Wilkins v. McCallan (In re McCallan)

637 B.R. 631

IN RE Timothy Thomas MCCALLAN, Debtor.

Carly B. Wilkins, Plaintiff,

v.Jeanne McCallan, Defendant.

Case No. 17-30961-WRS

Adv. Proc. No. 18-03084

United States Bankruptcy Court, M.D. Alabama.

Signed March 1, 2022

Steve Olen, Cunningham Bounds, LLC, Mobile, AL, for Plaintiff.

Carly B. Wilkins, Carly B. Wilkins, P.C., Montgomery, AL, Plaintiff, Pro Se.

Michael A. Fritz, Sr., Orin Clayton Odom, III, Scott D. Widerman, Widerman Malek, PL, Montgomery, AL, for Defendant.

MEMORANDUM DECISION

William R. Sawyer, United States Bankruptcy Judge

This Adversary Proceeding was tried by the undersigned, without a jury, on October 4-7, 2021. Plaintiff Carly B. Wilkins, the Chapter 7 Trustee in the underlying case of Timothy McCallan, was represented by counsel Steve Olen and Defendant Jeanne McCallan was represented by counsel Orin Clayton Odom, III, and Scott D. Widerman. After the close of evidence, the Court requested that the parties file Proposed Findings of Fact and Conclusions of Law, which both parties have done. (Docs. 195-96).¹ For the reasons set out below, the Court enters judgment in favor of Plaintiff Carly B. Wilkins, the Chapter 7 Trustee, and against Defendant Jeanne McCallan, in the amount of $5,607,679.06.

I. Findings of Fact

A. Some History of Timothy McCallan's Debt Settlement and Debt Management Businesses and Proceedings Leading up to Now

1. Keith Nelms and the Allegro Entities

This all began, from this Court's point of view, on February 22, 2010, when Keith Nelms, a lawyer in a solo practice with an office on Cobbs Ford Road in Prattville, Alabama, filed a petition in bankruptcy pursuant to Chapter 7.² Case No. 10-30430. Nelms had been in the debt management and debt settlement business only since 2008. Nelms did not start this business from scratch, rather he took over the business of Hess-Kennedy, a Florida concern which had been put out of business by the State of Florida in 2008. Office of the Attorney General v. Laura Hess, Esq. , No. 08-7686 (Cir. Ct. Broward County, Fla. July 17, 2008). Nelms began operating in Alabama under the name Allegro Law. Hess-Kennedy had been defrauding customers for years, and the State of Florida put a stop to it. As a result, McCallan moved his fraudulent debt settlement and debt management operations to Alabama, using Nelms, rather than Laura Hess as a front. The State of Alabama was put wise to this fraudulent business by Florida officials and as a result, proceedings were filed in the Circuit Court of Autauga County against the Allegro entities and Nelms himself.³

Nelms filed his Chapter 7 petition in an effort to stave off efforts by the State of Alabama to shut him down, as well as to stay other litigation. After Nelms filed his Chapter 7 petition, Wilkins discovered that he owned both Allegro Law and Allegro Financial Services.⁴ Wilkins promptly put both entities in bankruptcy on March 12, 2010. (In re Allegro financial Services, LLC , Case No. 10-30630) (In re Allegro Law, LLC , Case No. 10-30631). When Wilkins took control over more than $16 million in cash, it soon became apparent that this was not a run of the mill small business bankruptcy. (10-30631, Doc. 55). Wilkins began a lengthy and tortuous effort to learn about the business affairs of Nelms and the Allegro entities. It was soon learned that there were tens of thousands of customers and more than $100,000,000 which had traveled through the bank accounts of the Allegro entities and their affiliates and confederates during the time that Nelms operated the Allegro entities. Over the next several years, the Court heard considerable testimony from Nelms and it was soon apparent that he had no more than a rudimentary understanding of the business of the Allegro entities and very little knowledge of their financial affairs.

Shortly after Nelms filed his Chapter 7 petition, Chase Bank brought suit against him alleging fraud. Adv. Pro. 10-3042. On July 24, 2014, this Court entered a judgment of nondischargeability in favor of Chase Bank, and against Nelms, in the amount of $10,000,000. (Adv. Pro. 10-3042, Docs. 138, 140, 142); Chase Bank USA, NA v. Nelms (In re Nelms) , Adv. Pro. No. 10-3042, 2014 WL 3700511 (Bankr. M.D. Ala. July 24, 2014) ; aff'd No. 14-CV-927 (M.D. Ala., Oct. 23, 2018) ; appeal to 11th Cir. dismissed as untimely on December 20, 2018. (No. 18-14130). The Supreme Court of Alabama suspended Nelms’ law license for a period of 3 years in an order dated July 9, 2009. The suspension was directly related to his activities connected to the Allegro entities. While Nelms’ bankruptcy case was pending, he telephoned a threat to the office of the undersigned. Nelms’ license suspension was extended by the State Bar for 90 days as a result. As of the date of this Memorandum, Nelms’ Alabama law license has not been reinstated.⁵

