How Badly Do You Want that Ferrari? A Cautionary Tale
In Elissa Miller v Slotkin Defective Trust of December 14, 2021 et. al, (In re Mark Abbey Slotkin), 2022 WL 16835524, the Honorable Sheri Bluebond entered a civil contempt order directing the U.S. Marshal to arrest debtor Mark Slotkin (“Slotkin”) and place him in custody until he delivered his Ferrari (or its value) to bankruptcy trustee Elissa Miller (“Trustee”). Judge Bluebond emphazised the contempt order was merely to force compliance with her orders and not to punish Slotkin for failing to turnover his Ferrari or for filing false declarations with the Court. “It will be up to Slotkin,” Judge Bluebond writes sardonically, “to decide whether he enjoys driving his Ferrari enough to elect incarceration over compliance.”
Slotkin is a cautionary tale for lawyers representing clients whose lifestyles are inconsistent with their bankruptcy schedules and who fail to turnover property when ordered to do so by the court.
In February 2020, Slotkin filed a voluntary Chapter 7 bankruptcy petition, disclosing little personal property, no real estate, and no interests in any trusts or businesses.
In November 2020, the Trustee sued Slotkin “to unwind the intricate web of intentionally defective grantor trusts, limited liability companies and corporations that she claimed the Debtor had set up for the purpose of hiding and attempting to shield valuable assets from his creditors, while maintaining full control over the Trusts and continuing to use the proceeds generated by assets of the Trusts as he pleased to pay his personal expenses and maintain his lifestyle.”
On summary judgement, Judge Bluebond ordered Slotkin “to cooperate and facilitate” the turnover of assets that included “tangible and intangible assets owned by [Debtor’s alter ego company] Antiquarian Traders Inc.” Slokin, however, did not do enough cooperating and facilitating.
Thus, in April 2022, Judge Bluebond found Slotkin in contempt of her summary judgment order and instructed the U.S. Marshal to arrest and hold Slotkin until he delivered a 2007 Ferrari 612 Scagliette to the Trustee. In response, Slotkin filed declarations claiming he sold his Ferrari before his bankruptcy filing.
The Trustee, however, presented (1) a transcript of Slotkin’s earlier testimony in the bankruptcy case where he states that Antiquarian (later found to be his alter ego) owned the Ferrari and (2) evidence that Slotkin insured the Ferrari in his own name through 2022, five years after he alledgedly sold it to Ultra Hot Motor Sports in Texas.
In her order issued after an October 13, 2022 contempt hearing, Judge Bluebond held nothing back:
“There is only one conclusion that any reasonable trier of fact could reach on this record – that Slotkin’s testimony that he sold the vehicle to Ultra Hot Motorsports in 2017 is false and that Antiquarian [Mr. Slokin’s alter-ego company] still owned the vehicle as of the time the Court entered the SJ Order in December of 2021.”
Judge Bluebond ordered the U.S. Marshal to arrest Slotkin and hold him “in custody until he purges his contempt” by either (a) turning over the Ferrari to the Trustee; or (b) paying $144,000 (the value of the vehicle). She then published a decision that reaffirmed her earlier contempt order, carefully explaining that her order was intended to be coercive and not punitive:
“In an effort to inspire Slotkin to comply with the SJ Order, on October 14, 2022, the Court entered its [October Contempt] Order … in which the Court directed the U.S. Marshal to arrest Slotkin and hold him in custody until he purges his contempt . . .. The purpose of this exercise and this Court’s October 14, 2022 order is not to punish Slotkin for failing to turnover the Ferrari or for filing false declarations with the Court. To the contrary, this Court’s objective is to cause Slotkin to comply with its orders so that the Ferrari or its proceeds may be administered for the benefit of Slotkin’s creditors. It will be up to Slotkin to decide whether he enjoys driving his Ferrari.”
In a foreshadowing footnote, Judge Bluebond explains:
“Whether or not Slotkin deserves to be punished for his conduct in this Case will be the subject of further proceedings before the District Court. This Court intends to issue a report and recommendation to the District Court for its consideration in connection with that issue.”
