Harlan et al v. Bank of America , N.A. et al

Filing 128

OPINION AND ORDER granting 121 Motion to Withdraw. Signed by Honorable Timothy L. Brooks on September 6, 2016. (rg)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION

MARVIN A. HARLAN and
PLAINTIFFS/COUNTER-DEFENDANTS

CAROL G. HARLAN

CASE NO. 5:14-CV-05287

v ..

THE BANK OF NEW YORK MELLON f/k/a
THE BANK OF NEW YORK, AS TRUSTEE
FOR THE CERTIFICATE HOLDERS CWALT,
INC., ALTERNATIVE LOAN TRUST
2006-30T1, MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2006-30T1

DEFENDANT/COUNTER-PLAINTIFF

OPINION AND ORDER

Now pending before the Court are Plaintiffs/Counter-Defendants Marvin A. and
Carol

G.

Harlan's

Motion

to

Withdraw

Freeze

on

USAA

Account

(Doc.

121).

Defendant/Counter-Plaintiff The Bank of New York Mellon ("BONY"}1 filed a Response in
Opposition (Doc. 125). The Motion is now ripe for decision.
The Court held a show cause hearing on June 28, 2016, concerning Mr. Harlan's
second individual petition for bankruptcy, which he filed on June 27, 2016. The stated
purposes of the hearing were: (1) to inquire of Mr. Harlan what his motivations were in
filing a petition for bankruptcy on the eve of the scheduled foreclosure sale of his home,2

1 BONY serves as the Trustee for the Certificate Holders CWALT, Inc., Alternative Loan
Trust 2006-30T1, Mortgage Pass-Through Certificates, Series 2006-30T1.
2 The home had been scheduled for foreclosure sale on two previous occasions, and both
times, the sale had been halted due to the filing of individual bankruptcy petitions by either
Mr. or Mrs. Harlan. The first petition, filed the day before the first scheduled foreclosure
sale, was brought by Mr. Harlan. The second petition, filed the day before the second
scheduled foreclosure sale, was brought by Mrs. Harlan. Filing a petition for bankruptcy
ordinarily triggers an automatic stay of pending judicial proceedings. 11 U.S.C.
1

§ 362(a).

and

(2) to consider whether Mr. Harlan filed this latest bankruptcy petition in bad faith,

which could justify lifting the automatic bankruptcy stay and ordering the foreclosure sale
to proceed as scheduled.
During the show cause hearing, Mr. Harlan represented himself prose. He took the
stand and testified that he opened a USAA account in early

2016 and initially transferred

$200.00 or $250.00 to this account from his checking account at Arvest Bank. He also
testified that an additional

$50,000.00 was deposited to the USAA account as a result of

an inheritance he received after his mother passed away.

Mr. Harlan explained on the

stand that this inheritance money was sitting in his USAA account and had not yet been
spent, and that an additional
deposited in the near future.

$50,000.00 of inheritance money was expected to be

Mr. Harlan also testified that he had placed

$5,000.00 in

income in this USAA account, and he had not spent it. The reason why Mr. Harlan testified
so extensively about his bank account in the first place was to attempt to persuade the
Court that he and his wife now had sufficient funds to pay their mortgage debt, and they
should be allowed to attempt to refinance their mortgage and stop the foreclosure sale. 3
Needless to say, the Court was troubled by Mr. Harlan's testimony. He stated under

The Court entered its Judgment and Decree of Foreclosure on September

2, 2015, and

since then, BONY had been attempting to complete the judicial sale, but was stymied each
time by the Harlans' bankruptcy filings-which they never pursued and which they filed
solely for the purpose of halting the sale.
3

This argument was a non-starter, however, as the Court explained in a previous Order

(Doc.

126). The Harlans' mortgage and note ceased to exist on the day the Court entered
2015. It was therefore impossible for the

its Judgment of foreclosure in September of

Harlans to attempt to refinance their non-existent mortgage loan after that date, and the
fact that the Harlans now had money in the bank to finally start paying their mortgage
again-after two years of intentionally withholding all payments-was too little, too late.

