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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE ARTHUR S. WEISSBRODT, JUDGE
In Re: ) Case No. 98-51326-ASW
) Chapter 13
HOWARD KEITH HENSON, )
) Volume V
Debtor. ) Pages 726 to 841
) Thursday, October 3, 2002
) San Jose, California
For the Debtor: Law Offices of Stanley A. Zlotoff
By: Stanley A. Zlotoff, Attorney at Law
300 South First Street, Suite 215
San Jose, California 95113
For Creditor Religious Moxon & Kobrin
Technology Center: By: Helena K. Kobrin, Attorney at Law
3055 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
McPharlin, Sprinkles & Thomas
By: Elaine M. Seid, Attorney at Law
10 Almaden Boulevard, Suite 1460
San Jose, California 95113
Paul, Hastings, Janofsky & Walker LLP
By: Samuel D. Rosen, Attorney at Law
75 East 55th Street
New York, New York 10022-4597
For Witness Lucas
(via telephone): Howard Hibbard, Attorney at Law
Electronic Court United States Bankruptcy Court
Recorder: Clerk of the Court
LaKeska Blue and Liz Armendariz
280 South First Street, Room 3035
San Jose, California 95113
Certified Electronic Palmer Reporting Services
Transcriber: P. O. Box 30727
Stockton, California 95213-0727
Proceedings recorded by digital recording;
transcript produced by federally-approved transcription
service. I N D E X
Closing Argument on behalf of the Creditor: page 748
Closing Argument on behalf of the Debtor: page 779
Closing Argument in Rebuttal on behalf
of the Creditor: page 811
Direct Cross Redirect Recross
Mary Lou Mata
Exhibits: Received in Evidence
Creditor's Exhibits 294 and 295: page 742
1 Thursday, October 3, 2002 10:08 o'clock a.m.
2 P R O C E E D I N G S
3 THE CLERK: Please rise. This is the United States
4 Bankruptcy Court for the Northern District of California. Court
5 is now in session.
6 THE COURT: Please be seated.
7 This is the case of Keith Henson.
8 May I have appearances of counsel, please?
9 MR. ZLOTOFF: Stan Zlotoff for debtor.
10 MR. ROSEN: Good morning, Your Honor. Samuel D.
11 Rosen, Paul, Hastings, Janofsky and Walker, for RTC.
12 MS. KOBRIN: Helena Kobrin, Moxon and Kobrin, for
13 Religious Technology Center.
14 MS. SEID: Elaine Seid of McPharlin, Sprinkles and
15 Thomas, also appearing on behalf of Religious Technology Center.
16 THE COURT: Good morning everybody.
17 Mr. Hibbard, may I have your appearance, please?
18 MR. HIBBARD: Yes, Your Honor. Thank you very much.
19 Howard Hibbard specially appearing for Ms. Lucas.
20 THE COURT: Okay. I can't hear him, Tanya, very well.
21 MR. HIBBARD: Howard Hibbard, specially - specially
22 appearing for Ms. Lucas.
23 THE COURT: Thank you.
24 Mr. Hibbard, are you on a regular phone?
25 MR. HIBBARD: No, I'm on a cell phone with everybody.
1 THE COURT: That's not good, Mr. Hibbard. Do you have
2 an office phone?
3 MR. HIBBARD: Yes, sir.
4 THE COURT: Could you please let us call you back on
5 the number?
6 MR. HIBBARD: Sure. It - it's 510-786-1781. I'll
7 take it off the transfer.
8 THE COURT: We didn't hear you.
9 MR. HIBBARD: 510- -
10 THE COURT: Say it again.
11 MR. HIBBARD: 510-786-1781. And I can't get off until
12 you transfer.
13 THE COURT: 786-1781?
14 MR. HIBBARD: Yes, Your Honor.
15 THE COURT: Okay. Go back on.
16 State your appearance again, please?
17 MR. HIBBARD: Thank you, Your Honor. It's Howard
18 Hibbard especially appearing for Ms. Lucas.
19 THE COURT: Okay. Thank you.
20 I was advised that when I was not on the bench that
21 there was some conduct in the courtroom. And I want to find out
22 what had occurred. My staff had reported to me certain conduct.
23 (Comments off the record.)
24 THE COURT: Tanya, would you please swear in Ms. Mata?
25 THE CLERK: At the podium?
1 THE COURT: It doesn't matter. She can then take the
2 witness stand.
3 THE CLERK: Please raise your right hand.
4 MARY LOU MATA, WITNESS, SWORN
5 THE WITNESS: Yes, I do.
6 THE CLERK: Could you state your full name for the
8 THE WITNESS: My name is Mary Lou Mata.
9 THE CLERK: Okay. Spell your last name.
10 THE WITNESS: Mata, with an M, as in Mary -a, as in
11 Apple -t, as in Tom, one -a, as in apple.
12 THE CLERK: Okay.
13 THE COURT: Yes. Ms. Mata, would you take the witness
14 stand, please?
15 THE WITNESS: Okay.
16 MR. ROSEN: Your Honor, may I be advised of what the
17 nature of this proceeding is?
18 THE COURT: You'll know in about two seconds, Mr.
20 MR. ROSEN: Does this involve me?
21 THE COURT: Yes, sir.
22 MR. ROSEN: Well, I think I would like to - before you
23 elicit anything, I would like to have notice and an opportunity
24 to have my own counsel. If - if the - if this is an inquiry
25 into something that I allegedly did, which it sounds to me like
1 Your Honor just said, I think I'm entitled notice and
2 opportunity to have counsel.
3 THE COURT: The only thing I want to do before
4 memories fade is to have her tell me, on the record, what she
5 remembers happens - happened.
6 MR. ROSEN: Well, Your Honor, you say before memories
7 fade. That's true in every case. It's not a justification for
8 denying me my basic right to have notice and opportunity to
9 prepare and be heard on any allegation of misconduct against an
10 attorney, particularly since Your Honor has accused me of
11 misconduct in the past including in writing.
12 And I believe memories fading is not - with all due
13 respect, Your Honor, and I know you don't like that term, but
14 I'll say it anyway - the - for proposition that memories fade
15 could be argued to be - for that basis a justification for
16 always denying counsel, or the - when notice -
17 THE COURT: I don't know - I don't know whether
18 misconduct occurred, -
19 MR. ROSEN: Well, if - if the inquiry is for the
20 purpose -
21 THE COURT: - Mr. Rosen.
22 MR. ROSEN: You obviously know what this witness is
23 going to say, because she works for you and you spoke to her.
24 And if the purpose is to inquire into whether I engaged in any
25 misconduct, you don't know if it occurred, but you are making an
1 inquiry to determine if it did. And that affects me. I'm
2 entitled notice and opportunity to have my own counsel here and
3 to examine this witness.
4 If you - if Your Honor wants to prefer charges against
5 me I can't stop you from doing that. You've - you've made
6 allegations against me before, Your Honor. You know you have,
7 in writing. So if you want to the elicit something, I can tell
8 you know I am not in a position to represent myself and
9 cross-examine this witness.
10 THE COURT: Okay. We'll recess for about three
11 minutes, maybe five.
12 THE CLERK: Please rise.
13 (Recess taken from 10:13 a.m. to 10:15 a.m. before which
14 the witness was temporarily excused from the stand.)
15 THE COURT: Please be seated.
16 That's fine, Mr. Rosen. We'll conduct the hearing at
17 a later time.
18 MR. ROSEN: Thank you.
19 THE COURT: Mr. Hibbard?
20 MR. HIBBARD: Yes, Your Honor.
21 THE COURT: It's my understanding that some conduct
22 occurred during a break. And I intend to ask some questions
23 about it. And so that's why I got you on the phone. Since
24 we're not going to do it now, you're welcome to leave the phone
25 if you like.
1 MR. HIBBARD: Thank you very much, Your Honor.
2 THE COURT: Thank you.
3 (Mr. Hibbard, appearing telephonically, was excused from
4 the trial at 10:16 a.m.)
5 THE COURT: Okay. Turning to the remainder of the
6 evidentiary portion of our trial, Mr. Zlotoff, where are we on
7 your side?
8 MR. ZLOTOFF: Your Honor, I believe that I'm done.
9 THE COURT: And so we have no additional parts of
10 transcripts to deal with? There's not - there's nothing else to
11 deal with? You're ready to rest?
12 MR. ZLOTOFF: That's right, Your Honor.
13 THE COURT: Okay. And now do you rest on all - on
14 everything, Mr. Rosen?
15 MR. ROSEN: No, Your Honor.
16 THE COURT: Okay.
17 MR. ROSEN: We have - you have not yet admitted
18 Exhibits 291 and 293, which are, as Your Honor will recall, are
19 - were admitted for purposes of impeachment. What I believe is
20 the deposition excerpts which were read. And the offer was, as
21 to each of the exhibits, only the portions that were read aloud.
22 They're being offered for impeachment of Ms. Lucas. I don't
23 think I've got them correct, Your Honor, but I think one is
24 excerpts - 291 I believe is excerpts of a deposition. And I
25 believe 293 is a declaration - or it might be reversed - it's
1 reversed until -
2 THE CLERK: Right. Excerpts of the 2004.
3 MR. ROSEN: Yes.
4 THE CLERK: 293 -
5 MR. ROSEN: I'm sorry, I keep saying deposition, 2004
6 exam. Someday I'm going to learn this, Your Honor. 2004
7 examination. And that's 2- - 293. And the declaration of Ms.
8 Lucas is 291. And I've made the offer as I've indicated. You
9 hadn't ruled on it.
10 MR. ZLOTOFF: Your Honor, our position last time and
11 it is now is that the entirety of what is proffered in as
12 evidenced under the heading of the exhibit number for the 2004s
13 should come in for reasons of Rule 32, for completeness.
14 THE COURT: Yeah. 32(a)(4) states, "If only part of a
15 deposition is offered in evidenced by a party an adverse party
16 may require the offeror to introduce any other part of which
17 ought in fairness to be considered with the part introduced.
18 And any party may introduce any other parts."
19 Do you wish to respond, both of you?
20 MR. ROSEN: Is - that's the only - I'll respond in a
21 moment, Your Honor. May I be informed, is this the only
22 provision of the Rules that counsel is relying on, number one?
24 Number two, is he making his offer, which he didn't
25 make before today, but he's making now - is he making - is he
1 making it for the - offering the remainder of the documents for
2 the truth or for some other purpose?
3 MR. ZLOTOFF: Yes, for the truth, Your Honor.
4 MR. ROSEN: Okay. I'll respond, Your Honor.
5 32(a) sets forth, - and this is the overarching
6 limitation of Rule 32 - "The rules for admission of a deposition
7 as far as admissible under the Rules of Evidence." 32 only
8 deals with a deposition. There is no provision, and 32 does not
9 apply to a declaration. So we can forget 291 right off the bat.
10 That's the first thing.
11 All of Rule 32 is subject to the Rules of Evidence.
12 We then turn to page - to paragraph (a)(3). "The deposition of
13 a witness may be used by any party for any purpose if the Court
14 finds A, B, C, D, E, unavailability."
15 Subpart (4): "If only a part of a deposition is
16 offered..." Subpart (4), Your Honor, is read in the context of
17 the deposition may be offered, because under Subpart (3) the
18 witness is unavailable.
19 To read it otherwise you would say that under (3) you
20 can't offer the deposition at all in the absence of availability
21 - or showing of unavailability. But then under (4), you can
22 offer any part of any deposition you want. So (4) is read in
23 conjunction with (3).
24 And a deposition that is being offered in (4) refers
25 to and necessarily includes a deposition testimony which is
1 admissible under (3) because of unavailability.
2 Now we confirm that by going to the overriding or
3 paramount law here and as the Federal Rules of Evidence.
4 Federal Rule of Evidence -
5 THE COURT: Let's stop a minute, because I missed a
6 step in this logic. Ms. Lucas is available, so -
7 MR. ROSEN: Right.
8 THE COURT: So -
9 MR. ROSEN: And you can't offer it unless she's
11 THE COURT: I understand. But you've offered portions
12 of the deposition -
13 MR. ROSEN: For impeachment, -
14 THE COURT: - or the 2004.
15 MR. ROSEN: - Your Honor, not for the truth.
16 THE COURT: I understand.
17 MR. ROSEN: For the truth. I didn't offer it under
18 (3) as unavailable, because (3) - Subpart -
19 THE COURT: I understand. So you haven't offered it -
20 MR. ROSEN: Well, wait a minute - wait a minute, Your
21 Honor -
22 THE COURT: - under any part of (2).
23 MR. ROSEN: Excuse me, Your Honor. A deposition, any
24 part of a deposition offered under (3) is for the truth. I'm
25 not offering - I never offered the deposition testimony of Ms.
1 Lucas for truth. It's offered for impeachment. For impeachment
2 purposes 32 doesn't even apply, okay, except for possibly the -
3 the fairness designations, if there were designations, of which
4 there were none. Okay?
5 Now we go to the overarching and paramount limitation.
6 And that's the Federal Rules of Evidence on hearsay. And we
7 begin with 803. 803: "The following are not excluded by the
8 hearsay rule even though the declarant is available as a
10 There is nothing in 803 which allows for prior
11 testimony or a prior sworn statement either under - in the form
12 of a declaration, or a deposition, or a 2004 examination.
13 However, if we turn the page to 804, we find that
14 under 804, 804(b)(1) allows for the offer of prior testimony.
15 Now since these are hearsay rules, Your Honor, these apply to
16 the situation in which testimony is being offered for the truth.
17 You never get to a hearsay inquiry if testimony is being offered
18 for reasons of the truth, like impeachment. Okay?
19 So former testimony which would include both -
20 arguably, I'm not sure, but arguably 2004 as well as the
21 declaration - is admissible under (b)- - (b)(1) provided that
22 the requirements of (a) are met.
23 (a) requires unavailability. You cannot offer for the
24 truth prior testimony of a witness who is not unavailable. Let
25 the record reflect, not only was the witness here yesterday on
1 the stand, Ms. Lucas is sitting in the courtroom.
2 So 804, you never get past you never get past (a).
3 You cannot get past paragraph (a). And 804 is the operative
4 provision of the Federal Rules to the admission of prior
5 testimony when offered for the truth. Neither 803 nor 804 apply
6 when prior testimony is offered solely to impeach.
7 And the issue is very important because the portions
8 of the documents I offered yesterday for impeachment, for
9 example, Ms. Lucas' testimony that in 1998 she didn't know how
10 much her husband made the year is not offered for the truth that
11 she didn't know. It's irrelevant whether she knew or didn't
13 It's offered for impeachment because on this witness
14 stand she swore that she did know. And that's the only reason.
15 And that's a critical distinction between impeachment and
16 offering testimony for the truth of the matter asserted.
17 So there is no conceivable way that Mr. Zlotoff can
18 argue that any part of the exhibit - certainly not even the
19 declaration which isn't even covered by Rule 32, but not - but
20 the 2004 may be offered into evidence for truth.
21 I would - I would close by making one final
22 observation. Rule 32, Subsection (4) presumes that the
23 deposition testimony being offered is being offered for truth.
24 If it's not being offered for truth Rule 32 has no
25 application to it, just as Rule 803 and 804 would not. The
1 counterdesignations, if you will, or fairness designations that
2 are provided by 32(a)(4) are when the testimony is offered - a
3 deposition is offered for truth. No deposition has been offered
4 for truth with respect to Ms. Lucas, only been offered for
6 And - and my last comment is this: Apart from the
7 Rules - and I - and I don't mean to be technical, but the Rules
8 of Evidence are binding on the Court. Here is the vice.
9 Anything that is in that declaration or - or 2004 exam that
10 counsel wanted to elicit from Ms. Lucas could have tried to
11 elicit from her on the witness stand. You can't let the witness
12 walk off the witness stand and then say, 'Here, I offer her
13 prior testimony.' And you can't cross-examine now because it's
14 a document.
15 Those are all my objections, Your Honor.
16 MR. ZLOTOFF: Well, Your Honor, the - the part of -
17 and actually I'm referring to Exhibit 292, which I believe is
18 the 2004 exam, February 17th. Do I have it marked right?
19 THE COURT: Yes.
20 MR. ZLOTOFF: All right. The part I want to be a part
21 of the exhibit is on page 277 of that when she refers to -
22 THE COURT: What line, Mr. Zlotoff?
23 MR. ZLOTOFF: It's lines 9 to 12, which in fact she
24 did testify to yesterday. That was one of the last questions
25 asked of her. So she did - she was on the stand. She did
1 testify to it. And so to have Mr. Rosen include in the Court
2 record a lot of the same testimony without -
3 THE COURT: You mean skipping that sentence?
4 MR. ZLOTOFF: Skipping that sentence, which was part
5 of the context, when she was on the stand, is patently unfair.
6 THE COURT: Do you agree that 9 through 11, or 9
7 through 12 come in?
8 MR. ROSEN: Did I read those in?
9 THE COURT: I don't remember, Mr. Rosen. But I -
10 MR. ROSEN: If I did not read them -
11 THE COURT: - assume not for this purpose.
12 MR. ROSEN: - if I did not read them in, they don't
13 come in. And I'll go a step further. No matter who offers
14 them, me or Mr. Zlotoff, they never ever come in for the truth
15 under 804, never.
16 THE COURT: They were used - they were used for
17 impeachment purposes. So if they came in essentially they would
18 come in to provide context for the impeachment, or to counter
19 the impeachment.
20 MR. ZLOTOFF: Right. That's right.
21 THE COURT: Yeah. I'll take them, 9 through 12, just
22 for fairness in terms of the impeachment but not for the truth.
23 MR. ROSEN: Uder 32 - the Rule 32 fairness, Your
24 Honor? Is that the ruling?
25 THE COURT: The ruling is as I said it.
1 So 290, that - 293, we have 293 and 291, Tanya?
2 THE CLERK: Yes.
3 THE COURT: Both of those come in with the additional
4 lines that I've noted.
