Florida

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

In re Stephan Jay Lawrence. Debtor,
251 B.R. 630 (S.D.Fla. 07/31/2000)

STEPHAN JAY LAWRENCE, Appellant, vs. CHAPTER 7 TRUSTEE, Appellee.

CASE NO.: 99-2764-CIV-GOLD/SIMONTON, CASE NO.: 99-2678-CIV-GOLD/SIMONTON

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA

251 B.R. 630

July 31, 2000, Decided

July 31, 2000, Filed

COUNSEL: For STEPHAN JAY LAWRENCE, appellant (99-CV-2764): Ronald George Neiwirth, Fowler White Burnett Hurley, Banick & Strickroot, Miami, FL.

For ALAN L. GOLDBERG, appellee (99-CV-2764): Paul Steven Singerman, Berger Davis & Singerman, Miami, FL.

For STEPHAN JAY LAWRENCE, debtor (99-CV-2678): Ronald George Neiwirth, Fowler White Burnett Hurley, Banick & Strickroot, Miami, FL.

For STEPHAN JAY LAWRENCE, debtor (99-CV-2678): Allen Paul Reed, North Miami Beach, FL.

For STEPHAN JAY LAWRENCE, debtor (99-CV-2678): Myles H. Malman, Jonathan H. Rosenthal, Malman & Associates, Miami, FL.

For ALAN L. GOLDBERG, Trustee, duly authorized and acting Chapter 7 Trustee for the bankruptcy estate of Stephan Jay Lawrence, trustee (99-CV-2678): James Harris Fierberg.

For ALAN L. GOLDBERG, Trustee, duly authorized and acting Chapter 7 Trustee for the bankruptcy estate of Stephan Jay Lawrence, trustee (99-CV-2678): Paul Steven Singerman, Berger Davis & Singerman, Miami, [*2] FL.

JUDGES: ALAN S. GOLD, UNITED STATES DISTRICT JUDGE.

OPINIONBY: ALAN S. GOLD

OPINION: ORDER AFFIRMING BANKRUPTCY COURT'S AUGUST 26, 1999 TURN OVER ORDER, SEPTEMBER 8, 1999 CONTEMPT ORDER, AND OCTOBER 5, 1999 INCARCERATION ORDER

THIS CAUSE is before the court in Case No. 99-2764-CIV-GOLD upon appeal of the Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Notice Pursuant to Fed. R. Bankr. P. 9020(b) (the "Turn Over Order"), entered August 26, 1999, by the Honorable Thomas S. Utschig, United States Bankruptcy Court Judge. The appellant has argued that the Turn Over Order was inappropriately entered and should be reversed. Jurisdiction of this court is invoked pursuant to 28 U.S.C. § 158(a). Also pending before this court in Case No. 99-2678-CIV-GOLD is the appellant's appeal of the Bankruptcy Court's September 8, 1999 Order Adjudicating Debtor in Civil Contempt for Violation of the August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Pursuant to Fed. R. Bankr. P. [*3] 9020(b) (the "Contempt Order") and October 5, 1999 Order Directing United States Marshal to Incarcerate Debtor for Failure to Turn Over Property of the Bankruptcy Estate Pursuant to Prior Court Orders (the "Incarceration Order").

A hearing was held before this court on January 14, 2000, at which the parties chose not to present additional evidence or testimony and to base their appeal and arguments on the underlying record. Pursuant to the court's instructions, the parties submitted additional memoranda after the hearing. After careful review of the record in this appeal, the transcripts of the hearings before the Bankruptcy Court designated in the record on appeal, the parties' briefs, the Orders entered by the Bankruptcy Court, and the relevant law, this court finds that the Bankruptcy Court's August 26, 1999 Order Granting Trustee's Motion to Compel Debtor to Turn Over Trust Res and to Fully Disclose all Trust Transactions and Order to Show Cause Notice Pursuant to Fed. R. Bankr. P. 9020(b) should be affirmed. Furthermore, this court has gone on to affirm both the Contempt and Incarceration Orders that were subsequently entered by the Bankruptcy Court.

I. Factual [*4] and Procedural Background

This matter revolves around an offshore trust settled by the appellant on or about January 8, 1991, two months prior to the conclusion of a 42 month arbitration dispute with Bear, Stearns & Co., Inc. ("Bear, Stearns") that resulted in a $ 20.4 million award in favor of Bear, Stearns. See Pompano-Windy City Partners, Ltd., et al. v. Bear, Stearns & Co., et al., No. 87-Civil-7159, S.D.N.Y., Corrected Final Judgment entered April 7, 1993, confirming arbitration award of March 15, 1991. The appellant settled the offshore trust, titled the Lawrence Family 1991 Inter Vivos Trust (the "Trust"), in the Jersey Channel Islands with an initial res of approximately $ 7 million. See The Declaration of Trust, Ex. A to Complaint Objecting to Debtor's Discharge; Dep. of Stephan J. Lawrence, Sept. 5, 1996, p. 72. The Trust was amended on or about February 7, 1991, adding specific spendthrift language and moving the proper law of the Trust to the Republic of Mauritius. See The Declaration of Trust. There were two subsequent amendments made to the Trust by the Trustee. On January 23, 1993, the Trust was amended so that the Settlor's powers could not be executed [*5] under duress or coercion and so that the life interest of the Settlor would terminate in the event the Settlor became bankrupt. In March 1995, an amendment was added to the Trust declaring the appellant to be an "Excluded Person." See id. n1

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n1 "Asset protection planning" has become more problematic in recent years. As noted in a recent law review article [which discussed the Lawrence case], "Stephan Lawrence's efforts to avoid his creditors-euphemistically called 'asset protection planning' by its practitioners-have become increasingly common in recent years. Although determining with any precision the value of assets that debtors have transferred offshore to avoid creditor claims is nearly impossible, conservative estimates exceed one trillion dollars. One lawyer, prominent in the asset protection business, represents that his firm alone has clients with more than three billion dollars in asset protection trusts." Stewart E. Sterk, Asset Protections Trusts: Trust Law's Race to the Bottom? 85 Cornell L. Rev. 1035, 1036 (2000) (footnotes omitted). See also Randall J. Gingiss, Putting a Stop to "Asset Protection" Trusts, 51 Baylor L. Rev. 987 (1999).

