Rood v. Rosen (In re Rood)

482 B.R. 132

In re Robert F. ROOD, IV, et al.Robert F. Rood, IV, et al., Appellants

v.Gary A. Rosen, et al., Appellees.

Civil Action No. DKC 11–3059.

United States District Court, D. Maryland.

Sept. 29, 2012.

Charles Chukwuweike Iweanoge, Iweanoge Law Center, Washington, DC, Marc Steven Koplik, Henderson & Koplik, New York, NY, for Appellants.

James R. Schraf, Logan Yumkas, LLC, Paul Sweeney, Yumkas, Vidmar & Sweeney, LLC, Annapolis, MD, for Appellees.

Charles Timothy Jewell, Annapolis, MD, pro se.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Appellants Robert F. Rood, IV, and Charles Timothy Jewell appeal from a November 4, 2011, judgment against them in a bankruptcy adversary proceeding in accordance with a memorandum of decision issued September 26, 2011.¹ The issues are fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the judgment will be affirmed.

I. BackgroundA. Events Prior to the Adversary Complaint

Appellee Southern Management Corporation Retirement Trust (“SMCRT”) is a pension plan that manages retirement funds for approximately 1,250 employees of Southern Management Corporation. Between March 2006 and September 2007, SMCRT funded thirty-two loans, primarily for short-term construction and renovation projects, originated by Appellant Robert F. Rood, IV, or a business entity associated with him. Mr. Rood typically presented loan applications and supporting documentation to SMCRT's loan committee, which reviewed these packages and, upon approval, wired the funds to a settlement agent. Mr. Rood then assisted with closing the loans, managed disbursements to the borrowers, and remitted monthly interest or payments to SMCRT, along with statements of accounting.

In mid–2007, Southern Management Chief Executive Officer David Hillman requested that Mr. Rood permit a routine audit of “his books and records to verify the amount that was supposed to be on deposit.” (ECF No. 5–47, at 75). ² Mr. Rood was initially agreeable, but later balked, citing privacy concerns for his clients. When further efforts to examine his records were unsuccessful, Mr. Hillman called a meeting in October 2007. At that meeting, Mr. Rood produced a letter from his attorney opining that he “had no duty to account to [SMCRT]” for its money. ( Id. at 75). Ultimately, Mr. Rood agreed to have his own accountant, Lloyd Mallory, review the relevant records and prepare a report. SMCRT received Mr. Mallory's report in March 2008, which was “basically an affirmative statement that the balances were there and that they were in a bank account and that ... [the] bank balances equaled the amount of money that [Mr. Rood] owed to third parties.” ( Id. at 78).

At around the same time, however, SMCRT “began to be contacted by borrowers that were unable to access the funds that Mr. Rood was holding for them.” ( Id. at 79). When Mr. Hillman contacted other borrowers, he “learned that their interest escrows in some cases had been depleted,” and that some borrowers “had paid off their loans,” but SMCRT had not received the payments. ( Id. at 82). Funds for another loan associated with a property on K Street in the District of Columbia had been released by SMCRT to a title company awaiting settlement. Mr. Rood reported to SMCRT that the loan “was being closed and [was] active” ( id.), but Mr. Hillman learned from the title company that this was untrue-in fact, the loan never closed, and the money was sent by the title company to Mr. Rood, upon his request.

On May 9, 2008, SMCRT filed a lawsuit against Mr. Rood and two of his associated business entities in the Circuit Court for Montgomery County, Maryland. Pursuant to an emergency motion, a temporary receiver was appointed to examine records related to SMCRT's loan portfolio, which Mr. Rood continued to resist providing. The receiver, Thomas Murphy, learned through an independent investigation that Mr. Rood had outstanding judgments against him. Upon contacting attorneys representing the plaintiff in one of those cases, Mr. Murphy learned that Mr. Rood had been entrusted with a large sum of money to assist a restaurant, Village Bar and Grill, in obtaining a lease, and that, soon thereafter, “the money effectively disappeared.” (ECF No. 5–56, at 35). ³ Mr. Murphy issued a subpoena to the attorneys for Village Bar and Grill for bank records associated with Level One Capital Partners, LLC (“Level One”), an entity controlled by Mr. Rood. His review of those records reflected that “[t]he majority of the money that was spent out of the Level One bank account ... went for non-corporate expenses.” ( Id. at 37). This caused Mr. Murphy to be “very, very concerned about what Mr. Rood was doing with funds.” ( Id. at 38).

On May 29, 2008, after he was served with a subpoena to appear in circuit court the next day, Mr. Rood filed a voluntary petition under chapter 7 of the bankruptcy code in the United States Bankruptcy Court for the District of Maryland. The following day, Mr. Rood failed to appear at the circuit court hearing, and Mr. Murphy was appointed as permanent receiver in his absence.