5 Okay, gentlemen, it's 10:30. And we decided that we'd
6 let Mr. Rosen start, then Mr. Zlotoff, then back to Rosen, then
7 back to Zlotoff on the closing argument. Is there anything we
8 need to do? Do you - do you rest, Mr. Zlotoff?
9 MR. ZLOTOFF: Yes, Your Honor.
10 THE COURT: Have you rested?
11 MR. ROSEN: No. I have two additional documents to
12 hand to the Court, which I've already given to Mr. Zlotoff this
13 morning. I'm not sure they need to be marked as exhibits, but
14 I'll leave that up to Your Honor's judgment.
15 The first document, which I've marked as Exhibit 294,
16 are objections - RTC's objections to the confirmation of the
17 latest amended plan. These were filed in the Clerk's Office
18 this morning. I have a clerk stamp on them. And they were
19 given to Mr. Zlotoff this morning, as well. They are part of
20 the Court record.
21 If Your Honor wants them marked as exhibits, I've done
22 it as a matter of convenience. If Your Honor doesn't want it, I
23 will be referring to them in my closing argument.
24 THE COURT: Well, I'd certainly like a copy. Whether
25 or not they're to become exhibit are not, that's -
1 MR. ROSEN: Okay. Well, - well, that's -
2 THE COURT: - it's a pleading.
3 MR. ROSEN: Well, if that's the case I'll want one, so
4 - because I do have been exhibit sticker on - and that's 294.
5 THE COURT:
6 MR. BONNEY: you -
7 MR. ROSEN: And 295, Your Honor, in the similar vein
8 is the amended notice of claim filed by the creditor this
9 morning -
10 THE COURT: You need to be at the microphone.
11 MR. ROSEN: - is the amended notice of claim filed by
12 the creditor this morning. And a copy was served upon Mr.
13 Zlotoff this morning.
14 THE COURT: It's - you're talking about an amended
15 proof of claim or a notice?
16 MR. ROSEN: Amended proof of claim. My bankruptcy
17 co-counsel has corrected my terminology. And too I marked as
18 Exhibit 295.
19 THE COURT: Any opposition?
20 MR. ZLOTOFF: No, Your Honor.
21 THE COURT: 294 and 295 are admitted.
22 (Creditor's Exhibits 294 and 295 received in evidence.)
23 THE COURT: Do you rest?
24 MR. ROSEN: Yes, sir.
25 THE COURT: Okay. Anything further, gentlemen?
1 We have nothing further evidentiary. Are we ready for
2 our oral argument?
3 MR. ROSEN: No. I would like a recess. I think this
4 is particularly - the timing of this is particularly difficult.
5 I have prepared an oral argument to make as an advocate. And on
6 the morning I am offering it - I'm prepared to stand up and
7 argue it.
8 The proceedings that occurred earlier were set forth
9 on this record. That - the attack upon counsel in the middle of
10 the case as he's about to make his very important closing
11 argument, I think the timing of this is particularly not
12 propitious. And not propitious indeed in the sense that - in
13 the further sense that, as I understand it, from what I've heard
14 around the hallway this alleged incident reported by Ms. Lucas
15 to your Court staff occurred in the afternoon during the
16 luncheon break, or something soon after that.
17 If Your Honor had a concern you could have brought it
18 to my attention at that point at least. To come out on the
19 morning that I am to make a closing argument and have two
20 marshals sitting here in this proceeding I think is a little bit
22 And is - and whether it's designed or not, it has the
23 affect of - if I may say - making it very uncomfortable for
25 So I would like to take a brief recess for a few
1 minutes and - with the intention - and I'll tell Your Honor,
2 quite frankly, with the intention of taking a walk and see if
3 Judge - Judge Whyte can see us now.
4 And I truly regret that - if Your Honor had said this
5 yesterday, we could have said yesterday, 'Okay, Judge, you think
6 I did something wrong,' you know -
7 THE COURT: I didn't say I thought you did something
8 wrong. I said I wanted to find out what the basis was.
9 MR. ROSEN: If you wanted to find out yesterday, and
10 you would have said this yesterday, and you would have sworn
11 your court employee yesterday, we would have had the same
13 I would have said, 'Judge, I'm entitled to notice and
14 counsel.' Presumably you would have agreed yesterday as you
15 would - as you did this morning. And I would have had then the
16 evening to cleanse my mind of that, to concentrate on my closing
17 argument so that I can make an effective argument on behalf of
18 my client. Instead, for whatever reasons, Your Honor waited
19 until this morning. And I'm now making an argument in the
20 presence of two marshals.
21 So I'd like a recess for a while to consider our
22 position as to whether or not this proceeding should go forward
23 before Your Honor. And I will ask Mr. Zlotoff to accompany us.
24 We're going to see Judge Whyte.
25 THE COURT: Mr. Rosen, you've left before I said
2 MR. ROSEN: I'm sorry, Your Honor. You nodded your
4 THE COURT: No, -
5 MR. ROSEN: I thought that meant -
6 THE COURT: - I didn't.
7 MR. ROSEN: Huh. I saw you nodding your head.
8 THE COURT: What's your position?
9 MR. ZLOTOFF: My position is that, if I leave now, I'm
10 going to go to Judge Grube's court where I have a 10:30 hearing,
11 where I told Millie that I was not going to be able to attend.
12 And I told the other counsel to put forth my position.
13 MR. ROSEN: What? I'm sorry.
14 MR. ZLOTOFF: Go ahead.
15 But -
16 MR. ROSEN: I thought you are done.
17 MR. ZLOTOFF: But I think it's inappropriate. I - you
18 know, Mr. - Mr. Rosen is I think being as bombastic as - as he -
19 as he normally is, and I don't take it for anything more than
20 just - than just that.
21 MR. ROSEN: Your Honor, coun- - what counsel
22 suggested, he would go to Judge Grube's court, I don't think is
23 appropriate, because I would ask counsel to accompany us. I
24 don't believe in making an ex-parte application.
25 And the application I would make to Judge Whyte would
1 require - I think - I'm not sure it would require, but I would
2 prefer that opposing counsel be with me at the time.
3 I might ask one other thing just before we go to Judge
4 Whyte -
5 THE COURT: Wait a second.
6 MR. ROSEN: Are the marshals going to -
7 THE COURT: Wait a second. Wait a second. How long
8 do you need in Judge Grube's court?
9 MR. ZLOTOFF: I don't even know the size of the
10 calendar. And I have not placed myself there. So -
11 THE COURT: What kind of calendar is it?
12 MR. ZLOTOFF: Just a status conference.
13 THE COURT: In a - in an adversary?
14 MR. ZLOTOFF: Yes.
15 THE COURT: And so what have you told Millie?
16 MR. ZLOTOFF: I told Millie that the other attorney
17 and myself had an agreement to continue the hearing for 30 days.
18 THE COURT: And is that what you would do anyway?
19 MR. ZLOTOFF: That's what I'd do anyway.
20 THE COURT: Okay. So there's no reason why you can't
21 go with him, if that's what he wants to do.
22 We'll reconvene at eleven o'clock.
23 MR. ROSEN: Your Honor, I was about to ask a question,
24 and you - you interrupted me. Is it - is it the intention to
25 have the two marshals sitting in this courtroom during the
1 closing argument?
2 THE COURT: That's up to the Court, Mr. Rosen.
3 MR. ROSEN: I know, that's why I'm asking you, you're
4 the Court. I like to know if that's your intention.
5 THE COURT: We'll see, Mr. Rosen.
6 MR. ZLOTOFF: Your Honor, -
7 THE COURT: I didn't ask that there be two marshals
8 here, Mr. Rosen.
9 MR. ROSEN: One - okay. Is they're going to be one
10 Marshall, Your Honor?
11 MR. ZLOTOFF: Your Honor, another bit of
12 housekeeping -
13 THE COURT: You're trying to be the judge, Mr. Rosen,
14 not the lawyer.
15 MR. ZLOTOFF: Another bit of housekeeping, Your Honor?
16 I have other matters at one o'clock and through the afternoon.
17 THE COURT: Sorry, Mr. Zlotoff.
18 MR. ZLOTOFF: Okay.
19 THE COURT: We'll reconvene in 30 minutes. That's
21 THE CLERK: Please rise.
22 (Recess taken from 10:36 a.m. to 11:12 a.m.)
23 THE COURT: Thank you, ladies and gentlemen. Please
24 be seated.
1 MR. ROSEN: Your Honor, Judge Whyte is picking a jury.
2 Mr. Zlotoff and I and my co-counsel spoke to his chambers and
3 they will call us when Judge Whyte is available.
4 In the meantime, so as not to delay this proceeding, I
5 will proceed with my closing argument, at least the first part,
6 on a - on my motion. And I do so under obviously extreme
8 It is very difficult to make a closing argument in
9 view of the circumstances here. And I would note the importance
10 of the closing argument since we are not filing posthearing
12 CLOSING ARGUMENT ON BEHALF OF THE CREDITOR
13 MR. ROSEN: Perhaps one of the greatest ironies of
14 what happened this morning is that as I was - and I'll show it
15 to the Court - as I was sitting up until midnight last night,
16 rewriting my closing argument to comport with Your Honor's time
17 limits, here's the - a portion of what I intended to say and
18 will say.
19 During the course of this proceeding I vigorously and
20 zealously disagreed with many of the rulings that this Court
21 made. I would trust that the Court understands that this is in
22 my role as an advocate.
23 Indeed, I have an obligation under the canons of
24 ethics to most zealously represent a client as I am doing here.
25 I would trust that the Court would understand that there was no
1 personal disrespect meant. The fact that I disagree most
2 zealously with the Court's rulings is the proper role of an
4 That's what I was - had written last night. In any
5 event, I'll go on with my closing argument as best I can.
6 Let me say that I regret one thing in this case. I
7 regret that two or three years ago we did not prevail upon Your
8 Honor or ask Your Honor for permission to show Exhibit 213. And
9 that's the videotape that we showed the other day.
10 The reason that I regret that is because, had we shown
11 that, we might well have avoided many of the unpleasantries that
12 has plagued this case in terms of Your Honor's interaction or
13 the comments about my client and me. Those unpleasantries which
14 is - I will not recite here - but which we all know came to a
15 crescendo on March 13, 2001, et cetera.
16 The reason I say that I regret we didn't play it
17 earlier is because I do not believe any federal judicial officer
18 in this country, Bankruptcy Judge or any other Judge, even one
19 who might have a predisposition in favor of debtors rather than
20 creditors, could possibly view that - that performance by Mr.
21 Henson and have any sympathy at all for this gentlemen, could
22 have any possible basis for referring to him as poor old Henson,
23 or an aged-old man, or - or whatever it may be and, conversely,
24 attacking RTC as an overly-aggressive creditor who has a lot of
25 attorneys and is spending a lot of money to pursue this
2 I don't believe any Judge could possibly have
3 concluded that had been known and had a true picture of the
4 character of what this gentlemen is. And therefore I regret
5 that we - we did not do that.
6 I come to this oral argument in addition to the burden
7 that was placed upon me this morning with the following
8 additional burdens.
9 Number one, I am kind of like if - if I may be allowed
10 a bit of levity - I feel like I'm pushing a snowball through the
11 Sahara. And the reason I say that is because over the course of
12 the proceedings prior to trial Your Honor has made statements,
13 whether they be rulings or whether they be something other than
14 rulings but statements of Your Honor's views that go to the very
15 issues in this case.
16 For example, at the July 13th, 1998 hearing before
17 this Court on the debtor's - among other things the debtor's
18 crossmotion to reinstate his petition, at page 4 of the
19 transcript in that, Your Honor observed, "It's not a bad-faith
20 filing merely because there's a piece of litigation involved -
21 particularly a piece of litigation involving an enormous amount
22 of money where he is not a person with assets."
23 And directly above that, "And I mean it all stems
24 largely from my own view that you know he needed to, he did what
25 people do in the context of litigation."
1 Well, one of the issues, as Your Honor knows on the
2 1307 motion, is the issue of whether or not the bankruptcy
3 proceeding was filed for the purpose of derailing the pending
4 copyright trial on damages.
5 So I feel - and, indeed, Your Honor was good enough to
6 give me a case that we had cited to you in our motion earlier,
7 the Eisen case, which says, "Bad faith exists where the debtor
8 only intended to defeat state court litigation."
9 I'm not sure there's a difference between state and
10 federal. But that's the holding of the case. It's a case that
11 we gave you and you were kind enough to ask me to read it last
12 Friday. And yet I go into this trial with a determination or a
13 statement made by Your Honor on one of the key issues in this
14 case, a statement Your Honor made on July 13th, 1998 and a time
15 when you knew nothing about Mr. Henson.
16 In fact, at that same hearing at page 17 and going on
17 to 18, Your Honor observed that there was - you had no reason to
18 believe that Mr. Henson could pay a $75,,000 judgment. Of
19 course at that time there were no schedules before you. You had
20 no basis to know whether Mr. Henson had money, didn't have
22 But yet Your Honor made these comments, and one of the
23 - did this give you the page cite, Your Honor? Did I say it?
24 Let me say it again if I missed it. I'm sorry. Page 17 and I
25 think going to 18.
1 Your Honor made those comments at a time when there
2 was nothing before you. And yet here again I'm faced with the
3 proposition of arguing that the statements Your Honor made were
5 I was also faced with the uphill battle - I am faced
6 with the uphill battle of trying to understand Your Honor's role
7 respecting the underlying cause of action that gave rise to the
9 As you know in the copyright case, Judge Whyte found
10 on summary judgment that Mr. Henson was liable. He issued a
11 permanent instruction in June 1997. A jury then had to decide
12 two questions.
13 Number one, whether the infringement was willful
14 because Mr. Henson vigorously denied willfulness and claimed he
15 had - he believed he was right when he did it. He believed he
16 was justified.
17 And after deciding willfulness they had to bring in a
18 verdict. Depending on the determination of willfulness that
19 would determine how big or what the range of the verdict was. A
20 distinguished jurist in this District made a determination that
21 he - that Mr. Henson violated the law and issued an injunction.
22 A jury in this District determined that Mr. Henson's
23 conduct was willful and malicious in law, in law as a matter of
24 law, malicious under the statute and awarded what is essentially
25 statutory punitive damages.
1 And yet in the face of that - and certainly the nature
2 of the underlying claim is important in some respects - in the
3 face of that I am fighting uphill with a - with Your Honor who
4 had on March 13, 2001 observed - 'Gee, I don't really see' - and
5 I'm not quoting, I'm paraphrasing, - 'I don't see that there's
6 anything really so terribly wrong.'
7 So we posted something. Gee, I don't even understand.
8 If you're a religion, why would you even complain about it?
9 Well, that's the uphill battle, if you will, that I face. I
10 will do my best to dissuade Your Honor from that. Although I
11 would be less than candid if I - if I expressed that I thought I
12 had a chance of doing so, particularly after this morning.
13 I am told by my bankruptcy counsel, my bankruptcy
14 expert, Ms. Seid, that the buzzwords of bankruptcy and
15 particularly Chapter 13 are the words "fresh start," that the
16 purpose of the statute is to provide a clean slate, a fresh
17 start to a "honest debtor."
18 As I understand that, that means the debtor who has -
19 as I understand that means a debtor who has gotten himself in
20 over his financial head and now would like a respite, a clean
21 slate, a timeout, if you will, with the intention of proceeding
22 to get - to go forth and not sin anymore, to keep his financial
23 affairs in order.
24 So the point that obviously I don't think a debtor who
25 says, 'Let me out of these and then I'm going to go out and run
1 up more debts,' is somebody who would be an honest debtor.
2 I analogize it to a defendant who stands before a
3 criminal court convicted and says, 'Judge, don't give me time,
4 give me probation because I regret what I did. And I will go
5 forth and lead a lawful life. I will not do it again.' That's
6 maybe the analogy to a - to an honest debtor seeking Chapter 13
7 relief. But the criminal defendant who stands before the Court
8 and says, 'Don't give me time, give me probation, because I want
9 to go out - I want to be free to go out and commit the same
10 crimes.' That's the - Mr. Henson here.
11 I have demonstrated to you through the evidence, I've
12 made the point in the opening argument that Mr. Henson's
13 position from the very beginning, as displayed in Exhibit 213,
14 was he was going after the church. It was amusement. It was
15 fun. It was a game.
16 And, most importantly, it was stature among these
17 sociopaths that he associates with on ARS who give out awards
18 and - and ranks for how much you can - they can upset the
19 Scientology religion.
20 I said - as I said earlier, I think I said in the
21 opening statement, I've seen many copyright cases over the
22 years. They all fall into usually one of two categories, either
23 an infringement for profit like a Napster case that was tried in
24 this District in San Francisco, or an infringement which is by
25 and large innocent. I borrowed something, I made some
1 commentary, or whatever, and didn't realize I was infringing.
2 Or perhaps even a third one. 'I - I infringed
3 somebody's works, like the church's unpublished works, because I
4 had some sort of a vendetta. I was getting even with the church
5 for some perceived wrong.' But that's not the case.
6 Mr. Henson never had any dealings with Scientology.
7 He had no perceived grievance against Scientology. He had no
8 reason to even believe that there was some vendetta that he was
9 going to - he was going to right - some wrong that he was going
10 to right.
11 He did it for fun, he did it for games, and he did it
12 for stature. And- - and he did it - as part of that he did it
13 to - to - in a way to increase - and then he bragged about the
14 fact that he was increasing the cost to RTC. He boasted about
15 how much money he's - he's cost RTC. That - and he's - and his
16 conduct, that same common thread that you saw in Exhibit 213,
17 exists today. Talk about the honest debtor who says, 'I made a
18 mistake, Judge. Give me a break, clean the slate, and I'll go
19 off and get my house in order.'
20 Well, let's take a look at What Mr. Henson has done
21 after he filed the petition. Two orders of contempt, including
22 the September 26th order one day before this trial started.
