FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVIVISION In Re: Michael Lee Baumhaft, debtor Case No.: 12 59494 SWR Chapter 7 Adv. Pro. No. ________ ___________________________________/ Stanley McGuffin, Trustee for BHB Enterprises, LLC, Plaintiff, ADVERSARY COMPLAINT vs Michael Lee Baumhaft, Defendant. __________________________________/ Stanley McGuffin (McGuffin), as trustee for BHB Enterprises, LLC, through undersigned counsel, alleges and would show the following: JURISDICTION, PARTIES & NATURE OF MATTERS 1. McGuffin, as trustee, is a judgment creditor of Michael Baumhaft (Baumhaft or debtor), having obtained an adversary judgment against him in the South Carolina bankruptcy court in 1998 in the amount of $619,424.00 stemming from the debtors misconduct as an insider of the bankrupt business (BHB Enterprises, LLC); that judgment was registered in the United States District Court for the Eastern District of Michigan for supplementary proceedings in order to pursue its collection/satisfaction, where it bears Case No. 06-50135. McGuffin is also a party- plaintiff in pending litigation in the federal district court against Baumhaft, Case No. 05-74809, 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 1 of 10 2 which is a racketeering (RICO) and fraudulent transfer lawsuit against the debtor and others stemming from Baumhafts scheme to defraud his various creditors, including McGuffin, the plaintiff herein. Both of those matters are assigned to Judge Arthur J. Tarnow. 2. Baumhaft has listed McGuffin as a creditor, or potential creditor, on his recent Chapter 7 filing in this Court, by virtue of the circumstances described in the preceding paragraph. Baumhaft has acknowledged he had a prior Chapter 7 case, filed in this Court in 1999, concerning which he was denied a discharged in 2002 (Case No. 99-55501-SWR; the proceedings in that case are incorporated by reference). 3. In this Adversary Complaint, McGuffin seeks inter alios a determination that the South Carolina bankruptcy court judgment, described above, is not a dischargeable debt and the RICO racketeering/fraud lawsuit, described above, is not a dischargeable debt (un-liquidated claim), as set out herein. 4. This Court has jurisdiction over the questions raised in this Complaint, including the dischargeability or not of the matters in question pursuant to 28 USC 1334 and 11 USC 523, as a core proceeding pursuant to 28 USC 157. 5. Venue is proper under 28 USC 1409 inasmuch as the debtors current Chapter 7 case is pending in this Court and thus personal jurisdiction over him is proper pursuant to the Rules. FOR A FIRST CAUSE OF ACTION REGARDING THE NON-DISCHARGEABILITY OF THE 1998 SOUTH CAROLINA JUDGMENT UNDER 11 USC 523(a)(10) 6. As noted, McGuffin obtained an adversary judgment against Baumhaft in the South Carolina bankruptcy court in 1998 in the amount of $619,424.00. Baumhaft then filed for 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 2 of 10 3 Chapter 7 protection in this Court in 1999, but was denied a discharge in 2002, Case No. 99- 55501. 7. The South Carolina bankruptcy court judgment (the registered judgment in the U. S. District Court for Eastern District of Michigan, Case No. 06-50135) cannot be discharged in Baumhafts current bankruptcy case because of the exception to discharge in 11 USC 523(a)(10). That provision excepts debts from discharge in a current bankruptcy case which were owed by a debtor prior to an earlier bankruptcy case where the earlier case ended up with a denial of discharge (employing a statutory concept of res judicata or claim preclusion). 8. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the Bankruptcy Code denying the debtors discharge of the subject indebtedness due to the statutory exception in question. FOR A SECOND CAUSE OF ACTION REGARDING THE NON-DISCHARGEABILITY OF THE 1998 SOUTH CAROLINA JUDGMENT: TWO ADDITIONAL COUNTS UNDER 11 USC 523(a)(4) & (a)(6) 9. The preceding paragraphs are incorporated by reference. 10. As noted, the South Carolina judgment was based on adversary proceedings in that court stemming from Baumhafts intentional misconduct as an insider of the bankrupt business. Those proceedings and findings of the South Carolina bankruptcy court are incorporated by reference. They establish his misuse of a fiduciary position and/or his intentional and willfully malicious conduct involving misappropriation (fraud and/or larceny) for which the South Carolina court rendered a judgment against him in the amount of $619,424.00. 11. The South Carolina bankruptcy court judgment (the registered judgment in the U. S. District Court for Eastern District of Michigan, Case No. 06-50135) cannot be discharged in 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 3 of 10 4 Baumhafts current bankruptcy case because of the exceptions to discharge in 11 USC 523(a)(4) and (6). The former provision excepts debts from discharge involving insider misconduct (fraud in a fiduciary capacity) and/or larceny, circumstances established by the South Carolina adversary proceedings; the latter provision excepts from discharge matters involving willful, malicious, injury, circumstances established by the South Carolina adversary proceedings. 12. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the Bankruptcy Code denying the debtors discharge of the subject indebtedness due to the statutory exceptions in question. FOR A THIRD CAUSE OF ACTION REGARDING THE NON-DISCHARGEABILITY OF THE PENDING RICO LAWSUIT: TWO COUNTS UNDER 11 USC 523(a)(2)(A) & (a)(6) 13. As noted, McGuffin is a party-plaintiff in a RICO and common law fraud case (numerous fraudulent transfers and other acts of unlawful concealment by the debtor and others in a scheme to defraud his creditors, including the taxing authorities). 14. The District Court, Report and Recommendations of 2/18/09 and 2/20/09, RE Nos. 83 & 84 respectively in that matter, Case No. 05-74809, made specific findings that the proofs demonstrated sustainable claims under the RICO statute, with a documented criminal enterprise, under a pattern of racketeering; those findings are incorporated by reference. (As a matter of course, they establish ordinary fraud in the concealment of the debtors assets.) That case remains pending subject to the collection action, Case No. 06-50135, per Judge Tarnows order of 9/17/10 (RE 88 in the RICO case) inasmuch as Judge Tarnow appointed a Receiver to oversee collection of the 1998 South Carolina judgment, a key obligation that underlies the RICO case. 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 4 of 10 5 15. As for the debtors RICO practices and other unlawful conduct, the RICO case statement in Case No. 05-74809 outlines Baumhafts fraudulent racketeering activities, RE 57 therein; that statement is incorporated by reference. They were connected to a substantial real estate operation the debtor conducted after getting out of prison (he was incarcerated for bank fraud in 2000, see U. S. v Baumhaft, Case No. 99-80336-PJD), characterized by property flipping and equity skimming through the use of false documents including inflated appraisals. (The filings in the collection proceeding, Case No. 06-50135, documented Baumhaft had income from those dealings that exceeded more than 20 million dollars and that he bought a million dollar home on Cass Lake through a third-party business proxy, thereby concealing his ownership; he lied about the property at one of his depositions. See RE Nos. 38, 40, 44, 51 and 57, which are coercive motions and supporting exhibits documenting his wrongful attempts to avoid responsibility up to then, as well as the millions of dollars in income generated by him through one or more real estate companies he later abandoned; they are incorporated by reference.) 16. Further establishing his fraudulent and/or willfully malicious misconduct, Judge Tarnow in the collection proceeding (Case No. 06-50135, order of 9/17/10, RE 171) appointed a Receiver in 2010 and later jailed Baumhaft in 2011 for violation of a court order (see RE 220 and 244, orders of 7/15/11 and 8/3/11 respectively, adjudicating his criminal contempt). 17. At a hearing conducted by Judge Tarnow on 9/16/10 regarding the appointment of a receiver and litigation sanctions, the debtor acknowledged (RE 173-1, p 23, the transcript of hearing) a judgment-indebtedness of $525,000.00 for the South Carolina adversary judgment, as of that date, and $75,000.00 for monetary sanctions for his misconduct in concealing his assets. 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 5 of 10 6 Judge Tarnow pointedly noted Baumhafts pattern of avoidance (RE 173-1, p 20 therein) and thus placed a figure of $600,000.00 for the Receiver to pursue as of that date. 18. The Report and Recommendation of 6/19/09, RE 142 (modified by RE 150) in the collection matter (Case No. 06-50135) determined Baumhaft should be sanctioned monetarily and a Receiver imposed due to the: extraordinary efforts necessary to undo the concealment and fraud of defendants to hide assets and place them beyond the reach of the judgment creditor. (bold added) 19. Judge Tarnow adopted the Report and Recommendation in his Order of 6/17/10, RE 157 in the collection proceeding. (Baumhaft had concealed (and then squandered) more than $500,000.00 in income in one year, using his then third wife, Michelle Baumhaft, as a proxy to help his fraudulent conduct, the circumstances of which were documented in the filings that resulted in the report and recommendation for the receivership and litigation sanctions; those filings/findings are incorporated by reference.) 20. Baumhaft also made willfully false filings in the collection case as part of his scheme to defraud (and which constituted obstruction of justice), asserting that the federal court had no jurisdiction over him at all. See RE Nos. 169 and RE 176 in Case No. 06-50135, in which he claimed the bizarre and fictitious persona Michael-Lee, family of Baumhaft. This usage and those filings thus employed the so-called sovereign person/citizen terminology or tactic popular among certain fringe groups, which seeks to invalidate government authority. Judge Tarnow dismissed Baumhafts contentions as legal nonsense and clearly baseless. RE 178, order of 11/18/10 therein. 