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In June 1993, Bear, Stearns registered in the Southern District of Florida the $ 20.4 million judgment which it had obtained in the Southern District of New York against the appellant. See Pompano-Windy City Partners, Ltd., et al. v. Bear, Stearns & Co., Inc., et al., No. 93-6489-CIV-KING (the "Bear, Stearns Lawsuit"). The Trust, through its then-trustee, Kapil Dev Joory, was impled into the Bear, Stearns Lawsuit in November, 1996. See 93-6489-CIV-KING, D.E. # 126, 179. On August 28, 1998, Judge King stayed any further attempts to transfer the assets of the Trust pending further action by the bankruptcy court. See id., D.E. # 205.

Meanwhile, on June 12, 1997, the appellant filed a Voluntary Petition under Chapter 7, Title 11, United States Code, for bankruptcy discharge in the U.S. Bankruptcy Court, Southern District of Florida. See In re Stephan Jay Lawrence, No. 97-14687-BKC-AJC. Alan J. Goldberg, the bankruptcy trustee, filed a Complaint Objecting to Debtor's Discharge on or about April 13, 1998. See Goldberg v. Lawrence, No. 98-1211-BKC-AJC-A. The Trust was not joined as a party in Goldberg's action.

During the course of that proceeding, a discovery dispute [*7] arose between the appellant and the appellee over the sufficiency of appellant's answers to interrogatories. The appellee, Goldberg, moved to compel better answers. In response, the bankruptcy court conducted a three-day evidentiary hearing in order to obtain responsive answers from the appellant. See 7/21-23/98, Tr.; In re Lawrence, 227 B.R. 907 (Bankr. S.D. Fla. 1998). The bankruptcy court made extensive factual and legal findings, and issued an opinion on September 23, 1998, concluding that 1) there were numerous factual inconsistencies in the appellant's testimony, 2) the appellant lacked credibility, n2 3) the appellant purposely avoided his obligation to cooperate with the Trustee, 4) appellant's willful and bad faith failure to obey discovery orders make striking of the insufficient response appropriate, 5) the facts alleged in the Trustee's complaint are therefore deemed established, 6) the appellant's rights and obligations under the Trust are governed by Florida and federal bankruptcy law, and not the law of Mauritius, and 7) the trust corpus is property of the estate under 11 U.S.C. § 541. See In re Lawrence, 227 B.R. 907 (Bankr. S.D. Fla. 1998). [*8] The appellant filed a notice of appeal but failed to timely designate a record and otherwise perfect his appeal. The bankruptcy court entered an order dismissing the appeal and denied a motion for reconsideration. The appellant subsequently appealed that denial to the district court, and the district court affirmed. A subsequent appeal to the Eleventh Circuit was voluntarily abandoned by the appellant. See 8/26/99 Turn Over Order Tr. at 29-30.

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n2 Judge Utschig conducted a three day hearing during which he had a unique opportunity to observe the Appellant, who was the sole witness. Lawrence, 227 B.R. at 910. In his findings of fact, he concluded on a number of occasions that Lawrence's testimony lacked credibility. Likewise, he cited prior orders issued by Chief Judge Cristol who found the testimony of both Lawrence and his counsel to be not credible and not believable. Id. at 910 n. 7. He concluded that: "The Debtor's substantial lack of veracity in his voluntary bankruptcy case is amply demonstrated. He continued his lack of truthfulness throughout the hearings which are the subject of this Order." Id. Of most significance, Judge Utschig found it ". . . impossible to believe the Debtor's testimony that he simply walked away from virtually all of his assets without any sort of struggle." Id. at 912. He further stated: "This Court finds it impossible to believe that the Debtor surrendered ninety percent (90%) of his assets to a stranger on the other side of the world without maintaining some control over the assets." Id.

As noted in Federal Trade Commission v. Affordable Media, 179 F.3d 1228, 1231 (9th Cir. 1999), "An old adage warns that a fool and his money are easily parted. This case shows that the same is not true of a district court judge and his common sense." The same adage and conclusion equally applies to both Judge Utschig's analysis as well as to Judge Cristol's subsequent comments in In re Lawrence, 238 B.R. 498, 500 (Bankr. S.D. Fla. 1999).

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In July 1999, the appellee filed a motion seeking to order the appellant to turn over the assets of the Trust. Following oral argument before the Honorable Thomas Utschig on August 26, 1999, the bankruptcy court ordered the appellant to turn over the assets of the Trust, account for its transactions, and surrender his passport (the "Turn Over Order"). n3 Appellant filed an appeal of the Turn Over Order, which is currently pending before the court.

