111 Trustee's Status Report of Noncompliance With 1) Order Finding Eric C. Blue in Contempt of Court

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Case 19-33568-mvl7 Doc 111 Filed 10/21/20 Entered 10/21/20 16:55:14 Page 1 of 7

David W. Elmquist – SBT #06591300


REED & ELMQUIST, P.C.
501 N. College Street
Waxahachie, TX 75165
(972) 938-7339
(972) 923-0430 (fax)

ATTORNEYS FOR DIANE G. REED, CHAPTER 7 TRUSTEE

IN THE UNITED STATES BANKRUPTCY COURT


FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

In re: §
§
ERIC C. BLUE, et al., § CASE NO. 19-33568-MVL-7
§ (Jointly Administered)
§ Hearing Date: October 22, 2020
Debtors. § Hearing Time: 1:30 p.m.

TRUSTEE'S STATUS REPORT OF NONCOMPLIANCE WITH 1) ORDER FINDING


ERIC C. BLUE IN CONTEMPT OF COURT AND REQUIRING TURNOVER OF
FINANCIAL RECORDS; AND 2) ORDER CONTINUING SEPTEMBER 29, 2020
SHOW-CAUSE HEARING TO OCTOBER 8, 2020

On September 1, 2020 came on for hearing the Trustee's Motion for Turnover of

Financial Records (the "Turnover Motion"),1 and the Trustee's Motion for Order Finding Debtors

in Civil Contempt of Court and Imposing Coercive Sanctions (the "Contempt Motion").2

Following this hearing the Court entered on September 3, 2020 its Order Finding Eric C. Blue in

Contempt of Court and Requiring Turnover of Financial Records (the "Contempt Order").3 The

Contempt Order provided methods by which Eric Blue ("Blue") could purge his contempt and

imposed sanctions for failure to comply. The Contempt Order also directed that a show cause

hearing be held on September 22, 2020 in the event the Court was informed that Blue had failed

to purge his contempt.

1
Docket No. 74.
2
Docket No. 75.
3
Docket No. 83.

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On September 14, 2020, the Trustee filed her Notice of Non-Compliance with Contempt

Order.4 As a result, the Court commenced a show cause hearing on September 22, 2020, and

also considered a motion for continuance of the show cause hearing filed by Blue's newly-

retained counsel. The Court continued the show cause hearing to September 29, 2020 (together,

with the hearing held September 22, 2020, the "Show Cause Hearing"). After considering the

evidence and argument of counsel at the Show Cause Hearing, the Court entered on September

30, 2020 its Order Continuing September 29, 2020 Show-Cause Hearing to October 8, 2020 (the

"Continuance Order").5 The Continuance Order continued the Show Cause Hearing on the

conditions that Blue comply with certain filing and procedural deadlines and continue to supply

the Trustee with financial and other documents in order to purge his contempt pursuant to the

Contempt Order that remains in effect.

At the October 8, 2020 continued Show Cause Hearing, the Court heard evidence as to

the status of Blue's compliance with the Contempt Order and the Continuance Order, and further

continued the Show Cause Hearing to October 22, 2020. The Trustee files this Status Report

regarding compliance or non-compliance by Blue to assist the Court with the continued hearing.

Accordingly, the Trustee reports as follows:

1. Pursuant to the Continuance Order Blue, Capital Park Management Company,

LLC ("CPMC"), and Capital Park Private Equity Partners LLC ("CPPEP") filed their Schedules

and Statements of Financial Affairs ("SOFA") on October 15, 2020. However, the Schedules

and SOFA are not in compliance with the Continuance Order as they contain numerous

omissions, deficiencies, and inconsistencies as set forth below.

4
Docket No. 86.
5
Docket No. 99.

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Case 19-33568-mvl7 Doc 111 Filed 10/21/20 Entered 10/21/20 16:55:14 Page 3 of 7

A. Blue's Schedules.6

Blue has listed tangible personal property totaling $148,000.00 in his Schedule B,

yet he has failed to provide any specific information regarding this personal property.

