Case 2:17-ap-01229-NB Doc 185 Filed 04/09/20 Entered 04/09 .
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 1 of 12Desc12FILED & ENTERED3APR 09 202045CLERK U.S. BANKRUPTCY COURTCentral District of CaliforniaBY sumlinDEPUTY CLERK678UNITED STATES BANKRUPTCY COURT9CENTRAL DISTRICT OF CALIFORNIA10LOS ANGELES DIVISION1112In re:Case No.:2:16-bk-21559-NB13David MacMillan and Cynthia Barrett Martin,Chapter:7Case No.:2:19-bk-10552-NBDebtor(s)1415Attitude Marketing, Inc.16177Debtor(s) Chapter:(Jointly Administered with 2:16-bk-21559 NB)18Wyndham Vacation Resorts, Inc.,19Plaintiff(s) Adv. Pro. No.: 2:17-ap-01229-NB(Jointly Administered with Adv. Pro. No.2:17-ap-01551-NB)20v.21David MacMillan and Cynthia Barrett Martin,222324Defendant(s) MEMORANDUM DECISION DENYINGPLAINTIFF’S MOTION FOR PARTIALSUMMARY JUDGMENT UNDER 11 U.S.C.§ 727(a)(4), (a)(5), AND (a)(6)25Hearing:Date: November 12, 2019Time: 2:00 p.m.Place: Courtroom 1545255 E. Temple StreetLos Angeles, CA 90012262728-1-
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 2 of 12Desc1For the reasons set forth below, this Court will deny the remaining claims in the2pending motion for summary judgment, which seek to deny the chapter 7 discharge of3Debtors David MacMillan and Cynthia Martin, pursuant to §§ 727(a)(4), (5), and (6).4Definitions and the background of this matter are set forth in this Court’s “Memorandum5Decision Re Motions For Partial Summary Judgment Filed By (1) Wyndham Vacation6Resorts, Inc. And (2) Chapter 7 Trustee” (the “Interim Memdispo,” Wynd-Mac Adv. dkt.7144).81. PROCEDURAL BACKGROUND9The Interim Memdispo denied motions for summary judgment with respect to10claims under §§ 727(a)(2) and (3). But, pursuant to the procedures contemplated in the11Interim Memdispo, Plaintiff Wyndham filed its second amended complaint (“SAC,” adv.12dkt. 151) asserting its claims under §§ 727(a)(4), (5) and (6). The parties had already13briefed and argued the merits of those claims in connection with Wyndham’s motion for14partial summary judgment regarding its first amended complaint (the “MSJ,” adv.15dkt. 98) and, pursuant to the Interim Memdispo and the agreement of the parties at the16above-captioned hearing, that briefing and argument have been applied to the SAC,17along with additional briefs. See adv. dkt. 152, 157.182. DISCUSSION19a. Summary Judgment20Each element of summary judgment is analyzed in the Interim Memdispo. Adv.21dkt. 144, pp. 4:9-5:10. That analysis is incorporated herein by this reference. As a22reminder, however, the rule states:232425262728The court shall grant summary judgment if the movant shows that there isno genuine dispute as to any material fact and the movant is entitled tojudgment as a matter of law. [Rule 56(a), Fed. R. Civ. P., incorporatedby Rule 7056, Fed. R. Bankr. P. (emphasis added).]Summary judgment is properly granted when no genuine and disputed issues ofmaterial fact remain, and, when viewing the evidence and inferences therefrom in thelight most favorable to the non-moving party, the movant is entitled to prevail as a-2-
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 3 of 12Desc1matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Matsushita Elec.2Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).3b. § 727(a)(5)4§ 727(a)(5) provides:5(a) The court shall grant the debtor a discharge, unless –***(5) the debtor has failed to explain satisfactorily, before determination ofdenial of discharge under this paragraph, any loss of assets or deficiencyof assets to meet the debtor’s liabilities; [§ 727(a)(5) (emphasis added)]6789Intent is not a required element under Section 727(a)(5). See 6 Collier onBankruptcy ¶727.08 (Richard Levin & Henry J. Sommer eds., 16th ed.).10Under Section 727(a)(5) an objecting party bears the initial burden of proofand must demonstrate: (1) debtor at one time, not too remote from thebankruptcy petition date, owned identifiable assets; (2) on the date thebankruptcy petition was filed or order of relief granted, the debtor nolonger owned the assets; and (3) the bankruptcy pleadings or statement ofaffairs do not reflect an adequate explanation for the disposition of theassets. [In re Retz, 606 F.3d 1189, 1205 (9th Cir. 2010) (internalquotation and citation omitted).]1112131415The party objecting to discharge “bear[s] the burden of proving by a16preponderance of the evidence” that debtors’ discharge should be denied. Id. at 1196. It17is then up to the debtor to satisfactorily explain what happened to the assets. 