Rigby v. Mastro (In re Mastro)

585 B.R. 587

IN RE: Michael R. MASTRO, Debtor.

James F. Rigby, Jr., Chapter 7 Trustee, Appellant,

v.Michael R. Mastro, Appellee.

BAP No. WW–17–1226–TaSKu

Bk. No. 2:09–bk–16841–MLB

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted March 22, 2018

Filed June 5, 2018

Rick Rein of Horwood Marcus & Berk Chartered argued for appellant James F. Rigby, Jr.;

C. James Frush of Corr Cronin Michelson Baumgardner Fogg & Moore argued for appellee Michael R. Mastro.

Before: TAYLOR, SPRAKER, and KURTZ, Bankruptcy Judges.

OPINION

TAYLOR, Bankruptcy Judge:

INTRODUCTION

Extraordinary cases may require unusual measures; and this case certainly qualifies as extraordinary. Chief among the atypical events is debtor Michael Mastro's flight from the United States to avoid turning potentially significant assets over to chapter 7¹ trustee James F. Rigby, Jr. Debtor and his wife are now resident in France, and extradition efforts in a related criminal proceeding have failed.

As a result of this extraordinary lack of cooperation, the Trustee seeks unusual assistance in his attempt to identify and collect assets of the estate: He requests an order compelling Mastro to sign a consent directive, a rara avis in the bankruptcy world. He intends to send the executed document to international banks and financial entities in an attempt to identify undisclosed Mastro accounts.

Mastro opposed issuance of the consent directive with vehemence, and his opposition was successful. The bankruptcy court, while sympathetic to the Trustee's dilemma, declined to compel execution of the document because, it reasoned, it lacked any authority to do so.

The Trustee appealed, and he now asks us to rule that a bankruptcy court may issue a consent directive. As we agree that the bankruptcy court had discretion to do so, we REVERSE and REMAND.

FACTS²

The parties provide little background information about this 2009 involuntary bankruptcy case. As already noted, however, Mastro was not a cooperative involuntary debtor; he and his wife fled to France with estate assets. Their legal troubles include pending criminal charges. See generally Mastro v. Rigby, 764 F.3d 1090, 1092 (9th Cir. 2014) ("[A] French Court of Appeal has denied U.S. requests to extradite Linda and Michael."). The Trustee appears confident that estate assets outside his control exist.

In May 2017 (and nearly 4,000 docket entries after case initiation), the Trustee moved for an order under Rule 2004 and § 521(a)(3) and (4) allowing the "issuance for execution by the Debtor, Michael R. Mastro, of a Consent Directive."³

The bankruptcy court denied the request. It expressed concern that the consent directive was a form of injunctive relief and concluded: "I still have to follow the law. I only have the authority, under Rule 2004, to do what Rule 2004 blesses. I don't see that it blesses consent directives, even if it does bless, as it does, issuance of subpoenas under [Civil] Rule 45."

The bankruptcy court entered a separate order denying the motion. That same day, the Trustee moved for reconsideration; treating it as a Rule 9023 motion, the bankruptcy court denied the motion.

The Trustee timely appealed. Because a Rule 2004 examination decision may be interlocutory, we granted leave to appeal under 28 U.S.C. § 158(a)(3).

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

Did the bankruptcy court abuse its discretion in denying the Trustee's request for an order compelling a consent directive and the Trustee's reconsideration motion?

STANDARDS OF REVIEW

We review the bankruptcy court's legal conclusions de novo. Los Angeles Cnty. Treasurer & Tax Collector v. Mainline Equip., Inc. (In re Mainline Equip., Inc.), 539 B.R. 165, 167 (9th Cir. BAP 2015). We otherwise review for an abuse of discretion a bankruptcy court's: (1) Rule 2004 decision, In re Dinubilo, 177 B.R. 932, 939 (E.D. Cal. 1993) ; Motor Coach Indus., Inc. v. Drewes (In re Rosenberg), 303 B.R. 172, 175 (8th Cir. BAP 2004) ; and (2) denial of a motion for reconsideration, Weiner v. Perry, Settles & Lawson, Inc. (In re Weiner), 161 F.3d 1216, 1217 (9th Cir. 1998).

A bankruptcy court abuses its discretion if it applies the wrong legal standard, misapplies the correct legal standard, or makes factual findings that are illogical, implausible, or without support in inferences that may be drawn from the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc) ).

In considering whether the bankruptcy court applied or rested its conclusion on an erroneous legal standard, we review legal conclusions de novo. See Pom Wonderful LLC v. Hubbard, 775 F.3d 1118, 1123 (9th Cir. 2014).

