Bavelis v. Doukas (In re Bavelis)

Decision Date26 November 2014
Docket NumberNo. 14–3067.,14–3067.
Citation773 F.3d 148
PartiesIn re George A. BAVELIS, Debtor. George A. Bavelis, Plaintiff–Appellee, v. Ted Doukas, Defendant–Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED:Mark E. Brown, Menefee & Brown, Knoxville, Tennessee, for Appellant. Christopher J. Hogan, Zeiger, Tigges & Little, LLP, Columbus, Ohio, for Appellee.

ON BRIEF:Mark E. Brown, Menefee & Brown, Knoxville, Tennessee, for Appellant. Christopher J. Hogan, Marion H. Little, Jr., Zeiger, Tigges & Little, LLP, Columbus, Ohio, for Appellee.

Before: BATCHELDER, GILMAN, and GIBBONS, Circuit Judges.

OPINION

RONALD LEE GILMAN, Circuit Judge.

George A. Bavelis sought relief under Chapter 11 of the Bankruptcy Code in 2010 due to sizable debts that he had accumulated from his numerous business ventures. Bavelis subsequently brought an adversary proceeding against several defendants. These defendants included his friend and business associate Ted Doukas, as well as a number of businesses owned and controlled by Doukas (the Doukas Defendants). One of Doukas's companies responded by filing a proof of claim against the Bavelis bankruptcy estate.

In the bankruptcy proceedings that followed, the Doukas Defendants argued, among other things, that Doukas had a claim for rescissionary relief against Bavelis based on the latter's purported violations of Florida's securities laws related to stock that Doukas had purchased from a Bavelis-run bank holding company. The bankruptcy court concluded, however, that Doukas does not have a viable claim against Bavelis under Florida law.

The Bankruptcy Appellate Panel (BAP) affirmed. Doukas now argues that the bankruptcy court acted beyond its constitutional authority in interpreting Florida law and, further, that the interpretation by both the bankruptcy court and the BAP was in error. For the reasons set forth below, we AFFIRM the judgment of the BAP.

I. BACKGROUND

A. Factual background

The facts relating to the issues on appeal are essentially undisputed and were exhaustively compiled by the bankruptcy court, Bavelis v. Doukas (In re Bavelis), 490 B.R. 258 (Bankr.S.D.Ohio 2013), and summarized by the BAP, Quick Capital of L.I. Corp. v. Bavelis (

In re Bavelis), No. 13–8015, 2013 WL 6672988 (B.A.P. 6th Cir. Dec. 19, 2013) (unpublished). The only relevant findings of fact challenged by Doukas are related to the bankruptcy court's decision to credit Bavelis's testimony over that of Doukas. Because of the great deference required where a trial court's factual findings rest on the decision to credit the testimony of one witness over another, see Anderson v. City of Bessemer City, 470 U.S. 564, 575, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (explaining that a factfinder's decision to credit the testimony of one of two or more witnesses can “virtually never be clear error”), we have adopted the bankruptcy court's relevant findings in their entirety.1. Bavelis's career

Bavelis immigrated to the United States from his native Greece in 1958. Starting in the early 1970s, Bavelis became involved in real estate, first by subleasing rental properties and later by purchasing and leasing out apartment buildings. He was engaged full time in the real estate business by 1975. In subsequent years he formed more than 30 real estate investment partnerships operating in central Ohio. Bavelis personally guaranteed the mortgage debts incurred by these partnerships.

In 1996, Bavelis and other investors acquired Sterling Bank, a federally chartered savings bank located in Lantana, Florida. Eight years later the bank was converted into a commercial bank chartered by the state of Florida. Bavelis was a director of Sterling Bank, as well as the chairman of the board, chief executive officer, and president of its parent company, Sterling Holding (also known as Sterling BancGroup, Inc.). At one point, Bavelis and members of his family, both directly and through trusts, owned between 52–55% of Sterling Holding.

Bavelis met Leftheris “Ted” Doukas through the bank. The two men first crossed paths when Doukas obtained title to several residential properties encumbered by security interests held by Sterling Bank. Initial negotiations between Doukas and Sterling Bank employees regarding the outstanding debt on the properties went poorly, causing the parties to seek Bavelis's assistance. These initial business dealings triggered a social relationship between the two men, and Doukas became close friends with both Bavelis and Bavelis's wife.

