Sachs v. Adeli

OCR transcription for search; preserved printed pages are authoritative

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AUTHENTICATED
U.S. GOVERNMENT]
INFORMATION

GPO

Main Document

In re

KATAYONE ADELI,

Adeli.
RICHARD B. SACHS,

Plaintiff,
Vv.

KATAYONE ADELI,

Defendant.

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/08.16:03:48 Desc

Page 1 of 41 FILED

MAR 27 2008

ENTERED
MAR 27 2008

CLERK U.S. BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
BY: Deputy Clerk

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

Case No. 2:05-30583-TD
Chapter 7
Adv. No. 2:05-02644-TD

FINDINGS OF FACT
AND CONCLUSIONS OF LAW

TRIAL:

Date: October 25, 2007
Time: 10:00 a.m.
CLOSING ARGUMENTS:

Date: December 21, 2007
Time: 10:00 a.m.

Place: Courtroom 1345

255 E. Temple St.
Los Angeles, CA

FINAL BRIEFING DATE:
February 1, 2008

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On October 25, 2007, at the above-referenced date, time and
location, the court conducted a trial (the “Trial”) regarding the

claims for relief arising under 11 U.S.C. § 727° (the “727 Claims”)

asserted by Richard B. Sachs, plaintiff herein (“Sachs”), against
Katayone Adeli, the Chapter 7 debtor and defendant herein
(“Adeli”), in Sachs’ First Amended Complaint Seeking (I) Denial of
Adeli's Discharge Pursuant to 11 U.S.C. § 727; ofr, in the
Alternative, (II) Denial of Adeli’s Discharge as to Sachs’ Claims
Pursuant to 11 U.S.C. § 523 (the “FAC”) .’

Craig M. Rankin and Todd M. Arnold of Levene, Neale, Bender,
Rankin & Brill L.L.P. appeared on behalf of Adeli. Frank A. Merola
and Nathan A. Schultz of Stutman, Treister & Glatt, Professional
Corporation, appeared on behalf of Sachs.

Upon consideration of (A) the Joint Pretrial Order entered by

the court on August 14, 2007 (the “PTO”); (B) the Trial testimony
of Adeli, Paul Brent, Esq. (“Brent”), Paul Samuels, Esq.
(“Samuels”), Carl Waldman, Esq. (“Waldman”), and Roxanne Modjallal
(“Modjallal”); (C) the deposition transcripts of Adeli [Tr. Ex.

29], Brent [Tr. Ex. 31], Samuels [Tr. Ex. 37], Waldman [Tr. Ex.

36], Modjallal [Tr. Ex. 28], Mehri Majidi (“Majidi”) [Tr. Ex. 30],

Gloria L. Pica (“Pica”) [Tr. Ex. 38], Lynne Van Auken (“Auken”)
[Tr. Ex. 39], Susan Schneiderman, Esq. (“Schneiderman”) [Tr. Ex.
32], Howard Bader, Esq. (“Bader”) [Tr. Ex. 35], Chris Mulardelis,
Esq. (“Mulardelis”) [Tr. Ex. 33], and Michael Shepard (“Sheppard”

1 all section references herein are to 11 U.S.c. § 101 et seq. (the “Bankruptcy
Code”)

2 Sachs’ claims for relief against Adeli arising under 11 U.S.C. § 523 that
were asserted in the FAC were severed for the purposes of the Trial and
geferred for later hearing.

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and, together with Schneiderman, Bader, Mulardelis, the “New York
Lawyers” ) [Tr. Ex. 34], together with all exhibits to such

transcripts; (D) the following additional Trial exhibits;

Exhibit : ;
Description

No.

1 9/21/2005 Application for Leave to Employ Attorney
Under General Retainer Agreement; Declaration of
Non-Adversity; Statement of Disinterestedness.

2 5/17/2005 Washington Mutual Bank Official Check No.
078227263 to Steinberg, Nutter & Brent Trust Acct.
for $35,000.00. {WM - 001110)

3 Excerpt of 11/22/2005 Transcript of §341({a) Meeting
of Creditors.

4 Excerpt of 12/6/2005 Transcript of §341(a) Meeting
of Creditors.

5 12/8/2005 Check No. 2973 from Roxanne Modjallal to
Katayone Adeli for $37,000.00. 12/8/2005 Check No.
2974 from Roxanne Modjallal to Katayone Adeli for
$356.19.

6 1/1/2004 Kader, Inc. Defined Benefit Pension Plan
and Trust.

7 16/21/2005 Filing of Debtor's Schedules, Statement
of Financial Affairs, and Lists.

8 4/7/2005 Judgment in Richard B. Sachs vs. Katayone
Adeli, Sean P. Barron, Klothes, LLC, Klothes (NY),
LLC, and John Does, 1-10.

9 Washington Mutual Bank Account Number 871-124124-4
Statement from 3/12/2005 thru 4/13/2005 for Katayone
Adeli. (WM - 000172 to WM - 000173)

10 3/31/2005 Valley National Bank Statement of Account
for Kader Inc. (VN 000049, VN 000053, VN 000056, VN
000059, VN 000062, VN 000064)

11 10/23/2007 Fax from L. Holland to N. Schultz.
Attaching Katayone Adeli Official Checks.

12 8/19/2006 Declaration of Katayone Adeli in Support
of Debtor's Opposition to Motion for Summary
Judgment Denying Debtor a Discharge Pursuant to 11
U.S.C. § 7F27(A) (2).

13 Excerpt of 4/12/2007 Deposition of Susan
Schneiderman.

14 Excerpt of 4/12/2007 Deposition of Chris
Mularadelis.

15 Excerpt of 4/12/2007 Deposition of Michael Sheppard.

16 Excerpt of 4/12/2007 Deposition of Howard Bader.

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17 6/27/2005 Bank of America Check Number 0999 from
Katayone Adeli to Kader Inc. for $100,000.00.

18 Excerpt of 11/22/2005 Transcript of §341(a) Meeting
of Creditors.

19 Declaration of Katayone Adeli.

20 Excerpt of 1/16/2006 Rule 2004 Examination of
Katayone Adeli.

21 8/17/2006 Settlement Agreement.

22 Spreadsheet from Roxanne Modjallal for K. Adeli
Account: 03927-03492,

23 U.S. Trustee Operating Report for Katayone Adeli for
the Month Ending 9/30/2005.

24 U.S. Trustee Operating Report for Katayone Adeli for
the Month Ending 10/31/2005.

25 U.S. Trustee Operating Report for Katayone Adeli for
the Month Ending 11/30/2005.

26 U.S. Trustee Operating Report for Katayone Adeli for
the Month Ending 12/31/2005,

27 Demonstrative Trial Exhibit - Chart of Adeli
Accounts.

40 11/22/2005 Transcript of §341(a) Meeting of
Creditors.

41 12/6/2005 Transcript of §341(a}) Meeting of
Creditors.

42 1/16/2006 Rule 2004 Examination of Katayone Adeli.

(E) Sachs’ Opening Trial Brief; (F) Adeli’s Trial Brief; (G) Sachs’
Reply to Adeli’s Trial Brief; (H) the arguments of counsel made at
the Trial; (J) the closing arguments of counsel presented to the
court on December 21, 2007; and further briefing provided by both
Sachs and Adeli on both January 25, 2008, and February 1, 2008; and
further based on the court's conclusion that Adeli’s Trial
testimony was credible and in all material ways consistent with the
Trial testimony of Brent, Samuels, Waldman, and Modjallal, the
court hereby makes the following Findings of Fact and Conclusions

of Law:

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INTRODUCTION

This dispute apparently arises from a failed business
arrangement between Adeli (debtor and defendant) and Sachs
(plaintiff). Sachs recovered a $727,358.52 judgment in a New York
state court against Adeli. Sachs seeks a judgment here that Adeli
should be denied a discharge pursuant to §§ 727(a) (2) (A) and
727(a) (4) (A). The following findings and conclusions are based
largely on (A) the Joint Pretrial Order entered herein and (B) the
live testimony and other evidence received at trial on October 25,
2007, as well as other matters of which I have taken judicial
notice from the record in Adeli’s bankruptcy case.

