IN THE UNITED STATES BANKRUPTCY COURT FOR THE...

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION IN RE: § CHAPTER 7 PROCEEDING KIPP ANTHONY WHITMAN and § BETH LARAE WHITMAN, §

§ DEBTORS. § CASE NO. 13-40653-DML-7

_______________________________ § § CHAPTER 7 §

WILLIAM T. NEARY, § UNITED STATES TRUSTEE, §

§ §

PLAINTIFF, § ADVERSARY NO. _______ §

v. § § §

KIPP ANTHONY WHITMAN and § HON. D. MICHAEL LYNN BETH LARAE WHITMAN, §

§ DEFENDANTS. §

COMPLAINT OBJECTING TO DEBTORS’ DISCHARGE AND FOR OTHER RELIEF

NOW COMES the United States Trustee for Region 6 and files this Complaint

Objecting to Debtors’ Discharge, and would respectfully show the Court the following:

JURISDICTION AND VENUE

1. This Complaint is filed pursuant to 11 U.S.C. §§ 307 and 727. The Court

has jurisdiction to hear and determine this complaint pursuant to 28 U.S.C. § 157(b)(2)(J)

and the Standing Order of Reference of the United States District Court for the Northern

District of Texas.

2. Venue of this proceeding is in the United States District Court for the

Northern District of Texas pursuant to 28 U.S.C. § 1409(a).

Case 13-40653-dml7 Doc 52 Filed 07/19/13 Entered 07/19/13 13:12:08 Page 1 of 29

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PARTIES

3. The Plaintiff is the United States Trustee for Region 6.

4. Defendant Kipp Anthony Whitman (“Mr. Whitman”) may be served at

3402 Crossgate Circle South, Colleyville, Texas 76034, which is the address listed on his

bankruptcy petition.

5. Defendant Beth LaRae Whitman (“Mrs. Whitman,” and, together with Mr.

Whitman, the “Defendants” or the “Debtors”) may be served at 3402 Crossgate Circle

South, Colleyville, Texas 76034, which is the address listed on her bankruptcy petition.

FACTUAL ALLEGATIONS

The Whitman Personal Bankruptcy Case

6. The Defendants filed their chapter 7 voluntary petition in bankruptcy on

February 11, 2013 (the “Petition Date”).

7. On March 11, 2013, the Defendants filed Schedules (the “Schedules”) and

a Statement of Financial Affairs (“Original SOFA”) setting forth, their assets, liabilities

and financial condition under penalty of perjury.

8. Specifically, with regard to the Original SOFA, the Defendants made the

following declaration: “I declare under penalty of perjury that I have read the answers

contained in the foregoing statement of financial affairs and any attachments hereto and

that they are true and correct.”

9. The Defendants filed amended Schedules I and J (the “Amended Schedule

I” and the “Amended Schedule J”) and an amended Statement of Financial Affairs (the

“Amended Statement of Financial Affairs”) on March 26, 2013.

10. With regard to the Amended SOFA, the Defendants made the following


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declaration: “I declare under penalty of perjury that I have read the answers contained in

the foregoing statement of financial affairs and any attachments hereto and that they are

true and correct.”

Defendants’ Educational and Professional Backgrounds

11. Mr. Whitman graduated from high school in 1965 and had some college.

12. Mr. Whitman has decades of experience in the real estate development

business.

13. Mr. Whitman also has decades of experience in the oil and gas business.

14. Mr. Whitman has worked as a professional actor.

15. Mrs. Whitman graduated from high school in 1996.

16. Mrs. Whitman holds an associate’s degree and a bachelor’s degree.

17. From 2003 to 2008, Mrs. Whitman operated a high-end women’s shoe

store in Southlake, Texas known as B. Whitman Shoes.

18. From 2008 to 2012, Mrs. Whitman operated an upscale consignment store

in Grapevine, Texas known as The Revolving Closet.

Assets, Liabilities, and Financial Condition

19. As of the Petition Date, the Defendants owned real property located at

3402 Crossgate Circle South, Colleyville, Texas 76034 (the “Real Property”) valued at

$489,300.00 and encumbered by secured claims in the amount of $384,199.52. (Original

Schedule A)

20. The Defendant’s Schedule B reflects the following assets with the

following values:

a. Cash on hand, $128.00; b. UCB checking account ending 743, $0.00;


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c. UCB checking account ending 105, $586.06; d. Bank of the West joint checking account, $162.29; e. Household good and furnishings, $13,470.00; f. Books, $0.00; g. Pictures and art objects, $9,500.00; h. Antiques, $2,500.00; i. Chinese drawers, $1,000.00; j. Collectibles: 6 Chofas, $2,000.00; k. Assorted odds and ends, $3,000.00; l. Phallos collection, $500.00; m. Books, $350.00;1 n. Clothing and personal effects, $3,000.00; o. Watches, $2,000.00; p. Earrings, $500.00; q. Wedding rings, $2,000.00; r. Necklaces, $45.00; s. Costume jewelry, $20.00; t. Tennis/racquetball equipment, $20.00; u. 3 cameras, $100.00; v. Exercise equipment, $200.00; w. Scuba gear, $40.00; x. Golf clubs, $100.00; y. Firearm: 38, $150.00; z. AR15, $500.00; aa. Protective Life Insurance Company, term life policy insuring life of

Debtor husband; $150,000.00 face value; no cash value, $0.00; bb. Counterclaims by Debtor husband in dismissed adversary proceeding,

Sederis, et al. v. Whitman, Adversary No. 11-04019-RFN; cc. 2011 Mini Cooper S-HDTD, $29,000.00; dd. 2012 Mini Cooper S Countryman 4x4, $30,000.00; ee. 2011 Mini Cooper (leased vehicle); third party possession; third party pays

direct, value unknown; ff. 2012 Ducati Diavel motorcycle, $14,000.00; gg. 2010 Honda Shadow motorcycle, $5,700.00; and hh. Household pets: 1 cat, 2 dogs, $0.00. 21. Additionally, the Defendants listed on Schedule B Item 13, stock and

interests in twenty-seven (27) incorporated and unincorporated businesses, most of which

are involved in some way with a series of fifteen (15) chapter 11 bankruptcy cases filed

in 2011 and jointly administered under In re Fossil Creek Group, Ltd., Case No. 11-

1BooksarelistedtwiceonScheduleB.