23 The criminal, criminal violations of the California
24 Hate Crime Statute for which he was sentenced by the Riverside
25 County Court.
1 Has Mr. Henson communicated to you in any way by his
2 conduct, 'Judge, give me a break. I'll stop this.' You know, I
3 don't ask them to stop First Amendment conduct, by the way. I
4 don't want you to misunderstand me. He's got an absolute right
5 to picket. And picketing is an expression of First Amendment.
6 Of course Mr. Henson and his wife believe that it's
7 only their right. You see, they complain and Ms. Lucas
8 complains if somebody pickets her house. But it's okay that she
9 and her husband go picket other places. This is a, you know,
10 classic, "The First Amendment protects my rights, but not
11 yours." But that's an aside.
12 The point is has Mr. Henson by his conduct giving you
13 any indication that he's going to toe the line, he wants to be a
14 lawful citizen, he wants to get his affairs straightened out and
15 get a fresh start? The answer is no.
16 He is continuing this search for status from his
17 fugitive nest in Canada. And I don't know how many promotions
18 he's got by way of - on the exhibit that has the categories of -
19 of awards that you get for attacking the church. But he must be
20 accumulating quite a bit.
21 I want to address one issue under 1307. I want to
22 come back to the Eisen principle of bad faith in the filing.
23 There has never, to my research - and I do not presume
24 to represent that I've read every single case - never has there
25 been a case where it is not merely the filing of a bankruptcy
1 petition to stop the action, but it is the timing of it to
2 maximize the financial impact - adverse impact - on the
4 Now why do I say that? You have in evidence the
5 original complaint that was filed against Mr. Henson in April
6 1996. It demands a lot of money, whatever it is. I don't even
7 know what is. But it demands - it has three counts, and it
8 demands a lot of money.
9 If Mr. Henson believed at that time, 'Gee, I can't
10 really handle this and this is going to bankrupt me. I should
11 file a bankruptcy petition. Go ahead.' He didn't. In 1997, in
12 June of 1997 when Judge Whyte rejected all of his defenses and
13 issued a permanent injunction finding infringement and leaving
14 open only the question of whether it was willful, Mr. Henson was
15 faced with indeed a lesser complaint because it struck - the -
16 because RTC withdrew the trade secret claim.
17 If he had a reasonable belief, 'Hey, I'm faced with a
18 lawsuit. Let me file a bankruptcy petition to - because I'm
19 going to lose.' That's fine, but he didn't do that. What did
20 he do? The trial was set for December 1 or 2 of 1997. He
21 filled out the bankruptcy petition, dated it the day - days
22 before - dated it the day of the trial, and held it and said,
23 'Okay, I'm going to file this the day of, or the day before the
24 trial. Not just that I'm going to file a bankruptcy petition to
25 stop a lawsuit but I'm going to do it at a point which maximizes
1 the financial impact to RTC.' Why do I say that? It is
2 obvious. And Mr. Henson certainly is charged with knowledge.
3 We don't need testimony on this.
4 That if trial is to begin on December 1, in Judge
5 Whyte's courtroom, that the attorneys representing RTC coming -
6 who have been handling the case all along, coming from New York,
7 coming from Los Angeles, the client, the RTC representatives
8 here, coming from Los Angeles, are obviously in San Jose the day
9 before. You don't fly out to - from New York on the early
10 plane, show up, and try case. So he knew that. He waited. And
11 his plan was to wait until the - I forget if it was the day
12 before the trial, or the morning of the trial, it doesn't make
13 any difference. But that was the timing of it.
14 And when Judge - and when Judge Whyte put off the
15 trial - and that - that was postponed, I think, in mid-November.
16 When he put off the trial did Mr. Henson file the petition then?
17 No. He just held it and waited for the re- - for the new date.
18 And when the new trial date was set in February, when did he
19 file it? The day before. Again, after RTC had incurred the
20 expense of bringing its witnesses, its lawyers out.
21 There is not a single case I am aware of under bad
22 faith which has these facts. It is not merely the filing of a
23 petition to stop a case. It is the timing of the filing of it
24 to impose maximum financial burden upon the other side.
25 By the way, Mr. Henson did the same thing in the
1 proceedings before you in 1998. You will recall and the
2 transcript will reflect that that proceeding involved - I'm
3 sorry - in March of 1998.
4 That proceeding involved a service of a notice for
5 2004 examination. Mr. Henson waited until I believe it was the
6 day before that examination to say - to tell Mr. Hogan, 'I can't
7 come.' He had a notice for some period of time. And I can't
8 say. But it's certainly not a day or two. Whether it was two
9 weeks, three weeks, it doesn't matter.
10 But he waited until the last possible law to tell Mr.
11 Hogan after RTC's counsel and its - and its representatives had
12 traveled here that he's - he can't come to the - to it. Every
13 step of the way his purpose has been not only to taunt, not only
14 to injure, not only to destroy the Scientology religion, but to
15 maximize the amount of money we have to pay to deal with him.
16 I'm not prone to name calling, but I must tell you in
17 my experience - and I've dealt with Mr. Henson too long - Mr.
18 Henson is a very disturbed individual. He needs help, but not
19 the kind of help that this Court can give him. This is a - this
20 is his life's work.
21 This is a man, who according to his schedule in 1997 -
22 and I presume him to be rather accomplished. He's been a
23 computer consultant, does hardware software interfaces, et
24 cetera. In the year just before his bankruptcy in 1997, as a
25 consultant, he made $130,000. That's what the schedule says.
1 And here's what happened - and I'm reading from a portion of the
2 excerpt that is before you as Trial Exhibit 279. This is his
3 deposition. I'm sorry. Yes, 279.
4 This is what he says. Page 466. And this is the
5 deposition of July 13, 2000: "Mr. Henson, since -
6 "QUESTION: - since you filed this bankruptcy petition
7 in February 1998 can you tell me how many different - how many
8 days you spent in antiScientology activities, such as picketing,
9 that you otherwise might have been working - that you otherwise
10 might have been working?
11 "ANSWER: No.
12 "QUESTION: Well, would you disagree with our number
13 of 200 days or parts of days?
14 "ANSWER: Since - since?
15 "QUESTION: February '98.
16 "ANSWER: Two hundred days."
17 This is a man who has given up his occupation to
18 devote his time to pursuing what is a most illogical campaign,
19 if you will, for status and - and for games and fun to the point
20 of abandoning his own - his own occupation.
21 Our brief has set forth the matters that Your Honor is
22 directed to consider on our motion to dismiss. We have proved
23 every single element including the catchall last one which is a
24 egregious conduct. We've gone through this. We've put in the
25 evidence of his misconduct from beginning to end, including
1 right up to September 26, 2002. We have the misconduct, and -
2 and that is his - again, unique to this case. We have an
3 individual who has fled.
4 THE COURT: Go off the record a minute.
5 MR. ROSEN: Excuse me, Your Honor.
6 (Brief pause in the proceedings.)
7 MR. ROSEN: This is a man who is a fugitive. Now this
8 is - this is somebody, who is filing and pursuing relief in
9 bankruptcy, who gets convicted in Riverside County Court, gets
10 sentenced to incarceration, and flees to Canada and pursues
12 And I want to make a distinction here. There is a
13 fair ground for debate as to whether this - whether this
14 bankruptcy petition ought to have been dismissed on the grounds
15 of fugitive disentitlement. Your Honor said no.
16 And indeed we didn't even appeal it because we think
17 it's a close question. And if we ultimately appeal other
18 aspects, which I - I suspect we will, we will include it. But
19 we didn't appeal that because I recognize that that is close
20 question on whether or not a bankruptcy petition should be
21 dismissed as being related to the conduct that is the subject
22 which - which send the fugitive on his way.
23 But the part that is not a close question is the man
24 is a fugitive and he's been accommodated by this Court. There
25 has never been, to my knowledge - and Your Honor can correct me
1 if I'm wrong - a preceding, a trial to dismiss and one for
2 confirmation of a Chapter 13 plan where the debtor has not
3 testified, where the debtor has not appeared, a contested
4 matter. The debtor doesn't have to appear, as Your Honor has
5 ruled. It's not grounds for dismissal because he doesn't.
6 But let me suggest something, Your Honor. It's called
7 the adverse inference. If a plaintiff in a lawsuit did not
8 testify at a trial - civil case because criminal's different.
9 You can't comment on a defendant's failure to take the stand in
10 a criminal case.
11 If a plaintiff in a lawsuit did not testify at trial,
12 on the showing that the plaintiff had evidence which might be
13 relevant to the case, a court will either instruct itself or
14 instruct the box on the adverse inference rule. It is a
15 standard charge in federal courts, a standard charge in
17 And basically it says you, the Court, or you the
18 jurors may draw an adverse inference from the - whoever it is,
19 the plaintiff's, the defendant's failure to take the witness
20 stand, failure to offer evidence on the subject if you - if he
21 has - and if you believe he has any evidence that relates to it.
22 Of course he has evidence that relates to it.
23 Everything in this case involves Mr. Henson's actions, Mr.
24 Henson's motives, starting with the one issue that no one else
25 could testify to, and that's what - what's between his ears,
1 good faith, bad faith, whether it's under the motion to dismiss
2 or whether it's 1325.
3 In any court in which I've been privileged to practice
4 in this country, and that includes 56 District Courts and Ninth
5 Circuit Courts of Appeal, the adverse inference rule is
6 standard. Some - and I'm not saying he has to because Your
7 Honor ruled it's not a grounds for dismissal. Neither does
8 anybody have to in any case. But it is fair. Commenting gives
9 rise to an adverse - adverse inference rule that he did not.
10 Let's look at the next component of it, his filing.
11 His filing has omitted, A, stock and that he owned in nonpublic
12 companies. We have no way of establishing the value as of the
13 date of the petition. We can only show the amount he paid for
14 it. And in one case it was four months before the petition was
15 filed, and it was $7500. And in another case it was $7500 for a
16 different corporation.
17 Your Honor asked us what's the present val- - what is
18 the value of the date of petition. I have no way of evaluating
19 it. And it's not my burden. It's not my burden. Because the
20 only one who has that knowledge is Mr. Henson.
21 We're not talking about IBM where you can pick up the
22 Wall Street Journal and find out what the value was on a
23 particular date. This is a closely-held nonpublic corporation,
24 both of them.
25 So we have a presumption under the law that once
1 something is shown to exist in the presumption is it continues.
2 Is it possible that by the time February came around four months
3 later that the $7500 investment was south? Did it disappear
4 that quickly like perhaps some of the dotcoms in this part of
5 the country? Of course it's possible. But that's Mr. Henson's
6 burden to come in.
7 The fact is it's not in his schedule. He did not list
8 these. What else did he not list? He did list his life
9 insurance policy, the cash surrender value. Approximately 73-
10 to $7400.
11 Listen to the answer to this. Mr. Zlotoff, his
12 counsel, who was on notice of this two years ago when we took
13 the deposition and found out about this, never amended the
14 schedules. I think, if I remember my lessons from Ms. Seid
15 correctly - Ms. Seid correctly, debtor can amended schedules
16 anytime. Never amended the schedule to include the life
17 insurance. And Mr. Zlotoff says to you, 'That's not bad faith
18 because if he had included it he could claim exemption.'
19 Well, you know what? Number one, I'm not sure he
20 could claim an exemption. I'm not sure if California - a
21 California state court would allow a claim of an exemption to a
23 Number two, and this is most important, you cannot say
24 his counsel does no harm, no foul because he could put it on and
25 claim an exemption. That - this is a principal we raised with
1 Your Honor called "judicial estoppel."
2 And the proposition is very simple. If you do
3 something wrong and you get caught you can say, 'Okay, you're
4 caught me. I'll give the money back. You know, no harm no
6 Judicial estoppel arising from the bankruptcy filing.
7 We handed up yesterday the two cases. One is the Hamilton case
8 and the other is the Stroh, S-t-r-o-h, case, both of them in the
9 Ninth Circuit, which define what judicial estoppel is and
10 essentially the three elements. He's made a false statement.
11 He's omitted the asset from his bankruptcy schedule. He now is
12 taking a different position, i.e., an exemption which has never
13 been claimed, even to this day, after the - even though we've
14 raised it.
15 There has to have been some injury to us. And the
16 bankruptcy law is very particular. These - the Hamilton case,
17 in particular, I think addresses this. Where the debtor has
18 availed himself of the benefits of the bankruptcy law, including
19 invoking the automatic stay, that is sufficient. It doesn't
20 have to have anything to do with it.
21 The Hamilton case is very instructive on the facts. A
22 debtor - and I think it was Chapter 7 - failed to disclose that
23 he owned an asset, a chose in action. Bankruptcy - got a
25 Afterwards creditor found out, went back to the Court.
1 Discharge vacated. Judicial estoppel claimed on the bas- - on
2 the issue of the ownership of it. Debtor says, 'No harm, no
3 foul. You found out about it. Discharge has been vacated.'
4 The Ninth Circuit says, 'No. It's not when you get
5 caught that that happens. You made a statement. There was -
6 there was action taken based on it, namely the invocation of the
7 - of the rights under the Bankruptcy Act.' In that case,
8 discharge. In our case, automatic stay.
9 And that - and that is enough for counsel to say that
10 he doesn't have to - he can make an argument that he has an
11 exemption that's never been claimed is bizarre.
12 The next item on the schedule. Where are the
13 computers? You had testimony that there were three computers -
14 or, in fact, the latest testimony by Ms. Lucas was that he owned
15 for computers. One computers claimed as exempt on his schedule
16 of exempt property. Where are the other three?
17 And we've had testimony depending on whether you
18 believe that Mr. Henson doesn't know where commas goes - goes.
19 That the sum total of those are either 9100 or 900, depending on
20 whether that market is a one or a comma.
21 The next thing. Schedule claimed $1500 in a household
22 account. We had a whole discussion about, well, you can't have
23 the exact amount. You can't know it on the date of the
24 bankruptcy. You have to kind of estimate. Well, it's not true.
25 It's not true because, as we found out, notwithstanding that the
1 schedule said checking and savings. It was only a checking
2 account. And we've established what everybody knows. And I
3 don't know how Your Honor keeps your checkbook, but I certainly
4 mine. I can tell you how much money I have available, meaning I
5 wrote checks, I'm don't know if they've cleared or not, but that
6 doesn't matter. Because what I have by way of available funds
7 is the money I have had - I have been in my checkbook register
8 that I have not written checks about.
9 If you ask me at 11:32 a.m., 'Can you tell me on the
10 11:32 a.m., March 18th, 1988 how much money I had my checking
11 account,' I could tell you, and I am certain that your honor
12 could do the same thing. You just have to look at the
13 checkbook. If you wrote a check on March 18th, you'd have to
14 think: Did I write it before or after 11:32.
15 So notwithstanding all of these arguments, and the
16 Your Honor's observations about it's impossible to know, the
17 testimony shows that is because of the fact that it's a
18 checkbook in - only in a savings account had nothing.
19 Let's talk about something else, copper. Henson has
20 admitted that he had - at one time he said a few hundred pounds;
21 at one time he said hundred pounds - I don't think it make any
22 difference - of copper in the backyard. Not on his schedule.
23 Your Honor can ascertain the value of that copper to
24 the extent it's meaningful. I don't know if it even is. Does
25 it make any difference how much it is? He didn't put it on the
1 schedule. At one point the suggestion was - and by the way,
2 this is Page 538 of Exhibit 279.
3 At one point he said it was - it was worth 70 cents a
4 pound. At another point the market in copper was a $1.09 a
5 pound. I don't really care. It doesn't matter. He had an
6 asset that he did not put on the schedule.
7 The next omission from his bankruptcy schedule,
8 secured debt. We are a secured creditor. And here it is
9 significant because Mr. Zlotoff represented to you that he did
10 not know that there was a security interest, an abstract of our
11 judgment filed against the property, until this recent time when
12 it came about in terms of pulling the abstract of title to sell
13 the property.
14 Whether Mr. Zlotoff knew about it or not is not the
15 issue. The statute talks about the good faith, the bad faith of
16 the debtor, not of the debtor's counsel. Did Mr. Henson know
17 about it is the question. And here is the critical time. The
18 affect was filed in June.
19 The new schedules, amended schedules, which included a
20 new amended schedule on secured claims, was filed on August 4th.
21 Did Mr. Henson know that a lien was placed on his property, that
22 there was an abstract of - of the judgment? Of course he did.
23 Attached to the exhibit we handed up, are objections,
24 you will see a copy of the abstract. It is - it's been placed
25 in evidence before you elsewhere.
1 You'll also see in the objections that under state law
2 the County Recorder is required to serve a copy of that abstract
3 on the debtor. I mean, I don't have to bring in a clerk from
4 the County. Your Honor - and you know the law is that you must
5 presume that a state official charged with a duty has succ- -
6 had discharged that duty.
7 So in June of Mr. Henson was sent notice. Mr. Zlotoff
8 doesn't know about it? I - I give him the benefit of the doubt.
9 I believe him. But so what? And by the way it's very
10 understandable that he doesn't know anything about it because,
11 as he himself has said in his papers to you, Mr. Henson went off
12 and signed an agreement to sell his house without asking Your
13 Honor's permission and didn't tell Mr. Zlotoff until one week -
14 until three weeks later, one week before the closing.
15 And then three weeks after, and now it's an emergency,
16 is the first time Mr. Henson tells Mr. Zlotoff, 'We already
17 signed a contract to sell the house. We're supposed to close a
18 week. Go get an order from the Judge to allow us to do that.'
19 And I think that that bodes well for Mr. Zlotoff in
20 the sense that it is certainly credible that Mr. Henson, whose
21 good faith or bad faith is the issue, definitely knew about the
22 - the secured lien, and said nothing. Didn't tell his counsel.
23 Well, that's his problem. It's not our problem. And in truth,
24 to be fair to Mr. Zlotoff, it's not his problem either. It's
25 not his good faith which is on - which is on the line.
