Abramov v. Movshovich (In re Movshovich), Bankruptcy No. 12–13772–FJB.

• Decision Date: 23 October 2014
• Docket Number: Bankruptcy No. 12–13772–FJB.,Adversary No. 12–01193.
• Citation: 521 B.R. 42
• Parties: In re Yefim MOVSHOVICH, Debtor. Mark Abramov, Plaintiff v. Yefim Movshovich, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

521 B.R. 42

In re Yefim MOVSHOVICH, Debtor.
Mark Abramov, Plaintiff
v.
Yefim Movshovich, Defendant.

Bankruptcy No. 12–13772–FJB.
Adversary No. 12–01193.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

Signed Oct. 23, 2014

Ordered accordingly.

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Gary W. Cruickshank, Law Office of Gary W. Cruickshank, Boston, MA, for Debtor.

[521 B.R. 46]

MEMORANDUM OF DECISION

FRANK J. BAILEY, Bankruptcy Judge.
I. Overview

By his complaint in the adversary proceeding, plaintiff Mark Abramov (“Abramov”) seeks a determination that a debt owed to him by the defendant and chapter 7 debtor, Yefim Movshovich (“Movshovich”), is excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (a)(2)(B), and (a)(4). After a trial, the Court now makes the following findings and rulings and on the basis thereof, concludes that the judgment debt is excepted from discharge in its entirety, including all accrued and accruing interest thereon.

II. Procedural History

The debt for which Abramov seeks a determination of non-dischargeability arises out of a failed business relationship between the parties that lasted roughly five years, from early–2002 through early–2007. Following the dissolution of the business relationship, Abramov commenced civil litigation against Movshovich for breach of contract in Suffolk Superior Court. On March 8, 2012, by way of a jury verdict, Abramov was awarded a judgment against Movshovich in the amount of $225,000 plus interest. Abramov subsequently obtained two executions against Movshovich, in the amounts of $18,073.40 and $339,720.58 on March 8, 2012 and March 12, 2012, respectively.

On May 1, 2012, Movshovich filed a petition for relief under Chapter 7 of the Bankruptcy Code, commencing the present bankruptcy case. On July 27, 2012, Abramov timely filed the complaint commencing this adversary proceeding. Abramov seeks a determination that Movshovich's state-court judgment debt to him is excepted from discharge under § 523(a)(2)(A) as a debt arising from false pretenses, a false representation, or actual fraud, under § 523(a)(2)(B) as a debt obtained by use of a statement in writing that is materially false, and under § 523(a)(4) as a debt arising from fraud or defalcations while acting in a fiduciary capacity. The parties tried the matter over three days and, after trial, submitted proposed findings and rulings and post-trial briefs.

III. Findings of Fact A. Initial Negotiations

Europe Today, Inc. (“Company”) is a privately held for-profit Massachusetts corporation located in Brighton, Massachusetts and engaged in the business of selling furniture. During all times relevant to this adversary proceeding, Movshovich and his wife Irina Movshovich (“Irina”) were officers of the Company. This case concerns negotiations by Abramov and his wife, Sofia Marder (“Sofia”), to purchase a one-half interest in the Company from Movshovich and Irina. Sofia, who had been friends with Movshovich and Irina, introduced her husband to the couple in late 2001, at which time, the parties began discussions concerning the sale of an interest in the Company. When negotiations began, Movshovich was a thirty-four percent stockholder in the Company and Irina was a thirty-three percent stockholder in the Company. The final thirty-three percent of Company stock was owned by the Movshovichs' business partner, Jakov Segal (“Segal”).

In an initial September 2001 meeting between Abramov and Movshovich, Movshovich expressed that he wanted “to get rid of his business partner,” Segal. Movshovich stated that he and Irina would sell a one-half interest to Abramov if they were able to buy out Segal's interest. During this meeting, Movshovich represented

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the value of the Company to be over $1 million and stated that the store had an annual net profit of $220,000.

The parties met again in January 2002. At this meeting, Movshovich and Abramov again discussed the issue of the Company's value. As Abramov explained in his testimony, he disagreed with Movshovich's estimate. “I told [Movshovich] that the store—the value of the store was overrated and I suggested instead of 1.5 million dollars, $500,000.” Abramov offered to purchase a one-half interest in the Company for $250,000, as he estimated the value of the Company to be $500,000. Abramov also stated that prior to the final sale, he wanted to examine the “official financial documents of the store,” including bank statements and tax returns in order to fully assess the value of the Company. Ina subsequent telephone conversation, Abramov again asked Movshovich for these documents. Movshovich “apologized and said that they were not available” as the accountant for the Company had been too busy to prepare them.

