Jacob Fraidin

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: *
JACOB FRAIDIN, * Case No. 92-52338-JS
Debtor * (Chapter 7)
* * * * * * * * * * * * *
MEMORANDUM OPINION ON REMAND FROM THE U.S. DISTRICT COURT
The debtor appealed the approval by this Court of a settlement between Michael
G. Rinn, the Chapter 7 trustee and André R. Weitzman and Sheldon H. Braiterman,
creditors. The U.S. District Court [Nickerson, D.J.], remanded the matter to this Court
for a more complete record of the reasons for approving the settlement.
The debtor’s objection to the settlement was summarily overruled because, in
this Court’s opinion, the debtor lacked standing to object to the settlement (and hence,
to appeal the approval of the settlement). Cf. Willemain v. Kivitz, 764 F.2d 1019 (4th
Cir. 1985). In addition, the failure of the debtor to obtain a stay of the decision
approving the settlement pending appeal, rendered the instant appeal moot.
Date signed April 12, 2004
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1In an unreported opinion in the case of Fraidin v. Weitzman (In re Fraidin),
1994 Westlaw 687306, decided December 9, 1994, the Fourth Circuit U.S. Court of
Appeals made the following statements in upholding this Court's appointment of a
Chapter 11 trustee:
After Fraidin filed for protection under Chapter 11 of the
Bankruptcy Code, two creditors with outstanding judgments against
Fraidin moved for the appointment of a trustee. At the conclusion of a
2
Development Co. of America v. Adamson Co., Inc. (In re Adamson Co. Inc.), 159 F.3d
896 (4th Cir. 1998).
Nevertheless, in conformity with the command of the District Court, this Court
herewith supplements the record, as follows:
The settlement between the trustee and the creditors received the approval of this
Court because it was found to be in the best interests of the debtor’s estate and its
creditors. This conclusion is obvious and beyond cavil when one considers the unique
facts of this case.
The instant case is one of the oldest bankruptcy cases in this district, having
begun its tortuous history in the U.S. Bankruptcy Court for the District of Columbia,
where it was filed as a Chapter 11 proceeding by the debtor on August 9, 1991. The
case was transferred to the District of Maryland by order [Teel, B.J.], dated March 17,
1992. On December 29, 1993, this Court ordered the appointment of a Chapter 11
trustee [P. 217].1
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two-day hearing, the bankruptcy court stated that it was appointing a
trustee because it had “absolutely no confidence in the debtor in terms of
his capacity to honestly administer his own Chapter 11 bankruptcy.” The
bankruptcy court based its decision on what it called “a multitude of
factors,” one of which was pre-petition dishonesty. Fraidin is a convicted
felon, having been found guilty of theft while acting as a foreclosure
trustee. See Fraidin v. State, 85 Md. App. 231, 583 A.2d 1065, cert.
denied, 322 Md. 614, 589 A.2d 57 (1991). [Footnote: The Maryland
Court of Special Appeals wrote: “The permissible picture emerges of
Fraidin as an extremely clever manipulator of complicated commercial
transactions who . . . at least had avarice in his heart. To feed that
avarice, he created at-times labyrinthine confusion. He then sought to
exploit that confusion to his own advantage.” Fraidin, 583 A.2d at
1081.] More recently, Fraidin was found liable in a civil action for
tortious interference with contract and civil conspiracy and was ordered
to pay $1.5 million in punitive damages. Also, the bankruptcy judge
found that Fraidin had used aliases as late as 1986, but did not disclose
those names as required on the bankruptcy petition. Moreover, the
bankruptcy court found that Fraidin had no credibility, given his “evasive,
self-serving, unclear, and obviously not forthcoming” testimony during the
hearing. . .
Id. at 1.
