Rood v. Southern Management Corporation Retirement Trust

Filing 40

MEMORANDUM OPINION (c/m to Mr. Jewell 10/1/12 sat). Signed by Chief Judge Deborah K. Chasanow on 9/29/12. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN RE: ROBERT F. ROOD, IV,
et al.
______________________________
ROBERT F. ROOD, IV, et al.
Appellants
v.

:
:
:
:

GARY A. ROSEN, et al.
Appellees

Civil Action No. DKC 11-3059

:
:
MEMORANDUM OPINION

Appellants Robert F. Rood, IV, and Charles Timothy Jewell
appeal

from

a

November

4,

2011,

judgment

against

them

in

a

bankruptcy adversary proceeding in accordance with a memorandum
of decision issued September 26, 2011.1

The issues are fully

briefed and the court now rules pursuant to Local Rule 105.6, no
hearing being deemed necessary.

For the reasons that follow,

the judgment will be affirmed.
I.

Background
A.

Events Prior to the Adversary Complaint

Appellee Southern Management Corporation Retirement Trust
(“SMCRT”) is a pension plan that manages retirement funds for
approximately

1,250

Corporation.

Between

1

employees
March

2006

of
and

Southern
September

Management
2007,

SMCRT

The appeals were noted on October 11, 2011, prior to the
entry of judgment. The notices are treated as if filed on the
date of and after the entry of judgment.
Fed.R.Bankr.P.
8002(a).

funded thirty-two loans, primarily for short-term construction
and renovation projects, originated by Appellant Robert F. Rood,
IV,

or

a

typically

business

entity

presented

loan

associated

with

applications

him.

Mr.

and

Rood

supporting

documentation to SMCRT’s loan committee, which reviewed these
packages and, upon approval, wired the funds to a settlement
agent.

Mr. Rood then assisted with closing the loans, managed

disbursements to the borrowers, and remitted monthly interest or
payments to SMCRT, along with statements of accounting.
In mid-2007, Southern Management Chief Executive Officer
David Hillman requested that Mr. Rood permit a routine audit of
“his books and records to verify the amount that was supposed to
(ECF No. 5-47, at 75).2

be on deposit.”

Mr. Rood was initially

agreeable, but later balked, citing privacy concerns for his
clients.

When

further

efforts

to

examine

his

records

unsuccessful, Mr. Hillman called a meeting in October 2007.
that

meeting,

Mr.

Rood

produced

a

letter

from

his

were
At

attorney

opining that he “had no duty to account to [SMCRT]” for its
money.

(Id. at 75).

Ultimately, Mr. Rood agreed to have his

own accountant, Lloyd Mallory, review the relevant records and
prepare a report.

SMCRT received Mr. Mallory’s report in March

2008, which was “basically an affirmative statement that the

2

Unless otherwise noted, all references are to evidence
adduced at the trial in the adversary proceeding.
2

balances were there and that they were in a bank account and
that . . . [the] bank balances equaled the amount of money that
[Mr. Rood] owed to third parties.”
At

around

the

same

time,

(Id. at 78).
however,

SMCRT

“began

to

be

contacted by borrowers that were unable to access the funds that
Mr. Rood was holding for them.”

(Id. at 79).

contacted

“learned

escrows

other
in

borrowers,

some

cases

he

had

been

that

depleted,”

When Mr. Hillman
their
and

interest

that

some

borrowers “had paid off their loans,” but SMCRT had not received
the payments.

(Id. at 82).

Funds for another loan associated

with a property on K Street in the District of Columbia had been
released by SMCRT to a title company awaiting settlement.

Mr.

Rood reported to SMCRT that the loan “was being closed and [was]
active” (id.), but Mr. Hillman learned from the title company
that this was untrue − in fact, the loan never closed, and the
money

was

sent

by

the

title

company

to

Mr.

Rood,

upon

his

request.
On May 9, 2008, SMCRT filed a lawsuit against Mr. Rood and
two of his associated business entities in the Circuit Court for
Montgomery County, Maryland.

Pursuant to an emergency motion, a

temporary receiver was appointed to examine records related to
SMCRT’s

loan

portfolio,

which

providing.

The

receiver,

independent

investigation

Mr.

Thomas
that
3

Rood

continued

Murphy,

learned

Mr.

Rood

had

to

resist

through

an

outstanding

judgments against him.

Upon contacting attorneys representing

the plaintiff in one of those cases, Mr. Murphy learned that Mr.
Rood had been entrusted with a large sum of money to assist a
restaurant, Village Bar and Grill, in obtaining a lease, and
that,

soon

thereafter,

(ECF No. 5-56, at 35).3

“the

money

effectively

disappeared.”

Mr. Murphy issued a subpoena to the

attorneys for Village Bar and Grill for bank records associated
with Level One Capital Partners, LLC (“Level One”), an entity
controlled by Mr. Rood.

His review of those records reflected

that “[t]he majority of the money that was spent out of the
Level One bank account . . . went for non-corporate expenses.”
(Id. at 37).

This caused Mr. Murphy to be “very, very concerned

about what Mr. Rood was doing with funds.”

(Id. at 38).

On May 29, 2008, after he was served with a subpoena to
appear in circuit court the next day, Mr. Rood filed a voluntary
petition under chapter 7 of the bankruptcy code in the United
States

Bankruptcy

Court

for

the

District

of

Maryland.

The

following day, Mr. Rood failed to appear at the circuit court

3

On November 20, 2008, Mr. Rood was charged by an
indictment in the Circuit Court for Montgomery County with
embezzlement and fraudulent misappropriation by a fiduciary
related to the money entrusted to him by Village Bar and Grill.
(ECF No. 6-4).
He pleaded guilty on January 4, 2010, and was
sentenced to a three-year term of imprisonment, all of which was
suspended, and three years of supervised probation.
4

hearing, and Mr. Murphy was appointed as permanent receiver in
his absence.
With Mr. Rood continuing to refuse to provide documents,
Mr.

Murphy

retained

a

private

investigation

firm,

Prudential

Associates, to ascertain the location of relevant records.
assigned

investigator,

Jared

Stern,

learned

that

Mr.

The

Rood’s

business entities were primarily operating from an office on
Rugby Avenue in Bethesda, Maryland.

When surveillance of that

address suggested that Mr. Rood was in the process of destroying
documents, Mr. Murphy filed an ex parte emergency motion for
right of entry.

On June 12, 2008, a judge of the Circuit Court

for Montgomery County signed an order authorizing the receiver
to enter the Rugby Avenue office and “remove the things that
would be reasonably related . . . to [his] duties.”
42).
an

(Id. at

Mr. Murphy, in turn, authorized Mr. Stern, Steven Michael,

attorney

for

SMCRT,

and

Suzanne

Hillman,

an

accountant

associated with SMCRT, to enter the property, accompanied by
deputies of the Montgomery County Sheriff’s Department.

They

did so the next day, removing voluminous documents, computers,
and servers from the office.
with

Prudential

Associates

A computer forensic specialist
copied

the

hard

drives

of

all

operable computers removed from the Rugby Avenue address.
Meanwhile, in Mr. Rood’s bankruptcy case, Appellee Gary A.
Rosen

was

appointed

chapter

7
5

trustee.

He

filed

voluntary

chapter 7 petitions on behalf of a number of entities controlled
by Mr. Rood – namely, The Source, LLC; Blue Horseshoe Portfolio
Services, LLC; Level One Capital Partners LLC (a Nevada limited
liability

company);

Blue

Horseshoe

Capital,

LLC;

Matterhorn

Financial, LLC; and Level One Capital Partners, LLC (a Maryland
limited

liability

Entities”).
Debtor

company)

(collectively,

“the

Debtor

Mr. Rosen was appointed chapter 7 trustee for the

Entities,

consolidated

the

and

the

Debtor

bankruptcy
Entities’

court
cases

administratively
with

Mr.

Rood’s

bankruptcy case.
Pursuant to 11 U.S.C. § 341, a meeting of creditors in the
chapter 7 cases was held on July 2, 2008, during which questions
were posed to Mr. Rood regarding, inter alia, his sources of
income.

Mr.

Rood

Amendment

privilege.

refused
On

to

July

answer,
16,

invoking

2008,

SMCRT

his
and

Fifth
Tysons

Financial, LLC (“Tysons”), another creditor, filed an emergency
motion for examination of debtor pursuant to Federal Rule of
Bankruptcy Procedure 2004.

The bankruptcy court granted that

motion on July 21, 2008, ordering “that the Debtor produce any
and all documents requested in the Motion within ten (10) days
of entry of this Order” and that he “submit himself to a Rule
2004 examination.”

