United Tax Group, LLC

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Chapter 7

)

UNITED TAX GROUP, LLC, ) Case No, 14-10486 (LSS)

)

Debtor. ) Re: ECF Nos. 126, 127, 195,

) 196, 232, 233, 235, 236

MEMORANDUM ON MOTION PURSUANT

TO 11 U.S.C. § 324 FOR REMOVAL OF GEORGE L. MILLER, TRUSTEE!

Removing a chapter 7 trustee is an extraordinary remedy. Here, in this acrimonious

case, itis not warranted. I held a two-day evidentiary hearing on a motion (“Removal

Motion”) seeking to remove George L. Miller, the chapter 7 trustee in this case (“Trustee”).

The Removal Motion was filed after I denied Certain Movants” request to dismiss the case

outright.

Despite listenmg carefully for evidence of conduct that would rise to the level

justifying removal of a trustee, none came close. Rather, what was presented was a series of

disagreements over usage of less than precise words or language, contradictory recollections

over the condition of Debtor’s offices during Trustee’s visits several years earlier, and

Movants’ dissatisfaction with Trustee’s case management and personality. While there is

This Memorandum and Order constitutes my findings of fact and conclusions of law as required

by Fed. R. Bankr. P. 7052. All references to the docket are to the main case unless otherwise

indicated. Citations to the docket (as opposed to the evidentiary record) are limited and only used

when necessary to support an undisputed fact or to provide context.

? SWZ Financial II, LLC, Tax Help MD, LLC, Allerand, LLC, Edward Welke and Richard J.

Sabella Motion Pursuant to 11 U.S.C. § 324 for Removal of George L. Miller, Trustee, ECF No.

126.

+ Movants are SWZ Financial Hl, LLC (“SWZ”), Tax Help MD, LLC (“Tax Help”), Allerand, LLC

(“Allerand”), Edward. Welke (“Welke”) and Richard J. Sabella (“Sabella”). I will refer to movants

on this Removal Motion, collectively as “Movants.” Where actions were taken only by a subset of

Movants, I will use the term “Certain Movants” unless further specificity 1s required.

no doubt that Trustee has, at times, taken an aggressive posture in this case, such conduct

does not merit his removal. The Removal Motion, therefore, will be denied.

General Overview of the Case

I provide an overview to present the context in which the Removal Motion is

viewed; details can be found in numerous other rulings.

United Tax Group, LLC (“Debtor”) was in the tax resolution business. On March 4,

2014, it filed a no-asset voluntary chapter 7 bankruptcy case.” The Voluntary Petition and

the Schedules of Assets and Liabilities and Statement of Financial Affairs were signed by

Sabella, as “Managing Member of Managing Member” or “Authorized Agent.”® ‘Trustee

was thereafter appointed. Soon after, Trustee filed a notice changing the case from a no-

asset case to an asset case.’

It is an understatement to say that from the commencement of the bankruptcy case

there has been significant and continuing animosity between the parties. Trustee accuses

SWZ of inappropriately foreclosing on Debtor’s assets prior to placing Debtor in a chapter 7

bankruptcy proceeding leaving nothing for unsecured creditors. Movants accuse ‘Trustee of

over-litigating the case, seeking millions of dollars in recovery on scheduled claims of about

$200,000. Movants also accuse Trustee of improperly taking Debtor’s mail, which Movants

4 See e.g., In re United Tax Grp., LLC, Civ. No. 18-93-LPS, 2018 WL 1187395 (D. Del. Mar. 7, 2018)

(Stark, C.5.); Welke v. Miller, Civ. No. 16-CV-1323, 2018 WL 385185 (D. Del. Jan. 11, 2018)

(Conner, C.J.); Order Regarding Standing with Respect to Motion Pursuant to 11 U.S.C. § 324 for

Removal of Trustee, ECF No. 199; Memorandum Order Granting Cross-Motion to Amend and

Denying Motion to Dismiss, Adv. No. 16-50088, ECF No. 51; Jn re United Tax Grp., LLC, No. 14-

10486 (LSS), 2018 WL 1135496 (Bankr. D. Del. Feb, 28, 2018); In re United Tax Grp., LLC, No. 14-

10486 (LSS), 2016 WL 7235622 (Bankr. D. Del. Dec. 13, 2016); Memorandum Order Denying

Motion to Dismiss Bankruptcy Case, ECF No. 102.

> Trustee Ex. 1.

® Trustee Exs. 1, 2, 3.

7 Notice of Change from No-Asset to Asset and Request to the Clerk to Fix Bar Date to File Claims

Against the Estate, ECF No, 14.

assert belonged to SWZ after its pre-bankruptcy foreclosure and was necessary for SWZ to

maximize recoveries on the foreclosed assets (i.e, contracts with taxpayer clients),

On June 25, 2015, Trustee filed an adversary proceeding against SWZ, Tax Help,

Allerand and Sabella to avoid preferences and fraudulent conveyances and seeking damages

of $3,000,000. On March 3, 2016, Trustee filed a separate complaint against Welke also

seeking to avoid preferences and fraudulent conveyances totaling $821,402.69.° In response

to one or both of these suits, Certain Movants took multiple actions.

First, on March 30, 2016, SWZ filed a motion to dismiss the bankruptcy case.” The

grounds for the motion to dismiss were much the same as argued in the Removal Motion:

Trustee was abusing his position and acting in bad faith in pursuing the adversary

proceedings and had converted SW7Z’s property (Debtor’s mail). Further, and

notwithstanding that Sabella signed the voluntary bankruptcy proceeding, SWZ (cf which

Sabella is a member) argued that the case was essentially a two-party dispute between

Debtor and Sarah Wonders, a former United Tax employee. After briefing and an

evidentiary hearing, I denied the motion to dismiss on the narrow ground that SWZ lacked

standing to bring the motion."'

Second, also on March 30, 2016, Certain Movants filed a motion (“Barton Motion”)

for leave to file a complaint against Trustee, in his capacity as such, in Florida state court

seeking damages for conversion and intentional interference in business relationships based.

§ SWZ Compl., Adv. No. 15-50880, ECF No. 1.

? Movants Ex. 11; Welke Compl., Adv. No. 16-50088, ECF No, 1.

10 Interested Party SWZ Financial II, LLC’s Motion for an Order Dismissing Chapter 7 Bankruptcy

Case, ECF No. 47.

" Memorandum Order Denying Motion to Dismiss Bankruptcy Case, ECF No. 102.

on Trustee’s redirection of Debtor’s mail at the commencement of these bankruptcy cases.’*

After an evidentiary hearing, I denied the Barton Motion concluding that Certain Movants

needed my permission to bring any suit against Trustee, denying the request to bring the suit

in Florida and instead requiring any suit against ‘Trustee be filed in this court.*

Third, on April 28, 2016, Sabella, individually, SWZ and Allerand sent a letter

(which they styled as a complaint against Trustee) to the Assistant United States Trustee for

Region 3, requesting the removal of Trustee from the chapter 7 trustee panel for the District

of Delaware.’ The fourteen page letter contained complaints about Trustee’s conduct with

respect to the filing of the adversary proceedings and Debtor’s mail as well as his conduct at

the § 341 meeting of creditors.” Those Movants also complained about the conduct of

Trustee’s assistant (Louann Cromley) regarding her interaction with a process server

attempting to serve a subpoena related to the redirection of Debtor’s mail."* ‘Trustee

responded to the Sabella Letter to UST on May 18, 2016.'’ After an investigation, on June

13, 2016, the Office of the United States Trustee (“UST”) determined that removal of

Trustee from the chapter 7 panel was unwarranted.”®

2 ECF No. 20, Adv. Pro, No. 15-50880. Defendants were granted permission to withdraw the

Barton Motion im the adversary proceeding and refile it in the main case, which they did.

3° See Bench Ruling, Dec. 28, 2017 Tr., ECF No. 162 (“Barton Ruling”); Order, ECF No. 172. This

ruling was affirmed on appeal. In re United Tax Grp., LLC, Civ. No. 18-93-LPS, 2018 WL 1187395

Del. Mar. 7, 2018) (Stark, C.J.). One week later, Certain Movants filed an adversary proceeding

against Miller, individually. Adv. Pro. No. 18-50315,

4 Movants Ex, 32 (000103-000118); Trustee Ex. 9 (“Sabella Letter to UST”).

Td. at 2-3.

