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Christopher J. Conant, Cal. Bar No. 244597

CONANT LAW LLC
950 17th Street, Suite 1700
Denver, CO 80202
Tel: (303) 298-1800
Fax: (303) 298-1804
cconant@conantlawyers.com

Attorney for Plaintiff Michael J. Flynn

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UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

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LOS ANGELES DIVISION

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In re:

CASE NO. 2:10-bk-18510 bb

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Chapter 7

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DENNIS LEE MONTGOMERY, and

BRENDA KATHLEEN
MONTGOMERY,

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Debtors

Adversary No. 2:10-AP-01305 BB

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MICHAEL J. FLYNN, an individual,

Plaintiff,

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v.
DENNIS MONTGOMERY,
BRENDA MONTGOMERY,
Defendants.

MEMORANDUM OF POINTS AND

AUTHORITIES IN SUPPORT OF MOTION
FOR SUMMARY JUDGMENT OR, IN THE
ALTERNATIVE, FOR PARTIAL
ADJUDICATION
Hearing Information:
Date:
August 9, 2011
Time:
2:00 p.m.
Location: Crtm. 1475
255 E. Temple Street
Los Angeles, California

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TABLE OF CONTENTS

Page

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INTRODUCTION ................................................................................................................... 1

2.

STANDARD FOR GRANTING MOTION FOR SUMMARY JUDGMENT

OR PARTIAL ADJUDICATION ............................................................................................ 1

3.

ARGUMENT ........................................................................................................................... 3

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A.

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Plaintiff Is Entitled to Summary Judgment Denying the Defendants'

Discharge Under 11 U.S.C. 727(a)(5) ..................................................................... 3
(1)
(2)

(a)

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B.

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Plaintiff Satisfied His Burden of Demonstrating a Loss of

Substantial Assets ................................................................................. 5
(b) Debtors Have Failed Entirely to Provide a Satisfactory
Explanation for the Loss of Their Technology Worth
Hundreds of Millions of Dollars ........................................................... 6
Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C. 727(a)(2)
Because Defendants Are Concealing Assets of the Estate ......................................... 8

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(1)

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(2)

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C.

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Statement of Relevant Facts to Plaintiff's Claim Under

11 U.S.C. 727(a)(2) ........................................................................................ 8
Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C.
727(a)(2) Based on the Undisputed Facts Recited Above ............................. 9

Plaintiff Is Entitled to Summary Adjudication that the $204,411

Judgment Against Defendant Dennis Montgomery Is Non-Dischargeable
Under 11 U.S.C. 523(a)(6) .................................................................................... 12
(1)
(2)

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Statement of Relevant Facts to Plaintiff's 11 U.S.C. 727(a)(5) Claim .......... 3

Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C. 727(a)(5) ........ 4

4.

Facts Relevant to Plaintiff's Claim Under 11 U.S.C. 523(a)(6) ................... 12

Plaintiff Is Entitled to Partial Summary Adjudication Under
11 U.S.C. 523(a)(6) Based On the Undisputed Facts .................................. 12
(3) The Sanctions Order Is Entitled to Collateral Estoppel Treatment ................. 13
(a) The Issues Plaintiff Seeks to Preclude Were Actually
Litigated in the Nevada Litigation ...................................................... 14
(b) The Issues Plaintiff Seeks to Preclude Are the Same as
Those in the Nevada Litigation ........................................................... 15
(c) The Findings in the Sanctions Order Were Essential
to Imposing Sanctions Against Mr. Montgomery and
the Final Judgment Related Thereto ................................................... 17
(d) The Sanctions Order Is a Final Order ................................................. 18
CONCLUSION ...................................................................................................................... 19

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TABLE OF AUTHORITIES

Page(s)

Cases

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................. 2

Baxter v. Palmigiano, 425 U.S. 308 (1976) ................................................................................ 10
Cambridge Electronics Corp. v. MGA Electronics, Inc., 227 F.R.D. 313 (C.D. Cal.
2004) ....................................................................................................................................... 7
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ............................................................................. 2
Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795 (1999) ...................................................... 10
Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258 (9th Cir. 2000) ........................................ 11

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10
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Fink v. Gomez, 239 F.3d 989 (9th Cir. 2001) ............................................................................. 17

Grogan v. Garner, 498 U.S. 279 (1991) ..................................................................................... 13
Grzybowski v. Aquaslide "N" Dive Corp, 85 B.R. 545 (9th Cir. BAP 1987) ............................... 2
Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1117 (9th Cir. 2009)............................... 2
Hughes v. Arnold, 393 B.R. 712 (E.D. Cal. 2008) .......................................................... 13, 16, 17
In re Aoki, 323 B.R. 803 (1st Cir. BAP 2005) .............................................................................. 5
In re Bailey, 145 B.R. 919 (Bank. N.D. Ill. 1992) ........................................................................ 6
In re Cady, 266 B.R. 172 (9th Cir. BAP 2001) ........................................................................... 13
In re Chalik, 748 F.2d 616 (5th Cir. 1984) ................................................................................... 6
In re Daily, 47 F.3d 365 (9th Cir. 1995) ..................................................................................... 14
In re Docteroff, 133 F.3d 210 (3rd Cir. 1997) ............................................................................ 13
In re Elder, 262 B.R. 799 (C.D. Cal. 2001) ................................................................................ 13
In re Hansen, 368 B.R. 868 (9th Cir. BAP 2007) ......................................................................... 9
In re Lawrence, 227 B.R. 907 (Bankr. S.D. Fla. 1998) ............................................................ 7, 8
In re Morris, 302 B.R. 728 (N.D. Okla. 2003) ......................................................................... 5, 6
In re National Audit Defense Network, 367 B.R. 207 (Bankr. D. Nev. 2007)............................ 10
In re Ormsby, 591 F.3d 1199 (9th Cir. 2010) ................................................................. 12, 15, 16
In re Paine, 283 B.R. 33 (9th Cir. BAP 2002) ............................................................................ 13
In re Park, 2008 WL 2513735 at *3 (Bankr. C.D. Cal. 2008)............................................. passim
In re Suarez, 400 B.R. 732 (9th Cir. BAP 2009) ............................................................ 13, 16, 17
In re Thompson, 2009 WL 7751298 at *5 (9th Cir. BAP 2009)............................................... 4, 6
In re Uwaydah, 2008 WL 8462949 at *4 (9th Cir. BAP 2008) .................................................. 13
In re Van Damme, 2009 WL 3756491 at *6 (Bankr. N.D. Cal. 2009) ....................................... 18
In re Yates, 2009 WL 6699680 at *14 (Bankr. S.D. Cal. 2009) ................................................. 11
In re Zelis, 66 F.3d 205 (9th Cir. 1995) .......................................................................... 13, 16, 17
Kaiser Cement Corp. v. Fishback & Moore, Inc., 793 F.2d 1100 (9th Cir. 1986) ....................... 2
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TABLE OF AUTHORITIES (cont.)