21. The pending RICO and fraud lawsuit in the U. S. District Court for Eastern District of Michigan, Case No. 05-74809, cannot be discharged in Baumhafts current 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 6 of 10 7 bankruptcy case because of the exceptions to discharge in 11 USC 523(a)(2)(A) and (a)(6). The former provision excepts debts from discharge involving insider misconduct such as the fraud as outlined and/or determined in the proceedings in the U. S. Court for the Eastern District of Michigan; the latter provision excepts from discharge involving willful, malicious, injury, circumstances as outlined or established by those same proceedings. 22. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the Bankruptcy Code denying the debtors discharge of the subject indebtedness (pending claim) due to the statutory exceptions in question. FOR A FOURTH CAUSE OF ACTION UNDER 11 USC 727(a)(2) 23. The preceding paragraphs are incorporated by reference. 24. As outlined, the debtor has operated a scheme to defraud designed to conceal his assets from his numerous creditors, including McGuffin. He has done so over time and more recently in connection with his conduct of business under a venture called Principal Mortgage Reduction, through which he has conducted business under the pseudonym Michael Cooper in association with an individual named Heather Boyer (his current girlfriend), through one or another company controlled or operated by him, such as Document Service Company or PMR Defense. 25. Upon information and belief, debtor has conducted his recent business activities in a manner and pattern intended to hinder, delay and defraud his creditors in general and McGuffin in particular and the garnishment statements of no assets in Case No. 06-50135 by debtor and Boyer (they are incorporated by reference) serve as illustrations of such misconduct within one year prior to the debtors current Chapter 7 filing, as part of that plan and scheme of 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 7 of 10 8 debtor with intent to transfer, remove, destroy and/or conceal debtors assets in order to hinder, delay and defraud McGuffin. 26. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the aforesaid Bankruptcy Code section denying the debtors discharge. FOR A FIFTH CAUSE OF ACTION UNDER 11 USC 727(a)(3) 27. The preceding paragraphs are incorporated by reference. 28. The debtor and his various businesses have had hundreds of thousands of dollars pass through his hands, and despite requests to debtor to produce legitimate records from which those financial transactions and his financial condition can be genuinely ascertained, the information produced is insufficient, and upon information and belief, debtor has concealed, destroyed, mutilated or failed to keep or preserve recorded information, including books, documents, records and papers, from which his financial condition and business transactions may be ascertained. 29. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the aforesaid Bankruptcy Code section denying the debtors discharge. FOR A SIXTH CAUSE OF ACTION UNDER 11 USC 727(a)(4) 30. The preceding paragraphs are incorporated by reference. 31. In stating under oath that his current bankruptcy schedules and statement of financial affairs are correct and complete, debtor has knowingly and fraudulently in connection with the case made a false oath in numerous particulars, including but not limited to his claim of 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 8 of 10 9 monthly income, ownership of business assets and numerous business transactions within one year of his current petition. 32. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the aforesaid Bankruptcy Code section denying the debtors discharge. FOR A SEVENTH CAUSE OF ACTION UNDER 11 USC 727(a)(5) 33. The preceding paragraphs are incorporated by reference. 34. In failing to keep and maintain and failing to provide sufficient records showing in full the full extent of the moneys received by debtor and his businesses and the disbursement of those funds, the debtor has failed to explain satisfactorily the loss of assets and deficiency of assets to meet his liabilities. 35. McGuffin seeks, and upon information and belief is entitled to, a judgment and order of the Court under authority of the aforesaid Bankruptcy Code section denying the debtors discharge. WHEREFORE, McGuffin prays for the judgment and order of the Court providing the following: (1) Determining and declaring that the South Carolina judgment debt owed by debtor to McGuffin (and the collection proceeding brought to satisfy it, Case No. 06-50135) is not dischargeable; (2) Determining and declaring that the pending lawsuit claim(s) against the debtor (as presented in Case No. 05-74809) is not dischargeable; 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 9 of 10 10 (3) Denying the debtors general discharge; and, (4) Providing to McGuffin such other and further relief to which McGuffin may be entitled or as the Court may find appropriate in the circumstances. Respectfully submitted, By: /s/ Robert C. Horvath Robert C. Horvath Attorney for Plaintiff 2531 Jackson Ave., Ste. 350 Ann Arbor, MI 48103 Phone: (248) 858-5881 Fax: (248) 671-0952 e-Mail: rhorvath @comcast.net P42046 Dated: November 25, 2012 CERTIFICATE OF SERVICE I CERTIFY that on November 25, 2012, I caused the foregoing document to be filed with the Clerk of the Court via the ECF system. By: /s/ Robert C. Horvath Robert C. Horvath (P42046) 12-06032-swr Doc 1 Filed 11/24/12 Entered 11/24/12 12:49:16 Page 10 of 10