6 Td.

7 Movants Ex. 33; Trustee Ex. 21 (“Trustee Letter to UST”).

'8 Movants Ex. 32 (labeled Movants 000119-120); Trustee Ex. 20. The UST rejected the allegation

that Trustee’s conduct at the § 341 meeting was inappropriate, concluding that Trustee’s questioning

of Sabella “amounted to diligent cross examination,” Id. at 2, He also concluded that Trustee did

not influence his assistant’s interaction with a process server. As for Trustee’s conduct in the

adversary proceedings, the UST declined to consider that issue as the adversary proceedings were

pending before the court.

Fourth, on June 7, 2016, SWZ and Tax Help sued Trustee’s accounting firm, Miller

Coffey Tate, LLP, in a Florida state court.” In that suit, plaintiffs alleged tortious

interference with a contractual right, tortious interference with advantageous business

relationship and conversion based primarily on Trustee’s redirecting Debtor’s mail.

In the back and forth between the parties, I have previously ruled on (and denied or

deferred to the conclusion of litigation) a series of motions in which each asked me to

impose sanctions against the other. I have sent the parties to mediation. And, I have

informed the parties that the needless positions taken by each of them detract from any

meritorious arguments each may have.

Procedural History of the Removal Motion

On July 19, 2017, Movants filed the Removal Motion together with an

accompanying forty-three-page brief and a lengthy compendium of exhibits,” seeking to

remove Trustee not just from this bankruptcy case, but from all other cases to which he has

been appointed.”!

On July 25, 2017, Trustee filed a preliminary objection and cross-motion to bifurcate

the hearing on the Removal Motion seeking to address the issue of Movants’ standing first.”

I agreed to that request, heard argument on standing, and on May 24, 2018 ruled that

See e.g., Movants Ex. 5; see also Florida Compl., ECF No. 77-4. On July 17, 2017, SWZ and Tax

Help amended the complaint to add Louann Cromley as a defendant. See Florida Amended Compl.,

ECF No. 181, at 21-26.

20 Opening Brief of Movants in Support of Motion Pursuant to 11 U.S.C. § 324 for Removal of

Trustee, ECF No. 127.

Removal Motion 1. While by operation of § 324 a trustee removed from one case is

automatically removed from all other cases in which he serves unless the Court orders otherwise,

Movants specifically requested that relief.

22 Preliminary Objection of Trustee to the Motion of Movants and Cross-Motion to (A) Bifurcate

Hearing on Motion to Remove and (B) Extend Objection/Response Deadlines in Connection with

Motion to Remove, ECF No. 137.

Movants have standing to bring the Removal Motion.” In the meantime, Movants moved

to supplement their Removal Motion on May 7, 2018.4

On June 28, 2018, at T'rustee’s request, I held a scheduling conference on the

Removal Motion. At the scheduling conference I was informed that the parties had not

conferred on scheduling. I was also informed that Movants noticed the deposition (“UST

Subpoena”)” of T, Patrick Tinker, the Assistant United States Trustee for Region 3 seeking

both a deposition and documents regarding Trustee’s actions in other cases in which he

serves as a chapter 7 panel trustee. ‘The Department of Justice, representing the UST with

respect to the UST Subpoena, addressed the court with respect to issues raised by the UST

Subpoena. At the conclusion of the scheduling conference I determined that discovery

should proceed, Trustee should file his substantive response to the Removal Motion, and

any actual discovery disputes (with the UST, or otherwise) should be brought to me in a

concrete and regular fashion.”®

On October 4, 2018, Movants filed a motion to compel (“Motion to Compel”)

seeking an order directing Trustee to permit access to documents sought from the UST

through the UST supoena.”’ Trustee filed an answer* and the Department of Justice filed a

23 Order Regarding Standing with Respect to Motion Pursuant to 11 U.S.C. § 324 for Removal of

Trustee, ECF No. 199 (“Order Regarding Standing”). As relevant here, I stated that “As a practical

matter, there are no other parties in this case who could bring these matters to my attention—

particularly the allegations of false statements.” Jd. at 12.

24 Movants’ Motion to Supplement to [sic] Motion Pursuant to 11 U.S.C. 324 for Removal of

Trustee (“Motion to Supplement”), ECF No. 195 (under seal}, ECF No, 196 (public version).

25 Notice of Taking Oral Deposition of and Notice of Subpoena Directed to and Served Upon

Assistant U.S. Trustee T. Patrick Tinker, ECF No. 134.

26 The Motion to Supplement was also raised at the Scheduling Conference with Movants’ counsel

stating that no responsive papers had been filed and no hearing date had been scheduled. While it

does not appear that responsive papers were filed or that I specifically granted or denied this motion,

the subsequent briefing on the Removal Motion and Notice of Hearing of the Removal Motion

reference this docket. See eg., ECF No. 247. I also considered the Motion to Supplement in the

Order Regarding Standing.

27 Motion to Compel Production of Subpoenaed Documents and Depositions, ECF No. 223.

limited objection,” On November 1, 2018, I held a hearing on the Motion to Compel at

which issues were raised regarding the Privacy Act of 1974,°° U.S. Department of Justice

Touhy regulations applicable to the U.S. Trustee program”! and relevancy. Trustee’s counsel

suggested that I deny the Motion to Compel, end discovery and fix a hearing date.

Trustee’s counsel also suggested that the Removal Motion could be decided as a matter of

law and he would be filing his responsive papers on the merits in the near future. After

giving some preliminary views on the Privacy Act issue, I determined to hold the discovery

in abeyance pending Trustee’s response on the merits of the Removal Motion which I

would consider as the equivalent of a Rule 12(b)(6) motion.”

On December 21, 2018, Trustee filed his opening brief on the merits of the Removal

Motion together with Exhibits A-L.** Movants filed their answering brief on February 22,

2019.4 Trustee replied on March 15, 2019.

On January 6, 2020, I informed the parties that the Removal Motion could not be

determined on the papers, denied the Motion to Compel and set the Removal Motion for a

two-day evidentiary hearing.** I also informed the parties that I was reviewing the summary

judgment filings in the SWZ adversary proceeding and was “highly skeptical that I will pre-

28 Answer of George L. Miller, Trustee, to the Motion to Compel Production of Subpoenaed

Documents and Depositions, ECF No. 227,

29 United States’ Limited Objection to D.I. 223, Motion to Compel Production of Subpoenaed

Documents and Depositions, ECF No. 226,

0 5 U.S.C. § 552a(by(11).

31 OS. ex. vel. Touhy v. Ragen, 340 U.S. 462 (1951).

#2 Motion to Compel Hr’g Tr. 39:13-40:8, 40:17-42:25, November 1, 2018, ECF No. 231.

33. Opening Brief of Trustee in Response to Movants’ Motion Pursuant to 11 U.S.C. § 324 for

Removal of Trustee, ECF No. 232.

44 Answering Brief of Movants in Opposition to Opening Brief of Trustee in Response to Motion

Pursuant to 11 U.S.C. § 324 for Removal of Trustee, ECF No. 233.

% Reply Memorandum of Trustee in Further Opposition to the Motion to Remove Trustee, ECF

No. 235.

% Scheduling Hr’g Tr. Jan. 6, 2020, ECF No. 259.

judge any factual issues in the SWZ case in the context of the removal motion. So, when

you're planning, keep that in mind as well. It strikes me that those are better decided in the

SWZ case.’”*’ The two-day evidentiary hearing was held on March 9 and March 10, 2020,*8

The matter is ready for decision.

Jurisdiction

Jurisdiction exists under 28 U.S.C. § 1334 and this is a core proceeding under 28

U.S.C. § 157(b))(A). I can enter a final order on this core proceeding consistent with the

United States Constitution.

Legal Standard: Removal Under Section 324

After notice and a hearing, a court may remove a trustee for “cause.”*” “Cause” is

not defined in the Bankruptcy Code and instead must be determined on a case-by-case

basis.“” Cause to remove a trustee includes “trustee incompetence, violation of the trustee’s

fiduciary duties, misconduct or failure to perform the trustee’s duties, or lack of

disinterestedness or holding an interest adverse to the estate.”*! But most courts require that

cause be something that both the law and sound public policy recognize as sufficient to

watrant removing the trustee, and that relates to and affects the administration of the

trustee’s office.”

