The Ninth Circuit Court of Appeals recently ruled in a bankruptcy case that almost literally involves international intrigue. The bankruptcy court ordered the debtor’s wife to turn over a substantial amount of assets, based on the Chapter 7 trustee’s adversary proceeding alleging fraudulent transfers of bankruptcy estate property. This led to a criminal indictment and an attempt to extradite the wife from France, where she had allegedly fled with her husband. The district court dismissed the wife’s appeal of the bankruptcy court’s order under the “fugitive disentitlement doctrine.” The Ninth Circuit reversed the district court’s dismissal and remanded the case for further proceedings on the first appeal. Mastro v. Rigby, No. 13-35209, slip op. (9th Cir., Aug. 22, 2014).
The Chapter 7 trustee brought an adversary proceeding against the debtor’s wife, alleging that she had transferred assets of the bankruptcy estate with the intent to defraud creditors. 11 U.S.C. §§ 544, 548. The bankruptcy court conducted a trial and found that the debtor and his wife had fraudulently shielded assets with “an increasingly elaborate series of transactions.” Mastro, slip op. at 4; In re Mastro, 465 B.R. 576 (Bankr. W.D. Wash. 2011). It ordered the wife to turn over specific pieces of personal property, including jewelry, gold bars, and cash totaling nearly $1.4 million.
The wife filed an appeal with the district court, but she “went missing” around the same time. Mastro, slip op. at 4. Authorities located her and the debtor in France, where they said they intended to stay. The wife was indicted on criminal bankruptcy charges in connection with the bankruptcy court’s order, but French courts have denied extradition requests by U.S. prosecutors. Continue reading