IN RE: MINH VU and THANH HOANG. MINH VU HOANG Appellant,
GARY A. ROSEN, Appellee.
DEBORAH K. CHASANOW, District Judge.
Appellant Minh Vu Hoang, a debtor in the underlying bankruptcy case ("Debtor"), appeals from separate orders entered by United States Bankruptcy Judge Thomas J. Catliota on September 20, 2012, granting a turnover motion filed by Appellee Gary A. Rosen, the chapter 7 trustee ("the Trustee" or "Mr. Rosen"), and denying Debtor's motion in limine to exclude the testimony of the Trustee's expert witness. Because the facts and legal arguments are adequately presented in the briefs and record, oral argument is deemed unnecessary. See Fed.R.Bankr.P. 8012; Local Rule 105.6. For the reasons that follow, the orders of the bankruptcy court will be affirmed.
On May 10, 2005, Debtor filed a voluntary petition under chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the District of Maryland. She served as debtor-in-possession from the date of filing until Mr. Rosen was appointed chapter 11 trustee on August 31, 2005. The case was converted to chapter 7 on October 28, 2005, and Mr. Rosen was named chapter 7 trustee.
At some point thereafter, the Trustee learned that Debtor had been engaged, both pre and post-petition, in a real estate "flipping" scheme. Typically, she would purchase a parcel of distressed property at a foreclosure sale; title that property in the name of a sham business entity under her control; and rehabilitate and sell the property for substantial profit, often transferring the proceeds to a different entity through which she would then purchase another property. This process, or something similar to it, was repeated many times; Debtor used literally hundreds of sham business entities to "flip" hundreds of properties. Unfortunately, she failed to report this income to the IRS and her interest in most of the business entities and associated properties was not reflected in her bankruptcy schedules or statement of financial affairs.
When the Trustee's preliminary investigation revealed that Debtor had "utilized dozens, if not scores, of shell entities in connection with [her] purchase and sale of  properties, " he moved, on January 17, 2006, for authority to employ Marion Hecht Clay (now Marion Hecht ("Ms. Hecht")) as a forensic accountant "[i]n an effort to bring order and clarity to the tangled affairs of the Debtor[.]" (Bankr. Case No. 05-21078, ECF No. 381, at ¶¶ 6, 7). Attached to this motion was a copy of Ms. Hecht's curriculum vitae, reflecting her extensive experience in the field of forensic accounting and qualifications as an expert witness. ( Id. at ECF No. 381-2). That motion was granted, without opposition, on February 6, 2006. ( Id. at ECF No. 409).
On September 25, 2006, the bankruptcy court issued a scheduling order, requiring, inter alia, that the Trustee "serve his expert witness's statement of opinions and conclusions by October 11, 2006." ( Id. at ECF No. 648). On October 11, the Trustee filed a document entitled "Line Filing Trustee's Expert Witness' Statement of Opinions and Conclusions, " attaching Ms. Hecht's statement and, once again, a copy of her curriculum vitae. ( Id. at ECF No. 674). The statement recites that Ms. Hecht's investigation, which was still ongoing, had "identified approximately one thousand purchases of properties at public auction by [Debtor and associates] during the period from 1999 through 2006" and "more than 200 separate putative entities ( i.e., general partnerships, limited partnerships, limited liability companies, corporations, etc. ) which have been utilized by [Debtor] for said purchases and sales." ( Id. at 2). Ms. Hecht opined that Debtor "show[ed] a near complete disregard for the separate identity of each individual and business entity utilized in connection with the purchase and resale of the  properties"; that "disbursements  from the... resale of [the] properties [we]re made to persons and entities with near-complete disregard for those persons putatively in ownership or title with respect to each said property"; that "multiple items of payment ( i.e., checks, money orders, etc. ) of diverse origin [we]re utilized to purchase properties in the names of yet other individuals or entities"; and that "third-parties dealing with [Debtor and her associates] d[id] not differentiate between [Debtor and her business entities or agents]" and "treat[ed] all of [them] as a single entity without differentiation." ( Id. ). "[D]espite the allegedly separate character of the many [associated business] entities, " Ms. Hecht's investigation found that "all share common control by Minh Vu Hoang." ( Id. at 3). No objection was filed with respect to Ms. Hecht's statement.
At the same time Ms. Hecht was conducting her investigation, the IRS was conducting an overlapping investigation of Debtor's failure to report the proceeds of these transactions on her tax returns. On April 11, 2007, Debtor was indicted on charges related to tax and bankruptcy fraud. She subsequently pleaded guilty to conspiracy to defraud an agency of the United States, in violation of 18 U.S.C. § 371. Attached to her plea agreement was a statement of facts in which Debtor admitted, inter alia, that she:
purchased and sold hundreds of foreclosure properties during 2000 through 2006, using the names of her agents, her entities, and other nominees on certain documents related to the purchase of foreclosure properties. She also used and recycled the names of partnerships and limited liability companies, often reforming the same company with different partners or different asset allocations to conceal her involvement in the purchase and sale of foreclosure properties. In that way, among others, she concealed her control over these assets, and the income generated therefrom, from the IRS and the Bankruptcy Trustee.