2The Fourth Circuit affirmed the conversion to Chapter 7 in an unreported
opinion styled Fraidin v. Weitzman (In re Fraidin), 1997 Westlaw 153826, decided
April 3, 1997, in which it stated:
In order to convert a case from Chapter 11 to Chapter 7, a
3
On April 13, 1994, the U.S. Trustee appointed Deborah Hunt Devan, Esquire,
as Chapter 11 trustee. On April 11, 1995, this Court converted the case to a Chapter
7 proceeding. On April 12, 1995 Michael G. Rinn, Esquire, was appointed Chapter 7
trustee.2
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bankruptcy court must first determine that there is cause for the
conversion. 11 U.S.C. § 1112(b); In re Superior Siding & Window, Inc.,
14 F.3d 240, 242-43 (4th Cir. 1994). . .
The bankruptcy court relied upon Fraidin's inability to effectuate a
plan as its basis for ordering conversion, and the record substantiates that
finding. The trustee explained at length that Fraidin would not be able to
obtain confirmation of a reorganization plan. Indeed, Fraidin has never
submitted a plan for approval. The bankruptcy court did not abuse its
discretion in converting the case to a Chapter 7 proceeding.
Id. at 2.
4
In the case of Rinn v. Fraidin (In re Fraidin), 257 B.R. 437 (Bankr. D. Md.
2001), this Court held that the debtor's transfers of money to children, less than one
year prior to the commencement of bankruptcy case, at which time debtor's total
liabilities exceeded his assets by in excess of $2.5 million, were avoidable by the
Chapter 7 trustee as being actually and/or constructively fraudulent as to creditors.
Essential to that decision was the finding that the debtor was insolvent at the time he
gave $10,000 to each of the defendants for no consideration. The Court further found
that:
The schedules filed by the debtor under penalties of perjury in his
bankruptcy case showed that on the petition date, August 9, 1991, his
liabilities substantially exceeded his assets. Total assets, both real and
personal, were reported to be $1,163,618.28, against total liabilities
reported in the amount of $3,907,287. . .
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The debtor's well-documented career of outrageous misconduct,
dishonesty and fraud and the artifices to which the debtor has resorted in
the past to prevent his creditors from being paid would, standing alone,
provide enough of a basis to disbelieve his testimony in the present suit.
However, there is even more new material to justify such a conclusion:
his inability to present a logical explanation surrounding the suspicious
circumstances of the fraudulent transfers outlined by the trustee in these
complaints; the propensity of the debtor and the defendants to “forget”
various unusual events that honest people would normally remember; the
debtor's evasive and contradictory answers provided at the trial of these
complaints and his shifty and combative demeanor while on the witness
stand compel the conclusion that Mr. Fraidin's testimony is unworthy of
belief.
It is evident from the debtor's schedules which he filed under oath
that he was insolvent when he filed his bankruptcy petition. Mr. Fraidin's
failure to pay his debts is a added proof of his insolvency. All of the
transfers complained of by the trustee occurred after suit was brought
against the debtor, and in the case of the $60,000 transfer to Brian
Fraidin, after a substantial judgment was entered against him. The timing
of the transfers in relation to the litigation against the debtor makes the
transfers classic fraudulent conveyances. . .
The record speaks for itself quite clearly that Mr. Fraidin
intentionally hindered, delayed and defrauded creditors by making these
transfers to his children, the defendants. Accordingly, the complaints will
be granted and judgments will be entered against the defendants in favor
of the Chapter 7 trustee.
Id. at 441.
In the later opinion of Rinn v. Fraidin (In re Fraidin), (Bankr. D. Md. 2003), this
Court held that the trustee’s evidence presented at a hearing on damages on a turnover
complaint filed by the trustee against the debtor was sufficient to support an award of
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damages in favor of the estate in the amount of $1,659,077, plus attorney's fees and
costs of $4,179.00, plus interest at the rate of 5.58% from April 9, 1997.
On April 9, 1997, the trustee filed that complaint against the debtor to avoid and
recover fraudulent transfers, postpetition transfers and the turnover of property. On
May 20, 1997, a scheduling conference was held at which time counsel for the trustee
appeared but the defendant did not. On May 22, 1997, the defendant filed a motion to
dismiss. On May 1, 1998, the defendant filed a motion to disqualify plaintiff's counsel.
The motion to disqualify was denied by order dated May 19, 1998 [Teel, B.J.]. By
order entered July 21, 1998, the motion to dismiss was denied, the trustee was provided
90 days to conduct discovery of the defendant and the plaintiff was ordered to file a
more definite statement within 30 days.
On September 9, 1998, the trustee filed a motion to compel discovery and to
deem facts admitted by Fraidin. On November 16, 1998, the trustee filed a second
motion to compel discovery.
