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Latest Smoot filing! While there have been numerous filings in the Smoot case within the last 3 months, below is the latest filing which will catch up those readers who are familiar with the fact that Ken is attempting to extract himself from Bankruptcy Court, regain control of approximately $39,000 cash that is from exempt monies that have been "frozen" now for 4 or 5 years, and continue his malpractice suit against Merritt Green III(which could ultimately overturn the judgment alltogether)! As the Trustee doesn't really have any pertinent law on her side, she continues to rely on the specious "badges of fraud" theory. Take particular note of the sentence in the law that they conveninently left out when they prevailed in the Fourth Circuit!
IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division
Now comes, the Debtor with his response to Trustee and his proposed findings of fact and conclusions of law; and they are as follows; This matter comes before the Court on the Kenneth Ray Smoot’s (the "Debtor") Motion to Dismiss Bankruptcy and Relief of Judgments (the "Motion"). On June 3,2004, Lynn L. Tavenner, Chapter 7 Trustee (the "Trustee") filed a Memorandum In Opposition (the "Opposition") to the Motion. On June 7, 2004, Debtor filed a Memorandum in Response to Trustee’s Opposition to Motion to Dismiss Bankruptcy and Relief of Judgments. The Court held a hearing on June 9, 2004 and heard argument from the Debtor and counsel for the Trustee, after which the Court afforded the trustee additional time to submit any further viable authorities that she may have on the issue. On June 16, 2004, the debtor submitted a Supplemental Memorandum in Response to Trustee’s Opposition to Motion to Voluntarily Dismiss Bankruptcy and Relief of Judgments and Motion to Reconsider in further support of the Motion which included an additional exemption claim on funds currently held by the trustee. The Court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 157(b) and 1334. Notice of the Motion appears to have been properly given to all parties in interest, with only the Trustee objecting, without support of any creditors and, therefore, the matter is ripe for decision. There are several issues to be decided at this time which will determine whether voluntary dismissal of the Debtor’s case is proper. They are as follows; 1) Any Legal prejudice to creditors. 2) Rights of Debtor. 3) Any manifest error or omission of law, or fact. 4) Does misconduct outweigh considerations of finality? 5) Are funds held by Trustee, and traceable to exempt personal injury proceeds still exempt? 6) The public interests. After hearing arguments from the Debtor and counsel for the Trustee, and after reviewing all materials submitted by the parties, the Court finds that the Motions are meritorious and, in support of this decision, makes the following findings of fact and conclusions of law.
Findings of Fact
1. This Court has already set forth extensive findings of fact related to this bankruptcy case in a prior reported Memorandum Decision, styled Tavenner v. Smoot (In re Smoot), 265 B.R. 128, 132-135 (Bankr. E.D. Va. 1999) (the "First Smoot Decision"), which was affirmed on appeal by the Fourth Circuit Court of Appeals. See Tavenner v. Smoot, 257 F.3d 401 (4th Cir. 2001).’ Accordingly, those findings and rulings, if not found to be erroneous, are res judicata and binding upon the Court. See Aliffv. Joy Mfg. Co., 914 F.2d 39 (4th Cir. l990). Because many of the Court’s findings and rulings in the First Smoot Decision are germane to the matter at hand, the First Smoot Decision is incorporated herein by reference. 2. In the First Smoot Decision, the Court entered an order and accompanying memorandum opinion avoiding various transfers by the Debtor as fraudulent and denying the Debtor’s discharge. See Tavenner v. Smoot, 265 B.R. at 143-44. In so ruling, the Court found that the Debtor transferred $210,000.00 from proceeds of a personal injury settlement, not in violation of state law, to or for the benefit of his family members and himself with actual fraudulent intent (the "Fraudulent Transfers"). And that if the debtor met certain criteria the personal injury proceeds, if brought back into the estate, were still exempt. 3. It appears from the pleadings filed previously in the case that there are funds currently in the estate traceable to those funds that are exempt under Federal and State Exemption laws not applicable to satisfy any current or future debts or known administrative claims and that there is no likelihood of further collections that would result in a distribution to the Debtor’s unsecured creditors. 4. The debtor seeks the dismissal of this bankruptcy case. Under established statutory authority, the Court generally grants dismissal of a case for "cause". 11 U.S.C. § 707; see also In re McCullough, 229 B.R. 374, 376 (Bankr. E.D. Va. 1999). Providing there is no objection that shows clear legal prejudice; especially if error of law or fact exist, and in deterring misconduct. See In re Kelly, 8 Bankr. 634 (Bankr. E.D. Va. 1981, Square Constr. Co. v. Washington Metro Area Transit Auth., 657 F.2d 68 (4th Cir. 1981), Lux v. Spotswood Constr. Loans, 176 Bankr. 416 (E.D. Va. 1993), aff’d, 43 F.3d 1467 (4th Cir. 1994).