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n3 In his Turn Over Order, Judge Utschig stated that he "reviewed the voluminous pleadings which have been filed by the parties in this Court and in the United States District Court, including the Debtor's Motion to Continue Hearing . . ., the Trustee's Response to Debtor's Motion to Continue Hearing . . ., and the Debtor's Response to the Trustee's Motion to Compel, With Supporting Memorandum of Law . . ., the record before the Court in this case and in the adversary proceedings previously commenced by the Trustee against the Debtor . . ., the Court's prior ruling in this case and in the adversary proceedings . . . ." This record included the three days of hearing before Judge Utschig which commenced on July 21, 1998 and culminated in his findings and conclusions in In re Lawrence, 227 B.R. 907 (Bankr. S.D. Fla. 1998). At the Turn Over hearing, Lawrence did not appear, notwithstanding efforts by the Trustee to produce the Debtor through cooperation of counsel and with a subpoena on eight separate occasions. In his oral findings of fact, Judge Utschig concluded: (1) the Turn Over proceeding was not an adversary proceeding under Rule 7001; (2) the Trust Corpus was part of the estate created at the commencement of the case under Section 541 (a)(1) of the Bankruptcy Code; (3) the Debtor has a duty under Section 521(4) of the Bankruptcy Code to surrender to the Trustee all property of the estate; (4) (5) the key holdings in In re Lawrence, 227 B.R. 907, including that the Trust Corpus is property of the estate under 11 U.S.C. § 541 and that the Debtor's rights and obligations are governed by Florida and Federal Bankruptcy Law, are not dicta; (5) Lawrence's trust arrangement is a "farce," designed to obfuscate and hide assets, and (6) Lawrence tried to hide even the existence of the trust, and his prior testimony was replete with perjury. 8/26/99 Turn Over Order Tr. He codified his findings in a written order, dated August 26, 1999, which ordered the Debtor to turn over to the Bankruptcy Trustee the entire res of the Mauritian Trust, and to provide a full and complete accounting of all transactions in respect to the alleged Mauritian Trust. He stated: "This Court has previously held that the res of the so-called Lawrence Family 1001 Intervivos Trust (the 'Mauritian Trust') is property of the bankruptcy estate. See In re Lawrence, 217 B.R. 907, 917-918 (Bankr. S.D. Fla. 1998). The Debtor remains under a continuing obligation to turn over all property of the estate. This Court concurs with the holding in In re Crabtree, 39 B.R. 702, 710 (Bankr. E.D. Tenn. 1984) that the provisions of 11 U.S.C. § 521 constitute the 'functional equivalent of a specific and definite order of the court.' This Debtor has been under the actual knowledge of the Court's holding that the res of the alleged Mauritian Trust was property of the estate since at least July 23, 1998." Turn Over Order at 2.

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Subsequent to the Turn Over Order, the bankruptcy court held a hearing on September 2, 1999, n4 after which Chief Bankruptcy Judge A. Jay Cristol issued an opinion on September 8, 1999 (the "Contempt Order"), holding the appellant in civil contempt for violating the court's previous Turn Over Order and fining the appellant $ 10,000 per day until he purged his contempt. In re Lawrence, 239 B.R. 498 (Bankr. S.D. Fla. 1999). n5 On or about September 16, 1999, the appellant filed a timely objection pursuant to Fed. R. Bankr. P. 9020 to the bankruptcy court's Contempt Order. In addition, the bankruptcy court held two further status conferences to monitor compliance with the August 26, 1999 Turn Over Order. At the second, on October 5, 1999, the bankruptcy court found that the appellant's alleged attempts to comply with the Turn Over Order were entirely unacceptable and ordered the appellant incarcerated by the U.S. Marshal until such time as he complies with the order requiring him to turn over the Trust res (the "Incarceration Order").

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n4 At the September 2, 1999 hearing, the Debtor testified and admitted that he neither turned over the Trust res nor provided an accounting as required by the Turn Over Order. [T.R. 5, at 28; C.P. # 684]. The Debtor further testified that he did not know whether he could compel the trustee(s) of the Trust to do anything, but that whatever rights and powers he had were set forth in the Trust Indenture, which was offered into evidence once again at the September 2, 1999 hearing. [T.R. 5, at 28-29; C.P. # 684]. At the conclusion of the hearing, the Bankruptcy Judge again found that the Debtor had control over the Trust through, inter alia, his retained power to remove and appoint trustees and to add and exclude beneficiaries. [T.R. 4, at 48-49; C.P. # 684]. The Bankruptcy Judge found that the Debtor had the present ability to cause the turn over and provide an accounting as required by the Turn Over Order. The Bankruptcy Judge's finding was based on the Debtor's testimony and the specific terms of the Trust which provided that the Debtor, as settlor, had the absolute right to remove and appoint trustees and to control beneficiaries. [*11]

n5 After considering the entire record, Judge Cristol concurred with the previous findings of Judge Utschig that the Debtor was not credible. He concluded without doubt that the Debtor retains the requisite power to cause the return of trust rest to the United States in compliance with the Turn Over Order. He stated: "The foregoing is based, in part, on Paragraph 12 of the Trust Indenture which purportedly established the Alleged Trust specifically reserves to the Settlor, the Debtor, the right to change the Trustee(s) of the Alleged Trust. Thus, the Court does not believe the Debtor's conclusory denials that he cannot undo what he did and that he is powerless to repatriate the trust res to the Chapter 7 estate and that compliance with the Turn Over Order is impossible." In re Lawrence, 238 B.R. at 500. He further explained, "This Court's finding in respect to the Debtor's power and ability to cause compliance with the Turn Over Order is not limited to paragraph 12 of the Indenture of the Alleged Trust, or to any other provision of the Alleged Trust. Indeed, this Court's finding is based as well on the entirety of the record before the Court in this case and in the Adversary proceeding, and the Court's own common sense: it defies reason--it tortures reason--to accept and believe that this Debtor transferred over $ 7,000,000 in 1991, an amount then constituting over ninety percent of his liquid net worth, to a trust in a far away placed administered by a stranger--pursuant to an Alleged Trust which purports to allow the trustee of the Alleged Trust total discretion over the administration and distribution of the trust res. The Court declines to abandon common sense and to torture reason in the manner urged by the Debtor." Id.