FINDINGS OF FACT?

1. Adeli is an artist. She has no legal or formal business
training. She is unsophisticated in legal matters.

2. Prior to 1998, Adeli purchased a one-bedroom condominium
residence located at 9950 Durant Avenue, No. 408, Beverly Hills,
California (the "Condo"). [PTO Admitted Fact (*“PTOAF”), § A.1]

3. Adeli’s mother has lived in the Condo since Adeli
purchased it.

4, Kader, Inc. (“Kader”) is a New York corporation, wholly-
owned by Adeli, incorporated on or about October 24, 2003. [PTOAF,

q A.60]

? Where necessary or appropriate for the purposes cf Fed. R. Bankr. P. 7052, Findings of Fact shall
be construed ag Conclusions of Law, and vice versa.

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5. On or about December 17, 2003, Sachs commenced a lawsuit
against Adeli and other defendants in the Supreme Court of the

State of New York, County of New York (the "New York Trial Court"),

Index No. 603930/03 (the "State Court Action"). [PTOAF, § A.3]

6. The State Court Action involved many claims and numerous
defendants other than Adeli, including Klothes, LLC (“Klothes”), an
entity co-owned by Sachs and Adeli. One State Court Action claim

involved Sachs’ attempt to recover over $700,000 from Adeli,
resulting from his purchase of bank debt owed by Klothes, which

Sachs and Adeli had co-guarantied. (the “Guaranty Claim”}.

7. On or about July 15, 2004, the New York Court denied
Sachs’ motion for partial summary judgment in the State Court

Action and dismissed the Guaranty Claim (the "Initial State Court

Decision"). [PTOAF, § A.4; Tr. Ex. 8]
8. On or about July 26, 2004, Sachs appealed the Initial
State Court Decision to the New York Supreme Court, Appellate

Division (the “Appellate Division"). [PTOAF, J A.5]

9. Prior to February 14, 2005, Adeli took out a mortgage

(the "First Mortgage") secured by a first priority trust deed on

the Condo for Washington Mutual Bank ("Washington Mutual") for

approximately $146,000. [PTOAF, § A.6]
10. On or about February 14, 2005, Washington Mutual approved
Adeli for an equity credit line authorizing her to draw up to

approximately $193,000 (the "Equity Line"). [PTOAF, § A.7]

11. A second priority trust deed on the Condo secured the
Equity Line. [PTOAF, {| A.8]
12. On Mareh 10, 2005, the Appellate Division reversed the

Initial State Court Decision, instructing the New York Trial Court

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to enter partial summary judgment in the State Court action on the

Guaranty Claim in Sachs’ favor (the "March 10 Decision"). [See

PTOAF, § A.11; Tr. Ex. 8]

13. Adeli’s New York Lawyers believed that the March 10
Decision contradicted applicable California law regarding co-
guarantors’ rights and obligations.

14. On or about April 7, 2005 (the "Judgment Date"), pursuant

to the March 10 Decision, the New York Court entered in the State
Court Action a partial judgment favoring Sachs (the "Judgment").
[PTOAF, § A.12]

15. The Judgment was for $727,358.52, exclusive of interest
and attorneys' fees. [PTOAF, J A.13]

16. On April 11, 2005, Adeli filed a motion seeking leave to
appeal the March 10 Decision and the Judgment (the “Appeal
Motion"). [PTOAF, { A.18]

17. On April 11, 2005, the Appellate Division granted an

interim stay of execution on the Judgment (the "Interim Stay")

pending determination of Adeli's Appeal Motion. [PTOAF, { A.19]

18. Adeli understood that, after the Judgment Date, her New
York Lawyers advised her to temporarily move her funds and Kader’s
funds out of New York and into the name of a family member or
trusted friend in California so that Sachs would not improperly
levy on Adeli’s or Kader’s assets in violation of the Interim Stay.
Adeli had moved to California from New York prior to the Judgment
Date.

19. Prior to the Judgment Date, Adeli maintained a checking
account in her name at Valley National Bank, Account Number

83232435 (the "Adeli Valley National Account"). [PTOAF, § A.20]

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20. Prior to the Judgment Date, Adeli maintained an
investment account in her name at Bear Stearns, Account Number 720-

56777 38G (the "Bear Stearns Account"). [PTOAF, § A.23]

21. Prior to the Judgment Date, Adeli, as manager of Kader,

controlled a checking account in the name of “Kader, Inc." at

Valley National Bank, Account Number 45400229 (the “Kader Valley

National Account"). [PTOAF, § A.24]

22. On April 11, 2005, Adeli drew $150,000 on the Equity Line

{the "Equity Line Funds"). [PTOAF, § A.25]

23. Adeli drew the $150,000 in Equity Line Funds to pay her
ordinary, regular, and personal living expenses, to assist in the
payment of her mother’s living expenses, to re-establish herself as
a designer through Kader or otherwise, to fund a potential business
venture with Modjallal, to pay attorney fees and expenses related
to the State Court Action, which was still pending, and to pay
legal fees and expenses related to dealing with the Judgment.

24. Adeli did not draw on the Equity Line at an earlier date
because she did not want to draw on the Equity Line and pay
interest untii it became necessary to use these funds to pay her
personal and business expenses.

25. On April 12, 2005, Adeli and Modjallal opened a checking
account in Modjallal’s name at Bank of America, Account Number

20070-40107 {the "Shared Modjalilal Account"). [PTOAF, J A.26]

26. On April 12, 2005, Adeli deposited the Equity Line Funds

in the Shared Modjallal Account (the "Equity Line Deposit").

[PTOAF, § A.27]

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27. On April 11, 2005, Adeli transferred $33,000 from Adeli
Valley National Account to the Kader Valley National Account (the

"$33,000 Valley National Transfer"). [PTOAF, J A.31]

28. On April 19, 2005, Adeli wired (the "$58,000 Wire

Transfer") $58,000 (the "Valley National Funds") from the Kader

Valley National Account to a Bank of America checking account in
Modjallal’‘s name, Account Number 03927-03492 (the "Personal

Modjallal Account"). [PTOAF, § A.36]

29. On or about April 14, 2005, Adeli sold the securities in

the Bear Stearns Account (the "Bear Stearns Sale"). [PTOAF,

A.39]
30. On or about April 19, 2005, Adeli withdrew $15,406.36

from the Bear Stearns Account (the "Bear Stearns Withdrawal").

This amount represented the Bear Stearns Sale proceeds. [PTOAF,
A.41)
31. On May 12, 2005, the Appellate Division denied the Appeal

Motion (the "May 12 Decision"). [PTOAF, § A.45]

32. On or about May 16, 2005, Sachs filed a motion in the
Appellate Division seeking to vacate and/or modify any remaining
stay of the Appellate Division dated April 11, 2005 based upon the

May 12 Decision (the "Stay [Vacation] Motion"). [PTOAF, 4 A.55]

On June 23, 2005, the Appellate Division rendered a decision (the

"June 23 Decision") denying Sachs’ Stay [Vacation] Motion as

"unnecessary," and referencing the May 12 decision which denied
Adeli’s Appeal Motion. [PTOAF, 4 A.56]

33. The Interim Stay was in effect from April 11, 2005, until
May 12, 2005, and may have been in effect thereafter. Sachs

threatened criminal contempt actions against Adeli, according to

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Brent. These threats were discussed by counsel for Sachs and
Adeli, particularly Brent, in hearings before me in the fall of
2005 shortly after Adeli commenced her bankruptcy case in September
2005 as a Chapter 11 voluntary debtor. I take judicial notice of
the discussion, though I am unaware that any sanction was ordered.

34. Sachs’ counsel and Adeli's New York Lawyers, according to
Brent, disagreed whether the Interim Stay remained effective after
May 12, 2005.

