WING CHIU NG, Pro Se, #7556
1149 Bethel Street, Suite 306
Honolulu, Hawaii 96813
Tel. (808) 599-4192,
IN THE UNITED STATES CIRCUIT COURT
FOR THE NINTH CIRCUIT
) Case No. 07-16173
)
In Re ) Civil No. 06-00412 SOM-BMK
) Civil No. 06-00540 SOM-BMK
GOOTNICK FAMILY TRUST, ) Civil No. 07-00042 SOM-BMK
)
Debtor(s). ) OPENING BRIEF; CERTIFICATE
) OF SERVICE
_____________________________)
)
WING CHIU NG, )
)
Appellant )
)
v. )
)
OFFICE OF U.S. TRUSTEES, )
IRWIN GOOTNICK and SUSAN )
GOOTNICK, et al., )
)
Appellees. )
_____________________________)
_OPENING BRIEF_
_TABLE OF CONTENTS_
TABLE OF AUTHORITIES ---------------------------------------- 2
EXPLANATION ------------------------------------------------- 3
JURISDICTIONAL STATEMENT ------------------------------------ 3
ISSUES RAISED AND SUMMARY OF ARGUMENT --------------------- 3
STANDARD OF REVIEW ---------------------------------------- 4
STATEMENT OF THE CASE ------------------------------------- 4
DECLARATION ----------------------------------------------- 13
ARGUMENT ---------------------------------------------------- 13
I. It is error to find Bad Faith using the Wrong legal standard
--------------------------- 13
II. It is error to find Frivolous Appeal ------------------- 16
III. It is error to find Frivolousness --------------------- 18
IV. It is error to find Improper Purpose ------------------- 19
1. timing of the bankruptcy --------------------------------- 20
2. "bad faith" of the QIS bankruptcy ------------------------ 22
3. multiple attempts to stay the California Litigation ----- 22
4. lack of legitimate bankruptcy purpose: no discharge for
partnerships and corporations under Ch. 7 ------------------- 23
5. even though the attempts to obstruct the California
Litigation were unsuccessful, it was our "subjective bad-faith
motivation" that counts ------------------------------------- 23
6. "taxing authorities have plenty of weapons in their arsenal to
enforce their claims outside of bankruptcy, so they wouldn't be
benefited by the bankruptcy" -------------------------------- 24
7. questioned why I did not do my duty to minimize GFT's tax
liabilities within the law ---------------------------------- 25
8. Two-party dispute, "4 = 2" ------------------------------ 25
9. tax can be resolved through the I.R.S. administrative
processes and through other judicial processes; If there was
improper [tax evasion by the Gootnicks] conduct, that needs to be
looked into ------------------------------------------------- 25
V. It is error to find "4 = 2" ----------------------------- 26
VI. It is error to change the "Sanctions" when the lower court
no longer has jurisdiction ---------------------------------- 27
VII. It is error to protect tax cheats --------------------- 28
CONCLUSION -------------------------------------------------- 32
CERTIFICATE OF COMPLIANCE ----------------------------------- 33
_TABLE OF AUTHORITIES_
CASES:
_In Re Chinichian_, 784 F.2d 1440, 1441 (1986) ------------ 21
_In Re DeVille_, 361 F.3d 539, 546 (1994) ----------------- 16
_In Re Eisen_, 14 F.3d, 469, 470-471 (1994) --------------- 21
_In Re Marsch_, 36 F.3d 825, 829 (1994) ------------- 13,18,19
_In Re Silberkraus_, 336 F.3d 864, 868 (2003) ------------- 14
_In re Upland Partners_, 97-03746, Ch. 11 ----------------- 15
_Marshall v. Marshall_, 547 U.S. 293 (2006) ---------- 7,14,20
_McConnell v. Critchlow_, 661 F.2d 116, 118 (1981) -------- 17
_Monell v. NYC Soc.Srv._, 436 U.S. 658 (1978) ------------- 18
STATUTES:
11 U.S.C. 362 (a)(3) ------------------------------------ 21,23
18 U.S.C. 3057 ---------------------------------------- 10,26,30
28 U.S.C. Sec. 1927 ----------------------------------------- 15
OTHER PUBLICATIONS:
Fed.Reg. 24836-24843, 5/31/91 ------------------------------ 32
Honolulu Starbulletin, Aug. 21, 2007 --------------------- 4,33
National Geographic Sept. 2007 issue --------------------- 4,33
.pa
_EXPLANATION_
I am a pro se litigant, but I shall follow mainly the formal
format. I am licensed in Hawaii, but never admitted to the Ninth
Circuit. The Excerpt of Record and Appendix 5 will be manually,
consecutively paginated. The longer appendices are mailed
separately. Filed by certified mail to P.O. Box 193939, San
Francisco, CA. 94119-3939.
Appendix 1: National Geographic Sept. 2007 issue.
Appendix 2: Honolulu Starbulletin, Aug. 21, 2007.
Appendix 3: Wing C. Ng brief to QIS court, Feb. 2006.
Appendix 4: Preston Gima brief to QIS court, Feb. 2006.
Appendix 5: Various records in the QIS case
Appendix 6: Opening Brief filed in Mollway Court
Appendix 7: Reply Brief filed in Mollway Court - 6 and 7 were
included because of a lot of detailed legal arguments and the
standards of review, were already there.
_JURISDICTIONAL STATEMENT_
The U.S. district court had jurisdiction from 28 U.S.C. Sec.
158, being appeal from the Bankruptcy Court. The Court of
Appeals has jurisdiction from Federal Rules of Appellate
Procedure Rule 3. Final Order of the District Court that
disposes of all parties' claim was dated May 18, 2007 (included
with the Notice of Appeal), and the Notice of Appeal was filed
June 14, 2007.
_ISSUES RAISED AND SUMMARY OF ARGUMENT_
I. _It is error to find Bad Faith using the Wrong legal standard._
It is flatly wrong as a matter of law.
II. _It is error to find Frivolous Appeal_
It is flatly wrong as a matter of law.
III. _It is error to find Frivolousness._
It is probably flatly wrong as a matter of law.
IV. _It is error to find Improper Purpose_.
There is a perfectly proper purpose. There is no showing of any
improper purpose.
V. _It is error to find "4 = 2"_
It is flatly wrong as a matter of mathematics.
VI. _It is error to change the "Sanctions" when the lower court
no longer has jurisdiction_
It has no jurisdiction once the notice of appeal was filed.
VII. _It is error to protect tax cheats_
U.S. taxes pay the salaries of all judges and government
attorneys.
_STANDARD OF REVIEW_
The standards of review were already in the Opening Brief
to the Mollway District Court, included in its entirety as
Appendix 6.
_STATEMENT OF THE CASE_
"I need to take a stand in case of abuse of power, what[ever] the
consequences are. In fact, I would define evil as the abuse of
power. So Hitler was evil because he abused his office as
chancellor of Germany", Wing C. Ng, in Hearing before Faris June
14, 2006, page 7, EOR [ 1 ].
[In a case of rape victim being suppressed by Pakistani
authorities] "When government fails them, people get angry, ...
They lose faith in the system and look for alternatives, ... al
Qaeda ... say 'What happened to your family is not justice ...
Join us and we will help you get justice'", National Geographic
Sept. 2007 issue, Appendix 1.
"Impeachment ... was promoted as a tool for Congress to rein in
any officeholder who 'dares to abuse the power vested in him by
the people'", Honolulu Starbulletin, Aug. 21, 2007, Appendix 2.
Definitions:
California Litigation : the civil lawsuit filed by the Gootnicks
against Lighter in state/federal courts of California.
Ching : Curtis Ching, trial attorney for the Office of the U.S.
Trustee (OUST) in Hawaii.
Faris : Robert Faris, bankruptcy judge, Honolulu.
GFT : Gootnick Family Trust.
Gootnicks : Dr. Irwin & Dr. Susan Gootnick.
Kotoshirodo : Ron Kotoshirodo, case trustee of Ch. 7 GFT.