1 Let me address another item. In the schedule Mr.
2 Henson claims $1500 bank balance. Appreciate this is a man who,
3 according to his schedule made $130,000 the year before, we've -
4 plus whatever his wife made. I don't care.
5 And he has a grand - he would have this Court believe
6 he has a grand total of $1500 to his name in February 1998. But
7 let's go a step further. Mr. Henson made a claim in his
8 schedule for exemption of that $1500 under the provision of the
9 California Code, the CCP, which exempts earnings of employee.
10 Mr. Henson is not and has never been an employee. Mr. Henson is
11 an independent businessman who takes consulting work. The
12 statute, as I read it on its face it seems to me, says earnings.
13 It's a wage-earner statute. You can exempt your last paycheck,
14 or whatever it is, some amount of your paycheck. He didn't have
15 any paychecks.
16 But he misrepresented in claiming the $1500 exemption
17 that he was an employee. And that is a misrepresentation in a
18 sense that no one would know by looking at it that he was not in
19 fact an employee that he was an independent businessman.
20 One after another, elimination - excuse me - not
21 elimination, the omission of credit card debt. I'm told this is
22 open and shut. Section 1322(a)(3), "The debtor is required to
23 list all of his creditors." Mr. Henson did not list his credit
24 card debts, and he admitted it. And he gave an explanation. I
25 don't care what the explanation is because it doesn't get them
1 out from under the statute.
2 The explanation is, for whatever it's worth, that he
3 didn't want to list those because he wanted to continue to use
4 the credit cards in his business. That's interesting. He
5 didn't list a single credit card, not even his gas card. Not
6 even his gas card. And under 1322(a)(3), that itself is
8 Next, Mr. Henson's own testimony, the honest debtor is
9 required to provide his best good-faith numbers, estimates, when
10 it comes to a plan - comes to schedules. Is certainty required?
11 No. But what is required is your best good-faith information as
12 to the - as to the entries on the schedules, on the petition, as
13 well as on the plan. Mr. Henson has admitted that with respect
14 to his expenses he provided "wild-ass guesses."
15 You have also heard testimony, as we have read it, of
16 Mr. Henson who, despite what his wife says, says, 'I didn't
17 write those schedules. And I got on the phone with some
18 attorney in Mr. Berry's office in L.A. And I told him my
19 "wild-ass guesses," and he wrote them down.'
20 And of course that was obvious because, as Your Honor
21 noted, - excuse me - as we noted, and presumably Your Honor
22 noted a long time ago, the oddity is that that bankruptcy
23 petition is - is on the form of the Central District of
24 California. So "wild-ass guesses," that's bad faith.
25 Postpetition criminal conduct, egregious
1 circumstances, totality of the circumstances, yes. He is
2 attacking his only debtor. He is attacking - not - excuse me -
3 not RTC. He is attacking members of the Scientology religion of
4 which RTC is a party. And he was criminally convicted of it.
5 Let's forget about it's a religion.
6 Is it egregious circumstances for a debtor to attack
7 his creditors? Is it egregious circumstances for a debtor to
8 walk up to a creditor of his, his only creditor in the street
9 and punch him in the face? He didn't get convicted for
10 punching-in-the-face. He got convicted for threatening to bomb
11 the facility. That's egregious conduct.
12 Next item, the value of the house. Mr. Henson has
13 admitted he has misstated the value of the house. He made not a
14 single effort to provide the value as of the date of the
15 petition. He listed in precise numbers - I think it was
16 $322,500, the exact purchase price he had paid for the house two
17 years earlier. Okay?
18 There is no effort to determine whether or not that
19 value - and it - inconceivable, it is mathematically impossible
20 that two years later the house would have the same value. In
21 some parts of the country real estate may go down; in other
22 parts it may go up.
23 It is inconceivable in the common sense of man that
24 any piece of property would be worth precisely the same amount
25 two years after you bought it. Well, that's Mr. Henson. This
1 is not a standard run-of-the-mill debtor. It's not a standard
2 run-of-the-mill proceeding in bankruptcy.
3 Now let me talk about one thing, the evidence. What
4 you heard by way of evidence was as follows: Mr. Henson can't
5 come to testify. So what happens?
6 All of a sudden Ms. Lucas has an epiphany and is now
7 invested with all of this recollection of what the bank balance
8 was in 1998, of what expenses were in '90- - '98. She is now
9 going to testify as to - as a surrogate witness as to what the
10 debtor would ordinarily testify to. Okay?
11 And I will not comment on her testimony other than to
12 note that she couldn't remember, on several occasions, what she
13 had said in this court the day before. When asked on Tuesday
14 about something she said on Monday, she couldn't remember. When
15 asked on Wednesday about something she said on Tuesday, she
16 couldn't remember.
17 She changed her testimony X number of times. And X is
18 a - is a three-digit number. How many times have we heard - did
19 we hear from Ms. Lucas, even after I read her her deposition and
20 impeached her with her answers in - not deposition, I'm sorry,
21 2004 exam - from December of 1998, as to what she knew then.
22 That testimony by Ms. Lucas provides zero by way of a defense.
23 Our analysis of 1307 is as follows: We have made our
24 case. We have made far more than a prima facie case of bad
25 faith. Our evidence makes a compelling case of bad faith almost
1 to a moral certainty. What is the defense? Nothing.
2 There has not been a single bit of evidence presented
3 to you, for example, to refute the issue about the timing of the
4 bankruptcy proceed- - petition to stop the trial. Nothing.
5 All we've had is basically Ms. - Ms. Lucas' testimony
6 which really relates to the petition - excuse me - the plan -
7 the motion for plan confirmation. Not a single bit of evidence
8 in opposition.
9 That brings me to what the result is. Under the law
10 Your Honor is supposed to, in making a determination as to
11 whether to dismiss or convert to a 7, Your Honor is supposed to
12 be guided by one yardstick. What is in the best interests of
13 the creditors and the estate and that does not include the
14 debtor. In this case it's easy. You have a stipulation.
15 There's only one creditor. It's RTC. What is in the best
16 interest of RTC, dismissal or conversion? Let me - let me just
17 go over the factors very quickly.
18 There are seven reasons why RTC is better off with a
19 dismissal than a conversion. There are no reasons, no reasons,
20 why RTC would be better off with a conversion.
21 Number one, there are no preferential transfers. As
22 one of the cases talks about perhaps the debt- - the creditor is
23 better off in bankruptcy with the availability of the Bankruptcy
24 Code's provisions for setting aside voidable transfers. We
25 don't have that. I don't need any preferential transfer
1 set-asides. Anything - there's been no evidence of improper
2 transactions by the - by the debtor prior to the filing.
3 Number two, costs of administration. I don't have any
4 costs of administration in dismissal. I don't have to pay a
5 trustee. I don't have to pay a trustee's lawyer. I don't have
6 to pay a trustee 25 percent of the property he sold - he sells.
7 I don't have any costs of administration.
8 Number three, I don't have to deal with
9 dischargeability issues. Although I'm not sure that that's
10 really terribly important for one reason. Because if there were
11 an adversary complaint to dischargeability under a 7 we would
12 win. If I remember the statute correctly when a debtor does not
13 show up for a dischargeability hearing that is game, set, and
14 match, if I remember the Bankruptcy Code correctly. In any
15 event in a 7 - in a dismissal we don't have to deal with
17 Number four, homestead. In a 7 maybe he gets his
18 homestead. I don't know - from this Court. In a discharge I
19 have an abiding face that the State of California is not going
20 to allow a fugitive to take this money and have it sent to
21 Canada to aid and abet his continued fugitive status.
22 Whether he gets an exemption or not, I don't know.
23 But whether he - if he does get an exemption in California
24 Court, whether or not they would allow him or Ms. Lucas to take
25 the money out of the country, to send money to a fugitive, to
1 allow him to continue to be a fugitive, I have an abiding faith
2 that no California state court would allow that. I don't even
3 think he gets his homestead. But the point is we are certainly
4 better off in state court rather than a 7 or a net.
5 Number five, legal fees. Our legal fees in state
6 court are going to be far less than the Bankruptcy Court.
7 Appeals dealing with - with all due respect - our ongoing
8 disagreements with Your Honor's rulings and orders.
9 And most importantly, most importantly, we have a
10 proposition in state court in California as to appealability of
11 orders which makes it very simple. The appeal process in
12 California is a lot easier because it involves, by definition,
13 only one step.
14 Whereas, in this Court it involve- - in bankruptcy it
15 involves at least two steps, two appellate levels. There's one
16 appellate level is a matter of right in California, and that's
17 to the Court of Appeal.
18 Number six - reason number six. Even as to any money
19 Ms. Lucas may be entitled to, the joint tenancy. Well, Your
20 Honor already said you're going to send that to state court
21 anyway. So that conversion doesn't help us one bit.
22 And number seven - and I think perhaps this is most
23 important of all. If Your Honor will look at the notice -
24 amended noti- - proof of claim that we filed, that I handed up
25 earlier - may I have a copy of it?
1 The amended proof of claim shows $222,651.83 of which
2 about 125,000 in round numbers we indicate we believe these
3 claims are postpetition. That's not even counting the last one
4 of September 26. So add another 17,000 to that one.
5 Here's what the point is. Even if there is - this is
6 brought to a conclusion in bankruptcy, whether it's a 7 or a 13,
7 it doesn't matter. The day he walks out is the day we go after
8 the rest of our claims. They are postpetition. I don't care
9 what happens in the sense of a 7 or a 13, we walk out of
10 bankruptcy with these postpetition claims.
11 It is most efficient for us to be able to assert all
12 of our claims, pre- and postpetition in one court. For example,
13 if the aggregate of our pre- and postpetition claims are
14 $240,000, in round numbers, we can assert that by way of a lien
15 in state court, if there is - if this case is dismissed. And we
16 don't have to deal with a two - a two - a separate two-part
17 process. Part of it is prepetition and we deal with it here.
18 Part of it is and we deal with it later. We can resolve all of
19 our claims at once.
20 The next element to bad faith, the proposal of a plan
21 that provides us zero. And the first plan was $75. Then there
22 was another plan. The next - the penultimate plan that Mr.
23 Zlotoff filed or orally amended was a zero payment plan. The -
24 the latest plan which - the latest plan as amended, which was
25 orally put on this record on September 27th, is $150 a month for
1 the 60 months. That's $9,000. We get zero. We get zero.
2 Proposing a plan that provides the creditor nothing is bad
4 I would therefore ask Your Honor - and if Your Honor
5 has any questions of us as to whether you believe that there's
6 any benefit to us, the creditor, and the only creditor in a 7,
7 I'd be happy to answer them. Our position is I've given you
8 seven reasons why we're better off in a - with a dismissal than
9 a 7. But I want to record to be clear. If Your Honor perceives
10 any advantage to us, I'd like to know - I'd ask Your Honor to
11 tell me about it so I can agree or disagree.
12 With that, I'm going to turn the floor over. I've
13 completed my closing argument on our motion, a 1307 motion with
14 one caveat. And that is: I would hope that the commentaries,
15 as I have tried to do in closing argument, particularly since we
16 don't have - we're not filing closing briefs, stick to the
17 evidence which is presented. And - and I've tried to do that.
18 I've not advanced any factual argument in my closing that is not
19 part of this record.
20 Thank you, Your Honor.
21 THE COURT: Mr. Zlotoff, are you ready to proceed?
22 MR. ZLOTOFF: I am, Your Honor.
23 THE COURT: Ladies - shall we take a five-minute
24 break? Would that be helpful. I need one, anyway, so we'll
25 take a few minutes. We'll reconvene at 10 after 12:00.
1 (Recess taken from 12:03 p.m. to 12:13 p.m.)
2 THE CLERK: Please rise.
3 THE COURT: Please be seated.
4 Ms. Bracegirdle, how much time does Mr. Rosen have?
5 He was asking me, but I don't know.
6 THE CLERK: It's - it was a estimated correctly.
7 THE COURT: Twelve minutes?
8 THE CLERK: Ten to 12, yeah.
9 THE COURT: When I had originally suggested 40 hours,
10 it was on the basis of 20 or more witnesses, with the debt- -
11 anticipating the debtor would appear. The debtor has not
12 appeared. There has been only one witness and RTC didn't put on
13 any witnesses. So the hour per side seemed reasonable to me.
14 Go ahead, Mr. Zlotoff.
15 MR. ZLOTOFF: Thank you, Your Honor.
16 CLOSING ARGUMENT ON BEHALF OF THE DEBTOR
17 MR. ZLOTOFF: All right. I'm going to start with some
18 rebuttal to what Mr. Rosen's comments addressed.
19 The first point made was Your Honor shouldn't have
20 viewed RTC has been overly aggressive. I direct your attention
21 to Exhibit 295, page 3 of the 9-18-01 order of Judge Whyte,
22 regarding attorney's fees at lines 15 to 16. "RTC's" -
23 MR. ROSEN: Excuse me. I don't want to interrupt.
24 That order is under seal. That's the reason I never quoted from
25 the order. Counsel would be violating Judge Whyte's seal by
2 THE COURT: Well, the transcript can go under seal -
3 the only people - of this argument. The only people we have
4 here are your client, the Marshal, and my Law Clerk.
5 MR. ROSEN: No, it can't, because for a appellate
6 review the transcript is not - I'm not going to move to seal
8 THE COURT: You don't have to move it. I can seal it.
9 You don't have to move anything.
10 MR. ROSEN: No. I don't want to deal with a sealed
12 Counsel - if counsel wants to make an argument from
13 the document, he can just point Your Honor to the portion of it
14 that he wants. He doesn't have to read into the record.
15 THE COURT: It's not your choice, Mr. Rosen, whether I
16 seal the transcript or not.
17 Do you want the transcript sealed?
18 MR. ZLOTOFF: Well, Your Honor, I've seen other
19 documents where the first page of the document, if it's under
20 seal, will say under seal. I've gotten such orders from Judge
21 Whyte. This one that they attached, but they made no mention of
22 as, being under seal, that they -
23 THE COURT: What's the date of the order?
24 MR. ZLOTOFF: The date of the order is September 18th,
1 MR. ROSEN: I apologize. I thought he was reading
2 from September 26.
3 THE COURT: Okay. There's no issue anymore, then?
4 MR. ROSEN: There is no issue. I thought he was
5 reading the September 26 order.
6 MR. ZLOTOFF: All right. "RTC's approach throughout
7 the case was as aggressive as the Court ever sees in litigation
8 and its trial tactics, in part, appeared designed to make Henson
9 look like a crackpot rather than to establish RTC's claims."
10 Mr. Rosen says that since - since Hen- - since Mr.
11 Henson was convicted of crime he shouldn't be entitled to
12 Chapter 13 relief. Well, I'd refer Your Honor to In re Slate,
13 15 BR 910 BAP 9TH, 1981 were an embezzler, prepetition, someone
14 convicted of embezzlement, was entitled to file Chapter 13.
15 Mr. Rosen says that -
16 THE COURT: Mr. Rosen, could you push the microphone
17 away from you because we're picking what - your private
18 statements up on the record.
19 MR. ROSEN: Thank you.
20 MR. ZLOTOFF: With regarding to the timing of the
21 bankruptcy filing, Mr. Hen- - Mr. Rosen says that he doubts that
22 there is a case where the debtor would file right before a trial
23 and not be found in bad faith. Well, I think he's wrong. For
24 one reason, In re Ho, a case which - which they've cited, which
25 I believe came out earlier this year, a BAP case, H-o, I believe
1 presented that precise fact pattern. And indeed as I recall Ho
2 was favorable for the debtor.
3 Mr. Rosen says, with regard to bank accounts, he knows
4 to the second how much is in his bank account. Well, welcome to
5 the world of consumer debtors. I- - I can tell him from my
6 experience, and he offered his anecdotal experience, so I think
7 I'm okay by injecting other anecdotal experience. Not the case.
8 Plenty of consumer debtors don't know, except by wild guesses,
9 what the approximate balance of the bank accounts are.
10 For Mr. Rosen to talk about debtor having admitted, or
11 failed to disclose a secured - a secured debt is - I mean,
12 that's chutzpah to the - to the utmost. So I'll get to that a
14 THE COURT: Do you want to spell that word for the
16 MR. ZLOTOFF: How about if I don't, Your Honor.
17 THE COURT: Probably c-h-u-t-s-p-a.
18 MR. ROSEN: C-h-u-t-z-p-a-h, Your Honor.
19 MR. ZLOTOFF: Mr. Rosen makes reference to the
20 abstract of judgment, which I believe is attached to Exhibit
21 295, and states that he appended a rule, a court rule. I don't
22 see such a rule attached to - to my exhibit.
23 But, nonetheless, if you look at the abstract of
24 judgment which is part of that exhibit there are actually two
25 addresses indicated. One is the address of College Avenue. And
1 the other address, which is just below it, is Coffee Court, San
3 Now if a clerk was properly following instructions the
4 - the notice - it's true, the notice of lien should have gone to
5 College Avenue. But who knows whether the clerk followed
6 instructions properly. Who knows whether there wasn't some
7 negligence, and the notice one out to Coffee Court instead.
8 There's - there's no proof one way or the other.
9 With regard to an allegation that Mr. Henson claimed
10 an exemption as an employee in the $1500 bank account, well,
11 with that issue asks us to split hairs over is whether - or to
12 what extent an independent contractor is - may be termed an
14 And I would submit that under certain circumstances,
15 none of which we've delved into in this case so we're not
16 competent to really do anything other than speculate - that
17 under certain circumstances an independent contractor may indeed
18 be treated as an employee for purposes of California labor law.
19 If the employer - as I understand it - if the employer
20 sufficiently controls the terms of employment, the hours, the -
21 and so forth, then indeed such a finding may occur.