3? Id. at 13:24-14:3.

38 Evidentiary Hr’g Tr. 6:15-18, Mar. 9, 2020, ECF No. 270; Evidentiary Hr’g Tr., Mar. 10, 2020,

ECE No, 269.

11US.C. § 324(a).

0 In ve Morgan, 375 B.R. 838, 847-48 (B.A.P. 8th Cir. 2007), afPd, 573 F.3d 615 (8th Cir, 2009).

In ve AFI Holding, Inc., 530 F.3d 832, 845 (9th Cir, 2008).

In re Reed, 178 B.R. 817, 821 (Bankr. D. Ariz. 1995) (stating “cause” must be “something of a

substantial nature directly affecting the rights and interests of the public”) (quoting Jn re Baker, 38

B.R. 705, 707 (D. Md. 1983)); In re New Century TRS Holdings, Inc., No. 07-10416 (SJC), 2013 WL

12324114, at *5-6 (Bankr. D. Del. July 9, 2013) (quoting Reed, 178 B.R. at 821 and finding that

trustee’s alleged hearsay testimony did not warrant removal because it “affect[ed] potentially only

[the holder of a disallowed late-filed claim]’s own interests, not that of any creditor or the estate”)

In assessing a trustee’s actions and decisions, courts use the business judgment

standard; therefore, cause for removal exists only when the trustee “acts in bad faith or

unreasonably under the circumstances.” Because a chapter 7 trustee has substantial

discretion to administer the estate consistent with the business judgment standard, courts

will not remove a trustee for mistakes if the judgment is discretionary and reasonable under

the circumstances.“ Moreover, in making the removal decision, a court must consider the

best interest of the estate, not merely that of a single complaining movant.*

A trustee removed for “cause” in one case will be removed from all other cases in

which the trustee is then serving, “unless the court orders otherwise.’*® As such, the

removal of a trustee is an extreme remedy, even when a trustee has acted negligently.” A

movant must make a “strong showing” by at least a preponderance of the evidence “because

the effect of removal is deleterious to the continuity of the administration of the estate.”

(assuming without deciding that § 324 applied to the removal of post-confirmation liquidating

trustee involved in the case).

4 Ty re Tres-Ark, Inc., 483 B.R. 460, 466 (Bankr. W.D. Tex. 2012); Im re Livore, No. 08-32423/JHW,

2010, WL 1849322, at *2, *4 (Bankr. D.N.J. May 6, 2010); see New Century, 2013 WL 12324114, at

*7,

“4 Tivore, 2010 WL 1849322, at *2; see New Century, 2013 WL 12324114, at *7.

4 In ve Sheehan, 185 B.R. 819, 824 (Bankr. D, Ariz, 1995); In ve Lundborg, 110 B.R. 106, 108 (Bankr.

D. Conn. 1990); New Century, 2013 WL 12324114, at *7; Livore, 2010 WL 1849322, at *2.

11 U.S.C. 8324(b).

“7 Morgan, 375 B.R. at 847; see Tres-Ark, 483 B.R. at 467 (“This Court recognizes that a motion to

remove trustee under Section 324 is a serious matter.”); Sheehan, 185 B.R. at 822 (“It is clear that

removal of a Trustee is an extreme remedy even where a trustee has acted negligently.” (emphasis

added).

48 In ve Empire State Conglomerates, Inc., 546 B.R. 306, 317 (Bankr. S.D.N.Y. 2016) (internal quotation

marks and citations omitted); see AFT Holding, 530 F.3d at 845 (“such cause must be supported by

specific facts and the party seeking removal has the burden to prove them.’”); see also In re JMW Auto

Sales, 494 B.R. 877, 889-90 (Bankr. S.D. Tex. 2013); Tres-Ark, 483 B.R. at 467; In re Nettles, 354 □□□

90, 92 (Bankr. D.S.C. 2006).

Some courts hold that on issues other than conflicts of interest, the movant must prove

actual injury or fraud.”

The decision to remove a trustee is within the sound discretion of the bankruptcy

court.” Courts have found cause to remove a trustee when: (i) a trustee failed to take steps

to complete the administration of the estate after an inordinate amount of time;” (ii) a

trustee made unauthorized allowances to himself, purchased property from the estate for his

own benefit and procured loans from the estate;* (iii) a trustee failed to appropriately

distribute funds and frequently submitted both mathematically and legally defective

confirmation orders prejudicing debtors;® (iv) a trustee converted funds of the estate and

committed other violations of the trustee’s fiduciary duty;** and (v) a trustee had a conflict

of interest.”

On the other hand, courts have not found cause to remove a trustee when: (i) a

trustee filed a counterclaim to subordinate two creditors’ claims in response to their

adversary proceeding against him, finding no conflict of interest;>° (ii) a trustee filed a final

report that disclosed in only an indirect fashion her subordinate’s theft of estate funds

(which the trustee personally reimbursed), concluding that, under the circumstances of the

case, the final report was not patently false, the trustee’s explanation was sufficient and any

mistakes were harmless;”’ (iii) a trustee acted reasonably in determining not to investigate

In re Syntax-Brillian Corp., 554 B.R. 723, 729 (Bankr. D. Del. 2016); see fn re BH & P, Inc., 949 F 2d

1300, 1312-13 (3d Cir. 1991).

BA & P, 949 F.2d at 1313.

5! In ve Mira-Pak, Inc., 72 B.R. 430, 431 (Bankr. S.D. ‘Tex. 1987) (ander Bankruptcy Act).

In re Stephens & Co., 30 F.2d 725, 725-26 (S.D. Cal. 1928) (under Bankruptcy Act).

53 In re Drinkwater, 178 B.R. 590, 591-92, 595, 597 (Bankr, D. Mass. 1995),

In ve Vega, 102 B.R. 552, 553-54 (Bankr. N.D. Tex, 1989),

AFT Holding, 530 F.3d at 849-50,

6 Tres-Ark, 483 B.R. at 469-70.

Sheehan, 185 B.R. at 821-24.

10

certain claims against the estate as no useful purpose would be served for there would be no

distribution to creditors;** and (iv) a trustee continued possessing non-debtors’ documents

found on debtor’s premises because the acquisition was not unlawful.”

Analysis

In their filings, Movants assert multiple intertwined categories of reasons why

‘Trustee should be removed, including alleging that: (1) Trustee made numerous false

statements in this case; Gi) Trustee failed to take possession of certain documents (and made

false statements related thereto); (iii) Trustee attempted to charge the estate for a 2014

personal excursion to Florida; (iv) Trustee has conflicts of interest; (v) Trustee showed

incompetency and/or unwillingness to perform trustee duties and “abuse of office;” (vi)

Trustee filed “uninvestigated and unmeritorious” adversary proceedings against Movants

and demanded inflated damages; and (vii) Trustee converted SWZ’s mail.

At the hearing, Movant’s counsel narrowed the issues that it proceeded on.

Specifically, Movant’s counsel stated it was proceeding on:

¢ material misrepresentations of fact with respect to (a) the failure to investigate

claims against Welke before filing the Welke adversary proceeding, (b)

ownership of SWZ, (c) Cromley’s employment status and her role as assistant

to Trustee; and (d) Sabella’s refusal to participate in a Rule 2004 examination;

e the filing of the Welke adversary proceeding and in particular the fraudulent

transfer claims that were subsequently “removed” from the adversary

proceeding, Trustee’s intent to intimidate, coerce and harass Welke with

respect to those claims and the timing of the filing of the suit;

e hostile conduct at the § 341 meeting;

38 Lundborg, 110 B.R. at 109-10.

°° $8 Farms, LLC v. Sharp, No. 2:09-CV-02942-MCE, 2010 WL 1558682, at *1, *4 (E.D. Cal. Apr.

19, 2010).

11

e Trustee’s visit to Debtor’s offices in 2014, leisure activities engaged in during

that trip and “whether or not there was ever supposed to be administrative

expenses incurred to that with respect to the estate;”

e usc of Trustee’s counsel to defend the Barton Motion; and

e Trustee’s alleged improper settlement overtures.”