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40669-RFN-11 (the “Fossil Creek Case” or “Fossil Creek Cases”), which will be

described in greater detail below.

22. Each of the jointly administered Fossil Creek Cases is disclosed on

Original and Amended SOFA Item 4 with the notation that the “Trustee confirmed a

plan.: The jointly administered Debtors in the Fossil Creek Cases shall be referred to

herein as the “Fossil Creek Debtors.”

23. The Defendants list an interest in ThreeFeet, Inc., Whitman Family, Inc.

and bbl Oil Company, LLC on Schedule B Item 13.

24. At the section 341 meeting of creditors, Mrs. Whitman testified that

ThreeFeet, Inc. is the entity through which she ran B. Whitman Shoes.

25. At the section 341 meeting of creditors, Mrs. Whitman testified that

Whitman Family, Inc. is the entity through which she ran The Revolving Closet, the

assets of which she sold in November of 2012.

26. A Seller’s Settlement Statement dated November 9, 2012 shows that

Whitman Family, Inc. received $45,100.00 in net proceeds for the sale of The Revolving

Closet assets to the Revolving Closet, LLC.

27. Mrs. Whitman testified at the section 341 meeting of creditors that she

utilized the proceeds of the sale of The Revolving Closets assets to pay regular household

bills and to repay loans from family members.

28. The Defendants’ Original SOFA Item 3c discloses no transfers to insiders.

29. The Defendants’ Amended SOFA Item 3c discloses a $1,000.00 transfer

to Bobbie Robertson (Mrs. Whitman’s mother) and a $900.00 transfer to Magan

Robertson (Mrs. Whitman’s sister), both occurring in November 2012.


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30. The Defendants amended SOFA Item 3c after Mrs. Whitman testified at

the section 341 meeting of creditors that some of the The Revolving Closet sale proceeds

were used to repay debts to family members.

31. The Defendants list a total of $465,890.08 in secured claims on Schedule

D, $57,844.31in priority unsecured claim on Schedule E, and $7,301,897.90 in general

unsecured claims on Schedule F.

32. Most of the debts listed on Schedule F relate to the Fossil Creek Debtors

in one way or another.

33. The Defendants list the lease for the 2011 Mini Cooper on Schedule G.

Mr. Whitman testified at the Rule 2004 Examination of the Debtors held on June 19,

2013 (the “2004 Exam”) that the leased Mini Cooper is in his son’s possession and that

his son makes all of the payments on the car. Mr. Whitman’s son is named Chris

Whitman.

34. Mrs. Whitman testified at the 2004 Exam that the leased 2011 Mini

Cooper has been returned.

35. The Defendants’ Schedule H lists many of the entities listed on Schedule

B Item 13 as well as Mr. Whitman’s former business partner Mehul Patel (“Mr. Patel”).

36. The Defendants’ Original Schedule I reflects a combined average monthly

income of $6,540.00, consisting of Mrs. Whitman’s $5,000.00 salary from OKP, LLC

and of Mr. Whitman’s $1,540.00 in Social Security income.

37. The Defendant’s Original Schedule J reflects average monthly expenses in

the amount of $10,360.64.

38. The Defendants’ Amended Schedule I increases the Debtors’ combined


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monthly income to $7,219.22 to account for Chris Whitman’s contribution relating to the

leased 2011 Mini Cooper.

39. The Defendants’ Amended Schedule J removes a second mortgage that

was mistakenly included on Original Schedule J, and which does not exist, reducing the

Defendants’ average monthly expenses to $7,215.64.

The Westlake Property Sale Proceeds

40. Mr. Whitman, through his entity Whitco Consulting, Ltd. (“Whitco”), sold

real property located at 35 Wyck Hill Lane, Westlake, Texas 76262 (the “Westlake

Property”) on September 30, 2011 for a contract price of $350,000.00.

41. Net cash to the seller was $189,736.48 according to the Westlake Property

HUD-1 settlement statement dated September 30, 2011.

42. On September 30, 2011, $189,736.48 was deposited into the Whitco

account at Northstar Bank account number ending 5286 (the “Whitco Northstar

Account”).

43. Also, on September 30, 2011, there were two outgoing wires from the

Whitco Northstar Account in the amounts of $4,295.00 and $80,000.00, leaving

$105,441.48 of the Westlake Property sale proceeds.

44. In the two weeks following the closing of the Westlake Property sale, Mr.

Whitman withdrew the following amounts from the Whitco Northstar Account on the

following dates and in the manner described:


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Allegation Date Manner Amount a. 9/30/2011 Check written to KA Whitman $8,000.00b. 9/30/2011 Check written to Cash $9,000.00c. 10/3/2011 Check written to Cash $9,000.00d. 10/3/2011 Check written to KA Whitman $8,000.00e. 10/5/2011 Check written to Cash $8,700.00f. 10/5/2011 Check written to KA Whitman $10,000.00g. 10/7/2011 Check written to Cash $8,000.00h. 10/13/2011 Check written to Cash $9,000.00i. TOTAL $69,700.00

45. Accordingly, $69,700.00 of the $189,736.48 in net proceeds of the sale of

the Westlake Property were withdrawn by Mr. Whitman in the two weeks following the

sale of the Westlake Property.

46. Of the $69,700.00 withdrawn by Mr. Whitman, $43,700.00 was

withdrawn as cash, and $26,000.00 was withdrawn by check payable to Mr. Whitman.

