Fri. Apr 16th, 2021

Darren Chaker looks at the use of spendthrift trusts in bankruptcy. Unlike a typical living trust, a Nevada spendthrift divests the debtor of equitable and legal interests making it irrelevant to becoming part of the bankruptcy estate. Section 541(a) of the Bankruptcy Code provides that the bankruptcy estate includes “all legal or equitable interests”. “In determining the existence and scope of a debtor’s legal or equitable interest in property, we look to state law.” Guar. Residential Lending, Inc. v. Homestead Mortg. Co., L.L.C., 291 Fed.Appx. 734, 738 (6th Cir.2008) (citing Butner v. United States, 440 U.S. 48, 54–55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979)).

Section 541(a) defines “property of the estate” as “all legal or equitable interest of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Where debtor’s interest in property is limited to that of trustee, no other interest in that property (including beneficiary’s equitable interest) becomes part of estate upon debtor’s bankruptcy filing. In re Ames Dept. Stores, Inc. (Bankr. S.D.N.Y. 2002) 274 B.R. 600 aff’d sub nom. The beneficiary of a trust of any kind may claim any property acquired with the trust res. Republic Supply Co. of California v. Richfield Oil Co., 79 F.2d 375, 377 (9th Cir.1935).

Spendthrift trusts are specifically excluded from the estate. Bankr.Code, 11 U.S.C.A. § 541(c)(2). Even the court citing to a few minor purchases by appellant did not invalidate the trust since the beneficiary may borrow from the trust does not necessarily invalidate a spendthrift clause. See Danning v. Lederer, 232 F.2d 610, 614 (7th Cir.1956). At worst, a creditor may allege a debtor held bare legal title. However, bare legal title was not the debtor’s but was holding it in trust. See, In re Foos (Bankr. N.D. Ill. 1995) 183 B.R. 149. “If debtor holds bare legal title to property without holding any equitable interest, the estate acquires bare legal title without any equitable interest.” (emphasis added); See also NTA, LLC v. Concourse Holding Co., LLC (In re NTA, LLC), 380 F.3d 523, 530, 2004 U.S. App. LEXIS 17420, *19, 54 U.C.C. Rep. Serv. 2d (Callaghan) 790, Bankr. L. Rep. (CCH) P80,149, 52 Collier Bankr. Cas. 2d (MB) 1334, 43 Bankr. Ct. Dec. 122 (1st Cir. Mass. 2004), (“[A] trust may be said to exist where the legal estate is in one person and the equitable estate is in another, or where there are rights, titles and interest in property distinct from the legal ownership thereof.”)

In sum, spendthrift trusts provide a great tool for the wealthy to insulate assets by divesting all interests to the spendthrift trust. Nevada goes a step further by providing the most expansive asset protection in the country. In fact, Nevada was ranked first in the country by Forbes.

A review of bankruptcy law by Darren Chaker, tries to define what a bankruptcy proceeding is. Under 11 U.S. Code § 301(a) “A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition…” Most courts have ruled that a bankruptcy petition is filed for purposes of § 301 when it is first placed in the actual or constructive possession of the clerk of the bankruptcy court. Nat’l Westminister Bank v. Markings Assocs., 1992 U.S. Dist. LEXIS 15534, No. Civ. 92-3079, 1992 WL 281158 (D. N.J. Sept. 21, 1992) (holding petition was filed even without filing fee); Wood v. Godfrey, 102 B.R. 769, 771 (B.A.P. 9th Cir. 1989) (holding petition was filed when placed in clerk’s possession, rather than when stamped “filed”). Although this seems like a simple question, the authority to have filed the case may dictate if there is a proceeding.

“Anything that occurs within a case is a proceeding.” Post v. Ewing, 119 B.R. 566 (S.D. Ohio 1989). Any action that “goes beyond the bankruptcy petition” is necessarily defined as a “proceeding.” See In re Marcus Hook Dev. Park Inc., 943 F.2d 261, 264 (3d Cir. 1991). As recognized by the Sixth Circuit, “the term ‘proceeding’ is used to refer to the steps within the ‘case’ and to any subaction within the case that may raise a disputed or litigated matter.” In re Wolverine Radio Co., 930 F.2d 1132, 1141 n.14 (6th Cir. 1991). The filing of a petition is the only action that can constitute a proceeding. This means that “anything that occurs within a case is a proceeding…including all ‘controversies, adversary proceedings, contested matters, suits, actions or disputes.” In re Combustion, 391 F.3d at 226 n38 (quoting Collier on Bankruptcy, PP 3. 01[3], 3.01[4][b].