6 Collier18on Bankruptcy ¶727.08 (Richard Levin & Henry J. Sommer eds., 16th ed.). "[V]ague,19indefinite, and uncorroborated explanations are unsatisfactory." In re Thompson, 200920WL 7751298 at *5 (9th Cir. BAP 2009) (internal quotation marks and citations omitted);21and see In re Chalik, 748 F.2d 616, 619 (11th Cir. 1984) (internal citations omitted).22The SAC’s allegations paint a picture that, at first, appears to satisfy the23foregoing standards. But the MSJ does not include uncontested facts that meet those24standards.2526c. The SAC’s allegations that appear to be most relevant to § 727(a)(5)27The SAC alleges:28-3-
Case 2232425262728Doc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 4 of 12Desc36. In his bankruptcy schedules, MacMillan disclosed current or formerownership of the following entities and unincorporated businesses: Timeshare Relief, Inc. [aka Aston Marketing Group, Inc.] Attitude Marketing,Inc. (collectively, the “MacMillan Companies”).***41. MacMillan, Martin and/or the MacMillan Companies acquiredcommercial real estate, multiple vacation properties, at least one airplane,luxury automobiles, race cars, business interests, and other property. TheMacMillan/Martin enterprise has generated hundreds of millions of dollars inrevenue.2 MacMillan and Martin have failed to account for almost all of thismoney in their substantively consolidated bankruptcy case. Moreover,MacMillan and Martin have produced few documents reflecting whathappened to the hundreds of millions of dollars taken in by the MacMillanCompanies.2 Onhis website, davidmacmillantimeshare.com, MacMillan represented in a“Company Statement” - dated March 31, 2015 and posted on September 17, 2015 that “[s]ince 2004, we have successfully facilitated the transfer or return to theResorts of over 100,000 disgruntled timeshare owners who wanted out of theirtimeshares.” At 3,000 per deed/interest transferred, the MacMillan enterprise wouldhave collected over 300,000,000 in fees from victimized consumers from 2004through 2015. Tax returns reflect that the gross revenue for Attitude Marketing wasmore than 54 million in 2012 and more than 26 million in 2013.***79. Timeshare Relief, Inc. (“Timeshare Relief”) is perhaps the mostnotorious of the MacMillan Companies.80. Timeshare Relief offered Timeshare Exit Services across the UnitedStates.81. At various times, MacMillan and Martin were shareholders, officersand employees of Timeshare Relief.***92. On March 11, 2014, Timeshare Relief filed a Statement ofInformation in the Office of the Secretary of State of California in whichMacMillan is listed as President, Chief Executive Officer and Chief FinancialOfficer of Timeshare Relief. Martin is listed as Secretary of Timeshare Relief.MacMillan and Martin represent that they are the sole Directors of TimeshareRelief. ***94. Despite demand by WVR in these bankruptcy cases and adversaryproceedings, MacMillan and Martin have produced nearly no corporate booksand records for Timeshare Relief.95. Notwithstanding the fact that she was President and Secretary ofTimeshare Relief for years, Martin could not testify as to the occurrence of anyshareholder meetings, meetings of the board of directors, the existence of acorporate book identifying issuance or transfer of shares in Timeshare Relief,any corporate resolutions or provide any meaningful details concerning booksand records normally maintained by an entity which had the level of businessactivity of Timeshare Relief. (According to its 2012 tax return, TimeshareRelief generated gross revenue of 54 million.).***-4-