Lighter : Eric Lighter, principal in the QIS and GFT bankruptcies.
Mollway : Susan Mollway, judge in the U.S. District Court in
Hawaii.
Muranaka : Carol Muranaka, attorney for the I.R.S. in Honolulu
until Nov. 2006; thereafter Assistant U.S. Trustee for Hawaii.
Nelson : Rick Nelson, California attorney for the Gootnicks.
Painter : Enver Painter, Hawaii attorney for the Gootnicks.
QIS : Qualified Income Systems, Inc., formerly known as Gootnick
Charitable Trust.
I graduated from Yale College in 1969, got Ph.D. in
theoretical physics in 1972, CPA in 1978, and I was making a
decent living. I could have easily gotten into Yale Law School
in 1969 (no money), in which case I would have Bill & Hill as
classmates, in retrospect one of the many reasons I decided to go
to law school in 1998. Another reason was to help seek justice
for all. Not to abuse their power to thwart justice, like some
people in this narrative.
I am unused to blowing my horn, but my colleagues /
competitors working in exactly the same field, Gross, Politzer
and Wilczek, got the Nobel Prize in 2004,
http://nobelprize.org/nobel_prizes/physics/laureates/2004/
One of the articles that I co-authored in that particular field
is on the Internet,
http://prola.aps.org/abstract/PRD/v15/i8/p2245_1
I do not think I exaggerate by claiming the highest intelligence
quotient between San Francisco and Hong Kong.
Eric Lighter was a long-time client. Another client of
mine, Royal Hawaiian Heritage, had to file bankruptcy in 1987,
and I was their CPA. Lighter eventually got the stocks of Royal
Hawaiian. Horrible misdeeds were perpetrated by various trustees
of Royal Hawaiian, and Lighter battled these people, with me
providing the accounting backup. Ching started work at the U.S.
Trustee's office, and Ching and Lighter battled furiously in
court many times. I was told that Ching hated Lighter
passionately. This is not personal knowledge (I always preface
these with "I was told"); I never met Ching at the time. I did
meet Gayle Lau (OUST) and Muranaka (attorney for I.R.S.) back
then, but they did not seem particularly bad.
The horrible treatment of Royal Hawaiian by the bankruptcy
government attorneys, and by judge Jon Chinen, was one of the
many reasons I decided to law school. Chinen was bankruptcy
judge at the time, and I was appalled at his decisions. In 2005
I represented someone briefly at bankruptcy court who was
supported by Lighter (he may have tried to buy the property), and
met Ching, Lau, and Muranaka again at bankruptcy court. One
other person, Yee (I forget his first name), was an assistant
U.S. Attorney, and he actually threatened me for being associated
with Lighter. Yee was, I was told, a law clerk of judge Chinen.
Faris was however reasonable at that time, and the bankruptcy
ended with dismissal upon my request.
Dr. Irwin and Dr. Susan Gootnick is a couple living in the
Bay Area, both medical doctors. They have been evading millions
of dollars of taxes for many years. In particular they employed
this scheme advocated by National Trust Services, which is fully
described in my attached brief to bankruptcy court in Feb. 2006
(Appendix 3). This is _very important work_, and I urge you to
read it in some detail. Preston Gima as an allied attorney also
filed a brief in Feb. 2006 explaining the situation of the
Gootnicks' tax problem and the sale of the assets to Lighter.
(Appendix 4)
About 2004, the Gootnicks found Lighter. The Gootnicks say
Lighter claims to be a tax expert and can resolve their multi-
million tax problem. They then gave ownership of all their
trusts, apparently all subsidiaries of the Gootnick Charitable
Trust, to Lighter, in return for a $2 million note. Their hope
was apparently that Lighter would pay a minimum of taxes on these
entities and then return the entities to them.
About 2005, the Gootnicks changed their mind and wanted
these entities back. They filed suit ("California Litigation").
Their attorney in California is Nelson. I am told, Thomas Moore,
Emily Kingston, one of the partners of Nelson, joined the U.S.
Attorney's office in California. Conveniently, that office
prosecuted the people associated with the NTS tax-fraud scheme.
One person named Sam Fung prepared tax returns for the Gootnicks.
He was indicted for aiding and abetting tax fraud. One of the
taxpayers that Sam Fung "aided and abetted" was the Gootnicks,
but the Gootnicks, perhaps because of their friends in high
places, were not indicted.
Worse, _the Gootnicks never owned up to the tax fraud of
several million dollars, and they certainly never paid those
large tax liabilities to the U.S. and California_.
Here is the main point of this litigation: there is this
California Litigation going on to decide who owns these trusts
and the assets in these trusts. Before the California Litigation
decides on the ownership, these trusts clearly belonged to
Lighter. In the meantime, the Gootnicks withheld certain real
properties to Lighter. Lighter then had these trusts with
several million dollars of tax liabilities, and without any
assets to pay these liabilities.
Lighter was clearly justified to file bankruptcy on these
trusts, for they had large liabilities and no assets. Lighter
also assured me that this is mainly a tax case, and he sorely
needs my tax expertise. I hesitated to accept this case because
I never practiced bankruptcy law, and my practice is 90% tax and
10% immigration and miscellaneous state law.
Accordingly, we filed bankruptcy for the holding company,
Gootnick Charitable Trust (which Lighter renamed Quality Income
Systems, Inc.). The aim was to have the I.R.S. (which is always
a party in bankruptcy filings) determine, using subpoenas, (we
have some records, but not all the records of the trusts) the
entire just tax liabilities of all the trusts under the QIS
umbrella, and pay them all off from the assets in all these
trusts. In my opinion, this filing was eminently justified.
To repeat, in my opinion, Lighter was clearly justified to
file bankruptcy on these trusts, for they had large liabilities
and no assets. The Anna Nicole Smith case of Marshall v.
Marshall, 547 U.S. 293 (2006) was decided in June 2006, and I did
not make use of this case in the Faris phase of the bankruptcy
litigation. In fact I later re-read the Anna case and found out
that our case is very similar to Anna's: a third party took away
the assets (Gootnicks for us, the son in the case of Anna), and
we are faced with liabilities, and so we both filed bankruptcy.
The bankruptcy court in Anna's case "interfered" in the Texas
state probate proceedings and awarded Anna several billion
dollars. In contrast, the Faris/Mollway bankruptcy court
dismissed our perfectly valid case, and assessed us almost
$100,000 in "sanctions".
The Anna case went through California bankruptcy court, U.S.
district court, Ninth Circuit and the U.S. Supreme Court. None
of the four courts found that it was a "two-party dispute",
"filed in bad faith", and none of them found that it was an
"obstruction of the Texas probate court proceedings". This Anna
argument was fully aired in my speech on May 7, 2007, before
Mollway. I am told she "winced", but she refused to be persuaded
and went on to choose wrong by affirming Faris totally and added
new sanctions. May 7, 2007 Hearing before Mollway, pages 9-14,
EOR [2-7].
To return to the facts narrative, Ching at the OUST decided
to take revenge on Lighter, using his official position to avenge
his private vendetta, and filed motion to dismiss. Painter was
hired by the Gootnicks, because Painter is known to be a sworn
enemy of Lighter (Painter was opposing counsel to many of
Lighter's litigations) as well, and he joined the motion. They
(Ching and Faris) argued that the filing was a "two-party
dispute" between Lighter and the Gootnicks, completely ignoring
the role of the tax authorities. I called this the 4 = 2
argument. Conveniently, Muranaka, attorney for the I.R.S.,
failed to show up and failed to take an interest in these
proceedings.
Faris was clearly biased against us, bought the 4 = 2
argument and dismissed the QIS Ch. 11 bankruptcy. We decided not
to appeal (which was a tactical mistake, but subsequent events
show that appeal, if Mollway is the judge, would be useless
anyway), but rather file Ch. 7 for Gootnick Family Trust (one of
the subsidiary trusts). For GFT, we have a lot of records, and
we were able to file several years' tax return, during the QIS
phase of the litigation already, giving tax liabilities of
$180,623. The Ch. 7 case trustee was Kotoshirodo, who also
involved in the 1987 Royal Hawaiian case, but only peripherally.