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An emergency motion to vacate the bankruptcy court's October 5, 1999 Incarceration Order was brought before this court, and oral arguments on the appeal of the Contempt Order and Incarceration Order were heard on November 12, 1999. The court issued an Interim Order on November 19, 1999, deferring a final ruling until the completion of the Turn Over Order appeal. See 99-2678-CIV-GOLD, D.E. 31.

II. Standard of Review

This court denied appellant's motion to consolidate the appeal of the Turn Over Order with the appeal of the Contempt Order because of the different standards of review involved in the two appeals and the likelihood that consolidation would lead to unnecessary confusion of the issues. See 99-2678-CIV-GOLD, D.E. 26. Generally, review of the bankruptcy court's Contempt Order is de novo for all findings of fact or conclusions of law, whereas review of the Turn Over Order, which is currently before the court, is clearly erroneous for findings of fact and de novo for conclusions of law. n6

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n6 For a more detailed discussion of the standard of review for contempt orders see the court's November 19, 1999 Interim Order.

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The bankruptcy court's Turn Over Order is a final order within the meaning of 28 U.S.C. § 158(a)(1). As such, the appeal is governed by Fed. R. Bankr. P. 8001-8019, which dictates procedures for district court or bankruptcy appellate panel review of a final judgment, order, or decree of a bankruptcy judge. Rule 8013 states that: "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed. R. Bankr. P. 8013. A finding of fact is clearly erroneous when, after reviewing the evidence, a court is left with the definite and firm conviction that a mistake was made. See In re Arnold and Baker Farms, 177 B.R. 648 (9th Cir., B.A.P., 1994). A bankruptcy court's conclusions of law are reviewed de novo. See In re William Schneider, Inc., 175 B.R. 769 (S.D. Fla. 1994).

III. Discussion

A. Turn Over Standard

The Supreme Court stated the principles underlying turn over and contempt proceedings in bankruptcy court and set forth the applicable burdens [*14] and required standard of proof to sustain a turn over order in Maggio v. Zeitz, 333 U.S. 56, 68 S. Ct. 401, 92 L. Ed. 476 (1948). The issuance of a turn over order by the bankruptcy court "is appropriate only when the evidence satisfactorily establishes the existence of the property or its proceeds, and possession thereof by the defendant at the time of the proceeding." Maggio, 333 U.S. at 63-64; 68 S. Ct. at 405.

As noted by the Supreme Court in Maggio, the burden of proof is of critical importance in a turn over proceeding. The trustee must support the motion for a turn over order by clear and convincing evidence, n7 and that includes proof that the property has been abstracted from the bankrupt estate and is in the possession of the party proceeded against. Id. at 64, 405. Mere proof that the property was in possession or control of the accused party at some prior time is insufficient to justify turn over, unless the time element and other factors make that a fair and reasonable inference. Id. at 65, 406. It is important for the court to consider the whole record and to exercise reason and sound [*15] judgment, "mindful that the order should issue only as a responsible and final adjudication of possession and ability to deliver, not as a questionable experiment in coercion which will recoil to the discredit of the judicial process if time proves the adjudication to have been improvident and requires the courts to abandon its enforcement." Id. at 67, 407.

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n7 A growing minority of cases have concluded that the older pre-Code Supreme Court cases have been superseded by the Bankruptcy Code and are no longer consistent with more recent Supreme Court pronouncements on the appropriate burden of proof in other types of bankruptcy proceedings. See discussion in In re Alofs Manufacturing Company, 209 B.R. 83, 89-91 (Bankr. W.D. Michigan 1997) (applying the preponderance of the evidence standard instead of the clear and convincing evidence standard in a turnover proceeding). Appellee in this case did not contest the Maggio clear and convincing standard until footnote 1 in its Supplemental Brief. As the appellant fails to prevail even under the more stringent clear and convincing standard, it is not necessary at this time for the court to determine whether the minority preponderance of the evidence standard should be applied.

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Although the Maggio Court was analyzing contempt and turn over proceedings under the old Bankruptcy Act, 11 U.S.C. § 11, repealed in 1979, which did not expressly create a turn over procedure, their rationale for requiring present possession to support a turn over order is still relevant, since failure to comply can be enforced, as in this case, by contempt proceedings. See Maggio, 333 U.S. at 62-64, 68 S. Ct. at 405; In re U.S.A. Diversified Prod., Inc., 193 B.R. 868, 876-77 (Bankr. N.D. Ind. 1995).

In analyzing the burden of proof in a Chapter 7 turn over proceeding against involuntary Chapter 7 debtors, the Eighth Circuit noted that burden shifting is appropriate. See Evans v. Robbins, 897 F.2d 966, 968 (8th Cir. 1990). "The burden of proof in a turnover proceeding is at all times on the receiver or trustee; he must at least establish a prima facie case. After that, the burden of explaining or going forward shifts to the other party, but the ultimate burden or risk of persuasion is upon the receiver or trustee." Id. (quoting Gorenz v. Illinois Dept. of Agriculture, 653 F.2d 1179, 1184 (7th Cir. 1981) [*17] (further cites omitted)). Although the amount of evidence necessary to satisfy the trustee's burden will vary on a case by case basis, the trustee must prove its case by clear and convincing evidence. Evans, 897 F.2d at 968.