(Crim. No. DKC 07-0172, ECF No. 175, at 1). She was sentenced to a term of imprisonment of sixty months.
Based largely on Ms. Hecht's forensic analysis, the Trustee filed approximately seventy adversary proceedings in attempting to recover estate assets fraudulently concealed by Debtor. In one such proceeding, the Trustee sought turnover of estate property from David Dahan, who allegedly assisted Petitioner in continuing her scheme, post-petition, through a series of real estate transactions. A portion of the proceeds from the post-petition acquisition and sale of one property was traced to a quantity of diamonds purchased by Mr. Dahan for Debtor. As this court summarized on appellate review:
Upon the request of Debtor, Mr. Dahan created Appellee Maia, LLC ("Maia"), for the purpose of "funnel[ing]" proceeds of the sale of properties "as part of [Debtor's] scheme to hide her assets from the Trustee." Two other business entities "owned (in whole or in substantial part) and controlled" by Mr. Dahan - Appellees Rokama, LLC ("Rokama"), and Raymonde, LLC ("Raymonde") - were also used by Debtor for similar purposes.
The first property, located at 3119 Parkway, Cheverly, Maryland ("Parkway"), was purchased at a foreclosure sale on December 15, 2005. The successful bidder was Rok[o]ma, LLC, a business entity created and controlled by Debtor. While the HUD-1 settlement statement identified "Rok[o]ma, LLC, " as the purchaser, title to the property was conveyed to Rokama, an entity controlled Mr. Dahan. On or about March 7, 2007, Rokama sold Parkway for $371, 000, receiving a total of $338, 518.78 from the sale. Of that amount, $146, 000 was used to pay down a home-equity line of credit in the name of Mr. Dahan and his wife, Appellee Sarit Dahan (together, "the Dahans"). On or about May 3, 2007, Mr. Dahan drew $146, 000 from the same line of credit to obtain a cashier's check, which, in turn, was used by ASA, LLC - another of Debtor's entities - to purchase a property in Annapolis, Maryland. The remainder of the sale proceeds, $192, 518.78, was deposited into a bank account in the name of Rokama. Mr. Dahan used $180, 000 of those funds to purchase a quantity of diamonds from his brother, a diamond merchant in Israel, which he then delivered to Debtor.
In re Minh Vu Hoang, 469 B.R. 606, 609-10 (D.Md. 2012) (" Dahan ") (internal footnotes and record citations omitted).
The same diamonds that were tangentially related to the adversary proceeding against Mr. Dahan are directly at issue in the instant appeal. On December 16, 2010, the Trustee filed, in the main bankruptcy case, a motion to compel Debtor to turnover diamonds and other jewelry, valued at over $500, 000.00, that she allegedly acquired in six separate transactions. (ECF No. 5-3). Following discovery, the Trustee concluded that five of those transactions had been made through an associate of Debtor's who had since relocated to Vietnam and was not available. Thus, he proceeded only on the basis of the transaction involving approximately forty-eight carats of diamonds that Debtor obtained through Mr. Dahan.
The bankruptcy court held an evidentiary hearing on the turnover motion, and related motions, on a series of dates from December 1, 2011, to March 9, 2012. Debtor, proceeding pro se, was incarcerated at that time and participated in the proceedings by telephone.
On the first hearing date, the court initially considered Debtor's challenge to a petition filed by Ms. Hecht and her staff, seeking fees for "Marion Hecht, 6.3 hours, Mary Ellen Redman, 3.6 hours, and Timothy Kelley, 339 hours[.]" (ECF No. 5-34, at 20). In support of the petition, Judge Catliota asked the Trustee to call Timothy Kelley as a witness:
I've heard from Ms. Hecht many times and I've certainly heard her testify as an expert in many adversary proceedings. I know her background and experience. I think given the importance of this case and the forensic accountants, I'd like to hear from Mr. Kelley.
( Id. at 22-23).
Mr. Kelley testified that he was a senior associate at the accounting firm Dixon Hughes Goodman and that he had been working on Debtor's case, under Ms. Hecht's supervision, for over four years. ( Id. at 23). He asserted that he held a bachelor's degree, that he was a certified fraud examiner, and that he was enrolled in business school. ( Id. at 24). In response to the court's inquiry as to whether "the tracing that's been done" with respect to the amounts billed in the petition was similar to that "done in the adversary proceedings that have been filed, " the witness testified:
Absolutely. After four and a half years[, ] I'd say that - I wouldn't call my memory encyclopedic because this is so voluminous, but of all the people that have worked on the case, I do a great deal of the work and I'm very familiar with it.
( Id. at 26).
