The following is a case update written by Marc Lieberman of FLP Law Group LLP analyzing a recent decision of interest, Elissa Miller v Slotkin Defective Trust of December 14, 2021 et al (In re Mark Abbey Slotkin), No. 20-bk-12042-BB, 2022 WL 16835524 (Bankr. C.D. Cal. Oct. 13, 2022) (“Slotkin”).
The Court entered a civil contempt order directing the U.S. Marshal to arrest and hold Debtor in custody until Debtor delivered his Ferrari (or its value) to the Trustee. The Court emphasized that the purpose of the contempt order was merely to cause compliance and not to punish Debtor for failing to turnover the Ferrari or for filing false declarations with the Court. “It will be up to Slotkin,” writes the Court, “to decide whether he enjoys driving his Ferrari enough to elect incarceration over compliance.”
To read the full published decision, click here.
In February 2020, Mark Abbey Slotkin (“Debtor”) filed a voluntary Chapter 7 petition, disclosing personal property with a total value of $3,450. Debtor scheduled no real property, no business-related assets, and no interests in any trusts or businesses.
In November 2020, Elissa Miller (“Trustee”) sued Debtor, multiple “defective” trusts (the “Trusts”), and several entities owned by the Trusts “to unwind the intricate web of intentionally defective grantor trusts, limited liability companies and corporations that she claimed the Debtor had set up for the purpose of hiding and attempting to shield valuable assets from his creditors, while maintaining full control over the Trusts and continuing to use the proceeds generated by assets of the Trusts as he pleased to pay his personal expenses and maintain his lifestyle.”
In ruling on Trustee’s motion for summary judgment, the Court found that all assets held by certain Trusts were property of Debtor’s bankruptcy estate and ordered Debtor “to cooperate and facilitate” the turnover of assets that included “tangible and intangible assets owned by [Debtor’s alter ego] Antiquarian Traders Inc.” (“Antiquarian”) (the “S.J. Order”).
In April 2022, the Court issued an Order finding Debtor in contempt of the S.J. Order (the “April Contempt Order”). The April Contempt Order directed the U.S. Marshal to arrest Debtor and hold Debtor in custody until he, among other things delivered to the Trustee a certain 2007 Ferrari 612 Scagliette (the “Ferrari”).
In May and June 2022, Debtor filed declarations in which he claimed that that he had sold the Ferrari to Ultra Hot Motor Sports in Texas in 2017 and had otherwise complied with the April Contempt Order (the “May/June Declarations”).
Trustee presented the Court with (1) transcripts of Debtor’s testimony at the 341(a) Meetings in which he testified that, as of the date of those meetings, Antiquarian owned the Ferrari and (2) evidence that Debtor insured the Ferrari in his own name through June of 2022, five years after he allegedly sold it to Ultra Hot Motors.
On October 13, 2022, the Court conducted an evidentiary hearing regarding the ownership and value of the Ferrari. In its order the next day (“October Contempt Order”), the Court found:
“There is only one conclusion that any reasonable trier of fact could reach on this record – that Slotkin’s testimony that he sold the vehicle to Ultra Hot Motorsports in 2017 is false and that Antiquarian still owned the vehicle as of the time the Court entered the SJ Order in December of 2021.”
In the October Contempt Order, the Court ordered the U.S. Marshal to arrest Debtor and to hold him “in custody until he purges his contempt” by either (a) turning over the Ferrari to the Trustee; or (b) paying the Trustee $144,000.
Slotkin is the Bankruptcy Court’s published decision arising out of the hearing that resulted in the October Contempt Order.
