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Nelson v. Jackson

United States District Court, D. Maryland

July 12, 2019

RAYMON K. NELSON Appellant,
v.
CLINTON A. JACKSON Appellee.

          MEMORANDUM OPINION

          ELLEN LIPTON HOLLANDER UNITED STATES DISTRICT JUDGE

         This bankruptcy matter is before the Court for the third time.[1] In this instance, Raymon Nelson, M.D., the debtor and appellant, challenges an Order of the United States Bankruptcy Court issued on August 3, 2018 (ECF 1-1), denying Nelson's discharge, pursuant to 11 U.S.C. §§ 727(a)(4) and (a)(7). See ECF 1 (the “Notice of Appeal”); see also ECF 1-2 (Bankruptcy Court docket); ECF 17 (Nelson's Brief). The Order followed a two-day trial held in July 2018 (Lipp, J. presiding). See ECF 25-1 (Transcript of July 23, 2018); ECF 25-2 (Transcript of July 24, 2018).

         The case is rooted in an adversary proceeding filed by Clinton Jackson against Nelson, the debtor in a related Chapter 7 bankruptcy proceeding. Jackson opposes the appeal. ECF 23 (Jackson's Brief).[2] Although Jackson is pro se, he is an attorney. See ECF 25-2 at 93-94. Nelson has not replied to Jackson's brief, and the time to do so has expired. See Fed. R. Bankr. P. 8018(a)(3); Local Rule 105.2(a).

         For the reasons that follow, I shall affirm the Bankruptcy Court's Order (ECF 1-1) denying Nelson's discharge.

         I. Procedural and Factual Background [3]

         Nelson, a cardiologist, has an ownership interest in three businesses: Raymon K. Nelson, Classic Cardiology, MD, P.A., Inc. (“Classic Cardiology”); All About the Heart, LLC (“AAH”); and All About the Property, LLC (“AAP”). See ELH-15-3978 (“Appeal I”), ECF 25 at 2 (citing Appeal I, ECF 11 at 10, 12). Between June 2005 and April 2010, Nelson employed Jackson as a consultant to perform various services, including the securing of corporate financing. Appeal I, ECF 25 at 2 (citing Appeal I, ECF 22 at 9-10, ¶ 3).

         Jackson, a creditor of Nelson, ceased working for Nelson in April 2010. Appeal I, ECF 25 at 2 (citing Appeal I, ECF 22 at 9, ¶ 3). He subsequently filed suit against Nelson and Classic Cardiology in the Circuit Court for Anne Arundel County for breach of contract. Clinton A. Jackson v. Raymon K. Nelson M.D., P.A. Classic Cardiology, et al., No. 02-C-11-159529. On September 24, 2013, that court entered judgment in favor of Jackson in the amount of $135, 363.72. Appeal I, ECF 25 at 2 (citing Appeal I, ECF 2-4 at 36). The circuit court also awarded Jackson attorney's fees in the amount of $64, 147. Id. Nelson appealed to the Maryland Court of Special Appeals. Appeal I, ECF 25 at 2 (citing Appeal I, ECF 11 at 10). On May 7, 2019, the appeal was stayed, see Jackson, No. 02-C-11-159529 (Order of May 7, 2019), pending the resolution of Chapter 11 bankruptcy proceedings of Coastal Cardiology, LLC, a garnishee. In re: Coastal Cardiology, LLC, TJC-19-15398, ECF 1 (Bankr. D. Md.).

         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, ECF 1 (Bankr. D. Md.). 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, ECF 1 (Bankr. D. Md.). Both petitions were subsequently converted to petitions under Chapter 7. See Appeal I, ECF 25 at 3 (citing Corporate Case, ECF 180, and Individual Case, ECF 149).

         In both cases, Nelson and creditors participated in several meetings mandated under 11 U.S.C. § 341. In the Individual Case, the § 341 meeting was held on December 18, 2013, and continued on March 21, 2014, and April 21, 2014. Individual Case, ECF 7; ECF 49; ECF 57. In the meeting of April 21, 2014, the Trustee directed Nelson to amend his schedules to disclose that he was formerly the trustee of his brother's trust, the Ralph K. Nelson Trust. ECF 23 at ¶ 0025-A0026 (Transcript of April 21, 2014 Meeting). After the Individual Case was converted to a Chapter 7 proceeding on January 26, 2015, a § 341 meeting was held on March 6, 2015. Individual Case, ECF 150.