Page(s)

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Kennedy v. Allied Mutual Ins. Co., 952 F.2d 262 (9th Cir. 1991) .............................................. 11
Leon v. IDX Systems Corp., 464 F.3d 951 (9th Cir. 2006) ......................................................... 17
Luben Industries, Inc. v. U.S., 707 F.2d 1037 (9th Cir. 1983) .................................................... 18
Matter of D'Agnese, 86 F.3d 732 (7th Cir. 1996) ......................................................................... 7
Matter of Walton, 103 B.R. 151 (Bankr. S.D. Ohio 1989) ................................................... 4, 5, 8
Nationwide Life Ins. Co., v. Richards, 541 F.3d 903 (9th Cir. 2008) ......................................... 11
Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099 (9th
Cir. 2000) ................................................................................................................................ 2

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Parsons v. United States, 360 F.Supp.2d 1083 (E.D. Cal. 2004) ............................................... 10
Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980)................................................................ 17
Russell v. C. I. R., 678 F.2d 782 (9th Cir. 1982) ......................................................................... 18
S.E.C. v. Benson, 657 F.Supp. 1122 (S.D.N.Y. 1987) ................................................................ 10
S.E.C. v. Colello, 139 F.3d 674 (9th Cir. 1998) .................................................................... 10, 11
T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n., 809 F.2d 626 (9th Cir.
1987) ....................................................................................................................................... 2
United States v. One Parcel of Real Property, 780 F.Supp. 715 (D. Or. 1991) ......................... 10
United States v. Solano-Godines, 120 F.3d 957 (9th Cir. 1997)................................................. 10
Wehling v. Columbia Broadcasting System, 608 F.2d 1084 (5th Cir. 1979) .............................. 10
Westlands Water Dist. v. U.S. Dept. of Interior, Bureau of Reclamation, 850
F.Supp. 1388 (E.D. Cal. 1994) .............................................................................................. 18

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Other Authorities

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Restatement (Second) of Judgments 27 ................................................................................... 14

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Rules

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Federal Rule of Appellate Procedure 4 ........................................................................... 12, 15, 18

Federal Rule of Bankruptcy Procedure 7056 ................................................................................ 1
Federal Rule of Civil Procedure 37 ............................................................................................... 7
Federal Rule of Civil Procedure 56 ..................................................................................... 1, 2, 14

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Statutes

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11 U.S.C. 523 .................................................................................................................... passim

11 U.S.C. 526 ........................................................................................................................... 15
11 U.S.C. 727 .................................................................................................................... passim
28 U.S.C. 1291 ......................................................................................................................... 18
28 U.S.C. 1927 ......................................................................................................................... 14

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MEMORANDUM OF POINTS AND AUTHORITIES

1.

INTRODUCTION
Plaintiff Michael J. Flynn moves this Court to grant summary judgment in his favor and

deny the Debtors' discharge under 11 U.S.C. 727(a)(2) or (5). If the Court does not deny

Debtors a discharge under 727(a), Plaintiff asks the Court to grant partial summary adjudication

in his favor pursuant to 11 U.S.C. 523(a)(6).

Under 11 U.S.C. 727(a)(5), Plaintiff asks this Court to deny Debtors a discharge because

the undisputed evidence demonstrates they have woefully failed to explain a loss of or account for

"hundreds of millions of dollars" worth of software technology of which Debtor Dennis

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Montgomery declared under penalty of perjury in October 2006 that he was the sole and

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exclusive owner.

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Under 11 U.S.C. 727(a)(2), Plaintiff asks this Court to deny Debtors a discharge

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because, based on independent evidence and Debtor Dennis Montgomery's invocation of his Fifth

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Amendment privilege, it is apparent that Mr. Montgomery is currently concealing from his

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bankruptcy estate and attempting to sell the same software technology worth "hundreds of

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millions of dollars" for which he is required but unwilling to account. 11 U.S.C. 727(a)(5).

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Should the Court not summarily deny Debtors a discharge under 727, Plaintiff

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alternatively requests the Court find Mr. Montgomery's debt to Plaintiff in the amount of

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$204,411 be non-dischargeable under 11 U.S.C. 523(a)(6). This debt of $204,411 arises from

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sanctions imposed against Mr. Montgomery by the U.S. District Court for the District of Nevada

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after finding Mr. Montgomery committed perjury and engaged in bad faith, vexatious, malicious,

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and contemptuous litigation conduct against Plaintiff.

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2.

STANDARD FOR GRANTING MOTION FOR SUMMARY JUDGMENT OR

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PARTIAL ADJUDICATION

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Federal Rule of Bankruptcy Procedure 7056 incorporates the standards set forth in Federal

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Rule of Civil Procedure 56 when a party moves for summary judgment in an adversarial

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proceeding. Summary judgment under F.R.C.P. 56 is proper "if the pleadings, the discovery and

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disclosure, materials on file, and any affidavits show that there is no genuine issue as to any
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material fact and that the movant is entitled to judgment as a matter of law." F.R.C.P. 56(c);

Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1117 (9th Cir. 2009). Further, the manner

in which this burden is established depends on which party has the burden on a particular claim or

defense at the time of trial.

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If the moving party will bear the burden of persuasion at trial, that
party must support its motion with credible evidence - using any of
the materials specified in Rule 56(c) - that would entitle it to a
directed verdict if not controverted at trial. Such an affirmative
showing shifts the burden of production to the party opposing the
motion and requires that party either to produce evidentiary
materials that demonstrate the existence of a "genuine issue" for
trial or to submit an affidavit requesting additional time for
discovery. If the burden of persuasion at trial would be on the nonmoving party, the party moving for summary judgment may satisfy
Rule 56's burden of production in either of two ways. First, the
moving party may submit affirmative evidence that negates an
essential element of the nonmoving party's claim. Second, the
moving party may demonstrate to the Court that the nonmoving
party's evidence is insufficient to establish an essential element of
the nonmoving party's claim.

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Celotex Corp. v. Catrett, 477 U.S. 317, 330-334 (1986); see also Nissan Fire & Marine Ins. Co.,

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Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102-1106 (9th Cir. 2000).

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When seeking summary judgment, the moving party must initially identify those portions

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of the record for the court which it believes establishes an absence of material fact. T.W. Elec.

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Serv., Inc. v. Pacific Elec. Contractors Ass'n., 809 F.2d 626, 630 (9th Cir. 1987). If the moving

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party adequately carries its burden, the party opposing summary judgment must then "set forth

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specific facts showing that there is a genuine issue for trial." Kaiser Cement Corp. v. Fishback &

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Moore, Inc., 793 F.2d 1100, 1103-1104 (9th Cir. 1986); F.R.C.P. 56(e). Further, to demonstrate

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that a genuine issue for trial exists, the objector must produce affidavits which are based on

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personal knowledge, and the facts set forth therein must be admissible into evidence. Grzybowski

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v. Aquaslide "N" Dive Corp. (In re Aquaslide "N" Dive Corp.), 85 B.R. 545, 547 (9th Cir. BAP

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1987). The opponent cannot assert the "mere existence of some alleged factual dispute between

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the parties." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248 (1986).