Even though Kotoshirodo has minor bias, he did say on April 6,
2006 in a Creditors' Meeting that he would settle with the
Gootnicks, pay the taxes and hold the remainder in trust, thus
confirming what we expected should be done in the GFT Ch. 7 case.
341 Meeting Apr. 6, 2006, page 42-43, EOR [8-9].
This clearly shows that the I.R.S./California are parties with
a major stake in the GFT bankruptcy. Ching nevertheless brazenly
filed for dismissal again, and asked for sanctions against us for
doing something manifestly proper, which was, among other things,
expose tax fraud and assist in the correct determination of
taxes. The ecstatic Painter asked for $13,000 in fees. He
attended every creditor's meeting, as remarked upon by
Kotoshirodo, to jack up his fees. I made the speech about "evil"
in court, ostensibly in reference to Ching, but it was clearly
aimed at Faris as the audience. Nevertheless, Faris deliberately
chose wrong, dismissed the GFT Ch. 7, removed the venue for
determining the tax fraud, failed to report to the U.S. Attorney
(18 U.S.C. 3057(a)) on the Gootnicks' tax fraud, and applied
utterly unwarranted sanctions against us.
Painter "incurred" $13,000 in fees at the time of the GFT
dismissal hearing. He then found another $23,000 fees to get the
sanctions . He wrote a total 45 pages of briefs. His rate is $809
per written page .
Painter claims $29,000 in fees for the Mollway appeal. He
wrote 23 pages of an answering brief. His rates have gone up to
$1,261 per written page . Moreover, his answering brief for
Mollway is very much identical to the briefs he filed for Faris,
and so those were already billed for.
There is prima facie case against Painter for charging
exorbitant fees, using falsified timesheet. Painter is motivated
only by greed (and hatred of Lighter). I am told he claimed
$900,000 fees for trying to collect $300,000, and the state judge
allowed him $30,000. I am told that the California Litigation
was settled out of court, but the Gootnicks left the bankruptcy
litigation outside of the scope of the settlement, because the
Gootnicks refused to pay Painter, and Painter wants to use the
power-abusing Mollway/Faris court as an ATM to get money out of
us.
After I filed the Notice of Appeal to the Ninth Circuit, I
reminded the U.S. District Court that they have no jurisdiction,
except, "where the district court action aids us in our review"
However, in the Aug. 28, 2007 Order Adopting Special Master,
Mollway hit us with $25,000 sanctions, contradicting her earlier
ruling of a maximum of 25%, which was in the May 7, 2007
Transcript. She is normally free to change her mind; however,
she cannot change her mind when she no longer has jurisdiction
once notice of appeal was filed, and increasing the "sanctions"
by a factor of FOUR, with no jurisdiction to do so, certainly
does not aid the Ninth Circuit in its review.
While the "Report of the Special Master regarding Appellees'
Motion for Determination of Attorneys' Fees and Costs" is
arguably "aiding" the 9th Cir. in establishing some framework of
the amounts claimed, the _release of money in the bond is clearly
not "aiding"_, for once this court rules to give the money, it's
irreversible, and causes irreparable damage. Neither is
increasing the "sanctions" amount by a factor of FOUR, when
Mollway has no jurisdiction to do so.
One of the rationale, I think, that the lower court loses
jurisdiction upon appeal is of course to prevent retaliation by
the lower court upon learning that the victim does not agree with
its judgment, and this is obviously happening here.
I was a fan of Deng Xiaoping, leader in China from 1978-
1997. However, when he deliberately chose evil by ordering the
Tiananmen Square Massacre, I turned against him. I became a
China democracy activist, and co-wrote Constitution of the
Federal Republic of China, in protest. Likewise I was a fan of
Mollway, until she chooses wrong by bending fact and law to rule
against us.
In that order. The most powerful office holder must be the
most responsible and culpable, just like Deng Xiaoping was the
most powerful leader in China, and Deng was the most culpable for
the Tiananmen Square Massacre, with the most blood on his hands.
As I said in the Motion for Stay of Sanctions, dated Oct. 12,
2006, "Normally they [OUST's Ching] do not matter, for the
bankruptcy judge Faris was not part of the ancient feud, and
Faris was expected to be fair and hold these jackals in line."
Likewise, I expected Mollway to be fair to hold Faris in line.
But they apparently followed these abhorrent rules,
1. Never overrule your Magistrate Judge;
2. Never overrule your U.S. Trustee.
Such judges are worse than useless, for, by suppressing the victim /
innocents and rewarding the malfeasors, they, like the Pakistani
police in Appendix 1, actively contribute to injustice.
It is so difficult to fight TWO biased federal judges; but
then, the People's Republic of China is vast and powerful, but I
feel certain history will vindicate me, and my Constitution of
the Federal Republic of China.
_DECLARATION_
Under penalty of perjury, all factual assertions are true
from personal knowledge, unless they are approximate, and unless
they are hearsay, which are always disclosed by "I am told". All
appendices are true copies of the original.
_ARGUMENT_
I. _It is error to find Bad Faith using the Wrong legal standard._
In Mollway's "Order Affirming Bankruptcy Court [etc]" dated
May 13, 2007, page 16, EOR [10], she stated that "Under Rule
9011, courts may impose sanctions for either a frivolous filing
_or_ a filing that is made for an improper purpose" citing _In Re
Marsch_, 36 F.3d 825, 829 (1994). She then proceeded to claim
finding "improper purpose" of trying to obstruct the California
Litigation, but neglected to do any finding on frivolousness.
This is flatly wrong. She read [13] of the case on page
828, _In Re Marsch_, 36 F.3d 825, 829 (1994), and stopped:
[13] Bankruptcy Rule 9011, like its sister rule, Federal
Rule of Civil Procedure 11, calls for the imposition of
sanctions on litigants and attorneys who file pleadings and
papers in violation of the rule's requirements. These
requirements are two-fold: First, the signer of the pleading
must certify it isn't frivolous, i.e., that "it is well-
grounded in fact and is warranted by existing law or a good
faith argument for the extension, modification, or reversal
of existing law." Bankr.R. 9011. Second, the signer must
ensure that the paper or pleading "is not interposed for any
improper purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation." Id. A
plain reading of the rule's language suggests these are
separate requirements, so that either frivolousness or
improper purpose may serve as a basis for sanctions.
In later paragraphs, the Ninth Circuit proceeded to modify
the standard for Bad Faith as requiring two prongs, at 830 [16].
[16] These differences between bankruptcy proceedings and
ordinary civil litigation militate against wholesale
adoption of Townsend's reasoning in interpreting Bankruptcy
Rule 9011. Nonetheless, we accept Townsend's basic
teaching, which is that frivolousness and improper purpose
are not wholly independent considerations but "will often
overlap." 929 F.2d at 1362. We thus adopt an interpretation
of Bankruptcy Rule 9011 that differs somewhat from
Townsend's interpretation of FRCP 11, but one we believe is
more faithful to Rule 9011's language and more consistent
with the realities of bankruptcy practice. We conclude that
bankruptcy courts must consider both frivolousness and
improper purpose on a sliding scale, where the more
compelling the showing as to one element, the less decisive
need be the showing as to the other.[fn3]
By whatever standard (clearly erroneous), this is utterly,
clearly wrong. The infraction requires two elements, the lower
court thinks it requires only one, and found NOTHING for
frivolousness. Therefore, the entire judgment must FAIL.
This can only be characterized as utter carelessness. I can
only speculate that in her utmost haste to find us liable, she
did not take the time to read everything carefully, the pleadings
or the case law, and that is why there is this scandalous error.