Case 2:17-ap-01229-NB123456789101112131415161718Doc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 5 of 12Desc156. The Timeshare Relief Owner Database, which was transferred toAttitude Marketing, was subsequently transferred to Aston Business Solutions.157. Aston Business Solutions still uses the timeshare owner databaseto generate money from companies that offer Timeshare Exit Services toowners, including Wyndham owners.158. Timeshare Relief developed and maintained a timeshare ownerdatabase with information about more than eight (8) million owners oftimeshare interests (the “Owner Database”).***161. Sometime before August of 2013, Attitude Marketing purportedly“acquired” the Owner Database and, in August of 2013, Attitude Marketing“transferred” the Owner Database to Aston Business Solutions.162. After the transfer, the gross revenue of Attitude Marketing (ownedby MacMillan and Martin) plummeted,8 while the fortunes of Aston BusinessSolutions (supposedly owned by Martin’s daughter) skyrocketed.98In 2014 Attitude Marketing’s gross revenue was 2,196,546; in 2015 AttitudeMarketing’s gross revenue was 1,057,862; in 2016 Attitude Marketing’s grossrevenue was 1,165,698.9 Per its tax returns, Aston Business Solutions generated more than 10.4 million in2015, more than 8 million in 2016, and more than 3.5 million in 2017. A great dealof the funds generated by Aston Business Solutions were funneled to MacMillan andMartin through Attitude Marketing.***173. After entry of the Settlement Agreement [between MacMillan,some of Debtors’ businesses, and Wyndham], Aston Business Solutions wasa “client” of Attitude Marketing.174. Aston Business Solutions provided nearly all of the incomereceived by Attitude Marketing since the Debtors filed bankruptcy.***181. After entry of the Settlement Agreement, Aston BusinessSolutions’ clients were referred to it by MacMillan. [SAC (adv. dkt. 151)(emphasis added)]1920d. The MSJ’s argument regarding § 727(a)(5)21The MSJ’s argument regarding § 727(a)(5) is brief. It asserts:22232425262728Pursuant to financial records that have been uncovered by [Wyndham]through discovery, Debtors generated millions of dollars every year in revenuethrough their myriad of businesses and DBAs, yet the Debtors have failed tosatisfactorily explain their loss and deficiency of assets to meet their liabilities.In short, the Debtors’ business have generated hundreds of millions of dollarsin revenue but MacMillan and Martin come to this Court supposedly pennilessand without explanation for what happened to their ill-gotten gains. Evidence has shown that MacMillan and Martin’s net worth wassubstantial. However, the hundreds of millions generated by the MacMillanCompanies has somehow simply evaporated. [Adv. dkt. 98, pp. 16:16-17:5(emphasis added)]-5-
Case 2:17-ap-01229-NB12Doc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 6 of 12This argument is insufficient for two alternative reasons.(i) Wyndham’s assertion that Debtors failed to “explain” a loss or3deficiency of assets assumes, without evidence, that Debtors4were asked for an explanation5DescThere is insufficient evidence that Debtors were ever asked to explain their loss6or deficiency of these alleged assets. A declaration in support of the MSJ does include7some discovery requests (adv. dkt. 100, Ex. 10, at PDF pp. 25-40), but there is no copy8of any response to that request. More broadly, there is no evidence to support the9SAC’s assertion that Debtors have “produced nearly no” records in response to10discovery requests SAC (adv. dkt. 151, ¶ 94), and in any event that allegation in the11SAC is not included in the MSJ.12Nor does Wyndham point to any question on Debtors’ bankruptcy schedules or13Statement Of Financial Affairs (“SOFA”) that required Debtors to explain these alleged14losses. This Bankruptcy Court recognizes that the SOFA includes questions about past15income and loss of