(Bankr. No. 08-17199, ECF No. 45).

When Mr.

Rood failed to comply, he was ordered to produce all documents
required under the prior order to SMCRT’s attorneys no later
6

than

August

19.

Mr.

Rood

again

failed

to

comply,

and,

on

September 19, 2008, the bankruptcy court issued a consent order
on suggestion of contempt, directing Mr. Rood to make the Rugby
Avenue

office

“immediately

available

for

a

videotaped

inspection”; to “disclose any and all storage facilities in his
custody or control”; to “immediately turn over his . . . PDA
device”

from

which

“a

qualified

intellectual

technology

professional . . . [was] to download and store electronically
the

Debtor’s

e-mails

responsive

to

.

.

.

[the

examination”; and to produce enumerated documents.
No. 96).

Murphy

2004

(Id. at ECF

Pursuant to that order, SMCRT obtained a number of

documents that had not been produced.
Mr.

Rule]

transferred

custody

of

At around the same time,
the

electronic

and

paper

records removed during the prior entry into the Rugby Avenue
office to Mr. Rosen.
Numerous adversary proceedings were subsequently commenced
within the main bankruptcy case.

On January 30, 2009, SMCRT and

Tysons filed a verified complaint to determine dischargeability
of debt against Mr. Rood, alleging fraud and related claims.
When Mr. Rood failed to respond to the complaint, SMCRT and
Tysons filed a motion for default judgment, which the bankruptcy
court granted on April 29, 2009.

The court ordered that SMCRT

“shall have judgment against the Debtor . . . in the sum of
$13,876,353.47”;

“[t]hat

Tysons
7

.

.

.

shall

have

judgment

against the Debtor . . . in the sum of $2,626,189.30”; and
“[t]hat these debts are not subject to any discharge in this or
any subsequently filed bankruptcy case.”

(Bankr. No. 09-00058,

at ECF No. 12).4
B.

The Adversary Complaint and Events Prior to Trial

The instant adversary proceeding was commenced on April 1,
2009, when Mr. Rosen and SMCRT filed a complaint for injunctive
relief, declaratory relief, and damages against Kore Holdings,
Inc.

(“Kore”);

seven

wholly-owned

Kore

subsidiaries;

First

Washington Equities, LLC; Nik Hepler; Warren A. Hughes, Jr.; Mr.
Rood’s mother and father; and Appellants Robert Rood and Charles
Timothy

Jewell.

(ECF

No.

1-5).5

Concomitantly

with

their

4

Approximately one month earlier, in another bankruptcy
case, a default judgment was entered against Mr. Rood and in
favor of Village Bar and Grill, Inc., in the nondischargeable
amount of $205,000.00. (Bankr. No. 08-00781, ECF No. 12).
5

Kore is a publicly-held Nevada corporation with its
principal place of business in Maryland.
Mr. Rood is Kore’s
President and Chief Executive Officer; Mr. Jewell is Kore’s
Chief Operating Officer; and Mr. Hepler and Mr. Hughes are
former Kore employees.
The Kore subsidiaries named as
defendants in the adversary complaint are Arcadian, Inc., First
Washington Financial Corp., Level One Mortgage Capital, Mortgage
American Bankers, Source Bio-Plastics, Inc., SunVolt, LLC, and
Whiplash Motor Sports, LLC. Mr. Rood is identified as President
and Chief Executive Officer of Defendant First Washington
Equities, LLC, and Mr. Jewell is identified as its managing
member.
By orders entered June 5, 2009, and March 12, 2010, the
bankruptcy court dismissed certain claims against Mr. Rood’s
parents, Robert F. Rood, III, and Grace Ann Rood, and granted
summary judgment as to others.
Mr. Rosen and SMCRT appealed.
8

complaint,

Appellees

restraining

order,

emergency hearing.

filed

an

emergency

preliminary

motion

injunction,

(ECF No. 6-1).

for

and

temporary

request

for

Attached to that document

was the declaration of Suzanne D. Hillman, a principal in the
accounting firm Hillman & Glorioso, PLLC, providing an analysis
of records associated with Mr. Rood, Kore, and related entities.
(ECF No. 6-3).6
The

bankruptcy

court

held

hearings

on

the

preliminary

injunction motion on a number of dates in April and May 2009.
At an April 13, 2009, hearing, the court addressed Mr. Rood’s
failure to produce certain documents as directed by a subpoena.
He

was

between

orally
two

ordered

entities

to

with

produce
which

he

a

post-petition
was

associated,

agreement
Arcadian

By a memorandum opinion and order issued March 22, 2011, this
court reversed and remanded as to one claim, but otherwise
affirmed the bankruptcy court’s decision.
See In re Rood, 448
B.R. 149 (D.Md. 2011). On August 15, 2012, the bankruptcy court
issued an order granting the trustee’s motion to approve a
settlement with respect to Mr. Rood’s parents. (Bankr. No. 0900188, ECF No. 648).
Mr. Hepler noted an appeal from the same judgment as the
instant appellants, which was consolidated in this court with
those of Messrs. Rood and Jewell.
When Mr. Hepler failed to
file a brief, Appellees moved to dismiss his appeal. Mr. Hepler
again failed to respond and his appeal was dismissed by a
memorandum opinion and order issued March 6, 2012.
See In re
Rood, Civ. No. DKC 11-3059, 2012 WL 748573 (D.Md. Mar. 6, 2012).
6

Ms. Hillman is the spouse of Southern Management CEO David
Hillman. She was also among those who entered the Rugby Avenue
property pursuant to the circuit court order.
9

Renewable Power, Inc., and Jet Stream Voltage, Inc., prior to
April 17.

(ECF No. 6-19, at 67).

When he failed to produce the

document, Appellees filed an emergency motion for an order to
show cause why Mr. Rood and Kore should not be held in civil and
criminal

contempt

and

a

request

for

hearing.

A

hearing

on

Appellees’ motion was held on June 18, and, on June 22, the
bankruptcy court issued a memorandum of decision and certificate
of criminal contempt.7
On September 8, 2009, the bankruptcy court entered an order
granting the motion for preliminary injunction as to Mr. Rood,
Mr. Jewell, Mr. Hepler, Kore, Whiplash Motor Sports, LLC, Source
Bio-Plastics, Inc., Arcadian, Inc., Level One Mortgage Capital,
SunVolt,

LLC,

Mortgage

American

7

Bankers,

First

Washington

The certificate of contempt was “handed-up” to the
district court by the bankruptcy court for a hearing regarding
punishment. On October 27, 2009, this court issued a memorandum
opinion and order finding, in relevant part, that “if the matter
of criminal contempt is to be pursued, a referral to the United
States Attorney must be made.”
In re Rood, Misc. No. DKC 090186, 2009 WL 3614851, at *4 (D.Md. Oct. 27, 2009).
Such a
referral was subsequently made, and, on October 6, 2010, a
criminal information was filed in the United States District
Court for the District of Maryland, charging Mr. Rood with
criminal contempt. (Crim. No. DKC 10-0618). On the same date,
he was separately charged by indictment in this court with
fraudulent use of a Social Security number, making a false
statement to a financial institution, and aggravated identity
theft.
(Crim. No. DKC 10-0627, ECF No. 1).
Additionally, on
December 13, 2011, Mr. Rood, Mr. Hepler, and Lloyd Mallory were
charged by a sixteen-count indictment in the United States
District Court for the Eastern District of Virginia with theft
and wire fraud related to their conduct with respect to SMCRT
and Tysons.
(Crim. No. 1:11CR52).
Trial dates are pending in
all three of those criminal cases.
10

Financial

Corporation,

and

First

Washington

Equities,

LLC,

enjoining them, inter alia, “from taking any action or making
any

transfers

of

any

property

or

assets

or

engaging

in

any

financial or business transactions pending further Order of the
Court.”
this

(ECF No. 6-68, at 7).

court,

which

dismissed

Mr. Rood and Kore appealed to
as

to

Kore

bankruptcy court’s ruling as to Mr. Rood.

and

affirmed

the

See In re Rood, 426

B.R. 538 (D.Md. 2010).
C.
A

The Trial and Subsequent Proceedings
bench

trial

was

held

before

United

States

Bankruptcy

Judge Paul Mannes on April 6, 7, 8, 9, 14, 15, and 16; May 27
and 28; June 8; and July 15, 2010.

