In re Sann
| Decision Date | 29 April 2015 |
| Docket Number | Case No. 14-61370-11 |
| Court | U.S. Bankruptcy Court — District of Montana |
| Parties | In re STEVEN VINCENT SANN, Debtor. |
At Butte in said District this 29th day of April, 2015.
In this Chapter 11 case, on March 6, 2015, the U.S. Trustee ("UST") filed a Motion to Dismiss or Convert the case to a case under Chapter 7 (Document No. 162) (the "UST's Motion") for "cause" under 11 U.S.C. § 1112(b). The Debtor filed a "limited opposition" to conversion, and the matter was heard at Missoula on April 16, 2015. The Debtor agrees that the evidence supports a finding of "cause" under § 1112(b) and consents to dismissal, but Debtor opposes conversion and argues that the "best interests of creditors" warrants dismissal.
At issue is whether the "best interests of creditors and the estate" shown by the evidence warrants dismissal of this case, or conversion to Chapter 7 under § 1112(b). After review of the record, this Court finds and concludes that conversion of the case to a case under Chapter 7 is in the best interests of creditors and the estate. Accordingly, the UST's Motion to Convert is granted and this case is converted to a case under Chapter 7.
This Court has jurisdiction of this Chapter 11 bankruptcy case under 28 U.S.C. § 1334(a). The U.S. Trustee's motion to dismiss or convert is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This Memorandum of Decision includes the Court's findings of fact andconclusions of law.
Attorney Neal G. Jensen ("Jensen") represented the UST at the hearing and clarified that the UST requests conversion of the case to Chapter 7 rather than dismissal, but the UST would also support appointment of a trustee under chapter 11 under 11 U.S.C. § 1104(a)(1). The Debtor Steven V. Sann ("Sann" or "Debtor") appeared at the hearing on April 16, 2015, represented by attorneys Samuel A. Schwartz ("Schwartz") of Schwartz Flansburg PLLC, of Las Vegas, Nevada, and by local counsel James A. Patten of Billings. Schwarz agreed that "cause" exists under § 1112(b), but requested that the case be dismissed. The United States of America, Federal Trade Commission ("FTC") filed a joinder in the UST's Motion requesting that the case be converted to Chapter 7 and was represented by attorney Michael P. Mora ("Mora"). The Montana Department of Revenue ("DOR") filed a joinder in the UST's Motion requesting that the case be converted to Chapter 7 or, alternatively, for appointment of a trustee, and was represented at the hearing by special assistant attorneys general Amanda L. Myers ("Myers") and Keith A. Jones.
The Debtor did not testify, nor was any live witness testimony offered at the hearing. Instead, counsel for all parties stipulated to admission of the following exhibits ("Ex."), which were admitted into evidence: UST's Ex. 1-through-31; DOR's Ex. 33-through-62 ; and Debtor's Ex. A, B, C, D, E, F, and G. Following the admission of exhibits, without objection counsel for each party was permitted to submit a proffer of the evidence in the record. After the initial proffers, counsel were permitted to reply to the other proffers. Then, the Court allowed each counsel the opportunity to present oral argument in support of their respective positions, and finally counsel were give the opportunity for rebuttal argument. At the conclusion of the parties'presentations the Court took the UST's Motion under advisement. The Court having reviewed the UST's Motion, joinders, Debtor's objections, the exhibits and applicable law, this matter is ready for decision.
FACTS
Steven Sann is 61 years old and has stated that "I've always been an entrepreneur." Ex. 19, Transcript of § 341 meeting of February 23, 2015 ("Tr."), p. 223. He admits that most of his businesses have failed. He has claimed residence in Montana and Nevada.
The instant Chapter 11 case is not Sann's first bankruptcy case. Sann filed a Chapter 13 case, No. 99-32906, on November 12, 1999. His chapter 13 plan in that case was confirmed, but Sann filed a motion to convert and the case was converted to chapter 7 on June 8, 2000. The trustee in 99-32906 filed a no-asset report. A discharge of debtor was entered on September 13, 2000, and the case was closed on September 19, 2000.
Ex. 26 is a "Judgment in a Criminal Case" entered against Sann on February 26, 2013, in Case No. CR 11-61-M-DLC-04 in the United States District Court for the District of Montana. In that case Sann pleaded guilty of conspiracy to maintain a drug-involved premises. Schwartz explained that Sann was in the medical marijuana business, but stopped when he was prosecuted. As a result of his guilty plea Sann was sentenced to 4 years of probation. The list of standard conditions of supervision on page 2 of Ex. 26 includes: "1) the defendant shall not leave the judicial district without the permission of the court or probation officer, . . . 6) the defendant shall notify the probation officer at least ten days prior to any change in residence or employment."
