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IN THE UNITED STATES BANKRUPTCY COURT


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,
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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
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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
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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.
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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.
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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
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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
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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
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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;
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(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)
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