Mollway's utter haste is also shown by her cutting off my
argument on _Marshall v. Marshall_, 547 U.S. 293 (2006):
Transcript of May 7, 2007 hearing before Mollway, page 15, EOR
[11]. _In Re Silberkraus_, 336 F.3d 864, 868 (2003):
Coppersmith and Seeley then argued that the Debtor and
Dressler filed the Chapter 11 petition in bad faith,
specifically to obtain a more favorable forum to litigate
the ongoing dispute over the commercial property. After
_several hours of argument_ on the issue, the court entered
two separate orders for sanctions against the Debtor and his
counsel. The district court subsequently affirmed,
concluding that the bankruptcy court made _extensive factual
findings_ and that it did not abuse its discretion in
imposing sanctions.
The _Silberkraus case described "several hours of argument",
whereas I was cut off by Mollway with "three more minutes". The
bankruptcy court in _Silberkraus "made extensive factual
findings", whereas Faris _made no written judgment whatsover_; we
had to rely on the transcripts of the oral proceedings.
This kind of "you are bad because I say you are" attitude
pervades both the Mollway and Faris courts. Mollway states
"Because the Bankruptcy Court did not abuse its discretion in
sanctioning Lighter and Ng, that order is affirmed" without an
additional word of analysis. "did not abuse its discretion" is
the _legal standard is reviewing sanctions; the reviewing must
demonstrate that the lower court observed this particular
standard, NOT by just reciting the phrase "did not abuse its
discretion".
Faris is equally arbitrary; there is a case In re Upland
Partners, 97-03746, Ch. 11. It was filed in 1997 (!), and decided
in Mar. 2006, about the same time Faris decided to dismiss the
QIS/GFT filings. Faris observed how bad this guy Ellis has been,
taking 9 years, having 3,426 docket entries, etc. I express no
opinion on Mr. Ellis. However, I would observe that his "bad
faith" is orders of magnitudes worse than us, to the extent that
we have any. I expected Faris to hit Ellis with $2 million
sanctions. This case is at:
https://ecf.hib.uscourts.gov/cgi-bin/show_case_doc?3475,23720,,,public
and was discussed before (opposing Ching's spin of the case law)
in Debtor's Counter-Motion May 22, 2006, pages 10-11, EOR [12-13].
In the end, Faris did not sanction Mr. Ellis one dime; rather, he
only required him to get leave of court to file his papers.
There was also mention of 28 U.S.C. Sec. 1927 on vexatious
litigants. It does not apply to the bankruptcy court because the
Ninth Circuit does not regard a bankruptcy court as a "court of
the United States", _In Re DeVille_, 361 F.3d 539, 546 (1994).
II. _It is error to find Frivolous Appeal_
Likewise, in Mollway's "Order Affirming Bankruptcy Court
[etc.]" dated May 18, 2007, page 22, EOR [14], she stated that
"to the extent Lighter and Ng appeal the Bankruptcy Court's
finding of bad faith and subsequent dismissal and sanction orders,
the appeals are frivolous and taken in bad faith".
First of all, if she was utterly wrong in using the wrong
legal standard in finding "bad faith", the appeal cannot possibly
be frivolous.
Secondly, her legal standard is flatly wrong . She is saying
"you are frivolous because I say you are". This may suffice in
the courts of the Soviet Union under Stalin. It does not suffice
in the U.S., I hope not.
The Ninth Circuit clearly articulated a strict standard for
"frivolous appeal" that is much higher, and quite distinct, from
the mere combination or conjunction of the the words "frivolous"
and "appeal". An appeal is not frivolous according to the usual
standard of, again, _In Re Marsch_, 36 F.3d 825, 829 (1994),
[13] Bankruptcy Rule 9011, [...] must certify it isn't
frivolous, i.e., that "it is well-grounded in fact and is
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law."
Rather, the standard is: result is obvious, or the appellant's
arguments of error are wholly without merit, _McConnell v.
Critchlow_, 661 F.2d 116, 118 (1981):
[11] The Diettrichs seek an award of appellate costs, and
Waldner requests damages, attorneys fees, and costs of
appeal against McConnell and his attorney. This court has
discretion to award damages and single or double costs as a
sanction against bringing a frivolous appeal. Fed.R.App.P.
38; 28 U.S.C. !1 1912. This may include attorneys fees. Wood
v. McEwen, 644 F.2d 797 (9th Cir. 1981). An appeal is
considered frivolous in this circuit when the result is
_obvious_, Jaegar v. Canadian Bank of Commerce, 327 F.2d 743
(9th Cir. 1964), or the appellant's _arguments of error are
wholly without merit_. Libby, McNeill and Libby v. City
National Bank, 592 F.2d 504, 515 (9th Cir. 1978).
[12] Although the result as to the governmental parties in
this appeal was not obvious at the outset, the appeal was
frivolous as to the individual defendants. The claims
against them were clearly barred by limitations, and
McConnell and his attorney presented no argument attacking
those dismissals. Because the policy of Fed.R. App.P. 38 is
to deter appeal as a "knee jerk reaction to every
unfavorable ruling," Libby, McNeill, 592 F.2d at 515, it is
appropriate to award attorneys fees where the appeal is
frivolous as to certain appellees. All three of the
individual appellees filed briefs on appeal, and Waldner and
the Diettrichs were represented by counsel at oral
argument.[fn2] We award attorneys fees of $500 each to the
Diettrichs, jointly, and to Waldner.
In fact the _McConnell v. Critchlow case dealt with the lapse
of the statute of limitation against individual defendants, which
is clearly obvious. The Ninth Circuit held that the limitation
against the government parties are not obvious, even though the
Court ruled against that claim as well, because the appellants
argued that the the cause of action arose later because of
_Monell_, 436 U.S. 658 (1978). Thus it is obvious that in the
Ninth Circuit, an appellant does not conduct a frivolous appeal
_merely_ when he loses the appeal, and much more is needed.
Notice also that the Ninth Circuit awarded only $500 to the
victims of such frivolous appeals.
By whatever standard (clearly erroneous), her finding
"frivolous appeal" is utterly, clearly wrong. The appeals were
not obvious, nor were the arguments wholly without merit. Worse,
she did not even _refer_ to these elements.
This can only be characterized as utter carelessness. I can
only speculate that in her utmost haste to find us liable, she
did not take the time to read everything carefully, the pleadings
or the case law, and that is why there is this scandalous error.
III. _It is error to find Frivolousness._
In Re Marsch, 36 F.3d 825, 829 (1994),
[13] Bankruptcy Rule 9011, like its sister rule, Federal Rule of
Civil Procedure 11, calls for the imposition of sanctions on
litigants and attorneys who file pleadings and papers in
violation of the rule's requirements. These requirements are
two-fold: First, the signer of the pleading must certify it isn't
frivolous, i.e., that "it is well-grounded in fact and is
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law." Bankr.R.
9011. Second, the signer must ensure that the paper or pleading
"is not interposed for any improper purpose, such as to harass or
to cause unnecessary delay or needless increase in the cost of
litigation." Id.
Even though the Mollway court used the wrong law, and never
addressed frivolousness (and neither did the Faris court), it is
incumbent upon us to absolve us of any frivolousness.
1. Perhaps there is problem with filing GFT Ch. 7 and QIS Ch. 11
was dismissed.
This is completely addressed in: IV. _It is error to find
Improper Purpose_, 2. "bad faith" of the QIS bankruptcy, below.
2. Perhaps there is problem with asking for automatic stay.
This is completely addressed in: IV. _It is error to find
Improper Purpose_, 3. multiple attempts to stay the California
Litigation; This issue was already addressed under 1. timing of
the bankruptcy.
IV. _It is error to find Improper Purpose_.
In Re Marsch, 36 F.3d 825, 829 (1994),
[13] Bankruptcy Rule 9011, like its sister rule, Federal Rule of
Civil Procedure 11, calls for the imposition of sanctions on
litigants and attorneys who file pleadings and papers in
violation of the rule's requirements. These requirements are
two-fold: First, the signer of the pleading must certify it isn't
frivolous, i.e., that "it is well-grounded in fact and is
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law." Bankr.R.
9011. Second, the signer must ensure that the paper or pleading
"is not interposed for any improper purpose, such as to harass or
to cause unnecessary delay or needless increase in the cost of
litigation." Id.