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Plaintiff Is Entitled to Summary Judgment Denying the Defendants'

Discharge Under 11 U.S.C. 727(a)(5)
(1)

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ARGUMENT
A.

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Statement of Relevant Facts to Plaintiff's 11 U.S.C. 727(a)(5) Claim

On October 30, 2006, Debtor Dennis Montgomery declared under penalty of perjury in a

Declaration filed in the United States District Court for the District of Nevada that he was the

owner of certain software technology that had a "value in excess of Five Hundred Million

Dollars." Declaration filed at Docket No. 228, Case No. 06-56, U.S. District Court for the

District of Nevada (hereinafter "Declaration") at p. 10:8, Statement of Uncontroverted Fact

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("SUF") 1. Mr. Montgomery referred to this technology as his "ODS" technology, which stands

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for "Object Detection System." SUF 2. Mr. Montgomery states repeatedly in his Declaration that

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this technology was owned and developed exclusively by him. SUF 3. Mr. Montgomery's ODS

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technology is also referred to by him as his "decoding software" or "decoding technology."

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SUF 4.

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Beginning in November 2002, Mr. Montgomery began adapting his ODS technology for

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"military applications on behalf of the Department of Defense, the Navy, the Air Force, and the

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[REDACTED IN ORIGINAL] mostly utilized in the war on terror between March 2003 and the

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present." SUF 5. Mr. Montgomery stated that if anyone else had access to his technology they

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would have "licensed and/or sold it to the Government for hundreds of millions of dollars."

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SUF 6.

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Notwithstanding the fact that in October 2006 Mr. Montgomery testified his ODS

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technology had a valuation in excess of $500 million, when asked at his deposition where his

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ODS or decoding technology was currently located, he simply said, "I don't recall." SUF 7.

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When asked again if his "decoding software" ever existed, he said "yes"; but when asked if it

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currently exists, he simply said, "I don't recall." SUFs 8, 9. Similarly, when Mr. Montgomery

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was asked to describe what his ODS source codes are, as referenced in his Declaration as worth

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"hundreds of millions of dollars," he again claimed ignorance. SUF 10.

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When asked if his "decoding software" that he valued at "hundreds of millions of dollars"
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was listed in his bankruptcy schedules, Mr. Montgomery stated, "I don't know." SUF 11.

As made clear by Mr. Montgomery's own sworn testimony, in 2006 he owned software

technology that was worth "hundreds of millions" to in excess of five hundred million dollars.

Yet, when he was called upon to presently account for those assets, he was woefully unable to do

so.

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(2)

Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C.

727(a)(5)

Under 11 U.S.C. 727(a)(5), a debtor's discharge will be denied if "the debtor has failed
to explain satisfactorily, before determination of denial of discharge under this paragraph, any
loss of assets or deficiency or assets to meet the debtor's liabilities."
"The Plaintiff in a case based on 11 U.S.C. 727(a)(5) has the initial burden of proving

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that an objection to discharge is appropriate based upon showing that the Debtors had an interest

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in a specific property that is no longer available to creditors as of the date of the petition. But this

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is a shifting burden. Once the [plaintiff's] initial burden is satisfied, then the burden shifts to the

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Debtors to satisfactorily explain the losses or deficiencies. Explanations of losses that are

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generalized, vague and uncorroborated by documentation are unsatisfactory." In re Park, 2008

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WL 2513735 at *3 (Bankr. C.D. Cal. 2008) (internal citations omitted).

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There is no intent requirement under 727(a)(5). Matter of Walton, 103 B.R. 151, 155
(Bankr. S.D. Ohio 1989) (citing Collier of Bankruptcy); In re Park, 2008 WL 2513735 at *3.
"'Section 727(a)(5) is broadly drawn and gives the bankruptcy court broad power to

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decline to grant a discharge in bankruptcy when the debtor does not adequately explain a

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shortage, loss, or disappearance of assets.'" In re Thompson, 2009 WL 7751298 at *5 (9th Cir.

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BAP 2009) (citing Aoki v. Atto Corp. (In re Aoki), 323 B.R. 803, 817 (1st Cir. BAP 2005).

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"For the bankruptcy system to maintain any credibility, discharge must be reserved for

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those honest debtors who can explain their situation and provide some reasonable accounting of

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their losses. Creditors have the right to know that resources that might pay some dividend are not

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stashed somewhere beyond their reach. It is not necessary that Plaintiff establish any intent. It is

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sufficient if Plaintiff only establishes the unexplained deficiency of assets and then it is up to the
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Debtor to establish what happened. The law does not, however, allow Debtors to claim all is lost

and not provide at least some explanation of where it all went." In re Park, 2008 WL 2513735 at

*3 (Bankr. C.D. Cal. 2008) (internal citations omitted).

A mere "shrug of the shoulders" by a debtor in explaining what happened "is wholly

insufficient." Id. "The explanation must convince the court of the debtor's good faith and

businesslike conduct. Explanations consisting of mere generalities and founded upon nothing by

way of verification or affirmation in books, records or otherwise is not satisfactory." Matter of

Walton, 103 B.R. at 155. Notably, as a matter of law, a debtor cannot give an "I don't know"

answer in response to the status of his or her pre-bankruptcy assets and "expect to obtain a

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discharge." In re Morris, 302 B.R. 728, 743 (N.D. Okla. 2003).

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"I don't know" is the only answer provided by Mr. Montgomery when ask what happened

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to his hundreds of millions of dollars worth of software technology that he owned (or as far as we

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know, still owns but is concealing). Thus, denial of the Debtors' discharge under 11 U.S.C.

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727(a)(5) is warranted.

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(a)

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Plaintiff Satisfied His Burden of Demonstrating a Loss of

Substantial Assets

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Under 727(a)(5), "[t]he plaintiff has the initial burden of producing some evidence that

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the debtor no longer has assets which he previously owned." In re Aoki, 323 B.R. 803, 817 (1st

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Cir. BAP 2005). The evidence that the Debtors no longer have these assets they purportedly

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previously owned is straightforward. Plaintiff has established that Mr. Montgomery previously

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owned software technology Mr. Montgomery valued to be worth "hundreds of millions" to in

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excess of five hundred million dollars. SUFs 1-6. Yet, when Plaintiff asked Mr. Montgomery if

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these assets worth hundreds of millions of dollars were identified on the Debtors' bankruptcy

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schedules, Mr. Montgomery simply "shrugged his shoulders" and said he did not know. SUF 11.

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When asked where his technology worth hundreds of millions of dollars was currently located,

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Mr. Montgomery simply said, "I don't recall." SUF 7. When asked again if his "decoding

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software" ever existed, he said "yes"; but when asked if it currently exists, he simply said, "I don't

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recall."1 SUFs 8, 9. When Mr. Montgomery was asked to describe his software technology he

claimed to be worth hundreds of millions of dollars, he said "I dont recall specifically." SUF 10.

Thus, based on Mr. Montgomery's own sworn statements, Plaintiff has demonstrated that

the Debtors' "hundreds of millions of dollars" worth of technology assets are unaccounted for.