         The Section 341 meeting in the Corporate Case was conducted on December 16, 2013, and continued on March 6, 2014. Corporate Case, ECF 21; ECF 63. Following conversion to Chapter 7 on January 27, 2015, a § 341 meeting was held on March 24, 2015, and continued on April 21, 2015. Corporate Case, ECF 206. In the final meeting of April 21, 2015, Nelson represented to the Trustee that as of January 28, 2015, there were no outstanding accounts receivable in connection with Medicare services. ECF 23 at ¶ 0046 (Transcript of April 21, 2015 Meeting).

         On May 5, 2015, Jackson initiated an adversary proceeding against Nelson in the Individual Case. See Appeal I, ECF 25 at 3.[4] Jackson alleged that “[t]he Debtor knowingly and fraudulently made a false oath or account.” Case ELH-18-256 (“Appeal II”), ECF 4-3 at 5, ¶ 12. And, he claimed 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. ¶ 13. In particular, the complaint alleged, inter alia, that notwithstanding Nelson's 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, Jackson alleged that Nelson failed to disclose a judgment debt incurred by AAP. See Id. at 14-15, ¶ 31. Accordingly, 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; see also Appeal II, ECF 4-2 at 1; ECF 1-2; ECF 4-5 (Nelson's Answer, dated June 8, 2015).

         Thereafter, Jackson moved for summary judgment in the adversary proceeding. Appeal I, ECF 2-7 at 1-2. In an Order of December 17, 2015, the Bankruptcy Court granted Jackson's summary judgment motion, and denied the debtor's discharge under 11 U.S.C. § 727(a)(4) and § 727(a)(7). Id., ECF 2-28. Nelson challenged that ruling in an appeal to this Court. Id., ECF 1.

         By Memorandum and Order of July 20, 2016, I reversed and remanded for further proceedings. Appeal I, ECF 25; ECF 26. In particular, I concluded that there was a dispute of material fact as to whether Nelson intended to omit or mischaracterize information contained in his financial disclosure forms. Id., ECF 25 at 28-29. Additionally, I concluded that the Bankruptcy Court had impermissibly assessed the credibility of evidence submitted in the context of Jackson's summary judgment motion. Id.

         Upon remand, Jackson moved for partial summary judgment, asking the Bankruptcy Court, inter alia, to deny Nelson's discharge based upon defendant's conduct in violation of 11 U.S.C. §§ 727(a)(3), 727(a)(5) and/or 727(a)(7). Appeal II, ECF 4-31. In the motion, Jackson averred, inter alia, that Nelson had “concealed” and failed to “explain” assets in financial disclosure forms related to the Corporate Case. Id. at 6-8, 11. Further, Jackson contended that the alleged “concealment” of assets “made it impossible to ascertain the Corporate Debtor's true financial condition.” Id. at 20. And, Jackson argued that 11 U.S.C. §§ 727(a)(3), 727(a)(5), and 727(c)(7) “do not require the Court's finding of [Nelson's] fraudulent intent” as to any funds he may have concealed. Id. at 3.

         The Bankruptcy Court held a motion hearing on January 23, 2018. Appeal II, ECF 4-1 (hearing transcript); id., ECF 4-65 (same). By Order of the same date, the Bankruptcy Court denied Jackson's summary judgment motion. Id., ECF 4-52.

         Jackson challenged that ruling in an appeal to the District Court on January 25, 2018. See Appeal II, ECF 1; ECF 4-53. By Memorandum and Order of June 25, 2018, I dismissed Jackson's appeal as premature. Appeal II, ECF 12; ECF 13. And, I remanded the case to the Bankruptcy Court for further proceedings. Id. at 20.