In Mollway's "Order Affirming Bankruptcy Court", pages 13-
15, EOR [15-17], she claims several grounds that we filed bankruptcy
for improper purpose:
1. timing of the bankruptcy;
2. "bad faith" of the QIS bankruptcy;
3. multiple attempts to stay the California Litigation;
4. lack of legitimate bankruptcy purpose: no discharge for
partnerships and corporations under Ch. 7;
5. even though the attempts to obstruct the California
Litigation were unsuccessful, it was our "subjective bad-faith
motivation" that counts;
In Hearing June 14, 2006 before Faris pages 4-5, 8-10, 14-15, EOR
[18-24], Faris made most of the above points, and added these not
mentioned by Mollway:
6. "taxing authorities have plenty of weapons in their arsenal to
enforce their claims outside of bankruptcy, so they wouldn't be
benefited by the bankruptcy";
7. questioned why I did not do my duty to minimize GFT's tax
liabilities within the law;
8. Two-party dispute, "4 = 2";
9. tax can be resolved through the I.R.S. administrative
processes and through other judicial processes; If there was
improper [tax evasion by the Gootnicks] conduct, that needs to be
looked into.
I address these points in turn:
1. timing of the bankruptcy;
There is no prohibition against filing bankruptcy _per se
when another case is going on, see previous argument on _Marshall
v. Marshall_, 547 U.S. 293 (2006) {Transcript of May 7, 2007
hearing before Mollway, page 15, EOR [24],} was decided in June
2006, and I did not make use of this case in the Faris phase of
the bankruptcy litigation. In fact I later re-read the Anna case
and found out that our case is very similar to Anna's: a third
party took away the assets (Gootnicks for us, the son in the case
of Anna), and we are faced with liabilities, and so we both filed
bankruptcy. The bankruptcy court in Anna's case "interfered" in
the Texas state probate proceedings and awarded Anna several
billion dollars.
Faris claims another "bad faith" reason as the filing being
done on the eve of the deadline for an answer in the California
Litigation. This is absurd, for an answer order was a minute
order, not a major substantive order, "It's not something that
debtors usually avoid by filing bankruptcy", see Hearing before
Faris, Feb. 21, 2006, statement by Preston Gima, pages 7-8,
Appendix 5 [1-2].
Most cases where sanctions attach involve getting a bad
faith stay on the eve of trial, or something similarly
significant, not a deadline to answer, _In Re Eisen_, 14 F.3d, 469,
470-471 (1994), _In Re Chinichian_, 784 F.2d 1440, 1441 (1986).
Whether we get a stay or not is not important to us. See
Muranaka's answering brief to Mollway dated about Apr. 21, 2007,
page 15, EOR [25], observed that notice of appeal was filed July
5, 2006, 34 days after the denial of motion to honor stay entered
June 1, 2006, and so that was too late. In fact I do not recall
appealing the denial of motion to honor stay, as that was NOT
important to us, and I did not mean to even appeal that.
I only filed motion to honor stay based on 11 U.S.C. 362
(a)(3), "operates as a stay" [etc.] " any act to obtain possession
of property of the estate or of property from the estate or to
exercise control over property of the estate ". By contract,
admitted to by the Gootnicks, QIS/GFT is owner of those
properties in California, and from my reading of _plain language
of the statute, THERE IS ABSOLUTELY NO DOUBT that Gootnicks'
California Litigation _clearly intended to "obtain possession of
property of the estate or of property from the estate or to
exercise control over property of the estate". _No amount of
judicial interpretation in case law can negate the plain meaning
of a statute_.
Judge Illston of the U.S. District Court in California
disagreed. I am not licensed in California and did not even
participate. Nelson filed a Declaration addressed to Faris on
June 14, 2006, in which he included a letter addressed to
Illston, page 3, EOR [26], whereby he URGED that "This request
for imposition of automatic stay should be made to the Hawaii
Bankruptcy Court". We moved in Hawaii Bankruptcy Court upon
Nelson's urging and approval.
2. "bad faith" of the QIS bankruptcy;
We disagreed, but to conserve resources, decided not to
appeal. We should have. Our reasoning is basically the same in
both bankruptcies. See in particular the argument under V. _It
is error to find "4 = 2"_.
There are also big differences:
(1) Faris observed in Jan. 23, 2006 hearing, page 4, Appendix 5
[3], that the real property we're talking about belongs to a
trust [GFT], not to the debtor-in-possession [QIS]. The GFT Ch.
7 filing addresses that concern.
(2) There is a neutral case trustee, Kotoshirodo, who actually
agreed with our goal, 341 Meeting Apr. 6, 2006, page 42-43, EOR
[8-9], "a settlement can be found which even benefits the
Gootnicks, [...] , are these taxes [...] responsibly the
Gootnicks? [...] he may say I'm paying off a debt that has to be
paid anyway. So whatever he settles with me or they would be a
benefit to them as well as the estate."
3. multiple attempts to stay the California Litigation;
This issue was already addressed under 1. timing of the
bankruptcy; above.
4. lack of legitimate bankruptcy purpose: no discharge for
partnerships and corporations under Ch. 7;
This is absurd. We stated in the very beginning, Dec. 19,
2005, "Outline for Ch. 11 Plan of Reorganization", Exh. A,
Appendix 5 [4], for QIS, that we proposed a "Ch. 11 Liquidating
Plan of Reorganization", i.e. we marshall the assets, file the
tax returns, liquidate the assets to pay the taxes, and retain
the difference. There was NEVER any thought of a discharge.
5. even though the attempts to obstruct the California
Litigation were unsuccessful, it was our "subjective bad-faith
motivation" that counts;
I must say I am speechless. In the totalitarian regimes
there are "thought crimes". You think badly about the regime,
and that is a crime.
All we did was to _ask for_ the automatic stay; there was no
"delay". As I argued above in 1. timing of the bankruptcy; I
only filed motion to honor stay based on 11 U.S.C. 362 (a)(3),
"operates as a stay" [etc.] "any act to obtain possession of
property of the estate or of property from the estate or to
exercise control over property of the estate". You want to go
into our minds and decide that our subjective motivation was to
obstruct, you are like the totalitarian regimes. I also searched
the Ninth Circuit opinions under the keyword "obstruct
litigation", and found no useful definition.
6. "taxing authorities have plenty of weapons in their arsenal
to enforce their claims outside of bankruptcy, so they wouldn't
be benefited by the bankruptcy";
Faris / Mollway disparaged our proffered purpose of paying
the tax and retaining what is left, by quoting Faris' statement
that "the tax authorities can take care of themselves", there is
alternative of simply letting the tax authorities assess and
levy. I urge the Ninth Circuit to issue a published opinion ,
delineating the line where there is a perfectly proper purpose
like us of paying the taxes and retaining what is left, to
prevent unscrupulous judges from smearing Debtors with some
manufactured improper purpose like Faris / Mollway did, when such
Debtors have a perfectly proper purpose and explained that _from
the very beginning_.
The Faris / Mollway argument is a complete _non-sequitur_ :
All along our aim was to marshall the assets, file the tax
returns, liquidate the assets to pay the taxes, and retain the
difference. In the beginning of the statement of the case, I
related being reluctant to take on a bankruptcy case, but was
assured that this is mainly a tax case. That is why Lighter
retained me, a tax person, with no bankruptcy law experience, to
handle this case, because he expected heavy load of tax work.
After familiarizing myself with the case, I agreed that it was
mainly a tax case.
We do not have the complete records of all the subsidiary
trusts of QIS. We need bankruptcy court power to force Gootnicks
to produce those records to prepare the correct tax returns. We
do have most of the records of GFT, and we did produce two years
2003-2004 of tax returns of GFT, and submitted them to the
administrative arm of the I.R.S., which accepted them as filed.
Faris / Mollway argue that we have the alternative of
dealing with the administrative I.R.S., we do not take the
alternative, therefore what you actually choose, the bankruptcy
court, is improper. In effect, they argue that you have the
alternative of taking Motrin, you do not take Motrin, you take
Aspirin. Why did you not take Motrin, you must have improper
purpose in taking Aspirin, you must be an Aspirin addict!