47. Upon information and belief, the $8,000.00 check written to KA Whitman

on September 30, 2011 was deposited into the Defendants’ Northstar Bank account

number ending 2800 (the “Defendants’ Northstar Account”). Also, on September 30,

2011, Mr. Whitman wrote a check in the amount of $8,000.00 to Cash from the

Defendants’ Northstar Account.

48. Upon information and belief, the $8,000.00 check written to KA Whitman

on October 3, 2011 was deposited into the Defendants’ Northstar Account. Also, on

October 3, 2011, Mr. Whitman wrote a check in the amount of $8,000.00 to Cash from

the Defendants’ Northstar Account.

49. Upon information and belief, the $10,000.00 check written to KA

Whitman on October 5, 2011, was deposited into the Defendants’ Northstar Account.


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50. On October 13, 2011, Mr. Whitman wrote a check in the amount of

$4,000.00 to Cash from the Defendants’ Northstar Account.

51. Accordingly, of the $26,000.00 of the Westlake Property sales proceeds

deposited into the Defendants’ Northstar Account, $22,000.00 was immediately

withdrawn again by Mr. Whitman as cash.

52. At the 2004 Exam, Mr. Whitman could not explain what the checks to

cash were for, but speculated that they could have been to pay day laborers.

53. At the section 341 meeting of creditors, and again at the 2004 Exam, Mr.

Whitman testified that he used proceeds of the sale of the Westlake Property to pay

approximately $80,000.00 in attorney fees.

54. At the section 341 meeting of creditors, Mr. Whitman testified that he

gave away between $20,000.00 and $30,000.00 in Westlake Property sale proceeds to

homeless people in downtown Fort Worth because he was angry with Pinnacle Bank.

55. At the 2004 Exam, Mr. Whitman elaborated that, “I just, you know, went

to where we parked some money and took a few envelopes and I went downtown over

here and made some people very happy.” See 2004 Exam Transcript, p. 74, ln. 1-4.

56. When asked at the 2004 Exam when the handouts to the homeless

occurred, Mr. Whitman responded, “I think - - I don’t know. I don’t know exactly.” See

2004 Exam Transcript, p. 74, ln 17.

Financial Documents

57. In connection with the United States Trustee’s Agreed Motion for a Rule

2004 Examination of Kipp Anthony Whitman and Beth Larae Whitman, the United

States Trustee requested, among other things, (a) complete copies of canceled checks,


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deposit slips, withdrawal/disbursement slips, cashier’s checks, from checking accounts

savings accounts, and retirement accounts in the name of the Defendants or of entities

over which they have control for the period January 1, 2012 to February 1, 2013; and (b)

an accounting of the disposition of the proceeds of the sale of the Westlake Property,

including the identity of who was paid and the amounts such persons and/or entities were

paid.

58. In response to the request for copies of bank account statements for the

period January 1, 2012 to February 1, 2013, the Defendants provided the following

documents prior to the 2004 Exam (collectively, the “Produced Bank Statements”):

a. Statements for Bank of the West account number ending 3426 (the “Defendants Bank of the West Account”) dated January 10, 2013, February 8, 2013, March 8, 2013, July 10, 2012, and December 12, 2012, and correspondence relating to overdrafts;

b. Statements for Whitco Northstar Account dated January 31, 2011, February 28, 2011, and October 31, 2011;

c. Statements for Defendants’ Northstar Account dated March 21, 2012 and

April 18, 2012, and two notices of NSF items;

d. Statements and cancelled checks for United Community Bank account number ending 4472 in the name of Whitman Family, Inc. (the “Revolving Closet Account 4472”) for the period January 31, 2012 through May 31, 2012;

e. Statements and cancelled checks for United Community Bank account

number ending 4946 in the name of Whitman Family, Inc. (the “Revolving Closet Account 4946”) for the period May 31, 2012 through August 31, 2012.

59. The Defendants did not provide copies of checks for any of the

Defendants’ Bank of the West Account, Whitco Northstar Account, or the Defendants’

Northstar Account.

60. Each of the Produced Bank Statements did not fully cover the January 1,


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2012 through February 1, 2013 time period, as requested.

61. Copies of statements and cancelled checks for Independent Bank account

number ending 4946 in the name of Whitman Family, Inc. dated November 30, 2012

through February 28, 2013 were produced through bankruptcy counsel after the 2004

Exam.

62. The United States Trustee obtained the following documents via requests

in accordance with the Right to Financial Privacy Act the (“RFPA Requests”):

a. Statements and cancelled checks for Northstar Bank account no ending 2800 in the name of Kipp A. Whitman (“Mr. Whitman’s Northstar Account”) for the period February 16, 2011 through April 18, 2012;

b. Statements and cancelled checks for Whitco Northstar Account for the period January 31, 2011 through December 30, 2011; and

c. Statements and cancelled checks for Defendants’ Bank of the West

Account for the period December 29, 2011 through May 10, 2013.

63. The Defendants have not provided an accounting of the disposition of the

proceeds of the Westlake Propertyin accordance with the United States Trustee’s request.

64. The Defendants explain the disposition of the sale proceeds of the

Westlake Property by:

a. the Westlake Property sale HUD-1 settlement statement;

b. Mr. Whitman’s assertion that approximately $80,000.00 in attorney fees

were paid out of the Westlake Property sale proceeds;

c. Mr. Whitman’s assertion that he distributed $20,000.00 to $30,000.00 of

the Westlake Property sale proceeds to homeless people in downtown Fort

Worth; and

d. Mr. Whitman’s assertion that cash may have been paid to day laborers.


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The Fossil Creek Debtors Bankruptcy Case

65. The Fossil Creek Debtors filed chapter 11 petitions in bankruptcy on

January 31, 2011.