assets; but those questions have limitations, such as how far back16Debtors must answer, and to what extent Debtors must provide information about their17businesses, as distinguished from their own financial affairs. Without reference to18specific questions that Debtors should have answered differently, there is no basis for19summary judgment under § 727(a)(5).20(ii) Alternatively, the MSJ does not sufficiently identify exactly what21“loss” or “deficiency” of assets Debtors are accused of not22explaining23The MSJ, as quoted above, alleges that Debtors’ businesses and DBAs24generated millions of dollars in income and that the proceeds “somehow simply25evaporated.” MSJ (adv. dkt. 98), pp. 16:16-17:5. But there is insufficient evidence of26the specific proceeds at issue.27Debtors do not dispute that they and their companies used to earn substantial28revenues. But they explain that a prepetition settlement with Wyndham forced them-6-
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 7 of 12Desc1and “various entities” to stop providing services to their traditional customer base –2timeshare owners – while allegedly permitting them to engage in marketing services to3third parties under certain conditions. MacMillan Decl. (adv. dkt. 112), p. 3:12-16. This4caused “financial distress” and by the time Debtors were in bankruptcy the businesses5“were not fully staffed.” Id. at p. 5:5-6.6True, Debtors’ explanation is vague, and they offer no documentary support for7that defense, but that is putting the cart before the horse. First Wyndham’s MSJ has to8produce evidence that Debtors had specific assets such as revenues from specific9businesses prepetition, and that there is an unexplained loss or deficiency of those10assets. Wyndham does not do so.11Wyndham’s statement of undisputed facts (“Statement”) does not address most12of the alleged “myriad of businesses and DBAs” referenced in the MSJ. For example,13although the SAC devotes substantial attention to Timeshare Relief, Aston Business14Solutions, and what happened to the Owner Database, Wyndham’s evidence in support15of the MSJ does not address any of these things. Instead it includes a single reference16to a single business, Attitude Marketing:1718192020. Tax returns reflect that the gross revenue for Attitude Marketing wasmore than 54 million in 2012 and more than 26 million in 2013. Decl. D.Eliades, Exh. 3; Attitude Marketing Tax Returns for the years 2012 and 2013.[Statement (adv. dkt. 99), p. 5:16-19 (emphasis added)]But the declaration of Mr. Eliades in support of the MSJ (adv. dkt. 100) does not21include any of the referenced tax returns. In actuality, although the Statement itself22does not explain that it is referring to a different declaration of Mr. Eliades, the MSJ23(adv. dkt. 98, p. 2:5-6) defines the “Eliades Declaration” as a declaration filed in the24main bankruptcy case – not in this adversary proceeding. That different declaration and25exhibits start on page 73 of Wyndham’s response to Debtors’ objection to Wyndham’s26claim (the “Claim Objection Opposition,” MacMillan Bankruptcy, dkt. 326).27Debtors apparently were confused by this indirect reference to a different28declaration than the one accompanying the MSJ. On several factual issues they object,-7-
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 8 of 12Desc1“the cited evidence does not exist as cited.” Evid. Obj. (adv. dkt. 113) p. 2, at lines 8,213, 18, 22.3But even assuming, for the sake of discussion, that Debtors should have realized4which declaration was being referenced, the 2012 and 2013 tax returns of Attitude5Marketing are not enough. That evidence of past income of a single business does6nothing to undercut Debtors’ explanation that Wyndham itself caused the loss of their7business’ income, through the prepetition settlement that restricted what Debtors and8their businesses could do.910For each of the foregoing reasons, this Court cannot grant summary judgmentunder § 727(a)(5).11e. § 727(a)(4)12§ 