In re Allen

IN RE: STACY ALLEN, Debtor.

CASE NO. 13-14348(GMB)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY

Dated: March 26, 2014

NOT FOR PUBLICATION

CHAPTER 11

MEMORANDUM OPINION

APPEARANCES

Thomas D. Bielli, Esq.

David M. Klauder, Esq.

Ryan M. Ernst, Esq.

Daniel P. Murray, Esq.

O'Kelly Ernst & Bielli, LLC

Attorney for Debtor

Frank A. Santini, Esq.

Jason H. Baruch, Esq.

Trenam Kemker

Attorney for Claimant Currently before the Court is Debtor Stacy Allen's Objection to the Proof of Claim filed by Advanced Telecommunication Network, Inc. Based on the legal analysis herein, the Proof of Claim should be allowed in part.

I. Procedural History

On March 1, 2013, Stacy M. Allen (the "Debtor") filed the within petition seeking to reorganize her financial affairs pursuant to 11 U.S.C. § 1101 et seq. On March 15, 2013, the Debtor filed her schedules and statements, listing total assets in the amount of $812,822.66, liabilities in the amount of $42,405.52, potential tax liabilities from the IRS and State of New Jersey Division of Taxation, and contingent, unliquidated and disputed claims of Advanced Telecommunication Network, Inc. (hereinafter "ATN") with an amount listed as "unknown."

After moving to withdraw the reference to the District Court, which was summarily denied on May 2, 2013, ATN filed a Motion for Relief from Stay before this Court and requested that said motion be heard on shortened time. Finding that ATN had failed to allege sufficient cause for a hearing on shortened time, the Court scheduled ATN's motion in the normal course. ATN then filed a Motion to Dismiss the Debtor's bankruptcy case, which closely resembled ATN's Motion for Relief from Stay, and both motions were heard on April 4, 2013 and denied on May 10, 2013.

On June 26, 2013, ATN filed a proof of claim against Stacy Allen in the amount of $4,300,000. In support of its claim, ATN attached a one-page explanation consisting of four bullet points.

• In 2010, the United States Bankruptcy Court for the Middle District of Florida avoided a transfer in the amount of $6 million from ATN to Debtor's husband, Daniel Allen. (Bankr. M.D. Fla. Case No. 6:03-ap-00122-KSJ.)

• On July 9, 2010, ATN filed a Verified Complaint in the United States Bankruptcy Court for the Middle District of Florida, Case Number 6:10-ap-00177-KSJ. (Doc. 1.) The Verified Complaint alleges various claims against the Debtor, including claims for subsequent transferee liability under Section 550 of the Bankruptcy Code.

• Subsequent to the actions described in the Verified Complaint, ATN learned that the Debtor received over $2 million in transfers from an offshore trust in the Cook Islands over the span of approximately seven years. The funds constituting such transfers were derived from the funds at issue in the Verified Complaint reference

above, thus giving rise to subsequent transferee liability under Section 550 of the Bankruptcy Code.

• Interest for the amounts described above began to accrue on or about June 1999 until the date of judgment, according to applicable state and federal law.

(Claim 4-1 Basis for Claim Filed by ATN May 26, 2013). On July 22, 2013, the Debtor filed the present Claim Objection. Among other things, the Claim Objection cited ATN's lack of support for its claim. On October 9, 2013, ATN filed its Amended Brief in Opposition to Debtor's Objection to Proof of Claim, which included within it a Renewed Motion for Relief from Stay and Motion to Dismiss Case and a Motion to Extend Time to Conduct Discovery. On October 10, 2013, the Debtor filed her Brief in Support of Objection to Proof of Claim. The Court denied the Motion to Extend Time to Conduct Discovery on October 15, 2013. On October 16, 2013, ATN filed yet another Motion for Relief from Stay and Motion to Dismiss. However, it attached no brief nor factual predicate, referring only to the October 9 embedded Motion. On October 24, 2013, the Court held a hearing on the Claim Objection wherein numerous exhibits in support of ATN's claims were stipulated to by both parties and admitted by the Court. The Court took under advisement Debtor's Claim Objection and ATN's Renewed Motion for Relief from Stay and Motion to Dismiss, noting the improper procedure and lack of basis as to the latter. On November 22, 2013, Debtor filed a response to both. This Court denied both the Motion to Dismiss and the Motion for Stay Relief on December 17, 2013, and took the Debtor's Objection to ATN's Proof of Claim under advisement.

Litigation between ATN and Debtor's husband, Daniel Allen, has been ongoing since at least 2003 and relates to events occurring in the 1990's. Daniel Allen received approximately $6 million in settlement proceeds from ATN in or around 1999 after several years of state court litigation. ATN subsequently filed for Chapter 11 bankruptcy relief in the Middle District of Florida. Immediately thereafter, ATN filed an adversary complaint against Daniel and his brother David Allen who also received his own settlement, alleging, inter alia, claims of actual fraud, constructive fraud and unjust enrichment as a result of the 1999 settlement transfer.