B. Property of the Estate

The appellant has attacked the Turn Over by arguing that, in finding that the Trust res is property of the bankruptcy estate, the Bankruptcy Judge incorrectly relied on the bankruptcy court's prior holding in In re Lawrence, 227 B.R. 907 (Bankr. S.D. Fla. 1998) (the "Discovery Sanction Order"). According to the appellant, the findings of the Discovery Sanction Order constituted dicta and are not binding on later decisions of the bankruptcy court. After a thorough review of the bankruptcy proceedings and the applicable law, this court respectfully disagrees.

As noted in the factual and procedural background, supra, the bankruptcy court's Discovery Sanction Order was based on three days of testimony by the appellant brought about by the trustee's motion to compel answers to interrogatories in 98-1211-BKC-AJC-A, an adversary proceeding initiated by Trustee's Complaint Objecting to Debtor's [*18] Discharge under 11 U.S.C. § 727. Default was entered due to the direct actions of the Debtor, who, in the opinion of the bankruptcy court below, sought to "undermine not only the discovery process but also the integrity of the judicial system and the Bankruptcy Code." In re Lawrence, 227 B.R. 907, 910 (Bankr. S.D. Fla. 1998). Default final judgment is an appropriate sanction when a party wilfully and in bad faith abuses the litigation process. See National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 642-43, 96 S. Ct. 2778, 2781, 49 L. Ed. 2d 747 (1976); American Motorists Ins. Co. v. Beaver, 1994 WL 597612 at *3 (E.D.Pa. 1994) ("It is well-settled that the Court is permitted, under appropriate circumstances, to exercise its discretion to control its docket by imposing the ultimate sanction of dismissal or default for a party's failure to comply with discovery orders or to otherwise unjustifiably delay disposition of the action.") (citing Link v. Wabash Railroad, 370 U.S. 626, 82 S. Ct. 1386, 8 L. Ed. 2d 734 (1962)); United States v. Wilfley, 1997 WL 759581 at *5 [*19] (D.Or. 1997) (granting motion for default judgment based on party's ongoing and repeated noncompliance with court orders concerning pre-trial discovery and preparation of pre-trial order). It is significant in this case that the default was not entered solely on the papers filed, but after eleven hours of hearings where the Bankruptcy Judge had a first-hand opportunity to consider the candor and demeanor of the appellant. The Bankruptcy Judge found Lawrence's testimony to be "disingenuous and untruthful," and his actions to be part of an "unrelenting campaign to conceal crucial information." Id. at 910-11. The decision was thorough and well reasoned. Based on Lawrence's default, it was held that "the facts alleged in the Trustee's Complaint, including without limitation those alleged in Count I of the Complaint regarding the Debtor's interest in the Mauritian Trust and his continuing concealment thereof, are deemed to be established." Id. at 917. The bankruptcy court went on to find that the debtor's rights and obligations under the Trust are governed by Florida and federal bankruptcy law, and that the trust corpus is property of the estate under 11 U.S.C. § 541. [*20] n8 Id. It then stated that a final default judgment against the appellant would be entered under Counts I through XVIII of the Trustee's Complaint Objecting to Debtor's Discharge. Id. at 918. The Default Judgment is now a final, nonappealable order. n9

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n8 11 U.S.C. § 541 defines Property of the Estate as:

(a) The commencement of a case under section 301 . . . of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

n9 The appellant failed to timely file a designation of the record on appeal as required by Fed. R. Bankr. P. 8006 and Local Rule 806(A), resulting in the issuance of an Order Dismissing Bankruptcy Appeal by the bankruptcy court on October 28, 1998. The district court affirmed the dismissal order on January 25, 1999. The appellant initially sought further review of the district court's order in the Eleventh Circuit but elected to voluntarily dismiss his appeal with prejudice.

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The appellant argues that the holding in the Discovery Sanction Order regarding the Trust as property of the bankruptcy estate is dicta because it was not necessary to the holding in that case. This interpretation fails to take into account the specific allegations of the Complaint and the import of the bankruptcy court's holding that final default judgment should be entered against the appellant under all the counts, including Count I, the trustee's objection to discharge for continuing concealment of property of the estate. n10 Count I had specifically alleged that Lawrence maintained a continuous, concealed managerial and beneficial interest in the Trust, as it must in order to state a valid claim for denial of discharge. See Thompson v. Eck, 149 F.2d 631, 633 (2d Cir. 1945) ("The bankrupt must have some legal interest in the property before he can be charged with its concealment.") The bankruptcy court's finding that the Trust was property of the estate was thus a necessary component of the denial of discharge under Count I, and was not dicta. As such, it became the law of the case, and should continue to govern the issue of whether the Trust corpus is [*22] property of the estate under 11 U.S.C. § 541. The essence of the appellant's arguments at this juncture are impermissible collateral attacks on the validity of the judgment which should not be heard or validated. See, e.g., Maggio v. Zeitz, 333 U.S. 56, 68, 68 S. Ct. 401, 407, 92 L. Ed. 476 (1948) (holding that the final order in a turnover proceeding becomes res judicata and not subject to collateral attack in a later contempt proceeding).

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n10 11 U.S.C. § 727(a)(2) denies discharge if the debtor concealed (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition. Although Count I of the Complaint Objecting to Debtor's Discharge is labeled 11 U.S.C. § 727(a)(2)(A), it is also entitled "Continuing concealment of property of the estate," and it is evident from reading it that it is intended to refer to 11 U.S.C. § 727(a)(2)(B).