22 Mr. Rosen talks about egregious conduct as being - for
23 example, Mr. Henson's conviction of the misdemeanor and his
24 being found liable for contempt. But that's not - that's not
25 what's bad, that's not what egregious conduct means, as I
1 understand it. If you look at Leavitt, L-e-a-v-i-t-t, Ninth
2 Circuit case which has been referred to before, egregious
3 conduct in Leavitt, for example, referred to failing to disclose
4 material assets. We're not talking about somebody's 100-pound
5 copper mound in the backyard worth a hundred bucks. We're
6 talking about something material. And there hasn't been
7 anything I've heard that amounts to anything material.
8 In other words, anything withheld or put - tried to be
9 put beyond the reach of creditors such that there would be a
10 prejudice to any creditors or to the estate, not - not one
11 single thing that I heard.
12 There Mr. Rosen says, 'Well, you can't believe
13 anything Ms. Lucas said.' And indeed we heard time after time
14 how Ms. Lucas would testify one way. And then Mr. Rosen would
15 point to a deposition taken a couple of years earlier and indeed
16 the answers did seem to be different.
17 But we also heard that - about Ms. Lucas' state of
18 mind, that she was under stress, that she was the subject of -
19 of harassment from Scientologists. And so indeed one could
20 understand why she might have trouble testifying at one point or
21 another and why her - her memory might not be all so good at
22 certain times.
23 Mr. Rosen refers to what should happen to this case in
24 the event of an adverse ruling as to confirmation or as to bad
25 faith and suggests that the case should be converted rather - I
1 mean dismissed rather than converted.
2 And in support of that proposition he states that the
3 RTC is the only claim. Well, that's not true. I'm - I'm
4 offended personally. I'm a claimant. And I do really hope to
5 get paid from this case, someday, sometime. I would be
6 extremely prejudiced if this case were dismissed, unless Mr.
7 Rosen wants to make some side arrangement with me, which I
9 Mr. Rosen, without any authority whatsoever, suggests
10 that - that Mr. Henson ought not to be entitled to a homestead.
11 And I'm flabbergasted because to me a homestead, I believe, is
12 part of the Constitution of California. I know I've researched
13 the issue before. And my recollection is the only way to attack
14 a homestead is if you can trace some kind of embezzled funds, or
15 ill-gotten gain funds, into the homestead such that you can
16 essentially attached or qualify for some kind of equitable lien.
17 Barring that, the homestead is sacrosanct. There's no way you
18 can deprive a debtor of a homestead.
19 I would - if this case gets dismissed, here's what
20 will happen. If this case - right now we have pending some
21 motions for - for sale. Quite possibly we might even have an
22 arrangement for marketing the property so that the house could
23 get sold and funds be put in trust.
24 But you know what will happen if this case gets
25 dismissed there's not going to be any sale. Forget about that.
1 RTC would just as soon have the house be lost at foreclosure, at
2 trustee's sale. I think they'd be happier from what I've heard,
3 what I've seen. What to do they care about a crummy 75,000 or a
4 150,000 that they might get. That's nothing. That's - that's a
5 drop in the bucket. Much happier to them would be if they could
6 watch debtor's house go down in flames. I'm - I'm speaking not
7 literally, of course. And so that would be an argument against
9 Mr. - Your Honor had mentioned - I wasn't going to
10 bring this up, but - but Mr. Rosen did, about Your Honor's
11 suggestion that the joint tenancy issue be dealt with in state
12 court. But I - when I heard that I was - right away I was - it
13 didn't sit well with me.
14 And the reason is because the Ninth Circuit has
15 recently ruled on this - on this very issue. In fact, it was a
16 case in which I was involved and was the - the attorney for the
17 - for the debtor. The BAP has issued an opinion regarding this
18 very issue of how you determine joint tenancy versus community
19 property and what - how the presumptions apply, and so on and so
20 forth. In re Summers, 279 BR 808 BAP Ninth 2002, and I -
21 MR. ROSEN: Your Honor, can we have a copy?
22 MR. ZLOTOFF: Copy of what? I just gave you the cite.
23 MR. ROSEN: May I have a copy of the case, Judge?
24 THE COURT: Do you have an extra copy of the case for
1 MR. ZLOTOFF: I don't have the case with me. I - I
2 could go to my office and get it for him.
3 MR. ROSEN: No, no. I thought if you had a copy.
4 MR. ZLOTOFF: No, I - I would haven't my office, but I
5 just gave him the cite.
6 And I should note that it is on appeal to the Ninth
8 THE COURT: What does it hold?
9 MR. ZLOTOFF: It holds that -
10 THE COURT: Okay. It's your standards for deciding
11 whether it's a joint tenancy or not. But why does that relate
12 to whether the state court or I should resolve it?
13 MR. ZLOTOFF: Well, it arose in a bankruptcy context.
14 And the trustee, the bankruptcy trustee of the wife who filed
15 first in a different district - in the Eastern District claimed
16 that the entirety of the house as community property belonged in
17 the wife's estate as opposed to half, as asserted by the husband
18 and who has subsequently filed Chapter 13 -
19 THE COURT: There's no question that I could try it?
20 MR. ZLOTOFF: Right.
21 THE COURT: The question is whether I should.
22 MR. ZLOTOFF: I understand. But what I'm saying is
23 that there is some law developing in the Ninth Circuit on this
24 very issue. And so for that reason I don't think it's
25 necessarily a state court issue.
1 THE COURT: I don't think it's necessarily a state
2 court issue either.
3 MR. ZLOTOFF: Okay.
4 Mr. Rosen says -
5 THE COURT: And it's not before me yet.
6 MR. ZLOTOFF: I understand. I understand. I was just
7 addressing that. That would be, for my mind, another reason - a
8 small reason - but another reason why dismissal is not
9 necessarily warranted.
10 Mr. Rosen says that some of his debt, some of the RTC
11 debts are postpetition. And that's true. The contempt debts
12 are indeed postpetition as I understand. Although for some
13 reason say they've included those amounts in their proof of
14 claim. But if the case is converted those debts are part of the
15 converted case. They, according to bankruptcy law, stand as
16 prepetition debts. So indeed they would be part of the
17 converted case and part of the matter under the jurisdiction of
18 this Court.
19 Mr. Henson - Mr. Rosen says that in a dischargeability
20 trial Mr. - Mr. Henson would have to show up. Well, that's not
21 true. And I think we've actually been over this if memory
22 serves me correctly. It's not true. You don't have to show up
23 for a dischargeability case.
24 But - but secondly in a case such as this which has
25 already been litigated to the hilt you can simply, as a
1 Bankruptcy Court hearing a dischargeability case, you can hear
2 it on - you can conduct trial on stipulated facts, or you can
3 dispose of it by way of summary judgment.
4 And for that you can see - I refer you to In re Su,
5 S-u, where that's exactly what happened. There was a - and I
6 have the cite later an argument to Your Honor. Actually, that's
7 290 F.3 1140 Ninth 2002. And in that case there was a jury
8 verdict in the Superior Court in favor of - of the creditor.
9 And later a bankruptcy by the debtor. And the matter was teed
10 up to - to the Judge, the Bankruptcy Judge, as a trial on
11 stipulated facts.
12 Mr. Rosen says - I think he tried to say that a zero
13 percent plan - if that were the plan. It's not. But I think he
14 meant to indicate that even if it's a four-percent plan it's
15 like a zero percent plan in bad faith per se, I think, was what
16 the gist of his remarks were. Not true. In re Goeb, G-o-e-b,
17 Ninth Circuit, way back when 1981, 1982. That was a one-percent
18 case confirmed by the Ninth Circuit - or approved on appeal by
19 the Ninth Circuit.
20 Your Honor, the Exhibit 194 is the proof of claim
21 filed by RTC 9-9-98. Box 5 of that proof of claim states, and I
22 quote, in bold letters, Number 5, secured claim, "Check this box
23 if your claim is secured by collateral." The box was not
24 checked. The claim was signed above an italicize sentence that
25 says, "Penalty for presenting a fraudulent claim flying up to
1 such and such dollars." The claim was filed as an unsecured
2 claim. No abstracted judgment was included as I recall. On
3 8-20-02 just two, two months ago Exhibit 195 is the amended
4 claim filed by RTC. Again, Box 5 not checked, claim filed as an
5 unsecured claim.
6 If Mr. Rosen is looking for case of judicial estoppel,
7 here's a case for judicial estoppel. We've been going four
8 years on this case. Mr. Rosen knows full well that I've been
9 treating this as an unsecured claim.
10 Why would I be filing these idiot four-percent plans,
11 zero-percent plan, racking my brain trying to - to square a
12 circle to figure out how I can get in evidence regarding best
13 efforts if it's all sham?
14 And here is - here is the fact of the matter, because
15 here is what RTC wants this Court to accept. It wants this
16 Court to accept the fact that the postpetition appreciation goes
17 to the creditor. It's argued that before. And that's what this
18 whole to do with the effect of date argument. We argued this
19 two years ago in connection with the motion to dismiss of
20 September 13th, 2000. We filed a so-called motion in limines on
21 this issue a few - a few weeks ago.
22 So RTC clearly wants - or claims it's entitled to
23 postpetition appreciation. And if you look to Exhibit 90,
24 that's the appraisal as of 7-14-2000 where - that's before the
25 motion to dismiss, before the time when we're arguing all this
1 business about really the - whether the good faith, or the best
2 interest, the effective date, all this stuff. Appraised value
3 608 - $608,000. And we stipulated that, and that's - that's in
5 THE COURT: Where is that, those two stipulations?
6 MR. ZLOTOFF: Well, they're actually exhibits, Your
8 THE COURT: Well, which exhibits?
9 MR. ZLOTOFF: This number - Number 90 just the July -
10 THE COURT: 608 as of 7-14?
11 MR. ZLOTOFF: That's 608. That's 608, right. And
12 then right before it I think is the 4th. Now let me see if I
13 can find it. Right. It would be - 91 would be the 410, the
14 appraisal at 410,000. 91.
15 Now the deed of trust is about 256,000. And we've
16 established that by way of one of my exhibits here. Let's see,
17 Exhibit L, World Savings statement shows that the deed of trust
18 was about 256,000.
19 All right, so let's - let's play ball with RTC here.
20 We've got a house back in September of 2000 when we were talk- -
21 first talking about this. A house of 610,000, deed of trust
22 256,000. Subtract that, you get 354,000. Okay. Let's take
23 out -
24 THE COURT: All right. Six-oh-eight minus 256.
25 MR. ZLOTOFF: I'm sorry. Six-0-eight - I'm sorry.
1 THE COURT: Is that what you're doing.
2 MR. ZLOTOFF: Yes, I made a mistake here. Six-0-eight
3 minus 256 is 352. Mr. Henson claimed a $75,000 homestead. So
4 we're left with 277,000. Okay?
5 THE COURT: Um-hum.
6 MR. ZLOTOFF: Now they - they also contend that -
7 because we've heard the allegation that it's not a true joint
8 tenancy. Okay, let's - let's accept that. It's not a true
9 joint tenancy. RTC is entitled to grab all of it as a lien
10 claim. But look what we've got here. We've got $277,000 to
11 which RTC's claim of how much? Two hundred twenty-two thousand.
12 They were fully secured back two years ago. We could
13 have ended this case two years ago, or they could have honestly
14 stated their position that they were a secured claim. We could
15 have forgone a lot of needless bickering over pointless things.
16 And the debtor at that point would have had to put up
17 or shut up. There would have only been one plan possible, the
18 sale of the house. That would have been it. So if he wants to
19 talk about judicial estoppel, I'd say great, let's talk judicial
21 He can't allege a joint - but this is not a true joint
22 tenancy, or he can't assert that he is a secured claimant. He
23 can have his pick on that. Although by virtue of - I mean, this
24 - this is almost ludicrous. At the last minute they finally
25 realize the pickle they're in and probably anticipated how I was
1 - what I was going to say. And now they've filed a secured
2 claim. You see, now they've filed a secured - okay, they've
3 made an election. Let's say they've made an election.
4 They can't now, according to Mr. Rosen's own argument,
5 take the position that it's not a true joint tenancy, otherwise
6 the last two years have been an entire - an entire sham as far
7 as I'm concerned.
8 The bad-faith reasons for dismissal, omitted debts,
9 credit cards. It's true Mr. Henson had a credit card. Although
10 the amount and identity of the card, as I was poring over the
11 evidence, is not completely clear. There was an admission of
12 $6,000 on a bank account - on a bank card, Exhibit 276, page 14.
13 As I recall Ms. Lucas' testimony, one account was a
14 joint account. And if that's true, then there is provision
15 under the code for creating a joint account. In other words, an
16 account in which there is coop or corps separate and distinct
17 and there's a separate class from - from another kind of
18 unsecured debt.
19 Mr. Henson in terms of using un- - unsecured credit
20 postpetition, I don't know that the law is completely clear with
21 respect to Chapter 13 debtors. If you read 364 it talks about
22 what a trustee can do or not to do. But I don't know that
23 there's any law with respect to what a debtor in a Chapter 13
24 can do or not do with regard to postpetition unsecured credit,
25 like a - like a line of credit. The Court should take notice
1 that the -
2 THE COURT: What's the issue you're raising there,
3 whether a debtor can take postpetition unsecured credit? I
4 mean, whether the debtor can use -
5 MR. ZLOTOFF: Whether the - yes.
6 THE COURT: - use a credit card after the -
7 MR. ZLOTOFF: Yeah, whether that - whether that -
8 THE COURT: - after case is filed?
9 MR. ZLOTOFF: Yes. Whether that is per se bad, in
10 other words. I'm suggesting it's not per se bad. It may come
11 in with respect to other issues. Certainly it - it might bear
12 on feasibility if he can't fund a plan except by going into
13 debt, sure.
14 THE COURT: But Chapter 13 debtors are in business all
15 the time -
16 MR. ZLOTOFF: Right.
17 THE COURT: - in mom-and-pop operations. And they
18 operate sometimes on credit.
19 MR. ZLOTOFF: Right.
20 THE COURT: And they -
21 MR. ZLOTOFF: That's what I'm saying. I'm saying -
22 THE COURT: So what - what possible argument is it
23 that they're not allowed to use postpetition credit?
24 MR. ZLOTOFF: Oh, that's one of the arguments I
25 thought I heard from Mr. Rosen.
1 THE COURT: Oh, we'll have to - we'll have to ask him
2 about it.
3 MR. ZLOTOFF: The record is not clear. I was looking
4 at the record. And a lot of what Mr. Henson testified to was
5 that his unsecured line of credit, his credit card debt,
6 increased -
7 THE COURT: Postpetition.
8 MR. ZLOTOFF: - postpetition. And that is being used
9 in some way, I think.
10 The Court should look at Exhibit P. The trustee
11 withdrew her objection to - to the amended plan. And I would
12 represent that on the record the reason why is because I
13 exceeded to the trustee's request that the plan complete within
14 sixty months and -
15 MR. ROSEN: Your Honor, I object to counsel putting
16 testimony on the record. We - we - we're not a party to this.
17 How can - how can counsel sit at a counsel table and - and
18 represent facts that we're not even aware of?
19 MR. ZLOTOFF: It was a hearing at which RTC would or
20 could have been present, probably was present. But all right, I
21 will withdraw that, Your Honor.
22 THE COURT: But, anyway, the trustee withdrew her
24 MR. ZLOTOFF: The trustee withdrew her objection.
25 Exhibit D, the debtor faithfully paid all his payments
1 for four years. I submit that's - ought to be one of the
2 cornerstones for determining good faith, whether a debtor
3 intends to do what he proposes to do. He has.
4 There is evidence that the debtor threw out some bills
5 and receipts. But the question is whether the debtor had any
6 duty to keep bills and receipts at the particular time when he
7 allegedly threw them out. And I - I'm not so sure that he did.
8 And for that I would cite you to 4 Collier on bankruptcy,
9 paragraph 727.03 -
10 THE COURT: Paragraph?
11 MR. ZLOTOFF: 737.03, page 727 - oh, 727-47-49. It
12 doesn't make sense to me. It's under - it's under page 727.
13 This would be of the 15th edition re- - revised 1998. Let me
14 just read a little bit of it, because with that bungled cite,
15 I'm not sure you'll find it.
16 "If the" - "If the occupation or business is of a kind
17 in which persons normally would not keep books or records,
18 failure by the debtor so to do does not bar a discharge. A
19 traveling salesman, a wage earner, a priest, or other person
20 dealing in general in cash and not engaged in business wherein
21 credit is extended him so that a duty to creditors arises may
22 not be obliged to keep books or records."
23 The timing of the filing, or the purpose of the
24 filing. Exhibit 99 is Judge Whyte's order for summary judgment
25 against the debtor. And that was issued April 15th, 1997. So -
1 well, let's back up a minute.
2 Exhibit 121 is this so-called "points chart" that Mr.
3 Rosen was referring to. In this is where people called SPs, I
4 guess, get certain points for however outrageous their conduct
5 is toward RTC.
6 Well, Henson had - according to RTC Henson had done
7 one great thing - thing, according to Henson, because he did you
8 gotten them to sue him. Okay, that's fine. But he was supposed
9 to win the lawsuit. Losing a lawsuit is - I don't think that
10 counts for much. But he lost. At the point of summary judgment
11 he lost. The only thing left open - it's true, there was an
12 issue of whether - I'm sorry, Your Honor. I'm getting buzzed to
13 death here.
14 The only - the only thing that was left was for
15 determination of whether he was - he had committed his acts
16 recklessly. In other words, he didn't have the real defense he
17 wanted to make. He wanted to make a First Amendment stand.
18 This was his great cause. He was - he was holding the flag of
19 the First Amendment up high. He lost.
20 And so the only thing then I think, for Henson to do,
21 again following RTC's logic here, would be to try to beat RTC
22 out of the debt. That's all that was left. He was going to be
23 found liable. He must have known that.
24 And so then bankruptcy made perfect sense, absolute
25 perfect sense. He knew he was going to be looking at a - at a
1 big judgment. Plenty of times in the - as Mr. Rosen indicates
2 in the various postings - Mr. Henson crows about, you know, the
3 kind of money, the kind of attorney's fees that he suspects RTC
4 is going through.
