[00:00:06] Speaker 02:
I was about to get up on the wall.

[00:00:07] Speaker 03:
No, no. We have two Smiths on our court, too.

[00:00:10] Speaker 02:
All righty.

[00:00:13] Speaker 02:
I believe the law said there must be extrinsic evidence of actual fraud in addition to the badges of fraud, or I would add included in the badges of fraud, in order that the homestead exemption can be reduced by the purchase price.

[00:00:33] Speaker 04:
But the standard of review is clear error.

[00:00:36] Speaker 01:
That's what I was going to ask. So if the standard of review is clear error, where is the clear error here in the courts?

[00:00:47] Speaker 01:
To be blunt about it, that this was bought with essentially ill-gotten gains or funds that she was not entitled to.

[00:01:00] Speaker 02:
Well, the clear error is that the case has established a measuring device. And what this case has done is decide if somebody is a rich man and because his business takes in a lot of money and he deposits a lot.

[00:01:16] Speaker 02:
But not looking at what the expenses are, what the outgo is. It wasn't measured with the right tape measure. And the judge did not evaluate all the facts properly. including the badges of fraud, and Collier says no particular badge.

[00:01:34] Speaker 03:
So just to tell us that you don't agree with what the judge did, you've got to give us more than that to establish clear error. What can you point to that should cause us to conclude that the bankruptcy court's determination was clearly erroneous?

[00:01:50] Speaker 02:
Clear error is not the final result. Clear error is a mistake in what they did.

[00:01:57] Speaker 03:
And so just telling us it's a mistake isn't persuasive.

[00:02:00] Speaker 02:
No.

[00:02:00] Speaker 03:
Give me something that explains why the bankruptcy court was off base.

[00:02:04] Speaker 02:
Because the cases say that it's a mistake.

[00:02:07] Speaker 03:
Stop.

[00:02:08] Speaker 03:
What is a mistake?

[00:02:09] Speaker 02:
We're talking about facts here.

[00:02:11] Speaker 03:
You can't just tell me that in other cases the court decided there was error. You've got to tell me what about this case, what facts, what evidence, what in the record tells us the factual determination was clearly erroneous.

[00:02:23] Speaker 02:
It's not that the factual determination is clear error.

[00:02:26] Speaker 04:
I'm sorry, could you just move to the center so the microphones pick you up?

[00:02:29] Speaker 02:
Not that the factual determination is clear error. It's the findings that have to be made. And so it's not clear error to say a man's a rich man because he takes in millions a month in his business. And it could be true. But you haven't done the right measure. And you've made a legal error. And a legal error is...

[00:02:55] Speaker 02:
I have considered the man takes in millions a month in his business, and I've also considered what his expenses are. And the judge never even stated that she was looking at all the facts.

[00:03:11] Speaker 01:
Counsel, let me be more specific. The bankruptcy court found specifically that the debtor intended to to hinder, delay, and defraud the creditors by taking certain actions, including depositing and withdrawing from the Citibank account. That's a factual finding about intent.

[00:03:40] Speaker 01:
Why is that clearly erroneous?

[00:03:42] Speaker 02:
It's a conclusion. It describes no evidence. It does no tracing.

[00:03:47] Speaker 01:
There are pages and pages of descriptions of the evidence to result in the finding that the debtor had the intent to defraud.

[00:04:01] Speaker 01:
So just to say that there isn't anything is not helpful because there's a lot there about how these transactions occurred and when they occurred and the sort of.

[00:04:19] Speaker 01:
the gestalt of the situation. And I'm having a hard time seeing where there's clear error.

[00:04:27] Speaker 02:
Your Honor, I'm not saying that at all. But look exactly what they say. There were transfers to Montenegro. There were transfers back. There were transfers for people with strange...

[00:04:40] Speaker 02:
There was defalcation, which means stealing money. There were all of these pages and pages. There was a trust, and it's a sham trust because we say it's a sham trust.

[00:04:52] Speaker 03:
There were payments for women's shoes. There were payments to clothing boutiques, nail salon, cosmetic stores, which the court observes is pretty unlikely for a priest in his 80s.

[00:05:03] Speaker 03:
That's evidence cited in the decision, and you're just telling us, oh, there's no evidence. There's no record. You've got to give us something more than that if you want us to hold that the actual finding was clearly erroneous.

[00:05:13] Speaker 02:
If we were doing technical trust, did you do the letter of the law? Fine. But what happened was there was a bank account, and there was Father Doney or Father Kehoney. Okay There was a bank account. Oh Drita opened it up in his name. I guess to control it Maybe she did the money in it and we we did not go with what mr. Pena did that this was a Complete done deal. It wasn't a done deal.