Mr. Rood, who represented

himself at trial, failed to appear for the first two days.8
Prior to the last day of trial, SMCRT moved in limine for an
order prohibiting him from testifying as a sanction for repeated
discovery violations.

(ECF Nos. 5-27, 5-29).

that motion on July 12, 2010.

The court granted

(ECF No. 5-19).

After post-trial briefing and an additional hearing, Judge
Mannes issued a memorandum of decision on September 26, 2011,
8

On April 7, 2010, Mr. Rood filed a second bankruptcy case,
under chapter 11, in the United States Bankruptcy Court for the
Southern District of Florida.
On the same date, he filed a
chapter 11 petition on behalf of Kore in the United States
Bankruptcy Court for the District of Nevada.
The Florida case
was subsequently transferred to Maryland, converted to chapter
7, and consolidated with the existing case here.
The Nevada
case was also transferred to Maryland and converted to chapter
7.
11

finding,

inter

Mr.

alia,

Rood

liable

for

fraud

and

civil

conspiracy (counts I and III of the adversary complaint) in the
amount

of

$4,441,750.00,

and

for

fraudulent

conveyance

of

corporate assets (count VIII) in the amount of $1,017,393.33.
(ECF No. 1-1).
counts

in

Mr. Jewell was found liable under the same

the

respectively.

amounts

of

$500,000.00

and

$7,100.00,

A nominal punitive damages award of one dollar

was assessed against both defendants.

On November 4, 2011, the

bankruptcy court entered a final judgment in accordance with its
prior memorandum of decision.
Mr.
filed

Jewell

notices

consolidated

in

and
of

Mr.
appeal

this

(ECF No. 13-12).

Rood

(together,

and

the

court.

“Appellants”)

cases

Following

were

timely

subsequently

designation

of

the

record, Mr. Jewell, who is proceeding pro se on appeal, filed
his brief on February 1, 2012.

(ECF No. 17).

Mr. Rood, who is

represented by counsel, filed his brief on March 2.
26).

(ECF No.

Appellees filed a consolidated opposition brief on March

23 (ECF No. 35), and both appellants filed replies (ECF Nos. 36,
37).
II.

Standard of Review
The district court reviews a bankruptcy court’s findings of

fact for clear error and conclusions of law de novo.

In re

Official Comm. of Unsecured for Dornier Aviation (N. Am.), Inc.,
453 F.3d 225, 231 (4th Cir. 2006); Fed.R.Bankr.P. 8013.
12

“The

Supreme Court of the United States has held that ‘[a] finding is
‘clearly erroneous’ when although there is evidence to support
it, the reviewing court on the entire evidence is left with the
definite

and

committed.’”

firm
In

conviction

re

that

Fitzwater,

No.

a

mistake

has

2:11-cv-00934,

been

2012

WL

4339559, at *2 (S.D.W.Va. Sept. 21, 2012) (quoting United States
v. United States Gypsum Co., 333 U.S. 364, 395 (1948)); In re
Broyles, 55 F.3d 980, 983 (4th Cir. 1995).
this

[c]ourt

‘must

applicable law.’”

make

an

independent

“On legal issues,

determination

of

the

In re Fabian, 475 B.R. 463, 467 (D.Md. 2012)

(quoting In re Jeffrey Bigelow Design Group, Inc., 127 B.R. 580,
582

(D.Md.

1991)).

With

respect

to

the

bankruptcy

court’s

application of law to the fact, the district court review for
abuse of discretion.

In re Fabian, 475 B.R. at 467 (citing In

re Robbins, 964 F.2d 342, 345 (4th Cir. 1992)).
III. Sufficiency of the Evidence
Both Mr. Rood and Mr. Jewell challenge the sufficiency of
the evidence adduced at trial in a number of respects.

As to

both appellants, however, the evidence was more than sufficient
to support liability.
The court below found Mr. Rood and Mr. Jewell liable for
fraud

and/or

civil

conspiracy

attributable to them.

and

for

fraudulent

conveyances

In Hoffman v. Stamper, 385 Md. 1, 28

13

(2005), the Court of Appeals of Maryland set forth the relevant
standard for establishing fraud:
To prove an action for civil fraud
based on affirmative misrepresentation, the
plaintiff must show that (1) the defendant
made
a
false
representation
to
the
plaintiff,
(2)
the
falsity
of
the
representation was either known to the
defendant or the representation was made
with reckless indifference to its truth, (3)
the misrepresentation was made for the
purpose of defrauding the plaintiff, (4) the
plaintiff relied on the misrepresentation
and had the right to rely on it, and (5) the
plaintiff suffered compensable injury as a
result of the misrepresentation.
In the same case, the court set forth the legal standard
for conspiracy:
We have defined a civil conspiracy as
“a combination of two or more persons by an
agreement or understanding to accomplish an
unlawful act or to use unlawful means to
accomplish an act not in itself illegal,
with the further requirement that the act or
means employed must result in damages to the
plaintiff.”
Green v. Wash. Sub. San.
Comm’n, 259 Md. 206, 221, 269 A.2d 815, 824
(1970).
Although the notion of a tortious
conspiracy was derived from the common law
criminal conspiracy and each requires proof
of an agreement, the tort plaintiff must
show more than just an unlawful agreement.
The plaintiff must also prove the commission
of an overt act, in furtherance of the
agreement, that caused the plaintiff to
suffer actual injury.
See Alleco, Inc. v.
Harry & Jeanette Weinberg Foundation, Inc.,
340 Md. 176, 189-91, 665 A.2d 1038, 1044-45
(1995) and cases cited there.
The tort
actually lies in the act causing the harm;
the agreement to commit that act is not
actionable on its own but rather is in the
14

nature of an aggravating factor.
That is
why this Court, in Alleco, held that civil
conspiracy “‘is not a separate tort capable
of independently sustaining an award of
damages in the absence of other tortious
injury to the plaintiff.’”
Alleco, supra,
340 Md. at 189, 665 A.2d at 1044-45 (quoting
Alexander & Alexander, Inc. v. B. Dixon
Evander & Associates, Inc., 336 Md. 635, 645
n. 8, 650 A.2d 260, 265 n. 8 (1994)).
Hoffman, 385 Md. at 24-25.
Conspiracies

are

most

often

proven

by

circumstantial

evidence, “for in most cases it would be practically impossible
to prove a conspiracy by means of direct evidence alone.”

Id.

at 25 (quoting Western Md. Dairy v. Chenowith, 180 Md. 236, 243
(1942)).

As the court explained in Chenowith, 180 Md. at 243-

44:
Conspirators do not voluntarily proclaim
their
purposes;
their
methods
are
clandestine. It is sufficient if the proven
facts and circumstances, pieced together and
considered as a whole, convince the court
that
the
parties
were
acting
together
understandingly in order to accomplish the
fraudulent scheme. Thus a conspiracy may be
established by inference from the nature of
the acts complained of, the individual and
collective
interest
of
the
alleged
conspirators, the situation and relation of
the parties at the time of the commission of
the acts, the motives which produced them,
and
all
the
surrounding
circumstances
preceding and attending the culmination of
the common design.
Where two or more people conspire to defraud, “each of them is
liable to the defrauded party irrespective of the degree of his

15

activity in the fraudulent transaction or whether he shared in
the profits of the scheme.”

Fisher v. McCrary Crescent City,

LLC, 186 Md.App. 86, 144 (2009).

Moreover, it is unnecessary to

show that a participant in the conspiracy “was a party to its
contrivance at its inception.”

Fisher, 186 Md.App. at 144.

Rather, “[i]f it is shown that he knew of the fraudulent scheme
and willfully aided in its execution, he is chargeable with the
consequences.”
The
alleged

Id.

applicable
in

the

law

for

adversary

the

fraudulent

complaint

is

conveyance

Maryland’s

count

Uniform

Fraudulent Conveyance Act, Md. Code Ann., Comm. Law § 15-201 et
seq. (“MUFCA”).