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Furthermore, the bankruptcy court had good reason at the time of the Discovery Sanction Order to conclude that the trust corpus was property of the estate when the Debtor declared bankruptcy, independent of the default finding. n11 Despite the March 22, 1995 amendment to the Trust purporting to declare the appellant an "Excluded Person," it does not appear that the declaration was irrevocable. n12 See In re Lawrence, 227 B.R. at 912 n. 12. The Bankruptcy Court correctly surmised that the Trust language would permit the Mauritian trustee to amend the trust at his or her discretion to deem Lawrence to be a beneficiary once again, and that Lawrence retained the power as settlor to change the trustee. n13 Id. The Bankruptcy Court went on to cite and discuss In re Portnoy, 201 B.R. 685 (Bankr. S.D.N.Y. 1996), In re Brooks, 217 B.R. 98 (Bankr. D.Conn. 1998), and In re Cameron, 223 B.R. 20 (Bankr. S.D. Fla. 1998) in support of its finding. In re Lawrence, 227 B.R. at 917-18. The Court specifically restated the holding in In re Brooks for the proposition "that certain assets placed in an offshore [*24] trust [are] nevertheless assets of the bankruptcy estate and subject to the Court's jurisdiction," and for the idea that the court should "refuse[] to allow the laws of the foreign jurisdiction to control because these laws [are] repugnant to . . . public policy." Id. at 917 n. 17. This analysis, and the decisions cited by the Bankruptcy Court, support the finding that the Trust is governed by Florida and federal bankruptcy law. Florida and federal bankruptcy law both prohibit individuals from setting up self-settled spendthrift type trusts and maintaining the benefits of and ability to significantly control same, while keeping the assets away from creditors. See In re Cattafi, 237 B.R. 853, 856 (M.D. Fla. 1999) ("The general rule is that when one has an interest in property which he may alien or assign, that interest, whether legal or equitable, is liable for the payment of his debts.") (citing Croom v. Ocala Plumbing & Electric Co., 62 Fla. 460, 465, 57 So. 243, 244 (1911)). Indeed, when a person creates a discretionary trust for his own benefit, as Lawrence did in this case, "his creditors can reach the maximum amount which [*25] the trustee under the terms of the trust could pay to him or apply for his benefit, even though the trustee in the exercise of his discretion wishes to pay nothing to the beneficiary or to his creditors, and even though the beneficiary could not compel the trustee to pay him anything." In re Cameron, 223 B.R. at 25. The Bankruptcy Court was therefore justified and correct in concluding that the Trust was property of the estate, given the ability of the trustee to summarily revoke Lawrence's excluded status and appoint the whole of the trust and its income to Lawrence, and Lawrence's ability to dismiss the trustee and appoint another. The Debtor's managerial control over the Trust on the Petition Date, arising from, among other things, his ability to remove and replace trustees and to add or exclude beneficiaries, constitutes a legal or equitable interest in property, sufficient to bring such property within the scope of property of the estate.

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n11 The United States Supreme Court has given a very expansive interpretation to the meaning of property of the estate. See United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05, 103 S. Ct. 2309, 2313-14, 76 L. Ed. 2d 515 (1983). Property of the estate is generally defined by state law. See Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979). Once the nature and extent of the debtor's interest is determined under state law, federal bankruptcy law dictates to what extent that interest is property of the estate. Bavely v. United States (In re Terwilliger's Catering Plus, Inc.), 911 F.2d 1168, 1172 (6th Cir. 1990). [*26]

n12 The fact that the trustees of the Lawrence Family Trust are aware of the distinction between a revocable and an irrevocable exclusion of a beneficiary is demonstrated by the June 16, 1999 amendment seeking to make the appellant's exclusion irrevocable, even though that amendment is void as being in violation of 11 U.S.C. § 362(a)(3) and the stay order entered by Judge King in Pompano-Windy City Partners, Ltd. v. Bear, Stearns & Co., No. 93-6489-CIV-KING.

n13 Paragraph 12 of the Deed of Appointment grants the Settlor, the appellant, the right to remove and appoint Trustees at his discretion. This power does not appear to be affected by the 1995 Declaration making Lawrence an excluded person.

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Once the bankruptcy court deemed the Trust property of the estate, the appellant came under an obligation to turn over the Trust res and any recorded information related to it to the trustee. See 11 U.S.C. § 521(4) ("The debtor shall . . . surrender to the trustee all property of the estate and any recorded information, including books, documents, [*27] records, and papers, relating to the property of the estate, whether or not immunity is granted under section 344 of this title."). This obligation was in effect at the time of the turn over hearing.

C. Present Ability to Comply

In order for the Turn Over Order to be valid, the evidence before the Bankruptcy Court must have clearly and convincingly shown not only that the Trust corpus was in the possession or under the control of the appellant at the time of bankruptcy, but also that the appellant had the ability at the time of the Turn Over Order to comply by turning over the Trust res. See Maggio, 333 U.S. at 65; 68 S. Ct. at 406 ("Turnover orders should not be issued, or approved on appeal, merely on proof that at some past time property was in possession or control of the accused party, unless the time element and other factors make that a fair and reasonable inference."). The Bankruptcy Court found implicitly in the August 26, 1999 Turn Over Order, and explicitly in the September 8, 1999 Contempt Order, that "the Debtor retains the requisite power to cause the return of the trust res to the United States in compliance with the Turn Over [*28] Order." In re Lawrence, 238 B.R. 498, 500 (Bankr. S.D. Fla. 1999).

The primary support for the finding that the appellant had the present ability to comply with the Turn Over Order is found in the Trust Indenture itself. The Trust Indenture establishes that the appellant had the power and the authority to exercise substantial control over the Trust at the time of the Turn Over Order. n14

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n14 For purposes of this analysis, the Trust Indenture consists of the January 8, 1991 Declaration of Trust; the February 7, 1991 Deed of Appointment; the January 21, 1993 Supplemental Deed; May 10, 1993 Supplement Deed; March 22, 1995 Declaration; and June 16, 1999 Declaration of Intent.