With Mr. Rood continuing to refuse to provide documents, Mr. Murphy retained a private investigation firm, Prudential Associates, to ascertain the location of relevant records. The assigned investigator, Jared Stern, learned that Mr. Rood's business entities were primarily operating from an office on Rugby Avenue in Bethesda, Maryland. When surveillance of that address suggested that Mr. Rood was in the process of destroying documents, Mr. Murphy filed an ex parte emergency motion for right of entry. On June 12, 2008, a judge of the Circuit Court for Montgomery County signed an order authorizing the receiver to enter the Rugby Avenue office and “remove the things that would be reasonably related ... to [his] duties.” ( Id. at 42). Mr. Murphy, in turn, authorized Mr. Stern, Steven Michael, an attorney for SMCRT, and Suzanne Hillman, an accountant associated with SMCRT, to enter the property, accompanied by deputies of the Montgomery County Sheriff's Department. They did so the next day, removing voluminous documents, computers, and servers from the office. A computer forensic specialist with Prudential Associates copied the hard drives of all operable computers removed from the Rugby Avenue address.

Meanwhile, in Mr. Rood's bankruptcy case, Appellee Gary A. Rosen was appointed chapter 7 trustee. He filed voluntary chapter 7 petitions on behalf of a number of entities controlled by Mr. Rood—namely, The Source, LLC; Blue Horseshoe Portfolio Services, LLC; Level One Capital Partners LLC (a Nevada limited liability company); Blue Horseshoe Capital, LLC; Matterhorn Financial, LLC; and Level One Capital Partners, LLC (a Maryland limited liability company) (collectively, “the Debtor Entities”). Mr. Rosen was appointed chapter 7 trustee for the Debtor Entities, and the bankruptcy court administratively consolidated the Debtor Entities' cases with Mr. Rood's bankruptcy case.

Pursuant to 11 U.S.C. § 341, a meeting of creditors in the chapter 7 cases was held on July 2, 2008, during which questions were posed to Mr. Rood regarding, inter alia, his sources of income. Mr. Rood refused to answer, invoking his Fifth Amendment privilege. On July 16, 2008, SMCRT and Tysons Financial, LLC (“Tysons”), another creditor, filed an emergency motion for examination of debtor pursuant to Federal Rule of Bankruptcy Procedure 2004. The bankruptcy court granted that motion on July 21, 2008, ordering “that the Debtor produce any and all documents requested in the Motion within ten (10) days of entry of this Order” and that he “submit himself to a Rule 2004 examination.” (Bankr. No. 08–17199, ECF No. 45). When Mr. Rood failed to comply, he was ordered to produce all documents required under the prior order to SMCRT's attorneys no later than August 19. Mr. Rood again failed to comply, and, on September 19, 2008, the bankruptcy court issued a consent order on suggestion of contempt, directing Mr. Rood to make the Rugby Avenue office “immediately available for a videotaped inspection”; to “disclose any and all storage facilities in his custody or control”; to “immediately turn over his ... PDA device” from which “a qualified intellectual technology professional ... [was] to download and store electronically the Debtor's e-mails responsive to ... [the Rule] 2004 examination”; and to produce enumerated documents. ( Id. at ECF No. 96). Pursuant to that order, SMCRT obtained a number of documents that had not been produced. At around the same time, Mr. Murphy transferred custody of the electronic and paper records removed during the prior entry into the Rugby Avenue office to Mr. Rosen.

Numerous adversary proceedings were subsequently commenced within the main bankruptcy case. On January 30, 2009, SMCRT and Tysons filed a verified complaint to determine dischargeability of debt against Mr. Rood, alleging fraud and related claims. When Mr. Rood failed to respond to the complaint, SMCRT and Tysons filed a motion for default judgment, which the bankruptcy court granted on April 29, 2009. The court ordered that SMCRT “shall have judgment against the Debtor ... in the sum of $13,876,353.47”; “[t]hat Tysons ... shall have judgment against the Debtor ... in the sum of $2,626,189.30”; and “[t]hat these debts are not subject to any discharge in this or any subsequently filed bankruptcy case.” (Bankr. No. 09–00058, at ECF No. 12).⁴

B. The Adversary Complaint and Events Prior to Trial

The instant adversary proceeding was commenced on April 1, 2009, when Mr. Rosen and SMCRT filed a complaint for injunctive relief, declaratory relief, and damages against Kore Holdings, Inc. (“Kore”); seven wholly-owned Kore subsidiaries; First Washington Equities, LLC; Nik Hepler; Warren A. Hughes, Jr.; Mr. Rood's mother and father; and Appellants Robert Rood and Charles Timothy Jewell....