Bankruptcy courts don’t have authority to impose punishment for criminal contempt. While In re Slotkin does not directly address the significance of this distinction, Judge Bluebond acknowledges the limits of her power by underscoring the coercive purpose of her contempt order and the factual basis that Slotkin had the ability to comply with the order.
The sanctions available to a court in response to civil contempt include an indeterminate period of confinement, fines, and/or reimbursement. Sanctions are coercive and civil, rather than punitive and criminal when the contemnor is given the opportunity to “purge” the contempt.
That’s how, to paraphrase Judge Bluebond, contemnors can can choose compliance over incarceration, and it’s why the various contempt orders in the Slotkin case and the published Slotkin decision carefully lay out the facts and context that justify incarceration. The context in Slotkin includes multiple material ommissions, contradictions, inconsistencies, and outright falsehoods in Mr. Slotkin’s bankruptcy papers and sworn declarations.
The contextual cherry on the cake is Judge Bluebond’s footnote explaining how Mr. Slotkin’s multiple “defective” trusts were likely vehicles for tax evasion. It’s not hard to imagine how that little nugget might impact on the District Court as it considers Judge Bluebond’s report and recommendation regarding a criminal contempt citation for violation of her order to “cooperate and facilitate” by turning over the Ferrari to the trustee.
Judge Bluebond would have been acting within her powers to have also ordered Mr. Slotkin to compensate the bankruptcy estate for the attorney fees incurred in connection with the contempt proceeding, provided that Mr. Slotkin had the ability to pay such fees. However, it is also likely that such fees will factor into any criminal contempt sanction issued by the District Court. So, by not adding to the contempt sanction the amount of attorney fees incurred by the trustee, Judge Bluebond saved herself the trouble of an evidentiary hearing regarding Mr. Slotkin’s ability to pay a monetary sanction.
On November 17, 2022, Judge Bluebond entered a shrewd and interesting order against Mr. Slotkin. She found that he had “failed to purge his contempt . . . and has consistently behaved in a rude, disrespectful and disruptive manner in appearance before the Court via Zoom for Government.” Her November 17 order required all parties appearing at future hearings in the Slotkin adversary proceeding be physically present in court “with the expectation that the more formal setting of a courtoom may encourage Slotkin to behave in a more suitable and respectful manner in his future dealings with the Court.” (Unmentioned, of course, was the fact that a U.S. Marshal would be present to arrest Mr. Slotkin if he hadn’t by then purged his contempt.)
On December 16, 2022, Judge Bluebond entered an “Order Lifting October 14, 2022 Body Detention Without Prejudice” after the trustee advised the Court that Mr. Slotkin paid the $144,000 value of the Ferrari. So, finally, Mr. Slotkin is now out of the woods, right?
Maybe. Maybe not. In her December 16 order, Judge Bluebond gave notice that she was keeping Slotkin on a very short leash:
“The Court reserves jurisdiction to enter one or more new body detention orders if in the exercise of its discretion the Court concludes that such orders are necessary to enforce prior
orders of this Court, including without limitation its April 7 order holding Slotkin in contempt for violating this Court’s order granting partial summary judgment . . ..”
The takeaway for bankruptcy lawyers is this: Beware the potential bankruptcy client who owns any make of Italian vehicle ending in the letter “i.” If he (and it’s always a “he”) arrives at your office in a Ferrari, Lamborghini, or Maserati, insist that he sell it prior to the commencement of the case (being sure to document the sale and account for the proceeds, of course!) or prepare him to turn it over to the trustee. The lesson applies to all valuable assets (expecially flashy ones!) that might be held in the name of entities over which the client has de facto control.
Before filing a bankruptcy case for a client whose lifestyle is inconsistent with his bankruptcy schedules, counsel should ask probing questions about all assets that the client controls through entities to cooperate and facilitate that may not have his name on them. Clients who have indirect de facto control of valuable assets should be prepared to “cooperate and facilitate” lest they find themselves on the wrong end of a civil contempt citation.