The parties continued to have more detailed discussions regarding the possible sale, and in February 2002, Abramov, Sofia, Movshovich, and Irina held a meeting at the Company store. At this meeting, Movshovich and Irina presented to Abramov and Sofia “boxes of sales slips” and a “working journal where all the financial information of the company [was] recorded.” From these documents, Movshovich and Irina guided Sofia in creating handwritten summaries of the store's financial operations for the years 2000 and 2001, while Abramov observed. Based on the sales slips and corporate journal provided by Movshovich and Irina, the group created a summary sheet reflecting the Company's gross sales, expenses, and net profit for the year 2000 (“2000 Financial Summary”) and a second summary sheet reflecting the Company's gross sales, expenses, and net profit for the year 2001(“2001 Financial Summary”).

Movshovich and Irina presented the 2000 Financial Summary and the 2001 Financial Summary to Abramov and Sofia as evidence of the value of the Company. As Abramov later testified, the purpose of preparing the summary sheets was to demonstrate “how successful the company was because we haven't been given any official documents. So the purpose was to show the success of the company.” Abramov considered the summary sheets to be accurate representations of the Company's finances as they were based on what Movshovich alleged was “the working journal of the company where all the financial data of the company was recorded and, in turn, the journal was based on sales slips.”

The 2000 Financial Summary showed gross sales of $1,117,380 and net profit of $218,250 for the year 2000. The 2001 Financial Summary showed gross sales of $1,177,600 and net profit of $226,420 for the year 2001. The information provided to Abramov and Sofia in the form of the 2001 Financial Summary is not consistent with the information the Company provided to the Internal Revenue Service for the year 2001. The Company's federal income tax return for the year 2001 (“2001 Company Tax Return”), a document that Abramov was only able to obtain years later by way of discovery in state court litigation, reported gross sales of $516,862 and a net operating loss.

The parties continued to meet and discuss the operations of the Company in March and April of 2002. During these meetings, Abramov repeated his request to review the “official financial documents” of the Company beyond the sales slips, the corporate journal, and the summary sheets. Movshovich responded to these requests by stating that the accountant

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was not available to provide the information.

B. The Deal

In May 2002, the parties formulated a plan as to how Abramov might purchase a one-half interest in the Company. As part of the deal, Abramov would pay Movshovich a deposit of $150,000. Movshovich would use this $150,000 plus $10,000 of his own money to buy out the thirty-three percent interest of Segal who had offered to sell his interest for $160,000. Upon payment of the deposit, Abramov would begin working in the store to become familiar with the operations of the Company and to see how the relationship between Abramov and Movshovich developed as potential partners. Movshovich promised to make all Company financial documents available to Abramov in 2003 after the Company accountant completed all year-end accounting for 2002. The parties agreed that by April 2003, after Abramov had worked at the Company for several months and had examined the company's financial documents, either party could decide not to proceed with the deal. If either party decided that they did not want to move forward with the deal, then Movshovich would pay back Abramov his entire deposit of $150,000, plus an additional $1,500 for each month he had worked as an employee of the Company. Alternatively, if both parties agreed to move forward with the plan, then Abramov would receive fifty percent of the net profit earned by the company during June through December 2002. Additionally, Abramov would owe a remaining balance of $100,000 in addition to the initial $150,000 deposit for a total purchase price of $250,000 in exchange for a fifty percent interest in the Company. Upon payment of the additional $100,000, the parties would enter into a formal written agreement in which fifty percent of the stock would be transferred to Abramov.

C. June 5, 2002: Abramov pays $150,000 Deposit; Movshovich buys out Segal

On June 5, 2002, Abramov, Sofia, Movshovich, Irina, and Segal were all present for a meeting in which Abramov paid Movshovich $150,000, representing the agreed upon deposit price. At this meeting, Segal was given the $150,000 from Abramov and an additional $10,000 in exchange for his thirty-three percent share of the Company stock, which share was transferred to Movshovich.

Movshovich asserts that he viewed Abramov and Sofia as owners of a fifty percent interest in the Company after their payment of $150,000 at this meeting on June 5, 2002. However, Movshovich concedes that no steps were ever taken to formally transfer any Company stock to Abramov or Sophia. In light of this fact and in light of Movshovich's subsequent behavior, I do not find Movshovich's...