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The Bankruptcy Court noted in the September 8, 1999 Contempt Order that Paragraph 12 n15 of the Deed of Appointment specifically reserves to the Settlor (Lawrence) the right to change the Trustee(s) of the Trust. See In re Lawrence, 238 B.R. at 500. This power is not affected by the subsequent Declaration that [*29] Lawrence is an Excluded Person. Furthermore, there was no specification in the March 1995 Declaration whether the exclusion of Lawrence was revocable or irrevocable. The overall tenor and intent of the Trust Indenture is clearly to grant nearly unfettered discretion and authority in the Trustees. Accordingly, the Trustees can exercise the powers granted to them "as they shall think most expedient for the benefit of all or any of the persons actually or prospectively interested under this Settlement and may exercise (or refrain from exercising) any power or discretion for the benefit of any one or more of them without being obliged to consider the interests of others or other." January 8, 1991 Declaration of Trust, Clause 20(a). The discretion of the Trustees is absolute and uncontrolled and they have complete control over how they exercise their power. Id., Clause 20(b). The import of these clauses and provisions, when read together, is that the appellant, as settlor and prospective beneficiary, retained de facto control over the Trust through his ability to appoint Trustees who could in their absolute discretion reinstate the appellant as a beneficiary and assign the entire proceeds [*30] to him.

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n15 Paragraph 12 states:

Power of Removal and Appointment of Trustees

(a) The Settlor may in his absolute discretion by deed at any time or times during the Trust Period remove all or any of the Trustees hereof and appoint one or more other persons or companies to be a Trustee or Trustees hereof in place of the Trustee or Trustees so removed.

(b) The Settlor may in his absolute discretion by deed at any time or times during the Trust period appoint new and additional Trustees hereof and Schedule 4 of the Settlement [Retirement and Appointment of New and Additional Trustees] shall be amended by the insertion after the words "existing Trustees" of the words "and in the Settlor."

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The appellant has highlighted a number of Trust provisions which he believes demonstrate that he does not have, and did not have at the time of the Turn Over Order, the power to effect a turn over of the Trust corpus. These include Clause 16 of the January 21, 1993 Supplemental Deed, the March 22, 1995 Declaration excluding [*31] Lawrence as a beneficiary, and the June 16, 1999 Declaration of Clarification of Intent. However, an analysis of these provisions reveals that they do not diminish the appellant's power to control distribution of the trust property into his own hands.

Clause 16 of the January 21, 1993 Supplemental Deed, entitled Exercise of Settlor's Powers and Discretions, states that "The powers and discretions hereby conferred upon the Settlor shall not be exercisable by him if in any purported exercise thereof he is in any way subject to duress or coercion of any kind (whether such duress or coercion arises from a process of law for the benefit of his creditors or otherwise) and any purported exercise of his powers or discretions which appears to have been made under such duress or coercion shall be of no force or effect and neither the Trustees nor any other person shall give any cognisance thereto." The January 21, 1993 Supplemental Deed also inserts a Clause 17 into the Trust Indenture for the purpose of terminating the life interest of the Settlor in the event of bankruptcy or some other legal process for the benefit of creditors. These anti-duress provisions are attempting to establish the [*32] Lawrence Family Trust as a spendthrift trust.

Florida law recognizes and enforces spendthrift clauses and trusts. In re Lichstrahl, 750 F.2d 1488, 1490 (11th Cir. 1985); Fehlhaber v. Fehlhaber, 850 F.2d 1453, 1455 (11th Cir. 1988). However, as noted in Fehlhaber, "if a settlor creates a trust for his own benefit and inserts a spendthrift clause, the spendthrift clause is void as far as then existing or future creditors are concerned, as they can reach his interests under the trust." Fehlhaber, 850 F.2d at 1455 (quoting Matter of Whitlin, 640 F.2d 661, 663 (5th Cir. Unit B 1981)). n16 Where the settlor retains the power to acquire all of the trust estate upon request, the interest is not exempt from the claims of creditors. Fehlhaber, 850 F.2d at 1455. There is a strong public policy against allowing any person to place his property in what amounts to a revocable trust for his own benefit that would be exempt from the claims of his creditors. Matter of Whitlin, 640 F.2d at 663.

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n16 All Fifth Circuit decisions prior to October 1, 1981 are binding precedent on the Eleventh Circuit. Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981).

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In this case, the logical and inevitable inference created by the timing of the Trust's creation, only two months prior to the Bear, Stearns arbitration judgment, is that Lawrence was seeking to shelter his assets in a protected offshore trust. The Bankruptcy Court below found the appellant's denials that the offshore trust was set up to shield assets to be incredible, and it noted that the appellant admitted to placing the money in the trust so that it would be available to him in his old age. In re Lawrence, 227 B.R. at 912. This court finds that the Bankruptcy Court's factual conclusions that the appellant set up the Trust for his own benefit were not clearly erroneous. In addition, the January 21, 1993 spendthrift provisions were enacted while the appellant, the Settlor of the Trust, clearly had the discretion under Clause 12 of the Deed of Appointment to remove and appoint trustees. The Trustees, in turn, had the ability to grant the entire corpus of the Trust to the settlor. Therefore, the appellant effectively had dominion over the property of the Trust, and the spendthrift provisions are not enforceable as a shield against creditors.