On April 14, 1999, a hearing was held on the motions to compel discovery and
they were granted by Judge Keir by order [P. 34] entered on April 29, 1999. On May
14, 1999, the trustee filed a third motion to compel discovery. On May 26, 1999, the
trustee filed a fourth motion to compel discovery. A telephonic hearing was conducted
by this Court while the deposition was in progress during which Mr. Fraidin had
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refused to answer certain questions put to him by trustee's counsel. This Court
overruled Mr. Fraidin's objections to the questions and ordered him to answer them.
By order [P. 39] entered June 4, 1999, this Court reduced to written order its oral
directive to the debtor to answer the questions posed at the deposition in writing within
twenty days, upon penalty of having the instant complaint granted against him. The
debtor refused to respond to discovery requests, including refusing to attend duly
scheduled depositions. When he did attend such a deposition, he improperly declined
to answer numerous questions that this Court commanded him to answer. As a result,
on January 8, 2001, this Court entered an order granting default judgement [P. 42],
upon the trustee's Suggestion of Contempt Under Order Directing Jacob Fraidin to
Answer All Questions Posed at Depositions. On March 14, 2001, this Court conducted
a hearing on the trustee's damages, and determined that the trustee's claim against the
defendant should be allowed in the amount of $1,659,077, plus attorney's fees and costs
of $4,179.00, plus interest at the rate of 5.58% from April 9, 1997. On April 4, 2001,
a judgment [P. 50] was entered against the defendant in that amount.
The U.S. District Court (Nickerson, D.J.) affirmed, but the Fourth Circuit
reversed and remanded in the unreported opinion of Fraidin v. Rinn (In re Fraidin), 34
Fed. Appx. 932, 2002 WL 1025092, decided May 22, 2002. The reason for the
reversal was that after the trustee's complaint was granted against the debtor upon the
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debtor's contemptuous refusal to respond to discovery, this Court held a hearing on the
plaintiff's motion, which unfortunately was denominated “Ex parte Motion for
Damages,” which the debtor failed to attend. The reversal was based upon the failure
of this Court to give Fraidin an opportunity to produce evidence on the issue of
damages, an anomalous result because the reason the complaint was granted against
him was his refusal to provide discovery. (The propriety of the January 5, 2001, order,
that entered the default judgment against Fraidin, was not the subject of the appeal to
the Fourth Circuit because his appeal from that order was dismissed with prejudice by
the District Court and the dismissal was not appealed further.)
After remand, this Court conducted a second hearing on damages on January
13-14, 2003, to which the debtor was invited to attend and which he in fact did attend.
This second hearing permitted Fraidin to produce the very evidence he presumably
withheld from the trustee in an attempt to dispute the trustee's claim for damages. It
should also be noted that the original hearing on remand scheduled by this Court for
November 6, 2002, was continued at the debtor's request so that he might obtain legal
counsel to represent him. When the hearing was called on January 13, 2003, the debtor
appeared without counsel and requested another postponement so that he might obtain
subpoenas for the testimony of various representatives of the Department of Justice,
which this Court denied. Fraidin claimed that he wanted an accounting from the trustee
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for funds Fraidin collected and turned over to him. However, the trustee did not claim
that those collections were not turned over to him. His claim for damages was based
upon four discrete categories of funds that were neither turned over to the trustee nor
accounted for by Fraidin. In denying the debtor's motion for a continuance, this Court
noted on the record that the debtor had 67 days, from the date of the November 6,
2002, hearing to subpoena these witnesses, but did not do so under the very eve of the
January 13, 2003, hearing.
The defendant attempted to use the hearing on damages to retry the complaint,
including his liability which had already been established, and raised all manner of
irrelevant and argumentative issues. Nevertheless, this Court attempted to keep the
damages issue the focus of the two-day hearing on remand by constantly reminding him
that his liability to the trustee was not at issue, only the amount of damages based on
that liability.