66. The Fossil Creek Debtors are as follows:

Case Name Case Number Fossil Creek Group, Ltd. Case No. 11-40669-RFN-11 Tribble Hill, Ltd. Case No. 11-40672-RFN-11 Prairie Creek Group, Ltd. Case No. 11-40674-DML-11 Crowley II Partners, Ltd. Case No. 11-40675-DML-11 Sendera Ranch Commercial Partners, Ltd. Case No. 11-40676-RFN-11 114 Partners, Ltd. Case No. 11-40678-DML-11 Corinth One Group, Ltd. Case No. 11-40679-DML-11 Hurst Group, LLC Case No. 11-40680-DML-11 Lavaca Trail, LLC Case No. 11-40683-RFN-11 1171 Group, LLC Case No. 11-40684-DML-11 WS Commercial Partners, Ltd. Case No. 11-40685-RFN-11 287 Commercial Partners, Ltd. Case No. 11-40686-RFN-11 Gardens Commercial Partners, Ltd. Case No. 11-40687-DML-11 Tower Commercial Partners, Ltd. Case No. 11-40688-RFN-11 River’s Edge Partners, Ltd. Case No. 11-40689-DML-11

67. Each Fossil Creek Debtor was formed to develop a specific real estate

tract by an affiliate of Mr. Whitman and/or his business partner Mr. Patel.

68. Each Fossil Creek Debtor’s general partners or management members

were an affiliate of Mr. Whitman or Mr. Patel.

69. An order jointly administering the Fossil Creek Debtors was entered on

February 11, 2011.

70. Mr. Whitman, as of the Fossil Creek Debtors’ petition date, was a

principal of each Fossil Creek Debtor.

71. Prior to the filing of the Fossil Creek Case, a group of approximately

forty-five (45) investors had filed a state court action against Mr. Whitman; Mr. Patel;


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GHFT Corporation; Rland 287 GP, LLC; Rland Gardens, LLC; Rland Rivers’ Edge GP,

LLC; Rland Woodland Springs GP, LLC; Rland Management Ltd. seeking, among other

things, an accounting of the Fossil Creek Debtors and the of plaintiffs’ investments in the

Fossil Creek Debtors (the “Sederis Litigation”).

72. The Sederis Litigation was removed to the Bankruptcy Court on February

14, 2011 as Sederis et al. v. K.A. Whitman, et al., Adversary Proceeding No. 11-04019-

RFN.

73. The corporate entity defendants in the Sederis Litigation were involved in

the management of the Fossil Creek Debtors, though none of the Fossil Creek Debtors

were named defendants in the Sederis Litigation.

74. On April 4, 2011, the court entered an order in the Fossil Creek Case

directing the parties to mediation.

75. The Honorable D. Michael Lynn mediated the issues in the Fossil Creek

Case on May 9, 2011.

76. On April 8, 2011, the United States Trustee appointed an Official

Committee of Equity Security Holders (the “Equity Committee”).

77. On April 26, 2011, the United States Trustee filed a Motion for Status

Conference in the Fossil Creek Case because the United States Trustee had received

copies of material circulated by Mr. Whitman to some but not all of the equity members

regarding the prospects of Sendera Ranch Commercial Partners, Ltd., one of the Fossil

Creek Debtors, and sought responses from the contacted equity members.

78. The Court set and held a status conference on May 17, 2011.

79. Also on May 17, 2011, the Fossil Creek Debtors filed the Debtors’


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Application for Order Authorizing the Appointment of Daniel J. Sherman as Chief

Restructuring Officer Pursuant to Section 363 of the Bankruptcy Code (the “CRO

Motion”).

80. The CRO Motion was filed in accordance with a term sheet entered into as

a result of the mediation before Judge Lynn that provided for the appointment of a CRO

of the Fossil Creek Debtors to be responsible for, inter alia, overseeing the restructuring

of the Fossil Creek Debtors going forward and developing a plan of reorganization.

81. The CRO Motion provided that Mr. Sherman’s duties as CRO would

include:

a. Overseeing the restructuring of the Fossil Creek Debtors and developing a plan or reorganization; and

b. Conducting an investigation of the Fossil Creek Debtors’ managing partners, Mr. Whitman and Mr. Patel, as well as the RLand entities, to determine whether they committed any wrongdoing or gross negligence with respect to any of the Fossil Creek Debtors.

82. The court granted the CRO Motion on June 16, 2011, after a hearing.

83. The order granting the CRO Motion was entered on June 29, 2011 (the

“CRO Order”). The CRO Order provides that the CRO “shall have all rights and

privileges of a general partner, managing partner, tax matters partner, and manager (each

as applicable), and of any similar position provided by the applicable partnership

agreements, of each of the [Fossil Creek] Debtors and shall fully control, subject to the

oversight of the court, the management, restructuring, and all other aspects of the

Debtors’ businesses, including developing a plan of reorganization or other conclusion of

the Debtors’ bankruptcy cases.”

84. The CRO Order terminated Mr. Whitman’s management authority as to


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the Fossil Creek Debtors.

85. On December 23, 2011, the Fossil Creek Debtors, under the direction of

Mr. Sherman, and the Equity Committee filed a chapter 11 plan and disclosure statement.

86. On February 17, 2012, the Fossil Creek Debtors, under the direction of

Mr. Sherman, and the Equity Committee filed a first amended chapter 11 plan (the “First

Amended Plan”) and a first amended disclosure statement (the “First Amended

Disclosure Statement”).

87. On March 20, 2012, Mr. Whitman; Mr. Patel; GHFT Corporation; RLand

Management, Ltd.; RLand Properties; and Whitco Consulting, Ltd. filed an objection to

confirmation of the First Amended Plan (the “RLand Entities’ Confirmation Objection”).