Accordingly, Plaintiff has satisfied his burden of showing the Debtors' loss of assets. In re

Bailey, 145 B.R. 919, 925 (Bank. N.D. Ill. 1992) ("The creditor has the initial burden of

identifying the assets in question by showing that the debtor at one time had the assets but they

are no longer available for the debtor's creditors.").

(b)

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Debtors Have Failed Entirely to Provide a Satisfactory

Explanation for the Loss of Their Technology Worth Hundreds
of Millions of Dollars

"[O]nce the creditor has shown by a preponderance of the evidence the disappearance of

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substantial assets, the burden shifts to the debtor to explain satisfactorily the losses or

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deficiencies." In re Bailey, 145 B.R. 919, 925 (Bank. N.D. Ill. 1992); In re Park, 2008 WL

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2513735 at *3.

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"Although the explanation does not need to be comprehensive, it must meet two criteria in

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order to be deemed satisfactory. First, it must be supported by at least some documentation.

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Second, this documentation must be sufficient to eliminate the need for the Court to speculate as

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to what happened to all the assets." In re Morris, 302 B.R. 728, 742 (Bankr. N.D. Okla. 2003)

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(citing Stathopoulos v. Bostrom (In re Bostrom), 286 B.R. 352, 364-65 (Bankr. N.D. Ill. 2002)).

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It is rather universal that under 727(a)(5), "[e]xplanations of losses that are generalized,

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vague and uncorroborated by documentation are unsatisfactory." In re Park, 2008 WL 2513735

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at *3; In re Thompson, 2009 WL 7751298 at *5; In re Chalik, 748 F.2d 616, 619 (5th Cir. 1984)

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("Vague and indefinite explanations of losses that are based upon estimates uncorroborated by

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documentation are unsatisfactory"); In re Morris, 302 B.R. at 742; Matter of D'Agnese, 86 F.3d

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Although put in better context below, "I don't recall" or claiming ignorance is Mr.
Montgomery's evasive answers of choice when he is under oath and asked a question, a truthful
response to which will either prove that he has perjured himself in prior testimony, or which will
be incredibly detrimental to him. The U.S. District Court for the District of Nevada specifically
found that Mr. Montgomery committed perjury based, in large part, on his "I don't recall," "I don't
know" answers when he was cross-examined at an evidentiary hearing about sworn statements
that Mr. Montgomery previously made in a declaration. See SUF 48.
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732, 734 (7th Cir. 1996) ("Under 727(a)(5), a satisfactory explanation 'must consist of more

than ... vague, indefinite, and uncorroborated' assertions by the debtor.").

As discussed above, Plaintiff identified Debtors' software technology as significant assets

they at one time owned and possessed. However, when asked at his deposition on November 18,

2010 where those software assets were currently located, what they are, or if they were even on

the Debtors' schedules, Mr. Montgomery simply "shrugged his shoulders" and claimed ignorance.

Since November 18, 2010, when Plaintiff identified these assets and apparent loss thereof,

Debtors have failed entirely under their "shifting burden" obligations (In re Park, 2008 WL

2513735 at *3) to explain in any manner what happened to their software technology Mr.

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Montgomery valued at "hundreds of millions of dollars." SUF 12. Debtors have therefore failed

11

entirely to satisfy their "shifting burden" requirements under 11 U.S.C. 727(a)(5).

12

The Court should note that the discovery cut-off in this case was May 31, 2011. See

13

Scheduling Order at Docket No. 76. However, since Mr. Montgomery's November 18, 2010

14

deposition, Debtors have not sought to provide any documentation to "satisfactorily explain" their

15

loss of "hundreds of millions" of software technology pursuant to their "shifting burden"

16

obligations. SUF 12. Thus, pursuant to the mandatory exclusionary rule of Federal Rule of Civil

17

Procedure 37(c), it is simply too late for the Debtors to now cure (if they even could) their failure

18

to satisfactorily explain what happened to their "hundreds of millions of dollars" worth of

19

software technology. Cambridge Electronics Corp. v. MGA Electronics, Inc., 227 F.R.D. 313,

20

321 (C.D. Cal. 2004) (the exclusionary provision of Rule 37(c) is mandatory). In any event, even

21

if they could presently cure their inability to satisfactorily explain the loss of their software

22

technology, they should nevertheless be denied a discharge because a 727 discharge is reserved

23

for the "honest but unfortunate debtor." In re Park, 2008 WL 2513735 at *3. It is not reserved

24

for the dishonest debtor who plays "hide the ball" and "catch me if you can" with his creditors and

25

forces his creditors to take the debtor to trial to coerce the debtor to explain what happened to his

26

assets, particularly assets worth "hundreds of millions of dollars." In re Lawrence, 227 B.R. 907,

27

917 (Bankr. S.D. Fla. 1998). The Bankruptcy Code would cease to be credible if debtors could

28

get away with such conduct. In re Park, 2008 WL 2513735 at *3.

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Accordingly, Debtors' discharge must be denied. To allow the Debtors a discharge

despite their lack of any explanation of where their hundreds of millions of dollars worth of

software technology is currently located or what happened to it would reward and encourage

dishonest debtors who seek the benefits of the Bankruptcy Code yet engage in the "catch me if

you can," "hide the ball" behavior that 727(a)(5) is meant to prevent. In re Lawrence, 227 B.R.

907, 917 (Bankr. S.D. Fla. 1998); Matter of Walton, 103 B.R. at 156 ("Neither the trustee nor the

creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the

glare of daylight.") (quoting In re Tully, 818 F.2d 106, 110 (1st Cir. 1987); In re Park, 2008 WL

2513735 at *3 ("For the bankruptcy system to maintain any credibility, discharge must be

10

reserved for those honest debtors who can explain their situation and provide some reasonable

11

accounting of their losses. Creditors have the right to know that resources that might pay some

12

dividend are not stashed somewhere beyond their reach.").

13
14
15
16

B.

Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C. 727(a)(2)

Because Defendants Are Concealing Assets of the Estate
(1)

Statement of Relevant Facts to Plaintiff's Claim Under 11 U.S.C.

727(a)(2)

In this adversary case, Plaintiff subpoenaed records from Peppermill Casinos, Inc.,

17

seeking "[a]ny and all casino records concerning Dennis Lee Montgomery ."). SUF 13. In

18

response, Plaintiff received a document displaying the casino's "customer remarks" about

19

Dennis L. Montgomery. SUFs 14, 15. In "customer remarks" dated February 16, 2010, the

20

casino indicates that "Dennis is in Europe meeting with companies that may be interested in

21

buying some of his software." SUF 16.

22

At Mr. Montgomery's November 18, 2010 deposition, Plaintiff asked Mr. Montgomery

23

specifically about this casino record and whether it was true that Mr. Montgomery was in Europe

24

trying to sell his "software" to companies there. SUF 17. In response, Mr. Montgomery asserted

25

his rights under the Fifth Amendment. SUF 18. Similarly, Plaintiff asked Mr. Montgomery if

26

this "software" he was trying to sell in Europe was listed in his bankruptcy schedules. SUF 19.