As this court explained in Bassi & Belotti

S.p.A. v. Transcontinental Granite, Inc., No. DKC 08-1309, 2011
WL 856366, at *9 (D.Md. Mar. 9, 2011):
[MUFCA] provides a remedy if a creditor
demonstrates that a conveyance was made
without fair consideration and either (1)
was committed by a person or entity who is
or will be rendered insolvent by the
conveyance (§ 15–204), (2) was committed by
a person or entity engaged or about to be
engaged in a business or transaction for
which the property remaining in his hands
after the conveyance is an unreasonably
small capital (§ 15–205), or (3) was
committed by a person or entity who intends
to or believes that he will incur debts
beyond his ability to pay when he undertakes
the
conveyance
(§
15–206).
MUFCA
also
imposes liability for conveyances made with
actual intent to hinder, delay, or defraud
present or future creditors, regardless of
whether there was fair consideration for the
16

transfer in § 15–207. The only remedies
available under MUFCA are that the creditor
may seek to set aside the conveyance or levy
or garnish the property transferred by the
conveyance. See § 15–209; Frain v. Perry, 92
Md.App. 605, 620 n. 7, 609 A.2d 379 (“Under
Maryland law, once a conveyance is proven to
be fraudulent, a creditor has the option of
either having the conveyance set aside or
attaching the property conveyed.”), cert.
denied, 328 Md. 237, 614 A.2d 83 (1992).
Cases interpreting the statute have expanded
the realm of available remedies to include
suits
for
money
judgments
against
the
transferee where he or she “allows or causes
the property to depreciate in value or parts
with
the
property
without
sufficient
consideration or puts it beyond the reach of
the court.” Damazo v. Wahby, 269 Md. 252,
257, 305 A.2d 138 (Md.1973).
(Footnotes omitted).
A.

Mr. Rood

The evidence adduced at trial in the bankruptcy court amply
demonstrated
conspiracy.

Mr.

Rood’s

Through

liability

extensive

for

fraud

testimony

and

and

civil

voluminous

exhibits, Appellees showed how Mr. Rood repeatedly originated
loans for SMCRT and, once they were funded, misappropriated the
money by diverting it to accounts associated with the Debtor
Entities and then spending it according to his whims.

With the

assistance of Mr. Hepler and Mr. Mallory, Mr. Rood made material
misrepresentations to SMCRT and the borrowers as to the status
of the loans.

These accounts were meticulously summarized in

17

the bankruptcy court’s memorandum of decision, see In re Rood,
459 B.R. 581 (Bankr.D.Md. 2011), and need not be repeated here.
In arguing that the evidence was insufficient, Mr. Rood
does little more than recite the applicable legal standard and
advance vague, generalized arguments, largely without citation
to

the

record

or

any

relevant

legal

authority.

See

Fed.R.Bankr.P. 8010(a)(1)(E) (“The brief of the appellant shall
contain

.

.

.

[a]n

argument

.

.

.

with

citations

to

the

authorities, statutes and parts of the record relied on”).

It

is not for this court to scour the record in search of potential
bases for his arguments.

For present purposes, it suffices to

say that the bankruptcy court’s findings of fact and conclusions
of

law

with

disturbed.

respect

to

Mr.

Rood’s

liability

will

not

be

The evidence of his culpability as to the fraud

count was overwhelming.
According to Mr. Rood, the conspiracy count cannot stand
because

“it

is

and/or

agents

impossible

of

the

princip[al] officer.”
specifically

addressed

for

him

companies

he

to

conspire

operated

and

(ECF No. 26, at 9-10).
this

argument,

at

with

served

as

a

Judge Mannes

length,

memorandum of decision:
Defendants argue that a conspiracy
cannot occur between a corporation and its
agents acting within the scope of their
employment.
Fraidin v. Weitzman, 93 Md.
App. 168, 235, 611 A.2d 1046, 1079 (1992)
18

himself

in

the

(“A person’s acts will be deemed within the
scope of employment when they are taken in
furtherance of the business of the employer
and are authorized by the employer.”)[;]
Brown v. Mayor and City Council, 892 A.2d
1173, 1183, 167 Md. App. 306, 323 (2006). .
. . The Defendants argue that the corporate
Defendants are all . . . affiliates or
subsidiaries of Kore and therefore cannot
conspire with one another.
See Copperweld
Corp. v. Indep. Tube Corp., 467 U.S. 752,
104 S.Ct. 2731 (1984) (holding that a parent
and its wholly owned subsidiary are legally
incapable of conspiring with one another).
See also Oksanen v. Page Mem’l Hosp., 945
F.2d 696, 702 (CA4 1991).
Plaintiffs’ response to this argument
based
upon
the
intracorporate
immunity
doctrine is found in their consolidated
rebuttal to Defendants’ memoranda . . .
stating that an exception exists where the
officer or agent has an independent personal
stake in achieving the corporation’s illegal
objectives.
See [ePlus] Tech., Inc. v.
Aboud, 313 F.3d 166, 170 (CA4 2002);
Shoregood Water Co., Inc. v. U.S. Bottling
Co., 2009 WL 2461689 (D.Md. Aug. 10, 2009);
Detrick v. Panalpina, Inc., 108 F.3d 529,
544 (CA4 1997).
Based on the court’s
conclusions that Rood, Hepler, and Jewell
were the beneficiaries of the transfers of
the diverted SMCRT loan proceeds, the court
finds that each of them had a stake in
ensuring the success of this scheme.
(ECF No. 1-1, at 24).
Mr. Rood acknowledges that “[i]n order to hold an employee
liable as a co-conspirator, the individual must act beyond the
scope of his employment, act for a personal purpose, or have an
independent personal stake in the subject of the conspiracy,”
but asserts “[t]his cannot be said of any act or motivation on
19

the

part

of

Appellant,

Rood.”

(ECF

because

No.

“[t]he

26,

at

evidence

36).
and

According
testimonies

to
of

Plaintiffs’ witnesses are inconsistent with the exception to the
doctrine, the conspiracy count should be dismissed.”

(Id.).

Mr. Rood does not offer an explanation as to the manner in
which

Appellees’

witnesses

testified

exception, however, nor could he.

inconsistently

with

the

Indeed, the evidence adduced

at trial uniformly showed that the Debtor Entities had been
insolvent since 2006 and were used by Mr. Rood as corporate
shells to facilitate his illegal activities.

As Ms. Hillman

testified at a prior hearing, Mr. Rood typically “[took] money
out of Blue Horseshoe and Level One accounts and convert[ed] the
funds to money orders”; in other words, he “used the SMCRT funds
that

were

entrusted

to

him

to

invest

on

its

behalf

as

his

personal piggy bank.”

In re Rood, 448 B.R. 149, 153 (D.Md.

2001)

Rood,

(quoting

In

re

Bankr.

No.

09-0188PM,

2009

WL

2923429, at *2 (Bankr.D.Md. Aug. 19, 2009) (footnote omitted);
see also ePlus Tech., 313 F.3d at 179-80 (applying independent
personal
under

stake

their

exception

control

fraud scheme).

to

where
defraud

conspirators
creditors

used

using

corporation
a

bankruptcy

“The point of the [personal stake] exception is

that there can be no unity of purpose between a corporation and
its agents if the agents have a personal stake independent of
the interests of the corporation.”
20

See Baylor v. Comprehensive

Pain Management Centers, Inc., No. 7:09cv00472, 2011 WL 1327396,
at *13 (W.D.Va. Apr. 6, 2011).

Here, the interests of the

corporate entities and their agents were clearly not aligned.
The court finds no error in the bankruptcy court’s application
of the independent personal stake exception.
With

respect

to

the

fraudulent

conveyance

count,

the

bankruptcy court explained:
The Hillman Report offers the following
description
of
the
nature
of
these
fraudulent
transfers:
“Rood
additionally
diverted principal repayments intended for
SMCRT to his [i.e., Debtor Entity] bank
accounts without proper authorization.
The
Debtor withdrew from the bank accounts that
held these funds substantial payments to
third parties that had no business purpose
and which drained the Debtors’ cash and
resulted in a constant and continued state
of insolvency for the Debtors” (P.3).
From
the evidence produced, it is clear that Rood
alone controlled the Rood Entity Accounts.
See Hillman Report, 3; Pl. Ex. 66 (Tr. TRO
Hr’g,
4/2/09,
30);
Trial
Tr.,
Suzanne
Hillman Test., [7/17/09, 20].
(ECF No. 1-1, at 17-18).

Judge Mannes then recited “a litany of

examples” set forth in the complaint – which he clearly credited
– “of how Rood used the Rood Entity Accounts to fund a lavish
lifestyle, as well as to ‘share[] “gifts” of down payments, and
indeed,
(Id.

at

complete
18).

auto

purchases,

According

to

the

for

his

Hillman

co-conspirators.’”
Report,

Mr.

Rood

“regularly used the [five] Debtor Entity bank accounts to pay
his various personal expenses including (but not limited to) . .
21

. luxury vehicles[,] . . . rent for his personal residence[,] .
. . meal and entertainment[,] . . . and clothing and jewelry[.]”
(Id.).
After setting forth the relevant standard under MUFCA, the
bankruptcy court explained that an inference of fraud arose due
to “numerous badges of fraud,” as established by the “wholly
credible trial testimony of Suzanne Hillman.”