         Judge Lipp subsequently held a two-day trial on July 23, 2018 and July 24, 2018.[5] See In re: Raymon Kevin Nelson, WIL-15-228, ECF 247, ECF 248. Nelson, the debtor, was represented by counsel. ECF 25-1 at 5. Jackson, the creditor, proceeded pro se. Id.

         At trial, the parties called several witnesses. Jackson called Nelson (ECF 25-1 at 9); Judith Clay, a Certified Public Accountant (“CPA”) (ECF 25-1 at 149); and Edward McDuffie, Nelson's part-time bookkeeper (ECF 25-2 at 7). Nelson called himself (ECF 25-2 at 152), as well as Jackson (ECF 25-2 at 96); Cheryl Youngblood, his wife (ECF 25-2 at 120); and Troy Emory, Nelson's tax preparer (ECF 25-2 at 140).

         In addition, Judge Lipp considered numerous exhibits that were admitted into evidence in connection with the Individual Case. ECF 25-1 at 6-33. These included Nelson's “Voluntary Petition, ” dated November 14, 2013 (Individual Case, ECF 1), and Nelson's “Statement of Financial Affairs, ” amended on June 16, 2014 (id., ECF 80). She also considered Nelson's schedules, as amended: “Schedule B - Personal Property, ” dated January 29, 2014 (Individual Case, ECF 33 at 1-3), again amended on June 16, 2014 (id., ECF 82; see ECF 25-1 at 15); “Schedule C - Property Claimed as Exempt, ” dated January 29, 2014 (Individual Case, ECF 33 at 4); “Schedule D - Creditors Holding Secured Claims, ” dated June 16, 2014 (id., ECF 82 at 1); “Schedule F - Creditors Holding Unsecured Nonpriority Claims, ” dated June 16, 2014 (id., ECF 82 at 2-6); “Schedule G - Executory Contracts and Unexpired Leases, ” dated June 16, 2014 (id., ECF 82 at 7); “Schedule H - Codebtors, ” dated June 16, 2014 (id., ECF 82 at 8); “Schedule I - Current Income of Individual Debtor(s), ” dated June 16, 2014 (id., ECF 82 at 9); “Schedule J - Current Expenditures of Individual Debtor(s), ” dated June 16, 2014 (id., ECF 82 at 10); and “Summary of Schedules, ” dated June 16, 2014. Id., ECF 82 at 11-13.

         In addition, Judge Lipp considered numerous exhibits related to the Corporate Case. These included Classic Cardiology's “Voluntary Petition, ” amended on January 11, 2014 (Corporate Case, ECF 42); “Statement of Financial Affairs, ” amended on January 10, 2014 (id., ECF 40); “Schedule B - Personal Property, ” amended on January 10, 2014 (id., ECF 38 at 4); “Schedule D - Creditors Holding Secured Claims, ” amended on January 10, 2014 (id., ECF 38 at 8); “Schedule E - Creditors Holding Unsecured Priority Claims, ” filed November 7, 2013 (id., ECF 1 at 15); “Schedule F - Creditors Holding Unsecured Nonpriority Claims, ” amended on January 10, 2014 (id., ECF 38 at 11); “Schedule G - Executory Contracts and Unexpired Leases, ” filed on November 7, 2013 (id., ECF 1 at 23); and “Schedule H - Codebtors, ” amended on January 10, 2014. Id., ECF 38 at 18.

         As noted, in his Individual Case, Nelson amended his schedules on January 29, 2014 (Individual Case, ECF 33), and again on June 16, 2014 (id., ECF 82). See ECF 25-1 at 15. He also amended his “Statement of Financial Affairs, ” dated June 16, 2014 (Individual Case, ECF 80). ECF 25-1 at 15-16. Nelson acknowledged that at the time he amended his Statement of Financial Affairs, he was a trustee of the Adeshoie Family Trust. ECF 25-1 at 16. However, he failed to list the trust on Line 14, “Property held for another person.” Individual Case, ECF 79 at 6. When Nelson was asked why he failed to do so, he testified that he “didn't understand” that he “was supposed to.” ECF 25-1 at 17. But, Nelson claimed that the Adeshoie Trust was the “only one” he failed to list. Id.