27

Again, Mr. Montgomery asserted his rights under the Fifth Amendment. SUF 20.

28

Plaintiff then went on to ask Mr. Montgomery if the "software" he was trying to sell in
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Europe was the same software Montgomery had previously testified to in his Declaration filed in

the U.S. District Court for the District of Nevada that he said was worth "hundreds of millions of

dollars." SUF 21. Again, Mr. Montgomery asserted his rights under the Fifth Amendment.

SUF 22.

In another notation in the casino's records entered on November 20, 2009 concerning Mr.

Montgomery, the casino notes that "Dennis is currently in Paris, signing contracts." SUF 23.

Plaintiff questioned Mr. Montgomery about what these "contracts" related to and whether it was

true he was in Paris to sign contracts. SUF 24. Predictably, Mr. Montgomery asserted his rights

under the Fifth Amendment to both questions. SUF 25. Most importantly, however, Plaintiff

10

asked Mr. Montgomery if these "contracts" related to property listed on the Debtors' bankruptcy

11

schedules. SUF 26. Mr. Montgomery answered by invoking his rights under the Fifth

12

Amendment. SUF 27.

13
14
15
16
17
18
19
20
21
22

(2)

Plaintiff Is Entitled to Summary Judgment Under 11 U.S.C.

727(a)(2) Based on the Undisputed Facts Recited Above

Under 11 U.S.C. 727(a)(2), a debtor's discharge shall be denied if he,

with intent to hinder, delay, or defraud a creditor or an officer of the
estate charged with custody of property under this title, has
transferred, removed, destroyed, mutilated, or concealed, or has
permitted to be transferred, removed, destroyed, mutilated, or
concealed
(A) property of the debtor, within one year before the date of the
filing of the petition; or
(B) property of the estate, after the date of the filing of the
petition[.]
"The party seeking denial of discharge under this subsection must prove, by a

23

preponderance of the evidence, '1) a disposition of property, such as transfer or concealment, and

24

2) a subjective intent on the debtor's part to hinder, delay or defraud a creditor through the act of

25

disposing of the property.'" In re Hansen, 368 B.R. 868, 876 (9th Cir. BAP 2007) (quoting In re

26

Beauchamp, 236 B.R. 727, 732 (9th Cir. BAP 1999).

27

Intent to hinder, delay, or defraud may be inferred from circumstantial evidence. Id.

28

Plaintiff is entitled to summary adjudication under 11 U.S.C. 727(a)(2) because independent

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evidence, coupled with the adverse inferences to be drawn from Mr. Montgomery's invocation of

the Fifth Amendment privilege against self-incrimination, demonstrates Mr. Montgomery is

concealing and transferring property of the estate.

A debtor may invoke his privilege against self-incrimination guaranteed by the Fifth

Amendment to the United States Constitution. See In re National Audit Defense Network, 367

B.R. 207, 216 (Bankr. D. Nev. 2007). However, if a debtor does so, "the trier of fact is equally

free to draw adverse inferences from their failure of proof. See Baxter v. Palmigiano, 425 U.S.

308, 318, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976); S.E.C. v. Colello, 139 F.3d 674, 677-78 (9th Cir.

1998); United States v. Solano-Godines, 120 F.3d 957, 962 (9th Cir. 1997) ("In civil proceedings,

10

however, the Fifth Amendment does not forbid fact finders from drawing adverse inferences

11

against a party who refuses to testify.")." Id.

12

"Indeed, a court is empowered to do more than simply draw adverse inferences; in

13

appropriate cases it may strike pleadings, bar evidence and even rule against a party based upon

14

that party's refusal to testify. See, e.g., Wehling v. Columbia Broadcasting System, 608 F.2d

15

1084, 1089 (5th Cir. 1979) (when invocation of privilege prejudices the other party, trial court

16

'would be free to fashion whatever remedy is required to prevent unfairness.'); Parsons v. United

17

States, 360 F.Supp.2d 1083 (E.D. Cal. 2004) (civil litigant's declaration offered in opposition to

18

summary judgment motion stricken when declarant had previously invoked Fifth Amendment in

19

deposition on same subject, even when declarant offered to be deposed again on the narrow

20

subject set forth in the declaration); United States v. One Parcel of Real Property, 780 F.Supp.

21

715, 722 (D. Or. 1991) (striking counterclaim and affirmative defense in their entirety because of

22

defendant's use of the privilege); S.E.C. v. Benson, 657 F.Supp. 1122, 1129 (S.D.N.Y. 1987)

23

(granting summary judgment against the silent party); In re National Audit Defense Network, 367

24

at 216.

25

"Similarly, where the Debtor takes different positions under penalty of perjury, the Court

26

is not required to believe that this time he is telling the truth. Merely presenting contradictory

27

declarations, with no satisfactory explanation for the inconsistency, does not create a genuine

28

issue of material fact. Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 806 (1999); Kennedy
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v. Allied Mutual Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991). And where the Debtor asserts his

Fifth Amendment rights in a civil matter, the Court is entitled to make an adverse inference

provided corroborating evidence exists ." In re Yates, 2009 WL 6699680 at *14 (Bankr. S.D.

Cal. 2009).

Accordingly, within the context of a motion for summary judgment, a court may draw an

adverse inference from a debtor's invocation of the privilege against self-incrimination so long as

the plaintiff introduces some independent evidence of the fact "to which the party refuses to

answer." Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1264 (9th Cir. 2000); S.E.C. v.

Colello, 139 F.3d 674, 677-78 (9th Cir. 1998) (summary judgment in favor of plaintiff

10

appropriate where defendant invokes the Fifth Amendment privilege). Importantly, when a

11

defendant invokes the Fifth Amendment at a deposition, the defendant generally cannot later

12

testify about the same subject matter at trial. Nationwide Life Ins. Co., v. Richards, 541 F.3d 903,

13

910 (9th Cir. 2008).

14

Here, Plaintiff asks this Court to draw an adverse inference against the Debtors to find that

15

because of Mr. Montgomery's invocation of the Fifth Amendment and independent evidence, Mr.

16

Montgomery is intentionally concealing his assets from the estate and has "stashed" them

17

somewhere beyond the reach of his creditors. In re Park, 2008 WL 2513735 at *3.

18

Based on Mr. Montgomery's invocation of the Fifth Amendment in response to

19

independent evidence indicating he has attempted to conceal and profit from his "software" which

20

should be property of his bankruptcy estate, Plaintiff asks this Court to draw an adverse inference

21

that Mr. Montgomery is intentionally concealing and selling property of the estate and that the

22

Debtors' discharge should be accordingly denied under 11 U.S.C. 727(a)(2). Indeed, that Mr.

