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Nelson v. Jackson

United States District Court, D. Maryland

July 20, 2016

RAYMON K. NELSON, Appellant,



         This matter is before the Court on an appeal filed by Raymon Nelson, debtor, pursuant to 28 U.S.C. § 158(a)(1). ECF 1, Notice of Appeal. Nelson challenges an order of the United States Bankruptcy Court for the District of Maryland, issued December 17, 2015 (ECF 2-28) (Lipp, J.), granting the motion for summary judgment filed by a creditor, Clinton Jackson, in an adversary proceeding, and denying the debtor’s discharge under 11 U.S.C. § 727(a)(4) and § 727(a)(7).

         Both Nelson, as appellant, and Jackson, as appellee, designated voluminous portions of the record of the Bankruptcy Court proceedings as the record on appeal. See ECF 2; ECF 3. Nelson also filed “Appellant’s Brief” (ECF 11), supported by a “Record Extract.” ECF 11-1. Jackson, who is self-represented, submitted a brief (ECF 22) as well as a lengthy Appendix. ECF 22-2.[1] Jackson subsequently filed an amended table of contents and table of authorities as to his brief. ECF 23-2. Nelson has not replied and the time to do so has expired. See Fed. R. Bank. P. 8018(a)(3).

         No hearing is necessary to resolve the appeal. See Local Rule 105.6. For the reasons that follow, I shall vacate the Bankruptcy Court’s Order of December 17, 2015, and remand the case to the Bankruptcy Court for further proceedings.

         I. Factual and Procedural Background

         Nelson, a cardiologist, had or has an ownership interest in three businesses: Raymon K. Nelson, Classic Cardiology, MD, PA, Inc. (“Classic Cardiology”); All About the Heart, LLC (“AAH”); and All About the Property, LLC (“AAP”). ECF 11 at 10, 12. Between June 2005 and April 2010, Nelson employed Jackson as a consultant to perform various services, including securing corporate financing. ECF 22 at 9-10 ¶ 3. Nelson’s wife, who is identified in the record alternatively as Cheryl K. Youngblood[2] and Whitney Nelson, served as a bookkeeper for some or all of the enterprises in which Nelson had or has an ownership interest. See ECF 20 at 51.

         Jackson ceased working for Nelson in April 2010. ECF 22 at 9 ¶ 3. He subsequently filed suit against Nelson and Classic Cardiology in a Maryland court (ECF 2-4 at 36), apparently for breach of contract. ECF 22 at 9-10 ¶ 3. On September 24, 2013, the Circuit Court for Anne Arundel County entered a judgment for Jackson in the amount of $135, 363.72. ECF 2-4 at 36. The circuit court had previously awarded Jackson attorney’s fees in the amount of $64, 147. Id. According to Nelson, ECF 11 at 10: “The matter is currently on Appeal in the Special Court of Appeals [sic] of Maryland.” On November 7, 2013, Classic Cardiology filed a voluntary petition for bankruptcy relief pursuant to Chapter 11 of the United States Bankruptcy Code (the “Corporate Case”). In re: Raymon K. Nelson, M.D., P.A. Classic Cardiology, Inc., WIL-13-28961 (Bank. D. Md.) (ECF 1). A week later, on November 14, 2013, Nelson filed a voluntary petition for bankruptcy relief pursuant to Chapter 11 of the United States Bankruptcy Code (the “Individual Case”). In re: Raymon Kevin Nelson, WIL-13-29248 (Bank. D. Md.) (ECF 1). Both petitions were subsequently converted to petitions under Chapter 7. Corporate Case, ECF 180; Individual Case, ECF 149.

         On May 5, 2015, Jackson initiated an adversary proceeding against Nelson, but only in the Individual Case. The Complaint, titled “Creditor Clinton A. Jackson’s Complaint Objecting to Discharge of Debtor” (ECF 2-4 at 1-18), was supported by several exhibits. Id. at 19-42. The crux of the Complaint was that “[t]he Debtor knowingly and fraudulently made a false oath or account” (id. at 5 ¶ 12) and that “[t]he Debtor concealed property that belonged to the estate with the intent to hinder, delay or defraud the Creditors and/or The Chapter 7 Trustee . . . .” Id. at 5 ¶ 13. In particular, the Complaint alleged, inter alia, that, notwithstanding amendments to his submissions to the Bankruptcy Court, Nelson failed to disclose income obtained from Classic Cardiology and AAH. See generally Id. at 5-11 ¶¶ 14-26. Further, the Complaint alleged that Nelson failed to disclose a judgment debt incurred by AAP. See Id. at 14-15 ¶ 31. Therefore, Jackson sought the denial of Nelson’s discharge pursuant to “11 U.S.C. Sections 727(a)(2) and/or (a)(3) and/or (a)(4) and/or (a)(5) and/or (a)(7) . . . .” Id. at 17.