There is no question that both Mollway and Faris are
emphatically not stupid idiots. Therefore the only conclusion is
that they ruled the way they did deliberately.
7. questioned why I did not do my duty to minimize GFT's tax
liabilities within the law;
Hearing before Faris, June 14, 2006, pages 9-10, is actually
quite amusing: a federal judge wants to know why I am not
striving to minimize taxes. Yes, I always do, within the law,
but "the Gootnicks were involved in tax fraud and we're not."
8. Two-party dispute, "4 = 2";
See argument under V. _It is error to find "4 = 2"_.
9. tax can be resolved through the I.R.S. administrative
processes and through other judicial processes; If there was
improper [tax evasion by the Gootnicks] conduct, that needs to be
looked into.
In fact there is no other forum to use judicial processes to
resolve the tax liabilities. Tax Court takes only cases where
there is a dispute on the tax. In the California Litigation, the
I.R.S is not a party. In the instant bankruptcies, the I.R.S. _is
a party, but the I.R.S. is literally a no-show, because its
attorney Muranaka was a no-show.
For once, Judge Faris at last sees the light: "If there was
improper [tax evasion by the Gootnicks] conduct, that needs to be
looked into". But he talked and never acted. See argument under
VII. _It is error to protect tax cheats_, 18 U.S.C. Sec. 3057(a)
_requires a judge having reasonable grounds for believing that any
violation of laws of the United States have been committed to
report all the facts and circumstance to the appropriate U.S.
Attorney.
V. _It is error to find "4 = 2"_
The Two-Party Dispute was the original reason for Faris to
dismiss the QIS Ch. 11 filing. Faris persisted in using "Two-
Party Dispute" in dismissing the GFT Ch. 7 filing. Mollway
picked up on it at page 5, Transcript of May 7, 2007 hearing, EOR
[27]. "I looked at it _de novo_, and I'm inclined to find that
that was a correct evaluation of the bankruptcy case". I
repeatedly pointed out to Faris and Mollway that there are at
least two other creditors, the I.R.S. and the State of
California. Therefore there are at least 4 parties, not 2, and
that their argument of "Two-Party Dispute" amounts to the
Proposition that "4 = 2".
She then reconsidered the absurdity of "4 = 2", and said
nothing in her May 18, 2007 "Order Affirming Bankruptcy Court
[etc.]"
"4 = 2" is significant because Faris indicated it is the
_primary reason for calling the QIS Ch. 11 filing "bad faith".
See Hearing before Faris, Feb. 21, 2006, pages 4-5, Appendix 5,
[5-6]. He threw in another "bad faith" reason as the filing being
done on the eve of the deadline for an answer in the California
Litigation. This is absurd, for an answer order was a minute
order, not a major substantive order, "It's not something that
debtors usually avoid by filing bankruptcy", see Hearing before
Faris, Feb. 21, 2006, statement by Preston Gima, pages 7-8,
Appendix 5 [1-2].
What is most curious is that Muranaka, attorney for the
I.R.S. until Nov. 2006 (and assistant U.S. Trustee thereafter)
took no interest whatsoever in these proceedings while
representing the I.R.S. The tax authorities canNOT take care of
themselves, when their attorney failed to attend any proceeding
of QIS/GFT, except the very first one re QIS. Then she appeared
for the OUST on May 7, 2007, page 12, 14, EOR [5,7] I directly
addressed her in court for her INactivity throughout the QIS/GFT
litigation on behalf of the I.R.S. She sat there, and when it
was her turn to speak, she said not a single word why she did not
take care of the interest of the I.R.S., the tax authorities,
throughout QIS/GFT.
VI. _It is error to change the "Sanctions" when the lower court
no longer has jurisdiction
Mollway ruled, "if you ask for a quarter of it [Painter's
fees]", Hearing before Mollway, May 7, 2007, page 33, EOR [28].
After I filed the Notice of Appeal to the Ninth Circuit, I
reminded the U.S. District Court that they have no jurisdiction,
except, "where the district court action aids us in our [Ninth
Circuit] review", _In Re Silberkraus_, 336 F.3d 864, 869 (2003).
However, in the Aug. 28, 2007 "Order Adopting Special Master
[etc.]", page 5, Mollway hit us with $25,000 sanctions, EOR [29],
contradicting her earlier ruling of a maximum of 25%, which was
in the May 7, 2007 Transcript. She is normally free to change
her mind; however, she cannot change her mind when she no longer
has jurisdiction once notice of appeal was filed, and increasing
the "sanctions" by a factor of FOUR, with no jurisdiction to do
so, certainly does not aid the Ninth Circuit in its review.
Magistrate Judge Kurren also ruled on Aug. 24, 2007 to
release about $42,000 of sanctions, {no written record available,
as the ruling waits for the disposition of Re-Hearing of the Stay
before the Ninth Circuit,} ordered by Faris upon the affirmation
of the Bankruptcy Court by the U.S. District Court. While the
"Report of the Special Master regarding Appellees' Motion for
Determination of Attorneys' Fees and Costs" is arguably "aiding"
the Ninth Circuit in establishing some framework of the amounts
claimed, the _release of money in the bond is clearly not
"aiding"_, for once this court rules to give the money, it's
irreversible, and causes irreparable damage.
One of the rationale, I think, that the lower court loses
jurisdiction upon appeal is of course to prevent retaliation by
the lower court upon learning that the victim does not agree with
its judgment, and this is obviously happening here.
VI. _It is error to "take judicial notice" of an indictment_
Mollway referred to Lighter being indicted by the U.S. and
took "judicial notice". She claims that it did not affect her.
Well, of course it does. If a party (maybe Ching or Painter)
showed her the indictment, that party committed disbarrable
offense (ex parte communication). If she finds it herself, then
it is also improper as trier of fact to go unilaterally beyond
the Record on Appeal (U.S. district court was acting as reviewing
court for the Bankruptcy Court) and look for other information,
and then put it on the record by taking judicial notice. In any
case, by reading the indictment, she acquired "personal
knowledge":
http://www.uscourts.gov/guide/vol2/ch1.html
Code of Conduct for United States Judges
C. Disqualification.
(1) A judge shall disqualify himself or herself in a proceeding
in which the judge's impartiality might reasonably be questioned,
including but not limited to instances in which:
(a) the judge has a personal bias or prejudice concerning a
party, or _personal knowledge of disputed evidentiary facts
concerning the proceeding;
I am almost certain that reading the indictment is
responsible for her change in attitude towards us. Whereas she
readily granted us a stay of sanctions in Jan. 2006, now she hits
us with $25,000 in new sanctions (without any jurisdiction in my
opinion), and also wants to refer me to the Office of the
Disciplinary Counsel, Hearing before Mollway, May 7, 2007, pages
38-39, EOR [30-31].
I am actually not the slightest bit intimidated by such
referral, for even though the Gootnicks appear to own the U.S.
Attorney's office (Thomas Moore), the U.S. District Court
(Mollway), the Bankruptcy Court (Faris), the OUST (Muranaka and
Ching), I know they do not own the ODC of Hawaii, nor do they own
the supreme court of Hawaii (which reviews the ODC).
I need not reiterate that "the accused is presumed innocent
until proven guilty", and just because someone may have committed
a crime does not mean that his attorney is "frivolous" in another
unrelated civil case.
VII. _It is error to protect tax cheats_
18 U.S.C. Sec. 3057(a) _requires a judge having reasonable
grounds for believing that any violation of laws of the United
States have been committed to report all the facts and
circumstance to the appropriate U.S. Attorney.
Mollway stated in her "Order Affirming Bankruptcy Court ..."
dated May 18, 2007, at page 20, EOR [32], "Gootnick's tax fraud.
Although evidence of that alleged fraud may be clear to Lighter
and Ng, its[sic] is far from clear to this Court".