2

oath that he had access to more than $55,000.00 in a bank account, yet he still chose to
file for bankruptcy and was unable to give the Court any legitimate reason why he needed
to restructure his assets. He also made several confusing and contradictory statements
concerning the funds available to him in his USAA account, and at some point during the
hearing, the Court ordered from the bench that his USAA account be frozen and that he
produce for review all monthly brokerage statements related to the account, beginning on
the date the account was opened in 2016 until the date of the show cause hearing on June
28th. The day after the hearing, Mr. Harlan emailed the Court a USAA brokerage account
statement spanning a single month's time, from April 1, 2016, to April 30, 2016, and
indicated that the total amount of money present in the account was not $55,000.00, but
$200.00.
There were other troubling aspects of Mr. Harlan's testimony. He stated on his June
27th bankruptcy application that he needed to pay his filing fee in installments because he
was "unable to pay the filing fee at once."

(Doc. 2-2, Case No. 5:16-CV-05163).

This

sworn statement regarding his inability to pay contradicted his sworn testimony during the
show cause hearing that he had $55,000.00 in his USAA account.
The next troubling issue for the Court was the fact that Mr. Harlan checked a box
on his bankruptcy petition affirming that he had received a briefing from an approved credit
counseling agency within 180 days prior to filing his petition. See Doc. 2-1, p. 5, Case No.
5:16-CV-05163. During the show cause hearing, the Court ordered Mr. Harlan to produce
the certificate confirming that briefing.

The day after the hearing, June 29, 2016, Mr.

Harlan sent the Court an email claiming he could not find any proof that he had completed
the credit-counseling briefing prior to filing for bankruptcy, as he had previously sworn. Mr.
3

Harlan apparently did not appreciate the gravity of the situation or the fact that he had been
caught in a lie, as he simply emailed the Court a credit-counseling certificate he completed
that same day, June 29, 2016, two days after filing for bankruptcy.
The Court held a second show cause hearing on July 1, 2016, in order to secure
Mrs. Harlan's attendance and obtain her testimony on these matters, since at that point,
the Court suspected that Mr. Harlan had perhaps committed bankruptcy fraud.4 At the July
1st show cause hearing, both Mr. and Mrs. Harlan took the stand to testify about the
bankruptcy petitions they had filed. At the time of that hearing, Mr. Harlan had filed for
individual bankruptcy twice since the Judgment of foreclosure had entered, and Mrs.
Harlan had filed once. All three of those petitions were similar in that they were filed on an
"emergency basis" on the eve of a scheduled foreclosure sale, and they did not include any
supplementary forms or schedules of assets and debts. Mr. Harlan's first petition and Mrs.
Harlan's only petition were dismissed by the bankruptcy court for failure to prosecute and
to obey the orders of the court. Mrs. Harlan's testimony at the show cause hearing also
raised the Court's suspicion that she might not have prepared and/or signed her own
bankruptcy petition and might not have listed the USAA account or other bank accounts
in filings made before the bankruptcy court. Judging by Mr. Harlan's testimony, it appears
he might have committed perjury during the hearing on June 28th, in addition to committing
bankruptcy fraud.
On July 27, 2016, the Court issued an Order finding that Mr. Harlan had not fully
complied with the Court's previous order issued from the bench requiring him to produce

4 The Harlans hired counsel after the first show cause hearing, and counsel was present
with them at this second show cause hearing.
4

all of his monthly brokerage statements from his USAA account through the date of the first
show cause hearing. See Doc. 120. The Court once again ordered Mr. Harlan to produce
these statements and explained that he was not permitted to take any action with respect
to his USAA assets, including any equities, bonds, or other assets held in his brokerage
account, or to transfer any moneys into or out of his USAA account, without first requesting
and receiving permission of the Court. This Order was to remain in effect until such time
as the Court had the opportunity to review the entirety of his USAA-related document
production, and/or until the Court received a proper motion to withdraw the freeze on these
assets. Id.
Mr. Harlan has now submitted documents purporting to be the Harlans' USAA
monthly statements from the date all USAA account(s) were opened through the end of
June 2016.5 On July 28, 2016, the Harlans, through their counsel, filed the instant Motion
to Withdraw Freeze on USAA Account. In the Motion, the Harlans state that they have fully
complied with the Court's prior Order and that the freeze on the account should be lifted.6
A review of the bank statements reflects that no more than $200.00 had ever been present

5 On or about August 15, 2016, the Harlans' attorney submitted-via email-the monthly
USAA statements and other related information for in

making a clear record,

camera

review. For purposes of

these statements and other account receipt/disbursement

information submitted by the Harlans will be received under seal as a supplemental
exhibit(s) to the Court's Show Cause hearing conducted on July 1, 2016.
6 The Court observes that it has no easy and/or meaningful method by which to establish
the authenticity of the bank statements or the accuracy of the other information provided
by the Harlans in camera.