As can be seen from the above, Movants chose not to move forward with their allegations

regarding the mail, and limited the commencement of “uninvestigated and unmeritorious” □

adversary proceedings to the Welke adversary proceeding. Movants’ counsel explained:

“With respect to adversary proceeding number 18- 50315 which is also still pending, we're

not moving forward with claims regarding the interference with the mail. ‘These were all

claims that we believe were part of the totality of the circumstances showing bad faith

advised on the part of Trustee but we understand from your judge's order not to move

forward with those.”®!

In this Memorandum, I will address only those allegations as to which evidence was

presented at the hearing. Any bases not addressed were either devoid of evidence or the

evidence was so scant that it does not merit discussion much less removal.

6° Mar. 9 Hr’g Tr. 7:8-8:21.

61 Mar. 9 Hr’g Tr. 7:1-7. While my comments at the January 6, 2020 hearing were specifically

directed to the summary judgment briefing in Adversary Proceeding 15-50880 (Miller v. SWZ

Financial, II LLC, et al), counsel apparently understood the comments to be directed to all litigation

between the parties, or at least all involving SWZ. Nonetheless, given the extensive findings of fact

in my Barton Ruling (Hr’g Tr. 16:2-19:8) and Chief Judge Stark’s Memorandum affirming my

decision, In re United Tax Grp., LLC, Civ. No. 18-93-LPS, 2018 WL 1187395 (D. Del. Mar. 7, 2018)

(Stark, J.), I would not remove Trustee based on his actions in relation to the mail. I also note that

Movants have not brought any motion seeking return of the mail either before they brought the

Barton Motion or in the more than two years since my ruling on that motion.

12

Alleged False Statements

a. Alleged Misrepresentation of Louann Cromley’s Employment Status

In their submissions, Movants allege that either Trustee or Miller Coffey Tate, LLP

(“MCT”)® made false statements regarding Cromley’s employment status. Movants point

to one sentence in each of two separate statements made for this proposition. I have placed

the isolated statements in fuller context and have used bold typeface to indicate the

statements at issue:

Miller in his May 18, 2016 deposition in Ady. Pro. No. 15- Counsel for Miller Coffee Tate, LLP (in Florida action)

50880

In the adversary proceeding, the Plaintiffs sought—but

QO. Do you have an employee by the name of Louann the Bankruptcy Court did not grant—leave to sue

Cromley? Trustee Miller in Florida for conversion and intentional

A. What about her? interference with a business relationship based on

Q. Do you have an employee by that name? Trustee Miller’s performance of his trustee duties and.

A. Miller Coffey Tate does. use of the Department of Fustice’s required procedures

Q. De you know if she signs emails as assistant to the to forward the debtor’s mail. The Plaintiffs are now

trustee? attempting to proceed with those claims without

A. She may. obtaining the bankruptcy court’s leave by suing MCT in

Q. Okay. So does she assist you with trustee matters? this action. MCT is an accounting firm in which

A. She is my assistant; I direct her what to do. She George L. Miller is a member, but Mr, Miller’s services

doesn't have any decision-making authority. for MCT are separate from and do not include his

Q. Does she take the mail -- is she one of the people who | employment as a panel trustee is chapter bankruptcies.

takes the mail to you?

A. She only would touch the mail for Miller Coffey In this action, the Plaintiffs [SWZ and Tax Help] are

Tate, She would follow the procedure I described earlier, only | seeking to hold MCT liable for actions allegedly taken

if everybody else is on vacation, I mean, of the clerical staffin | by Louann Cromley in her capacity as a trustee

the firm. assistant and while being supervised by trustee Miller in

Q. And how many people on the clerical staff? the performance of his duties and not ander the

A. We used to have two, now we have three. So Doreen | employment and supervision of MCT.

would go on vacation, Doreen does the work today, but the

mail you are talking about was somebody else four year ago --

two years ago, sorry.

Q. And do you know who that would have been?

A. [think her name was Danielle.

Q. Do you have a last name?

A. No clue,

Q. When did Louann Cromiey start?

A. When she started working for Miller Coffey Tate?

Q. Yes,

A. A long time ago.

Has she assisted you as trustee since she started

working at Miller Coffey ‘Tate?

& Miller is a partner of Miller Coffee Tate, LLP.

* Movants Ex, 5, at 2.

13

A, She doesn’t assist the U.S. Trustee.

Q. You as the trustee, not the U.S. Trustee.

A. Oh, okay. I have had other trustee assistants, she is

like my fourth. But I took her from — she was on the

professional staff of Miller Coffey Tate, and I asked her as an

employee of Miller Coffey Tate to take the position ofa

previous assistant.

In the same deposition cited above (and in proximity to the statement cited above), Miller

. explains that he has walled himself off from the Florida litigation against his firm.”

I note some difference in these two statements regarding whether Cromley is

employed by Trustee as the chapter 7 trustee, or MCT although, as shown by the context,

the statements refer to two different points in time and two different situations. Regardless,

given Trustee’s lack of involvement in the Florida litigation, I will not attribute to Trustee

statements made by counsel for MCT in the Florida litigation for purposes of this Removal

Motion.

In an attempt to buttress their argument on Cromley’s employment status and the

above statements, Movants called as witnesses in their affirmative case both Cromley and

Tomlin, another partner of MCT. Cromley testified that she spent the majority of her time

® Trustee Dep. Tr. 154:21-156:13, ECF No, 127-1, Ex. A. Miller’s deposition was not offered as an

exhibit or admitted into the record of the Removal Motion hearing (although it was marked as a

potential exhibit), but I will address it anyway because Cromley’s status as an employee loomed.

large in the filings and was the subject of testimony at the hearing.

6 Specifically, Miller testified:

By Mr. Williams:

Q. Is Miller Coffey Tate paying for [Cromley’s] attorney [in the Florida litigation]?

By Mr. Miller:

A. You will have to ask — I’m not involved in that part. That’s between her and other

people.

Q. You are the Miller of Miller Coffey Tate; correct?

A. lam. And I refuse to get involved in that.

Q. Okay.

A. I built what is known as — what you guys refer to as the Chinese wall. So lam not

involved in any of those discussions.

Trustee Dep. Tr. 157:23-158:8, ECF No. 127-1, Ex. A.

14

working as an assistant to Trustee. Tomlin testified that MCT was Cromley’s employer

and he signed her paychecks.’ Tomlin also stated his understanding of the above quoted

sentence in the Florida litigation is that Cromley was under the supervision of Trustee and

not MCT when taking actions in the in the United Tax bankruptcy case.™

The uncontroverted testimony shows that Trustee gave truthful testimony in his May

18, 2016 deposition that Cromley was an employee of MCT. Indeed, taken in context,

Trustee’s testimony is that Cromley is his fourth trustee assistant, he supervises her and she

is on the professional staff of MCT. This deposition testimony is also consistent with

Tomlin’s testimony at the hearing.

The statement made by MCT in the Florida litigation may not be precise, but taken

in context, may not be untruthful. Even if it were incorrect, however, it is not a statement

made by Trustee. Movants cite no caselaw for the proposition that statements made m

court filings by counsel to a partnership may be attributable to each partner or that even if

they could, such statements should be attributable to a partner that was walled off from the

litigation. Further, there is no basis on which to conclude that Trustee misrepresented a fact

to this court.

Mar. 9 Hr’g Tr. 18:12-14.

8? Mar. 9 Hr’g Ty. 31:22-32:6.

68 Mar. 9 Hr’g Tr. 34:17-19, 35:2-6.

15

b. Alleged Misrepresentation of SWZ Ownership

Movants also assert that Trustee misrepresented SWZ ownership in his adversary

proceedings complaints. The alleged untrue statement is:

Per testimony of Sabella, the manager of Allerand, at the meeting of creditors

(defined below), SWZ is an entity that is 50% owned by Allerand (the

Debtor’s managing member) and 50% owned by another entity owned and/or

controlled by Sabella.”