35. Adeli’s New York Lawyers advised her at the time that
Sachs and his counsel were highly aggressive and might levy on her
assets or on Kader’s New York assets despite the Interim Stay and
the fact that the Judgment named only Adeli, not Kader.

36. For the following transfers, the Interim Stay was
effective or, at minimum, Adeli reasonably believed based on her
good faith reliance on her New York Lawyers’ advice that the
Interim Stay was effective and prohibited Sachs from levying on her
assets: (1) when Adeli drew $150,000 on the Equity Line; (2) when
she made the $150,000 Equity Line Deposit into the Shared Modjallal
Account; (3) when she made the $33,000 Valley National Transfer
from the Adeli Valley National Account to the Kader Valley National
Account ; (4) when she made the $58,000 Wire Transfer to the
Personal Modjallal Account; and (5} when she made the Bear Stearns

Withdrawal (collectively the “First 2005 Transfers”). Based on the

evidence, Sachs did not levy on Adeli’s assets, either in New York
or in California, pursuant to the New York Judgment at any time
prior to Adeli filing her Chapter 11 bankruptcy petition on

September 8, 2005.

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37. There was a great deal of disagreement in the trial and
deposition testimony and legal argument about Adeli’s New York
Lawyers’ advice. In the end, I find Adeli’s trial and deposition
testimony highly credible and persuasive. Samuels’ trial testimony
corroborates Adeli’s trial and deposition testimony regarding the
advice Adeli received from her New York Lawyers shortly after the
April 7, 2005 New York Judgment. I find her New York Lawyers’
deposition testimony self-serving and not persuasive; it is not
consistent with my view of the totality of the evidence.

38. At the time Adeli made the First 2005 Transfers, she
reasonably and in good faith believed that her New York Lawyers had
advised her to move her funds and Kader’s funds out of Neéw York and
into the name of a family member or trusted friend in California to
protect them from the possibility of an improper levy by Sachs.

39. Adeli did not make any of the First 2005 Transfers with
the intent to hinder or delay improperly or to defraud Sachs.

40. Adeli intended the First 2005 Transfers as a temporary
measure, to protect her assets (which collectively were
insufficient to pay the Judgment) from what Adeli reasonably
believed was a threatened and improper levy by Sachs.

41. Adeli made the following transfers to protect her assets
from unreasonable and unlawful conduct by Sachs and his lawyers
while she appealed the Sachs Judgment: the Equity Line Deposit, the
$33,000 Valley National Transfer, the $58,000 Wire Transfer, the
Bear Stearns Transfer, the $100,000 Kader Deposit, the $80,000
Gilmore Deposit, the July 28 Deposit, the $40,000 Gilmore Transfer,
the Condo Interest Transfer, and the $30,000 Payment Transfer. She

made these transfers based on the advice of her New York litigation

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lawyers and, perhaps, partly under the New York Court's stay
issued in her favor. Adeli did not act with fraudulent intent.
She did not materially impede any proper Sachs collection effort.

42. Sachs did not levy on any Adeli assets, which he was
entitled to pursue, at any time prior to Adeli’s bankruptcy.

43. Prior to the Judgment and after, Adeli employed Samuels
as her general legal counsel and strongly relied on his
professional training, judgment, and advice in making many of her
legal decisions.

44. After making the First 2005 Transfers, Adeli contacted
Samuels. Adeli fully disclosed to Samuels all of the First 2005
Transfers at her first post-Judgment meeting with him. At that
time, Adeli also informed Samuels that she had made the First 2005
Transfers based on advice she received from her New York Lawyers.
Adeli further informed Samuels at that meeting with Samuels that
she was concerned about the legal ramifications of the First 2005
Transfers.

45. In May 2005, Samuels referred Adeli to Brent, whom
Samuels regarded as an experienced and knowledgeable bankruptcy
lawyer, to advise her on the First 2005 Transfers and bankruptcy
issues and to represent her in any bankruptcy case that she might
file. Brent has represented several Chapter 11 debtors in my
courtroom over the past 14 years. Brent is an experienced,
resourceful, and effective Chapter 11 debtor’s lawyer in my
judgment.

46. In May 2005, Adeli retained Brent to advise her regarding
the First 2005 Transfers and bankruptcy issues and to represent her

in any bankruptcy case that she might file.

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47. Adeli fully disclosed all of the First 2005 Transfers to
Brent at her first meeting with him. At that time, Adeli also
fully informed Brent that she had made the First 2005 Transfers
based on advice she received from her New York Lawyers. Adeli
further informed Brent that she was worried about the First 2005
Transfers and knew that such transfers would be scrutinized and
attacked by Sachs and his counsel if there were any apparent or
actual improprieties. There was conflict between Adeli’s testimony
and Brent's recollections of his early discussions with Adeli. On
balance, I found both of them to be highly credible witnesses.
Where there was a conflict between Adeli and Brent in their
testimony, I found Adeli’s testimony to be the most credible and
persuasive. In the end, Brent advised Adeli not to undo the
transfers.

48. To avoid bankruptcy, Brent worked in conjunction with
Adeli’s New York Lawyers to settle both Sachs’ and Adeli’s claims
in the State Action resulting from the Judgment. The parties did
not settle, though Brent treated settlement with Sachs as his
primary goal. Brent also concerned himself with Adeli’s practical
needs to find new work, to earn money, and to reestablish herself
in her chosen line of work outside of New York. Brent also was
mindful of a possible Adeli bankruptcy filing, the Sachs Judgment,
and Adeli's asset deficiency related to the New York Judgment.
Additionally, Brent was cognizant of Adeli’s ongoing personal,
family, and financial obligations, and of Adeli’s ongoing business

needs.

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49. Because Adeli and Brent could not settle with Sachs, both
Adeli and Brent understood that Sachs would continue to pursue his
collection rights, even if Adeli filed bankruptcy.

50. The evidence and the witnesses‘ demeanor demonstrates
that Adeli relied heavily on Samuels and Brent for legal guidance
regarding the First 2005 Transfers and in Adeli's efforts to he
sure that her conduct and financial records were beyond reproach by
Sachs or any other creditor.

51. Neither Brent nor Samuels advised Adeli to undue the
First 2005 Transfers. Regardless of his apprehensions, Brent
advised Adeli that she should leave the funds where they were and
that she could use the funds in the Shared Modjallal Account and
the Personal Modjallal account for Kader’s business expenses and
Adeli’s personal expenses. Brent advised Adeli that she should not
transfer all of the funds in the Personal Modjallal account to a
Kader account or all of the funds in the Shared Modjallal account
to a personal Adeli account. As he testified, Brent advised Adeli
in the foregoing manner because he believed that further transfers
would exacerbate existing problems with the transfers and increase
Sachs’ suspicions.

52. Brent testified that he was unaware in 2005 of First

Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1343-46 (gt

Cir. 1986), but that in retrospect, if he had been aware of the
decision he would have advised Adeli to transfer all of the funds
in the Personal Modjallal account to a Kader account and all of the
funds in the Shared Modjallal account to a personal Adeli account.
53. If Brent or Samuels had advised Adeli to transfer all of

the funds in the Personal Modjallal account to a Kader account or

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all of the funds in the Shared Modjallal account to a personal
Adeli account, I am convinced by the evidence that Adeli would have
done so. In managing her accounts, Adeli did not interfere with or
deprive Sachs of any legal right he had; she did not cheat or
deceive Sachs. Rather, she sought to pursue her personal goals of
reestablishing herself in California, confronting and resolving her
debt to Sachs and her differences with Sachs, and employing her
California legal advisors to achieve what she believed were proper
and responsible reorganization purposes. She did this by
attempting to settle with Sachs, by filing for bankruptcy, and by
pursuing her normal ongoing personal and business activities.
These activities were undertaken to benefit all of her prepetition
creditors, including Sachs, as well as to make her fresh start
after the disappointment of her New York business failure with
Sachs.