While U.S. District Court judges may not know the
intricacies of tax law, I have personal knowledge that Judge
Mollway knows at least this: that any taxpayer who fails to file
a tax return on time (including extensions), while owing more
than $1 in tax, commits a crime. I was fact and expert witness
for a defendant named Tanaka tried in U.S. District Court in
2005, presided over by Judge Mollway, and one of Tanaka's crimes
was failing to file a tax return on time while owing tax on the
return.
In fact QIS was formed in 1997, and it NEVER even once filed
a tax return while under the Gootnicks' control, during which
time it keeps accepting fraudulent "donations" from the Gootnicks
and their controlled entities. In my brief of Feb. 2006, which
is Appendix 3, pages 3-4, it was stated:
The last tax return for Gootnick Family Trust was filed by
the Gootnicks for 2002. ( Exh. 6 ). It shows a net income of -
$25,294. However, donation was deliberately buried under "other
deductions", for $101,000, rather than displayed on Line 19 of
page 1 as it should be, because they wanted to avoid even looking
at that explicit instruction on Line 19 that there is a 10%
limitation on charitable contributions.
In fact, the donation was to the Gootnick Charitable Trust,
which is neither charitable nor a trust , but was a business
corporation, which however, _never filed a tax return, presumably
on the theory that it is a charitable trust! In 2002 then, at
the very least, the Gootnick Family Trust owes additional tax of,
Net inc. as stated (25,294.00)
Disallowed donation 101,000.00
------------
75,706.00
2002
TAX COMPUTATION:
0-50K 50,000.00 15% 7,500.00
50-75K 25,000.00 25% 6,250.00
75-100K 706.00 34% 240.04
100-335K 39% 0.00
------------
Tax owed $13,990.04
============
The Debtor/Plaintiffs then recently reconstructed the 2003,
2004 tax returns ( Exh. 7 ), and they show federal income tax
liabilities of at least $84,668, $81,965, plus penalties and
interest, plus, possibly, fraud penalties.
_CONCLUSION_
In this case, the biggest victim is the U.S. taxpayers, who,
because tax cheats were protected by the courts in Hawaii, lost
at least a million dollars, in uncollected taxes from the tax
evasion perpetrated by the Gootnicks. This is similar in scope
to former IRS District Counsel William Sims, _Dixon v.
Commissioner_, 316 F.3d 1041 (9th Cir. 2003), as amended. Public
record contains details of the Sims induced damages to Ng and
Lighter and/or the firm(s) they represented; Fed.Reg. 24836-
24843, 5/31/91.
The next victim is myself, who had to spend many, many hours
of time to respond to baseless complaints and pretexts of Ching
and Painter, which then became hundred thousand dollar judgments
against me and Lighter through the cooperative efforts of power-
abusing judges Mollway and Faris. This whole thing stinks to
high heaven.
Lighter is also a victim, for he had to settle the
California Litigation at less favorable terms than if the
bankruptcy filings had received fair, impartial judicial
scrutiny, as they should have been.
The judges and government attorneys of the District of
Hawaii, by disgracefully and shamelessly mutilating the law and
ruling wantonly, have turned Hawaii into the Judicial Hellhole of
the Pacific, a Fourth World country. (A Third World country like
Pakistan in Appendix 1 actually has a better, not too bad,
judiciary - the Chief Justice is a model of rectitude and the
President tried to fire him.) I request, at the least, attorney
fees expended on these baseless complaints and pretexts, to be
assessed against the responsible parties as determined by this
Court, and whatever other remedies against those office-holders
who "[dare] to abuse the power vested in [them] by the people",
as seen fit by this Court.
_CERTIFICATE OF COMPLIANCE_
This certifies that the principal text is less than 30
pages, and the number of words is 9,451.
DATED: Honolulu, Hawaii, Sept. 25, 2007.
_________________________________
WING C. NG, Pro Se
.pa
WING CHIU NG, Pro Se, #7556
1149 Bethel Street, Suite 306
Honolulu, Hawaii 96813
Tel. (808) 599-4192,
Fax. (808) 566-6004, e-mail wing@lava.net
IN THE UNITED STATES CIRCUIT COURT
FOR THE NINTH CIRCUIT
) Case No. 07-16173
)
In Re ) Civil No. 06-00412 SOM-BMK
) Civil No. 06-00540 SOM-BMK
GOOTNICK FAMILY TRUST, ) Civil No. 07-00042 SOM-BMK
)
Debtor(s). ) OPENING BRIEF; CERTIFICATE
) OF SERVICE
_____________________________)
)
WING CHIU NG, )
)
Appellant )
)
v. )
)
OFFICE OF U.S. TRUSTEES, )
IRWIN GOOTNICK and SUSAN )
GOOTNICK, et al., )
)
Appellees. )
_____________________________)
_CERTIFICATE OF SERVICE_
I hereby certify that a copy of the foregoing was duly
served by United States mail, postage prepaid to:
1. Paul Wm. Bridenhagen
Executive Office for U.S. Trustees
Office of the General Counsel
20 Massachusetts Avenue, N.W., 8th floor
Washington, D.C. 20530
Ph. (202) 307-1399, Fx. (202) 307-2397
2. Enver W. Painter
Richard J. Nelson
1188 Bishop St., #2505
Honolulu, Hi. 96813
---------------------------------
WING C. NG, Pro Se
APPENDIX 3
WING CHIU NG #7556
1149 Bethel Street, Suite 306
Honolulu, Hi. 96813
Tel. (808) 599-4192
Attorney for Debtor in Possesion
Plaintiff QUALITY INCOME SYSTEMS, INC.
IN THE UNITED BANKRUPTCY COURT
FOR THE DISTRICT OF HAWAII
In Re ) Case No. 05-50023 (Ch. 11)
) Adv. Pro. No. 06-90001
QUALITY INCOME SYSTEMS, INC. )
) DEBTOR/PLAINTIFF'S
Debtor. ) CONSOLIDATED RESPONSE TO
) ORDER TO SHOW CAUSE, AND
-------------------------------) MOTION TO DISMISS/CONVERT;
) DECLARATION OF WING C. NG;
) EXHIBITS 1-9; CERTIFICATE
) OF SERVICE
)
QUALITY INCOME SYSTEMS, INC. ) _Hearing_
a Hawaii corporation, and ) Date: Feb. 21, 2006
SUPER TEACHING CORPORATION, a ) Time: 2:00 p.m.
Hawaii corporation as Trustee ) Judge: The Honorable
of the Gootnick Family Trust, ) ROBERT J. FARIS
)
Plaintiffs, )
)
v. )
)
SUSAN A. GOOTNICK and IRWIN )
GOOTNICK, )
)
Defendants. )
)
-------------------------------
DEBTOR/PLAINTIFF'S CONSOLIDATED RESPONSE TO
ORDER TO SHOW CAUSE; MOTION TO DISMISS/CONVERT
----------------------------------------------
The Court ordered to show cause why this adversary
proceeding should not be dismissed for lack of subject matter
jurisdiction, abstain or stay in view of the District Court
proceeding in California. The United States Trustee moved to
dismiss the bankruptcy case pursuant to Sec. 1112(b) of the
Bankruptcy Code.
In both cases, it was cited that this seems to be a two-
party dispute between the Debtor/Plaintiffs (QIS) and the
Defendants (the Gootnicks).
I shall show that this is not so. There is at least the
party of the United States, Internal Revenue Service, and the
state taxing authorities of California and Hawaii, who have
interest in this outcome.
The original transaction between the Gootnicks and Eric
Lighter (Lighter), who now control the Debtors, was witnessed by
valid documentation. One of the documents, dated Oct. 8, 2004,
states that the assets sold by the Gootnicks were worth about
$1,992,300 ( Exh. 1 ), and the consideration was a note from
Lighter for $2 million. The Gootnicks admitted the validity of
all documents, in their own Verified Complaint filed on Oct. 21,
2005, originally in the Superior Court of California. They
characterized them as "valid on their face", even though they
claimed they were procured by fraud. ( Exh. 2 ).
Irwin Gootnick also admitted that his motivation for the
transaction was his use of NTS trusts, and the tax problem that
ensued. Declaration dated Jan. 23, 2006 ( Exh. 3 ).