2. Bavelis's financial struggles

By the spring of 2009, Bavelis was under considerable financial pressure. He was struggling to service more than $18 million in bank debt from numerous business ventures and, as with his Ohio-based partnerships, Bavelis had personally guaranteed (or otherwise had personal liability on) all of this debt. In addition, both Sterling Holding and Sterling Bank desperately needed cash infusions totaling over $12 million.

With his friend in dire financial straits, Doukas offered his assistance on numerous fronts. Among other actions, Doukas negotiated with one of Bavelis's business partners, Mahammad Qureshi, to reapportion the partners' respective bank-debt responsibilities; he purchased $200,000 worth of Sterling Holding stock in March 2009 and deposited $2 million into his accounts at Sterling Bank to help keep the bank afloat; and, despite the fact that he was neither a lawyer nor an estate planner by trade, Doukas offered to help Bavelis with estate planning.3. The contested transactions

In addition to the above matters, Bavelis, Doukas, and their associated business entities were involved in two large transactions at the heart of this appeal. Both matters are set forth below.

i. Promissory note and loan agreement

First, in June 2009, at Doukas's suggestion, Bavelis signed and delivered to Doukas a $14 million promissory note payable to Quick Capital, one of Doukas's companies. The note identifies the consideration as “FOR VALUE RECEIVED.” It specifies an interest rate of 5% per annum and calls for the balance due on June 21, 2014. Bavelis also signed a security agreement, granting Quick Capital an interest in certain shares of Sterling Holding.

In addition to the promissory note and the security agreement, Bavelis and Doukas signed a loan agreement. The loan agreement does not refer to the promissory note, but contains the following two recitals:

Whereas Quick has provided and will continue to provide consulting and management services in an effort to restructure various liabilities and troubled assets owned directly or indirectly by [Bavelis]; and

Whereas [Bavelis] as security for the payment of these services rendered and to be rendered agrees to provide a security interest for Quick in various securities in the amount of Fourteen Million ($14,000,000) Dollars[.]

The loan agreement further states that Quick Capital “shall tender the sum of Two hundred Thousand ($200,000) Dollars to George A. Bavelis.” Doukas gave Bavelis a check for $250,000 shortly thereafter (the extra $50,000 was related to another transaction between the two of them). Within one month, Bavelis had repaid the full sum to Doukas.

Although the parties had no expectation of following through on the remaining terms of these documents, Bavelis signed them because Doukas had convinced him that they were part of a complicated estate-planning scheme that Doukas would arrange on Bavelis's behalf. Specifically, Doukas was “going to form a Nevada corporation because there were some advantages that Nevada corporations have.” Although the bankruptcy court acknowledged that this explanation seems “implausible,” it accepted Bavelis's version of events based in large part on the fact that Bavelis “considered [Doukas] a friend and brother in whom he could place the utmost confidence and trust,” Bavelis, 490 B.R. at 276.

Prior to signing, Bavelis obtained an oral promise from Doukas that Bavelis would not have to make any payments on the note. As Bavelis testified: [W]hen I gave him this note for $14,000,000 I said, ‘Ted, you don't expect me to make payments for this thing?’ He said, ‘No, no, no, you don't need to make payments.’ Doukas told Bavelis that the note would be returned once the estate planning was finalized, but Doukas never completed Bavelis's estate plan.

ii. Sterling Holding stock purchase

Second, and of at least equal importance, Doukas agreed to purchase nearly $1.5 million of stock in Sterling Holding in September 2009 (in addition to the $200,000 of stock he bought in March 2009). Doukas's purchase came in response to an August 7, 2009 letter from Bavelis to all Sterling Holding shareholders (including Doukas). The letter stated in relevant part as follows:

Sterling Bank, like a high majority of the banks in Florida, has been coping with the troubled loans so far and a written agreement has been reached between the Bank, the Federal Reserve and the State of Florida that we must reserve additional funds for reserves and further increase our capital ratios even though we have always been in the “well capitalized” category. In an effort to comply with the regulators [sic] requests and increase our regulatory ratios to the unprecedented higher ratios, the Board of Directors unanimously approved raising $12,600,000 new capital, primarily from the existing shareholder[s] through the end of the month, on a prorata basis at $100 per share for Class A and $80 per share of Class B and any shareholder may purchase any additional Common Shares of Class A or Class B for the same pro rata after August 31, 2009. Class A Shares are voting and Class B shares are non-voting but the shareholder distributions of both classes of shares will be the same as soon as our bank begins distributing money again with the permission of our regulators which we hope to be sometime in a year or two.

The letter was accompanied by a subscription agreement, a confidential private...

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