23

Montgomery is concealing his assets from his estate and attempting to profit from his "hundreds

24

of millions of dollars" worth of pre-petition software technology is fairly obvious. When viewed

25

within the context of Mr. Montgomery's inability to "satisfactorily explain" the status of his

26

software technology, as he is required to do under 727(a)(5), coupled with his assertion of the

27

Fifth Amendment when presented with evidence indicating he attempted to sell that pre-petition

28

software technology asset that is properly property of his bankruptcy estate, it is apparent that Mr.
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Montgomery has engaged in a scheme to defraud his bankruptcy estate and his creditors in

violation of 11 U.S.C. 727(a)(2).

3
4

Plaintiff Is Entitled to Summary Adjudication that the $204,411 Judgment

Against Defendant Dennis Montgomery Is Non-Dischargeable Under 11
U.S.C. 523(a)(6)

(1)

C.

Facts Relevant to Plaintiff's Claim Under 11 U.S.C. 523(a)(6)

On March 13, 2009, Magistrate Judge Cooke of the U.S. District Court for the District of

Nevada entered an order imposing sanctions (hereinafter "Sanctions Order") against Dennis

Montgomery and the Montgomery Family Trust in the amount $204,411 for engaging in litigation

conduct against Plaintiff that was done in "bad faith, vexatiously, wantonly, and for oppressive

10
11

reasons" and was "motivated by vindictiveness and bad faith ." SUF 28.
On April 5, 2010, U.S. District Court Judge Pro of the U.S. District Court for the District

12

of Nevada considered Mr. Montgomery's Objections to the Sanctions Order. SUF 29. The

13

District Court overruled Mr. Montgomery's Objections. SUF 30.

14

Based on the District Court overruling Mr. Montgomery's Objections to the Sanctions

15

Order on July 8, 2010, the Sanctions Order was reduced to a judgment entered on the docket of

16

the U.S. District Court for the District of Nevada in the amount of $204,411 at a generous post-

17

judgment interest rate of 0.32%. SUF 31. Mr. Montgomery has not appealed the Sanctions Order

18

and the time to do so has expired under Federal Rule of Appellate Procedure 4(a). SUF 32.

19
20
21

(2)

Plaintiff Is Entitled to Partial Summary Adjudication Under 11 U.S.C.

523(a)(6) Based On the Undisputed Facts

Under 11 U.S.C. 523(a)(6), a debtor's debt is non-dischargeable as to a particular

22

creditor if that debt was incurred as a result of "willful and malicious injury by the debtor to

23

another entity ...." 11 U.S.C. 523(a)(6).

24

With respect to the malicious injury requirement, "[a] malicious injury involves (1) a

25

wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without

26

just cause or excuse." In re Ormsby, 591 F.3d 1199, 1207 (9th Cir. 2010) (quoting Petralia v.

27

Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001)).

28

In the Ninth Circuit, a pre-petition court order imposing sanctions against a debtor for
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engaging in abusive litigation conduct that was willful, malicious and done in bad faith is non-

dischargeable under 11 U.S.C. 523(a)(6). See In re Zelis, 66 F.3d 205, 208-209 (9th Cir. 1995);

In re Suarez, 400 B.R. 732, 737-741 (9th Cir. BAP 2009); Hughes v. Arnold, 393 B.R. 712, 718-

719 (E.D. Cal. 2008).

(3)

The Sanctions Order Is Entitled to Collateral Estoppel Treatment

Collateral estoppel applies in non-dischargeability actions. Grogan v. Garner, 498 U.S.

279, 284 n. 11 (1991); In re Paine, 283 B.R. 33, 39 (9th Cir. BAP 2002); In re Zelis, 66 F.3d 205,

210 (9th Cir. 1995) (collateral estoppel applied to non-dischargeable debt under 11 U.S.C.

523(a)(6)). Plaintiff asks this Court to give collateral estoppel effect to the Sanctions Order

10

which was entered by a federal court. Because the Sanctions Order was entered by a federal court,

11

federal principles of collateral estoppel apply. In re Uwaydah, 2008 WL 8462949 at *4 (9th Cir.

12

BAP 2008). Under the federal standard, four elements must be met for collateral estoppel to

13

apply:

14

(1) The issue sought to be precluded must be the same as that involved in the prior action;

15

(2) The issue must have been actually litigated;

16

(3) It must have been determined by a valid and final judgment; and

17

(4) The determination must have been essential to the final judgment.

18

In re Cady, 266 B.R. 172, 183 (9th Cir. BAP 2001).

19

"The party seeking to apply issue preclusion has the burden of proving that each element

20

is satisfied. To sustain this burden, a party must introduce a record sufficient to reveal the

21

controlling facts and the exact issues litigated in the prior action. Any reasonable doubt as to

22

what was decided in the prior action will weigh against applying issue preclusion." In re Elder,

23

262 B.R. 799, 806 (C.D. Cal. 2001) (internal citations omitted).

24

"Collateral estoppel is applicable if the facts established by the previous judgment meet

25

the requirements of nondischargeability listed in 11 U.S.C. 523 (a)(6) ." In re Docteroff,

26

133 F.3d 210, 215 (3rd Cir. 1997).

27
28
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Here, all elements of collateral estoppel are present relative to the Sanctions Order, and

therefore, this Court must give the Sanctions Order conclusive effect as to Plaintiff's claims under

11 U.S.C. 523(a)(6).

(a)

5
6

The Issues Plaintiff Seeks to Preclude Were Actually Litigated

in the Nevada Litigation

The "actually litigated" element of collateral estoppel is satisfied "when an issue is

properly raised, by the pleadings or otherwise, and is submitted for determination, and is

determined ." Restatement (Second) of Judgments 27, com. d; see also In re Daily, 47 F.3d

365, 368 (9th Cir. 1995) ("actually litigated" element satisfied where party against whom it is

10
11

being asserted actively participated in the prior litigation and on issues sought to be precluded).
It cannot be disputed that the issues resolved in the Sanctions Order were "actually

12

litigated." Plaintiff filed his motion seeking sanctions against Dennis Montgomery on April 24,

13

2008 under 28 U.S.C. 1927, and the court's inherent powers for vexatiously multiplying the

14

litigation against Plaintiff. SUF 33. Following that, Mr. Montgomery while represented by

15

counsel filed a slew of motions, oppositions, and declarations to defeat Plaintiff's sanctions

16

motion. SUF 34. The Magistrate Judge held a sealed evidentiary hearing on Plaintiff's sanctions

17

motion on August 21, 2008, where Mr. Montgomery testified. SUF 35. Following the

18

evidentiary hearing, the Magistrate Judge issued an order granting Plaintiff's motion for sanctions

19

and imposing sanctions against Dennis Montgomery in the amount of $204,411 for committing

20

perjury when he signed a September 10, 2007 declaration against Plaintiff and did so in "bad

21

faith, vexatiously, wantonly, and for oppressive reasons" and was "motivated by vindictiveness

22

and bad faith ." SUF 37.2

23
24
25
26
27
28

In his Statement of Undisputed Facts, Plaintiff is supporting the procedural history of the
litigation surrounding the Sanctions Order with references to the Sanctions Order, the District
Court Judge's Order overruling Mr. Montgomery's objections, the docket evidencing the filed
documents relating to the Sanctions Motion, and Mr. Montgomery's objections to the Sanctions
Motion. Plaintiff is not providing the filed documents relating to the Sanctions Motion or the
transcripts of the sealed hearing because the filed documents have been sealed by Court order,
and the hearing itself was sealed. SUF 36. If Debtors contest that the Sanctions Order was not
"actually litigated" and Plaintiff is forced to seek relief in the Nevada District Court to unseal the
transcripts and filed documents, then Plaintiff will need additional time to file his Reply brief and
will seek attorneys' fees and costs under Federal Rule of Civil Procedure 56(h) for the Debtors'
bad faith factual contentions that the Sanctions Order was not "actually litigated."
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The Magistrate Judge entered the Sanctions Order on March 31, 2009, but stayed its Order

until April 10, 2009 to allow Mr. Montgomery to file an objection to the District Court pursuant

to Local Rule of practice 3-1(a) of the U.S. District Court for the District of Nevada. SUF 38.

