Sovereign Citizens are kind of like watching a clip from America’s Funniest Home Videos: entertaining as long as it doesn’t involve you directly.
After losing two civil and one criminal lawsuit in state court, one such Citizen decided to avail himself of the protection of the Federal Bankruptcy court in South Dakota. If you have any familiarity with the typical court behavior of sovereign citizens, you can predict the results. He picked and chose the rules he liked, ignoring the ones that did not serve his purpose. His chapter 13 bankruptcy was kicked out: he filed a new one, and that case was kicked out as well. Here are some excerpts.
After the Debtor’s attempts to challenge the judgments in the state courts proved unsuccessful, he convened a group of individuals which he refers to as “the Peoples Seventh Amendment Jury.” The “jury” purported to void the judgments against the Debtor as being fraudulently obtained and also assessed punitive damages against the parties involved in the alleged fraud. In 2013, the Debtor filed the Peoples Seventh Amendment Jury’s judgment and other documents containing the heading of “Our One Supreme Court” in the South Dakota state court. The filing of these documents resulted in the Debtor being convicted of the crime of accusing a state court judge of treason and threatening the judge with death. That conviction was affirmed by the South Dakota Supreme Court. …
In addition to the arguments which had previously been rejected by the courts, he also now asserts that ConAgra and the political and judicial leaders of South Dakota have conspired to destroy his livelihood as an organic farmer and take over the food industry.
The court found that Mr. Paulson’s opposition to the dismissal of his second bankruptcy case was both untimely, and meritless. Paulson v. McDermott, No. 16-6018 (8th Cir. 2016) http://law.justia.com/cases/federal/appellate-courts/ca8/16-6018/16-6018-2016-11-17.html
Paul Hansmeier was a wealthy, but unscrupulous, attorney. 5 years ago, he was making hundreds of thousands of dollars “porn trolling,” i.e. getting courts to issue broad John Doe subpoenas to internet service providers for users suspected of downloading copyrighted pornography. Subpoena requests are routinely granted without evidentiary hearings. Paul would then send threatening letters to pressure the thousands of suspected users to settle by paying hundreds or thousands of dollars or risk “public exposure” in litigation, when he had no actual proof that the users were the actual downloaders. When the courts found out he was abusing the subpoena process, they sanctioned him repeatedly, totaling $576,000 as of 2014. Paul dissolved that firm and moved on to filing ADA (Americans with Disabilities Act) claims against small, family-owned businesses with non-compliance issues such as improper signage or doors with round knobs instead of levers. Most small businesses would settle (or authorize their insurer to do so) rather that engage in a protracted federal case. Business was lucrative, but the pesky 1/2 million dollars worth of sanctions kept following him.
With multiple courts coming after him to collect the sanctions he had been ordered to pay, Paul decided to file a chapter 13 bankruptcy. Perhaps not coincidentally, he did so immediately before he was to turn over significant financial disclosure in response to a judge’s request. Paul made just over $10,000 worth of payments to the bankruptcy court over a 4 month period before things fell apart. The trustee found he had been less than honest in his filing and his subsequent conduct. The trustee also asked the court to change the case to a chapter 7 and sell Paul’s assets, instead of letting Paul pay the equivalent value over a 5 year period. Paul fired his attorney and filed his own response saying, “Actually, can I have the $10,000 back? I’ve got this plan to repay everybody. And the Trustee’s a crook, he buys a new Mercedes every Christmas.” The court sided with the trustee. Paul appealed.
The appellate court cited some of the findings of the bankruptcy court. It noted that Debtor had been found by a federal district court judge in the Southern District of Illinois to have exhibited “a serious and studied disregard for the orderly process of justice and a relentless willingness to lie to the court on paper and in person”; he had been found by a state court judge in Minnesota to have “intentionally given inconsistent testimony” throughout the proceedings; he had filed his bankruptcy petition to avoid disclosing financial information to the state court; he had failed to disclose numerous transfers totaling over $500,000.00 on his statement of financial affairs; he moved to a rental property and failed to amend his schedules to reflect the resulting reduction in his monthly living expenses; and “numerous courts had entered findings and conclusions that he had engaged in fraud and misrepresentations to the courts regarding his assets and his use of various entities to hide his assets” to misrepresent his financial condition.
Paul is going to lose everything (including his licence to practice law if it has not been revoked already.) Don’t lie to the court, and don’t lie or leave stuff out of your bankruptcy paperwork. Don’t think you won’t get caught. It will not end well.
In the case of Brown v. Sommers, No. 15-20034 (5th Cir. 2015), we look at how probate and bankruptcy interact. Michael Brown was a successful surgeon, accumulating a great deal of money for many years. Unfortunately, he was not as successful in keeping his marriage together, and ended up moving from Texas to Florida while acrimonious divorce and child custody proceedings were pending. In Florida, he filed a chapter 11 “with assets” bankruptcy. He did not disclose what he should, however, and his case was dismissed for “significant misconduct,” with the court taking the unusual step of assigning a Chief Restructuring Officer (“CRO”) outside of the bankruptcy to operate Dr. Brown’s business and oversee his personal affairs. Dr. Brown did not cooperate with the CRO, and the bankruptcy was reinstated and transferred to Texas (where most of the assets were held).
Dr. Brown died shortly thereafter. He had numerous wills, but none of them appeared to be valid. And since the divorce was not final, it was dismissed, leaving his wife as his lawful intestacy heir. His chapter 11 was converted into a “sell everything” chapter 7 liquidation.
The rest of the case (here) deals with the wife’s efforts to get the bankruptcy court to pay several probate allowances from Dr. Brown’s estate: ultimately the court declined to give her the money, though she is entitled to any money left over after creditors are paid. Can Wife still go through the Texas probate court to get her probate claims recognized? Probably. Will the Bankruptcy court then give her claims priority? Maybe. Will it cost a lot in legal fees? Yep.
Let’s review: there is a stereotype that some surgeons believe they know everything and can do no wrong, sometimes called a God complex. Dr. Brown thought he knew better than the bankruptcy court, better than his wife, better than the court assigned CRO, and better than any estate planning attorney (since he apparently drafted his own defective wills). At the end of the day, he was wrong several times over. He didn’t get a bankruptcy discharge, he didn’t get a divorce, he didn’t get control of his business or finances back, and he didn’t have his final wishes acknowledged or enforced by the probate court. If only he could go back in time, perhaps he could fix it, but it appears he did not have a Delorean among his many assets. Sorry, Doc Brown.