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Textron Financial Corp. v. Gallegos

United States District Court, S.D. California

June 30, 2017

Textron Financial Corp., Plaintiff,
v.
Michael S. Gallegos, Defendant.

          REPORT AND RECOMMENDATION ON PLAINTIFF'S APPLICATION FOR A SHOW-CAUSE ORDER

          HON. ANDREW G. SCHOPLER UNITED STATES MAGISTRATE JUDGE

         Defendant Michael Gallegos owes plaintiff nearly $22 million. While Gallegos claims poverty, plaintiff says that Gallegos is using his businesses to fund a posh lifestyle, including a $7 million mansion, luxury cars, and college expenses for two daughters. To help collect the debt, the Court assigned Gallegos's interests in various businesses to plaintiff and warned Gallegos not to “evade payment.” (ECF No. 191, at 2.) Thereafter, Gallegos shuttled money from one of these businesses to another company he co-owns. That company-which was not listed in the assignment order-paid the lease on his personal Mercedes Benz.

         This shell game is proper, contends Gallegos, because no business covered by the assignment order directly paid him. And plaintiff is only entitled to such direct payments, or so the argument goes.[1] Plaintiff finds this argument unconvincing and moves for a show-cause hearing to determine if Gallegos is in contempt.

         Gallegos's actions are gravely troubling. His businesses appear to pay his expenses, yet he draws no salary, which would be subject to garnishment by creditors (and taxation). He should pay his debts or pay for his debt-dodging. But the current assignment order- agreed to jointly by the parties-may lay an imperfect foundation for criminal contempt on these facts. To eliminate any wiggle room, this Court recommends modifying that order as follows:

         AMENDED ASSIGNMENT ORDER

         1. For purposes of this amended assignment order, the following definitions apply:

a. Payment: A “payment” refers to the transfer of any thing of value (including but not limited to money, securities, valuables, and credit), except for a bona fide salary for defendant Michael Gallegos. The term “payment” includes both direct and indirect transfers.
b. Personal expenses: The term “personal expenses” includes expenses for Gallegos himself as well as for his immediate family.

         2. Plaintiff SPE LO Holdings, LLC, is assigned Gallegos's interests in any payment from any entity listed in the attached Appendix. SPE LO is entitled to any payment these entities make-or would otherwise make-that is: (a) directly to Gallegos; or (b) for Gallegos's personal expenses; or (c) to any intermediary so that another may ultimately make a payment directly to Gallegos or for Gallegos's personal expenses.

         3. Gallegos must immediately report to SPE LO the amount and source of any salary he is currently receiving. This is a continuing duty, so Gallegos must also immediately report any changes to his salary, such as a new salary source or any changed salary amount.

         4. Gallegos shall not cause or encourage any entity listed in the attached Appendix to make a payment: (a) to him directly; or (b) for his personal expenses; or (c) to any intermediary so that another may ultimately make a payment directly to Gallegos or for Gallegos's personal expenses.

         5. If any entity listed in the attached Appendix fails to provide SPE LO a payment to which it is entitled as described above, Gallegos must immediately cause the assignment and transfer of that payment to SPE LO.

         6. Gallegos must immediately provide each entity listed in the attached Appendix with a copy of this amended assignment order and inform each such entity of its obligation to immediately re-direct the payments described above to SPE LO.

         7. Gallegos is warned that if he violates this or any other Court order, the case may be referred to the U.S. Attorney's Office for a criminal contempt prosecution.

         In light of the foregoing, this Court recommends that SPE LO's request for a show-cause order be DENIED.

         Within five calendar days of the District Judge's adoption of the foregoing proposed amended assignment order or issuance of a different amended assignment order, Gallegos must file with this Court a notarized verification that he has read that amended assignment order in its entirety (including any Appendix), that he fully understands it, and that he agrees to obey it. That verification must be signed by Gallegos personally, under penalty of perjury, in the presence of a notary licensed in the state of California.

         APPENDIX

         1. ABQ Hotel & Waterpark Investment, LLC

         2. ABQ Hotel Investment, LLC

         3. ABQ Hotel Ventures, LLC

         4. Advent Hotel Management Corporation

         5. Alameda Hotel Investment LLC

         6. Amberly Hotel Investment, LLC

         7. American Property Hospitality Management, LLC

         8. American Property Hospitality

         9. American Property Hotel II, LLC

         10. American Property Hotel LLC

         11. American Property Investments, LLC

         12. American Property Investors - Alexis Park, LLC

         13. American Property Investors - Reid Park, LLC

         14. American Property Investors-ABQ, LLC

         15. American Property Investors-Knoxville, LLC

         16. American Property Investors, LLC

         17. American Property Management Corp.

         18. American Property--Management Corporation

         19. AP/APMC Management, Limited Partnership

         20. AP/APMC Management II, Limited Partnership

         21. APHM Cancun Hotel Management, LLC

         22. APHM Carlise, LLC

         23. APHM FL Hotel Management, LLC

         24. APHM Hotel ...


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