Movants introduced no evidence on which persons or entities own SWZ. When Sabelia

was asked whether he was a member of SWZ, he testified “I think it may be through

another entity, but beneficially, I did have an interest in it.””” This less than definitive

testimony provides no basis to find that Trustee’s statement—or, more accurately, his

counsel’s statement—is false.”

c. Alleged Misrepresentation Regarding Rule 2004 Examination

Movants further assert that Trustee falsely testified in deposition that Sabella would.

not agree to cooperate in an amicable Rule 2004 examination.” Movants introduced no

evidence showing any misrepresentation. Movants point to the transcript of the § 341

meeting as evidence in support of the asserted falsehood. At the § 341 meeting, Sabella

testified that he would have to speak to a lawyer in response to Trustee’s request for a Rule

2004 examination.“ Movants’ further evidence is that Trustee did not follow up with a

Rule 2004 examination after the § 341 meeting.”

6 SWZ Compl. J 13, at 3, Adv. No. 15-50880, ECF No, 1; see Welke Compl. 49, at 2-3, Adv. No.

16-50088, ECF No. 1; Am. Welke Compl. 19, at 2-3, Adv. No. 16-50088, ECF No. 41.

Mar. 10 Hr’g Tr. 120:6-11.

"| Even if this statement was false, it is not materially sufficient to warrant the sanction of removal.

And, Movants have not shown how they were harmed by this statement, if false.

® May 2016 Trustee Dep. Tr. 36:17-22, ECF No. 127-1, Ex. A.

® Trustee Ex. 4, 62:19-63:11; Mar. 10 Hr’g Tr. 87:15-88:3.

Td.

16

I will not remove a trustee based on his interpretation of a witness’s willingness to

cooperate. I also note that Trustee has not used any alleged unwillingness as a basis for any

relief in this court.

d. Alleged Misrepresentation Regarding Welke Adversary Proceeding

Movants contend that Trustee falsely testified in one of his depositions that “Sabella

testified about the American Express transactions with Welke is that he would pay the old

bills that Welke would charge business expenses to his account, and the debtor would pay

him [Welke], you know, when cash flow allowed.”” Movants claim that Sabella never

made any such statement.

At the hearing, the only evidence presented was Sabella’s testimony that he did not

discuss the American Express card with Trustee or identify Welke as its owner during

Trustee’s 2014 visit to Debtor’s facility,”° and that he never testified to or made a statement

to that effect because it was not a matter that was within his general knowledge.” Trustee,

however, testified that his recollection is that Sabella did testify regarding payments on the

American Express card although it could have been a discussion (rather than testimony) at

either the § 341 meeting or his 2014 visit to Florida or it could have been in pleadings.”

The evidence is in equipoise regarding whether Sabella made statements regarding

the American Express account. Even if Trustee’s recollection is incorrect, however, his

statement does not warrant the extreme remedy of removal.

5 May 2016 Trustee Dep. Tr. 180:23-181:3, ECF No. 127-1, Ex. A.

Mar. 10 Hr'g Tr. 74:3-14.

Mar. 10 Hr'g Tr. 82:23-83:7.

7% Mar. 10 Hr’g Tr, 40:10-41:16.

17

e. Alleged Misrepresentation in Letter to Assistant United States Attormey

On May 18, 2016, Trustee wrote the Trustee Letter to UST in response to the Sabella

Letter to UST. At the hearing, Movants spent extensive time examining the genesis of one

sentence in the Trustee Letter to UST. The sentence reads: “Sabella and UTG [Debtor]

were aware of the Wonders’ claim prior to that date [June 20, 2012].”” Movants contend

that Sabella was not aware of Wonders’ claim prior to June 20, 2012 and so that portion of

Trustee’s statement is false.*°

It is unclear why this one portion of a statement in a twenty-one page letter is so

important to Movants other than it attributes knowledge to Sabella that he contends he did

not have until sometime later. Trustee testified that he believed Sabella was aware of

Wonders’ complaints prior to June 2012.*! Sabella testified he was not.”

Once, again, I have no clear way to know whether the statement is true or not. The

evidence is in equipose. And, as Trustee’s counsel argued, the assertion that one statement

(or portion of a statement) is false suggests that all other statements in the twenty-one page

Trustee Letter to UST are true. I will not place such an outsized role on the importance of

one sentence even if it is not entirely accurate. On this record, I cannot conclude that

Sabella did not know of Wonders’ complaints at the stated time or that any misstatement of

his knowledge warrants removal of the Trustee.

” Movants’ Ex. 33 p. 5; see Mar. 10 Hr’g Tr. 186:13-192:25

89 Movants do not contend that Debtor was unaware of Wonders’ claim at that time. Mar. 10 Hr’g

Tr. 239:16-240:8.

81 Mar. 10 Hr’g Tr. 186:7-12, 188:5-7; 190:8—11.

8 Mar. 10 Hr’g Tr. 90:3-9. The dates were not clear in the testimony, and Movants (marked)

Exhibit 50 was not admitted into evidence, So, Iam giving Movants the benefit of the doubt with

respect to Sabella’s denial of knowledge.

83 Once again, I note that the timing Sabella’s personal knowledge of Wonders’ complaints has not

been the focus of any hearing before me or thus far been significant in any adversary proceeding.

18

Conclusion on Alleged Misrepresentations

Movants ask me to remove Trustee based on statements with which they disagree. I

cannot conclude that any of the above statements are false, much less made with an intent

to deceive the court. Nor do I see any particular pattern as Movants argue. Neither

separately, nor together, do these statements merit the extreme remedy of removal.

To make a point, during Sabella’s cross-examination, ‘Trustee’s counsel pointed out

various statements made m writing by Sabella under oath (or under his signature) that

contained misstatements of fact or characterizations of information. In those instances,

Sabella testified that people make mistakes,™ or that he might have said something “in a

general sense” even if “speaking technically” his statement was not correct.*

While Sabella’s statements are not an issue here, Sabella’s assessment is correct.

People make mistakes, including Sabella and ‘Trustee. People also misremember, especially

events that happened many years ago. To the extent that any of Trustee’s statements

discussed above were incorrect, Movants have not proven by a preponderance of the

evidence that those statements were anything other than mistaken, characterizations or

generalities. Movants have not met their burden to show that such statements rise to the

level of falsehoods or statements for which Trustee should be removed.

84 See e.g., Mar. 10 Hr’g. Tr. 100:8-22 (suite number listed on petition was not correct; “This is

obviously just a mistake.”); Mar. 10 Hr’g Tr. 112:1-10 (“People make mistakes all the time. I in

good faith believed everything in the letter to be factually correct”); Mar. 10 Hr’g Tr, 112:3-15:22

(discussing Sabella’s statement that “scores” of taxpayer suffered tax penalties); Mar. 10 Hr’g Tr.

116:8-117:11 (stating that a letter from trustee’s law firm “sounds like an accusation fo me.”)

85 “Mar. 10 Hr’g Tr, 117:12-19 (regarding use of word “foreclosure” rather than describing

prepetition transaction as a “consensual transaction.”)

19

I. Trustee’s Visits to Debtor’s Offices

Four witnesses testified at the hearing about Debtors’ offices. The apparent purpose

of the testimony was to show that Trustee lied when he said that there were no boxes of

documents in Debtors’ offices when he visited in 2014 and, again, in 2016, Movants

contend that this lie as well as Trustee’s failure to retrieve the boxes of documents serves as

grounds for removal.

There are some facts upon which the parties agree and for which there is unrefuted.

evidence. In 2014, Debtors leased office space on the second floor of a two story office

building located in Jupiter, Florida (“Office Building”). The Office Building is owned by

Allerand 10 W 10 Company. Brenda Kay Caliendo is (and was during all relevant times)

the building manager of the Office Building. She testified that she is employed by Sabella.

In May 2016, Movants’ counsel notified Trustee’s counsel that there were dozens of boxes

of documents located in Debtors’ former offices. After an exchange between counsel, 1n

June, 2016 Trustee arranged for 161 boxes of Debtor's documents to be picked up from the

Office Building.

The parties disagree about all other details. The disputed details include exactly

what suite number(s) were assigned to Debtors’ space on the second floor. The two

schematics of the second floor of the Office Building that Movants’ introduced into evidence

do not reflect the suite numbers or possibly even the space at the relevant time periods.*

Caliendo and Sabella attempted to clarify, but the testimony was confusing at best.*’

Debtor’s bankruptcy petition lists Suite 203 as Debtors’ street address.® Caliendo testified

8 Movants Ex. 6 (A), (C); Mar. 9 Hr’g Tr. 69:5-13.

87 See e.g., Mar. 10 Hr’g Tr. 98:23-100:7.

88 Trustee Ex. 1; see also Mar. 10 Hr’g Tr. 100:16-101:2.

20

that Debtor occupied suites 201 and 203 (later changed to 205). Welke and Sabella

testified that Debtors’ former offices were suites 201 and 205.” Trustee testified that on his

first visit he could not go into Suite 201.7! And, both Welke and Sabella also testified that

the suite numbers were confusing since the numbers changed frequently.”