On May 11, 2009, Mr. Montgomery filed his objection to the Sanctions Order with the District

Court. SUF 39. On April 5, 2010, U.S. District Court Judge Pro of the U.S. District Court for the

District of Nevada considered Mr. Montgomery's Objections to the Sanctions Order under a

"clearly erroneous" and "contrary to law" standard of review. SUF 40. The District Court

overruled Mr. Montgomery's Objections. SUF 46. Based on the District Court overruling Mr.

Montgomery's Objections to the Sanctions Order, on July 8, 2010, the Sanctions Order was

10

reduced to a judgment entered on the docket of the U.S. District Court for the District of Nevada

11

in the amount of $204,411. SUF 31. Mr. Montgomery has not appealed the Sanctions Order

12

since being reduced to a judgment, and the time to do so has expired under Federal Rule of

13

Appellate Procedure 4(a). SUF 32.

14

Based on the above facts, it cannot be disputed that Mr. Montgomery "actually litigated"

15

the Sanctions Order. He was represented by counsel, he actively opposed the motion for

16

sanctions both before the Magistrate Judge and the District Court, and appeared to testify in his

17

defense at the sealed evidentiary hearing on the sanctions motion.

18

(b)

19
20

The Issues Plaintiff Seeks to Preclude Are the Same as Those in

the Nevada Litigation

The issues Plaintiff seeks to apply offensively under 11 U.S.C. 526(a)(6) against Mr.

21

Montgomery are identical to those that were litigated in Nevada. Under 11 U.S.C. 523(a)(6), a

22

debtor's debt is non-dischargeable as to a particular creditor if that debt was incurred as a result of

23

"willful and malicious injury by the debtor to another entity ...." 11 U.S.C. 523(a)(6). For

24

Section 523(a)(6) to apply, the actor must intend the consequences of the act, not simply the act

25

itself and both willfulness and maliciousness must be proven. In re Ormsby, 591 F.3d 1199, 1206

26

(9th Cir. 2010).

27
28

In the Ninth Circuit, " 523(a)(6)'s willful injury requirement is met only when the debtor
has a subjective motive to inflict injury or when the debtor believes that injury is substantially
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certain to result from his own conduct." Id. (quoting Carrillo v. Su (In re Su), 290 F.3d 1140,

1142 (9th Cir. 2002)). The Debtor is charged with the knowledge of the natural consequences of

his actions. Id.

With respect to the malicious injury requirement, "[a] malicious injury involves (1) a

wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without

just cause or excuse." Id. at 1207 (quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202,

1209 (9th Cir. 2001)).

8
9

Pre-petition court sanctions imposed against a debtor for engaging in bad faith, malicious
and vexatious litigation conduct against another is non-dischargeable under 11 U.S.C.

10

523(a)(6). See In re Zelis, 66 F.3d 205, 208-209 (9th Cir. 1995); In re Suarez, 400 B.R. 732,

11

737-741 (9th Cir. BAP 2009); Hughes v. Arnold, 393 B.R. 712, 718-719 (E.D. Cal. 2008).

12

Thus, if the Sanctions Order makes findings and conclusions that Mr. Montgomery's pre-

13

petition conduct toward Plaintiff was done out of vexatiousness, in bad faith, to oppress, etc., then

14

the element of identity of issues exists such that this Court must apply collateral estoppel to the

15

Sanctions Order. Here, the Sanctions Order satisfies the identity of issues requirement.

16

The Sanctions Order made extensive factual findings concerning the veracity of

17

statements made under oath by Mr. Montgomery in a declaration that he filed on September 7,

18

2007 in the U.S. District Court for the District of Nevada to oppose a motion for attorneys' fees

19

that Plaintiff had filed against Mr. Montgomery in that Court. SUF 41. The Magistrate Judge

20

concluded Mr. Montgomery had perjured himself in this September 7, 2007 declaration and did

21

so in "bad faith, vexatiously, wantonly, and for oppressive reasons" and was "motivated by

22

vindictiveness and bad faith ." SUF 42. The Magistrate Judge then went on to conclude after a

23

factual review, that Plaintiff's resulting injury for Mr. Montgomery's bad faith, vexatious and

24

vindictiveness conduct amounted to compensable harm in the amount of $204,411. SUF 43.

25

These findings and conclusions of the Magistrate Judge which were adopted by District

26

Court Judge Pro, of the U.S. District Court for the District of Nevada, finding Mr. Montgomery

27

acted in "bad faith, vexatiously, wantonly, and for oppressive reasons" and was "motivated by

28

vindictiveness and bad faith ." are identical to issues that make Mr. Montgomery's resulting
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debt to Plaintiff non-dischargeable under 11 U.S.C. 523(a)(6). Bad faith and vexatious

litigation conduct resulting in court-imposed sanctions are non-dischargeable under 11 U.S.C.

523(a)(6). See In re Zelis, 66 F.3d 205, 208-209 (9th Cir. 1995); In re Suarez, 400 B.R. 732,

737-741 (9th Cir. BAP 2009); Hughes v. Arnold, 393 B.R. 712, 718-719 (E.D. Cal. 2008). Such

is the case here, and therefore, this Court should apply collateral estoppel against Mr.

Montgomery accordingly.

(c)

8
9

The Findings in the Sanctions Order Were Essential to

Imposing Sanctions Against Mr. Montgomery and the Final
Judgment Related Thereto

For the Nevada federal court to have entered the Sanctions Order against Mr.

10

Montgomery, its findings that Mr. Montgomery acted in "bad faith, vexatiously, wantonly, and

11

for oppressive reasons" were essential. The Nevada federal court imposed sanctions against Mr.

12

Montgomery pursuant to its inherent powers. SUF 44.