(Id. at 20-21).

Thus, Judge Mannes determined, the burden shifted to Appellants
to “prove fair consideration.”

(Id. at 21 (citing Kline v.

Inland Rubber Corp., 194 Md. 122, 138 (1949); A.V. Laurins &
Co.,

Inc.

(1980)).
Mr.

v.

George’s

County,

46

Md.App.

548,

550

Implicitly finding that no such proof was offered by

Rood,

the

calculations
deducting

Prince

of

those

bankruptcy
damages,
for

which

court

carefully
it

found

turned
parsing

to

Ms.

each

insufficient

Hillman’s
amount

and

evidence

to

support.
On appeal, Mr. Rood argues that “[t]here was no basis in
law or fact to support the verdict . . . because the transfers
were ordinary and necessary expenses Mr. Rood and the corporate
debtors incurred.”

(ECF No. 26, at 10).

In truth, however, he

merely disagrees with the bankruptcy court’s reliance on the
Hillman Report – specifically, its findings that the “Debtor
Entities were insolvent, that the Debtor Entities received less
than reasonably equivalent value in exchange for each transfer,
22

and that the transfers made by the Debtor Entities to each of
the Defendants were without fair consideration.”
41).

(Id. at 40-

Mr. Rood “denies that the Debtor Entities were [in fact]

insolvent during the relevant times” and asserts that he “would
have been able to prove it but for the Court’s sanctions.”
at 41).

(Id.

He further asserts that “the Trustee failed to meet his

burden of showing that Debtor did not receive fair consideration
for

the

monies

[he]

expended,”

generally

arguing

“received consideration for personal expenses.”
In

contrast

to

the

detailed

findings

that

he

(Id.).

of

the

bankruptcy

court’s decision, which were amply supported by citations to the
trial

record

and

proper

legal

support,

Mr.

Rood

substantiate his argument in any meaningful way.

fails

to

Indeed, the

record does not appear to support his view of the evidence.
Accordingly, the bankruptcy court’s finding of liability against
Mr.

Rood

for

fraudulent

conveyances

and

its

assessment

of

damages were entirely proper.
B.

Mr. Jewell

The

involvement

of

Mr.

Jewell,

as

the

noted, was more “difficult . . . to discern.”
14).

bankruptcy

court

(ECF No. 1-1, at

It was undisputed that Mr. Jewell had been an acquaintance

of Mr. Rood’s for many years; that he at some point came to work
with Mr. Rood at the Rugby Avenue office; that he was the Chief
Operating Officer of Kore, the parent company of the Debtor
23

Entities, at the same time Mr. Rood was Kore’s Chief Executive
Officer; and that he controlled at least some aspects of First
Washington Equities, LLC (“FWE”), an entity through which SMCRT
funds were channeled.9
Mr.

Jewell

insisted

throughout

the

adversary

proceeding

that he began operating out of the Rugby Avenue office in April
2008 – i.e., well after the SMCRT loans were misappropriated by
Mr. Rood – and that he had no involvement with Kore prior to
August

2008,

when

he

was

named

Chief

Operating

Officer

in

connection with the Rule 2004 examination of that entity in the
bankruptcy case.
otherwise.

There was, however, ample evidence suggesting

Appellees presented evidence that on or about April

17, 2006, the Board of Directors of Kore considered offering Mr.
Jewell

750,000

shares

of

Kore

stock

in

connection

with

consulting services he provided the company; that on or about
August 8, 2006, he and Mr. Rood created a document detailing
their plans to start a Nevada corporation, which was to be sold
to Kore; that Mr. Jewell was identified as a member of FWE in
its September 12, 2006, articles of organization; that he and
Mr. Rood entered into a memorandum of understanding related to
FWE on or about October 14, 2006, which called for Mr. Jewell to
receive a $15,000 monthly draw; that he was listed as a managing
9

By an order dated June 23, 2009, a default judgment was
entered in favor of Appellees and against FWE.
(Bankr. Case.
No. 09-00188, ECF No. 114).
24

member of FWE on an operating agreement dated December 1, 2006;
and that he previously worked for an entity called TBN, which
was under contract with Community First Bank, the payroll for
which was funded by Level One Capital Partners and FWE.

When

confronted with this evidence at trial, Mr. Jewell generally
denied its authenticity or accuracy and/or claimed to have no
knowledge.
Although there was a basis for finding that he was involved
in Mr. Rood’s business operations prior to 2008, the bankruptcy
court found insufficient evidence that Mr. Jewell was directly
involved in the scheme to defraud SMCRT.

It determined that

“[t]he fraudulent representations attributable to Jewell appear
mainly

in

connection

with

the

refinancing

of

loans

made

to

Michelex Corporation that were [originally] sold to SMCRT in
2006.”

(ECF No. 1-1, at 14).

The bankruptcy court summarized the evidence with respect
to the refinancing of the Michelex loan as follows:
In
March
of
2007,
Hepler
emailed
a
“Commitment to Fund Term Sheet” to Thomas
Gramuglia (“Gramuglia”) for a $500,000 loan
to Michelex that was to be guaranteed by
Gramuglia
(Pl.
Ex.
301).
Plaintiffs’
evidence showed that Rood falsely reported,
for several months, that the funds advanced
by SMCRT were being escrowed. Shortly after
SMCRT sent a demand letter directly to
Gramuglia demanding payment in full, Kore
(through Source Bio-Plastics) and Rood were
trying to close a deal with Michelex and
AGPRO.
Part of that deal involved the use
25

of an “unencumbered asset.”
This asset,
however, was one of the parcels of real
property that had already been pledged by
Gramuglia for the SMCRT loan.
Rood then
executed a Mortgage Partial Release that
released,
without
consideration,
that
property from the lien securing the SMCRT
loan.
Consistent with Rood’s course of
conduct, SMCRT had no notice of the release
(Pl. Ex. 317). Rood also sent a fraudulent
payoff letter to First American Title that
resulted
in
the
title
company
wiring
$250,000.00 to Blue Horseshoe (Pl. Ex. 312).
Plaintiffs
alleged
that
this
money,
unbeknownst to SMCRT, was then used to
finance the Kore/Michelex/Wind Farm deal in
New York.
Plaintiffs point to an email from
Jewell to Rood as evidence that Jewell knew
the $250,000.00 was used for the Michelex
deal (Pl. Ex. 490).[10] Jewell testified that
he was involved in trying to arrange an
asset purchase between Source Bio-Plastics
and a public company owned by Gramuglia, but
denied having any knowledge about SMCRT’s
loan to Michelex (Trial Tr., 4/7/10, 95).
At the TRO hearing held on April 2, 2009,
Jewell testified that he did not begin
working on the Michelex loan until May 2008
(Hr’g Tr., D.E. No. 15, 100).
(Id. at 14-15).
In his discussion of the fraud count, Judge Mannes found:
Plaintiffs have not proven by clear and
convincing
evidence
that
Jewell
made
fraudulent statements in connection with any
10

Plaintiffs’ Exhibit 490 was an email from Mr. Rood to Mr.
Jewell, dated May 20, 2008, which reads: “Since agreeing to this
deal expenses & the debt from my company into Michelex itself
(i.e. Lease Payments, Manufacturing Maint, Payroll, General
Operating) is over 650K Tom [Gramuglia] has put in nearly $250k,
as we shared a lot of the monthly expenses[,] [d]o we really
need a how much & when type report?” (ECF No. 5-14, at 32).
26

SMCRT loan.
While . . . the court senses
that Jewell was involved in the fraudulent
scheme concocted by the Defendants, there is
insufficient evidence to show that Jewell
had any direct communications with SMCRT or
was a participant in the scheme.
Despite
evidence that he played a role in the
Michelex loan, the Plaintiffs have not
proven that Jewell actually made any false
representations to SMCRT in connection with
that loan.
Indeed, Mr. Hillman testified
that he had no interaction with Jewell at
the time that the Michelex loan was made in
June 2006.
Trial Tr., David Hillman Test.,
4/15/10, 19.
(Id. at 17).
Nevertheless,
trial

–

and

considering

all

specifically,

the

the

evidence

evidence

presented

of

a

at

business

relationship with Mr. Rood prior to 2008 – the bankruptcy court
was “able to glean the extent of Jewell’s involvement in Rood’s
scheme

and,

particularly

with

respect

to

the

Michelex

transaction, . . . that Jewell provided Rood with substantial
assistance[.]”

