Source: http://www.fsmlaw.org/fsm/decisions/vol16/16FSMIntrm.339-345.htm
Timestamp: 2019-05-20 13:46:36
Document Index: 243815562

Matched Legal Cases: ['§ 9', '§ 1', '§ 547', '§ 549', '§ 549', '§ 1']

16 FSM Intrm 339-345
Cite as In re Panuelo, 16 FSM Intrm. 339 (Pon. 2009)
[16 FSM Intrm 339]
In re IOANIS PANUELO,
BANKRUPTCY CASE NO. PB 001-2007
ORDER DIRECTING ISSUANCE OF SUBPOENA(S)
Decided: March 3, 2009
For the Receiver: Nora Sigrah, Esq.
For the Creditor: Stephen V. Finnen, Esq.
(Micronesian Brokers, Inc.) P.O. Box 1450
For the Debtor: Ron Moroni, Esq.
134 West Soledad Avenue, Suite 402
Bankruptcy ) Receiver/Trustee
A receiver can move to compel the attendance of persons at a creditors’ meeting because
[16 FSM Intrm 340]
interested parties can make such motions, and the receiver stands in the debtor’s shoes and the debtor is included in the definition of an "interested party." In re Panuelo, 16 FSM Intrm. 339, 343 (Pon. 2009).
Bankruptcy ) Debtor’s Estate
A debtor’s receivership estate consists of all property owned by the debtor on the date of the application, all property acquired by the debtor through bequest, devise, or inheritance, or as beneficiary of a life-insurance policy in the 180 days after the bankruptcy application, and all property acquired by the receivership estate after the date of application. In re Panuelo, 16 FSM Intrm. 339, 343 (Pon. 2009).
Income earned by a debtor after his bankruptcy application is not part of the receivership estate, but property that was owned by the debtor when he applied for bankruptcy protection is part of the receivership as must be the return (or unearned income) generated by that property. In re Panuelo, 16 FSM Intrm. 339, 343 (Pon. 2009).
Proceeds of property of the receivership estate generated (or acquired) by receivership estate property after the debtor’s application, goes to and is part of the receivership estate. In re Panuelo, 16 FSM Intrm. 339, 343 (Pon. 2009).
The receiver is statutorily empowered to avoid preferences paid to creditors made on or within 90 days, or within one year if the creditor was an insider, before the bankruptcy application, and to avoid fraudulent transfers made within one year before the application for receivership, and to recover the transferred property for the estate’s benefit. In re Panuelo, 16 FSM Intrm. 339, 343 (Pon. 2009).
Bankruptcy ) Debtor’s Estate; Bankruptcy ) Receiver/Trustee
It would make little sense if the receiver could avoid a fraudulent transfer made one day before the debtor applied for bankruptcy protection but could not avoid a fraudulent transfer made one day after. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
The Bankruptcy Act’s stated purpose is to fairly balance the interests of creditors and debtors and to give the court substantial latitude to deal with abuses of the bankruptcy system. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
Bankruptcy ) Dismissal
It may be that the Bankruptcy Code’s only remedy for unauthorized transfers of property in the debtor’s estate after the start of a bankruptcy case is to dismiss the case without a discharge of the debtor’s debts. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
Bankruptcy ) Discharge
A debtor is not entitled to a discharge from creditors’ claims if the debtor has transferred property with intent to defraud after date of application and the debtor may also be denied a discharge for a fraudulent transfer of a debtor’s interest in property incurred within one year before the application for receivership. In re Panuelo, 16 FSM Intrm. 339, 344 & n.1 (Pon. 2009).
A transfer of property out of the debtor’s estate, especially to insiders, without the return to the
[16 FSM Intrm 341]
estate of reasonably equivalent or fair market value, is a fraudulent transfer or a transfer with intent to defraud. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
Bankruptcy ) Dismissal; Bankruptcy ) Receiver/Trustee
A debtor in bankruptcy is required to cooperate with the receiver, and his failure to cooperate with the receiver may subject his bankruptcy application to a dismissal for substantial abuse without any of his debts being discharged. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
A debtor’s transfers of his property to others after the commencement of a bankruptcy can result in the dismissal of his application for bankruptcy protection without the discharge of his debts. In re Panuelo, 16 FSM Intrm. 339, 344 (Pon. 2009).
The Bankruptcy Act’s purpose is to fairly balance the interests of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations when due, and to do this a receiver is required to marshal all of the debtor’s non-exempt assets and to manage those assets, during the pendency of the proceeding, in the estate’s best interest, and at the end of the proceeding, give the debtor who has not abused the bankruptcy system an opportunity to get a fresh start. But a debtor who has abused the bankruptcy system is not entitled to a discharge of his debts and a fresh start. In re Panuelo, 16 FSM Intrm. 339, 344-45 (Pon. 2009).