The disputed details also include when (and, if) a doorway between two suites (that,

presumably, Debtor occupied) was boarded up. Caliendo testified that a center wall with

French doors containing glass panes was boarded up sometime in 2015 to accommodate a

new tenant.”’ Welke and Sabella also testified that a doorway between two suites was

boarded up in 2015 (after Trustee’s 2014 visit).* But, the documentary evidence Movants’

submitted to corroborate Caliendo’s testimony did not reflect charges for drywall or other

materials necessary to board up a door.”

The disputed details also include the sublease tenants. Caliendo, Welke and Sabella

testified that there was no tenant during Trustee’s 2014 visit.*° But, Welke and Caliendo

disagreed on whether there were one or two tenants when Trustee visited the Office

Building in 2016.’ Trustee testified as to a tenant in Suite 201 during his first visit.”

Finally, the disputed details also include whether there were boxes in Debtors’ offices

during Trustee’s visits and if so, how many and where. Welke and Sabella testified that

® Mar. 9 Hr’g Tr. 46:9-14; 47:12-25 (the schematic represents the layout, but the suite numbers are

reversed).

% “Mar. 9 Hr’g Tr. 120:16-121:1; Mar. 10 Hr’g Tr. 74:20-21, 99:19-100:7,

Mar. 10 Hr’g Tr. 159:14-21.

Mar. 9 Hr’g Tr.146:13-20; Mar. 10 Hr’g Tr, 99:19-100:7,

Mar. 9 Hr’g Tr. 57:6-58:6; 72:25-73:6, 74:6—75:15.

Mar. 9 Hr’g Tr. 109:12—17, 124:25-125:18; Mar. 10 Ht’g Tr, 78:9-21,

Movants Ex. 6(D), see also Mar, 9 Hr’g Tr. 77:18-79:8.

% See eg., Mar. 9 Hr’g Tr. 87:4-8, 123: 5-9; Mar. 10 Hr’g Tr. 78:9-21.

*? Mar. 9 Hi’g Tr. 125:21-126:2.

% Mar. 10 Hr’g Tr. 159:14-21.

21

there were boxes everywhere on Debtor’s premises during Trustee’s 2014 visit.” But,

Caliendo testified there were only 30 to 40 boxes left in Debtor’s space when Debtor vacated

the offices in 2013,’” Trustee testified at least equally convincingly that he saw no boxes of

documents on his visits.'°' Further, Trustee testified that Debtor’s counsel had advised him

before his 2014 visit that there were no records left at Debtor’s facility.'”

Based on the evidence presented, I cannot conclude that Trustee has lied regarding

his visits to the Office Building or with respect to the boxes of documents. My

contemporaneous thoughts on Movant’s testimony as it was being adduced was that it was

confusing. My review of the transcripts brings no more clarity to the testimony. Movants

did not establish that 'T'rustee lied about what office space he walked through or the

condition of the space.

As for the boxes of documents, while it makes no sense that Movants removed them

from the premises (and Trustee did not testify that Movants did), I cannot conclude that 161

boxes were clearly visible to Trustee on his walks through the premises. Further, Trustee

arranged for the pickup of the boxes of documents as soon as his counsel received an email

concerning them. At every turn in this bankruptcy case, Movants have raised the fact that

Trustee immediately redirected all Debtor mail upon his appointment. Had ‘Trustee known

of the existence of the boxes of documents sooner, there is no doubt he would have removed

them sooner.'®

° Mar. 9 Hr’g Tr. 122: 9-14; Mar. 10 Hr’g Tr. 75:11-18.

100 Mar. 9 Hr’g Tr. 52:18-23,

101 Mar, 10 Hr’g Tr. 23:23-24:9, 28:19-23, 29:4-14,

1022 Mar. 10 Hr’g Tr. 20:6-25, 54:22-56:2; see also Trustee Ex. 35.

103 Trustee testified that it was his practice when first assigned to a case to find out whether he needs

to visit the premises immediately, including to secure documents. Jd.

22

As for Trustee’s characterization that he was forced to pick up the 161 boxes of

documents within thirty days of notification, Movant’s counsel’s email bears out that this is

a logical characterization.* Any assertion this is untrue is unfounded.

Given the confusing evidence, any inconsistencies with respect to the boxes of

documents cannot form a basis to remove Trustee,

I. Alleged Attempt to Charge the Estate for Personal Excursion

Cause for removal exists when a trustee breaches his fiduciary duty by intentionally

charging the estate for expenses serving no legitimate estate purpose.'” Movants assert that

Trustee visited Debtor’s office in March 2014 during a multi-day leisure trip and charged or

attempted to charge the estate for personal expenses related to that trip.

Movants introduced no evidence indicating Trustee charged or attempted to charge

the estate for this trip. The evidence is that Trustee has a home in Florida.’ He visited

Debtor’s offices, which are close to his home, in March 2014. Afterwards, Trustee went

shooting.’ Trustee enters his expenses related to the estates he oversees, usually monthly,

into a system called Timeslips.'” There are no charges for the March 2014 trip to Florida in

the Timeslips expense report.” Trustee did not charge the estate for airfare, hotel or any

other activity for that trip. And his uncontradicted testimony was that he did not intend to

Trustee Ex. 35.

5 In ve IFS Fin, Corp,, 803 F.3d 195, 199-200, 205-06 (Sth Cir. 2015) (removing a trustee for

intentionally charging the estate for substantial expenses incurred for personal benefit).

106 Mar. 10 Hr’g Tr. 45:14-25.

107 Mar. 10 Hr’g Tr. 66:24-67:22.

108 Mar. 10 Hr’g Tr. 59:22-60:7,

10° Movants Ex. 48H.

23

do so—at the time or in the future."° Cromley testified that she did not input Trustee’s

expenses and does not assist Trustee in doing so."

Cromley did testify, however, that she is familiar with Hill Archive, a firm Trustee

uses to store documents, that Hill Archive stores documents for Trustee in connection with

United Tax, that she has received invoices from Hill Archive related to United Tax and that

she has prepared checks payable to Hill Archive based on those invoices.' There are no

expense charges for Hill Archive on Trustee’s expense reports.'”? Trustee’s testimony

contradicted Cromley’s on this point. ‘Trustee testified that there are no invoices from Hill

Archive yet.!4 But, Trustee’s expense items—-mileage, parking and photocopies—are all

recorded in the Timeslips reports.‘

Movant's counsel suggests that the lack of entries for charges from Hill Archive

suggests that not all expenses for United Tax have been reported and then concludes that

Trustee may still charge for his March 2014 trip. While the testtmony on the existence of

Hill Archive invoices is inconsistent, there is no evidence that Hill Archive payments would

be recorded in Timeships; Cromiey was not asked in what system she records payments (as

opposed to expenses). Further, the Handbook for Chapter 7 Trustees provides that a

chapter 7 trustee must establish and maintain contemporancous books for each estate,

including a Cash Receipts and Disbursements Record (Form 2).''° Consistent with this

requirement, while certain of the Timeslips entries reflect expense for external items, such as

10 Mar. 10 Hr’g Tr. 46:6-19, 59:10-12, 60:8-11, 22-24.

Ml Mar. 9 Hr’g Tr. 23:11-13.

Mar. 9 Hr’g Tr. 19:14-21:6.

Movants Ex. 48H.

M4 Mar. 10 Hr’g Tr. 19:17-20:6.

45 The Timeslips Report reflects either entries made by “George L. Miller” (mileage, parking,

photocopies) or by “Administrative” (photocopies, postage, federal express). Movants Ex. 48H.

46 ‘Trustee Ex. 6, 5-1.

24

postage or federal express delivery, none of these Timeslips entries contain any reference to

actual payment, such as a check number reflecting an actual disbursement to a third party

vendor or reimbursement to MCT.