88. The RLand Entities’ Confirmation Objection asserted the following

objections to the First Amended Plan:

a. That the First Amended Plan served no purpose other than to enrich professionals;

b. That a chapter 7 trustee would be more cost-effective than the appointing a CPA to run the Fossil Creek Debtors post-confirmation;

c. That the First Amended Plan was not feasible; d. That the First Amended Plan gerrymanders the RLand Creditors’ claims; e. That the First Amended Plan was not likely to satisfy the requirements of

11 U.S.C. § 1129(a)(10); f. That, if forced to cramdown, the First Amended Plan would not satisfy the

requirement of 11 U.S.C. § 1129(b) to be fair and equitable; and g. That the First Amended Plan had no reasonable means of implementation.

89. Hearings on the First Amended Plan were held on April 4, 2012, April 5,

2012, April 24, 2012, April 26, 2012, and May 2, 2012.

90. The RLand Entities prosecuted their confirmation objection through

counsel at the days-long confirmation hearing.

91. On May 2, 2012, the court ruled that the plan was confirmed as to all


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Fossil Creek Debtors except as to 114 Partners, Ltd. (as to which the confirmation

hearing was continued pending further solicitation) and as to Hurst Group, LLC (as to

which confirmation was denied).

92. On May 9, 2012, the Fossil Creek Debtors, under the direction of Mr.

Sherman, and the Equity Committee filed a second joint plan of reorganization (the

“Second Amended Plan”) reflecting agreements reached in response to confirmation

objections by other parties-in-interest and in connection with the continued confirmation

hearing as to 114 Partners, Ltd.

93. 114 Partners, Ltd.’s confirmation hearing was held on May 22, 2012 and

the court confirmed the plan.

94. The order confirming the Second Amended Plan as to all Fossil Creek

Debtors, except for Hurst Group, LLC, was entered on May 31, 2012 (the “Confirmation

Order”). The confirmed Fossil Creek Debtors shall be referred to herein as the

“Reorganized Debtors.”

95. The Confirmation Order expressly overruled the RLand Entities

Confirmation Objection.

96. The Confirmation Order expressly identified S.L. Mahanay, Inc. as the

Reorganized General Partner or Reorganized Manager for each Reorganized Debtor, as

applicable.

97. The Second Amended Plan provides, among other things, for the

appointment of a Litigation Trustee, who shall be the exclusive trustee of the Litigation

Trust. See Second Amended Plan, § 6.6.

98. The Litigation Trustee’s duties include pursuing the Reorganized Debtors’


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causes of action against the RLand Parties (defined in Article II of the Second Amended

Plan as, individually or collectively, the following persons and entities: (i) GHFT

Corporation; (ii) GWT, Inc.; (iii) Mr. Patel; (iv) RLand 287 GP, LLC; (v) RLand Capital,

LLC; (vi) Rland Development; (viii) RLand GP, LLC; (ix) RLand Management; (x)

RLand Rproperties; (xi) Rland PV, LLC; (xii) RLand River’s Edge GP, LLC; (xiii) Rland

TCP GP, LLC; (xiv) RLand Woodland Springs GP, LLC; (xv) TOP Management; (xvi)

Mr. Whitman; (xvii) Whitco Consulting, Ltd; and (xviii) Xtreme Infrastructure, Inc.).

See Second Amended Plan, § 6.6.

99. Section 6.3 of the Second Amended Plan provides each of the

Reorganized Debtors “shall appoint a Reorganized General Partner or Reorganized

Manager, as applicable, to serve as such Reorganized Debtor’s new general partner or

manager (as applicable) for each of the Reorganized Debtors.”

100. Article VIII of the First Amended Disclosure Statement discloses that SL

Mahanay Services, Inc. (under the direction of Carter Mahanay, CPA) shall be appointed

as the Reorganized General Partner or the Reorganized Manager, as applicable.

101. SL Mahanay Services, Inc. was appointed Reorganized General Partner or

Reorganized Manager, as applicable, for each of the Reorganized Debtors upon the

Effective Date of the Second Amended Plan.

102. The effect of the appointment of SL Mahanay Services, Inc. as

Reorganized General Partner or Reorganized Manager, as applicable, for each of the

Reorganized Debtors was to terminate the authority of the RLand Entities, including Mr.

Whitman, to act on behalf of any of the Reorganized Debtors.

103. Mr. Sherman was appointed the Litigation Trustee.


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104. On September 28, 2012, Mr. Sherman filed the adversary complaint (the

“Sherman Complaint”) Daniel J. Sherman, Litigation Trustee v. K.A. “Kipp” Whitman,

et al., Adversary Proceeding No. 12-04122-RFN (the “Sherman Litigation”).

105. The Sherman Complaint alleged that the Defendants, including Mr.

Whitman, inter alia, failed to maintain books and records as to each of the Fossil Creek

Debtors.

106. On February 7, 2013, four days before the Petition Date in this case, an

agreed judgment (the “Sherman Agreed Judgment”) was entered in the Sherman

Litigation in which Mr. Whitman consented to the entry of a judgment against him in the

amount of $5 million.

107. The Sherman Agreed Judgment further provides that Mr. Sherman, as the

Litigation Trustee, will only look to the following assets to satisfy the judgment against

Mr. Whitman (the “Sherman Settlement Proceeds”):

a. 51% of the first available proceeds eligible to be distributed to Defendant RLand Development. Ltd. as Class B Interest holder of Reorganized Debtors (i) WS Commercial Partners. Ltd.; (ii) Gardens Commercial Partners, Ltd.; (iii) River’s Edge Partners, Ltd.; (iv) Tower Commercial Partners, Ltd.; and (v) 287 Commercial Partners, Ltd.; and

b. 100% of the first available proceeds eligible to be distributed to Whitco Consulting, Ltd. as a Class B Interest holder of Reorganized Debtors (i) Fossil Creek Group, Ltd.; (ii) Prairie Creek Group, Ltd.; (iii) Crowley II Partners, Ltd.; (iv) Sendera Ranch Commercial Partners, Ltd.; (v) 114 Partners, Ltd.; (vi) Lavaca Trail, LLC; and (vii) 1171 Group, LLC.