Bankruptcy; Bankruptcy ) Receiver/Trustee
When a debtor has failed to file supplemental schedules with corrected information about his property as required, the receiver should be permitted to do it based on the information she has uncovered and any further information she may develop. In re Panuelo, 16 FSM Intrm. 339, 345 (Pon. 2009).
On December 18, 2008, the receiver filed and served her Motion for an Order Compelling Production of Documentary Evidence; Motion for an Order Compelling Attendance for Examination; Affidavit of Nora Sigrah; Exhibits "A" and "B." On December 22, 2008, creditor Micronesian Brokers, Inc. filed a Notice of Joinder in Motion. On December 31, 2008, the debtor, Ioanis Panuelo, filed his opposition to the receiver’s motions. On January 12, 2009, the receiver filed her reply to the debtor’s opposition. On January 19, 2009, the receiver filed and served her Motion for Issuance of a Subpoena Duces Tecum. The debtor filed his opposition on January 29, 2009. On February 6, 2009, the Receiver filed her response to the opposition combined with a motion to amend the debtor’s schedules. No interested party responded to the motion to amend.
I. The Receiver’s December 18, 2008 Motion
The receiver, in her December 18, 2008 motion, seeks a court order compelling the production of certain documentary evidence related to the debtor’s finances. She seeks 1) copies of all business licenses and lease agreements for the debtor’s various Pohnpei businesses for the years 2004 through 2008; 2) copies of all deeds, documentation of transfers, gifts or conveyances, management, lease and use agreements, liens, encumbrances, mortgages and the like for the debtor’s real property in Pohnpei
[16 FSM Intrm 342]
and Hawaii and for his personal property for the years 2006 through 2008; 3) copies of business and employer’s tax returns and schedules for each quarter for quarters ending March 2004 through September 2008 for IP Enterprises, IP Apartments, Dolonier Garden Apartments, Ocean View Hotel ) East Wing, IAMA, Inc., Panuelo LLC, and any other business for which the listed taxpayer or owner is Ioanis Panuelo or Ioanis W. Panuelo; 4) copies of all Central Pacific Bank accounts in which the debtor holds an interest or is a signatory to, including but not limited to Ioanis Panuelo, IAMA, Inc., and Panuelo LLC; 5) copies of land use or lease agreements for the land under Ocean View Hotel ) East Wing; and 6) copy of the Amayo settlement agreement. The receiver states that these documents will help her establish when assets that were the debtor’s sole property were transferred to other entities and whether any transfers took place in violation of 31 F.S.M.C. 205. She further states that she needs these documents to prepare the required inventory of the debtor’s assets and to effectively examine the proofs of claim.
The receiver also asks that the debtor’s wife, Mrs. Ann Panuelo, be compelled to attend a creditors’ meeting and provide testimony about the debtor’s estate since, during the debtor’s examination, the debtor frequently professed ignorance about various aspects of his financial affairs and stated that his wife would know. The receiver contends that this missing information is needed to determine the assets attributable to the debtor’s receivership estate that are subject to this proceeding.
The debtor’s opposition questions whether this information is not obtainable through some manner less drastic than subpoenaing the debtor’s spouse, who, along with the debtor, now resides in Hawaii, and the debtor questions whether the receiver has shown the need for all the documents sought. He also questions whether the Chief Justice had the authority to promulgate Civil Procedure Rule 45(e)(2). Under Rule 45(e)(2), the court may issue subpoenas directed to FSM citizens resident in foreign countries. The debtor presumes that Rule 45(e)(2) would be used to order his wife to appear. He further asserts that the receiver has not complied with Rule 45(e)(2)’s provisions of showing that it is not possible to obtain the evidence in some other manner and that the receiver has not tendered Mrs. Panuelo’s travel and attendance expenses as required in Rule 45(e)(2)(B).
A careful reading of the debtor’s testimony indicates that the debtor often asserted that he did not know about certain of his financial affairs, but his wife did. Furthermore, the receiver is, as a general matter, certainly entitled to the documents and information she seeks, see infra part II, since, in order to adequately perform her statutory function, she must be able to probe any part of the debtor’s finances to determine and locate assets and property that are or should be part of the receivership estate since she is required to administer the receivership estate for the creditors’ benefit.