54. Shortly after retaining Brent, Adeli informed him that
one of her goals was to protect her mother’s residence in the Condo
by selling her mother an interest in the Condo. Adeli informed
Brent that she wanted to ensure that any sale of an interest in the
Condo to her mother was legal and would not jeopardize her right to
a bankruptcy discharge.

55. In the spring and summer of 2005, Adeli acted honestly
and in good faith with these goals in mind. She believed that she
listened to and followed the advice of each of her seven lawyers
(four in New York and three in California) advising her at the
time. She cooperated with each of her lawyers, giving them full,
complete, consistent, and accurate information about her assets,

liabilities, and affairs.

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56. Samuels assisted Adeli to evaluate, negotiate, and
document selling the Condo interest to Adeli’s mother, Mehri Majidi
(“Majidi”). Adeli retained California attorneys Weintraub & Selth
to represent Majidi in the sale.

57. On or about June 1, 2005, Adeli and her mother entered
into a Purchase Agreement, providing for Adeli to transfer a 25
percent interest in her Condo to her mother in return for a $30,000

payment (the “Condo Purchase Agreement”). [PTOAF, § A.48] At the

time, and under the circumstances, Adeli reasonably believed that
the price fairly approximated the market value of her 25 percent
equity interest in the Condo.

58. Adeli did not dictate the specific terms of the Condo
Purchase Agreement; the professionals retained to represent Adeli
and Majidi drafted it. They based its drafting on financial
realities and the overriding direction from Adeli that she wanted a
legal transaction, beyond reproach by Sachs or any other creditor,
notwithstanding her legal and financial difficulties with Sachs.
This was so even though Adeli paid Majidi’s lawyer and sat with
Majidi to translate and explain the advice and documents provided

to Majidi, who does not speak English, from Majidi’s lawyers.

59. On August 25, 2005 (the "Condo Transfer Date"), Adeli
executed a Grant Deed (the “Grant Deed”) transferring a 25 percent
interest in the Condo (the "Condo Interest") to Majidi (the "Condo
Interest Transfer"). [PTOAF, { A.80]

60. The Condo Interest Transfer and its terms were based on
Brent’s and Samuel’s advice. The Condo Interest Transfer was made
on behalf of Majidi, at Adeli’s specific request, and with Adeli’s

help, as well as with help from Weintraub & Selth.

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61. Adeli's brother and sister gave Adeli two checks totaling

$30,000 (the "$30,000 Payment") in payment for Adeli's transfer of

the Condo Interest to Adeli’s mother. {[PTOAF, § A.84]
62. The $30,000 Payment consisted of (i) a $20,000 check (the

"$20,000 Check"), dated August 25, 2005 from Max Adeli, Adeli’s

brother, to Adeli, and (ii) a $10,000 check (the "$10,000 Check"),

dated August 25, 2005 from Homa Adeli, Adeli’s sister, to Adeli.
[PTOAF, 4 A.85]

63. Adeli endorsed the $20,000 Check and the $10,000 Check to
Paul H. Samuels, or his office, to pay him to represent her with
respect to Sachs’ efforts to domesticate the Judgment in California

and for related matters (the "$30,000 Payment Transfer"). [See

PTOAF, § A.87]

64. The $30,000 Payment is arguably less than the value of 25
percent of Adeli's equity in the Condo at the time of the Condo
Interest Transfer (JPTO 9 6-7, 49-50; Plaintiff's Trial Exhibit 7
at Schedule A). That claim, however, as articulated by Sachs, was
disputed by Adeli and has been settled amicably between Adeli and
Adeli’s Chapter 7 Trustee, a fact of which I take judicial notice
based on Adeli’s bankruptcy case record.

65. As part of what Brent considered appropriate pre-
bankruptcy planning, he advised Adeli to set up a pension through
Kader. On or about May 28, 2005, Adeli retained Waldman (her third
California lawyer), an attorney specializing in estates, tax, and
business planning. Waldman assisted Adeli in domesticating Kader
in California and creating a Kader pension plan for Adeli'’s
benefit. [PTOAF, | A.47] Waldman advised Adeli that she could

make the Pension Plan effective as of 2004, which would allow for a

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contribution for 2004 and 2005 because Kader’s 2004 tax returns had
not yet been filed. Waldman prepared the Pension Plan and all
related Pension Plan documents, including the Pension
Certification, based on his professional knowledge and expertise.
66. On or about June 8, 2005, Adeli executed a "Kader, Inc,

Defined Benefit Pension Plan and Trust" (the "Pension Plan", which

included a certification that the Pension Plan was adopted by
resolution executed Yon" December 31, 2004 (the "Pension

Certification"). [PTOAF, § A.51) Waldman credibly and

convincingly explained in his testimony that “on” was _ [his]
scrivener’s error and that he should have said “as of December 31,
2004.”

67. Waldman advised Adeli to fund a general bank account and
a Kader pension fund account. He also advised Adeli to contribute
$80,000 to the pension fund account. Waldman concluded that this
was the maximum allowable contribution for 2004 and 2005, as
determined by actuaries Waldman employed for that purpose.

68. On June 27, 2005, Adeli opened a business checking
account in Kader’s name at Gilmore Bank, Account Number 1197010

(the "First Gilmore Checking Account"). [PTOAF, § A.58]

69. On June 27, 2005, Adeli opened an additional business
checking account in Kader’s name at Gilmore Bank, Account Number

1197029 (the "Second Gilmore Checking Account"). (PTOAF, J A.59]

70. On June 27, 2005, Adeli wrote a $100,000 check drawn on
the Shared Modjallal Account, payable to Kader, Ince. (the "$100,000

Kader Check"). [PTOAF, 7 A.61]

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71. On June 27, 2005, Adeli deposited the $100,000 Kader

Check into the First Gilmore Checking Account (the "$100,000 Kader

Deposit"). [PTOAF, {| A.62]

72. On June 27, 2005, Adeli wrote an $80,000 check, drawn on
the First Gilmore Checking Account, payable to Kader (the "$80,000
Check"). [PTOAF, { A.65]

73. On June 27, 2005, Adeli deposited the $80,000 Check into

the Second Gilmore Checking Account {the "$86,000 Gilmore

Deposit"). [PTOAF, | A.66] She made the $80,000 Gilmore Deposit
to fund the Pension Plan. These transactions were based directly

on Waldman‘s advice.

74. Paul Brent testified that he was unaware that Adeli
funded the Pension Plan with proceeds from the $100,000 Kader
Deposit (Transcript of Trial Proceedings, October 25, 2007, Brent
testimony, at 47:25-48:17), but Adeli testified persuasively that
she told both Samuels and Brent about her funding of the Pension
Plan in May 2005. I am persuaded by the evidence that Brent, whose
employment was terminated by Adeli in 2006, simply forgot this
detail by the time he testified in the October 25, 2007 trial of
this adversary. Brent's memory lapse seems understandable given
the many details he discussed with Adeli in 2005 as he tried,
unsuccessfully, to settle with Sachs and to avoid an Adeli
bankruptcy.

75. On July 28, 2005, Adeli deposited $4,589.21 into the

Shared Modjallal Account (the "July 28 Deposit"). [PTOAF, § A.69]

76. On August 12, 2005, Adeli transferred $40,000 from the

Second Gilmore Checking Account to the First Gilmore Checking

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Account via two checks, each for $20,000 (the "$40,000 Gilmore

Transfer"). [PTOAF, § A.74]

77. Adeli made the $40,000 Gilmore Transfer because she
needed the money to pay normal expenses.

78. Adeli at all times had unfettered access to the Shared
Modjallal Account; she either devoted all of the funds in the
account to her normal, ongoing expenses before she filed her
bankruptcy petition, or she accounted for them when they became
assets of her bankruptcy estate.