Originally upon receipt of the transfer in 1999, David and Daniel Allen consulted with an estate-planning professional who suggested the creation of trust vehicles for retirement planning purposes. Daniel Allen's trust vehicle was created and concededly funded largely by the settlement funds. Between August 28, 2003 and October 2, 2003, after being served with anadversary complaint in ATN's bankruptcy, Daniel Allen liquidated accounts inside the United States and is alleged to have wired at least $1.9 million to an offshore trust account in the Cook Islands: the Shingle Oak Family Trust.

A Florida Court entered an order directing the Allen Brothers to repatriate/return the monies to the United States in December of 2003. They failed to comply with the order, for reasons each party disputes, resulting in a holding by Judge Briskman on September 4, 2004 that both Daniel and David Allen were in contempt of court for failing to return the monies to the United States (collectively, the "Repatriation Orders"). It was at this time in 2004 that Daniel Allen complied with the request for an Accounting and it is included as ATN Exhibit 12.

On February 18, 2005, the Florida Bankruptcy Court ruled in favor of the Allen Brothers, dismissing the adversary complaint against them. All prior repatriation orders were thereafter vacated, consistent with the ruling at that time. ATN then appealed the final judgment and finally on September 25, 2007, the Eleventh Circuit Court of Appeals reversed and remanded the ATN Litigation for further proceedings consistent with the appellate ruling. On July 10, 2009, the Florida Bankruptcy Court, applying the Circuit's holding, entered judgment in favor of ATN, finding that a constructively fraudulent transfer did occur. The judgment was later reduced to $6 million. More motions and appeals followed, culminating in the Eleventh Circuit affirming on June 8, 2011 that the Allens had waived their right to further appeals and reaffirming the final judgment in favor of ATN.

ATN then began its collection efforts with supplementary proceedings pursuant to Bankruptcy Rule 7069(a)(1). As the Florida Bankruptcy Court noted in the July 28, 2011 Order, "[a]s a judgment creditor, ATN want[ed] to proceed with discovery in aid of execution on its final judgment...." In re Advanced Telecomm. Network, Inc., 6:03-BK-00299-KSJ, 2011 WL 3585827, at *n. 24 (Bankr. M.D. Fla. July 28, 2011). To that end, ATN made a motion to have the 2004 repatriation orders reinstated and to vacate the 2005 order vacating the 2004 repatriation orders. Refusing to grant such relief, the Florida Bankruptcy Court entered an order and attendant opinion which incorporated certain findings of fact and conclusions of law from the 2004 repatriation orders, but which specifically denied a blanket reinstatement of said orders (the "July 2011 Order"). As Judge Jennemann pointed out in the July 2011 Order, "the [2004][r]epatriation [o]rders were properly vacated because, at that time, the Allens had won their case...I lack the ability to reinstitute an order whose effectiveness has lapsed." Id. at *4.

In 2010, ATN also brought an adversary case in the Middle District of Florida against several defendants, including the Debtor. This adversary was then ordered abated by the Florida Court in July of 2010 pending conclusion of all appeals related to the Settlement Agreement. (ATN Ex. 10, p. 2) The adversary case sat dormant until February 8, 2013 when ATN filed an emergency motion to reopen the case, for an ex parte restraining order, and to seal the aforementioned filings. Case No. 6:10-ap00177, Doc. No. 7-9 (Bankr.M.D.Fla, 7/9/2010). An order was entered on February 21, 2013 reopening the adversary and granting ATN's emergency ex parte motion for temporary restraining order ("TRO") as to Stacy Allen. The TRO was ordered to expire fourteen days after the entry of the order and prohibited Debtor from, among other things, transferring or disposing of any property directly or indirectly traced to that received from ATN. The parties were scheduled to appear again on March 4, 2013 for the Court to consider extension of the TRO. (Id.) On March 1, 2013, prior to that hearing, Stacy Allen filed her Chapter 11 petition in this Court.

II. Tracing the ATN Settlement Monies

Because of the evidence proffered by ATN, the Court is able to trace the monies received by Daniel Allen. First, the Accounting created by Daniel Allen in 2004 states that on June 8, 1999, a $4,590,200 payment "from the Carpenter/ATN settlement" was wired "directly from Flaster Greenberg into Daniel and Stacy Allen's Joint First Union Cap account." (ATN Ex. 12, p. 3.) This account held, according to the Daniel Allen's Accounting, "other funds they had previously and subsequently accumulated in that account from other businesses . . . and Stacy...