According to the debtor’s testimony, Mrs. Panuelo travels fairly frequently between Hawaii and Pohnpei. Rather than issue a Rule 45(e)(2) subpoena, which the receiver has not specifically asked the court to do, the court will order that Mrs. Panuelo attend a creditor’s meeting for examination during her next trip to Pohnpei. If Mrs. Panuelo does not visit Pohnpei within a reasonable time, the receiver may then move to secure Mrs. Panuelo’s testimony in some other fashion, which may be telephonically (as the debtor’s testimony was secured). Or the receiver may move to proceed under Rule 45(e)(2). Since the receiver has not specifically asked for a Rule 45(e)(2) subpoena, the court does not reach the issue of Rule 45(e)(2)’s constitutionality. The court only notes that the U.S. case cited by the debtor in the support of his position may not be persuasive since the FSM Constitution grants the Chief Justice the power to promulgate rules, FSM Const. art. XI, § 9(c), while the U.S. Constitution does not grant its judiciary such power.
The court further notes that the receiver, if her January 19, 2009 motion is granted, ought to be able to obtain, without Mrs. Panuelo’s testimony, some of what she seeks.
[16 FSM Intrm 343]
II. The Receiver’s January 19, 2009 Motion
The receiver, in her January 19, 2009 motion, asks that the court authorize the issuance of a subpoena to compel the attendance at a creditors’ meeting and examination of, and production of documents by, Leilani Shoniber, a Pohnpei resident who manages the Pohnpei businesses in which the debtor has interests. Many of the documents sought from the debtor by the December 18, 2008 motion are also sought to be produced by, and apparently obtainable from, Ms. Shoniber if the subpoena duces tecum is authorized.
The debtor contends that the receiver cannot move to compel the attendance of Ms. Shoniber at a creditors’ meeting because, under Bankruptcy Rule 2004, only interested parties can make such motion and the receiver is not included in the definition of an interested party in 31 F.S.M.C. 102(8). The court rejects this contention. The receiver stands in the debtor’s shoes and the debtor is included in the definition of an "interested party."
The debtor also objects to the receiver’s request that Ms. Shoniber produce documents for dates after January 2007, when this bankruptcy proceeding was filed, because, in his view, income earned after the bankruptcy filing is not part of the receivership estate.
A debtor’s receivership estate consists of "all property owned by the debtor on the date of the application . . . all property acquired by the debtor through bequest, devise, or inheritance, or as beneficiary of a life-insurance policy in the 180 days after" the bankruptcy application, and "all property acquired by the receivership estate after the date of application." 31 F.S.M.C. 203(1). The debtor may be correct that income earned by him after his bankruptcy application is not part of the receivership estate. However, property that was owned by the debtor when he applied for bankruptcy protection is part of the receivership as must be the return (or unearned income) generated by that property. For example, it would make no sense, if upon applying for bankruptcy protection, a debtor’s stock in some corporation became part of the receivership estate and could be sold at any time by the receiver to marshal the estate’s assets, but any of the stock’s dividend payments would continue to go to the debtor outside of the estate instead of to it, and for the benefit of, the estate of which the stock is a part. This is unearned income. It is not part of the debtor’s earned income; he did not work for it or provide a service for it. It is proceeds of property of the receivership estate. It is generated (or acquired) by property in the receivership estate after the debtor’s application, and it goes to and is part of the receivership estate. See, e.g., In re Gillis, 92 B.R. 461, 466 (Bankr. D. Haw. 1988) (rents collected from debtor’s subtenants after bankruptcy filed were property of the estate).
Thus, the receiver’s motions seek to determine the extent of the receivership estate’s property and to be able to identify (and use) the unearned income which that property generates to the estate’s benefit. The receiver is statutorily empowered to avoid preferences paid to creditors "made on or within 90 days, or within one year if the creditor was an insider before" the bankruptcy application, 31 F.S.M.C. 205(1)(d), and to avoid fraudulent transfers made "within one year before the application for receivership," 31 F.S.M.C. 206(1), and to recover the transferred property for the estate’s benefit. 31 F.S.M.C. 207(1). The debtor, at the creditors’ meeting, testified to various transfers of his property on Pohnpei on unknown dates and to partial transfers of his Hawaii property in 2008. All of the transferees mentioned by the debtor and all of the entities for which the receiver seeks to have documents produced meet the statutory definition of insider. 31 F.S.M.C. 102(7).
The debtor objects to the receiver inquiring into any of the debtor’s activities after the bankruptcy application. He asserts that no code provision allows the receiver to avoid and recover any property transfers made after the bankruptcy application was filed. He bases this contention on the statutory language permitting the receiver to avoid certain transfers made "within one year before the application
[16 FSM Intrm 344]
for receivership." He concludes that this excludes any time after the application was made.