Based on the evidence, I cannot infer that the lack of Hill Archive charges in

Timeslips means that other charges, such as for Trustee’s trip to Florida are hidden or might

appear in the future. And, I certainly cannot find or conclude that Trustee intended or

intends to charge the bankruptcy estate for his March 2014 trip to Florida.’

IV. Litigation Against Welke

On March 3, 2016, Trustee sued Welke to avoid $821,402.69 in payments Debtor

made to American Express.'!® In the original complaint, Trustee seeks to avoid the

payments as either preferences under the Bankruptcy Code, constructive fraudulent

conveyances under the Bankruptcy Code or analogous state law, or payments to an insider

under state law.’ On December 13, 2016, I granted judgment on the pleadings with leave

to amend,"

On April 14, 2017, Trustee filed an Amended Complaint seeking to avoid.

$255,328.91 in payments Debtor made to American Express. The amended complaint

asserts only a preference claim. All allegations of a constructive fraudulent conveyance

have been eliminated. Welke moved to dismiss the amended complaint. Trustee filed a

7 Movants counsel also argues that as Trustee is in a “fishbowl” he would have changed his mind

about charging the estate for the March 2014 trip. But, the earliest possible time that Trustee was in

a fishbowl was March 30, 2016 (when the Motion to Dismiss and the Barton Motion were filed), two

years after the expense would have been logged in Timeslips. Movants presented no evidence that

Trustee changed his Timeslips entries.

18 George L. Miller, Trustee v. Edward Welke, Adv. Pro. 16-50088.

49 Complaint, Welke Adv. Pro., ECF No. 1.

20 Welke Adv. Pro., ECF No. 23 (ORDER), Welke appealed this ruling, which was dismissed on

January 11, 2018, Welke Adv. Pro., ECF Nos. 49, 50.

25

cross-motion to amend along with a proposed second amended complamt. On April 26,

2018, I granted Trustce’s cross-motion to amend and denied Welke’s motion to dismiss.”!

Movants argue that the Welke adversary proceeding was frivolous and that Trustee

should be removed because he sued Welke in bad faith without proper investigation. In

particular, Movants argue that Trustee did not perform a Rule 2004 examination prior to

filing the Welke adversary proceeding and had no basis to bring the constructive fraudulent

conveyance claims as evidenced by the dismissal of those claims.

Movants’ evidence demonstrates that: (1) Trustee did not contact Welke before suing

him;'” Gi) Trustee did not review the American Express card statements before suing Welke

because he did not have them;'” (iii) Trustee filed the Welke adversary proceeding shortly

after Movants’ nominal settlement offer;’”* and (iv) Trustee did not review the discovery in

the Welke adversary proceeding until the discovery was over.’”* The evidence also

demonstrates that Trustee reviewed certain transfers made by Debtor, but Trustee relied on

counsel to do the investigation, to file the complaint, and to review any discovery.’”°

Further, Welke testified that the American Express card had his name on it and that Debtor

paid more than $800,000 on the card.'?’

Based on the evidence presented, I cannot find or conclude that Trustee’s decision to

sue Welke was so unreasonable as to justify removal. A trustee has discretion in

prosecuting litigation and will not be removed for a mistake in judgment as long as it is

21 Memorandum Order Granting Cross-Motion to Amend and Denying Motion to Dismiss, Adv.

Pro. 16-50088, ECF No. 51. A review of the docket shows that Welke has now moved for summary

judgment.

22 “Mar. 9 Hr’g Tr. 138:21—139:16.

23 Mar. 10 Hr’g Tr. 44:22-24.

24 Mar. 10 Hr’g Tr. 83:19-84:7.

25 “Mar. 10 Hr’g Tr. 47:2-20.

126 Mar. 10 Hi’g Tr. 63:19-64:13.

27 Mar. 9 Hr’g Tr. 140:1-6, 183:15~184:11.

26

reasonable,'“* While Trustee determined not to re-plead the constructive fraudulent

conveyance claims after I granted Welke’s motion to dismiss, this does not serve as grounds

for removal. ‘The preference claims are still pending and I denied a motion to dismiss those

claims.

As for the investigation, while a trustee can choose to use Rule 2004 to gather

information he is not required to. And, a potential defendant is not entitled to be served

with a Rule 2004 request prior to being sued.'”

Finally, Movants have brought several motions for sanctions related to Trustee’s

various lawsuits. If the Welke lawsuit was improperly filed, sanctions can be granted in that

context. But, it goes without saying that granting a motion to dismiss a portion of a lawsuit

does not necessarily lead to imposition of sanctions.

V. Trustee’s Alleged Improper Settlement Overtures.

Movants’ Exhibit 48(k) is a June 6, 2017 email from ‘Trustee’s counsel to Movants’

counsel following up on an earlier phone call regarding two motions Trustee was planning

to file seeking sanctions against Movants. The email reflects that Trustee was willing to

accept $150,000 to avoid the filing of those two motions if the offer was accepted within 24

hours. At the hearing, Trustee acknowledged the email, and that his counsel thereafter filed

at least one motion for sanctions.’

During argument, I asked Movants’ counsel the import of these actions as he

suggested some impropriety under some unspecified professional rules of responsibility.

Ultimately, Movants’ counsel suggested these actions show bias against his clients in taking

128 In ve EquiMed, Inc., 267 B.R. 530, 534 (D. Md. 2001); Zundborg, 110 B.R. at 108.

229 T have to observe that this is the first time in my experience (both as a practitioner and a judge)

that the target of a lawsuit has complained that a Rule 2004 examination was not taken prior to

commencement of a lawsuit.

80 Mar. 10 Hr’g Tr. 12:3-13:25,

27

overzealous positions in the bankruptcy case.'*! I see no basis to remove Trustee based on

this email from counsel.

VI. = Alleged Conflicts of Interest

Movants contend that Trustee should be removed for conflicts of interest because: (i)

the estate may have claims against Trustee for Welke’s potential indemnification claim; and

(ii) Trustee used the estate’s attorney in defending the Barton Motion.

A chapter 7 trustee must be a “disinterested person.”'’ As such, a trustee shall not

“have an interest materially adverse to the interest of the estate or of any class of creditors or

equity security holders, by reason of any direct or indirect relationship to, connection with,

or interest in, the debtor, or for any other reason.”* However, a trustee’s lack of

disinterestedness does not automatically mandate removal for “cause.”“! Instead, a court

evaluates “prospectively on a case-by-case basis” whether a trustee’s alleged lack of

disinterestedness can be tolerated under the circumstances by examining “‘the full panoply

of events and elements.’”'* “Not every conceivable conflict must result in sending [the

trustee] away,” and the Third Circuit clearly admonished that “[h]orrible imaginings alone

cannot be allowed to carry the day” to remove a trustee. Crucially, a court must decide

whether there is “a sufficient threat of material adversity to warrant [the] prophylactic

action” of removal.!’

As to Trustee’s use of the estate’s counsel defending the Barton Motion, I conclude

this does not justify removal. In a motion based on Barton, a party moves to “obtain leave

31 Mar. 10 Hr’g Tr. 247:10-251:6.

132 See 11 U.S.C. §§ 701(a), 702(d), 101(14).

83 11 U.S.C. § 101(14(C).

34 BH & P, 949 F.2d at 1309.

5 Id. at 1312-13 (quoting In re Martin, 817 F.2d 175, 181-83 (ist Cir. 1987).

136 at 1313 (quoting Martin, 817 F.2d at 183).

137 at 1312 (quoting Martin, 817 F.2d at 182).

28

of the bankruptcy court before it brings an action in another forum against a bankruptcy

trustee for acts done in the trustee’s official capacity.”"* Therefore, using the estate’s

attorney to defend a barton motion does not create adversity to the estate, much less

constitute material adversity sufficient to justify the extreme remedy of removal.!’

As to, Welke’s potential indemnification claim, Movants’ evidence merely shows

that: G) Welke entered into a pre-petition agreement with Debtor, possibly entitling him to

indemnification;'”’ and (ii) Welke filed a proof of claim in the amount of $5,363.50 for fees

incurred in defending the Welke adversary proceeding. The filing of a proof of claim by

an individual entitled to indemnification based on a lawsuit filed by a chapter 7 trustee

cannot create a conflict-of-interest sufficient to remove a chapter 7 trustee. If that were the

case, chapter 7 trustees would often be unable to sue former officers and directors.‘

38 In ve VistaCare Grp., LLC, 678 F.3d 218, 224 (3d Cir, 2012).

39 Tn denying the Barton Motion, I found that Trustee acted within his official capacity. See Barton

Ruling 14:11-17, 23:5-8, ECF No. 162.