In Slotkin, the Court lays out its findings regarding the ownership and value of the Ferrari and reaffirms its April Contempt Order, taking care to explain that the order was intended to be coercive and not punitive: “In an effort to inspire Slotkin to comply with the SJ Order, on October 14, 2022, the Court entered its [October Contempt] Order . . . in which the Court directed the U.S. Marshal to arrest Slotkin and hold him in custody until he purges his contempt . . .. The purpose of this exercise and this Court’s October 14, 2022 order is not to punish Slotkin for failing to turnover the Ferrari or for filing false declarations with the Court. To the contrary, this Court’s objective is to cause Slotkin to comply with its orders so that the Ferrari or its proceeds may be administered for the benefit of Slotkin’s creditors. It will be up to Slotkin to decide whether he enjoys driving his Ferrari.”In an ominous footnote, the Court makes clear that it’s not over for the Debtor: “Whether or not Slotkin deserves to be punished for his conduct in this Case will be the subject of further proceedings before the District Court. This Court intends to issue a report and recommendation to the District Court for its consideration in connection with that issue.”But wait, there’s more . . .On November 17, 2022, the Court entered an order finding Debtor “has failed to purge his contempt . . . and has consistently behaved in a rude, disrespectful and disruptive manner in appearance before the Court via Zoom for Government” and requiring all parties appearing at future hearings in the Slotkin adversary proceeding be physically present in court “with the expectation that the more formal setting of a courtroom may encourage Slotkin to behave in a more suitable and respectful manner in his future dealings with the Court.” (Of course, there will be a U.S. Marshall present in court to arrest the Debtor if he hasn’t by then purged his contempt or if he acts up in the Court’s presence.)On December 16, 2022, Judge Bluebond entered an “Order Lifting October 14, 2022 Body Detention Without Prejudice” after the trustee advised the Court that Debtor paid the $144,000 value of the Ferrari. In her December 16 order, Judge Bluebond let it be known that Debtor would be kept on a very short leash:“The Court reserves jurisdiction to enter one or more new body detention orders if in the exercise of its discretion the Court concludes that such orders are necessary to enforce prior orders of this Court, including without limitation its April 7 order holding Slotkin in contempt for violating this Court’s order granting partial summary judgment . . ..”
Slotkin does not directly address thesignificance of the distinction between “civil contempt” and “criminal contempt.” While bankruptcy courts, in the exercise of their power to issue necessary or appropriate orders under 11 U.S.C. § 105(a), may find parties in civil contempt, they possess no criminal jurisdiction and thus do not have authority to impose punishments appropriate to a finding of criminal contempt. In re Vaso Active Pharmaceuticals, Inc., 414 B.R. 416, 422 (Bankr. Del. 2014).
The sanctions available to a court in response to civil contempt include an indeterminate period of confinement, fines, reimbursement, or any combination of these. Latrobe Steel Co. v. United Steelworkers of Am., AFL–CIO, 545 F.2d 1336, 1344 (3d Cir.1976). Sanctions remain coercive and civil, rather than punitive and criminal, when the contemnor is given the opportunity to purge the contempt. Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 829–30 (1994).
The Slotkin Court’s various orders and the published Slotkin decision carefully lay out the factual basis of the Court’s contempt finding and the context within which the facts present themselves. The context includes multiple material omissions, contradictions, inconsistencies, and outright falsehoods in Debtor’s bankruptcy papers and sworn declarations. The cherry on top is the Court’s footnote explaining how Debtor’s multiple “defective” trusts were likely vehicles for tax evasion. No doubt that context will inform any decision of District Court when it considers the Bankruptcy Court’s report and recommendation regarding a criminal contempt citation for violation of its S.J. Order.
Practice pointer: Before filing a bankruptcy case for a client whose lifestyle is inconsistent with his bankruptcy schedules, counsel should ask probing questions about all assets that the client controls through entities that may not have his name on them. Clients with de facto control of valuable assets should be prepared to “cooperate and facilitate” lest they find themselves on the wrong end of a civil contempt citation.
These materials were written by Marc A. Lieberman of FLP Law Group, LLP (firstname.lastname@example.org) in Los Angeles, California. Editorial contributions were provided by Mathew Resnik of RHM Law LLP in Encino, California ).