         In addition, Nelson testified that he did not list the Ralph Nelson Trust in his Statement of Financial Affairs. ECF 25-1 at 55. Nelson claimed that when he filed for bankruptcy on November 14, 2013, he “wasn't legally responsible for” and “had no access to” the Ralph Nelson Trust. Id. However, he acknowledged that he should have listed the trust on Schedule F, “Creditors Holding Unsecured Nonpriority Claims, ” as amended on June 16, 2014 (Individual Case, ECF 82 at 3). ECF 25-1 at 56.

         Nelson explained that following the death of his brother, Ralph Nelson, in 2005, he was appointed the trustee of his brother's trust, the Ralph Nelson Trust. ECF 25-2 at 160. However, a “legal battle" with Ralph's wife ensued, because she claimed that Nelson's appointment as trustee was fraudulent. Id. Nelson claimed that he subsequently entered “into a settlement agreement for $100, 000” with the wife, and he “turned over all the [trust's] records to another trustee who was appointed by the Court.” Id. As a result, he claimed that he “had nothing to do with Ralph Nelson Trust” at the time he filed for bankruptcy. Id. at 161. And, he notified the new trustee of his bankruptcy filing. Id.

         On September 15, 2015, in response to a subpoena and document request issued to the Centers for Medicare and Medicaid Services (“CMS”) on August 11, 2015, CMS produced, inter alia, the billing records of Classic Cardiology from January 2011 through April 21, 2015. ECF 23, A0395 (CMS Letter to Jackson, dated September 15, 2015). For the period of January 28, 2015, to April 21, 2015, the records indicated that Classic Cardiology billed CMS for Medicare services, in the amount of $99, 678.00. ECF 23, A0397. In the same period, CMS also paid Classic Cardiology a total of $32, 463.96. Id.

         Nelson was asked about the CMS records. He acknowledged that following the conversion of the Corporate Case to Chapter 7 on January 27, 2015, Classic Cardiology continued to bill CMS. ECF 25-1 at 80-81. Nelson was asked several times whether he told the Chapter 7 Trustee at the § 341 meeting of April 21, 2015, that Classic Cardiology was no longer billing CMS after conversion. Id. at 81-82. Nelson responded that he did not “remember” or “recall”, but he insisted that “it's true” that Classic Cardiology was no longer billing CMS once Classic Cardiology “went into Chapter 7.” Id.

         Further, Nelson claimed that he did not list any payments under Line 23, “Withdrawals from a partnership or distributions by a corporation, ” in his Statement of Financial Affairs. ECF 25-1 at 62. Of relevance here, the caption of Line 23 provides: “If the debtor is a partnership or corporation, list all withdrawals or distributions credited or given to an insider, including compensation in any form, bonuses, loans, stock redemptions, options exercised and any other perquisite during one year immediately preceding the commencement of this case.” Corporate Case, ECF 40 at 7.

         Nelson claimed that he did not list any payments because he “didn't understand” that the question asked for all withdrawals made within one year preceding the filing of the bankruptcy petition. ECF 25-1 at 61. When confronted with Classic Cardiology's Bank Account Statements, Nelson acknowledged that he and his wife, Cheryl Youngblood, made numerous withdrawals for personal payments to Auto Zone, Petco, and mortgage services companies, among others. Id.; see also ECF 23 at ¶ 0261-A0362 (Classic Cardiology Bank Account Statements, dated November 1, 2012, to November 30, 2013).

         After Jackson rested, Nelson moved for a “Directive Verdict.” ECF 25-2 at 49. With Jackson's consent, Judge Lipp dismissed Jackson's claims filed pursuant to 11 U.S.C. §§ 727(a)(2)(b), (a)(3), and (a)(4)(d). Id. at 83-84. As a result, the only remaining claims were those brought under §§ 727(a)(4)(b), (a)(5), and (a)(7). Id.