DISCUSSION

The Trustee advanced several theories supporting his request that the bankruptcy court compel Mastro to sign the consent directive. He initially invoked Rule 2004 in connection with Mastro's duties under § 521(a)(3) and (4); then he argued that Civil Rule 45, as applied by Rule 2004(c), authorizes consent directives; next, he argued that Civil Rule 26, as applied to Rule 2004 by Rule 9014, authorizes consent directives; and last, in his reconsideration motion, he directly invoked § 105.

On appeal, the Trustee abandoned his Civil Rule 45 argument; we do not consider it further.

A. Consent directives are investigatory tools.

A consent directive is not necessarily or even often consensual: reported decisions involve cases where a court compels a person to sign the document. The signatory identifies neither the contemplated recipients nor accounts in the consent directive. Instead, the document generally directs any bank or other financial institution that receives the consent directive to disclose any accounts held by the signatory. As a result, the signatory does not admit the existence of any account at any particular financial institution.

1. The Supreme Court found a consent directive permissible in Doe v. United States, 487 U.S. 201, 108 S.Ct. 2341, 101 L.Ed.2d 184 (1988).

Consent directives began to receive judicial scrutiny in reported decisions in the early 1980s. United States v. Ghidoni involved Lawrence Ghidoni's indictment for tax evasion and the government's issuance of a records subpoena to the Florida branch of the Bank of Nova Scotia. 732 F.2d 814, 816 (11th Cir. 1984). Bank officials, concerned about bank employees' exposure to criminal liability under Cayman Islands Law, suggested that Ghidoni sign a consent directive. Id. The district court then ordered him to sign one, Ghidoni refused to do so, and the district court found him in contempt. Id.

The Eleventh Circuit affirmed. Id. It held, over a dissent, that compelling Ghidoni to sign the consent directive did not violate his Fifth Amendment privilege against self-incrimination because the directive was not testimonial in nature. Id. at 819. In resolving the question, the Eleventh Circuit highlighted that the directive spoke in the hypothetical. E.g., id. at 818 ("Rather, the directive states that if the accounts exist ....") (emphasis in original); id. ("Rather, the directive merely permits the bank to disclose information relating to any accounts with respect to which the bank records indicate Ghidoni's authority to draw (i.e., any accounts with respect to which the bank thinks Ghidoni has authority).") (emphasis in original).

Other circuits followed suit. United States v. Davis, 767 F.2d 1025, 1040 (2d Cir. 1985) ; United States v. Cid–Molina, 767 F.2d 1131, 1133 (5th Cir. 1985).⁴ But opinions were not unanimous: The First Circuit, over a dissent by then-Judge Breyer, held that compelling a signature on a consent directive would be testimonial. In re Grand Jury Proceedings (Ranauro), 814 F.2d 791, 795–96 (1st Cir. 1987). See also United States v. Pedro, 662 F.Supp. 47 (W.D. Ky. 1987), vacated, 889 F.2d 1089 (6th Cir. 1989) ; Senate Select Comm. on Secret Military Assistance to Iran v. Secord, 664 F.Supp. 562, 565 (D.D.C.), vacated, 933 F.Supp. 1 (D.D.C. 1987) ; United States v. Cook, 678 F.Supp. 1292 (N.D. Ohio 1987) ; In re Grand Jury Investigation (Doe), 599 F.Supp. 746 (S.D. Tex. 1984).

As a result, issues related to the constitutionality of a consent directive worked their way up to the Supreme Court, which concluded in Doe v. United States that a consent directive was not testimonial in nature and, thus, did not violate the signer's Fifth Amendment privilege. 487 U.S. 201, 214–19, 108 S.Ct. 2341, 101 L.Ed.2d 184 (1988). Only Justice Stevens dissented. Id. at 219, 108 S.Ct. 2341 (Stevens, J., dissenting).

2. Doe controls our evaluation of Mastro's constitutionality argument.

Mastro does not question the Trustee's proposed form of consent directive. Instead, he asserts that recent developments in the act-of-production doctrine undercut Doe's holding and make Justice Stevens's dissent the better view.

But vague allusion to developments in the law and a half-hearted, paragraph-long discussion do not rise to the level of a cognizable argument justifying deviation from Supreme Court authority. We appreciate that Mastro wants to preserve his constitutionality argument for appeal. But we are bound by Doe, and Mastro cites no case that even suggests that Doe is no longer good law. Cf. In re Various Grand Jury Subpoenas, 248 F.Supp.3d 525, 527–29 (S.D.N.Y. 2017) (concluding that the "Consent Directive Does Not Violate the Fifth Amendment" and citing Doe, 487 U.S. at 215, 108 S.Ct. 2341 ). Accordingly, because Doe holds that consent directives are not testimonial, we reject Mastro's argument that an order compelling execution of a consent directive would violate his Fifth Amendment privilege against self-incrimination.

3. Courts in non-bankruptcy cases rely on various sources of authority to issue consent directives.

In Doe, the Fifth Circuit held that the All Writs Act ( 28 U.S.C. §...