[00:05:44] Speaker 02:
It was basically treat herself trying to start a deal. It was the start of the deal Money was put in the account. They shared the account and She even lived with Father Doney, which he denies. And so that kind of was a big problem why he didn't want to go through it because he figured the archdiocese might.

[00:06:05] Speaker 04:
Mr. Smith, I guess I'll say I was impressed by your candor. You're opening brief page eight.

[00:06:14] Speaker 04:
You said that the debtor's overall behavior regarding the property was consistent with someone who was attempting to hide property from creditors but was making major mistakes in this effort. which would have been enough, but it was also just as consistent with someone who was not thinking of creditors and exemptions at all. Under a clear error standard, that is the district court's choice to make which inference to draw from that evidence.

[00:06:39] Speaker 02:
The rule on that, I believe, is that If either inference could be drawn, if either one could be drawn, the court actually has to take the one that points towards honesty. I cited a case, I think it was a Supreme Court case, and that makes sense.

[00:06:59] Speaker 01:
But counsel, it's a credibility question.

[00:07:03] Speaker 01:
For example, as you just said, the priest denied that they had shared the property. And that's a credibility finding, which is classically within the fact finder's bailiwick.

[00:07:21] Speaker 01:
And basically what they found was that the debtor bought this property with stolen funds. That's a factual finding.

[00:07:34] Speaker 01:
And I have yet to hear why that is implausible or improper.

[00:07:41] Speaker 02:
That's a conclusion. Who was it stolen from? The money was put in the daughter's account well before there was any dispute. And Adrida never denies it. A Montenegrin account in Montenegro and before there was any dispute with the Her money, but with the daughter's names on it.

[00:08:06] Speaker 02:
Sort of a normal... I'm not sure that helps you.

[00:08:09] Speaker 03:
Because if it's put into accounts held in another name, it seems to suggest that, in fact, this is an effort by Ms. Kessler to keep assets out of her name because they might be reached in the bankruptcy. I've got to tell you, the facts here make me think I'm watching a Saturday Night Live sketch.

[00:08:31] Speaker 03:
And so to tell us, oh, no, the facts don't support, it's sort of like telling me don't believe what your eyes are seeing. You've got to come up with more specific reasons for why we should reject the factual finding made by the bankruptcy court.

[00:08:44] Speaker 02:
If I...

[00:08:45] Speaker 02:
Ten people saw somebody do a 30-foot long jump at the end of the pit, and they said, no, the guy didn't. He doesn't get any credit for it. It was clear as day. He didn't get credit for it.

[00:08:59] Speaker 03:
You'll have testimony from the ten witnesses saying what they saw. Point me to something that's similar to that on behalf of your client. I haven't seen anything other than your client insisting, oh, I didn't mean to cheat anybody.

[00:09:10] Speaker 02:
Okay.

[00:09:11] Speaker 02:
On that analogy...

[00:09:14] Speaker 02:
the mistake would be he doesn't get a world record, he doesn't get anything, he gets zero because it wasn't measured. It's the same thing here. There's a lot of cases that uphold inheritance. Yes, before the dispute arose, we put money and we put it in the kids' accounts so that when we finally died, they would have it. Then the dispute arises. That's a legitimate inheritance. It had another meaning and I cited cases in my brief where that was fine.

[00:09:48] Speaker 03:
How does that make the assets where you're insisting that were actually hers, she put into her kids' accounts. But if they're hers, then they're within the reach of the bankruptcy court.

[00:09:57] Speaker 02:
And they were.

[00:09:59] Speaker 03:
And the bankruptcy court is free to conclude, well, this effort to put them in somebody else's name, her kids, Father Kahane, anybody else. That's an attempt to keep them away from her creditors. That seems pretty consistent.

[00:10:14] Speaker 02:
They are in the reach, Your Honor. And they went into the bankruptcy court. And the judge herself said you can claim a homestead. You have an equitable interest. You've never denied it's your money. Yes, of course they went in. We're not denying it. The question is now, does she get an exemption? An exemption that she never denied was property of the estate. And we say she gets an exemption now.

[00:10:39] Speaker 03:
If she acquired the property for which she's claiming an exemption from funds that were within the reach of the estate, I'm having trouble understanding where it is that she's been shorted.

[00:10:52] Speaker 02:
She's not been shorted. There's no problem with it. The funds were within the reach of the estate. Anything she buys is within the reach of the estate. She's not denying it. She never denied it. The judge didn't deny it. She says, you have an equitable interest. Whatever money you put in is an interest you can fight to protect on a homestead. So there's no question. And she's simply saying, okay. I want the homestead. See, this is a bit of an odd statute. I think it happened because OJ went to Florida, and so...

