In re Raejean S. Bonham dba World Plus
Bankruptcy No. F95-00897
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U.S. District Judge James Singleton, sitting as an appellate judge, has issued the first decision on an appeal by a World Plus investor from a collection action by the Trustee. The Trustee prevailed.
RAJEAN S. BONHAM, akaJEAN BONHAM, aka JEANNIE BONHAM, individually and dba WORLD PLUS; WORLD PLUS, INC.; and ATLANTIC PACIFIC FUNDING CORPORATION,
BAP No. AK-99-1356
Adversary No. F95-00897-168 HAR
Bancap No. 96-4281
DAVID MERONEY et al.,
LARRY COMPTON, TRUSTEE,
On May 26, 1999, the Honorable Hernert A. Ross, United States Bankruptcy Judge, entered an Order precluding certain defendants from presenting evidence on the issues of their good faith, and entering judgment against them in adversary aproceedings then pending in the bankruptcy court. The case affected by Judge Ross's order was ne of many in which the trustee for Raejean Bonham sought to recover what the trustee termed fraudulent conveyances by Bonham to various investors in her corproations. The trustee argued that the corporations were shells through which Bonham operated a "Ponzi" scheme, in which she ostensibly trafficked in Delta Airlines Frequent Flyer Mile Premiums, but in fact operated to defraud the investors in her companies. As in all Ponzi schemes, the thief rewards initial investors at greater than market levels in hope that their "success" will serve to inveigle others to invest. Payments to the initial investors serve as seed money to perpetuate the fraud/ Judge Ross concluded that those defendants affected by his order had, in violation of the rules of discovery and after frequent warnings by the court, refused to make discovery. Judge Ross concluded that no other remedy would serve to enforce the discovery rules and assure a fair resolution in this case than precluding them from contesting the trustee's case. The defendants perfected an appeal to the bankruptcy appellate panel on June 4, 1999. See Docket 891. The trustee objected to referral to the bankruptcy appellate panel and the case was referred to this Court on July 13, 1999. See Docket No. 1.1
On September 15, 1999, the trustee moved to dismiss the appeal. See Docket No. 4. Under the rules of this Court, defendant-appellants would have 15 days to object. See D.Ak.L.R. 7.1(e) allowing an additional 3 days where, as here, service is by mail. See also Fed.R.Civ.P. 6(c). Thus, opposition should have been filed on order before October 4, 1999, since the 18th day was October 3rd, a Sunday. No opposition has been filed. The Court can thus infer that defendant-appellants agree with the subject matter of the motion. See D.Ak.L.R. 7.1(d).
The court has nevertheless reviewed the record de novo and exercised its independent judgment. Discovery sanctions going to the merits of litigation are the most serious that can be imposed and due process limitations under the Fifth Amendment to the United States Constitution weigh on their imposition. See Wright, Miller, Marcus, Federal Practice and Procedure Second, Section 2283 (1994) and Supp. 1999. Before entering a preclusion order, the Court must therefore make two determinations. First, whether there exists a sufficient relationship between the discovery sought and the merits to be foreclosed by the sanction to legitimate depriving a party of the opportunity to litigate the merits; and, second, whether before imposing a serious merit sanction, the Court should determine whether the party guilty of failing to provide discovery was for some reason unable to comply with the discovery. Id. at 605.
It is not possible to tell from Judge Ross's terse order granting the trustee's motion for sanction whether or not these findings were made. The trustee's motion for sanctions is not a part of this Court's record. On the other hand, the trustee's theory of the case was that at the time they received excess returns from investment in Bonham's corporations, these defendants knew or should have known that Bonham was operating a Ponzi scheme and that the returns they received were intended by Bonham as seed money to further her fraud. Any discovery by the trustee would be directed to determining the defendants' good faith. Their failure to make discovery would support an inference that their dealings with Bonham had not been in good faith and would thus justify the order entered by Judge Ross. When we bear in mind that the defendants have not opposed the trustee's motion to dismiss their appeal, although they could easily have done so, its appears that the trustee's motion is will taken and should be granted.
IT IS THEREFORE ORDERED.
The motion to dismiss appeal at Docket No. 4 is GRANTED.
DATED at Anchorage, Alaska this 12th day of October, 1999.
/s/ JAMES K. SINGLETON, JR.
United States District Judge
/s/ JAMES K. SINGLETON, JR.
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