5. "The decision on dismissal falls squarely within the sound discretion of the Court and such a decision will be reversed only if the exercised discretion has been abused." 6. A motion to dismiss a bankruptcy case is a serious matter affecting the rights of the debtor and all creditors, exclusive of the Trustee, and at the hearing on such a motion, the Court is required to consider the impact that a dismissal will have on the various entities involved in the case and to ascertain which direction satisfies the best interest of all parties. See In re Price, 211 B.R. 170, 172 (Bankr. M.D. Pa. 1997)). 7. In deciding whether to dismiss a case, the Court is to consider whether dismissal is in the best interests of creditors and the debtor; not the Trustee. See In re Williamsburg Suites, Ltd., 117 B.R. 216, 218 (Bankr. E.D. Va. 1990). 8. As an initial matter, the Court is cautioned against not dismissing the case due to the Trustee’s apparent prior fraudulent conduct and conflictive interests. Likewise, such bad acts indicate a disregard for others’ rights that the Court cannot ignore in this analysis. See In re Klein, 39 B.R. 530, 533 (Bankr. E.D.N.Y. 1984). Similarly, It may be reasonably inferred from Trustee’s questionable behavior inside of bankruptcy that such conduct will persist in derogation of the Debtor’s, and legitimate creditor’s rights in the event this court were to deny the dismissal of debtor’s petition. Thus, the Court must consider more carefully whether the interests of the Debtor, and legitimate creditors, if any, will be served by denying dismissal, and if any creditor objected to the debtor’s motion. 9. The Court can agree that the Debtor’s legitimate creditors, if any, could benefit from, or not be prejudiced, in dismissal of this case and the Debtor makes a plausible argument. Of paramount concern to the Court is whether the Debtor’s rights are preserved, and his legitimate creditors could receive payment on their claims with dismissal. The Trustee offers no assurances that she will pay them (other than herself) anything. In fact, the opposite appears to be the case as Debtor has shown that all of the funds in the estate are exempt property. See Motion at 12-15. Thus, the Court believes that legitimate creditors have little if any hope of being paid by the Trustee if she is allowed to settle the Green claim at a faction of its value ($30,000) after she removes her alleged administration fees in excess of ($35,000). The Debtor will then be unable to rectify any cause that has forced him to this venue or reduce or remove any illegitimate creditor, if any, should this case not be dismissed. The Trustee has not mentioned that any of the Debtor’s or other creditors rights will be protected in the principals allegedly agreed to that could allow their claims, if any, be paid. 10. The Debtor has indicated an intention to not liquidate any of his claims (the claims against Merritt Green, nor the CSXT and UTU claim) for less than the full amount of damage and injury endured by him and full exoneration. Such is sufficient "cause" to warrant dismissal of the case. He has shown through his relentless pursuit of the reduction or elimination of the amount of claims against him and the estate, with no help but rather constant interference of the Trustee, that he has full intention on bringing these issues to a satisfactory and equitable resolution. Furthermore, it appears that the Trustee, her counsel, and Defendants’ Merritt Green, UTU and CSXT are the only ones that would benefit from any settlement. Therefore if the Trustee is permitted to finalize the settlement and seek its approval in accordance with rule 9019 of the Federal Rules of Bankruptcy Procedure, it would not be in the best interests of the Debtor, any legitimate creditor, if any, or the public. 