(Id.

at

25).

The

court

based

“Jewell’s

liability . . . upon [a] finding that he conspired with Rood and
Hepler to perpetuate fraud against SMCRT,” but limited the award
of compensatory damages to $500,000, the amount SMCRT sought
with respect to the Michelex loan.
On

appeal,

considers
court.

to

be

Mr.
a

Jewell

(Id. at 32).

primarily

contradictory

challenges

analysis

by

Specifically, he argues that there is an

27

the

what

he

bankruptcy

inherent conflict between the findings of
the
Bankruptcy
Court
that
Appellee[s]
presented no evidence that the Appellant was
involved
with
any
loan
and
that
the
Appellant had absolutely no interaction with
the Appellee[s] but then somehow . . . that
the Appellant is liable for a loan provided
two years before Appellant engaged in any
activity
with
Michelex
and
absent
any
evidence that Appellant was related to the
release
of
lien
and
improper
payments
claimed
by
Appellee
against
other
defendants.
(ECF No. 17, 14-15).

According to Mr. Jewell, “no reasonable

person could first determine that there was no evidence showing
interaction
determine

between

that

the

Appellee

Appellant

should

and

be

Appellant

liable

for

and

an

then

unrelated

transaction which occurred two years after the loan . . . that
the

Bankruptcy

Appellant.”

Court

acknowledged

was

not

connected

to

the

(Id. at 7).

Insofar as Mr. Jewell asserts that there was no conclusive
evidence connecting him directly to the misappropriated SMCRT
loans, he is correct.

Indeed, Judge Mannes noted as much.

What

he overlooks is that his liability was based on his involvement
in the conspiracy with Mr. Rood and Mr. Hepler.
of

the

fraudulent

scheme

may

readily

be

His knowledge

inferred

from

a

combination of factors, including his role as an officer of
Kore,

FWE,

records

and

showing

other
direct

entities;
payments

his
to

office
him

on

from

Rugby

Avenue;

Debtor

Entity

accounts; payments by Mr. Rood, through Debtor Entity accounts,
28

of his utility bills (like Mr. Rood, Mr. Jewell testified that
he

had

no

personal

bank

account);

his

involvement

with

Christopher Evans, a disbarred attorney who was prosecuted for
conspiracy

to

commit

wire

fraud

in

the

Eastern

District

of

Virginia related to misrepresentations he made at the behest Mr.
Jewell

and

Mr.

Rood;

and

emails

showing,

inter

alia,

his

solicitation of false W-2s from Mr. Rood for both him and his
wife.

Given this evidence, it is virtually inconceivable that

Mr. Jewell did not have knowledge of the illegal activities of
Mr. Rood and Mr. Hepler.
The Michelex loan is significant because it constitutes an
overt act necessary to link Mr. Jewell to the conspiracy.
his

own

admission,

Mr.

Jewell

was

working

closely

with

By
Mr.

Gremuglia and Mr. Rood to obtain funding for property in New
York

associated

with

a

project

they

hoped

to

develop.

The

evidence showed that a source of funds for that project involved
Mr. Rood’s surreptitious release of a lien that secured SMCRT’s
Michelex loan.

Indeed, the May 20, 2008, email from Mr. Rood to

Mr. Jewell directly refers to the proceeds derived from that
release.
Michelex
assistance

Thus,
loan,
or

Mr.
at

Jewell’s
the

very

encouragement

tortious conduct.”

to

efforts

with

least,

provided

the

principal

respect

to

the

“substantial
to

engage

in

Christian v. Minnesota Mining & Manuf. Co.,

126 F.Supp.2d 951, 960 (D.Md. 2001) (in Maryland to establish
29

liability for aiding and abetting, “plaintiff must establish,
‘1)

there

is

defendant

a

knew

substantial

violation
about

the

assistance

or

of

the

law

violation;

by

the

and

encouragement

3)

to

principal;
defendant

the

2)

gave

principal

to

engage in tortious conduct’”) (quoting Alleco, 340 Md. at 186).
While Mr. Jewell may or may not have been a late arrival to
the

conspiracy,

“the

proven

facts

and

circumstances,

pieced

together and considered as a whole,” Chenowith, 180 Md. at 243,
are more than enough to find, at the very least, that he aided
and abetted Mr. Rood and Mr. Hepler in their illegal activities.
Mr. Jewell should not be heard to complain that he was assessed
damages associated with Michelex only – he could have been held
jointly and severally liable with Mr. Rood and Mr. Jewell for a
much greater amount.
adduced

at

trial

Accordingly, the court finds the evidence

supports

the

bankruptcy

court’s

finding

of

liability for Mr. Jewell.
IV.

Preclusion of Testimony as Discovery Sanction
Despite Mr. Rood’s history of noncompliance with discovery

requests

throughout

this

litigation,

his

refusal

to

honor

summonses, and his general efforts to obstruct any investigation
into his affairs, he argues that the bankruptcy court erred in
precluding

him

from

discovery violations.

testifying

at

trial

as

a

sanction

for

Similarly, Mr. Jewell complains that he

30

was erroneously precluded from calling Mr. Rood as a witness in
his case-in-chief as a result of the same order.
Near the end of trial, SMRCT filed a motion in limine for
an order prohibiting Mr. Rood from testifying.
5-29).

(ECF Nos. 5-27,

The motion recited that SMCRT propounded upon Mr. Rood a

request for production of documents on or about November 17,
2009.

When Mr. Rood refused to respond, SMCRT filed a motion to

compel,

which

the

court

granted

on

January

27,

2010.

The

court’s order required Mr. Rood to produce responsive documents
within

ten

days,

extended

the

discovery

deadline

for

SMCRT,

ordered that Mr. Rood pay reasonable attorneys’ fees, and warned
that further sanctions would be imposed if he failed to respond.
When Mr. Rood again provided no response, SMCRT filed its motion
for sanctions pursuant to Fed.R.Civ.P. 37(b)(2)(a).

The court

granted that motion on July 12, 2010, ordering that Mr. Rood was
“prohibited

from

giving

adversary proceeding.”

testimony

in

the

above-captioned

(ECF No. 5-19).

On the final day of trial, July 15, 2010, Mr. Jewell’s
attorney inquired as to whether the court’s ruling precluding
Mr. Rood from testifying would affect his ability to call him as
a witness.

(ECF No. 5-17, at 7).

In opposing this request,

counsel for Appellees responded, “it’s very difficult to sever
what Mr. Rood was willing to testify [to] as to Kore, as to
Jewell, and as to his own personal circumstances,” to which the
31

court replied, “[b]ut you’re punishing Mr. Jewell and you’re
punishing

Kore

for

Mr.

Rood’s

misconduct.”

(Id.

at

7,

9).

According to Appellees’ counsel, “Mr. Jewell was in a position
to protect himself and certainly is in a position to provide his
own testimony today, he’s not been called by the defense yet,
and to rely on Mr. Rood to support and defend him at this point
is unfair under the orders of the Court[.]”
hearing

from

Mr.

Jewell’s

reservations,

but

indicated

earlier ruling.”

(Id. at 10).

counsel,

Judge

Mannes

that

would

“adhere

(Id. at 11).

he

After

expressed
to

[his]

At the request of Appellees’

counsel, Mr. Jewell’s attorney made the following proffer “as to
what he would hope Mr. Rood would say on behalf of Mr. Jewell”
(id.):
Well, I propose to ask Mr. Rood
questions about the operations of Kore,
questions about the operations of, you know,
his interaction with Mr. Jewell, when Mr.
Jewell commenced.
There’s been a lot of
discussion
about
Community
First
Bank.
There’s
discussions
about
Bay
Capital.
Those are things that frankly Mr. Rood is
the only one who has the ability to testify.
I don’t think Mr. Jewell can testify as
to what happened with Bay Capital and Ben
Lyons since he wasn’t involved in any of
that.
There are a number of other issues
regarding interactions between Mr. Jewell,
Kore and Mr. Rood that happened both when
Mr. Jewell will acknowledge he was in fact
involved with Kore, and things that have
been stated in this court that there’s
really
any
proof
of
other
than
some
documents that were never executed, and I
32

think Mr. Rood can speak to what occurred,
some of the discussions that occurred, and
these sorts of things.
(Id. at 12).

After Appellees’ counsel stated, “[a]s to Mr.

Jewell, I didn’t hear anything that Mr. Jewell couldn’t testify
to,” Judge Mannes “adhere[d] to [his] earlier ruling.”