The official instructions for preparing bankruptcy schedules, which are posted on this

Court's website, require debtors to itemize and describe each item of personal property

that has a value of $500.00 or more. Blue has failed to do this.

In Schedule C, Blue has claimed personal property exemptions pursuant to

Section 42.001 of the Texas Property Code. Assuming Blue is entitled to a family

exemption, he is entitled to claim personal property exemptions totaling $100,000.00.

Blue has claimed personal property exemptions totaling $148,000.00 which exceeds the

exemption limit by $48,000.00. Blue has also claimed an exemption for two watches in

the amount of $40,000.00, which exceeds by $15,000.00 the statutory exemption limit for

jewelry.

In Schedule E, Blue has listed the Internal Revenue Service ("IRS") as a creditor

but has provided no information regarding the claim held by the IRS, including the tax

year for which Blue owes taxes.

In Schedule F, Blue has listed 19 creditors. For 17 of the 19 creditors the amount

owed is listed as "unknown." Blue has scheduled a debt owed to Brenda Carlin as

unknown even though this debt is based upon a judgment obtained against Blue. In

addition, Blue has listed a debt owed to Phelps Dunbar, LLP as unknown even though

this creditor has filed a proof of claim in the case in the amount of $91,627.48. Blue has

also listed the claim of Portfolio Secure Lone ("PSL") as unknown even though PSL has

filed pleadings in this case indicating they have a claim in the amount of $3,000,000.00.

6
Docket No. 108.

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Blue has also listed all of the debts in his Schedule F as "contingent, unliquidated and

disputed," despite the fact that a number of these debts are clearly neither contingent nor

unliquidated.

Blue is currently the CEO of Bridgeway National Corporation ("Bridgeway"),

which according to public filings is an investment company whose business purpose is to

invest funds to earn returns from capital appreciation and investment. Blue also has a law

degree and has practiced law for a number of years, specializing in antitrust, business and

securities law. Based upon Blue's legal and business background he clearly understands

the meaning of the words "contingent" and "unliquidated," so he knows that a number of

the claims that he has scheduled as contingent and unliquidated are not contingent or

unliquidated. Thus, Blue has made false representations in his Schedules about the

nature of many, if not all, of the debts he owes.

B. Blue's SOFA7

In Blue's SOFA the only income he has listed is for operating a business, yet on

Schedule I, Part 2, Question 8, Blue lists his source of income as wages. There is no

explanation provided in the SOFA or the schedules for this inconsistency regarding the

source of Blue's income.

C. CPMC and CPPEP Schedules8

In the Schedules that Blue filed on behalf of CPMC and CPPEP the only asset

listed is $100,000.00 in cash, yet there is no information regarding the bank accounts of

either CMPC or CPPEP, or the location of this cash.

Blue has also failed to include in the CPPEP Schedules the CPPEP bank account

at JP Morgan Chase. The Trustee knows this account was open at least through July 31,

7
Docket No. 109.
8
Docket No. 26 in Case No. 19-33569, and Docket No. 24 in Case No. 19-33571.

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2019. If the account is still open then Blue should have listed it in CPPEP's Schedule B.

If the account has been closed, then Blue should have disclosed that this account was

closed in his response to Question 18 in CPPEP's SOFA.

D. CPMC and CPPEP SOFAs9

The SOFAs that Blue has filed on behalf of CPMC and CPPEP contain virtually

no information. Both of these debtors have scheduled $100,000.00 in cash as assets

owned as of the petition date, yet neither of these debtors has included any information

regarding the source of this cash because they have failed to disclose any information

regarding the revenue or income of either of these debtors.

The errors and omissions in these Schedules and SOFAs clearly demonstrate that Blue

prepared these forms in a careless and offhand manner, with no real regard for his duties as a

debtor and debtor's representative to prepare complete and accurate Schedules and SOFAs.

