years, McCallan was in the debt settlement and debt management business.³ He would advertise on mass media seeking to help consumers who found themselves unable to pay their credit card debt and other debts. The consumer would call a toll-free telephone number and speak with a telemarketer posing as a debt settlement counselor. After providing the counselor with his information, the consumer would be put in a program which, they were told, would take care of their debts. They had only to make one monthly payment, usually by bank draft, and McCallan and his confederates would take care of the rest. While the program may have sounded like a godsend to the financially beleaguered but trusting consumer, the reality was disastrous for the consumer. Virtually none of the money paid by the consumers was paid over to creditors. The lion's share of the money paid over by consumers ended up in the pockets of McCallan and his conspirators, leaving the consumers worse off than when they started.

The Alabama arm of this fraudulent hydra was called Allegro Law, which was ostensibly owned and operated by an Alabama lawyer named Keith Nelms, who had no prior experience in debt management.⁴ Wilkins v. AmeriCorp Inc., et al. (In re Allegro Law, LLC) , 545 B.R. 675, 697 (Bankr. M.D. Ala. 2016). In reality, McCallan controlled Allegro using Nelms as a "front" for the fraudulent debt settlement scheme. Id. at 698. Soon after the creation of Allegro, "Nelms ostensibly ‘hired’ McCallan and his entities, AmeriCorp and Seton, to handle back-office processing for Allegro." Id . at 683 (citing Chase Bank USA, NA, et al. v. Nelms (In re Nelms) , Adversary No. 10-3042-WRS, 2014 WL 3700511, *3-4 (Bankr. M.D. Ala. July 24, 2014) ). McCallan, by and through his associates, "fronts," and business entities, orchestrated a massive debt settlement scheme across multiple states and under multiple guises. Before doing business in Alabama, a prior iteration of the same scheme, on a somewhat larger scale, took place in Florida and was "fronted" by the Hess-Kennedy law firm. AmeriCorp , 545 B.R. at 682. In 2008, the State of Florida took action against the Hess-Kennedy firm, so McCallan shifted his operations away from Hess-Kennedy and moved the ground-level operations to Alabama. Id. at 683.

Under the scheme, "victims signed up under the belief that they would be represented by an attorney, Nelms, and that he would negotiate a settlement with their creditors (usually credit card companies)." Id. The unsuspecting victims, under the orders of Nelms, would stop sending payments to their creditors; instead, they would pay Allegro, oftentimes through recurring automatic payments, on the belief that Nelms would ultimately negotiate a settlement on their behalf with the funds paid to, and held by, Allegro. Id . Ultimately, their money was destined for McCallan's pocket because "McCallan charged Allegro's customers massive up-front hidden fees for merely holding their money, sent a portion of the collected fees to Nelms, some to other confederates such as the telemarketers who ‘sourced’ the customers, and pocketed the rest." Id. The District Court described this scheme as "personal economic suicide" for the victims of the Allegro fraud. McCallan v. Hamm , No. 2:11-cv-784-MEF, 2012 WL 1392960 *3 (M.D. Ala. Apr. 23, 2012). With a warning from the State of Florida, the State of Alabama learned of the nefarious activities of Allegro Law, and forced Allegro into receivership, which, in turn, caused Nelms to file a voluntary chapter 7 bankruptcy petition in 2010. AmeriCorp , 545 B.R. at 683. Nelms' bankruptcy trustee, Daniel Hamm, then placed Allegro Law and Allegro Financial in their own chapter 7 bankruptcies. Id .⁵

Hamm, as trustee for Allegro Law, filed an adversary proceeding against Timothy McCallan, AmeriCorp, and Seton, in which he "sought turnover of estate property (Count I), avoidance of preferential transactions (Count II), avoidance of post-petition transfers (Count III), avoidance of fraudulent transfers (Count IV), and an accounting of the fees the Defendants collected (Count V)." AmeriCorp , 545 B.R. at 684 (referencing Case No. 11-03007, Doc. 6). As this Court noted:

This is an extraordinary case of fraud on a massive scale that was perpetrated by Defendant Timothy McCallan ("McCallan") on thousands of victims. McCallan masterminded a debt settlement scheme in which customers were enticed into handing their money to entities controlled by McCallan with a promise that their debts would be either paid or settled. Thousands of customers signed up for debt settlement services offered by McCallan and paid him more than $100,000,000. Almost none of the money was paid to creditors of the customers as promised by McCallan. Instead McCallan, and those in league with him, siphoned off the money into a vast array of companies controlled by or closely associated with him. Among these entities were McCallan's co-defendants: AmeriCorp, Inc. ("AmeriCorp") and Seton Corp. ("Seton").

McCallan used attorneys as a "front" to perpetuate his scheme and to provide it an air of legitimacy. McCallan's scheme was most recently fronted by Keith Nelms ("Nelms"), an Alabama attorney whose license has since been suspended for his many unethical activities.2 Allegro Financial and Allegro Law (collectively "Allegro") were instrumentalities controlled by McCallan and fronted by Nelms as a law firm. Prior to Nelms, McCallan's front was Laura Hess, a Florida attorney who was disbarred for actions she took while fronting a previous iteration of McCallan's debt settlement scheme, a law firm called Hess–Kennedy.

From the viewpoint of the customer, or victim, McCallan's scheme began with mass media

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