         In the adversary proceeding, Jackson filed “Plaintiff’s Motion for Summary Judgment” (ECF 2-7 at 1-2), which Jackson later supported with “Plaintiff’s Second Amended Memorandum in Support of Motion for Summary Judgment” (ECF 2-17, collectively the “Motion” or “Summary Judgment Motion”).[3] In relevant portion, the Summary Judgment Motion stated, ECF 2-17 at 27-28:

There is no reasonable dispute as to any material facts in this case. The Debtor’s Schedules, [Statement of Financial Affairs], false oaths and false testimony demonstrates his attempts to conceal property and hinder or delay the Trustee in his administration of the estate and/or the Creditors; the Debtor also failed to satisfactorily explain his unilateral removal of substantial assets from the Corporate Debtor’s income tax returns, post-petition, and then provided false testimony in effort [sic] to support his unilateral decision to remove the assets, including $224, 000 of accounts receivable; and the Debtor provided a host of falsities in effort [sic] to throw his accountant 2010-2014 [sic], Mr. McDuffie, under the bus, and toward the Plaintiff, in effort [sic] to erase a fully adjudicated State Court Judgment, by omitting disclosure [sic] of the fact that he and his non-filing spouse are the sole bookkeepers, check writers, printers of Quick Books and Smooth Solutions Software Accounts Receivable Records, etc. for both the Corporate Debtor and AAH, and exclusively control and account for in excess of $2.5 million annual cash flow. The Debtor’s aforementioned acts were committed in connection with both the instant case and the Corporate Debtor’s case (#13-28961). Therefore, the Debtor is not entitled to a discharge pursuant to Section 727(a)(2), (a)(3), (a)(4), (a)(5) and (a)(7) of the Bankruptcy Code and Plaintiff is entitled to summary judgment as a matter of law.

         In addition, Jackson averred, id. at 8 ¶ 1(k): “The Defendant knowingly filed false disclosure of his November 12, 2013 settlement of the suit, Estate of Ralph Nelson (Myra Street Nelson) v. Raymon K. Nelson, which was a tort suit for the Defendant, as Trustee, 2004-2013, breach of fiduciary duty, dissipation of the Trust’s assets in excess of $2.5 million, comminglement [sic], fraud, etc.”

         Jackson’s Summary Judgment Motion was supported by exhibits, including, inter alia, an affidavit from Jackson; Nelson and Classic Cardiology’s submissions in the Corporate and Individual Cases; financial records concerning Nelson and the entities in which he had or has an ownership interest; and deposition testimony. See ECF 2-16, “Plaintiff’s List of Exhibits in Support of Motion for Summary Judgment” (“Plaintiff’s List of Exhibits”).[4] As many of the exhibits referenced in “Plaintiff’s List of Exhibits” (ECF 2-16) do not appear to be included in the record on appeal, the content and origin of Jackson’s exhibits is not entirely clear. As to the deposition testimony on which Jackson relied, it appears that the depositions were taken in the course of Maryland court proceedings against Nelson and examinations pursuant to Fed. R. Bank. P. 2004. See Id. at 1-3.

         Notably, Jackson also submitted an expert opinion letter from Judith L. Clay, CPA. As amended, [5] Clay’s letter provided, in relevant part, ECF 2-26 at 6 (bold in original):

In my professional opinion, based upon review and analysis of the foregoing documents and my professional experience, the Debtor’s income from operation of business was $706, 642, $569, 700 and $536, 330, respectively, for the years ended 12/31/11, 12/31/12 and 12/31/13, including income from operation of business was $845, 007, $691, 206 and $536, 330 income from operation of Classic Cardiology and All About the Heart, respectively during 2011, 2012 and 2013. The Debtor, Classic Cardiology and/or AAH reported zero “income from employment” for the Debtor during 2011 and 2012; Classic Cardiology did, however, report $299, 912 of compensation of officers (the Debtor) on line 7 of its’ [sic] IRS Form 1120S, 2013, but the Debtor inexplicably omitted this income from Line 7 of his 2013 IRS Form 1040. Accordingly, the “Income from employment or operation of business, ” as reflected on Line 1 of the Debtor’s Statement of Financial Affairs, as amended 6/16/14, is inaccurate. The financial statements, including the 2012 & 2013 Income Statements for AAH, which were used to prepare AAH’s 2012 & 2013 income tax returns, were grossly inaccurate, and required adjustments of $57, 913 and $279, 703, respectively, to accurately reflect the results of operation for 2012 and 2013, which were understated by those amounts, and therefore render the Debtor & his wife’s books, records and financial reporting therefrom totally unreliable.

         Nelson filed an opposition to the Motion. ECF 2-11 (the “Opposition”). He argued, in relevant part, id. at 2:

The Plaintiff seeks summary judgment in this action based upon conclusory factual allegations of fraud and deceit. Plaintiff alleges that the facts in this case establish that the Debtor “knowingly and fraudulently” made false oaths, concealed property with the intent to hinder or delay creditors and withheld information pertaining to his property and financial affairs. However, Plaintiff has failed to offer any record evidence of undisputed facts in this case demonstrating that the Debtor intended to make any false oaths, conceal property with the intent to hinder or delay his creditors or that the Debtor intentionally withheld information pertaining to his property or financial affairs. Plaintiff offers no statement as to any material facts not in dispute in support of his motion. Instead, Plaintiff refers to certain “irrefutable” material facts, consisting of conclusory allegations of fraudulent conduct on the part of the Debtor. Plaintiff offers no conclusive record evidence as to the Debtor’s intent or state of mind. Plaintiff offers an affidavit in support of his motion for summary judgment. However, the affidavit contains no specific factual allegations and fails to demonstrate his personal knowledge of the material facts alleged in the motion for summary judgment. Plaintiff has failed to establish a proper basis for summary judgment in this action.