79. Adeli made the following prepetition transfers based on
her lawyers’ advice: the $100,000 Kader Deposit into the First
Gilmore Account, the $80,000 Gilmore Deposit into the Second
Gilmore Account, the $40,000 Gilmore Transfer from the Second
Gilmore Account to the First Gilmore Account, the July 28 Deposit,
the Condo Interest Transfer, the $30,000 Payment Transfer, as well
as all withdrawals from the Personal Modjallal Account, the Shared
Modjallal Account, and the First Gilmore Account (collectively the

“Second 2005 Transfers”). Brent was aware of these transfers and

did not advise Adeli that she could not make them or should undo
transfers previously made. Samuels was aware of the transfers
establishing the Kader Pension Plan and he discussed them with
Brent. These transfers appeared to be normal and proper to Adeli’s
lawyers.

80. While Sachs points to many “suspicious” prepetition
transfers, claiming that Adeli transferred her property intending
to “hinder, delay, or defraud” him in violation of § 727 (a) (2) (A),
the Supreme Court in an earlier statutory dispute warned against

reading the bankruptcy statutes mechanically. Bank of Marin v.

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England, 385 U.S. 99 at 103 (1966) (“we do not read . . . statutory
words with the ease of a computer. There is an overriding
consideration that equitable principles govern the exercise of
bankruptcy jurisdiction.”)

81. Adeli did not make any of the Second 2005 Transfers
intending to hinder, delay, or defraud any creditor. Rather, she
sought to temporarily protect her assets from Sachs and his “very
aggressive” New York lawyers’ improper collection efforts while she
tried to fulfill her personal and business needs, which included
facing up to the Sachs Judgment ina responsible way.

82. Any transfers between Adeli and Kader had no material
effect on Sachs’ efforts to collect on his judgment or on the value
of Adeli’s bankruptcy estate. In fact, there is no evidence of any
collection action by Sachs prior to Adeli’s bankruptcy petition,
other than domesticating the New York Judgment in California
shortly before Adeli filed her Chapter 11 petition. Transfers from
Adeli to Kader increased the always uncertain value of Adeli’s 100
percent equity interest in Kader which was acknowledged in Adeli’s
Schedules. Transfers from Adeli to Kader maintained the value of
Adeli’s estate on a dollar for dollar basis. None of the transfers
between Adeli and Kader actually hindered, delayed, or defrauded
Sachs or any other Adeli creditor. No Adeli or Kader transfer
hindered, delayed, or defrauded Sachs, or in any way cheated him
out of any lawful process that he properly asserted against Adeli
prepetition.

83. Adeli made all withdrawals from the Personal Modjallal
Account, the Shared Modjallal Account, and the First Gilmore

Account to pay her personal and business expenses that were

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ordinary, reasonable, and, for the most part, well documented. She
withdrew cash prepetition in relatively nominal amounts to pay for
her normal personal and business needs.

84. Modjallal used none of the Adeli money for Modjallal
purposes.

85. In connection with her bankruptcy case, including

prepetition and postpetition expenditures, Adeli made no false

oath, knowingly or fraudulently, at any time. She acted to keep
her financial affairs private. Most people do before they file a
voluntary bankruptcy. When she filed her bankruptcy papers she

accounted for all of her assets, liabilities, and financial
transactions truthfully and under oath.

86. Adeli made all withdrawals from the Personal Modjallial
Account, the Shared Modjallal Account, and the First Gilmore
Account based on Brent’s advice and with Samuel’s knowledge.

87. Adeli commenced her bankruptcy case by filing a voluntary
petition under Chapter 11 on September 8, 2005 (the "Petition

Date"). [PTOAF, § A.122]

88. Shortly after the Petition Date, Brent asked Modjallal to
turn over all remaining funds belonging to Adeli. Modjallal
promptly turned over all such funds by delivering to Brent two
checks drawn on the Personal Modjallal Account and the Shared
Modjallal Account. Brent lost these checks, but promptly after he
discovered his error and notified Modjallal, she replaced them.

89. Thus, on November 18, 2005, Brent sent a letter to
Modjallal making a second request that Modjallal turn over all

monies belonging to Adeli. [PTOAF, J A.106]

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90, On December 8, 2005, Modjallal wrote a $37,000 check (the

"$37,000 Check") on the Personal Modjallal Account payable to

Adeli. [PTOAF, { A.110]

91. Modjallal sent the $37,000 Check to Brent, who
subsequently turned over the funds to Adeli'ts Chapter 7 trustee.
[PTOAF, § A.112]

92, On December 8, 2005, Modjallal wrote a $356.19 check (the

"$356.19 Check") on the Shared Modjallal Account payable to Adeli.

[PTOAF, J A.107]

93. Modjallal sent the $356.19 Check to Brent, who
subsequentiy turned over the funds to Adeli's Chapter 7 trustee.
[PTOAF, J A.109]

94, Adeli timely filed her Schedules of Assets and
Liabilities {the “Schedules” and each, “Schedule” ) and her
Statement of Financial Affairs (the “SOFA”), with my written
consent, on October 21, 2005. [PTOAF, § A.123]

95. Adeli made an oath under penalty of perjury that she read
the answers contained in her SOFA, and any attachments, and that
such answers were true and correct to the best of her knowledge.
[PTOAF, § A.124]

96. Adeli made an oath under penalty of perjury that she read
her Schedules and that they were true and correct to the best of
her knowledge, information, and belief. [PTOAF, § A.125]

97. Brent prepared Adeli’s Schedules and SOFA after Adeli’s
full and accurate disclosure. He did so with full knowledge of the
First 2005 Transfers, the Second 2005 Transfers, and all matters
material to the preparation of Adeli’s Schedules and SOFA. Brent

conferred with Samuels regarding the content of the Schedules and

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SOFA. Adeli relied on her highly experienced bankruptcy lawyer's,
and to some extent, her general California lawyer’s, training and
experience when she signed her Schedules and SOFA. She did so
carefully and in good faith, with no intent to conceal, evade, or
deceive Sachs or her creditors.

98. Brent's recollections at trial, more than two years after
representing Adeli, were understandably imperfect. Adeli’s
testimony regarding her discussions with each of her seven lawyers
in 2005 was thorough, consistent, highly credible, and persuasive.
I am persuaded that any discrepancies between Adeli’s and Brent’s
testimony resulted from Brent’s prolonged absence from involvement
with Adeli’s legal affairs.

99. Adeli reasonably relied on her lawyers to prepare
accurate Schedules and to prepare an accurate SOFA, She reasonably
believed that these papers properly reflected all of the
information that she disclosed to and discussed with her lawyers.
Adeli disclosed and discussed this information with her lawyers to
avoid any question of a § 727 violation that any creditor or
trustee might later assert.

100. On Question 9 of her SOFA, Adeli disclosed the §30,000
Payment Transfer.

101. On Question 10 cf her SOFA, Adeli disclosed the Condo
Interest Transfer.

102. On Question 10 of her SOFA, Adeli acknowledged the April
1, 2005 $208,000 transfer to Modjallal, including the $156,000
Equity Line Deposit into the Shared Modjallal Account and the

$58,000 Wire Transfer into the Personal Modjallal Account.

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103. Adeli responded accurately to Question 10 of her SOFA
which asks: “List all other property . . . transferred within one
year immediately preceding the commencement date of this case,” not
“what was the net amount of funds transferred within one year
before commencement after deducting expenditures.” Adeli fully
accounted for her prepetition expenditures from the Shared
Modjallal Account. Adeli used those funds for proper purposes.
She answered every question put to her in this bankruptcy case and
adversary truthfully and properly under the circumstances. Adeli
did not deceive Sachs.