         With respect to § 727(a)(5), Judge Lipp granted the motion and entered judgment in favor of Nelson. Id. at 85. However, as to §§ 727(a)(4)(b) and (a)(7), she denied the motion. Id. She explained, id. at 85-88:

All right. So, the only thing that is left that you are dealing with is 727(a)(4) and (a)(7) and I find that there is sufficient evidence presented to deny the Motion for Directive [sic] Verdict or the Motion to Dismiss at this point.
There are a multitude of non-disclosures in the Bankruptcy Schedules. There - and there is both in the individual case and in the corporate case.
As I described in the Motion for Summary Judgment, the ones that really, really troubled me - and again there is just a multitude of them - is the failure to disclose in the corporate case transfers that were made within a year to the benefit of Ms. Youngblood and to the benefit of the Debtor. That is all of those payments that the Debtor was, I guess, capturing as income, if that was what he was doing or whatever, needed to be either listed by the Debtor as his income and still would have listed disclosures to Ms. Youngblood. She is an insider.
You have to go through the entire year. Payments were made for her car by the corporate entity. Those payments needed to be listed. It is on behalf of an insider. The payments that remain on the mortgage needed to be listed, itemized. All payments with a year to the Debtor.
If you wanted to put a little note there that it was also - he used it as income or whatever, [he] could have done that. But he did not disclose an[y] of it.
Those are potential fraudulent conveyances that a Trustee has the right to investigate and potentially sue those people to collect because they benefitted them. If those disclosures were not made I am very concerned that the- This Ralph Nelson Trust was not listed as a creditor. Listing it as a loss does not give a creditor notice of the bankruptcy. This appeared to be a situation where it would potentially, I do not know for a fact, have been a non-dischargeable debt. And it was not disclosed. They had the right to participate in the bankruptcy case and to file a complaint. Now, maybe they backed off because Mr. Jackson has aggressively pursued discharge and with a discharge then maybe - nobody's debt would be discharged.
So, it maybe [sic] they backed off if in fact they know about it, I would assume by now somebody has told them, but they needed to have direct information that was never provided.
* * *
And I find that those lack of disclosures are reckless disregard for the truth. They are sufficient to raise enough of a question and then to pass the responsibility of the Debtor to come back and show that it was not. To explain it. To explain his conduct.

         Following Judge Lipp's ruling on the motion, Nelson called several witnesses. As noted, they included Jackson (ECF 25-2 at 96); Cheryl Youngblood, Nelson's wife (ECF 25-2 at 120); and Troy Emory, Nelson's tax preparer (ECF 25-2 at 140). In addition, Nelson testified again. ECF 25-2 at 152.

         Youngblood stated that in 2013, she worked as the office manager of her husband's business, Classic Cardiology. ECF 25-2 at 121. As office manager, she recorded Classic Cardiology's financial transactions, which included inputting checks and paying bills through a computer program called “Quickbooks.” Id. at 122. When asked about the office's bills, Youngblood acknowledged that she paid the couple's personal “debt” and home mortgage out of Classic Cardiology's bank account. Id. at 123-24. But, Youngblood maintained that Nelson “did not” instruct her to make those payments. Id. at 124. She further claimed that she did not pay for any additional personal expenses out of the company's bank account. Id.

         Emory testified that Nelson hired him to prepare Nelson's 2013 personal and business tax returns as well as the “monthly operating reports” of Classic Cardiology. Id. at 141-42. In preparing Nelson's business tax returns, Emory primarily relied on the expenses listed in Quickbooks. Id. at 143.

         Nelson testified that when he filed for bankruptcy on November 14, 2013, he was “under duress because Mr. Jackson had garnished all of [his] accounts.” Id. at 154. Nelson added that he filed for bankruptcy because he “was being sued” and was “under pressure.” Id. at 157. He explained, id.: “Clint Jackson had had a yellow piece of tape wrapped around my house. All of my cars were wrapped in yellow. Marshals were knocking on my door on his behalf. I was under pressure. I couldn't even get into my house.” Nelson maintained that, in filling out his schedules, he “wanted to be as truthful as possible.” Id.

         At the conclusion of the evidence, Judge Lipp said, ECF 25-2 at 217-220:

I have already indicated that there were a series of non-disclosures, clearly the debtor knows how to amend ...

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