5 So he know - he knew he would have to - he would
6 probably likely be - he'd probably be hit hard by a judgment.
7 So then why pull out of it? Why not go through with it then?
8 See that doesn't make any sense to me. Because that was, I
9 think, according to RTC's view of the point system, that was the
10 next logical step.
11 THE COURT: Why not do what?
12 MR. ZLOTOFF: Why not file the bankruptcy and go
13 through with it, because that would be living up to the point
14 system, I think. It would make sense to me. You lost your big
15 - your big cause of action against RTC. You're looking at
16 damages. Wipe them out in bankruptcy. So their reasoning
17 regarding the timing makes no sense. He was headed for
18 bankruptcy. The only issue was when.
19 This is not like Eisen. Eisen was a case in which, as
20 I understand it, the - the debtor was involved in an executory
21 contract that he wanted to get out and so he files bankruptcy.
22 No issue of damages as I understand it. The sole reason was to
23 get out of a - out of a contract he'd entered into. And not
24 really any real bankruptcy reasons.
25 In other words, to - to make payment on a debt, or to
1 discharge a debt. Here you look at Exhibit R, the complaint.
2 You look at what they were asking for with regard to Count 2,
3 the copyright infringement claim. They were asking for $100,000
4 in statutory damages and they were asking for attorneys' fees.
5 You don't have to be a genius to realize that you're
6 looking at trouble, especially when you've got an attorney with
7 34 years of experience, who is as good as Mr. Rosen is.
8 Was the debt dischargeable? Well, no, it's not, it's
9 clearly not. And here is why. Look at Exhibit 99, page 13,
10 line 19.
11 THE COURT: Exhibit 99.
12 MR. ZLOTOFF: Right.
13 THE COURT: Page 13, line 19?
14 MR. ZLOTOFF: Right. That is Judge Whyte's order,
15 granting in part and denying in part the motion for summary
16 judgment. And he sets forth the standard for copyright
17 infringement. And you know what? It's a reckless standard.
18 "Willful" means reckless for this particular misdeed.
19 And we know reckless is not a sufficient standard for
20 523(a)(6). And once again you can look at In re Su, S-u, for
21 that proposition.
22 Mr. Henson was found liable for contempt on different
23 occasions. Is that a dischargeable debt? Well, it is. For
24 this kind of contempt it is. And the reason is you can look at
25 Exhibit 111. And that is Judge Whyte's findings of fact and
1 look at page 3 and you'll see. You can be negligent and still
2 be found liable for contempt, which is what happened. And
3 that's not - clearly that's not a dischargeable - that doesn't
4 rise to the level of a dischargeable act.
5 THE COURT: A nondischargeable act?
6 MR. ZLOTOFF: Nondischargeable act, thank you, Your
8 Also at Exhibit 99, page 13, line 19, RTC -
9 THE COURT: Again?
10 MR. ZLOTOFF: Page - Exhibit 99, page - can't read my
11 own writing. Oh, page - I think page 13, line 9.
12 THE COURT: You were just on exhibit 99, page 13 line
14 MR. ZLOTOFF: Okay. So that's probably - it's
15 probably it, then. Again this is part of Judge Whyte's order.
16 And he says, RTC requested attorney's fees "to
17 compensate it for the great expense which it claims Henson
18 deliberately caused it to incur." This was his order of April
19 15th, 1997. Again, Henson was put on notice that he was looking
20 at a lot of attorney's fees. And that goes to the issue of
21 whether he had a legitimate reason to file.
22 Discovery. There's been allegations that Henson
23 stonewalled discovery and that's bad faith. Well, if you look
24 at the various exhibits, Exhibit 35, Exhibit 72, Exhibit 86,
25 you'll see that -
1 THE COURT: 35?
2 MR. ZLOTOFF: 35, 72, 86. Henson did - did comply.
3 They got everything. Ultimately, they got everything, tax
4 returns, the whole works. I don't think they deny that they got
5 tax returns.
6 Were they prejudiced? There was a delay, then
7 unquestionably, then this case took a lot of time. And I'm
8 going to concede that Henson could have acted faster. But was
9 there prejudice? Well, no there wasn't prejudice. Why? Look
10 at - you can look at the docket here as exemplified by Exhibit
11 179 which pertained to a 2004 of debtor's daughter Amber
12 sometime towards the latter part of 2000 - of the year 2000, as
13 I recall. So this is way, way into the case. RTC is still
14 taking examination. So I say okay, the case did drag on, but I
15 dragged on for both, on both sides.
16 If - if Your Honor does find that there was bad faith
17 I would just remind Your Honor that bad faith is not a
18 preclusion to one being eligible for Chapter 7. And there is a
19 Ninth Circuit case. And actually I gave the cite to Mr. Rosen
20 about a week ago. I believe it's Padilla, P-a-d-i-l-l-a. And
21 that was done sometime in the year 2000, Ninth Circuit, so
22 holding that bad faith is not a part of Chapter 7 relief.
23 The plan - the plan is - it's kind of hard to put
24 together a plan when you don't know what the debt is you're
25 talking about. And so it's still a little bit of a mystery.
1 I've actually never been in this situation that I
2 remember where I was completely at a loss to describe the plan.
3 Clearly, if they're fully secured, or secured, then my plan is -
4 how can it work?
5 All I can do is address what I thought was the case
6 when, you know, I guess as recently as a month ago when I
7 thought they were unsecured. And that is that the plan as
8 amended by Exhibit S is to pay off the plan from the sale of the
9 house. That puts an end to any discussion of feasibility
10 because you can't do better than that.
11 I mean, if the plan is otherwise an acceptable plan in
12 terms of percentage and good faith and whatnot, and we know that
13 there is going to be funds coming out of a sale, then certainly
14 the plan is feasible. It can be paid - it can be paid off.
15 Regardless of whether there should or should not have
16 been things added to the schedules the fact is the only asset in
17 this case is the house. That's it. So if the plan is that it
18 be paid off from the sale of the house, I don't see how you
19 could do much better than that in terms of the best efforts -
20 the best interest of creditors test.
21 Now I'm going to have to fudge here and say - well,
22 I'm not going to fudge. I going to say that if Your Honor finds
23 that there is good faith then I would suggest or submit that the
24 better be given an opportunity to further amend the plan in some
25 way consistent with whatever is determined as to the secured or
1 unsecured status of this creditor, because the idea here is that
2 the plan be paid off from the sale of the house, one way the
3 other, either as a secured claim, or as a secured claim that's
4 been whittled down so that the debtor can derive his homestead.
5 But I think the idea here is that the debtor - the
6 idea here is that the wife gets her half as a joint tenant, the
7 debtor gets his 75,000, and then RTC gets paid, you know, as -
8 as a lien claimant, I guess, if that's what it is, or pursuant
9 to the plan, whatever - whatever that turns out to be.
10 Your Honor, could I just ask, is the timer, does that
11 show me how much time I have left, or much I've gone through?
12 THE CLERK: (Speaks out of range of the microphone.)
13 MR. ZLOTOFF: So how much time do I have left?
14 THE CLERK: Till 12:15.
15 MR. ZLOTOFF: Twelve minutes?
16 THE CLERK: You have 12:18 - until 12:18.
17 MR. ZLOTOFF: I see. On Okay, thank you.
18 THE COURT: Tanya, isn't it five of 1:00?
19 THE CLERK: Excuse me, 1:18.
20 MR. ZLOTOFF: Oh, to 1:18, to 1:18.
21 THE CLERK: Yes. Sorry.
22 MR. ZLOTOFF: Okay, thanks.
23 THE COURT: I've allowed you each to reserve time. So
24 I told Mr. Rosen he's going to get a second time up and you will
25 get a second time up.
1 MR. ZLOTOFF: Okay.
2 Best efforts to the extent that's even pertinent here
3 is - is a three-year test. And I think really all that's
4 required in a normal consumer case is that you look - determine
5 whether the - the initial disclosures are more or less accurate,
6 and than that you project from that, because the test is
7 protected, not actual income. That's Andersen, 21 F.3d 355
8 Ninth Circuit 1994. But it's a three-year proposition in any
9 event, and we're way beyond three years. So it's - I think the
10 test is moot. We don't have to look at what his income and his
11 expenses are at this point in time. They're irrelevant.
12 There's no need for mathematical certainty with regard
13 to the debtor having made guesses with respect to his expenses.
14 McCroy (phonetic), 172 BR 154 Georgia 1994. And after the RTC
15 cites some - some of the same cases like Fries, F-r-i-e-s, in
16 their recently submitted brief. That goes to the issue of
17 whether a debtor needs to be exactly precise with regard to
18 expensive. And the answer is, I submit, no.
19 And to the extent it is relevant one of the issues
20 here is the effective date of the - of the plan. We've
21 addressed that, I think, pretty well in the - in the briefing
22 that was done before the case. So I'm not going to go into that
24 Regarding income Mr. Henson admitted that his
25 donations were small and irregular. That's Exhibit 278 at 191.
1 THE COURT: Donations?
2 MR. ZLOTOFF: The donations that he received.
3 THE COURT: You mean from people?
4 MR. ZLOTOFF: Yes, from people.
5 MR. ROSEN: Your Honor, I object. This is not in
6 evidence for that.
7 MR. ZLOTOFF: It is.
8 MR. ROSEN: No.
9 THE COURT: Let's - let's stop arguing. Finish your
10 argument and then we'll talk about that.
11 MR. ZLOTOFF: Well, not if there's going to be a big
12 todo. I'll -
13 THE COURT: All right. We can let you finish and then
14 you can come back to this.
15 MR. ZLOTOFF: If you look on the trial - on the
16 exhibit binder, on the front of Exhibit 278 it says, "Not
17 offered for TOMA, offered only to show Henson's admissions."
18 Okay, I agree. So I'm showing what Henson's admissions are.
19 They may not be true, but those were the admissions. I mean, I
20 think that's the plain language.
21 Anyway, in any event Henson was - was unemployed -
22 Henson was employed. At some points during 1998 he admitted -
23 May - May and June, for example - that's Exhibit 276 at page 76,
24 line 2 to page 77, line 2.
25 MR. ROSEN: I object, Your Honor. It's not being -
1 it's not in evidence for the truth.
2 MS. [SPEAKER]: (Speaking out of range of the
4 MR. ROSEN: It's - he can't do this. An exhibit which
5 is offered for admissions not for the truth and counsel is
6 arguing it as if it were testimony.
7 THE COURT: You're using it affirmatively as if it's
8 for the truth of the matter stated.
9 MR. ZLOTOFF: No - what - it's - if it's admitted as
10 an admissions, it's evidence, Your Honor.
11 MR. ROSEN: If indeed it is - if that sentence is
12 introduced as an admission -
13 MR. ZLOTOFF: What's the difference? Your Honor, in
14 other instances when the RTC wanted to limit the admissibility
15 of a document, and there are plenty of instances, usually with
16 the posting, they would say not admitted for TOMA, admitted to
17 show what? Henson's abusive tactics.
18 They didn't say that here. They said admitted to show
19 Henson's admissions. In other words, I suppose if there
20 would've been -
21 THE COURT: We're not going to take this against
22 anybody's time because it's going to be oral argument back and
24 Go ahead.
25 MR. ZLOTOFF: Okay.
1 THE COURT: Are you finished?
2 MR. ZLOTOFF: No, I've got a lot more, Your Honor.
3 THE COURT: No, you said, "In other words." I said,
4 "We're not going to take this against" counted against your time
5 or Mr. Rosen's time because it's an argument over the - over
6 your thing.
7 MR. ZLOTOFF: Do you want to finish and then come back
8 to this?
9 MR. ZLOTOFF: No. I'd rather just go on, if I can. I
10 mean unless - unless I'm going to get interrupted every - every
11 couple - because I'm going to go on with this for -
12 THE COURT: Okay. Go ahead.
13 MR. ZLOTOFF: The wife - Ms. - Ms. Lucas also
14 testified that in August of 1998 he was - Mr. Henson was
15 unemployed. Mr. Henson admitted that his income was
16 approximately 78,000 in 1997.
17 MR. ROSEN: Objection. Your Honor, we're doing the
18 same thing. That's not an admission. It's self-serving
19 testimony to contradict the bankruptcy filing. The bankruptcy
20 schedule says it's $130,000. And this is not being offered as
21 an admission by Mr. Henson. It's being offered as testimony for
22 the truth.
23 THE COURT: I understand the objection. Just - you
24 can have a - you'll state just objection continuing, and I'll
25 give you a continuing objection to these points. And we know
1 what the point - what the main basis of it is.
2 MR. ROSEN: Do I have to state it, or may I just have
3 a continuing objection?
4 THE COURT: You should state it.
5 MR. ROSEN: Okay.
6 THE COURT: Just say, "Continuing objection."
7 MR. ROSEN: All right.
8 THE COURT: So we know what you're objecting to for
9 the record.
10 MR. ROSEN: Okay. All right.
11 MR. ZLOTOFF: Mr. Henson admitted that his - he wasn't
12 sure of his finances for 1998 but he knew he was going in the -
13 into the hole.
14 MR. ROSEN: Objection.
15 MR. ZLOTOFF: Exhibit 276, page 130, line 4 to 11.
16 Exhibit 279, page 537.
17 MR. ROSEN: Objection. Continuing objection.
18 MR. ZLOTOFF: Mr. Henson admitted that he was used to
19 making 50,- to 60,000 a year. That was Exhibit 278 -
20 MR. ROSEN: Objection. Continuing objection. It's
21 not an admission.
22 THE COURT: You go ahead and make your argument. I'm
23 allowing him to do the objection.
24 MR. ZLOTOFF: Okay. Exhibit 278, line - or page 182.
25 THE COURT: 2- - tell me the exhibit?
1 MR. ZLOTOFF: Exhibit 278, page 182, line 23 to 183,
2 line 7. And my notes indicate that Ms. Lucas indicated that Mr.
3 Henson made about 40,000 in 1998. What I think you can derive
4 from - from this is that from the periods of unemployment to,
5 let's say, the peak earning from 1997 of 80,000 that - and the
6 admission of 50,- to 60,- a year, that if Mr. Henson were to
7 make an average somewhere between 40,- and 50,000 a year, he'd
8 be close. And he said 4200 in his schedule, which is not that
9 far off.
10 In fact, the significance of that is that it doesn't
11 cheat RTC at all on the best efforts requirement because he
12 actually estimated high. Because in fact we know that he was
13 going into the hole. He had to rely on credit cards. He was
14 unemployed a lot. RTC says he was spending most of his time
15 picketing and not working. That's one of their arguments.
16 But you know what? We didn't say Mr. Henson - Mr.
17 Henson's duty to pay is based on his being a malingerer. We
18 said it's based on what his rough average income would be, and
19 that's what we based the best efforts test on.
20 Ms. Lucas - I've explained a lot of what the - the
21 expenses were. I'm not going to go into that because I don't
22 think anything was seriously challenged as I recall.
23 The stock purchase - so-called stock purchase. Again,
24 I - that - Mr. Henson admitted what - that that was nothing
25 other than a bad investment in a start-up.
1 MR. ROSEN: Same continuing objection. It doesn't get
2 better by counsel saying it admitted. Same objection.
3 MR. ZLOTOFF: Exhibit 278, page 244, line 6, to page
4 245, line 7.
5 With regard to the picketing, Mr. Rosen read into the
6 record this business about the 200 times, or 200 days, whatever
7 it was. To put it in context if you look at Exhibit 279, page
8 468, lines 20 to 23, you can see him stating, "But generally
9 when I picket them it's because I am there anyway for some other
10 thing like a court appearance."
11 MR. ROSEN: Same objection. This is not an admission.
12 MR. ZLOTOFF: All right, Your Honor. And I'm going to
13 reserve whatever time I have left.
14 THE COURT: Mr. Rosen.
15 MR. ROSEN: Your Honor, I'm going to ask you - I have
16 12 minutes, but I went to ask you for an extra five minutes to
17 respond to some improper comments made by counsel. And may I
18 have the latitude of five -
19 THE COURT: I'll give you both an additional 10
21 MR. ROSEN: Thank you, Your Honor.
22 THE COURT: Let's just go.
23 MR. ROSEN: I'm going to even try not to use the
24 entirety, but I think you for the 10 minutes. I'm going to go -
25 THE COURT: Do you need more, Mr. Rosen,
2 MR. ROSEN: No. I'll go as fast as I can.
3 THE COURT: All right.
4 REBUTTAL ARGUMENT IN CLOSING ON BEHALF OF THE CREDITOR
5 MR. ROSEN: Counsel offered Exhibit 295, Judge Whyte's
6 order on attorneys' fees. He read from it. I don't know how
7 many times I can say it. How do - how does an attorney in good
8 faith offer a decision that was reversed by the Ninth Circuit?
9 That order was reversed. We've told them several times. We've
10 had this argument several times.
11 The last time he was before Judge Whyte, Judge Whyte
12 told him it is perhaps sanctionable conduct to cite to a court.
13 And that one was Judge March's decision - and without telling
14 the Court it's reversed. I don't understand it.
15 Next point, no proof of claim was sent to him. Maybe
16 it was sent to the wrong address. Not maybe. If he wants to
17 prove that the proof of - that the state -
18 THE COURT: "...him" is Henson. You're not talking
19 about your proof of claim.
20 MR. ROSEN: I'm sorry. I apologize.
21 No copy of the abstracted judgment. Mr. Zlotoff made
22 this argument that there were two addresses. And perhaps the
23 County Clerk was negligent and send it to the wrong one. That's
24 not evidence. There's the presumption that the state employees
25 are not negligent. They do their job. If it was sent to the
1 wrong address, put in the evidence. Don't stand here and
2 speculate and ask Your Honor to find on no evidence that it is
3 "plausible or possible" that they sent it to the wrong place.
4 Number three, the security interest. It's our fault.
5 This is c-h-u-t-z-p-a-h, okay? In order to have estoppel you
6 have to have reliance, reasonable reliance, and you have to have
7 been injured. Here's what - here's what the problem is.