What is critical is that the attorney has the authority to file the bankruptcy petition. If he does not then the case may be dismissed and there will be no proceeding. Specifically, In re Stomberg (2013, BC SD TX) 487 BR 775, failing to obtain debtor’s signature on original Schedules and original statement of financial affairs (SOFA), which serves as debtors verification of accuracy of contents as required by Rule 1009 violated Rule 9011(b)(3); further, by forging debtor’s signature on original Schedules and original SOFA because electronically filing document bearing electronic signature that was not actually or validly signed constitutes forgery amounting to Rule 9011 violation. The Court said, “Further, this Court agrees with the court in Phillips that there are no circumstances that would ever justify an attorney filing a petition, any of the Schedules, or the SOFA without first obtaining the debtor’s signature, “regardless of how urgent the need may appear to be.” See In re Phillips, 317 B.R. at 521(refusing to accept attorney’s excuse that filing petition without first obtaining the debtor’s signature was necessary to prevent a foreclosure sale of the debtor’s home). Thus, a proceeding relies on the underlying authority of the actual client allowing for the case to have been filed in the first place.

In Nevada, “piercing the corporate veil” is now the subject of a statute, NRS 78.747. Under section 2 of this statute, to establish an “alter ego,” three things must be proven:

(a) The corporation is influenced and governed by the stockholder,

director or officer;

(b) There is such unity of interest and ownership that the corporation

and the stockholder, director or officer are inseparable from each

other; and

(c) Adherence to the corporate fiction of a separate entity would

sanction fraud or promote a manifest injustice.

This statute is a codification of the test enunciated in prior case law. See, e.g., Ecklund v. Nevada Wholesale Lumber Co., 93 Nev. 196, 562 P.2d 479 (1977), where it was also held that all three elements must be proven to pierce the corporate veil.  Thus, without these elements – the structure remained intact and the money was not part of the estate and the literal truth remains as to the “No” answer since the entities were separate. In re Giampietro, 317 B.R. 841, 845–46 (Bankr.D.Nev.2004) (recognizing that whether the alter ego/corporate veil doctrine applies to LLCs in Nevada is a question of first impression).

Fraudulent transfers are defined in 11 U.S.C. Section 548 as transfers by the debtor of an interest in property (either voluntarily or involuntarily) within two years before filing bankruptcy, where either the debtor actually did intend to defraud his creditors or, far more commonly, where the debtor did not receive “reasonably equivalent value” for the transferred asset and the debtor was either already insolvent or became insolvent as a result of the transfer. The government did not prove nor did the court articulate such findings to substantiate a fraudulent transfer.

A second category of fraud in the bankruptcy arena is where the debtor transferred the asset with actual intent “to hinder, delay, or defraud” his creditors—and such transfer occurred within one year prior to filing bankruptcy, then under Bankruptcy Code section 727(a)(2)(A), the court may deny the debtor from obtaining a bankruptcy discharge.

