Monday, August 25, 2014
Court Bars Use of Fugitive Disentitlement Doctrine to Dismiss Appeal From Bankruptcy Judge’s Order
By a MetNews Staff Writer
A woman who took more than $1.3 million in cash, diamond rings and gold bars and fled her husband’s creditors to France is still entitled to have her bankruptcy appeal heard in federal court, the Ninth U.S. Circuit Court of Appeals ruled Friday.
The fugitive disentitlement doctrine must be applied sparingly, Senior Judge A. Wallace Tashima wrote, outside the criminal context. Linda Mastro’s apparent flight to avoid being prosecuted for misappropriating assets in a bankruptcy case to which she was a nonparty should not bar her appeal from a bankruptcy judge’s order that she return those assets to her husband’s bankruptcy estate under fraudulent conveyance principles, the judge concluded.
Mastro is the wife of Michael Mastro, once a high-flying real estate investor but a bankrupt since the market tanked and creditors came after his highly leveraged holdings. He told the bankruptcy court he had no assets at the time of his 2011 filing, but a judge found his wife liable for fraudulent transfers of estate assets in an attempt to defraud her husband’s creditors, ordering her to turn over two diamond rings, gold bars and cash worth a total of nearly $1.4 million.
She went missing after she appealed the order, and was later found living in France with her husband. She has declared her intention not to return to the United States, and a French appellate court rejected efforts to extradite the couple, who have been indicted for bankruptcy fraud and money laundering.
Senior U.S. District Judge Barbara Rothstein of the Western District of Washington cited Linda Mastro’s flight in dismissing her bankruptcy appeal. Finding that her “blatant disregard for the authority of the judicial system renders her ineligible to pursue an appeal,” the judge said the fugitive disentitlement doctrine applied.
Tashima, however, said the dismissal was an abuse of discretion under Degen v. United States, 517 U.S. 820 (1996), in which the high court overturned the use of the doctrine to dismiss a civil forfeiture appeal while the defendant was evading a factually related criminal prosecution.
“Degen thus stands for the proposition that the fugitive disentitlement doctrine should be narrowly applied and subject to significant scrutiny outside of the direct criminal appeal context,” the judge wrote. “Degen makes clear that fugitive disentitlement is an exceptionally ‘harsh sanction,’ to be disfavored whenever its application is not a matter of ‘necessity.’”
In Mastro’s case, the district judge dismissed the civil bankruptcy appeal due to the appellant’s “blatant disregard for the authority of the judicial system,” Tashima explained. “But disregard for the authority of a different court does not constitute a ‘necessity’ capable of ‘justify[ing] the rule of disentitlement in this case,” he said.
The case was sent back to the district court to address the merits of the appeal, as the panel rejected the trustee’s argument that it consider the merits.
The case is Mastro v. Rigby, 13-35209.
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