8 Mr. Zlotoff is charged, as his client is, as a matter
9 of law under the law of the State of California, with knowledge
10 of what the public record shows. The public record shows the
11 abstracted of judgment being filed. If Mr. Zlotoff filled out
12 an application - excuse me - a schedule in August, and didn't
13 bother to look at the public record, please don't blame us,
14 number one.
15 Number two, Mr. Zlotoff says he - we knew he relied on
16 it. No such reliance, no such discussion, no evidence this was
17 even - even raised in discussion. If Mr. Zlotoff wants to say
18 he relied it to his detriment on believing there was no secured
19 claim, let him put on evidence. It is not true for him to say
20 that we knew he was relying on the absence of a secured claim.
21 And the third and most important part of this is,
22 where is the debtor? The issue is not whether Mr. Zlotoff knew.
23 If Mr. Henson knew, as law presumes he received a copy, and he
24 didn't tell his counsel, whose fault is that? It's not ours.
25 Next point. Mr. Zlotoff says, 'Who knows? Some
1 independent contractors might be employees under California
2 law.' Well, you know what? Maybe he's a Martian, too. But
3 we're not dealing in possibilities and theories.
4 We have evidence that Mr. Henson is working his own
5 business. We have evidence that he does not received W-2s. He
6 receives 1099s. He made a claim for an exemption that he is not
7 entitled to. If counsel wants to say: Hey, perhaps an
8 independent contractor is an employee, let him put on the
9 evidence. He didn't do that. The notion of speculating as to
10 what is possible in the absence of evidence is totally improper
11 closing argument.
12 Next, RTC is not the only creditor. Mr. Zlotoff is a
13 creditor. Wrong. We have a stipulation in the record. There's
14 a stipulation in the record. I've referred to it several times
15 including in my opening. RTC is the only creditor in this case.
16 It is in the joint pretrial order. It goes back as far 2001.
17 The joint pretrial order for the case that was
18 supposed to be tried in March 2001, or it was supposed to be
19 pretrial confer- - final pretrial conference on March 13, 2001.
20 It's in the record in a signed stipulation. I don't
21 get it. Does Mr. Zlotoff have a claim? Sure, if he has a
22 claim. But that's not an interest - it's not an issue as to
23 whether we should be. Certainly Mr. Zlotoff is not suggesting
24 that because of his claim the balance on 1307 tilts towards a 7
25 rather than a dismissal.
1 The debtor would be -
2 THE COURT: I thought that was exactly what he was
4 MR. ROSEN: That's not a valid basis, because -
5 THE COURT: Well, what's the law on that?
6 MR. ROSEN: Say again?
7 THE COURT: What is the law on that?
8 MR. ROSEN: He's not the estate.
9 THE COURT: But he is a creditor. He is in fact a
11 MR. ROSEN: No, he's not.
12 THE COURT: He's an administrative creditor.
13 MR. ROSEN: No, excuse me. We have a stipulation that
14 we are the only creditor. We have a stipulation signed in the
15 record, we're the only creditor, period, full stop.
16 Mr. Zlotoff says the debtor would be inconvenienced or
17 would be injured were there no bank - when it's dismissed
18 because there wouldn't be a sale. And he attributes to us some
19 intent to let the house go up in flames or something.
20 That's an issue between - even if it were true, which
21 it's not - that's the balance between creditor and debtor.
22 We've already gone over this. The debtor's interest is not part
23 of the 1307 determination. Your Honor has one legal standard to
24 decide under 1307 dismissal or - or conversion to 7. And that
25 is the best interests of the creditors in the estate, not the
1 debtor. I don't care about the debtor, the claim -
2 THE COURT: What's the exhibit number of the
3 stipulation where RTC is the only creditor?
4 MR. ROSEN: Joint Pretrial Order, signed in March of
5 2001, I believe.
6 MR. ROSEN: Also -
7 THE COURT: And you think I should interpret -
8 MR. ROSEN: I believe it also -
9 THE COURT: I mean, you think I should interpret that
10 is assuming Mr. Zlotoff doesn't have - is not a creditor in the
12 MR. ROSEN: Of course.
13 Next issue. Your Honor was - let me say - meticulous,
14 persistent. Every time I offered a case you insisted I give you
15 a copy and Mr. Zlotoff a copy. And we even had to take a break
16 at one point, I think, to copy something.
17 I have now heard a half-dozen cases cited for the
18 first time, in closing argument, which not only do I have not -
19 don't have any copies of. I don't know what they are. I
20 haven't read them in the context of a closing argument were
21 there's no closing briefs.
22 Yet as far as Your Honor is concerned I - I assume,
23 because of my - my statement, and Your Honor did not - did not
24 go along with it, Mr. Zlotoff can do that. I couldn't do it,
25 but he could. Okay.
1 Next, if there - if there is a conversion our debts
2 become -
3 THE COURT: Do you want me to recess to allow him to
4 make copies for you and then you'd come back and orally address
6 MR. ROSEN: No. I wanted to do - I wanted him to do
7 what - what you said. You would not allow me to even tell you
8 about a case until I gave you and him copies. I couldn't
9 address it.
10 THE COURT: But we were doing it in a context of
11 evidence, Mr. Rosen, not in the -
12 MR. ROSEN: Cases are not evidence, Your Honor.
13 THE COURT: No, but the cases where related to
14 evidence. And I had to make evidentiary rulings. And you were
15 asking me to make evidentiary rulings in talking about cases
16 which I didn't have before me.
17 MR. ROSEN: Your Honor, cases - they didn't involve
18 evidentiary rulings. I beg to differ with you. There were
19 cases I mentioned that I - that I argued to you that had nothing
20 to do with evidentiary rulings.
21 THE COURT: Why were you arguing to me if you were
22 presenting evidence? You would pre- - you would argued to me in
23 opening statement and closing statement. Otherwise you're
24 presenting evidence.
25 MR. ROSEN: Your Honor, the transcript will be what it
1 is. And I really don't want to debate it with you. You believe
2 that that that's what happened. I believe else - something
3 else. One of us is wrong. The transcript will obviously show
5 The point remains that we - that Mr. Zlotoff did not
6 even have the courtesy of giving you or me copies of cases he's
7 arguing in his closing argument.
8 Next, if converted, our postpetition debts become
9 prepetition? Okay. That sounds like an additional reason, I
10 didn't even think of, why we should have dismissal. That
11 injures - that injures us.
12 If there is a conversion to a 7 we take postpetition
13 debts and they're now prepetition, which means they could be
14 discharged for a less than a hundred cents on the dollar, or
15 dischar- - or paid less than a hundred cents on the dollar.
16 That's in fact a better argument than perhaps the ones that I
17 thought of as to why conversion is - is not in the best interest
18 of the creditor.
19 Next, this is a four-percent plan, not a zero plan. I
20 don't know how to deal with percentages. The percent- - the
21 plan is as follows: $150 a month times 60 months is $9,000. We
22 get nothing, zero, as an unsecured creditor.
23 Remember, we have two hats here. We are secured. We
24 have a lien on - on our judgment. The judgment was $75,000 and
25 we have unsecured. In our capacity as unsecured we get zero.
1 Because the Statute 1325(a)(4) says that the test is the - the
2 amount that is allowed - excuse me - the amount to be
3 distributed under the plan on account of each allowed unsecured
4 claim. It's the amount net coming to the creditor. It's zero
5 because Mr. Zlotoff is at the head of the line with his
6 administrative claims. I don't care if you call in one percent,
7 four percent, or ten percent, it doesn't make any difference.
8 We get zero under proposed plan.
9 Next, why did we now file a - an amended proof of
10 claim? It's very simple. There was a dispute about whether or
11 not our claim - our secured claim, our security, was void. You
12 may remember that Mr. Zlotoff made this point. And it was a
13 little bit caustic at one point. He accused us of violating the
14 automatic stay.
15 He said that we had a postpetition - that we filed a
16 postpetition lien, put a postpetition lien on the house. And it
17 was after Your Honor ruled that that was not the case, our lien
18 was not void - maybe voidable under 522(f), I think it is.
19 But Mr. Zlotoff has been contesting it, that we had a
20 secured claim. He was - his argument was that we - we did a
21 terribly nasty thing. We violated the automatic stay
23 Okay. Next, debtor made payments for four years. I
24 don't know what that means. From the beginning - and this
25 perhaps goes to feasibility under - under 6, whether debtor
1 could make the payments. Look - let's look at what he
2 projected. He projected income of $4200 a year (sic) on a
3 schedule that says last year, or the year before, I made
5 There's nothing in the record from the debtor to show
6 the basis for projecting an income of $4200 a month, or roughly
7 less than 50,000. I can't do the math that quickly, but it
8 sounds like about 50,000. Fifty thousand dollars from an income
9 in the prior year of 130,000.
10 Counsel says, 'Well, it's like a kind of his average
11 income.' Wrong. The only evidence you have before you of his
12 income is in 1997 130,000. And what he claimed on his schedule
13 was income in 1996. And I believe that was about 70,000. Don't
14 hold me to the number, but it's a lot more than what he - what
15 he proposed.
16 The next item. He did nothing wrong in destroying
17 documents. Counsel wants to read to us from Collier that a
18 priest who deals in cash contributions doesn't have to keep
19 records. I must be missing something. We submitted a brief to
20 you which said - the memo regarding relevance - which said Mr.
21 Henson destroyed the underlying documents, his financial records
22 for his tax returns.
23 And he admitted - and I put quotes, "I'd rather - I'd
24 take my chances with the IRS. I don't want you to have them."
25 And he did it, not as a priest dealing in cash, he did it after
1 a demand by us and after an order by you to produce them.
2 If counsel has some section of Collier that says,
3 'That's really not so bad,' I'd sure as like - the hell like to
4 see it. I mean, I've never heard of such a thing. This is
5 blatant document destruction in the face of an order, or demand
6 down order.
7 Okay, next, the TOMA problems. I've - I've made my
8 objections. Your Honor understands them. Counsel has now taken
9 a new position on what the word "admissions" means. It means
10 anything self-serving that his client said in deposition, which
11 he does not have the temerity to come to this courtroom and say
12 from the witness stand, it is now admissible. We know that's
13 not true.
14 I made a point, in addition to the pages at the
15 beginning, I made a statement on the record that every statement
16 we've offered of Mr. Henson, we haven't segregated them out.
17 They were admissions. We're not offering any of them for truth
18 of the matter asserted. If counsel chooses to ignore it there's
19 nothing I can do about it.
20 Next, counsel hasn't addressed 1325, but I want to.
21 This plan - and I'm - I'm perhaps interested to hear about the
22 new plan, the one that's going to put the sale or the proceeds
23 of the house in. But that's not the plan before you. And Your
24 Honor has said many times you can only deal with the plan before
25 you. That's the plan before you. It has nothing about
1 contributions made from the sale of the house. It is the - it
2 is the zero - $150 a month zero payment to the creditor plan.
3 1325(3). As to each element of 1325, it is the burden
4 - the burden of proof is the debtor.
5 (3), the plan has been proposed in good faith. Not a
6 single word of evidence. As a matter of law you cannot find
7 good faith. You have nothing in the record to point to to say
8 there's evidence of good faith.
9 In an ordinary case you may have nothing other than
10 the debtor getting up and saying from - under oath from the
11 witness stand in one sentence, 'Judge, I proposed in good faith
12 my plan,' or 'I did whatever I did in good faith.'
13 And you know what? In some cases that may be
14 believable. You don't even have that. I challenge Mr. Zlotoff
15 to point to one portion of this record upon which you could ever
16 find that the debtor has carried his burden of proving good
18 (4), the value of the plan as to the effective - the
19 effective date of the plan. Clearly we're getting nothing on
20 the plan. Liquidation, do we get something? Yes. How much do
21 we get? I don't know. (a)(4) does not say you have to get
22 substantially more. It says you have to get more in
23 liquidation. Well, that's the test. Would we have more
24 liquidation? Clearly we'd have more as an unsecured creditor.
25 We've had - we've had the - we've identified the assets that -
1 that are not a part of this.
2 (5). Well, counsel has conceded. I'm not going to
3 argue (5). He says I can't meet (5). I just found out that
4 there's a - a security - you know, we - we are a secured
5 creditor. Not my problem. He just found out. It's his
6 client's problem in not talking to him or his problem, if
7 anything, in not looking at the record.
8 It's not a terribly difficult thing, you know, if
9 you're - if you're representing a debtor and you're filling out
10 a schedule that tells the Court there are no secured claims.
11 You know, one might check the public record in the County
12 Clerk's Office before filling that out and signing it.
13 Next, Number (6). That's the feasibility. I've
14 already addressed it. This plan was not feasible. It wasn't
15 even conceivably feasible. It can't - the debtor has said - he
16 has admitted he didn't have any information, wild-assed guesses.
17 And what did he do then? He intentionally did not
18 work. I've read it to you. He gave up 200 days that he would
19 "otherwise be working." Now whether he would be working parts
20 of those days, all of those days, I don't care. It doesn't
21 matter. He gave up all the parts of 200 days rather than
22 working in order to picket.
23 Next, (6) - excuse me - (b). In the event that there
24 is a - an objection by a creditor with an unsecured claim, as
25 there is here, the debtor has to also satisfy (b), in addition
1 to satisfying the elements of (a).
2 There can't be any question that he hasn't satisfied
4 (a), we're not getting the full amount of our
5 unsecured claim.
6 (b), all of the debtor's projected disposable income
7 is coming to this plan? Absolutely not. Absolutely not. The
8 projected disposable income is less - is about $50,000 against a
9 schedule that says 130,000 the prior year.
10 And if the debtor were - if the debtor were here, I
11 can imagine the circumstance where debtor gets on the stand and
12 says, 'You know, last year I made a million dollars, but my
13 company, you know, ABC.com went out of business. This year I'm
14 lucky if I make 50 grand.'
15 I'm not saying that the substantial diminution from
16 one year to the next is automatically either evidence of bad
17 faith or a failure to comply with (6).
18 I am saying, however, that where you have this
19 diminution an explanation from the debtor is required, not a
20 surrogate witness. You know, the - the wife of the debtor.
21 The debtor come in - can come in and say: This is
22 what I propose. At the time I did this it was my projected
23 income and this projected income was in good faith. Fine, but
24 we haven't had that. We haven't had that.
25 And I will research the one point that I made earlier.
1 And that is I don't believe there has ever been a case in this
2 Court where a plan has been confirmed - where a plan has been
3 litigated and - a 1307 has been litigated without the debtor
4 being present. I can't imagine there's ever been a plan
5 confirmed where the debtor, who is the one that has this
6 information, doesn't testify. In the face of objections I just
7 don't understand it.
8 Now counsel says, 'Well, we could have another plan.'
9 Well, you know what? That's - that may be the right answer,
10 except if Your Honor agrees with us on the 1307 there is no
11 other plan. There is dismissal or conversion. Your Honor can
12 take your pick. And it's a very simple question. We can - you
13 know, we know what the law is, it's a very narrow standard.
14 The parameters of your discretion on this one are
15 about between the - between the 40 yard lines, as opposed to the
16 whole football field. It's a one - it's a one-witness test
17 standard of discretion.
18 And I think we all agree that if Your Honor grants our
19 motion, we're not to talk about any other plan. This plan that
20 is on the table obviously is moot. Any new plan is moot. End
21 of discussion.
22 Thank you, Your Honor. I hope I - I think I've used a
23 little less, but I'm done.
24 THE COURT: Thank you, Mr. Rosen.
25 Mr. Zlotoff?
1 MR. ZLOTOFF: Yes, Your Honor.
2 The stipulation that Mr. Rosen referred to, the - the
3 pretrial statement does contain a - as a stipulation, and I'll
4 read, quote - this is actually on page 7 of -
5 THE COURT: What's the date, the filing date?
6 MR. ZLOTOFF: The trial-setting statement - I don't
7 know. It was for a hearing July 10th, 2002.
8 MR. ROSEN: No. I was - I was referring to the one in
9 March of 2001 that was submitted for the March 13, 2001 final
10 pretrial conference, a trial-setting conference, whatever it was
12 MR. ZLOTOFF: Well, my hunch is it probably is. I
13 don't have that one, but it probably is the same. I doubt that
14 there would be any reason to change the stipulation. In any
15 event, I'll read this one and Mr. Rosen can correct me if I
17 "There are no creditors other than RTC having a claim
18 against Henson's bankruptcy estate." Okay. That's it. All
19 right. Well, I guess Mr. Rosen wants to play gotcha here.
20 Well, he's wrong.
21 If you look at Bankruptcy Code Section 101,10,
22 definition of creditor, "Creditor means an entity that has a
23 claim against a debtor that arose at the time of or before the
24 order for relief concerning the debtor."
25 I mean, that's what we were talking about. I mean,
1 this is really nonsense, you know, to get into this kind of -
2 you know, I've got attorneys' fees even today. What is that? I
3 don't have attorneys' fees? I don't have a claim for attorneys'
4 fees because it's not in the stipulation? Please.
5 I never said that RTC intentionally violated the stay.
6 And I think - and Mr. - Mr. Rosen refuses to understand that
7 there's a distinction between violating the stay and an
8 intentional violation of the stay. Of course, there was no
9 intentional violation. I've never, never said that.
10 But it doesn't matter for bankruptcy purposes based on
11 again, In re Schwartz, which is a Ninth Circuit case of several
12 years ago. If there's a violation, then it's void. It's - you
13 know, what happens is void.
14 THE COURT: And what is an intentional violation,
15 though, is, under the law, a little different than you might
16 think. If you intended to do an act, knowing of the bankruptcy,
17 and didn't think it violated the Code or the stay, it's still an
18 intentional violation of the stay.
19 MR. ZLOTOFF: Right.
20 THE COURT: It's just a knowing commission of an act
21 that in fact violates the stay even if you didn't think it
22 violated the stay.
