A bankruptcy trustee who lost her appointment after a judge found she had lied under oath will be kept out of the contentious case under a ruling by the 11th U.S. Circuit Court of Appeals.
Linda J. Walden appealed her removal on the grounds her lies shouldn't be held against her in the Chapter 7 bankruptcy of a Plantation, Fla., man. But Judge Phyllis A. Kravitch scotched that notion in her written opinion.
"The idea that false testimony when offered to the court voluntarily is immune to the consequences of lying under oath is absurd," she wrote. "Lying under oath is lying under oath. It does not matter if the false statement is voluntary."
The three-judge panel affirmed U.S. Bankruptcy Judge Paul G. Hyman Jr.'s order removing Walden, a certified public accountant, from the case of James F. Walker.
The court examined three questions of first impression: whether a bankruptcy judge can without a motion eject a trustee for lying, whether a debtor with no financial interest in the estate can seek a trustee's removal and whether the 11th Circuit had jurisdiction to review the district court decision upholding Hyman's action.
In the end, the court found no abuse of discretion or clear error.
Walker's attorney, Gary J. Rotella of Gary J. Rotella & Associates in Fort Lauderdale, Fla., filed an emergency motion to remove Walden as trustee, accusing her of committing a fraud on the court by failing to disclose relationships with creditors.
Walden was quizzed by Hyman about financial relationships with creditors and had signed a statement saying she had no prior connection to any of the parties.
Hyman determined Walden lied in 2004 when she denied having a pre-existing relationship with the second-largest creditor, Florida Caliper. She had served as an accountant for the company and its president, Carl Shuhi.
She also allegedly served as the registered agent for two of Shuhi's companies and worked with Shuhi at least as far back as 1999, the ruling said.
The 11th Circuit decision issued Jan. 31 is just the latest chapter in a 20-year standoff that has been described as a "legal monster" and Florida's "most heavily litigated case."
Walker's neighbor, Eleanor Cole, invested $250,000 with him in 1988 for a Fort Lauderdale property that went into foreclosure, and Walker could not repay her.
She sued him a year later alleging civil theft and fraud, obtaining a $302,933 judgment. Walker also was ordered to pay $250,000 in criminal restitution to Cole in 1990 after he pleaded no contest to criminal charges in Florida's Broward Circuit Court. He served an 18-month sentence and was placed on probation for 15 years.
Walker filed for bankruptcy protection in 2003, claiming total assets of $101 and debts exceeding $1 million. Creditors elected Walden as trustee with the support of Cole, Shuhi and Boca Raton, Fla., attorney Mary Alice Gwynn, who had previously represented both of them.
After Hyman ousted Walden as trustee, he struck both Cole's and Shuhi's outstanding claims, citing their disrespect for the legal system.
Hyman also prohibited Gwynn from representing any parties in the case after ruling she violated court rules "by not remaining familiar with the court's Local Rules, administrative orders, the Federal Rules of Bankruptcy Procedure, the Federal Rules of Evidence, The Florida Bar's Rules of Professional Conduct and the Bankruptcy Code."
Gwynn, Rotella, Shuhi and Cole's attorney, Miami Lakes, Fla., solo practitioner Michael A. Pizzi, did not return calls seeking comment before deadline.
Walker's $101 asset claim is still under scrutiny. Cole discovered in 2002 that Walker owned a house on the Bahamian island of North Cat Cay.
Cole accused Walker of fraudulently conveying a half stake in the property to his wife, Carol Ann Walker, to avoid paying the $550,000 judgment he owed Cole.
The value of the property is reportedly as much as $1 million, but who controls it is the subject of litigation.
The island property has been added to Walker's assets, and Kravitch observed, "It appears as though the assets now exceed liabilities."
Monday, June 9, 2008