It appears that Clause [*34] 16 of the January 21, 1993 Supplemental Deed was carefully worded so as to avoid permanently revoking the powers of the Settlor. The divestiture is episodic in nature and vests with the Settlor and his hand-picked off-shore trustees the subjective ability to determine which instances of alleged duress or coercion will render the Settlor's powers inoperative. The effect of such a clause, if validated, is to permit the trustees to ignore each and every action requested or demanded by the Debtor that may aid or satisfy the claims of creditors or advance the processes of law issued by courts of the United States against the Debtor in respect to the Trust. As the Ninth Circuit has recognized, debtors commonly design offshore asset protection trusts to assist the settlor in attempting to avoid being held in contempt of court while only feigning compliance with the court's orders: "[A] clause could be inserted in the trust contract which specifically directs the trustee to ignore any instruction, exercise of a power, and the like where the direction is given under the compulsion of a court order. Thus, the settlor could comply with the court order and 'order' his trustee to turn over the [*35] funds, knowing full well that the trustee will not comply with his request." Federal Trade Commission v. Affordable Media, LLC, 179 F.3d 1228, 1241 (9th Cir. 1999) (quoting James T. Lorenzetti, The Offshore Trust: A Contemporary Asset Protection Scheme, 102 Com. L.J. 138, 158-59 (1997)). In this case, Lawrence's attempts to employ such a strategy contravenes the clear public policy against allowing a debtor to shield money placed in a trust for his or her own benefit from creditors, defies common sense, and is undermined by the language in the Trust granting the Settlor power to remove and appoint trustees.

Furthermore, Appellant's reliance on the March 22, 1995 Declaration of exclusion and the June 16, 1999 Declaration of clarification of intent is also unavailing. The March 22, 1995 Declaration states that "the Trustee hereby excludes the Settlor as a Beneficiary of the Trust, and therefore Mr. Stephan J. Lawrence is as and from this date (sic) an Excluded Person as defined by Clause 10 iii." Pursuant to the May 10, 1993 Supplemental Deed, the power of exclusion "may be irrevocable or revocable during the Trust period." Conspicuously absent from [*36] the declaration of exclusion in 1995 is any mention of whether the exclusion of Lawrence was to be revocable or irrevocable. Additionally, the May 10 exclusion very carefully excluded the settlor as a beneficiary, and thus goes to the appellant's rights as a beneficiary and not as a settlor.

Appellant's attempts to point to the June 16, 1999 clarification of intent are not convincing. The June 16, 1999 clarification of intent, issued ten months after the stay entered by Judge King in the Pompano-Windy City Partners suit and immediately after the appellee filed a motion seeking to order the appellant to turn over the assets of the Trust, was a transparent attempt by the appellant/trustees to further shield the Trust assets and avoid liability. As such, it is invalid and carries no weight in these proceedings. Even if it were valid, it does not go to the reserved powers of the appellant as settlor of the Trust.

Accordingly, a careful reading of the Trust Indenture reveals that the alleged exclusion of Lawrence in 1995 was nothing more than a smoke screen meant to obfuscate the issues and hide Lawrence's latent control over the Trust; control sufficient, as shown by clear [*37] and convincing evidence, to render him capable of complying with the Bankruptcy Court's Turn Over Order.

D. Due Process Rights

The appellant's position in this appeal has been that the Bankruptcy Court and appellee erred by not joining or impleading the Mauritius Trust and the beneficiaries named in the trust documents, and in not conducting a full-fledged evidentiary hearing prior to issuing the Turn Over Order. These arguments are unfounded. The Bankruptcy Court had jurisdiction to order the turn over and was not in error by not impleading or joining the additional parties, and the appellant's failure to appear at the turn over hearing represents nothing more than the appellant's continued effort to thwart the judicial process.

1. Joinder of the Mauritius Trust

Appellant has repeatedly argued that the bankruptcy proceedings, and the Turn Over Order in particular, are invalid because of appellee's failure to join the Mauritius Trust, an indispensable party, in violation of the due process rights of the Trust. Appellant argues that, since the district court required impleader of the Trust in Bear, Stearns' action to enforce its arbitration award by voiding the fraudulent [*38] transfer of money to the Trust, the Trust must be impled in this action. See Pompano-Windy City Partners v. Bear Stearns & Co., No. 93-6489-CIV-KING, D.E. 101. According to the appellant, because the 1991 Mauritius Trust was a valid trust under Florida law, notwithstanding its spendthrift provisions, the title to the assets in question is in the hands of the Trust and the Trust must be impled into the bankruptcy action to acquire control over that title.

The court respectfully disagrees with the Debtor's analysis. The foreign trustee was intentionally chosen, and the trust created, by the Debtor in an attempt to thwart the jurisdiction of the bankruptcy court. The foreign trustee enjoys no rights independent of the Trust Indenture, under which he can be replaced at any time at the whim of the Debtor. As such, he does not qualify as even a necessary party under Fed. R. Civ. P. 19(b) standards, where "equity and good conscience" would nonetheless require the turn over to proceed without his joinder. The Trustee can hardly claim standing to represent the beneficiaries' interests, where the Debtor, as Settlor, empowered him, in his sole discretion, to add a beneficiary or class of [*39] beneficiaries, while at the same time, the Trustee has the absolute right to exclude a beneficiary or class of beneficiaries from the Trust. See January 8, 2000 Declaration of Trust, Clauses 9 and 10(a)(ii). His power in that regard is directly affected by the Debtor, as Settlor, who also enjoys these unfettered, absolute rights of appointment and exclusion pursuant to Sections 10 and 11 of the February 7, 1991 Deed of Appointment. Under the Settlor's reservation of powers, which is property of the estate, it is the Debtor/Settlor who remains the sole indispensable party. What we are lef