23 MR. ZLOTOFF: No, I appreciate the distinction, Your
24 Honor. But Mr. - Mr. Rosen, I know, believes that I'm trying to
25 almost make him a - what - a criminal by virtue of having
1 violated a court order, a congressional order of the - of the
2 stay. And that's not at all the - the reason why the violation
3 of the stay, or indeed the intentional violation of the stay in
4 the context of stay violation what that was meant to mean.
5 I didn't want to belabor this business about whether
6 there would be more on liquidation. We've already briefed it to
7 death. I don't know - I don't understand really.
8 I mean, the whole issue is what the effective date of
9 the plan is, number one. And, number two, how you interpret a
10 new amended Section 3 - what, 348 regarding the effect of
11 conversion when the - the Code and case law that's interpreted
12 it and that we submitted in our pretrial briefs on this issue
13 indicate quite possibly is the debtor's.
14 I mean, you value - in other words, you arguably
15 valuable, now under the new 34- - Section 348, assets at the
16 time of commencement of the case, for a number of reasons,
17 particularly where you've had a valuation, as I read the
18 emerging case right, if you've had a valuation, as we have had
19 here, then there is authority for the proposition that you use
20 that valuation when a case is converted.
21 So to say that there would be more on liquidation, I -
22 begs the question. It's not true. We use the same test in
23 Chapter 13 to a determine best interest of the creditors.
24 I mean, if you found that in a converted case the
25 creditors would get more then, of course, I haven't met my
1 standard. If on the other hand you believe, I think, that if
2 creditors would not get more because of my analysis that I just
3 made, well, then they wouldn't get more. And my plan meets the
5 THE COURT: What plan?
6 MR. ZLOTOFF: Yeah, indeed, what plan?
7 THE COURT: What plan?
8 MR. ZLOTOFF: The plan on the table right now is -
9 THE COURT: What plan is filed now?
10 MR. ZLOTOFF: Well, on the table right now is the plan
11 of December -
12 MR. ROSEN: Of September 27th.
13 MR. ZLOTOFF: '99?
14 MR. ROSEN: September 27th.
15 MR. ZLOTOFF: December -
16 MR. ROSEN: The first day of trial. You accepted the
18 Counsel said on the first day of trial he wanted to
19 withdraw his last previous plan which was a plan that said zero
20 percent. And he wanted to amend to assert a four-percent plan
21 which happened to be a plan that was about three plans ago.
22 THE COURT: I think -
23 MR. ROSEN: And he said that on the record on the 27th
24 of - the first day of trial. And we didn't object to it, and I
25 think Your Honor acknowledged it, you know, that was it okay.
1 MR. ZLOTOFF: No, it - it
2 THE COURT: But there was a question about that, about
3 whether it was three plans ago, or two plans Ago.
4 MR. ZLOTOFF: It's - Your Honor, it's -
5 THE COURT: And which plan is this?
6 MR. ZLOTOFF: It's Exhibit 92, amended plan dated
7 December 23rd, 1998. Exhibit 92.
8 THE COURT: And that's the plan on the table. But
9 does that plan call for the sale of the house?
10 MR. ZLOTOFF: It does not, no. That's - it has not
11 been -
12 THE COURT: So what is there to -
13 MR. ZLOTOFF: No.
14 THE COURT: What is there -
15 MR. ZLOTOFF: Your Honor, -
16 THE COURT: - to adjudicate today in terms of you and
17 your plan? What can I confirm? There's nothing to confirm, is
18 there? Assuming I agreed with you, Mr. Zlotoff.
19 MR. ZLOTOFF: Right.
20 THE COURT: And assuming that I didn't dismiss or
21 convert the case is there anything to confirm on the record that
22 I have before me?
23 MR. ZLOTOFF: A - a plan with - and I've stated it on
24 the record and the addendum to the motion to sell free and clear
25 made explicit that the plan would be paid off from the sale of
1 property. So -
2 THE COURT: What plan?
3 MR. ZLOTOFF: The December 23rd, 1998 plan.
4 THE COURT: I know, but that plan didn't call for the
5 sale of the property. So what does that mean, to give them four
7 MR. ZLOTOFF: That's - that's right. That's the plan
8 on the table before you today. That's right.
9 THE COURT: So I would have to - I would have to
10 confirm - I would sell the house. I would allow you to sell the
11 house - if I go along with what your client wants, I would allow
12 you to sell the house and then pay the RTC four percent?
13 MR. ZLOTOFF: That's the plan.
14 THE COURT: In cash?
15 MR. ZLOTOFF: Yes. That's -
16 THE COURT: Out of the proceeds?
17 MR. ROSEN: That's the plan on the table right now,
19 MR. ROSEN: It's not on the table, Judge. We had this
20 discussion last time, and I want to make a point. The plan on
21 the table is -
22 THE COURT: Can I just talk to him for a minute? And
23 I -
24 MR. ROSEN: I apologize, Your Honor.
25 THE COURT: I'll come back to you.
1 MR. ROSEN: But I didn't want you going down this
2 road, because we have a transcript and the transcript shows it
3 to be wrong. We had this discussion on the 27th of September,
4 this very issue.
5 THE COURT: Your understanding is that the plan that's
6 to be confirmed is this plan that's Exhibit 92. And that RTC
7 would get no more, they would get nothing as a secured creditor.
8 And as an unsecured creditor they would get four percent? Do
9 you want to - do you want to hear what Mr. Rosen thinks, because
10 I don't - I don't honestly know what you want me to do based on
11 the record that I have, Mr. Zlotoff.
12 MR. ZLOTOFF: Well, Your Honor, see the problem is
13 that when I don't know until four years into the case what the
14 real nature the claim is, it makes it difficult. And so it
15 sounds like I don't know what I'm talking about. And in part
16 that's true, I don't. Because I don't know what kind of claim
17 they have, even now - well, actually I do. Today I - I know now
18 that they're asserting a secured claim.
19 THE COURT: And then they're -
20 MR. ZLOTOFF: So all I can do is this, Your Honor -
21 I'm sorry - did you want to say something?
22 THE COURT: Well, is there a plan that I could
23 conceivably confirm? If I say goodbye this afternoon to both of
24 you, and I take this pile of paper and the six binders of
25 exhibits back to my office, is there a plan on the table that's
1 confirmable, in your opinion, without casting aspersions at
2 anybody, -
3 MR. ZLOTOFF: Right.
4 THE COURT: - without causing fault -
5 MR. ZLOTOFF: Right.
6 THE COURT: - on the record is there a confirmable
7 plan? Is there a plan to confirm?
8 MR. ZLOTOFF: There you have to kind of piece the dots
9 together here. You - you would have to conclude that RTC is not
10 a secured claimant. And I don't know whether it's -
11 THE COURT: How can I do that on this record?
12 MR. ZLOTOFF: I don't know how you can do it on this
13 record, to be honest with you.
14 THE COURT: It wasn't argued.
15 MR. ZLOTOFF: Well, -
16 THE COURT: Well, it's sort of argued.
17 MR. ZLOTOFF: Yeah, I have an exhibit in here, and
18 it's - by the way - I don't think you've ruled on the issue.
19 Mr. Rosen seems to think you have, but I don't remember any
20 ruling on it.
21 THE COURT: On which issue?
22 MR. ZLOTOFF: On the issue of whether RTC's
23 recordation of its judicial lien in the gap period between the
24 dismissal and the reinstatement of the case is - is valid or
1 THE COURT: No, I didn't rule on it.
2 MR. ZLOTOFF: All right, that's fine.
3 THE COURT: I told to what - I gave you some citations
4 to law and I talked about it, but it wasn't a ruling.
5 MR. ZLOTOFF: Right. I don't know what to say. No,
6 it hasn't really been - been argued. So it's -
7 THE COURT: No, it wasn't argued. I was telling you
8 my preliminary thoughts on it, but I was not - I was not issuing
9 a ruling.
10 MR. ROSEN: Your Honor, could I just correct one
12 THE COURT: Sure.
13 MR. ROSEN: On - the que- - this exact question came
14 up September 27th, what is the plan? And Your Honor had said
15 before, including at least twice on the transcript in July when
16 he was talking about amending the plan, and you said, "Mr.
17 Zlotoff, I can only proceed to trial or hearing on a plan that I
18 have a before me. I can't proceed on some plan that has not
19 been filed."
20 On the 27th of September - the middle of September,
21 Mr. Zlotoff filed an amended plan which said not four percent,
22 zero. We took the position, okay, it's basically the same plan.
23 It's just he made it four percent to zero.
24 On September 27th he came in and said, okay, I want to
25 amend the plan again. And the plan that is on the table on
1 September 27th happens to be the same plan as was - as is the
2 December plan that you said.
3 Mr. Zlotoff made the same argument, however, that what
4 he wants to do is he wants to contribute from the sale of the
5 house, not four percent, the difference between the $9,000 that
6 under the plan would be paid over 60 months, $150 a month for 60
7 months. And Mr. Henson has paid, let's say, a year - four years
8 of that, just for argument's sake. Let's say there's $2,000 to
9 pay left on that. He's not giving us four percent.
10 His proposal was to take the shortfall of $2,000 that
11 has not been paid and put it into the plan. That still gave us
12 zero, because he wasn't paying us anything. He was substituting
13 the proceeds of the house to Mr. Henson's pocketbook to complete
14 the funding for the last several months of the 60-month plan.
15 And he said he had amended the plan to provide this.
16 And we had a discussion about this. I said, "No."
17 What we got served with and we - it's in evidence. It
18 is a motion to - it is his amended motion for leave to sell the
19 house. And I said on the record, "Your Honor, that's not an
20 amendment to a plan." An amendment to a motion, you know, is
21 one thing. But that's not an amendment to a plan.
22 And so, you know, that - that amendment is not on the
23 table; that plan's not on the table. And what he's proposing to
24 do, as I say, and it's in his amended motion, is to - is to not
25 to give us four percent but to throw a thousand, 1500, whatever
1 the difference is, 9,000 minus what Mr. Henson has paid, into
2 the plan for him to take out. Because the very first order that
3 Your Honor signed allowing Mr. Zlotoff's attorney's fees is more
4 than $9,000.
5 MR. ZLOTOFF: Your Honor, Mr. Rosen doesn't understand
6 how Chapter 13 works. That's - I - I've been doing Chapter 13
7 law for many, many years. And frequently whenever there's a
8 house sold there's not an amended plan that gets circulated,
9 that says, 'Guess what, creditors, we're going to pay off your
10 plan [sic] by a sale of the house.'
11 THE COURT: I understand.
12 MR. ZLOTOFF: It's simply indicated in an application
13 and order.
14 THE COURT: I understand. That's fine.
15 MR. ZLOTOFF: And that's - that was the mechanism used
17 THE COURT: Right. But that means - isn't - is he
18 right that, in essence, RTC won't get four percent? In essence,
19 they'll still get nothing because you will pay off the plan, the
20 remaining months of plan, with a sale of the house, and you'll
21 take the money as attorney's fees?
22 MR. ROSEN: No.
23 THE COURT: Oh, then I don't understand, because
24 it's -
25 MR. ROSEN: It can't possibly be right.
1 THE COURT: Why isn't it right?
2 MR. ROSEN: Well, because -
3 THE COURT: Because you have an administrative claim
4 that's going to -
5 MR. ROSEN: No, Your Honor.
6 THE COURT: What will RTC get -
7 MR. ZLOTOFF: It's not a pot plan.
8 THE COURT: - if we sell the house?
9 MR. ROSEN: It's not a pot plan. It is a percentage
10 plan. The trustee will not - cannot close out the case until
11 RTC has been paid its dividend, period.
12 THE COURT: And what will RTC's dividend be?
13 MR. ROSEN: Under this plan -
14 THE COURT: Under the plan that's on the table?
15 MR. ROSEN: On the table it's four percent. The
16 trustee can't close out the case unless RTC gets four percent.
17 THE COURT: So RTC will get four percent of what?
18 MR. ZLOTOFF: Of its claim. That's how the trust- -
19 that's how it works.
20 THE COURT: As amended today, as what?
21 MR. ZLOTOFF: That is - that's as amended today.
22 Whatever RTC's claim is it gets four percent. That's how a
23 Chapter 13 works, Your Honor. It's - it's bean counting. The
24 trustee - they file a claim, and they input it. And if they say
25 it's $1 million they get four percent of $1 million. If it's
1 200,000, they get four percent of that. And that's what the
2 debtor has to pay in order to complete a plan.
3 Now having said that I want to address - I - I don't
4 think I have a confirmable plan. I'll be honest with you. It
5 can't. I mean, because there are too many things at this stage
6 that have been sprung upon me that I didn't know until now.
7 And, no, I don't see how can - I'll be honest with you, no, I
8 don't - but that's different than saying that you shouldn't
9 decide some threshold issues, because I think they are going to
10 be -
11 THE COURT: Like what?
12 MR. ZLOTOFF: Well, good faith, bad faith.
13 THE COURT: Oh.
14 MR. ZLOTOFF: Because that will determine whether the
15 debtor could make an amended plan. I mean, there are other
16 amended plans the debtor could do. You could say whatever - you
17 could say a number of things that would cause the debtor to file
18 an amended plan that would make more sense.
19 I mean, maybe an amended plan should schedule - would
20 schedule RTC as a secured creditor and provide for it as a
21 secured creditor. And then state that, for example, the plan
22 would be paid off to deal with that, and they'll - then there
23 will be a 522(f) action, and so on and so forth, that would make
24 more sense, given what we now know to be RTC's asserted claim.
25 But we're not there yet. I mean, you're right, it's - the plan
1 is - because of their claim and the status of the claim, it
2 really is completely akilter from - from what the plan says.
3 There's a total disconnection. You're right.
4 MR. ROSEN: Your Honor, I have two observations. The
5 first is I thank Mr. Zlotoff for his candor. And he's basically
6 repeating what he said to you when you asked me the same
7 questions in the past. How could you possibly confirm the plan
8 without Mr. Henson? But I think - I thank -
9 THE COURT: That's not what he said.
10 MR. ROSEN: No, in the past he said he couldn't
11 confirm it with - with - without Mr. Henson's testimony. Today
12 he's saying he can't confirm it, period. And - and I
13 appreciate -
14 THE COURT: That's not what he said.
15 Do you - is that what you said?
16 MR. ZLOTOFF: That's not what I'm saying, Your Honor.
17 THE COURT: Of course not.
18 MR. ZLOTOFF: I specifically said that there are some
19 threshold issues that I believe are going to be common to
20 whatever plan I - I would have or could have.
21 MR. ROSEN: You misunderstood me. I thought you
22 said - I thought counsel said, Your Honor, that he is conceding
23 he cannot confirm this plan on the table.
24 MR. ZLOTOFF: That's what I'm saying, this plan on the
1 MR. ROSEN: Okay. And I - all I was doing was being
2 gracious enough to thank him for that and say: Now we've taken
3 an issue off Your Honor's plate so you only have the 1307 motion
4 to deal with.
5 But my - my concern is this - and maybe it's because
6 I'm not a bankruptcy lawyer that this occurs to me - I don't
7 know what other plan Mr. Zlotoff can propose. But based on what
8 we've gone over on 1325 assuming, Your Honor, that no matter
9 what the plan is it has to comply with 1325(a)(3) at a minimum.
10 Let's not even talk about (a)(4), (5), (6), and (b).
11 Let's just stop at (a)(3). In an element of the plan, it's
12 something that must be proven on a plan, I don't care what the
13 plan is, is good faith of the debtor, isn't that a - isn't that
14 really a - the death knell of a plan.
15 Until - unless and until Mr. Henson wants to come back
16 to the United States to testify, no matter what plan it is, Your
17 Honor would - I think would be obliged to say the debtor has not
18 satisfied his burden to prove (a)(3). Isn't that inherent in
19 any plan?
20 THE COURT: Okay. I hear the question. I don't
21 intend to answer it.
22 MR. ROSEN: It was rhetorical, Your Honor. I'm sorry.
23 I wasn't posing it to you.
24 THE COURT: Is there anything else that needs to be
25 said today before I take this under submission and wish you all
1 a good day?
2 MR. ZLOTOFF: Yeah, just two - two things I left out,
3 Your Honor. One, the life insurance as - as an asset.
4 THE COURT: Right.
5 MR. ZLOTOFF: I had stated earlier on when this came
6 up, it's exemptible under CCP 704.100. So, yeah, it was
7 admitted, but it's, you know, one of these things - it's not of
8 any consequences. It's no - nobody is prejudiced by it.
9 THE COURT: Tell me the CCP section again.
10 MR. ZLOTOFF: 704.100.
11 In addition there's a BAP opinion written by Judge
12 Montali - I can't remember when - the last couple of years,
13 having to do with how late you can file an amended claim of
14 exemption. It was pretty late, as I recall. I don't remember
15 the name of that case, but it was a BAP case.
16 And with regard to - there was - can Henson even claim
17 an exemption, or any exemption? And that again gets into this
18 fugitive entitlement - disentitlement doctrine that has no
19 relationship whatsoever here. And that was Degan case that
20 we've -
21 THE COURT: Right.
22 MR. ROSEN: - run across before where I've argued.
23 And everybody - you and Judge Whyte both agreed, as I recall,
24 that the civil case commenced first has no relation whatsoever
25 to a subsequent criminal case.
1 THE COURT: Court is adjourned, unless you want to say
3 MR. ROSEN: Your Honor, -
4 MR. ZLOTOFF: Thank you, Your Honor.
5 MR. ROSEN: - I just had one comment on the - on the
6 life insurance. Counsel, correct me if I'm wrong, but that -
7 there has never been to this day any amendment to any schedule
8 that's been filed which has either listed the policy or claimed
9 an exemption; is that right?
10 MR. ZLOTOFF: That's right.
11 Thank you, Your Honor.
12 THE COURT: Thank you. Court is adjourned.
13 (Trial was adjourned at 1:49 o'clock p.m.)