That said, it is relatively easy for the Court to conclude that

either ( 1) these documents and information are not genuine and accurate, or (2) Mr. Harlan
made blatantly false statements during the June 28th hearing with regard to at least two
large financial transactions, both of which were contradicted by the USAA statements
provided afterwards to the Court. Mr. Harlan's attempt to reconcile this contradiction during
his July 1st testimony is confusing, nonsensical, and simply not credible.
5

in this account since it was first opened.

In an interesting twist, however, the Harlans

admitted in their Motion that they had received a $115,000.00 deposit into their joint USAA
brokerage account on July 7, 2016-coincidentally, the day after Mr. Harlan voluntarily
dismissed his most recent bankruptcy petition that had been the subject of the two show
cause hearings.

According to the Harlans, this significant deposit represented the

promised "transfer of assets related to Mr. Harlan's mother's estate." (Doc. 121, p. 2).
A couple of things are now clear to the Court. First, from the USAA bank records
provided by the Harlans, it appears Mr. Harlan did not receive $50,000.00 of inheritance
money in his USAA account prior to the June 28th show hearing, nor did he ever place
$5,000.00 of his and his wife's income in that account prior to the hearing. Instead, he
deposited only $200.00 in the account when he opened it, and he left the $200.00 there,
unmolested, until July 7, 2016, about a week after the second show cause hearing and a
day after Mr. Harlan asked the Court to dismiss his bankruptcy case. Then, on July 7th,
$115,000.00 suddenly appeared in the Harlans' USAA account.

Second, the USAA

account statements indicate that the Harlans transferred $99,500.00 of the inheritance
money to three sources: their Arvest checking account, a Roth IRA account, and their
attorney's IOL TA account. Once their attorney-who entered his appearance after the
June 28th show cause hearing-was made aware that the Court had frozen the USAA
account pending further review, he directed the Harlans to return the inheritance money
to the account. They were able to return most of it, except for about $15,000.00, which the
Court assumes they spent.
Turning now to the Motion to Withdraw Freeze, BONY argues in its Response that
the freeze should remain in place because the Harlans owe BONY a judgment in the
6

amount of $713,254.33 and attorney's fees in the amount of $98,516.10. The fact that the
Harlans may be liable for a deficiency judgment to BONY does not provide sufficient legal
justification for the Court to continue to freeze the Harlans' USAA account, particularly in
light of the fact that the Harlans have seemingly complied with all Court Orders related to
producing information on this account. While BONY may have the right to pursue further
collection remedies against the Harlans-garnishment, for example-the mere availability
of such collateral remedies offers no legal basis to justify the Court maintaining a freeze
on the account proceeds. Therefore, the Harlans' Motion to Withdraw Freeze on USAA
Account (Doc. 121) is GRANTED.
Nevertheless, the Court continues to be troubled as to the Harlans' testimony and
filings in this case and in their bankruptcy cases. The Court has considered whether to
impose sanctions on Mr. Harlan, in particular, for making knowingly false statements in his
bankruptcy petition and during his sworn testimony in the proceedings described above.
In addition, the Court believes that Mr. and/or Mrs. Harlan may have committed bankruptcy
fraud in one or more of their bankruptcy cases in this district.

Their testimony and

submissions before this Court indicate that their bankruptcy filings are likely to have
contained irregularities, misstatements, material omissions, and false statements.
Therefore, the Court declines to issue sanctions at this time, and instead finds that the
most appropriate way to address its many concerns is to refer the matter to the United
States Attorney for the Western District of Arkansas for further investigation into whether
Mr. and/or Mrs. Harlan committed bankruptcy fraud or any other crime. This referral is

hereby made, by copy of this Order, pursuant to the criminal code at 18 U.5.C.

7

§ 3057(a), which provides that "[a]ny judge ... having reasonable grounds for believing
that any violation under chapter 9 of this of this title or other laws of the United States
relating to insolvent debtors, receiverships or reorganization plans has been committed,
or that an investigation should be had in connection therewith, shall report to the
appropriate United States attorney all the facts and circumstances of the case, the names
of the witnesses and the offense or offenses believed to have been committed."
The Court will hold in abeyance the issue of sanctions, to include the possibility of
criminal contempt sanctions, until the course of action that the U.S. Attorney may pursue
has become more clear.
IT IS SO ORDERED on this

.J!
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day of

8

6.