104. On Question 11 of her SOFA, Adeli properly disclosed
closing the Adeli Valley National Account, the Kader Valley
National Account, the Bear Stearns Account, and the Bank of America
Account,

105. Adeli’s Schedule A lists the current market value (“CMV”)
of Adeli’s Condo interest at $525,000, without deducting any
secured claim or exemption. [PTOAF, § A.126]

106. Item No. 2 on Adeli’s Schedule B lists the following
items as having a $360 CMV: Adeli’s checking, savings, or other

financial accounts, certificates of deposit, or shares in banks,

savings and loan, thrift, building and loan, homestead
associations, credit unions, or brokerage houses. [PTOAF, ¢ A.127]
This disclosure was accurate and proper. Brent intended it to

convey the balance remaining in the Shared Modjallal Account as of
the Petition Date.
107. Item No. 11 on Adeli’s Schedule B lists an “Interest in

ERISA Qualified Pension” as having a $40,000 CMV. [PTOAF, { A.128]

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108. Item No. 12 on Adeli’s Schedule B lists a “100 Interest
in Kader, Inc.” as having an “unknown” CMV. [PTOAF, 4 A.129]

109. Brent listed Adeli’s 100 percent Interest in Kader, Inc.,
this was based on his opinion that “Kader was a personal services
company and its value was, therefore, not necessarily the balance
of assets after deducting liabilities.” The Schedule B answer was
accurate, proper, and not intended to deceive Sachs; the answer did
not deceive Sachs.

110. Item No. 33 on Adeli’s Schedule B lists “other personal
property of any kind not already listed” as having a $35,000 CMV.
With this disclosure, Brent intended to convey the Personal
Modjallal Account’s remaining balance as of the Petition Date. The
disclosure was reasonably accurate.

111. Schedule C lists a $40,000 claimed exemption for an
“Interest in [an] ERISA Qualified Pension”. [PTOAF, § A.130]

112. Schedule Cc lists an exemption of 90.00 for a *100%
Interest in Kader, Inc.” [PTOAF, § A.131]

113. None of the information in Adeli’‘s Schedules and SOFA was
improper, inaccurate, intended to deceive Sachs or any other Adeli
creditor, her Chapter 7 Trustee, or the United States Trustee.
Adeli did not knowingly ocr fraudulently make any false oath in her
bankruptcy papers.

114. With the $37,000 Check and $356.19 Check, Adeli recovered
for her estate, promptly and in a business-like manner, the funds
remaining in the Personal Modjallal Account and the Shared
Modjallal Account as of the Petition Date. Any previous
withdrawals were made by Adeli to pay Adeli’s normal personal and

business, prepetition and debtor in possession, expenses.

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115. On January 17, 2006, Adeli filed with the Office of the

United States Trustee (the ‘“OUST”) monthly operating reports
(“MOR”) for September, October, November, and December 2005
(collectively the “MORs”). [PTOAF, § A.139]

116. Adeli timely provided her attorneys and accountants full
access to her bank accounts and records to help them prepare the
MORs.

117. Adeli’s accountants prepared the MORs, and Brent reviewed
them before they were filed.

118. Any alleged inaccuracies in the MORs resulted from
mistake or inadvertence by Adeli, or by the professionals retained
by Adeli. Inaccuracies may have also resulted from Adeli’s fall
2005 business travels to the Far East.

119. None of the statements regarding material facts in the
MORs were both false and made either knowingly or fraudulently by
Adeli. Rather, Adeli’s business travel, her stays in China, and
her reliance on lawyers and accountants caused some errors. These
errors stemmed from practical difficulties that Adeli and her
professionals faced while preparing and filing the MORs. Further
problems resulted from commonly experienced and understandable,

debtor-in-possession-banking-difficulties, which Brent persuasively

explained at trial. Adeli and her professionals faced these
difficulties during the early phase of her bankruptcy case. There
was no wrongdoing. None of the errors were material, especially

considering the favorable earnings and business results that Adeli
achieved as a Chapter 11 debtor and debtor in possession during

that time period, including the November 2005 commencement of her

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$41,667 monthly salary from her new employment with Seven for All
Mankind (“Seven”), a clothing manufacturer, as discussed below.

120. Adeli did not knowingly or fraudulently make any false
oath in her MORs. Sachs was not deceived.

121. All Adeli transfers were made in the ordinary course of

Adeli’s circumstances. They were not wrongful, false, or
fraudulent concerning Sachs. Adeli acted properly to facilitate
her changed circumstances. These circumstances included Adeli’s

relocation to California to search for a new job and other business
opportunities as a successful, sought after clothes designer.

122. There was nothing that was knowingly false or fraudulent
about any- of Adeli’s postpetition conduct, her testimony or
statements in this litigation, or in Adeli’s bankruptcy papers.
From May 2005 through the date immediately preceding the Petition
Date, Adeli spent about $150,000 of the funds that she had
deposited in the Shared Modjallal Account (JPTO 4101) for ordinary,
personal, business, and legal expenses. Such expenses were
necessary, especially when considering her goals of supporting
herself and pursuing legitimate business opportunities.

123. Shortly after filing her Chapter 11 petition, Adeli
negotiated and received an important written contract proposal with
a three-year term from Seven. As an independent contractor,
Adeli’'s monthly salary was proposed to be $41,667. She received
her first monthly salary payment from Seven in November 2005, as
reflected in her monthly operating report (MOR) filed with the
United States Trustee’s Office (Ex. 25). The proposed Seven
contract included significant royalty opportunities for Adeli, who

was then a debtor in possession pursuing a Chapter 11

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reorganization of her liabilities. Adeli’'s contract was approved
by Adeli’s Chapter 7 Trustee and by my order in due course. The
foregoing is based on the record in Adeli’s bankruptcy case, later
converted to Chapter 7, on Sachs’ motion, as to all of which I take
judicial notice. By October 2006, Adeli had voluntarily settled
with her Chapter 7 Trustee essentially all of the financial
wrongdoing claims asserted in this lawsuit, as asserted by Sachs.
The settlement between Adeli and her Chapter 7 Trustee represented
a reasonable plan to repay Adeli’s creditors from the proceeds of
Adeli’s Seven contract. I approved this settlement over Sachs’
vigorous objection in an oral ruling and in an order entered in
Adeli’s bankruptcy case on October 11, 2006. See Exhibit 21,

124. The Sachs Judgment rendered Adeli insolvent. Each of
what Sachs has characterized as a “Transfer” was made while Adeli
was insolvent. The evidence here could lead to conflicting
inferences, but I conclude that Adeli did not move’ funds
fraudulently or with an intent to avoid paying Sachs the money she
owed him.

125. While the Sachs pleadings and briefs in this adversary
speak repeatedly about “fraud,” there is no evidence of conduct on
Adeli’s part that Adeli intended to deceive, cheat, or defraud
Sachs (meaning, generally in a bankruptcy context,
“misrepresentation of material fact intended to deceive, that the
victim justifiably relied on, and that proximately resulted in
damage to the victim”).

126. The evidence reveals that, pre-petition, Adeli acted
privately, as most people do with regard to their financial

matters. She made a series of private decisions to rearrange her

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affairs to reflect her lack of success in her New York business
activities, to facilitate her ongoing efforts to get back on her
feet, and to secure new business opportunities from a California
base. There is no evidence that any Adeli act from April 2005
until her bankruptcy filing in September 2005 was intended to, or
did, deprive Sachs of any remedy that he was entitled to and
properly sought through any legal process.

127. While Sachs asserts that Adeli acted with actual intent
to hinder, delay, or defraud him and that he has established by the

evidence many of the “badges of fraud” recognized in Emmett Valley

Assoc. v. Woodfield (In re Woodfield), 978 F.2d 516 (9*® Cir. 1992),

Sachs has failed to prove by a preponderance of the evidence that
Adeli is guilty of any wrongdoing.

128. Adeli never placed anything beyond Sachs’ reach; she
never hindered, delayed, or defrauded Sachs. Cf. id. at 519. In
Woodfield, the court found active wrongdoing towards creditors on
the debtor’s part that was clearly material. By contrast, Adeli
acknowledged her financial difficulties by filing bankruptcy under
Chapter 11 and pursuing business opportunities as a Chapter 11
debtor and debtor in possession. Adeli did not cheat Sachs out of
recovering on the New York Judgment. Repayment of Sachs was
reasonably provided out of Adeli’s assets through Adeli’s business
efforts. Such a recovery was provided for, if not guaranteed, by
the settlement agreement with Adeli’s Chapter 7 Trustee, which I
approved by my October 11, 2006 order in Adeli’s bankruptcy case.