The trustee, Michael G. Rinn, testified as to the basis for his damage claim in the
amount of $1,659,511, which the trustee claimed is unaccounted for by the debtor and
which is missing from the estate. Mr. Rinn testified that he reviewed the books and
records of the estate, including the debtor's business records, exhibits from other
proceedings in the State court and the bankruptcy court in this case, including
transcripts of hearings, and that he conducted an independent investigation of the
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3The following exhibits were admitted into evidence at the hearing:
Trustee's Exhibit No. 1: Fraidin's bankruptcy schedules that he filed under
penalty of perjury; Trustee's Exhibit No. 2: an exemplified copy of the final judgment
10
debtor and his business dealings upon which the instant complaint was based. The
amount of damages has four separate components: (1) cash in the amount of $595,435,
which the debtor scheduled under penalties of perjury as cash on deposit when the
bankruptcy case was filed; (2) funds received by the debtor from the decedent's estate
of the debtor's mother in the amount of $289,575, and never accounted for by the
debtor; (3) receipts from Barclay Mortgage Company in the amount of $391,426; and
(4) the debtor's 1989-90 interest income reported on his tax returns in the amount of
$467,191. These figures total $1,743,627, against which the trustee credited the debtor
the amount of $84,115, representing monies received by the estate attributable to the
four categories, leaving a net amount owed to the debtor's bankruptcy estate of
$1,659,511. In addition, the trustee testified that he is indebted to his counsel for
services rendered incident to this complaint in the amount of $4,179.
The trustee's testimony was corroborated by documentary evidence submitted
at the hearing, including trustee's counsel’s affidavit of counsel fees, copies of
schedules, certificates of deposit, T-bill rates, monthly operating reports and records
of the receivership obtained against the debtor's company, Pacific Mortgage Company.3
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order entered in Rinn v. Pacific Mortgage Inv. Group, Adv. Pro. No. 97-5511, which
enjoined the debtor and his agents from transferring and concealing assets of the
debtor's various business entities and appointing Mr. Rinn as their receiver; Trustee's
Exhibit No. 3: an exemplified copy of the order of this court that substantively
consolidated the receivership over the debtor's business entities with the debtor's
bankruptcy case; Trustee's Exhibit No. 4: Money rates published in The Wall Street
Journal dated January 3, 1989; Trustee's Exhibit No. 5: Money rates published in The
Wall Street Journal dated Dec 29, 1998; Trustee's Exhibit No. 6: a binder containing
monthly operating reports filed by Fraidin during the pendency of his Chapter 11
proceeding; and Trustee's Exhibit No. 7: a verified statement of the trustee's attorney's
fees, pursuant to the January 8, 2001, order of this Court, in the amount of $4,179.
11
Cross-examination of the trustee by the debtor did not cause the trustee to alter his
direct testimony as to the amount of damages. The trustee did not deny that he
received more than $84,000 that the debtor had collected from various other sources
not attributable to any of the four categories that the trustee previously enumerated. He
disputed Fraidin's claim that he ever received more than $300,000 from Fraidin.
André Weitzman, Esquire, testified regarding his postjudgment collection efforts
against Fraidin in his State court litigation to the effect that Fraidin never produced
bank records. He testified that he was appointed substitute personal representative for
the decedent's estate of Corinne Fraidin, the debtor's mother, and that Fraidin received
a distribution from that estate in the amount of $289,575 on April 3, 1991. He
determined the amount Fraidin received by examining cancelled checks from the
decedent's estate account. The bankruptcy estate never received any payments from
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Fraidin from any of those funds, although Weitzman received $102,552 that he
recovered against Fraidin's sister on a judgment.
Fraidin testified that he opened debtor in possession accounts on the advice of
counsel at the outset of the case. The monies were invested in high-yield mortgage
accounts, not in certificates of deposit. Each month, according to him, operating
reports were duly filed with the U.S. Trustee. He continued in control of his financial
affairs until the appointment of the Chapter 11 trustee. With her approval, he continued
to collect all monies due from his various mortgages. When the case was converted to
Chapter 7 and the trustee was appointed, Fraidin continued to make collections and turn
them over to the trustee. Fraidin claimed he did everything the trustee ordered him to
do. He attempted to offer into evidence a number of letters that amounted to
self-serving declarations, which were excluded. However, very tellingly, Fraidin
declined to testify under oath that what he had said in his opening statement was
truthful. He acknowledged that he has not filed income tax returns for himself and his
various business entities and could not remember the last occasion when he did so.