By Darren Chaker

For almost two decades Darren Chaker regularly has worked with defense attorneys and high net worth people on a variety of sensitive issues from Los Angeles to Dubai. With a gift of knowledge about the First Amendment and big firm expertise in brief research and writing, Darren Chaker puts his knowledge to use for law firms and non-profit organizations. When it comes to forensics and social media investigations Darren Chaker has advanced training to connect the dots where issues arise related to Twitter, Instagram, Snapchat, or Facebook, Instagram, and similar apps. When the dots need to be disconnected, Darren Chaker has extensive training in counter-forensic methods with an emphasis on network security, secure communications, combined with experience with implementing and deploying policy control, encryption, anonymization, data integrity, policy control features in large scale infrastructures. Additional training in malware analysis, Security Operating system security and hardening (Linux, Windows, Solaris), Firewalls, Intrusion detection systems, hacker, counter-hack methods, encryption, forensics, web application security is also employed for his client base. Since history is written by winners, let me write a bit: In 2005, Darren Chaker invalidated a California criminal statute aimed at suppressing speech. In Chaker v. Crogan, 428 F.3d 1215 C.A.9 (Cal.),2005, Cert. denied, 547 U.S. 1128, 126 S.Ct. 2023, is a case Darren Chaker personally handled and laid the ground work to allow appellate counsel to strike down a statute based on First Amendment rights. Subsequent to winning before the 9th Circuit, the State challenged the decision before the United States Supreme Court. Darren Chaker retained a former US Supreme Court Clerk and head of United States Supreme Court litigation for a major firm, Joshua Rosenkranz. The New York attorney defeated the State's petition to review the Ninth Circuit ruling causing multiple states to rewrite their own flawed statute since they were premised the California statute Darren Chaker struck down. Darren Chaker personally litigated Chaker v. Crogan for 7 of its 10-year lifespan. Darren Chaker’s victory invalidated a statute on First Amendment grounds and overruled the California Supreme Court‘s unanimous decision in People v. Stanistreet, 127 Cal.Rptr.2d 633. Soon after Chaker v. Crogan, it was also used to strike down Nevada's analogous statute forcing the legislature to rewrite the law, but also nullified a similar Washington statute as well. (De La O v. Arnold-Williams, 2006 WL 2781278) and used as the backbone authority in Gibson v. City of Kirkland, 2009 WL 564703, *2+ (W.D.Wash. Mar 03, 2009). The case has been cited hundreds of times and continues to be a leading authority on viewpoint discrimination. In 2010, Darren Chaker prevailed in Nathan Enterprises Corp. v. Chaker, 2010 Cal. App. Unpub. LEXIS 7604, through his counsel Timothy Coates who has prevailed multiple times before the United States Supreme Court. also prevailed for Darren Chaker where the Court of Appeal affirmed an anti-SLAPP ruling where the underlying conduct was found to have been within those protected by his First Amendment rights. In 2012 Darren Chaker prevailed on a First Amendment issue before the Texas Attorney where issued Opinion 2012-06088 where he established the right to obtain the names of peace officers regardless of undercover status. The Texas Attorney General opinion has been used as authority thousands of times by citizens and news agencies to learn more about Texas peace officers. In 2016, Darren Chaker was victorious in US v. Chaker (9th Cir. 2016) 654 F.App'x 891, 892. The ACLU, Electronic Frontier Foundation, First Amendment Coalition, Cato Institute, and the University of Florida reversed a conviction premised on First Amendment rights where blog postings were at issue. In 2017, Darren Chaker prevailed in a RICO lawsuit aimed at suppressing speech filed by San Diego attorney Scott McMillan. In McMillan v. Chaker (S.D.Cal. Sep. 29, 2017, No. 16cv2186-WQH-MDD) 2017 U.S.Dist.LEXIS 163990 the court found by blogging did not constitute extortion as no demand for money to cease blogging was made. The judge found the case to be meritless, stating in part, “The Court concludes that these factual allegations are insufficient to establish that Defendant Darren Chaker obtained something of value from Plaintiffs…. The motion to dismiss the cause of action under 18 U.S.C.§ 1962(c) filed by Defendant Darren Chaker is granted.” In 2020, San Diego attorney Scott McMillan lost a heavily litigated appeal believing the court erred in dismissing his lawsuit against Darren Chaker. Mr. Chaker was represented by former Los Angeles federal judge Stephen Larson. The Ninth Circuit in McMillan v. Chaker (9th Cir. 2020) 791 F.App'x 666, affirmed the dismissal of a RICO lawsuit premised on alleged defamation of Scott McMillan. The court stated in part, “Plaintiffs failed to allege extortionate conduct because there are no allegations that Mr. Chaker obtained property from Plaintiffs that he could “exercise, transfer, or sell. ”See Scheidler, 537 U.S. at 405. Plaintiffs’ claim also fails because there are no allegations to support the “with [Plaintiffs’] consent” element. United Bhd. of Carpenters & Joiners of Am., 770 F.3d at 843.” In sum, Scott McMillan filed a lawsuit in direct conflict with established United States Supreme Court precedent and lost – twice. Also, in 2020, Darren Chaker was sued for defamation by Las Vegas attorney Thomas Michaelides. When Darren Chaker became aware of the lawsuit, he retained Olson, Cannon, Gormley, Angulo & Stoberski to defend him. Darren Chaker found a court order Mr. Michaelides submitted to Google that was reported to LumensDataBase.org. Several inconsistencies were noticed on the court order submitted to Google. Most notably the court docket does not show Mr. Michaelides submitted an order to the court for the judge’s signature. The court docket does not reflect the court ever signed the order Mr. Michaelides submitted to Google. Ultimately, the Nevada court dismissed the lawsuit and sanctioned Mr. Michaelides $51,000 for suing Darren Chaker for conduct within his First Amendment rights and for filing a meritless lawsuit. See forged order and judgment against Thomas Michaelides here. Darren Chaker donates time to post-conviction relief organizations to seal arrests and convictions to increase opportunity for those who were convicted of crimes, conducts research and brief writing on First Amendment issues, and also enjoys promoting non-profit organizations such as the ACLU and various domestic violence shelters through his resources within the entertainment industry, including Jason Statham and Eric Roberts. Darren Chaker also enjoys traveling, being a phenomenal father, and forwarding his education with post graduate degree work.

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