[00:11:26] Speaker 02:
You know, they had to make something special. But the absolute cases say you can file a bankruptcy and you know it will harm creditors. You can even pay three years back IRS debt, $100,000 in non-exempt money. I'll pay off the IRS right before the bankruptcy. And that way I'll get rid of a debt that would survive and I'll harm all the unsecured creditors. Because they won't get sort of like a preference. And that doesn't mean you don't get 523 or 5220. So we're not talking about any facts.

[00:11:59] Speaker 02:
And yes, there were pages and pages. But if you go through the pages, practically all of them were findings that Mr. Park... It's a 40-page or 28-page minute order. Oh, there's findings that Mr. Park said this and Mr. Park said that and Mr. Park said that. Yes, Mr. Park did say that. But no, you have to find it. And what Mr. Park said were no descriptions of property, no tracing. He would say it's a sham trust, and it went to a person in Slovenia.

[00:12:31] Speaker 02:
Oh, my God, Slovenia. That really must be hiding money. But that's where the family's from. So, yes, there was a clear error. They have a measuring device. They didn't use the measuring device. No one described any facts. No one described any property permanently put out of the reach of creditors.

[00:12:51] Speaker 03:
You and I are not reading the same bankruptcy court order, because I see lots of recitation there to support the conclusion, and all you're telling me is that you disagree.

[00:12:59] Speaker 02:
No one can say anything except the conclusions. They can't repeat a fact. You can read it, and you can say, yeah, this conclusion was made in that. It was. What fact? This man named Gorka Chick or something like that got $7,000. Pretty mysterious. Why did he get it? What did he pay for it?

[00:13:20] Speaker 02:
This was simply the way they do things in Montenegro is they buy stuff as a family. And they said that the funds where they use the term... Ms.

[00:13:40] Speaker 03:
Kessler says that she purchased the Aldea property from Father Kehane.

[00:13:49] Speaker 03:
Father Kahane says, I never sold my property to Ms. Kessler. The bankruptcy court concluded that his testimony was credible and hers was not.

[00:14:00] Speaker 03:
You need to persuade us that that was a clearly erroneous finding.

[00:14:06] Speaker 03:
And what have you offered other than insisting that the bankruptcy court messed up?

[00:14:10] Speaker 02:
He didn't sell Aldi at all.

[00:14:14] Speaker 02:
No question he didn't sell it to her. It didn't go through. And Aldea is not the property that people are calling exempt. The property is Texahoma. It was bought.

[00:14:26] Speaker 03:
Your client said that she received a deed transferring that property, me and my two daughters. And you're now saying there's no question that wasn't really true.

[00:14:35] Speaker 03:
So why shouldn't the bankruptcy court be sustained in saying your client's not very credible?

[00:14:42] Speaker 03:
She's given multiple stories. You're denying one of them. It's hard to say. It's clearly erroneous.

[00:14:49] Speaker 02:
And Father Donnie said that he didn't sign an offer of purchase in front of a notary, which he did. But the fact is, this was not... They all thought maybe it wasn't a sale. Drita was trying to start something that would end up in a sale, and it just did not go through. And they kind of don't even need, they spend all their time on that. They spend a lot of time on the 12, 15 days, which you don't need when it's in the same state.

[00:15:20] Speaker 02:
And so because of that, they pay no attention to 523-0. Thank you, Mr. Smith.

[00:15:25] Speaker 04:
We'll give you a minute for rebuttal. You're out of time.

[00:15:44] Speaker 04:
Mr. Park.

[00:15:44] Speaker 00:
Good morning, Your Honor. My name is Nathan Park. I am here on behalf of travelers.

[00:15:52] Speaker 00:
I will be brief, and I will only make just a handful of points, and I will be happy to answer any questions that Your Honors may have.

[00:16:02] Speaker 00:
First point I would raise is the fact that I just want to address Mr. Smith's point that Ms. Kessler has been forthright during the bankruptcy process.

[00:16:13] Speaker 00:
I apologize.

[00:16:15] Speaker 00:
I want to address the point by Mr. Smith that Ms. Kessler has been forthright during the bankruptcy process. I just want to point out the fact that the record makes it rather clear that travelers, after getting the judgment, conducted post-judgment discovery by sending subpoenas to financial institutions, and the information that travelers receive established a pattern of fraud of concealing assets.

[00:16:42] Speaker 00:
such that travelers filed a verified complaint alleging fraudulent transfer.

[00:16:48] Speaker 00:
Shortly after that complaint was filed and served, that's when Ms. Kessler filed for bankruptcy and then also claimed for the homestead exemption. So whatever admission that Ms. Kessler made in bankruptcy was bounded by the fact that she was facing a fraudulent transfer action that is verified and supported by supported by business records and other records from the financial institutions.