2. Wilkins v. McCallan AP 11-3007

As it had become apparent that Nelms was merely acting as a front for the illegal activities engaged in by the Allegro entities and before that the Hess-Kennedy organization in Florida, Wilkins expanded her investigation. Nelms was nominally running an organization serving 10's of thousands of debt management and debt settlement customers and taking in more than $100,000,000 in cash from those customers, yet he didn't seem to know what he was doing and, more importantly, a solo practitioner on Cobbs Ford Road in Prattville, Alabama did not have the infrastructure necessary to support such an organization. Large payments had been made by Allegro to an entity called AmeriCorp. It was later revealed that AmeriCorp kept all the records and controlled all of the money. Nelms was fronting the organization, using his law license to represent his clients, or customers, and shielding those behind him from scrutiny.

In an effort to look behind Nelms, Wilkins brought suit against AmeriCorp, Inc., Seton, Inc., and Timothy McCallan. Adv. Pro. 11-3007. After lengthy and pretrial proceedings, and scheduling a trial, for which McCallan, the other defendants and their lawyer did not show, this Court entered judgment in the amount of $102,000,000 in favor of Wilkins against McCallan, Seton and AmeriCorp. (11-3007, Docs. 361-62); Wilkins v. AmeriCorp, Inc., (In re Allegro Law, LLC) , 545 B.R. 675 (Bankr. M.D. Ala. 2016). In that Memorandum Decision, this Court described McCallan's business as follows:

This is an extraordinary case of fraud on a massive scale that was perpetrated by Defendant Timothy McCallan ("McCallan") on thousands of victims. McCallan masterminded a debt settlement scheme in which customers were enticed into handing their money to entities controlled by McCallan with a promise that their debts would be either paid or settled. Thousands of customers signed up for debt settlement services offered by McCallan and paid him more than $100,000,000. Almost none of the money was paid to creditors of the customers as promised by McCallan. Instead McCallan, and those in league with him, siphoned off the money into a vast array of companies controlled by or closely associated with him. Among these entities were McCallan's co-defendants: AmeriCorp, Inc. ("AmeriCorp") and Seton Corp. ("Seton").

McCallan used attorneys as a "front" to perpetuate his scheme and to provide it an air of legitimacy. McCallan's scheme was most recently fronted by Keith Nelms ("Nelms"), an Alabama attorney whose license has since been suspended for his many unethical activities. 2 Allegro Financial and Allegro Law (collectively "Allegro") were instrumentalities controlled by McCallan and fronted by Nelms as a law firm. Prior to Nelms, McCallan's front was Laura Hess, a Florida attorney who was disbarred for actions she took while fronting a previous iteration of McCallan's debt settlement scheme, a law firm called Hess–Kennedy.

From the viewpoint of the customer, or victim, McCallan's scheme began with mass media advertising—television, radio, billboards, etc.—designed to appeal to those in financial distress. The potential customer could call a toll-free number and speak with a representative who would then sign the customer up, promising him that his financial worries would be over. The representative would promise the customer that they would deal directly with his creditors, that all the customer would have to do is pay his money to them instead of his creditors, and that they would take care of the rest. Instead, the customer's money would be siphoned off under the guise of hidden fees and costs, the customer would be that much poorer, and he would default on his debts because his creditors would go unpaid. As the District Court has aptly noted, the effect of McCallan's debt settlement scheme on its victims was "personal economic suicide[.]" McCallan v. Hamm , 2012 WL 1392960, *1, 2012 U.S. Dist. LEXIS 56097 (M.D. Ala. Apr. 23, 2012).

545 B.R. 675, 681–82 (internal call numbers omitted).

There are three takeaways from AP 11-3007 that are relevant to this Adversary Proceeding. First, McCallan's underlying debt settlement business was a massive fraud, designed to separate a large number of dollars from tens of thousands of people. Second, during the course of litigating AP 11-3007, McCallan and his confederates went to considerable effort to hide the true nature of his business, forcing the Trustee to do a tremendous amount of work. See 545 B.R. 675, 684-695 (detailing a massive effort on Wilkins’ part to conduct discovery). Third, once judgment was entered, McCallan was held in contempt of court and incarcerated for more than two years for secreting more than $20 million. Wilkins v. AmeriCorp, Inc., (In re Allegro Law, LLC) , AP 11-3007, 2018 WL 2373639 (Bankr. M.D. Ala. May 23, 2018) (finding that McCallan was lying about and secreting assets);⁶ Wilkins v. AmeriCorp, Inc. (In re Allegro Law, LLC) , No. 11-3007, 2019 WL 4411822 (Bankr. M.D. Ala. Sept. 17, 2019) (denying McCallan's motion for release, finding that he had secreted more than $16.2 million, and finding that...