40 Mar. 9 Hr’g Tr. 133:10-18.

41 Movants’ Ex. 15; see also Mar. 9 Hr’g Tr. 132:11-23, 133:6-9.

2 Miller, in his individual capacity, has been sued in this court by SWZ and Tax Help in an

adversary proceeding styled SWZ Financial II, LLC et al. v. George L. Miller, individually, Ady. Pro, No.

18-50315. In this lawsuit, plamtiffs sue for conversion of mail directed to Debtor and tortious

interference with contracts and business relationships related to the mail and/or Miller’s

communications with taxpayers serviced by Debtors, Miller hired his own counsel to defend his

personal interests in the adversary proceeding. In their submissions on the Removal Motion (see e.g.,

ECF No. 195), Movants contend that Trustee is no longer disinterested because he not only asserted

defenses to this lawsuit, but filed counterclaims against plaintiffs for, among other things, malicious

prosecution and abuse of process. Movants contend that the counterclaims make Miller adverse to

the interest of an equity security holder (d. at 2). Movants appear to have abandoned this position

as they did not argue it at the hearing or admit the allegedly offending pleading into evidence at the

hearing (although it was included in Movants’ exhibit list as a possible exhibit). In any event, this

would not be grounds for removal. First, as Movants recognize, lack of disinterestedness is not

necessarily grounds for removal under § 324 (id. at 4-5), Second, while Miller may now be adverse

to Tax Help and SWZ, there is no evidence that either are creditors or equity holders. Indeed, in

Movants’ submissions they concede that Allerand, not SWZ, “owns a membership interest” in

Debtor. While Movants also contend that Allerand also “owns a membership interest” in SWZ,

there is no transitive property that morphs SWZ into an equity holder of Debtor. So, assuming that

having an interest adverse to one equity holder (as opposed to the class of equity security holders (see

11 U.S.C. § 10104(C)) makes one not disinterested, such adversity does not exist here. Further, in

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Under questioning at argument, Movants’ counsel suggested that the conflicts equate

to bias, that is, Movants believe that Trustee holds a bias against them. Perhaps, Sabella’s

own words best sum up this position:

QO: Mr. Sabella, do you consider any of the actions of the [Movants] i the

adversary proceedings to be frivolous in this matter?

A No. They've been characterized that way, but if you sort of try to

follow the steps of this case as it has evolved, we came to the Bankruptcy

Court essentially hoping for a professional trustee to analyze the facts, which

were complicated -- we understood they were complicated -- and conclude as

we did, that we -- you know, we didn’t do anything wrong, and that there

were no real claims here, and that if there were real claims, they could be

settled expeditiously and in a fair way.

We came to realize that that just was not going to happen with this

‘Trustee. And I think if you look at sort of every one of the allegedly frivolous

things that we've done, cases we've filed, or motions or claims we've made,

every single one of them was calculated to end this case. And the idea was

that we just were never going to get justice from Mr. Miller.

I can't explain it, but -- and I can't account for the fact that he's such an

experienced guy who should really be good at this and should be able to

analyze these things and come to the right conclusions. But he can't and

hasn't.'"

In other words, Movants had hoped for a trustee who would share their view that Movants’

prepetition actions were above reproach. Instead, they drew a chapter 7 trustee who has

taken aggressive postures challenging Movants’ prepetition actions and seeking to hold

Movants to account. Trustee sees the transaction as problematic, constructively fraudulent

and precipitated by Debtor’s desire to avoid payment on Wonders’ judgment. Whether

the context of this case, where SWZ has sued Miller, individually, his firm and his assistant, | would

not, without more, remove Trustee because of the assertion of counterclaims,

43 Mar. 10 Hr’g Tr. 91:2-24. I have already noted here, and previously from the bench in this case,

that certain actions taken by Movants distract from any meritorious positions they may have. For

example, suing Cromley, an assistant, for filling out a change of address form at Trustee’s direction,

does not seem calculated to end the case or lead to a right conclusion.

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Trustee will ultimately prevail in his some or all of his positions is yet to be determined, but

the bringing of lawsuits is not evidence of bias—or at least not impermissible bias.

Accordingly, I do not find a conflict of interest or bias sufficient to remove Trustee.

VI. Alleged Incompetence /Unwillingness to Perform Trustee Duties and “Abuse of

Office.”

Movants recast their previously failed allegations into new assertions of

incompetence/unwillingness to perform and “abuse of office,” seeking to remove Trustee

based on their dissatisfaction and disagreement with Trustee’s case management and

personality. Movants failed, however, to prove any of their previous allegations, and

introduced no evidence to support their new claims of incompetence/unwillingness to

perform and “abuse of office.”’ Rather, the evidence is that Trustee diligently performed

his duties, including (i) two visits to Debtor’s offices, (1) timely conducting the § 341

meeting, (iii) engaging counsel and (iv) filing two adversary proceedings. There is no

evidence to support removing Trustee for not performing his duties; to the contrary,

Movants do not like the way Trustee is performing his duties.

As for charges of abuse of office, Sabella testified regarding Trustee’s conduct at the

§ 341 meeting. He characterized Trustee as at first acting in a “businesslike” manner, then

ina “firm” manner and ultimately in an “obnoxious, arrogant, difficult and completely

disrespectful” manner.'® A review of the transcript of the § 341 meeting!” reveals that

Trustee was doggedly pursuing lines of questioning, insisting that Sabella assume certain

facts and respond to hypothetical questions, and insisting that Sabella answer certain

Movants’ new accusation proposed at the hearing on Trustee’s allegedly hostile conduct during

the § 341 meeting arguably falls under this section, but I heard no evidence establishing any hostile

conduct by Trustee. Moreover, this argument was previously addressed to the UST, who has

determined that Trustee’s behavior during the § 341 meeting constituted diligent cross-examination.

45 Mar. 10 Hr’g Tr. 86:5-8.

46 Movants Ex. 21.

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questions or assert his 5" Amendment rights. This conduct comports with my general

observations that Trustee takes aggressive positions and can be gruff (some might say

overbearing). While other chapter 7 trustees might obtain the same information and

outcomes by taking a different approach, | cannot conclude that Trustee’s mannerisms and

conduct constitute an abuse of office or come close to sufficient to remove him from this

case or the chapter 7 trustee panel.

VIL. Whether Removal Benefits the Estate

Finally, in assessing the Removal Motion, I consider whether removal of Trustee is

in the best interest of the estate. It is not. This case has been ongoing since 2014. The only

active participants in the case are Movants and Trustee. Based on the record and my

knowledge of the case, I find that removing Trustee and the appointment of a new chapter 7

trustee will only delay the conclusion of this highly-contentious case and increase the costs

for the estate because any new trustee must first familiarize himself with this long-pending

case and then dispose of the hotly-contested adversary proceedings.'*’ Potentially case

dispositive motions have been filed in each adversary proceeding and trial is scheduled in

the SWZ adversary proceeding.“ Asking a new trustee to evaluate the proceedings at this

stage, with the possible retention of new counsel, is not beneficial to the estate. I also note

that neither Wonders nor any other party unaffiliated with Movants have joined Movants’

request.

47 At the hearing, Mr. Tinker expressed the same concern, stating: “[y]ou don’t change horses in

midstream” and contended that the UST should not be directed to find another chapter 7 trustee to

take over this case. Mar. 10 Hr’g Tr. 283:13-284:3.

Trial was postponed once due to the onset of the covid-19 pandemic and after a conference call

with the parties, the SWZ adversary proceeding is currently scheduled for a three day trial in late

January (subject to further order or grant of summary judgment).

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Conclusion

Based on the foregoing, I find and conclude that Movants have not met their burden

of proof to establish cause under § 324 to remove Trustee. The Removal Motion will be

denied per the accompanying Order.

Dated: October 19, 2020 : bus , gdanes f | Cx

LAURIE SELBER SILVERSTEIN

UNITED STATES BANKRUPTCY JUDGE

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