Judge Catliota precluded Debtor from questioning Mr. Kelley regarding his credentials as a forensic accountant, observing that he had testified that he was a certified fraud examiner. ( Id. at 27). Debtor complained that there was a lack of clarity regarding "who is running the show, " in light of the fact that the majority of hours were billed by Mr. Kelley, rather than Ms. Hecht. ( Id. at 28). Counsel for the accounting firm argued that Debtor's position in this regard was "counter-intuitive because she's saying the compensation is excessive and then I hear her complaining that Ms. Hecht, who has the much higher hourly rate, is not spending enough time on the engagement[.]" ( Id. at 30).
In approving the fee application, Judge Catliota explained:
This case, as I said earlier, is really a forensic accounting case. As [counsel for the Trustee] said at the beginning of this hearing, there were five properties [listed] on [Debtor's bankruptcy] schedules in this case and the trustee has so far sold 54 and has, according to [counsel], 13 more to sell. I certainly am aware of many, many of those because I have presided over 70 plus adversary proceedings, many of which involved incredibly detailed analytical forensic accounting to trace funds through fictitious entities to find properties of the estate that had not been disclosed.
With respect to the particular fee period, I find that these are reasonable and necessary expenses of the estate. Mr. Kelley, who has taken a greater and greater role, I wanted to hear from him just to get familiar with him but it's obvious that he has been involved in this case on[, ] if not an everyday basis, close to a daily basis for four years. He has a tremendous amount of knowledge about the case and he's billing at $150 an hour which is considerably less than Ms. Hecht.
So the extent that work is shifting to him and he's doing it, I think it is beneficial to the estate that he is doing this.
( Id. at 31-32).
After considering Debtor's objections to the fee petition filed by the Trustee, the court turned to the Trustee's turnover motion. Counsel for the Trustee stated that he would call two witnesses in support of that motion: Mr. Dahan and Ms. Hecht.
Mr. Dahan testified that he had known Debtor since 1990 and that she approached him with a business opportunity in 2005. Specifically, "she asked [him] if [he] wanted to come in and do some real estate deals with her and [he] said yes[.]" ( Id. at 56). Upon Debtor's direction, Mr. Dahan had his attorney establish Rokama, LLC, "[t]o purchase some real estate." ( Id. at 57). The entity was not involved in any business transactions, however, until on or about March 15, 2007, when Debtor deposited $192, 518.78 into Rokama's bank account. According to Mr. Dahan, Debtor "wanted to do some business in real estate and she wanted me to help her do real estate transactions, her and I, and then she put in the money." ( Id. at 58-59). Soon thereafter, Debtor asked Mr. Dahan "if [he] knew somebody who sells diamonds, " and he responded that his brother was a diamond broker in Israel with a company called Dahan Yosef Diamond. ( Id. at 61). Debtor "asked [Mr. Dahan] to purchase diamonds for her" using up to $180, 000 of the funds she deposited into the Rokama account. ( Id. ). Mr. Dahan wrote a check in the amount of $180, 000, drawn on the Rokama account, to Dahan Yosef Diamond, which he personally delivered to his brother in Israel. Approximately three weeks after he returned home, "a brown box [was] delivered to [his] house, and then [he] called [Debtor] and told her that the package of diamonds [had] arrived[.]" ( Id. at 63-64). Debtor picked up the box the next day and called him two days later, seeking "specification of each diamond that she bought[.]" ( Id. at 66). Mr. Dahan contacted his brother, who faxed an invoice, on July 5, 2007, "for a single lot of polished diamonds, 48.070 carats, valued at $171, 000, " with specifications for each. ( Id. at 65). Mr. Dahan gave the invoice to Debtor, who later called to report a positive appraisal of the value of the diamonds she had received. Through Mr. Dahan, the Trustee introduced a number of exhibits, including the deposit ticket, showing Debtor's deposit of $192, 518.78 into the Rokama account on March 15, 2007 (ECF No. 5-4); the cancelled check to Dahon Yosef Diamond, dated March 28, 2007, in the amount of $180, 000 (ECF No. 5-5); and the invoice, dated July 5, 2010 (ECF No. 5-6).
At the conclusion of Mr. Dahan's direct testimony, the bankruptcy court advised Debtor that it would permit her to cross-examine the witness by phone. Debtor complained, however, that she did not have a witness list or copies of any of the Trustee's exhibits. (ECF No. 5-34, at 71). The bankruptcy court directed counsel for the Trustee to send her copies of all exhibits and continued the hearing until they had been received and reviewed. ( Id. at 73).
At the next hearing date, January 31, 2012, counsel for the Trustee called Marion Hecht to the witness stand. During voir dire, Ms. Hecht testified that she had an MBA degree, that she was a certified public accountant, that she was a certified fraud examiner, that she had extensive forensic accounting experience and had been qualified as an expert in that field on numerous prior occasions, and that she had been involved in ...