108. The Sherman Agreed Judgment further provides that the Sherman

Settlement Proceeds shall be paid by a Fossil Creek Debtor or Reorganized Debtor, as

appropriate, to the Litigation Trust until the $5 million judgment against Mr. Whitman is

satisfied in full.


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109. The Sherman Agreed Judgment is silent as to whether the Agreed

Judgment is dischargeable.

110. Mr. Sherman, as Litigation Trustee, settled the Sederis Litigation and, in

accordance with that settlement, the Sederis Litigation was dismissed with prejudice by

order of the court entered on January 24, 2013.

Withdrawal of Funds from Fossil Creek Debtor Accounts

111. Bank records provided to the United States Trustee by Carter Mahanay

(“Mr. Mahanay”), a representative of the Reorganized Debtors’ post-confirmation

Reorganized General Partner and/or Reorganized Manager, as applicable, reflect that Mr.

Whitman withdrew $9,000.00 from 114 Partners, Ltd.’s United Community Bank

account number ending 1395 (the “114 Partners Account”) on July 11, 2012.

112. Bank records provided to the United States Trustee by Mr. Mahaney

reflect that Mr. Whitman withdrew another $3,000.00 from the 114 Partners Account on

July 13, 2012 (together with the $9,000.00 withdrawal on July 11, 2012, the “114

Partners Withdrawals”).

113. At the time the 114 Partners Withdrawals were made, Mr. Whitman did

not have authority to withdraw the funds or act in any capacity on behalf of 114 Partners,

Ltd., or any of the Reorganized Debtors, having been replaced by SL Mahanay Services,

Inc. and Mr. Mahanay by operation of the Confirmation Order.

114. Mr. Whitman was aware of the Confirmation Order, having vociferously

objected to confirmation of the plan through the RLand Entities Confirmation Objection.

115. When asked about the 114 Partners Withdrawals at the 2004 Exam in this

case, Mr. Whitman invoked his right against self-incrimination under the Fifth


Complaint of 29

Amendment.

116. On June 28, 2013, after the 2004 Exam, Mr. Whitman, through an e-mail

from his bankruptcy counsel (the “June 28, 2013 E-mail”), indicated that, after

consultation with criminal counsel, Mr. Whitman was now willing to testify about the

114 Partners Withdrawals.

117. The June 28, 2013 E-mail explained that Mr. Whitman’s testimony

concerning the 114 Partnership Withdrawals would essentially be that 114 Partners, Ltd.

was in need of an expert for a condemnation proceedings; that the fees for the expert

were paid by a different entity; that the services of the expert were then not needed; that a

refund was requested; that the refund was issued to 114 Partners, Ltd. instead of the

entity that paid the expert fees; and that instead of sending the check back to the expert

and requesting a reissue, the refund check was cashed with the intent to do internal

bookkeeping at a later date.

118. The United States Trustee did not reconvene the 2004 Exam to further

examine Mr. Whitman concerning the 114 Partners Withdrawals.

COUNT I - 11 U.S.C. § 727(a)(5) – DEFENDANTS FAILED TO EXPLAIN SATISFACTORILY LOSS OF ASSETS

119. The Plaintiff re-alleges and incorporates herein the allegations contained

in paragraphs 1 through 118.

120. “The court shall grant the debtor a discharge, unless – the debtor has failed

to explain satisfactorily, before the determination of denial of discharge under this

paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities.” 11

U.S.C. § 727(a)(5).

121. The Defendants received, either by cash withdrawal from the Whitco


Complaint of 29

Northstar Account or checks written to Mr. Whitman, $69,700.00 of the proceeds of the

sale of the Westlake Property. At least $26,000.00 of that amount was deposited into the

Defendants’ Northstar Account. Of the $26,000.00 deposited into the Defendants’

Northstar Account, $22,000.00 was immediately withdrawn again by checks written by

Mr. Whitman to cash.

122. Accordingly, Mr. Whitman converted at least $65,700.00 of the proceeds

of the sale of the Westlake Property to cash between September 30, 2011 and October 13,

2011.

123. The Defendants’ explanation for what happened to the cash is two-fold:

(i) some of it was used to pay day laborers and (ii) $20,000.00 to $30,000.00 of it was

handed out by Mr. Whitman to homeless people in downtown Fort Worth in a pique of

fury with Pinnacle Bank.

124. No documentary evidence has been presented to support either contention.

125. Moreover, Mr. Whitman’s testimony at the 2004 Exam that he “went to

where we parked some money and took a few envelopes” before he passed the money out

on the street suggests that, instead, the cash was put in a safe place by the Defendants for

their later personal use. See Transcript of 2004 Exam, p. 74, ln. 1-4.

126. In any event, the Defendants cannot meet the standards of 11 U.S.C. §

727(a)(5) to satisfactorily explain the loss of either the entire $69,700.00 in Westlake

Property sale proceeds or the $26,000.00 of Westlake Property sale proceeds that was

directly deposited into the Defendants’ Northstar Account.

127. The Defendants’ bare assertions regarding what happened to the money,

without more, are not an adequate explanation for the loss of the cash. See In re Reed,


Complaint of 29

700 F.2d 986, 993 (5th Cir. 1983) (finding that the bankruptcy court did not err in finding

inadequate the debtor’s explanation for the disappearance of thousands of dollars from

his bank account “that he had many business and household expenses which he paid for

in cash as they arose, and that he had lost an unspecified amount of cash gambling in Las

Vegas”). The inadequacy of the Defendants’ explanation of the alleged transfers is

particularly acute in the present case where the Defendants cannot show precisely when

or how the cash was transferred.

