Bankruptcy Judge James J. Tancredi appeared to give a chapter 7 debtor one last chance to avoid being incarcerated.
In adversary proceedings arising out of the bankruptcy of a thrice-convicted former stockbroker, In re Simone, No. 18-21993 (JJT), 2023 WL 5338676, (Bankr. D. Conn. Aug. 18, 2023), plaintiffs alleged that they were duped out of $495,000 by the debtor. The debtor-defendant had told his college friend that he had a lucrative real estate opportunity in Dubai. Unfortunately for the debtor’s “friend” and two other investors, the investment appeared to be a sham and they never received the property they were promised, an entire floor of a Dubai high rise.
After the investors sued in state court, the debtor filed for chapter 7 protection, and the investors brought an adversary proceeding seeking an order that debts owed to them were not dischargeable. During discovery, the plaintiff-investors successfully obtained an order sanctioning the debtor-defendant, arguing that he “lied about nonexistent evidence, concealed and destroyed evidence, and failed to preserve electronically stored information (‘ESI’) in his possession custody and control.” Id. at *2. The court provided for nearly $100,000 in sanctions.
After the sanctions order, the defendant-debtor protested that he was unable to afford the award. But after a hearing, the court found that the inability to pay was “self-imposed,” especially given the debtor’s “professional experience deriving income from sophisticated financial dealings and his ostensibly wealthy family who repeatedly supported him financially.” Id. at *3. The court then ordered the debtor to pay the sanction as a lump sum. After another hearing on ability to pay, the court ordered that the debtor to pay $10,000 immediately and noted that it “would wait for Plaintiff’s motion for a contempt order.”
In the interim, the plaintiff-investors successfully moved for summary judgment on liability. After denial of a motion for reconsideration, the debtor-defendant appealed both the sanctions and summary judgment decisions to the district court while steadfastly refusing to pay any of the ordered sanctions. The plaintiffs then moved for an order of civil contempt.
Judge Tancredi did not credit any of the debtor’s rehashed arguments. Instead, he found each required element to hold the debtor in civil contempt was satisfied: (1) the debtor failed to comply with a clear and unambiguous order; (2) “proof of noncompliance is clear and convincing”; and (3) the debtor had “not diligently attempted in a reasonable manner to comply.” Id. at *5.
The only element at issue was the third, whether the debtor diligently attempted to comply in a reasonable manner. After noting arguments about the debtor’s “overall character (or lack thereof),” the court concluded that the record was clear that the debtor failed to diligently comply with the sanctions order. Among other issues, despite the court’s orders, the award remained fully unpaid. While the court acknowledged the debtor’s offer to pay up to $5,000 per month, it ultimately rejected that proposal as too little, considering the debtor’s testimony showing “that his parents had given him, at a minimum, $50,000 towards his legal fees and other expenses within the last year.” Id.
Ultimately, while the court held the debtor in civil contempt, rather than sending him “straight to jail,”