11. In this case, the only parties that could not conceivably benefit from dismissal are the Trustee and her counsel, past and present. Despite the Trustee’s assertions to the contrary, this is not sufficient cause to justify denying dismissal. The Trustee again quotes; Mathis Insurance Agency which stated; 12. It is glaringly clear based on the record of this case that the Debtor lived up to the obligations imposed upon him by the Bankruptcy Code. Moreover, the Debtor has shown and endured the malfeasance the Trustee, through counsel, in her abuse of the bankruptcy process by using it to her benefit to forestall the debtor’s rights and seeks to escalate the web of trickery so keenly woven about this Court, legitimate creditors, and the debtor by objecting to dismissal without basis in fact, reason, and law. 13. The Trustee, standing alone, failed to provide any sufficient evidence of cause or legal prejudice to justify denying dismissal of this case other than her claim of extraordinary administration fees accumulated through futility, in that she illegally attacked proceeds that were exempt from creditor process under Federal and state law. Those funds are still exempt under Federal and State exemption laws. She also objected to the debtor’s motions to dismiss, long before she had any expense, but fought for denial of discharge? This only delayed the debtor’s efforts in rectifying the underlying issues pending in other venues. Furthermore, it is again noted that no creditor has objected to this or any motion of dismissal. 14. Based upon the law, rules, record, and evidence presented at the hearing, the Court cannot conceivably enter an order denying the Motion for Dismissal. 15. There is sufficient cause for dismissal, within the numerous undisputed facts shown by debtor. This debtor has shown based on clear and unambiguous law, that the arguments presented by the trustee are disingenuous, with no legal prejudice to any party other than the debtor. And also, that clear errors and omissions have prejudiced him of a full and fair adjudication of his claims and constitutional rights. 16. NOT one creditor has ever objected to the debtors motions in writing or by appearance at any of the hearing on the motions. Said motions were clear, cogent, and unambiguous concerning the facts, motivation, intent and the consequences thereof with no appearance of prejudice or harm to any creditor. 17. In this case, NO creditor objected and the docket clearly substantiates that fact. Only the Trustee, standing alone through counsel, objected and introduced a 1985 Arkansas case which is completely different from the facts in this case, i.e., that case had considerable fraudulent activity and several creditors did object on record, not just the trustee. The facts in that case are thus significantly different and can provide no legitimate guidance in the case at bar other than to solidify the debtor’s position. See In re Mathis Insurance Agency, Inc.; In re Clemothene Mathis, 50 B.R. 482; 1985. 18. This courts ruling, affirmed by the 4th Circuit, did not imply that the funds currently held by the estate, traceable to exempt personal injury proceeds, protected by Virginia Law § 34-28.1 are not exemptible. It should be noted that the sentence highlighted in footnote 5 of this opinion, was surreptitiously omitted in footnote 4 of the memorandum opinion in Tavenner v. Smoot (In re Smoot 265 B.R. 128, 143-44 (Banics. E.D. Va. 1999). That sentence clearly distinguishes the difference between potential (need to be claimed) exemptions and actual automatic exemptions, is clear error, and would have had a substantial effect, inter alia, on the complexion of this case and this court’s opinion had it not been omitted. 19. The courts are neither to reduce nor enlarge the exemptions or read into the law an exemption not found there. Exemptions statues are to be liberally construed in favor of the party asserting the exemption privilege. See In re Williams, 3 Bank. 244(Bankr. E.D Va. 1980). "It is the almost universal rule that exemption statues should receive a liberal construction in favor of those intended to be benefited and favorable to the object and purposes of the enactment, and where there is doubt as to whether certain property is exempt or not, the doubt should be resolved in favor of the exemption". See In re Perry, 6 Bankr. 263 (Bankr. W.D. Va. 1980). 