         The Opposition refers to Nelson’s submissions to the Bankruptcy Court (see Id. at 3-4 ¶¶ 2-14), including apparently “the schedules and statements [that] were amended by the Debtor . . . .” Id. at 10. It appears from the record, however, that the Opposition was unsupported by other evidence. Notably, the Opposition avers, id. at 9: “[A] debtor coming forward to amend his or her schedules is evidence that an omission or misconduct was not fraudulent.” In this regard, Nelson argued, id. at 12: “Debtor has clarified his personal and business income, corrected his accounting and tax deficiencies and fully disclosed his wife’s duties and employment income. There was no intent to defraud creditors and Debtor’s books and financial records have been corrected.” As best I can determine, the assertion is not supported by Nelson’s Affidavit.

         Thereafter, Jackson filed his reply to the Motion (“Reply”). ECF 2-21. The Reply largely reiterated arguments advanced in the Summary Judgment Motion.

         On December 9, 2015, Judge Lipp held a lengthy evidentiary hearing as to the Summary Judgment Motion. In addition, argument was presented focusing on alleged violations of 11 U.S.C. §§ 727(a)(4) and (a)(7). See ECF 20, Transcript of Hearing on Dec. 9, 2015. Jackson introduced evidence that demonstrated that, despite Nelson’s amendments to his bankruptcy submissions, Nelson had failed to disclose income and / or transfers from Classic Cardiology. See generally ECF 20 at 1-142. In particular, Jackson introduced bank statements from Classic Cardiology showing that Classic Cardiology had paid a variety of personal expenses for Nelson and his wife (see, e.g., Id. at 29), including expenses related to a Corvette.[6] Id. at 28; see, e.g., ECF 22-2 at 180 (showing an $850 payment from Classic Cardiology to “Tony[’]s Corvette Shop” on October 9, 2012).

         Thereafter, Judge Lipp heard argument from Nelson’s counsel. As counsel’s factual admissions are relevant, I quote at length from this portion of the hearing transcript, id. at 142-47:

THE COURT: All right. So we are just dealing -- again, we are just dealing with 727(a)(4) and (a)(7). Do you have a response? Show me where there are material facts in dispute.
MR. WEBSTER: Your Honor, I think that the evidence that Mr. Jackson is -- well, the documents that Mr. Jackson has presented to this Court demonstrate that there are material facts in dispute.
THE COURT: Well no, I disagree with you. So I am going to listen to you and you are going to tell me how the income was properly disclosed. You are going to tell me how transfers were properly disclosed.
There are certain things that -- there is no question there are some facts in dispute. No question about that. But there are some, the schedules that were provided -- and this was helpful because these are copies of the amended schedules -- have holes in them.
MR. WEBSTER: Yes, Your Honor. I agree. The schedules have inaccuracies and -
MR. WEBSTER: -- under representations --
MR. WEBSTER: -- and errors.
MR. WEBSTER: I don’t think there has been any evidence that that was done fraudulently to take advantage of any creditors. I can point to Mr. McDuffy’s transcript where he talks about these inaccuracies, Your Honor.
Mr. McDuffy’s transcript is at --
THE COURT: You don’t think that the fact that there were transfers by the corporate entity to the benefit [of] Mr. Nelson and his wife, that those transfers that had not been disclosed aren’t of any significance?
MR. WEBSTER: I think they are of significance.
MR. WEBSTER: And Dr. Nelson fully admitted and acknowledged that at his 341 meeting. He didn’t --
THE COURT: You tell me where he admitted that all of the amounts and the degree to which he, these payments were made within a year --
MR. WEBSTER: Well, I don’t think --
THE COURT: -- which would be considered either fraudulent conveyances or preferences to insiders.
MR. WEBSTER: I don’t -- I don’t think that there was a discussion about the specific amount at the 341. He acknowledged that the corporate --
THE COURT: And where did he provide that information in amended schedules where he’s -- he did file amended schedules and didn’t disclose --
MR. WEBSTER: He filed amended schedules.
THE COURT: -- preferences and fraudulent conveyances. You tell me, where?
MR. WEBSTER: The schedules are inaccurate.
MR. WEBSTER: But I’m saying that Dr. Nelson fully acknowledged that, testified to that, admitted that --
THE COURT: He never corrected them.
MR. WEBSTER: No, the schedules are still inaccurate and misleading.
MR. WEBSTER: But I don’t think the creditors have been harmed by that, Your Honor.
THE COURT: Oh yeah? Why are creditors not harmed where a trustee doesn’t have the information to pursue fraudulent conveyances and/or preferences?
MR. WEBSTER: Because Dr. Nelson retained an accountant to correct his tax returns and to clean up the bookkeeping in ...

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