It would make little sense if the receiver could avoid a fraudulent transfer made one day before the debtor applied for bankruptcy protection but could not avoid a fraudulent transfer made one day after. The Bankruptcy Act’s stated purpose is to "fairly balance the interests of creditors and debtors" and to give the court "substantial latitude . . . to deal with abuses of the bankruptcy system." FSM Pub. L. No. 13-73, § 1, 13th Cong., 5th Spec. Sess. (2004). The "within one year before" may be interpreted as the starting point for how far back in time the receiver can go to avoid transfers, not how far forward.
But the "within one year before" language in 31 F.S.M.C. 206 (and 205) is drawn from identical language in similar U.S. Bankruptcy Code provisions, 11 U.S.C. §§ 547, 548, which are interpreted by U.S. courts as meaning within one year before filing the bankruptcy petition, not after. The U.S. Bankruptcy Code has a third provision, 11 U.S.C. § 549, that allows a U.S. bankruptcy trustee to avoid any unauthorized transfers of property in the debtor’s estate after the start of the bankruptcy case. The FSM Bankruptcy Code does not have a provision with language drawn from 11 U.S.C. § 549. This is a serious flaw. If this is correct, and it may be, the FSM Code’s only remedy for unauthorized transfers of property in the debtor’s estate after the start of a bankruptcy case is to dismiss the case without a discharge of the debtor’s debts. 31 F.S.M.C. 208(1)(b)(ii).
A debtor is not entitled to a discharge from creditors’ claims if the debtor has transferred property with intent to defraud after date of application. Id. A transfer of property out of the debtor’s estate, especially to insiders, without the return to the estate of reasonably equivalent or fair market value, is a fraudulent transfer or a transfer with intent to defraud. See 31 F.S.M.C. 206(1)(b); cf. In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479, 484 (4th Cir. 1992) ("[T]he proper focus is on the net effect of the transfers on the debtor’s estate. As long as the unsecured creditors are no worse off because the debtor, and consequently the estate, has received an amount reasonably equivalent to what it [transferred], no fraudulent transfer has occurred.").
The court concludes that the testimony and documents sought are necessary for the receiver to fulfill her statutory responsibilities and to plan a course of future action. Accordingly, the motion is granted and the receiver shall prepare and the clerk shall issue a subpoena duces tecum directed to Ms. Leilani Shoniber for her to appear with the requested documents and testify at a creditors’ meeting. Once she has been examined, the receiver can determine what information she still needs from Mrs. Panuelo and proceed accordingly.
III. Caution to Debtor
The debtor is reminded that he is required to cooperate with the receiver, FSM Bankr. R. 4002(4), and his failure to cooperate with the receiver may subject his bankruptcy application to a dismissal for substantial abuse, FSM Bankr. R. 1017(e), without any of his debts being discharged. The debtor is also cautioned that transfers of his property to others after the commencement of a bankruptcy can result in the dismissal of his application for bankruptcy protection without the discharge of his debts. 31 F.S.M.C. 208(1)(b)(ii).
The Bankruptcy Act’s purpose is to "fairly balance the interests of creditors and debtors in circumstances where the debtor is unable to meet his financial obligations when due," and to do this
[16 FSM Intrm 345]
the receiver is required "to marshall all of the debtor’s non-exempt assets and to manage those assets, during the pendency of the proceeding," in the estate’s best interest, and at the end of the proceeding, give the debtor who has not abused the bankruptcy system "an opportunity to get a fresh start." FSM Pub. L. No. 13-73, § 1, 13th Cong., 5th Spec. Sess. (2004). But a debtor who has abused the bankruptcy system is not entitled to a discharge of his debts and a fresh start.
The receiver, in her February 6, 2009 response, also asks that she be allowed to amend the debtor’s schedules listing the debtor’s property that the debtor divulged during his deposition that are not currently listed. No interested party has responded to this motion, and the time to oppose has expired. The debtor himself has failed to file supplemental schedules with corrected information about his property as required by Bankruptcy Rule 1007(g). The receiver should therefore be permitted to do it based on the information she has uncovered already and any further information she may develop from testimony by Mrs. Panuelo or Ms. Shoniber.
The motion for a subpoena duces tecum directed to Leilani Shoniber to compel her attendance and testimony at a creditors’ meeting is granted. Mrs. Ann Panuelo shall also appear and testify and produce documents at a creditors’ meeting the next time she is on the island of Pohnpei, and, if she does not appear on Pohnpei within a reasonable time, the receiver may seek to compel her testimony and produce documents by other means. The receiver may also amend the debtor’s schedules as seems appropriate. And the debtor is warned that uncooperative behavior and abuse of the bankruptcy system will result in a dismissal without a discharge of any of his debts.
1. A debtor may also be denied a discharge for a fraudulent transfer of a debtor’s interest in property incurred within one year before the application for receivership. 31 F.S.M.C. 208(1)(b)(i).