(Id. at

13).
As

Judge

International

Russell
Marine

recently

explained

Underwriters,

No.

in

Meredith

GLR-10-837,

3025139, at *4 (D.Md. July 20, 2012):
Rule 37(b)(2) gives teeth to a court
imposed order to provide or permit discovery
under Rule 26(a)(2) by permitting a trial
court to impose sanctions when a party fails
to obey an order to provide or permit
discovery.
Hathcock
v.
Navistar
Int’l
th
Cir.
Transp. Corp., 53 F.3d 36, 40 (4
1995). Among the sanctions available, the
express terms of Rule 37(b)(2) permit a
trial court to:
(i) direct[] that the matters embraced
in the order or other designated facts
be taken as established for purposes of
the action, as the prevailing party
claims; (ii) prohibit[] the disobedient
party
from
supporting
or
opposing
designated claims or defenses, or from
introducing
designated
matters
in
evidence; (iii) strik[e] pleadings in
whole or in part; (iv) stay[] further
proceedings until the order is obeyed;
(v) dismiss[] the action or proceeding
in whole or in part; (vi) render[] a
default
judgment
against
the
disobedient party; or (vii) treat[] as
contempt of court the failure to obey
any order except an order to submit to
a physical or mental examination.
33

2012

v.
WL

Fed.R.Civ.P. 37(b)(2)(A)(i)-(vii).
In determining what sanction to impose
under Rule 37(b)(2), this Court is guided by
consideration of four factors: “(1) whether
the non-complying party acted in bad faith,
(2)
the
amount
of
prejudice
that
noncompliance caused the adversary, (3) the
need for deterrence of the particular sort
of noncompliance, and (4) whether less
drastic
sanctions
would
have
been
effective.” S. States Rack and Fixture, Inc.
v. [Sherwin-Williams] Co., 318 F.3d 592, 597
(4th Cir. 2003).
Rule

37(b)(2),

which

is

made

applicable

to

bankruptcy

proceedings by Fed.R.Bankr.P. 7037(a), “gives the court a broad
discretion to make whatever disposition is just in light of the
facts of the particular case.”

8B Charles Alan Wright, et al.,

Federal Practice & Procedure § 2289 (3d ed. 2010); see also
Camper v. Home Quality Mgmt., Inc., 200 F.R.D. 516, 518 (D.Md.
2000)

(“Federal

district

courts

possess

great

discretion

to

sanction parties for failure to obey discovery orders.”).
Although

the

bankruptcy

court

did

not

provide

an

explanation with regard to its ruling as to Mr. Rood, the record
of

the

adversary

proceeding,

in

effect,

speaks

for

itself.

Despite Mr. Rood’s argument to the contrary, a finding of bad
faith would clearly have been warranted.

Given the dubious

nature of his prior testimony in the case, and considering the
substantial evidence of his fraudulent conduct, his testimony
would not be likely to carry much weight with Judge Mannes.
34

Moreover,

considering

his

absolute

refusal

to

comply

with

numerous court orders to provide discovery to Appellees, the
imposition of this sanction was warranted, particularly where he
was expressly given fair warning that a more severe sanction
would result from his continued noncompliance.
With

respect

to

Mr.

Jewell,

there

are

considerations involved, as Judge Mannes noted.

conflicting
On the one

hand, he was effectively sanctioned for the conduct of Mr. Rood.
On the other hand, permitting Mr. Rood to testify as a witness
for him would likely have constituted an end-run around the
sanction.

Ultimately, the critical factor as to Mr. Jewell is

the degree of prejudice he suffered as a result of the ruling.
In his brief, Mr. Jewell argues that the ruling was indicative
of the bankruptcy court’s hostility toward him and that it was
evidence of “malice,” but he cites no prejudice that resulted.
Indeed, given Mr. Rood’s credibility problems, it is difficult
to conceive how his testimony could have helped Mr. Jewell’s
case.

Judge Mannes had broad discretion in this ruling, and

there is no basis for finding that he abused it, or that it
affected Mr. Jewell’s substantial rights.
V.

Admission of Expert Witness
Both

appellants

complain

about

the

admission

Hillman’s expert testimony on several grounds.

of

Suzanne

Mr. Rood argues,

in conclusory fashion, that “[t]he trial Court erred when it
35

denied the motion to strike the testimony of Suzanne Hillman
based on the reasons detailed in the motions.”
50).

(ECF No. 26, at

Such a meager argument barely deserves notice for it fails

to direct the court to any pertinent part of the record.

Mr.

Jewell contends that the bankruptcy court erred in allowing the
expert to testify because the testimony was based on illegally
obtained documents.

(ECF No. 17, at 21).

As to that objection,

Judge Mannes ruled on April 6, 2010:
The issue of illegally obtained evidence in
civil cases was discussed by the Supreme
Court in the case of United States versus
Janis, J-a-n-i-s, that appears at 428 US
433. Justice Blackman speaking for the Court
talked about the exclusionary rule and he
said at page 447: “In the complex and
turbulent history of the rule, the Court has
never applied it to exclude evidence from a
civil proceeding, federal or state.”
While
there’s not a lot of law, there is – a lot
of civil law on it, there’s a case out of
the Southern District of New York called
Burka versus New York City Transit Authority
that
tells
us
the
purpose
of
the
exclusionary rule is to -- the sole purpose
of the exclusionary rule citing several
Supreme Court cases is to deter future
unlawful government conduct. I am not going
to exclude those documents on the grounds
they were illegally obtained. Thank you.
(ECF No. 5-59, 16-17).
Mr. Jewell now argues that the evidence was tainted because
it was not obtained in good faith and because Appellees and
their expert somehow participated in the wrongful acquisition.
He bases this argument on the motion filed by Kore on March 2,
36

2010 (ECF No. 6-126), which asserted that Ms. Hillman’s report
was based on documents that should have been returned as ordered
in

the

receivership

Montgomery County.

proceeding

in

the

Circuit

Court

for

The motion cites Weaver v. ZeniMax Media,

Inc., 175 Md.App. 16 (2007), which held that a circuit court has
inherent authority to sanction conduct that occurs prior to the
commencement

of

litigation,

citing

in

turn

to

Jackson

Microsoft Corp., 211 F.R.D. 423 (W.D.Wash. 2002).

v.

Mr. Jewell

cites to additional cases, including Lipin v. Bender, 84 N.Y.2d
562, 572 (N.Y. 1994) (improper review of privileged documents);
Wanderer v. Johnston, 910 F.2d 652 (9th Cir. 1990) (sanction for
flagrant disregard of discovery rules); and Fayemi v. Hambrecht
and

Quist,

174

Inc.,

F.R.D.

319

(S.D.N.Y.

1997)

(inherent

equitable power to limit use of improperly obtained material).
While Judge Mannes understood the argument to be based on the
obtaining of documents through abuse of the court ordered entry
–

and

thus

to

implicate

the

exclusionary

rule

for

official

misconduct – he nevertheless declined to countenance an argument
based on the asserted misconduct of the receiver and/or his
agents.

This

particularly

ruling

where

was

not

Appellants

an
never,

abuse

of

either

discretion,
before

the

Bankruptcy Court or here, delineate specifically which documents
are at issue.
difficulty

The Bankruptcy Court was painfully aware of the

Appellees

encountered
37

in

attempting

to

obtain

discovery from Appellants and the other defendants, as well as
the proceedings that occurred in circuit court.

The authority

of a court to sanction misconduct is an equitable one and, given
all that transpired in this litigation, it was not an abuse of
discretion for the court to permit the expert testimony based on
all of the documents examined.
The

admissibility

of

expert

testimony

is

governed

by

Fed.R.Evid. 702 and 703, which essentially vest discretion in
the trial judge to admit evidence if the specialized knowledge
will assist the trier of fact to understand the evidence or
determine a fact in issue.

The testimony must be based on

sufficient facts or data; it must be the product of reliable
principles and methods; and the expert must reliably apply the
principles and methods to the facts of the case.
During
court,

Ms.

the

very

Hillman

lengthy

testified

proceedings
on

numerous

in

the

bankruptcy

occasions,

and

her

testimony and reports were an essential part of Appellees’ case
and the court’s ruling.

From time to time, counsel for Mr. Rood

did attempt to raise objections, including a challenge to her
neutrality, given her relationship to Southern Management CEO
David

Hillman

(ECF

No.

5-44,

52-58),

and

perhaps

to

her

credentials, based on the failure of her website to reflect that
she was a forensic accountant. (ECF No. 6-37, 31-2.)