13

"Under its 'inherent powers,' a district court may [] award sanctions in the form of

14

attorneys' fees against a party or counsel who acts 'in bad faith, vexatiously, wantonly, or for

15

oppressive reasons.'" Leon v. IDX Systems Corp., 464 F.3d 951, 961 (9th Cir. 2006) (quoting

16

Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997)). To impose

17

sanctions against a party pursuant to its inherent powers, a court "must make a specific finding of

18

bad faith or conduct tantamount to bad faith." Fink v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001);

19

see also Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980) (the federal courts' inherent

20

power to levy sanctions, including attorneys' fees, exists for "willful disobedience of a court order

21

... or when the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive

22

reasons....").

23

Here, the Nevada federal court was required to make findings that Mr. Montgomery acted

24

in bad faith to support its Sanctions Motion, which it did as described above. Its Sanctions Order

25

was further supported by findings that Mr. Montgomery acted vexatiously, wantonly and for

26

oppressive reasons which were all necessary components thereof. Thus, it logically follows the

27

Nevada federal court's findings that Mr. Montgomery acted in bad faith and for vindictive and

28

oppressive reasons were necessary components of the Sanctions Order for purposes of applying
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collateral estoppel relative to Plaintiff's 11 U.S.C. 523(a)(6) action.

(d)

The Sanctions Order Is a Final Order

The Sanctions Order reduced to the $204,411 judgment on July 8, 2010 against Mr.

Montgomery is a final order for purposes of collateral estoppel. Mr. Montgomery has failed to

appeal that judgment and the Sanctions Order, and his time for doing so has long since expired

under Federal Rule of Appellate Procedure 4.

Additionally, a judgment is "final" for purposes of collateral estoppel if it is "sufficiently

firm" that it can be accorded preclusive effect. Westlands Water Dist. v. U.S. Dept. of Interior,

Bureau of Reclamation, 850 F.Supp. 1388, 1400 (E.D. Cal. 1994). For example, "[P]reclusion

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should be refused if the decision was avowedly tentative. On the other hand, that the parties were

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fully heard, that the court supported its decision with a reasoned opinion, that the decision was

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subject to appeal or was in fact reviewed on appeal, are factors supporting the conclusion that the

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decision is final for purpose of preclusion. Luben Industries, Inc. v. U.S., 707 F.2d 1037, 1040

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(9th Cir. 1983) (quoting from Restatement (Second) of Judgments 13, comment g) (emphasis

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removed). In other words, the controlling question on finality for purposes of collateral estoppel

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"firm determination" of the issues has been made. In re Van Damme, 2009 WL 3756491 at *6

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(Bankr. N.D. Cal. 2009).

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Stated in the negative, "[a] judgment is not a final judgment for res judicata purposes if

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further judicial action by the court rendering the judgment is required to determine the matter

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litigated." Russell v. C. I. R., 678 F.2d 782, 786 (9th Cir. 1982).

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Notably, the "finality" analysis for purposes of collateral estoppel as discussed above is

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distinct from the "finality" analysis for purposes of federal appellate jurisdiction under 28 U.S.C.

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1291. Luben Industries, Inc., 707 F.2d at 1040; In re Van Damme, 2009 WL 3756491 at *6.

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As recited above, the Sanctions Order and the concomitant judgment entered against Mr.

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Montgomery are unequivocally "final" for purposes of collateral estoppel. The only thing the

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Sanctions Order left open for further litigation relating the findings of bad faith and vexatious

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litigation conduct of Mr. Montgomery was the right of Mr. Montgomery to object to the

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Magistrate Judge's findings and legal conclusions. SUF 45. After conducting a review of the
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Sanctions Order, the District Court overruled his objections leaving nothing further for the

Nevada federal court to litigate relative to its imposition of sanctions against Mr. Montgomery.

SUF 46. By contrast, after considering the Magistrate Judge's Sanctions Order, District Court

Judge Pro did leave further matters to be considered before imposing sanctions as against Mr.

Montgomery's counsel. SUF 47.

Thus, as against Mr. Montgomery, there is nothing further to be litigated against him in

connection with the Nevada federal court's decision to impose sanctions for his bad faith and

vexatious conduct against Plaintiff.

4.

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CONCLUSION
Mr. Montgomery is anything but the honest debtor for whom the Bankruptcy Code was

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designed. He has failed entirely to explain what happened to the "hundreds of millions of dollars"

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worth of his software technology as required by 11 U.S.C. 727(a)(5). In fact, the undisputed

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evidence demonstrates the reason Mr. Montgomery has failed to satisfactorily explain what

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happened to his software technology under 727(a)(5) is because he is presently attempting to

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defraud his bankruptcy estate and his creditors, in violation of 11 U.S.C. 727(a)(2), by profiting

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from assets that should be property of his bankruptcy estate. For these reasons, the Debtors'

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discharge under 727 should be denied.

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If this Court does not deny the Debtors' discharge under 727(a)(2) or (5), then the Court

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should nevertheless declare Mr. Montgomery's debt owed to Plaintiff pursuant to the Sanctions

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Order is non-dischargeable under 11 U.S.C. 523(a)(6).

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Dated: June 27, 2011

CONANT LAW LLC

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By: /s/ Christopher J. Conant

Christopher J. Conant, Esq.
Attorneys for Plaintiff Michael J. Flynn

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I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business
th
address is: 730 17 Street, Suite 200, Denver, CO 80202
A true and correct copy of the foregoing documents described as Memorandum of Points and Authorities
in Support of Motion for Summary Judgment or, In The Alternative, for Partial Adjudication will be served
or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in
the manner indicated below:
I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING ("NEF") Pursuant to
controlling General Order(s) and Local Bankruptcy Rule(s) ("LBR"), the foregoing document will be served
by the court via NEF and hyperlink to the document. On June 24, 2011, I checked the CM/ECF docket for
this bankruptcy case or adversary proceeding and determined that the following person(s) are on the
Electronic Mail Notice List to receive NEF transmission at the email address(es) indicated below:
Thomas M Geher tmg@jmbm.com
Jason M Rund trustee@srlawyers.com, jrund@ecf.epiqsystems.com
United States Trustee (LA) ustpregion16.la.ecf@usdoj.gov
Christopher Conant cconant@conantlawyers.com
Service information continued on attached page

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PROOF OF SERVICE OF DOCUMENT

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II. SERVED BY U.S. MAIL OR OVERNIGHT MAIL(indicate method for each person or entity served):
On June 27, 2011, I will serve the following person(s) and/or entity(ies) at the last known address(es) in
this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed
envelope in the United States Mail, first class, postage prepaid, and/or with an overnight mail service
addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be
completed no later than 24 hours after the document is filed.
Steven R Skirvin and William E. Crockett [OVERNIGHT DELIVERY]
Dion-Kindem & Crockett
21271 Burbank Blvd Ste 100
Woodland Hills, CA 91367
Counsel for Defendants
Raphael O. Gomez [REGULAR MAIL]
U.S. Department of Justice
20 Massachusetts Av NW/PO Box 883
Washington, DC 20044
Counsel for Interested Party, U.S. Government

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Service information continued on attached page

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I declare under penalty of perjury under the laws of the United States of America that the foregoing is true
and correct.

6/27/2011 Christopher J. Conant

/s/ Christopher J. Conant

Date

Signature

Type Name

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