128. Accordingly, the Defendants’ discharge should be denied in accordance

with 11 U.S.C. § 727(a)(5).

COUNT II - 11 U.S.C. § 727(a)(4) – DEFENDANTS KNOWINGLY AND FRAUDULENTLY MADE A FALSE OATH OR ACCOUNT



130. “The court shall grant the debtor a discharge unless . . . the debtor

knowingly and fraudulently, in or in connection with the case . . . made a false oath or

account.” 11 U.S.C. § 727(a)(4)(A). The party objecting to discharge bears the burden

of proving by a preponderance of the evidence that (1) the debtor made the statement

under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4)

the debtor made the statement with fraudulent intent; and (5) the statement related

materially to the bankruptcy case. Sholdra v. Chilmark, LLP (In re Sholdra), 249 F.3d

380, 382 (5th Cir. 2001). See also Cadle Company v. Mitchell (In re Mitchell), 102

Fed.Appx. 860, 2004 WL 1448041 (5th Cir. 2004).

131. If the Court finds that the explanations for the disposition of the

$69,700.00 in cash proceeds from the sale of the Westlake Property not credible or if the


Complaint of 29

Defendants have otherwise failed to disclose a large cash reserve, then the Defendants

have made a false statement under oath that the Defendants knew was false.

132. Moreover, to the extent that a cache of cash still exists, the existence of

this cash store was not disclosed on the Defendants’ schedules.

133. Additionally, the Defendants have failed to disclose as income on Original

and Amended SOFA Item 1 or Item 2 the $12,000.00 taken by Mr. Whitman from the

114 Partners Account in July 2012.

134. The Defendants’ Original SOFA 3 Item 3(c) failed to disclose the two

transfers to insiders in November 2012 and was only amended after the transfers were

discovered through the chapter 7 trustee’s examination of Mrs. Whitman at the section

341 meeting.

135. The disposition of the $69,700.00 of the Westlake Property sale proceeds

is material to the bankruptcy case. If the proceeds still exist and/or are traceable, the

chapter 7 trustee could seek to recover those assets for the benefit of creditors.

Specifically, failure to provide accurate and complete information concerning the

disposition of the Westlake Property sale proceeds frustrates the chapter 7 trustee’s

investigation of the Defendants’ bankruptcy estate. In re Cline, 2010 WL 3944997, *4

(Bankr. N.D. Tex. 2010).

136. Accordingly, to the extent that the Defendants’ sworn testimony

concerning the disposition of the Westlake Property sale proceeds is inaccurate and/or to

the extent that the Defendants have failed to disclose a large cash reserve, the discharge

should be denied in accordance with 11 U.S.C. § 727(a)(4). Defendants’ failure to

disclose the insider transfers on Original SOFA Item 3c and failure to disclose the 114


Complaint of 29

Partners Withdrawals as income on SOFA Item 1 or SOFA Item 2 also support denial of

the discharge under 727(a)(4).

COUNT III – 11 U.S.C. § 727(a)(3) – DEFENDANTS HAVE FAILED TO KEEP OR PRESERVE RECORDED INFORMATION FROM WHICH THE

DEFENDANTS’ FINANCIAL CONDITION OR BUSINESS TRANSACTIONS MIGHT BE ASCERTAINED



138. “The court shall grant the debtor a discharge, unless – the debtor has . . .

failed to keep or preserve any recorded information, including books, documents,

records, and papers, from which the debtor’s financial condition or business transactions

might be ascertained, unless such failure to act was justified under all of the

circumstances of the case.” 11 U.S.C. § 727(a)(3). Creditors are not required to accept

the Defendants’ oral recitations and recollection of their transactions. In re Hughes, 353

B.R. 486, 500 (Bankr. N.D. Tex. 2006) (aff’d sub nom. Hughes v. Neary, 386 B.R. 624

(N.D. Tex. 2008); aff’d sub nom. In re Hughes, 309 Fed. Appx. 741 (5th Cir. 2009).

“Records are not adequate if they do not provide enough information for creditors or the

trustee to ascertain the debtor’s financial condition or to track his financial dealings with

substantial completeness and accuracy for a reasonable period into the past.” Id. “The

court has broad discretion in determining the sufficiency of the records provided and

considerations for the court in making such a determination include the debtor’s

sophistication, educational background, business experience, business acumen, and

personal financial structure.” Id. “If the debtor fails to maintain and preserve adequate

records, the debtor must present some justification for that failure.” Id.

139. The Defendants failed to maintain adequate records sufficient to respond


Complaint of 29

to the United States Trustee’s reasonable request for documents in connection with the

2004 Exam, necessitating the RFPA Requests.

140. The Defendants are sophisticated, educated individuals who both have

experience in running business enterprises, and who should know, accordingly, the

importance of good financial recordkeeping.

141. The Produced Bank Statements are incomplete and haphazard. Creditors,

the trustee, and the Court should not be required to risk the debtor’s withholding or

concealing assets under the cover of incomplete or chaotic books and records. In re

Hughes, 353 B.R. at 501.

142. In the case at bar, in light of the large sums of cash that went into Mr.

Whitman’s hands immediately following the sale of the Westlake Property and in light of

Mr. Whitman’s admission that the Defendant at one time had an apparent large store of

ready cash in envelopes, concerns about concealing assets are particularly acute. See

2004 Exam Transcript, p. 74 ln. 1-4.

143. Moreover, Defendants failed to produce an accounting of the disposition

of the Westlake Property sale proceeds. Indeed, the only way the United States Trustee

was able to ascertain that Mr. Whitman withdrew $69,700.00 of the Westlake Property

sale proceeds from the Whitco Northstar Account in the two weeks following the sale

was by analysis of the documents obtained via the RFPA Requests. In a case in which

similar large amounts of cash were insufficiently accounted for, the court concluded that

“[t]he bottom line is that there are no records to show precisely how much cash (i.e.,

potential future property of the estate) went in and out of the Debtor’s dominion and

control.” In re Hughes, 353 B.R. at 501.