129. In the end, the evidence proves conclusively that Adeli
used her pre-New York Judgment resources lawfully prepetition; she

used all her resources postpetition to pay Sachs and her creditors.

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She worked to exploit her talent for clothes design to benefit
herself, her family, and her creditors. She continued these
efforts during her Chapter 11 bankruptcy case and even after
conversion of her bankruptcy to Chapter 7.

130. At the same time, it is telling that Sachs’ closing brief
filed on February 1, 2008 repeatedly invokes the term “fraud,” or
some derivative thereof, to characterize Adeli’s conduct. After
fully considering all of the evidence and testimony, however, I
find as follows: nothing in the record establishes (1) that Adeli
tried to cheat or deceive Sachs; (2) that she misrepresented any
material fact to him; (3) that she failed to account for her assets
or activities; or {4) that she caused Sachs any loss through
wrongful conduct. Sachs overstates, especially in his use of the

term “fraud.”

131. I note finally that Sachs did not testify, either by

deposition {to my knowledge) or in the trial of this matter.

132. As a footnote, I take judicial notice from the record in
Adeli’s bankruptcy case of the following: Adeli’s contract with
Seven was terminated June 27, 2007. That apparently left Adeli
unable to make ongoing payments to her Chapter 7 Trustee as
required by her 2006 settlement agreement with the Trustee.
Shortly after, the Trustee sued Adeli, Kader, and Sachs in August
2007, in order to exercise the Trustee’s right to collateral
pledged by Adeli under the settlement agreement. Those lawsuits
were settled this year in simultaneous, cross-referenced agreements
between the Trustee and Adeli and between the Trustee and Sachs.

Before the 2008 settlements, the Trustee had recovered about

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$265,000 in cash payments received from Adeli under the 2006
settlement. Under the latest settlements, the Trustee believes she
will recover about $200,000 more from Adeli’s pledged assets. This
will bring the Trustee’s total recovery for the estate to about
$465,000. Sachs agreed to waive his claim to a prepetition lien
against Adeli’s assets while reserving all his unsecured claims
against Adeli, including his § 523 claims. (Sachs’ 523 claims in
this adversary were severed for possible later trial.) Releases
were exchanged in each agreement. Adeli received the right to any
claim she has to royalties due to her under her now-terminated
Seven contract. The recent settlements were approved on the
Trustee’s motion, after notice, without objection or hearing. An
order was entered to that effect on March 11, 2008.

133. The Trustee’s prospective recovery of $465,000 from Adeli
exceeds the approximate $400,000 liquidation value of Adeli’s
prepetition assets as of the Sachs Judgment date, April 12, 2005.

It would appear from the foregoing that Adeli, as a bankruptcy

debtor, has acted responsibly toward Sachs and her other creditors.

CONCLUSIONS OF LAW

JURISDICTION

A. This court has jurisdiction over this adversary
proceeding pursuant to 28 U.S.C. §§ 151, 157, and 1334.

B. Venue in this court is proper pursuant to 28 U.S.C. §
1409, as this adversary proceeding arises under and in connection

with a case under Title 11 which is pending in this District.

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Cc. This is a core proceeding as defined by 28 U.S.C. &

157(b}) (2) (J).

WAIVER OF CLAIMS

D. By way of the Joint Pretrial Order, Sachs only sought to
prove his § £727(a) (2) (A) Claims based on the - following
transactions: (1) the Equity Line Deposit; (2) the $33,000 Valley
National Transfer; (3) the $58,000 Wire Transfer; (4) the Bear
Stearns Withdrawal; (5) the $100,000 Kader Deposit; (6) the $80,000
Gilmore Deposit; (7) the July 28 Deposit; (8) the $40,000 Gilmore
Transfer; (9) the Condo Interest Transfer; and (10) the $30,000

Payment Transfer (collectively the “Subject Transfers”). PTO, at

qq c.1 - C.21 & B.1 - B.10.

E. By way of the Joint Pretrial Order, Sachs only sought to
prove his § 727{a) (4) (A) Claims based on the following evidence:
(1) Adeli’‘s SOFA Question 10 Response; (2) statements in the MORs
signed by Adeli; and (3) Adeli’s statements regarding the Equity
Line, the Wire Transfer, the $100,000 Kader Deposit, the $80,000
Gilmore Deposit, her use of the funds in the Personal Modjalial
Account and the Shared Modjallal Account for “ordinary,” “regular,”
and/or “personal” expenses, and Adeli’s statements regarding the
balance of funds remaining in the Personal Modjallal Account and
the Shared Modjallal Account as of the Petition Date (collectively,

the “Subject Statements”).

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F. By way of the Joint Pretrial Order, Sachs only sought to
prove causes of action under §§ 727(a) (2) (A) and 727(a) (4). PTO,
at 9 c.1 - C.21. |

G. The Joint Pretrial Order supersedes the pleadings. PTO,
at § J; Local Bankruptcy Rule 7016-1(b) (2) (J).

H, Based on the foregoing, {1) Sachs waived his right to
prove his § 727(a) (2) (A) Claims based on transfers other than the
Subject Transfers; (2) Sachs waived his right to prove his §
727 (a) (2) (A) Claims based on statements other than the Subject
Statements; and (3) Sachs waived his right to seek a denial of
Adeli’s discharge pursuant to all other subsections of § 727,
including, but not limited to, §§ 727(a}) (3) and 727(a) (5).

I. It clearly appears from the Joint Pretrial Order that
Sachs waived his claims under § 727(a) (3) concerning Adeli’s
previously alleged failure to keep records and to document
information from which Adeli’s financial condition and business
transactions might be ascertained [to paraphrase § 727(a) (3)].
Regardless of that waiver, Adeli thoroughly explained any loss of
assets and deficiency of assets to meet her liabilities. In
addition, Adeli made voluntary, thorough, and court-approved
written settlement agreements in 2006 and 2008, which reasonably
will lead to recovery by Sachs and any other Adeli creditor for any
loss of assets or deficiency in Adeli’s assets to meet her

prepetition liabilities.

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SECTION 727 (a) (2) (A) CLAIMS

J. Sachs has the burden of proving his objections to
Adeli's discharge pursuant to § 727 (a) (2) (A). Fed. R. Bankr. P.

4005; accord Aubrey v. Thomas (In re Aubrey), 111 B.R. 268, 272 (9th

Cir. BAP 1990).
K. Section 727(a) (2) (A) “must be construed liberally in

favor of [Adeli] and strictly against [Sachs].” Beauchamp v. Hoose

(In re Beauchamp), 236 B.R. 727, 730 (9k? cir BAP 1999); Devers v.

Bank of Sheridan, Montana (In re Devers), 759 F.2d 751, 754 (9*

Cir. 1985).

L. To prevail on his claims under § 727{a) (2) (A), Sachs must
prove that: (1) Adeli transferred or concealed property; (2) the
subject property belonged to Adeli; (3) the transfer occurred

within one year of Adeli’s Petition Date; and (4) Adeli executed
the transfer with the intent to hinder, delay, or defraud a
creditor. Aubrey, 111 B.R. at 273.

M. A debtor does not violate § 727(a) (2) (A) by establishing
and funding a pension plan in conjunction with pre-bankruptcy

exemption planning. Gill v. Stern (In re Stern), 345 F.3d 1036,

1044-1045 (9% Cir. 2003).
N. No § 727(a) (2) claims exist where the debtor (1) made the
subject transfers in good faith reliance on the advice of counsel

(the “Advice of Counsel Exception”), or (2) has disclosed the

subject transfers, made an effort to recover the property that was

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transferred and actually does recover the property (the “Disclose

and Recover Exception”). First Beverly Bank v. Adeeb (In re

Adeeb}, 787 F.2d 1339, 1343-46 (9%? Cir. 1986); see also Avco Fin.