Despite those travel restrictions Sann traveled to Las Vegas, Nevada, and tried to establish domicile there for the purpose of filing a chapter 11 bankruptcy. He obtained a Nevadadriver's license. At the § 341 meeting Sann testified that he was given permission to travel to Nevada and other states regularly by his probation officer. Ex. 19, pp. 12-13.
On or about January 8, 2013, the FTC filed a civil complaint for permanent injunction and other equitable relief against Sann, his spouse and several other persons and entities, including "Relief Defendant" Bibliologic, Ltd. ("Bibliologic1"), Ex. 20, in the United States District Court for the District of Montana, Missoula Division (the "civil case"). The complaint alleged deceptive business practices by Sann and other defendants which resulted in their "cramming" of unauthorized charges on consumers' monthly telephone bills for services that consumers neither requested nor authorized, in violation of the FTC Act, 15 U.S.C. § 45(a). The complaint alleges the cramming totaled over $70 million, and resulted in net revenues to defendants of over $26 million. Ex. 20, p. 12. Ex. 20 sought a preliminary injunction, disgorgement of ill-gotten gains, a permanent injunction against future violations of the FTC Act, and other equitable relief.
In that case, No. CV 13-3-M-DLC, on May 8, 2013, the district court entered a "Stipulated Preliminary Injunction and Order," Ex. 21/Ex. A, to which Sann and other defendants consented, as confirmed by Schwartz at the hearing. In addition to prohibiting any telephone billing of charges on any consumer's landline or mobile telephone bill, or use of any consumer information, the court imposed an "asset freeze" against Sann and other defendants, with certain exceptions. Ex. 21. Sann and his spouse were authorized under the asset freeze to pay $4,914.00 per month for the mortgage on their primary residence, to pay other personal and businessexpenses not to exceed $12,930 per month, and to pay two (2) mortgage payments to 181 Fremont, LLC, in the amounts of $20,265.00 per quarter and $34,161.00 per quarter for real properties identified as "Big Waters Ranch" and "Salmon Lake Property." Ex. 21/A, pp. 11, 12. The court specified: "Restrained assets may be released to pay a Defendant's or Relief Defendant's other reasonable and necessary living expenses, business expenses, or attorneys fees only upon further order of this Court, or with the written consent of the FTC." Ex. 21, p. 12 (Emphasis added).
Further, in the event the United States of America or any State charged Sann, or other defendant or company in which Sann holds a controlling interest, with any criminal offense stemming from participation prior to the initiation of the federal court case, the asset freeze would be modified to authorize Sann to utilize up to $10,000 of his assets to pay reasonable and necessary legal expenses for his defense. Ex. 21, p. 10. Mora stated that Sann moved to stay all proceedings in the civil case and that the district court granted the motion and the civil case remains stayed, except for the asset freeze and the monitoring and enforcement of the asset freeze.
On September 12, 2013, an indictment was filed against Sann in CR 13-43-M-DLC in the United States District Court for the District of Montana alleging several criminal counts of wire fraud, conspiracy, overt acts, and seeking forfeiture of assets under federal statutes. Ex. 23/B. Ex. 24/C is a plea agreement between the United States and Sann in CR 13-43-M-DLC. Sann signed Ex. 24 on January 23, 2015. Sann's attorney argued that he did not plead guilty to "cramming," but he did plead guilty to filing a false report.
In the plea agreement, Ex. 24, in return for dismissal of all other counts Sann agreed tochange his plea to guilty "because he is in fact guilty of the charges contained in Counts XIII and XXXIV." Ex. 24, p. 3. Sann acknowledged that he knowingly devised a scheme or plan to defraud, "or a scheme or plan for obtaining money or property by means of false or fraudulent pretenses, representations, or promises;" and that he "acted with the intent to defraud; that is, the intent to deceive or cheat." Ex. 24, pp. 3, 4. With respect to Count XXXIV, Sann acknowledged that he knowingly engaged in a monetary transaction which involved property criminally derived from wire fraud, and he agreed to forfeiture of $500,000 in property involved in the money laundering charges. Ex. 24, pp. 4, 5.
Schwartz stated at the hearing that the indictment included 40 counts, but that Sann pleaded guilty to only two counts. Sann's counsel rationalized his guilty plea by explaining that Sann was facing a prison term of 30 years if convicted at trial. Sann agreed that a sentence of 24 months of imprisonment is an appropriate resolution of the case if the court accepted the plea agreement. Ex. 24, p. 3.
A change of plea hearing was held at Missoula in Case CR 13-43-M-DLC on April 3, 2015. Sann attended the hearing and...
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