The trustee's counsel cross-examined Fraidin about his failure to provide answers
to questions at his deposition on May 22, 1999, and read into the record numerous
questions that Fraidin refused to answer and account for estate funds and proceeds.
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This Court was satisfied from all of the testimony and documentary evidence
adduced at the two-day hearing that the debtor is indebted to the Chapter 7 trustee on
behalf of the bankruptcy estate in the amount of $1,659,077, plus attorney's fees and
costs of $4,179.00, plus interest at the rate of 5.58% from April 9, 1997. Rinn v.
Fraidin (In re Fraidin), 304 B.R. 239 (Bankr. D. Md. 2003).
The conversion of the instant bankruptcy case from Chapter 11 to Chapter 7 and
the appointment of Michael G. Rinn as Chapter 7 trustee placed Fraidin’s case in a
liquidation mode and divested him of any interest or control over the bankruptcy estate.
The decision to convert was based upon a finding of cause and then made pursuant to
the discretion of the bankruptcy court. The Court determined that such action
comported with the best interests of the estate and its creditors. 11 U.S.C. § 1112(b).
This Court explained its decision to convert the case to Chapter 7 as follows:
[I]t seems to me that looking at this case objectively, the only result that
will finally give creditors some benefit is the conversion of this case to Chapter
7. I don't want to take Mr. Fraidin's livelihood away from him, and I don't even
think that a Chapter 7 will necessarily do that. I think it may be in his own
interest to be converted to a Chapter 7. . . . He may do better in a Chapter 7 by
having some of these punitive damages dealt with in a liquidation where he
gets a bankruptcy discharge, assuming that he gets a discharge. And I have to
assume that that's what's going to happen here. . . .
Fraidin v. Weitzman (In re Fraidin), 188 B.R. 529, 531 (D. Md. 1995).
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André Weitzman and Sheldon Braiterman are judgment creditors of Fraidin. On
January 30, 1991, they obtained judgments against him and his various corporations in
the Circuit Court for Baltimore City in amounts exceeding $3 million. The amount of
the judgments was later reversed on appeal. Fraidin v. Weitzman, 93 Md. App. 168,
611 A.2d 1046 (1992). On remand, the Circuit Court entered reduced judgments
against Fraidin in favor of Weitzman and Braiterman in the respective amounts of
$1,250,000 and $250,000. On September 6, 1996, this Court determined the
judgments against Fraidin to be nondischargeable in bankruptcy. Weitzman v. Fraidin,
Adv. Pro. No. 95-5335, [P. 25].
It is abundantly clear from the foregoing exhaustive record which this Court has
once again recounted that Fraidin has used every devious and dishonest means within
his power to effectively prevent the trustee and the creditors from getting their hands
on his assets and has frustrated their attempts to satisfy their claims against him and the
various entities under his dominion and control. The instant settlement before the Court
will have the effect of satisfying the very substantial claims of Weitzman and
Braiterman against the bankruptcy estate in exchange for a nominal payment by the
trustee in the amount of $20,000, while recognizing the right of the claimants to
proceed directly against the debtor outside of the bankruptcy court to satisfy their
nondischargeable judgments against his non-exempt, non-estate property, which,
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contrary to the debtor’s assertion, is not protected under any circumstances by
provisions of the automatic stay of 11 U.S.C. § 362. It will also enable the trustee, at
long last, to finally close the instant bankruptcy case, for the good of both the debtor
and his creditors. Such a conclusion will redound as well to the public good, there
being a public interest in the long-overdue closing of this case which has for so many
years consumed significant judicial resources of this Court, as well as those of both the
U.S. District Court for the District of Maryland and the Fourth Circuit U.S. Court of
Appeals.
WHEREFORE, for the foregoing reasons, this Court reaffirms its approval of the
settlement between the trustee and the said creditors.
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cc: Jacob Fraidin
3406 Fielding Road
Baltimore, Maryland 21208
Paul-Michael Justin Sweeney, Esquire
Linowes & Blocher, L.L.P.,
1010 Wayne Avenue
Silver Spring, Maryland 20910
Michael G. Rinn, Esquire
Chapter 7 Trustee
111 Warren Road, Suite 4
Cockeysville, Maryland 21030
Office of the United States Trustee
300 West Pratt Street, Suite 350
Baltimore, Maryland 21201
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