2. On October 19, 2020, the Debtors filed their Supplement to Debtors' Schedules

and Statements of Financial Affairs (the "Supplement").10 In the Supplement, the Debtors assert

that they have made their "best good-faith efforts" to disclose in the Schedules and SOFA the

information required by the Bankruptcy Code and Rules, the Contempt Order, and the

Continuance Order. Further, that the preparation of the Schedules and SOFA required the

Debtors to make "reasonable estimates and assumptions" with respect to the reported amounts

thereon, and that actual amounts could "differ materially" from such estimates. These assertions

are clearly false. Based on the numerous omissions, deficiencies, and inconsistencies set forth

above, the Debtors have not done what they claim to have done in preparing the Schedules and

SOFAs, and there clearly has not been a good faith effort to comply with the Contempt Order

and/or the Continuance Order.

9
Docket No. 27 in Case No. 19-33569, and Docket No. 25 in Case No. 19-33571.
10
Docket No. 110.

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3. Pursuant to the Continuance Order, Blue was to provide to the Trustee the latest

filed tax returns and bank statements for the year prepetition (October 29, 2018 - October 29,

2019) until September 3, 2020 for all three Debtors by October 2, 2020. The Trustee received

tax returns for Blue for years 2017 and 2018 on October 2, 2020, and for tax year 2019 on

October 16, 2020. No tax returns have been received by the Trustee for CPMC or CPPEP. The

Trustee received bank statements from Blue on October 2, 2020, and October 11, 2020.

However, the production of bank statements is deficient. The Trustee is still missing bank

statements for Blue for the period of October 29, 2018 through March 31, 2019. In order to

account for gaps in production Blue's counsel informed the Trustee on October 11 that Blue's

personal Wells Fargo account was garnished by Neill Wright and consequently that account was

closed for insufficient minimum balance between the fourth quarter of 2019 and March 2020.11

He further stated that Blue's personal Bank of America account was opened in March 2020, so

there are no statements prior to that month. No bank statements have been provided for CPPEP

after July 31, 2019. No bank statements at all have been provided for CPMC.

Based on the foregoing it is clear that there has not been a good faith effort by Blue to

comply with the Contempt Order or the Continuance Order. Thus, Blue has not purged himself

of the contempt previously found by this Court. Furthermore, the Trustee has incurred

significant legal fees and expenses in the filing and prosecution of her Contempt Motion and in

the several proceedings on this matter. In light of Blue's ongoing contempt, the Trustee believes

that civil monetary sanctions should be imposed by this Court against Blue in the amount of

$500.00 per day, payable to the Trustee, until Blue fully purges himself of his contempt.

11
The Trustee did however receive bank statements for Blue's Wells Fargo account for all of the fourth quarter of
2019.

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Case 19-33568-mvl7 Doc 111 Filed 10/21/20 Entered 10/21/20 16:55:14 Page 7 of 7

WHEREFORE, PREMISES CONSIDERED, the Trustee requests that this Court enter a

further order of contempt and impose monetary sanctions against Blue that he pay to the Trustee

the sum of $500.00 per day, commencing on October 22, 2020, and that Blue continue to pay

this sum until he has purged himself of his contempt by: (i) filing amended schedules and SOFAs

that provide complete and accurate information and are prepared in accordance with the

instructions for preparing these forms, and (ii) providing to the Trustee all of the bank statements

and tax returns that Blue has been previously ordered to produce.

Dated: October 21, 2020. Respectfully submitted,

REED & ELMQUIST, P.C.


501 N. College Street
Waxahachie, TX 75165
(972) 938-7339 (direct)
(972) 923-0430 (fax)

By: /s/ David W. Elmquist


David W. Elmquist – SBT #06591300

ATTORNEYS FOR DIANE G. REED,


CHAPTER 7 TRUSTEE

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on October 21, 2020, a true and correct copy of the
foregoing Status Report has been served electronically on all registered ECF users in this case,
which includes counsel of record to Debtor Eric C. Blue.

/s/ David W. Elmquist


David W. Elmquist

TRUSTEE'S STATUS REPORT OF NONCOMPLIANCE WITH ORDERS – PAGE 7 OF 7

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