Complaint of 29

144. Accordingly, the Defendants’ discharge should be denied in accordance

with 11 U.S.C. § 727(a)(3).

COUNT IV – 11 U.S.C. §§ 727(a)(6) and (a)(7) – DEFENDANT MR. WHITMAN HAS REFUSED TO OBEY A TO A LAWFUL ORDER OF THE COURT IN

CONNECTION WITH THE FOSSIL CREEK CASE



146. “The court shall grant the debtor a discharge, unless – the debtor has

refused, in the case . . . to obey any lawful order of the court, other than an order to

respond to a material question or to testify.” 11 U.S.C. § 727(a)(6)(A).

147. In order to carry its burden by a preponderance of the evidence, the

party objecting to discharge must show (a) that the court entered an order directed at the

debtor; (b) that the order was lawful; (c) that the order was not one requiring a response

to a material question or to testify, and (d) that the debtor refused to obey the order. In re

Wells, 426 B.R. 579, 608-09 (Bankr. N.D. Tex. 2006).

148. The 114 Partners Withdrawals establish Mr. Whitman’s refusal to obey

the Confirmation Order.

149. The Confirmation Order specifically overruled Mr. Whitman’s

confirmation objection and specifically provided that different management would lead

the Reorganized Debtors post-confirmation. The Confirmation Order required no

response by Mr. Whitman. In contravention of the Confirmation Order’s removal of Mr.

Whitman from management and control of the Reorganized Debtors, Mr. Whitman

removed $12,000.00 from the 114 Partners Account.

150. Under section 727(a)(6), a debtor’s non-compliance with a court order


Complaint of 29

must be willful and not the result of inability, inadvertence, or mistake. In re Wells, 426

B.R. at 609. A debtor cannot claim inadvertence or mistake when he was aware of the

court order and chose to disregard it. Id. at 610.

151. Mr. Whitman’s Original SOFA and Amended SOFA Item 4 disclose each

Fossil Creek Debtors’ bankruptcy filing with the notation “trustee confirmed a plan.”

Additionally, Mr. Whitman strenuously objected to confirmation through counsel.

Accordingly, Mr. Whitman was aware of the Confirmation Order. In making the 114

Partners Withdrawals, Mr. Whitman chose to disregard and ignore the Confirmation

Order.

152. In order to deny Mr. Whitman’s discharge under section 727(a)(6) with

regard to actions taken in connection with the Fossil Creek Case, the Court must also find

that Mr. Whitman committed the acts specified in section 727(a)(6) “on or within one

year before the date of the filing of the petition, or during the case, in connection with

another case, under this title or under the Bankruptcy Act, concerning an insider.” 11

U.S.C. § 727(a)(7).

153. The 11 Partners Withdrawals occurred in July of 2012, which is within

one year of the filing of the petition initiating the Defendants’ bankruptcy case.

154. Each of the Fossil Creek Debtors was an insider of Mr. Whitman, as of the

time of the filing of the Fossil Creek Debtors’ bankruptcy petitions. 11 U.S.C. § 101(31).

155. Accordingly, Mr. Whitman disobeyed a court order warranting denial of

his discharge under 11 U.S.C. §§ 727(a)(6) and (a)(7).


Complaint of 29

COUNT V – 11 U.S.C. § 707(b)(3) – THE GRANTING OF A DISCHARGE OF THIS CASE WOULD BE AN ABUSE OF THE PROVISIONS OF CHAPTER 7 OF THE BANKRUPTCY CODE



157. “In considering under [section 707(b)(1)] whether the granting of relief

would be an abuse of the provisions of this chapter in a case in which the presumption in

subparagraph (A)(i) of such paragraph does not arise is rebutted, the court shall consider

– (A) whether the debtor filed the petition in bad faith; or (B) the totality of the

circumstances (including whether the debtor seeks to reject a personal services contract

and a financial need for such rejection as sought by the debtor) of the debtor’s financial

situation demonstrates abuse.” 11 U.S.C. § 707(b)(3).

158. The Defendants’ failure to explain the loss of the Westlake Property sales

proceeds and large cash transactions, as well as Mr. Whitman’s willful disregard of the

Confirmation Order, suggest that the bankruptcy petition was filed in bad faith under 11

U.S.C. § 707(b)(3).

159. Accordingly, the Defendants’ discharge should be denied or, alternatively,

the case should be dismissed.

WHEREFORE, the United States Trustee respectfully asks the Court to deny the

Defendant’s discharge pursuant to 11 U.S.C. §§ 727(a)(5), (a)(4), (a)(3), (a)(6) and (a)(7)

and under 11 U.S.C. § 707(b)(3) of the Code and for such other relief as is just.


Complaint of 29

DATED: July 19, 2013 Respectfully submitted, WILLIAM T. NEARY UNITED STATES TRUSTEE /s/ Meredyth A. Kippes Meredyth A. Kippes Texas State Bar No.24007882 Office of the United States Trustee 1100 Commerce St. Room 976 Dallas, Texas 75242 (214) 767-1079

Certificate of Service The undersigned hereby certifies that on July 19, 2013 a true and correct copy of the foregoing document was served on the Defendant at the addresses listed below by First Class United States Mail. /s/ Meredyth A. Kippes Meredyth A. Kippes Kipp Anthony Whitman 3402 Crossgate Circle South Colleyville, TX 76034 Beth LaRae Whitman 3402 Crossgate Circle South Colleyville, TX 76034

Behrooz P. Vida The Vida Law Firm, PLLC 3000 Central Drive Bedford, TX 76021 Shawn K. Brown Chapter 7 Trustee PO Box 93749 Southlake, TX 76092


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