727(a)(4) provides:131415161718192021222324252627(a) The court shall grant the debtor a discharge, unless—***(4) the debtor knowingly and fraudulently, in or in connection with thecase—(A) made a false oath or account;(B) presented or used a false claim;(C) gave, offered, received, or attempted to obtain money, property,or advantage, or a promise of money, property, or advantage, foracting or forbearing to act; or(D) withheld from an officer of the estate entitled to possessionunder this title, any recorded information, including books,documents, records, and papers, relating to the debtor’s property orfinancial affairs [§ 727(a)(4) (emphasis added)]Wyndham’s MSJ focuses on the emphasized language above. The MSJidentifies several separate allegedly false oaths or accounts.(i) Equity interests in Attitude MarketingThe MSJ states:Martin represented in her bankruptcy schedules that she had anownership interest in Attitude Marketing. Post-petition, however, Martinunequivocally testified under oath that she did not have an ownershipinterest in Attitude Marketing at the time of her bankruptcy filing. [MSJ(adv. dkt. 98), p. 6:19-22.]28-8-
Case 2:17-ap-01229-NB1Doc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 9 of 12DescBut Martin explains that a “memo on [a 10,615.57] check was erroneous” in2stating that it was issued on account of an equity interest (Martin Decl., adv. dkt. 112,3p. 2:8-14), and the reasonable inference is that Martin was confused, but attempting to4be fully candid, when she checked the box on her bankruptcy schedules indicating that5that she had an interest in an “undetermined” amount in Attitude Marketing. MSJ (adv.6dkt. 98) p. 6, n. 5, at lines 24-26. Martin now declares: “I was not, nor have I ever been7an owner, or an owner of equity in Attitude Marketing, Inc.” Martin Decl. (adv. dkt. 112),8p. 2:13-14.9101112In a summary judgment context, this Court cannot assess credibility. In anyevent there is no evidence from which to question Martin’s explanation.(ii) Nevada litigationWyndham accuses Debtors of knowingly and fraudulently failing to disclose13some litigation (the “Nevada National” litigation). MSJ (adv. dkt. 98), pp. 12:21-14:3.14But MacMillan declares:1516171819202122232425262728With regard to the Nevada National litigation, this matter was a frivolouslawsuit filed against Attitude Marketing, Aston Business Solutions, CynthiaMartin and myself. The case was quickly settled in mediation, before thebankruptcy, neither Cyndy Martin or myself or Attitude Marketing receivedanything out of it. I[t] was simply an oversight not to list it. [MacMillanDecl. (adv. dkt. 112), p. 6:14-17]Again, on summary judgment this Court cannot assess credibility. In addition,given the dozens of businesses and DBAs of Debtors, and the number of disputes andlawsuits they appear to have had, there is no evidence from which to question Debtors’explanation that omitting this one piece of minor litigation was simply an oversight.(iii) Whether clients of Debtors’ businesses must be treated asDebtors’ own creditorsWyndham accuses Debtors of knowingly and fraudulently failing to list on theircreditor matrix and bankruptcy schedules “thousands of creditors” – namely, timeshareowners who allegedly are “actual or potential creditors” of Debtors. MSJ (adv. dkt. 98),p. 14:4-17 et seq. Wyndham notes in particular certain of its own timeshare owners-9-
Case 2:17-ap-01229-NBDoc 185 Filed 04/09/20 Entered 04/09/20 11:45:06Main Document Page 10 of 12Desc1who had involvement with Debtors or their businesses. But Debtors have argued that2the timeshare owners were clients of Debtors’ businesses, not Debtors
MacMillan and Martin have produced few documents reflecting what happened to the hundreds of millions of dollars taken in by the MacMillan Companies. 2 On his website, davidmacmillantimeshare.com, MacMillan represented in a ³&RPSDQ\6WDWHPHQW - dated March 31, 2015 and posted on September 17, 2015 -
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