It turns out that National Trust Services (NTS) is a severe
problem indeed. The United States filed a civil complaint ( Exh.
4 ) against NTS promoters on Apr. 9, 2002 seeking a permanent
injunction. (The promoters are subsequently indicted, in _USA v.
Fritts et al_, District of Oregon (Medford), Case #: 1:05-cr-
30067-AA-1.) The U.S. Complaint explained in great detail the
NTS advice to set up Family Trusts to receive business income,
which then "donate" a large part of such income to Charitable
Trusts under the taxpayer's control. Most personal expenses are
deducted as "trust" expenses, and so the Family Trusts pay little
or no tax. The Charitable Trusts are purported to be tax-exempt
and do not even file a tax return.
The Gootnicks then did form "Gootnick Family Trust", and
"Gootnick Charitable Trust" (whose assets and liabilities were
inherited by QIS after the sale to Lighter), on or about Apr. 18,
1997, and proceeded with the NTS scheme/scam.
On June 24, 2002, David B. Prince, attorney in Los Gatos,
California, was asked by the Gootnicks to provide a legal opinion
on the NTS scheme. Mr. Prince recommended "against continued use
of the NTS ... There are compelling reasons to terminate the
document". ( Exh. 5 ).
I agree mostly with Mr. Prince's recommendations. I also
think this scheme is likely to be criminal tax evasion, and it is
not a very clever scheme at that.
In spite of Mr. Prince's legal advice, the Gootnicks
continued with the NTS tax scam for more than two years, which
may arguably demonstrate their criminal intent to evade taxes.
Eventually these "trusts" were sold to Mr. Lighter, with the
provision that the new owner would be responsible for the taxes.
It seems that the Gootnicks are well motivated to get rid of all
such "tainted" trusts, and they will attempt to get back $2
million from Mr. Lighter after all the dust has settled, after
Lighter labored to pay off the taxes.
The last tax return for Gootnick Family Trust was filed by
the Gootnicks for 2002. ( Exh. 6 ). It shows a net income of -
$25,294. However, donation was deliberately buried under "other
deductions", for $101,000, rather than displayed on Line 19 of
page 1 as it should be, because they wanted to avoid even looking
at that explicit instruction on Line 19 that there is a 10%
limitation on charitable contributions.
In fact, the donation was to the Gootnick Charitable Trust,
which is neither charitable nor a trust , but was a business
corporation, which however, never filed a tax return, presumably
on the theory that it is a charitable trust! In 2002 then, at
the very least, the Gootnick Family Trust owes additional tax of,
Net inc. as stated (25,294.00)
Disallowed donation 101,000.00
------------
75,706.00
2002
TAX COMPUTATION:
0-50K 50,000.00 15% 7,500.00
50-75K 25,000.00 25% 6,250.00
75-100K 706.00 34% 240.04
100-335K 39% 0.00
------------
Tax owed $13,990.04
============
The Debtor/Plaintiffs then recently reconstructed the 2003,
2004 tax returns ( Exh. 7 ), and they show federal income tax
liabilities of at least $84,668, $81,965, plus penalties and
interest, plus, possibly, fraud penalties.
The U.S. Internal Revenue Service (through its Agent
Caroline Nakajima in San Francisco) issued a determination on
Dec. 13, 2004 on the individual tax of the Gootnicks for 2001,
and asserted a tax deficiency of $124,533. ( Exh. 8 ). Curiously
the Gootnick Family Trust claimed to be a trust for 2001 (but
then claimed to be a corporation for 2002), and the I.R.S.
determined that these Gootnick controlled trusts are not
recognized for tax purposes and the Forms 1041 for them were
collapsed into the Gootnick's Form 1040.
The Gootnick Charitable Trust apparently never filed tax
return even once. Ms. Nakajima of the I.R.S. _was not even aware_
of the existence of the Gootnick Charitable Trust until recently;
there is no doubt that Ms. Nakajima would be most interested in
the tax liabilities of that entity (which became the
Debtor/Plaintiffs). A reconstruction by the Debtor/Plaintiffs
from the available records shows income of at least $403,288 from
1997 to 2003 for the Gootnick Charitable Trust ( Exh. 9 ), while it
was under the Gootnicks' personal control.
In summary, the taxes owed are at least this much:
Gootnick Family Trust,
2002 13,990
2003 84,668
2004 81,965
------
180,623
Gootnick Charitable Trust,
1997-2003, estimated 20%
of income of $403,288 80,658
-------
261,281
=======
All tax liability figures are conservative estimates, as not all
records are available.
Under these circumstances, with an inherited, large and not
completely certain tax burden caused by wrongful acts of the
seller the Gootnicks, the Debtor/Plaintiffs had no choice but to
file bankruptcy, to ensure an orderly distribution of assets to
the various creditors, including taxes owed to the United States
Internal Revenue Service, in accordance with law.
Under these circumstances, the Debtor/Plaintiffs had no
choice but to file an Adversary Proceeding against the seller,
the Gootnicks, who want to get rid of tax liabilities but retain
for themselves all the underlying assets, "to recover money or
property", in accordance with Federal Rules of Bankruptcy
Procedure, Rule 7001(1).
DATED: Honolulu, Hawaii, Feb. 8, 2006.
---------------------------------
Wing Chiu Ng, Attorney for
Debtor/Plaintiffs
.pa
_DECLARATION OF WING CHIU NG_
WING CHIU NG hereby declares:
that all the Exhibits 1-9 attached are authentic copies, he
has personal knowledge of the factual assertions, and that he is
competent to testify about them.
Declarant states, under penalty of perjury under the laws of
the State of Hawaii, that the foregoing is true and correct to
the best of his knowledge.
Dated: Honolulu, Hawaii, February 8, 2006.
---------------------------------
Wing Chiu Ng, Attorney for
Debtor/Plaintiffs
.pa
WING CHIU NG #7556
1149 Bethel Street, Suite 306
Honolulu, Hi. 96813
Tel. (808) 599-4192
Attorney for Debtor in Possesion
Plaintiff QUALITY INCOME SYSTEMS, INC.
IN THE UNITED BANKRUPTCY COURT
FOR THE DISTRICT OF HAWAII
In Re ) Case No. 05-50023 (Ch. 11)
) Adv. Pro. No. 06-90001
QUALITY INCOME SYSTEMS, INC. )
) DEBTOR/PLAINTIFF'S
Debtor. ) CONSOLIDATED RESPONSE TO
) ORDER TO SHOW CAUSE, AND
-------------------------------) MOTION TO DISMISS/CONVERT;
) DECLARATION OF WING C. NG;
) EXHIBITS 1-9; CERTIFICATE
) OF SERVICE
)
QUALITY INCOME SYSTEMS, INC. ) _Hearing_
a Hawaii corporation, and ) Date: Feb. 21, 2006
SUPER TEACHING CORPORATION, a ) Time: 2:00 p.m.
Hawaii corporation as Trustee ) Judge: The Honorable
of the Gootnick Family Trust, ) ROBERT J. FARIS
)
Plaintiffs, )
)
v. )
)
SUSAN A. GOOTNICK and IRWIN )
GOOTNICK, )
)
Defendants. )
)
-------------------------------
_CERTIFICATE OF SERVICE_
I hereby certify that a copy of the foregoing was duly
served by United States mail, postage prepaid to:
1. Curtis Ching
1132 Bishop St., #602
Honolulu, Hi. 96813
2. Carol Muranaka
Office of District Counsel
Internal Revenue Service
300 Ala Moana Boulevard
Honolulu, Hawaii 96850
3. Richard J. Nelson
One Embarcadero Center, 8th floor
San Francisco, Ca. 94111
4. Enver W. Painter
1188 Bishop St., #2505
Honolulu, Hi. 96813
5. Preston A. Gima
Suite 204, Halekauwila Plaza
547 Halekauwila St.
Honolulu, Hi. 96813
---------------------------------
Wing Chiu Ng, Attorney for
Debtor/Plaintiffs
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