20. This court has made it crystal clear that "A debtor is entitled to claim an exemption after a transfer has been avoided only if specified criteria have been met", referring to 11 U.S.C. § 522(g) 21. This court only ruled that it appeared the debtor could not exempt the personal injury proceeds recovered by the trustee under §522(g)(1)(A), as said transfer was clearly voluntary. However, because the debtor voluntarily disclosed the whereabouts of the transferred exempt personal injury proceeds, did not conceal this information on his schedules, and in fact, disclosed the whereabouts of them in a deposition to two judgment creditors, CSXT and UTU, months prior to the UTU filing a suit against him in circuit court, said ruling did address the true facts. Subsequently, Debtor asserted his claim pursuant to §§522(i), 522(f) in addition to §522(g)(1)(B) and there was no objection within 20 days. He is entitled to claim them exempt under §522(g)(1)(B) as a matter of law. 22. "The subsections of 11 U.S.C 522 are cumulative. The debtor is not required to choose which he will use to gain an exemption. Instead, he may use more than one in any particular instance, just as the trustee’s avoiding powers are cumulative". See Legislative notes pertaining to 11 U.S.C 522. 23. This court was and still is of the opinion that the Virginia State courts would not hold that the exempt personal injury proceeds protected by Virginia Code § 34-28.1, invested in a family owned business, would be fraud to the rights of the debtor’s creditors and ruled against the trustee pursuant to Bankruptcy Code §§ 544(b) and 550(a), and Virginia Code §§ 55-80 and 55-81. 24. There was no dispute that had he left the exempt personal injury proceeds in his account that they were exempt in this Bankruptcy case. Apparently there is still no dispute that the funds are still exempt, in that the trustee had 20 days to object to the debtor’s additional claim but did not. 25. Therefore, this court believes that short of the erroneous omission of a very serious section of law, there is no dispute that he had the right to use his exempt personal injury funds in any manner he saw fit, free and clear of any threat that there would be fraud to any legitimate creditor. Given the clear and unambiguous language of § 34-28.1(. It shall not be required that a householder designate any property exempt under this section in a deed in order to secure such exemption. ) 26. It makes no difference if he kept them in his personal account forever, invested them in Enron, gambled them away in Vegas, burned or buried them in his backyard, OR invested them in a family business. They have no effect, past or present, or legal prejudice to any creditor and most certainly not the trustee. 27. The fact that he did not originally know they were exempt does not rise to loss of exemption. Again, he did not hide them in any manner whatsoever, i.e., they were transferred via wire, they were placed on his original schedules, and their whereabouts was voluntarily disclosed in deposition. Based on Blacks Law Dictionary, sixth edition, "Elements of a cause of action for "fraud" include false representation of a present or past fact made by defendant, action in reliance thereupon by plaintiff, and damage resulting to plaintiff from such misrepresentation. Citizens Standard Life Ins. Co. v. Gilley, Tex.Civ.App., 521 S.W. 2d 354, 356." (Emphasis added). 28. At this juncture, it is inescapable and unambiguous that there was not one thing the debtor said or did that has caused his creditors or the trustee any damage or injury. The Debtor accounted for assets, completed schedules in good faith, and submitted to the trustee’s requests for documents; the debtor caused no delay or hindrance to any debt collection efforts by legitimate creditors. 29. Furthermore, it is not in violation of any Federal or State law to use exempt personal injury proceeds that are free from creditor process or in anyway could conceivably reach the threshold of an actionable cause for fraud. The appearance of badges of fraud alone does not prove fraud nor does it cause a loss of an exemption. As basis for civil action, establishment of representation, falsity, scienter, deception, and injury, are generally required. See Cormack v. American Underwriters Corp., 288 N.W.2d 634. 30. Therefore, the funds held by the trustee are still exempt and does not prejudice or have any effect on any legitimate creditors’ right to collect on any legitimate debt, in or outside the bankruptcy court. 31. The court pursuant to §§ 105, and 707 has the power, duty, and the requirement to dismiss a case if it finds substantial abuse of the provisions of this chapter. This is not limited to the debtor, but also, officers of the court, including the trustee and their hired counsel. 