Services of Billings v. Sullivan (In re Sullivan), 111 B.R. 317,

322 (Bankr. D. Mont. 1990) (“Incorrect advice of counsel should not

be imputed against the Debtor under § 727.”); Rice v. Creative

National Systems, Inc. {In re Rice), 109 B.R. 405 (Bankr. E.D. Cal.

1989). In addition, Adeli clearly employed her assets properly,
for normal prepetition and postpetition expenses. She fully
accounted for her use of assets. None of Adeli’s expenditures or
her written or testimonial accounts of them were knowingly false or
fraudulent. Nowhere in this bankruptcy case did she make a false
oath or account.

Oo. Adeeb states that in a voluntary bankruptcy case,
transfers must be recovered before the petition date; in an
involuntary bankruptcy case, transfers can be recovered after the
petition date. In this case, the principles of Adeeb and § 727
should be interpreted broadly enough to include Adeli’s exculpatory

pre- and postpetition conduct. See Bank of Marin v. England, 385

U.S. at 103. First, the prepetition conduct was no worse than
suspicious; none of it was materially wrongful. Adeli’‘s post-
transfer and postpetition conduct has been exemplary. The essence
of Adeeb's holding is that disclosure should be voluntary and

complete and that all disclosed assets should be made available to

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the estate’s creditors. None of Adeli’s transfers was material.
None resulted in a wrongful diminution of Adeli’s prepetition
assets. None of Adeli’s prepetition transfers was fraudulent,
deceitful, or designed to cheat Sachs. All of Adeli’s assets were
fully disclosed and made available to creditors of the estate
promptly and cooperatively by Adeli. Adeli and Adeli’s Chapter 7
Trustee quickly settled any doubts or claims against Adeli ina
businesslike manner. A full recovery for Adeli’s prepetition
creditors is in prospect.

P. I take judicial notice, sua sponte, of the fact that in

2006, Adeli settled several significant avoidance claims with her
Chapter 7 Trustee, over Sachs’ objections and after a hearing. The
net effect of the settlement was to return to the Adeli bankruptcy
estate every transfer questioned by the Trustee. I approved the
settlement in a ruling that I outlined orally on the record at the
hearing and in an order entered October 11, 2006. Adeli’s conduct
differs significantly in Adeli’s favor from the debtor's culpable
conduct as discussed in Devers, 75 F.3d at 754.

Q. The court should take into account a debtor’s lack of
sophistication and the totality of the debtor’s conduct when
determining whether the debtor possessed the intent required to be
proved by a preponderance of the evidence by a creditor seeking

denial of discharge under § 727(a) (2) (A). See In re Greene, 340

B.R. 93 (Bankr. M.D. Fla. 2006); see also Citibank South Dakota v.

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Dougherty (In re Dougherty), 84 B.R. 653, 657 (9th Cir. BAP 1988) (a

debtor's level of financial sophistication is one of the facts
relevant to determining intent in the context of

nondischargeability actions); accord American Express Travel

Related Servs. Co. Inc. v. Hashemi (In re Hashemi), 104 F.3d 1122,

1125 (9th Cir. 1996), cert. denied, 520 U.S. 1230, 117 $.Ct. 1824,

137 L.Ed.2d 1031 (1997).

R. Based upon my Findings of Fact, and after balancing all
the possible inferences from the evidence, I conclude that Sachs
did not meet his burden and that no basis exists to deny Adeli’s
discharge under § 727(a) (2) (A). None of the Subject Transfers was
intended to hinder, delay, or defraud Sachs or any other Adeli
creditor. Each was, or led directly to, an ordinary and proper
expenditure by Adeli, was made with the knowledge and advice of
counsel, or was properly accounted for, and recovered, to the
extent necessary to exonerate Adeli.

SECTION 727 (a) (4) (A) CLAIMS

Ss. Sachs has the burden of proving his objection to Adeli’s
discharge pursuant to § 727 (a) (4) (A). Fed. R. Bankr. P. 4005;

accord Aubrey 111 B.R. at 272.

T. Section 727(a) (4) (A) “must be construed liberally in
favor of [Adeli}] and strictly against [Sachs] .” Beauchamp, 236

B.R. at 730; accord Devers, 759 F.2d at 754.

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U. In order to prevail on his claim under §& 727 (a) (4) (A),
Sachs must prove that: (1) Adeli knowingly and fraudulently made a
false oath; and (2) the oath related to a material fact. 11 U.S.C.
§ 727(a) (4) (A). Aubrey, 111 B.R. at 274.

Vv. A person acts knowingly only if she acts deliberately and

consciously. Roberts v. Erhard (In re Roberts), 331 B.R. 876, 884

(oc? Cir. BAP 2005). Accordingly, “fa] debtor will not be denied a
discharge if a false statement is due to mistake or inadvertence.”

Brown, 108 F.3d at 1293; see Roberts, 331 B.R. at 884 (a careless

and reckless approach to a reporting duty does not rise to the
level of “knowing’”). “Moreover, an honest error or mere inaccuracy
is not a proper basis for denial of a discharge.” Id. The

evidence before me stands in sharp contrast to the evidence of

wrongdoing that the court had before it in Khalil v. Developers

Sur. & Indem. Co. (In re Khalil), 379 B.R. 163 (9°° Cir. BAP 2007);

in Hansen v. Moore (In re Hansen), 368 B.R. 868 at 877-78; and in

Aubrey, 11 B.R. at 273-74.

Ww. Based upon the Findings of Fact, I conclude that Sachs
did not meet his burden and that there exists no basis for denying
Adeli’s discharge under § 727(a) (4) (A). Roberts, 331 B.R. at 883-
85. None of the Subject Statements were (1) false, and (2) made
knowingly and fraudulently, and (3) related to a material fact.

X. There were many unusual or suspicious Adeli transfers

post-Judgment and prepetition, but upon careful examination of all

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the evidence and circumstances in this dispute, I conclude that
Adeli acted in good faith and on the advice of her attorneys. At
the same time, Sachs did not initiate any enforcement action during

Adeli's prepetition period that was interrupted or frustrated by

Adeli’s conduct. When Adeli filed bankruptcy she honestly
disclosed her assets. Adeli conducted her bankruptcy case
truthfully and without deception. Adeli cooperated with her

Chapter 7 Trustee and settled voluntarily the allegations of
misconduct against her, with my approval, after notice and a
hearing and over Sachs’ objection. Adeli has voluntarily met her
prepetition obligations to Sachs and her other creditors.

¥. Judgment on Sachs’ 727 claims in this adversary should be
entered in favor of Adeli.

March 27, 2008

THOMAS B. DONOVAN .
BANKRUPTCY JUDGE

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NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING

TO ALL PARTIES IN INTEREST LISTED BELOW:

1. You are hereby notified that a judgment or order entitled:
FINDINGS OF FACT AND CONLCUSIONS OF LAW
was entered on 3/. AT0F

2. | hereby certify that | mailed a true copy of the order or judgment to the persons and
entities listed below on BlALO6

Plaintiffs Attorneys

Isaac Pachulski

Frank Merola

Nathan Schultz

1901 Avenue of the Stars, 12" Floor
Los Angeles, CA 90067

Aaron Richard Golub
42 East 64" Street
New York, NY 10021

Debtor/Defendant

Katayone Adeli

9950 Durante Drive, No. 408
Beverly Hills, CA 90212

Debtor/Defendant's Attorneys

Craig Rankin

Todd Arnold

Levene Neale Bender Rankin & Brill
40250 Constellation Blvd., Ste. 1700
Los Angeles, CA 90067

Chapter 7 Trustee

Nancy Knupfer

Danning, Gill, Diamond & Kollitz
2029 Century Park East, 3 Floor
Los Angeles, CA 90067-2904

Office of the U. S. Trustee
Ernst & Young Plaza

725 S. Figueroa St., 26" Floor
Los Angeles, CA 900I7

Dated: B/27/0L TZ LL
/

Z Clerk