[00:17:16] Speaker 00:
The second point I would make is this.

[00:17:21] Speaker 00:
In this appeal, Ms. Kessler seems to be making the argument that all of this was a legitimate exemption planning pre-bankruptcy. That narrative was not presented before the bankruptcy court. As your honors have noted, the multiple rounds of briefing that took place at the bankruptcy court was entirely centered around whether or not it is true that Ms. Kessler bought this Aldea property, then used that money to tax home property. There was never this narrative of fact that this was legitimate exemption planning was never before Judge Kaufman.

[00:17:58] Speaker 00:
So it's not even so much that there were two plausible and factual narratives and Judge Kaufman chose one.

[00:18:05] Speaker 00:
the argument by Ms. Kessler is that Judge Kaufman erred by choosing, by not considering a factual narrative that was not even presented to her. And I believe that that just cannot stand in the clearly erroneous standard. Two more small points.

[00:18:25] Speaker 04:
Mr. Park, I guess on that point, the bankruptcy court relied on California law as to the badges of fraud in terms of deciding whether the there was clear error or not.

[00:18:39] Speaker 04:
Are we compelled to use that lens, or can we bottom this just on the ultimate finding that there was intent? In other words, I'm not sure whether or not state law, it may be helpful, but I'm not sure whether it was required here. What's your take on that?

[00:18:55] Speaker 00:
Yes, Your Honor. The standard for bankruptcy court in assessing whether or not there is a homestead exemption is sufficient facts, and the badges of fraud gives guidance as to whether or not those facts are sufficient. So my understanding of the law is that it is a guiding principle.

[00:19:18] Speaker 00:
So two small points, and I will be finished, and I'll be happy to answer questions. There were a few evidentiary objections that were raised by Ms. Kessler about, for example, the internal memorandum received received from Morgan Stanley that travelers received as part of the post-judgment discovery. That evidence, Your Honor, was admitted in bankruptcy without objection.

[00:19:47] Speaker 00:
It was not preserved for this appeal, which means that it is to be assessed under plain error. And that piece of evidence, Your Honor, is business record that Morgan Stanley kept in its ordinary course of business. It is also a party admission to adverse interest because the declarant in that memorandum is Ms. Kessler herself. And the final point is I believe Mr. Smith just made that argument in his oral argument as well as several times in his brief that when there are two competing factual narratives, the court is compelled to lean to the side of honesty that I don't believe is a correct statement of the law.

[00:20:32] Speaker 00:
It is based on a Second Circuit case called Kellison, and when you review the actual Kellison opinion, the opinion does not say anything of that sort. That is actually in the full quotation of that record, of that case at the Second Circuit, is that the appellant in that case made that argument as in there were two competing cases and there should be, the court should lean towards the explanation of honesty in the immediate Second Circuit language that follows that argument is, we disagree.

[00:21:06] Speaker 00:
That is not the holding.

[00:21:09] Speaker 00:
That concludes my own argument, Your Honor.

[00:21:11] Speaker 04:
I'd be happy to answer questions. Colleagues have any questions?

[00:21:15] Speaker 01:
No, thank you.

[00:21:16] Speaker 04:
All right. Thank you, Mr. Park. Thanks for joining us today.

[00:21:24] Speaker 02:
Thank you, Your Honor. Pooled was the word I was trying to find, and that's what Travis always called it, pooled money, which goes hand in hands with it being family money that she's using for a family purpose, because how much of her money was in the pool? And Mr. Park did just what has been done throughout this case. We had 30 subpoenas. We found a lot of evidence. Everyone reviewed the evidence. It was clear, tons of evidence. Yes, if you have a lot of evidence and lots of evidence, and it all supports you, then you win.

[00:22:02] Speaker 02:
But you can't just say that you have it. You have to describe it. No tracing at all. No saying that, no defalcation, she stole it. No, no, it never happened. They can't say it. No saying she gave it to a man with a Montenegrin name and he didn't get a fair amount back or there wasn't a good reason. Convoluted, they call it. Byzantine.

[00:22:28] Speaker 02:
sham. All their words, judge follows them, quotes Mr. Park, and yet never gets down to saying this was transferred and was put out of the reach of creditors. No money was ever, nothing was ever put out of the reach of creditors. And the way to tell actual fraud from that you'd have to have someone lying about who owned the money. She always said it was her money. It wasn't money. It was at the meeting.

[00:22:59] Speaker 02:
Oh, she admitted it was her money. No, she never denied it was her money.

[00:23:03] Speaker 04:
Thank you. Thank you, Mr. Smith. All right, the case is submitted.