38

Without any specific argument from Appellants as to how
Judge Mannes purportedly abused his discretion in admitting the
testimony of Ms. Hillman, the decision to admit the testimony
will be affirmed.

The objections noted, at best, went to the

weight of the testimony and not to its admissibility.
VI.

Evidentiary Rulings
Mr.

Jewell

complains,

generally,

that

“[t]he

Bankruptcy

Court consistently allowed evidence to be presented without any
foundation or context.”

(ECF No. 17, at 24).

He specifically

cites only one challenge to the admission of Plaintiffs’ exhibit
30 at trial, a “Resolution of the Board of Directors of Kore
Holdings, Inc.” which, if executed, would award 750,000 shares
of Kore stock to Mr. Jewell on April 17, 2006 “in consideration
of consulting and services rendered” to Kore.
cited

by

Judge

Mannes

among

several

The document is

items

of

evidence

demonstrating that there was a business relationship between Mr.
Jewell and Mr. Rood and Kore prior to April 2008.
that

“this

evidence

is

nothing

more

than

an

He argues
unexecuted

resolution for a publicly traded company that was never put into
action” and that, as a public company, the sale of stock would
be reflected by other records.
The

document

in

question

apparently

was

first

discussed

during the testimony of Suzanne Hillman at a hearing on various
motions on April 22, 2009.

(6-37, 53-4).
39

Ms. Hillman said it

was a “true and accurate document” retrieved from the electronic
data seized at the Rugby Avenue office during the receivership
proceedings in the circuit court.

Defense counsel objected,

arguing “this is a document that could be a draft.
idea

what

it

is.

It’s

not

executed

so

we

We have no

don’t

know

the

truthfulness or lack of truthfulness. . . . The only thing we
know

is

it

was

in

a

computer

and

that

it

was

a

draft

of

something that may or may not have been voted upon, it may or
may not have represented what actually happened.”
54).

(Id. at 53-

Counsel for Appellees responded that the document was not

being offered for the truth, but rather to show “some notice of
Mr. Rood’s involvement with various parties and some intention
that

Mr.

issued.”

Jewell,

.

.

.

shares

of

stock

being

The court deferred ruling at that time.11

Trial

courts

enjoy

admissibility of evidence.
[the

identifying

evidence],

and

wide

discretion

in

determining

the

“Assessing the probative value of

weighing

any

factors

counseling

against

admissibility is a matter first for the [trial] court’s sound
judgment[.]”

United States v. Abel, 469 U.S. 45, 54 (1984); see

also Fed.R.Evid. 401 (“Evidence is relevant if . . . it has any

11

The
parties
do
not
point
to
a
later
explicit
determination of the admissibility of the document, but
Appellees and Judge Mannes cite to the document as being in
evidence.
It is listed as having already been admitted in
Appellees’ exhibit list submitted prior to the beginning of
trial. ECF No. 38.
40

tendency to make a fact more or less probable that it would be
without the evidence; and . . . the fact is of consequence in
determining
exclude

the

action”);

relevant

substantially

Fed.R.Evid.

evidence

outweighed

by

if
a

403

its

danger

(“The

of

one

or

may

value

probative

court

is

more

of

the

following: unfair prejudice, confusing the issues, misleading
the jury, undue delay, wasting time, or needlessly presenting
cumulative evidence”).
Considering

that

Mr.

Jewell

testified

throughout

the

adversary proceeding that he did not become associated with Kore
until mid-to-late 2008, this document showing that he was at
least considered for an award of 750,000 shares of stock in
return for consulting services in 2006 is certainly probative.
That

the

little

document

was

consequence.

unexecuted,
There

was

in
no

and

of

itself,

objection

based

was
on

of
the

authenticity of the document as being found on the computer in
the

Rugby

Avenue

office.12

Judge

Mannes’

admission

of

the

document in question does not constitute an abuse of discretion.
VI.

Res Judicata
Prior to the instant case, SMCRT and Tysons commenced a

separate

adversary

verified

complaint

proceeding
to

against

determine

12

Mr.

Rood

by

dischargeability

filing
of

a

debt,

Testimony later in the Adversary Proceeding described the
process for the seizure of the computers and the imaging of the
electronic data. See, generally, ECF No. 5-59.
41

alleging fraud and related claims.
ECF No. 1).

(Bankr. Case No. 09-00058,

When Mr. Rood did not respond within the requisite

time period after service of the complaint, the plaintiffs moved
for default judgment.

(Id. at ECF No. 5).

The next day, SMCRT

and Mr. Rosen commenced this adversary proceeding from which the
instant appeal arises.

By an order issued April 28, 2009 in

Adversary Proceeding No. 09-00058, the bankruptcy court entered
a default judgment in favor of SMCRT and Tysons, and against Mr.
Rood,

in

the

respectively.
In
raised

the

amounts

judicata

adversary
and

defenses in his answer.
that

he

$13,876,353.47

and

$2,626,189.30,

(Id. at ECF No. 12).
instant

res

of

moved

to

proceeding,

collateral

Mr.

estoppel

Rood
as

summarily

affirmative

The record on appeal does not reflect

dismiss

or

for

summary

judgment

on

those

grounds, however, and it appears that he did not specifically
raise the issue prior to submission of his proposed findings of
fact and conclusions of law after trial.

(ECF No. 5-9, at 9-

10).
In mentioning the prior default judgment in the memorandum
of

decision

related

to

the

case

on

appeal,

Judge

Mannes

specifically noted that the judgment would be “subject to the
‘single

recovery’

rule,

that

is,

only

a

single

recovery

is

allowed where the same damages are sought under different legal
theories.”

(ECF No. 1-1, at 2 n. 1).
42

He further explained:

Because there are multiple defendants, any
amount paid by anybody . . . for and on
account of any injury or damage, should be
held for a credit on the total recovery in
any action for the same injury or damages to
prevent
the
plaintiff
from
recovering
multiple
times
from
the
same
harm.
Moreover,
the
court
notes
that
the
Plaintiffs’ recovery from Rood in the prior
case (AP No. 09-00058) should be credited
and thus damages in this case are not an
additional recovery but rather co-extensive
with that judgment.
The plaintiff is not
entitled to double recovery for the same
injury.
(Id. at 30).
the

In the order entering final judgment, moreover,

bankruptcy

court

expressly

stated

that

“SMCRT’s

recovery

from Robert Fulton Rood, IV on the damages awarded by the court
in

Adversary

Proceeding

No.

09-00058

shall

be

treated

as

a

credit against the damages awarded to SMCRT . . . herein, as the
damages in both proceedings are co-extensive.”

(ECF No. 35-1,

order at 3).
Nevertheless, Mr. Rood argues on appeal that the judgment
below

is

Insofar

barred
as

he

by

res

points

to

judicata
no

and/or

ruling

in

collateral
the

estoppel.

bankruptcy

court

finding to the contrary, however, there is essentially nothing
for the court to review.

Similarly, he argues, apparently for

the first time on appeal, that Mr. Rosen somehow lacked standing
to prosecute the action below, a claim that is plainly without
merit.

See 11 U.S.C. § 544; In re Fabian, 458 B.R. 235, 256-57

43

(Bankr.D.Md.

2011)

(discussing

standing

of

the

bankruptcy

trustee to recover fraudulent conveyances).
While

the

court

“may,

in

its

discretion,

decide

issues

presented to it in a bankruptcy appeal even though the issues
were

not

raised

in

the

court

below,”

Debartolo

Properties

Management, Inc. v. Devan, 194 B.R. 46, 49 (D.Md. 1996) (citing
Levy v. Kindred, 854 F.2d 682, 685 (4th Cir. 1988); Stewart v.
Hall, 770 F.2d 1267, 1271 (4th Cir. 1985)), it declines to do so
here.

The

res

judicata

doctrine

was

“designed

to

protect

‘litigants from the burden of relitigating an identical issue
with

the

economy

same
by

party

or

preventing

his

privy

needless

and

[to

promote]

litigation.’”

judicial

Laurel

Sand

&

Gravel, Inc. v. Wilson, 519 F.3d 156, 161-62 (4th Cir. 2008)
(quoting
(1979)).

Parklane

Hosiery

Co.

v.

Shore,

439

U.S.

322,

326

The doctrine is not properly utilized to nullify a

judgment after trial, particularly where, as here, the careful
language of the bankruptcy court ensures that SMCRT may collect
only a single recovery.
VII. Conclusion
For the foregoing reasons, the judgment of the bankruptcy
court will be affirmed.

A separate order will follow.

________/s/_________________
DEBORAH K. CHASANOW
United States District Judge
44