32. The Bankruptcy Laws are the intent of the legislators to allow a fresh start to the citizens of our country. They are not to give creditors, through the trustee, a second bite of the apple by attempting, at the tax paying public’s expense, to satisfy their alleged claim by the use of exempt proceeds, protected by Federal and state exemption laws. 33. The record in this case clearly shows that the trustee, through counsel, has completely abused her authority by not adhering to her duties as an officer of the court. She was well aware of the fact that the personal injury proceeds were automatically exempt from creditor process, and their use by the debtor was of no consequence or injury to any creditor, and also knew the whereabouts, prior to her allegations that they were fraudulently transferred. This fact was disclosed to the trustee in the schedules filed by the debtor, and at the 341 hearing. She was also well aware that two of the debtor’s alleged creditors, CSXT and UTU, who are also defendants, had the identical allegations claimed against the debtor in the circuit court and the debtor had counterclaims against them for the same illegal process against exempt personal injury proceeds protected by Federal and state exemption laws. Her ignorance of these facts, the law, and her election, through counsel, to still waste money and time, is no fault of the debtor. It is clear that an attorney has a duty to conduct a prefiling examination of both the facts and the law before instituting legal process, assuring that her actions are factually and legally justified, not just a snapshot view. See Cabell v. Petty, 810 F.2d 463 (4th Cir. 1987), Sowards v. Switch Energy, Co. 744 F. Supp. 1399, (W.D. Va. 1990), Brubaker v. City of Richmond, 943 F.2d 1363 (4th Cir. 1991). 34. The facts that have already been addressed in previous filings in this matter are included herein as if reiterated in their entirety. 35. Further indicative of the abuse by the trustee, through counsel, is the fact that the trustee has stated that her former counsel has been paid $20,000.00. Any such payment, if made, is premature and in violation of the law until a final determination pursuant to federal bankruptcy law. 36. Bankruptcy Code §725 states; "After the commencement of a case under this chapter, but before final distribution of property of the estate under section 726 of this title, the trustee, after notice and a hearing, shall dispose of any property in which an entity other than the estate has an interest, such as a lien, and that has not been disposed of under another section of this title". (emphasis added) 37. The final adjudication is that the funds currently held by the trustee as property of the estate, are in fact exempt and that this case is hereby dismissed. WHEREFORE, Kenneth Smoot, pro se debtor, urges the Court to adopt his findings of fact and conclusions of law which are sufficient to justify dismissal for the reasons stated and based upon the evidence presented in hearing. The Court should enter an order granting my Motions. Furthermore, this Court should rule that no legal prejudice exists to any creditor, that the public interest requires dismissal, that funds still held by the Trustee are exempt under § 34-28.1, and should be returned to debtor. Finally, the Court should order an investigation into the actions of the trustee, through counsel for possible sanctions. Respectfully Submitted _______________________ Kenneth R. Smoot, pro-se 3336 Old Courthouse Rd. Apt. B. Richmond, Va. 23236
This certifies a copy of Kenneth R. Smoot’s, DEBTOR"S RESPONSE TO TRUSTEE AND PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW was served by regular mail this 19th day of July, 2004 to the following;
Ari H. Jaffee KOHRMAN JACKSON & KRANTZ 1375 East 9th St., 20th Floor Cleveland, OH. 44114
Ms. Lynn Lewis Tavenner, Trustee Mr. Chris Jones LECLAIR RYAN 707 East Main St. 11th Floor Richmond, VA. 23219
Leander D. Barnhill OFFICE OF UNITED STATES TRUSTEE 600 East Main St., Suite 301 Richmond, VA. 23219
______________________ Kenneth Smoot 3336 Old Courthouse Rd. Apt. B Richmond, VA. 23236 804-745-8131 804-677-1091 |