50 Patton Drive, LLC v. Fustolo (In re Fustolo), Case No. 13-12692-JNF
| Decision Date | 31 December 2015 |
| Docket Number | Adv. P. No. 14-1193,Case No. 13-12692-JNF |
| Parties | In re STEVEN C. FUSTOLO, Debtor 50 PATTON DRIVE, LLC, and THE PATRIOT GROUP, LLC, Plaintiff v. STEVEN C. FUSTOLO, Defendant |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
The matter before the Court is the Motion of The Patriot Group, LLC ("Patriot") to Compel the Defendant Steven C. Fustolo ("Fustolo" or the "Debtor") to Produce Documents and Agreed Upon Motion to Extend the Discovery Deadline to Complete Debtor's Deposition. Pursuant to Fed. R. Civ. P. 37, Bank. P. R. 7037, and Local Rule 7037-1, Patriot seeks to compel Fustolo to produce "(a) emails responsive to Patriot's First Request for Production of Documents (the "First Set") and (b) up to date bank account statements and other financial records through 2015 for each of the entities Fustolo controls." Specifically, Patriot requests an order compelling Fustolo to produce certain emails immediately or otherwise grant it access to them directly from Fustolo's account provider, American Online ("AOL"). Patriot also seeks documents updating Fustolo's bank records and other account information, which he previously produced, "for the remainder of 2014 and through the present date" because Fustolo employed an arbitrary cut-off date of December 2014 and has refused to produce any updated financial information. In Patriot's view, the requested updated bank records will expose Fustolo's alleged postpetition wasting of bankruptcy estate assets which it maintains is relevant to certain counts in its adversary complaint under 11 U.S.C. §§ 727(a)(2)(B), (a)(3), (a)(5).
The Debtor opposed Patriot's Motion and filed a Cross-Motion to Quash the Second Request for Production of Documents; Patriot filed a Reply. The Court heard Patriot's Motion, the Opposition, and the Motion to Quash on December 2, 2015. At the hearing, Patriot requested that Fustolo provide it with a log of all emails and documents he asserts are protected by his right against self-incrimination under the Fifth Amendment to the United States Constitution, and Fustolo's criminal defense counsel, who was present at the hearing, challenged Fustolo's ability to provide such a privilege log without waiving his Fifth Amendment rights. In light of these issues and the parties' dispute over the email provider's email retention policies, the Court directed Fustolo's counsel to research AOL's email retention policies and file a supplemental response by December 3, 2015 at 3:00 p.m.1 The Court also authorized Patriot's counsel to file a response to Fustolo's supplemental response within 24 hours. Patriot filed a Responseon December 4, 2015 addressing the AOL email retention policies and renewing its request that Fustolo provide it with a catalog of documents and emails he is withholding on Fifth Amendment grounds.
Patriot is the holder of a claim in the amount of $25,756,305.33 arising from a judgment entered against the Debtor by the Middlesex Superior Court, Department of the Trial Court. Together with other creditors, it filed an involuntary petition against the Debtor on May 6, 2013. The Court entered an order for relief on December 16, 2013. Total claims in the Debtor's case exceed $45 million.
Patriot, together with 50 Thomas Patton Drive, LLC ("Patton Drive"), filed a Complaint against Fustolo on September 30, 2014. On October 28, 2015, Patton Drive filed a Motion of Co-Plaintiff 50 Thomas Patton Drive, LLC to Dismiss Its Claims, noting that in Counts I through V of the Complaint both Patton Drive and Patriot objected to the Debtor's discharge, that in Counts VI and VII of the Complaint Patton Drive sought a determination that its claims against the Debtor are not dischargeable in bankruptcy (the "Patton Drive Claims"), while in Count VIII of the Complaint Patriot sought a similar determination concerning its own claims against the Debtor. Thus, only Counts I through V and VIII are before the Court.
In its Complaint, Patriot alleged, among other things, that the Debtor signed a personal guaranty for the full and timely repayment of certain indebtedness to Patriotadvanced as loans for the development and improvement of real property located at 145 rear Revere Beach Boulevard, 147 rear Revere Beach Boulevard, 546 Revere Beach Boulevard, 527 Revere Beach Boulevard, 530 Revere Beach Boulevard, 532-534 Revere Beach Boulevard, 536 Revere Beach Boulevard, 538-540 Revere Beach Boulevard, 542-544 Revere Beach Boulevard, and 543-546 Revere Beach Boulevard (collectively the "Revere Beach Property"). The indebtedness underlying the guaranty was secured by a mortgage on the Revere Beach Property. The Debtor defaulted on the guaranty, and Patriot initiated a civil action against the Debtor to collect the guaranty, eventually obtaining a judgment on May 27, 2011 from the Middlesex Superior Court. According to Patriot, prior to obtaining its judgment, it conducted a public auction foreclosure sale of the Revere Beach Property on April 30, 2010, in order to recover some or all of the Debtor's indebtedness. At that foreclosure sale, an entity known as Affinity Investments, LLC ("Affinity") appeared through Attorney Paul Seyffert and submitted the high bid of $5,200,000.00 for the Revere Beach Property. Affinity tendered the required $50,000.00 deposit and executed a Sale Agreement, which provided that Affinity would pay the $470,000.00 deposit balance within ten days, and pay the remaining purchase price balance within thirty days. Affinity, however, defaulted on its obligations under the Sale Agreement. At the time of the Foreclosure Sale, Patriot alleged that Affinity was a straw for the Debtor; that Affinity's manager and registered agent, Martin Nahigian, was the Debtor's close associate; that the Debtor solely owned and/or controlled Affinity; and that the Debtor, and not Affinity or Nahigian, funded the $50,000.00 foreclosure sale deposit payment from a deposit account held in the name of the Debtor's spouse, ElisaFustolo. On July 30, 2010 Patriot initiated a civil action in the Suffolk Superior Court against Affinity for breach of contract and obtained, on January 20, 2011, a default judgment against Affinity in the amount of $5,150,000.00 plus interest in the amount of $363,933.32.
Patriot further alleged in its Complaint that the Debtor "established and continued to utilize a multi-layered conglomeration of juridical entities and trusts that in relationship to the Debtor's past and present business activities is unnecessarily complex and, upon information belief, intentionally established and utilized to assist the Debtor in concealing his assets from creditors" and promoting fraud. Patriot identified numerous entities which it alleged held one or more deposit accounts, did not observe corporate or other formalities, and were mere instrumentalities or alter egos of the Debtor. These entities included: 32 Park Vale Avenue Trust, a nominee trust; Property Trust Corporation; Huntington Properties, Inc.; CPE Meetings, Inc.; National Tax Institute, Inc.; Revere Beach Properties, Inc.; 5 High Street, LLC; 65 North Margin Street LLC; 115 Salem Street Realty LLC; 135-137 Salem Street LLC; 162 Salem Street LLC; Fustolo Development LLC; Fustolo Properties LLC; New Sheafe Street, LLC; North Margin Street Development, LLC; the Ocean Club Condominium, LLC; Ocean GP, LLC; Huntington Properties Holding Company, LLC; NTI, LLC; "Revere Beach," a limited liability company; and Affinity.
In its Complaint, Patriot alleged the existence of numerous transfers by the Debtor to his spouse and his constructive ownership of her deposit accounts; numerous cash transactions within one year of the petition date; and substantial transfers to and frominsiders and the entities set forth above. Patriot also alleged that on the petition date the Debtor was entitled to receive royalties and writing fees from one or more publishers of educational materials for accountants and tax professionals for the Debtor's authorship of educational materials purchased by various publishers of educational materials for inclusion as content in their publications. These publishers included Stuart Shough Seminars LLC, WebCE, Inc., Thomson Reuters, Spidell Publishing, Inc., CPE Link, Professional Scholastics, Inc., and Professional Educational Services, LP. According to Patriot, the Debtor's right and entitlement to receive payments from educational publishers for his written work, submitted to educational publishers under express or implied agreements in existence as of the petition date, are property of the bankruptcy estate. The Debtor, however, as alleged by Patriot, instructed the publishers to make payments to National Tax Institute, Inc. and other entities, including 32 Park Vale Avenue Trust. Patriot alleged that these transfers of royalties constituted actual and/or constructive concealment of the Debtor's property. In addition, Patriot complained of "[u]nauthorized and [n]efarious [p]ostpetition [t]ransfers; lack of records concerning assets, debts and business affairs, as well as false statements and oaths during his bankruptcy case."
Based upon the foregoing allegations, Patriot crafted the following counts: Count I - Objection to Discharge (11 U.S.C. § 727(a)(2)(A)); Count II - Objection to Discharge (11 U.S.C. § 727(a)(2)(B)); Count III - Objection to Discharge (11 U.S.C. § 727(a)(3)); Count IV - Objection to Discharge (11 U.S.C. § 727(a)(4)); Count V - Objection to Discharge (11U.S.C. § 727(a)(5)); and Count VIII - Nondischargeability of Patriot Claim (11 U.S.C. § 523(a)(2)).
As noted above, Patriot seeks an order compelling the Debtor to produce emails, as well as bank records, and account information for a period after December 2014. With respect to the emails, Fustolo maintains that he cannot produce them as his emails are deleted every thirty days by AOL...
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