Bavelis v. Doukas (In re Bavelis)

• Decision Date: 28 March 2013
• Docket Number: Bankruptcy No. 10–58583.,Adversary No. 10–2508.
• Citation: 490 B.R. 258
• Parties: In re George A. BAVELIS, Debtor. George A. Bavelis, Plaintiff, v. Ted Doukas, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

490 B.R. 258

In re George A. BAVELIS, Debtor.George A. Bavelis, Plaintiff,

v.Ted Doukas, et al., Defendants.

Bankruptcy No. 10–58583.

Adversary No. 10–2508.

United States Bankruptcy Court,

S.D. Ohio,

Eastern Division.

March 28, 2013.

Marion H. Little, Jr., Zeiger, Tigges & Little LLP, Columbus, OH, for Plaintiff.

Gary A. Goldstein, Baltimore, MD, Steven Newburgh, Steven S. Newburgh, P.A., West Palm Beach, FL, for Defendant.

John M. Stravato, Melville, NY, pro se.

MEMORANDUM OPINION ON DEBTOR'S OBJECTION TO PROOFS OF CLAIM OF QUICK CAPITAL OF L.I. CORP.

JOHN E. HOFFMAN JR., Bankruptcy Judge.

I. Introduction

The issue before the Court is whether Quick Capital of L.I. Corp. (“Quick Capital”) or any entity affiliated with it holds a claim against the Chapter 11 bankruptcy estate of George A. Bavelis (“Mr. Bavelis” or “Debtor”). Ted Doukas, a/k/a Leftheris Doukas (“Mr. Doukas”), the president and sole shareholder of Quick Capital, asserts that Quick Capital has a secured claim against Mr. Bavelis based on a promissory note (“QC Note”), a loan agreement (“QC Loan Agreement”) and a security agreement (“QC Security Agreement” and, together with the QC Note and the QC Loan Agreement, “QC Loan Documents”) that Mr. Bavelis signed in June 2009. Quick Capital filed an original proof of claim for a lesser amount (“Original Proof of Claim”), but then filed an amended proof of claim, Claim No. 49–2 (“Amended Proof of Claim” and, together with the Original Proof of Claim, “Proofs of Claim”), in the amount of $14 million plus interest.

Although claims based on promissory notes and loan agreements are relatively commonplace in bankruptcy, there is nothing ordinary about the facts that gave rise to Quick Capital's purported claim. Mr. Doukas himself concedes that Quick Capital lent Mr. Bavelis no funds. Rather, he contends that the consideration provided for the QC Loan Documents was fourfold: (1) a $200,000 loan provided by means of a check that one of Mr. Doukas's other companies, Nemesis of L.I. Corp. (“Nemesis”), issued to Mr. Bavelis; (2) approximately $1.4 million of funds that Mr. Doukas transferred from certain bank accounts to purchase stock in Sterling BancGroup Inc. (“Sterling Holding”), allegedly on behalf of Mr. Bavelis; (3) Mr. Doukas's promise to pledge his assets to help resolve Mr. Bavelis's financial problems and to purchase nonperforming loans of Sterling Holding's banking subsidiary, Sterling Bank of Palm Beach County, Florida (“Sterling Bank”); and (4) Mr. Doukas's promise to provide consulting and management services to Mr. Bavelis, including attempting to resolve disputes with one of Mr. Bavelis's business partners, Mahammad A. Qureshi (“Mr. Qureshi”), in a manner that would be in the best interests of Mr. Bavelis. In the alternative, Quick Capital argues that, if Mr. Doukas in fact purchased the shares of stock in Sterling Holding on his own behalf and not on behalf of Mr. Bavelis, then Mr. Doukas personally has a claim against Mr. Bavelis under Florida state law regulating the sale of securities.

Mr. Bavelis takes the position that he owes nothing to Mr. Doukas or his companies. According to Mr. Bavelis, Mr. Doukas took advantage of, among other things, their shared Greek heritage; the close friendship that quickly developed between Mr. Doukas and Mr. Bavelis and his wife, Georgia Gia Bavelis (“Mrs. Bavelis”), after they first met Mr. Doukas in early 2009; Mr. Bavelis's need to complete his estate planning; and the desire on Mr. Bavelis's part to save the failing Sterling Bank and to extricate himself from the strained business relationship with Mr. Qureshi.

Based on the documentary evidence and the testimony of multiple witnesses, the Court concludes that the Proofs of Claim must be disallowed and that neither Mr. Doukas nor any of his companies has a claim against Mr. Bavelis or his bankruptcy estate. First, Mr. Bavelis repaid the funds that Nemesis advanced to him. Second, neither Mr. Doukas nor any of his companies provided the other consideration allegedly supporting the QC Loan Documents. In this regard, the Court finds that Mr. Doukas purchased shares in Sterling Holding on his own behalf, not on behalf of Mr. Bavelis; that the assets that Mr. Doukas purportedly made available to restructure Mr. Bavelis's financial situation and/or to purchase nonperforming loans of Sterling Bank were never effectively used for that purpose; and that neither Mr. Doukas nor his companies ever provided consulting, management or estate planning services of any value, but instead perpetrated a scheme designed to deprive Mr. Bavelis of substantially all of his assets. In fact, Mr. Doukas made several representations that fraudulently induced Mr. Bavelis to sign the QC Loan Documents. Finally, the argument that Mr. Doukas personally has a claim against Mr. Bavelis based on Mr. Doukas's purchase of stock in Sterling Holding is without merit.

This opinion constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. To the extent any of the Court's findings of fact are determined to be conclusions of law, they are adopted as such; likewise, to the extent any of the Court's conclusions of law are determined to be findings of fact, they are adopted as such.

II. Jurisdiction

The Court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See28 U.S.C. § 157(b)(2)(B).

III. Findings of Fact

Based on the evidence adduced at trial,¹ including the documentary evidence and the testimony presented, and having considered the demeanor and credibility of the witnesses, the Court makes the findings of fact set forth below.

A. Events Occurring Before the Execution of the QC Loan Documents1. Mr. Bavelis's Real Estate and Banking Businesses

This is the story of how Mr. Bavelis came to trust Mr. Doukas enough to issue one of his companies a multimillion dollar promissory note and how Mr. Doukas later took advantage of that trust. It is difficult to understand why Mr. Bavelis allowed himself to become so closely involved with Mr. Doukas without knowing something of Mr. Bavelis's background before the two men met. Mr. Bavelis was born in Greece in 1937 and emigrated to the United States in 1958. Tr. at 451–52. After obtaining a scholarship and earning a degree from the University of Arkansas in mechanical engineering, he began working as an engineer in Arkansas. Tr. at 452–53. He and Mrs. Bavelis (who also was born in Greece) married in 1964 and moved in 1969 to Columbus, Ohio, where Mr. Bavelis continued his work as an engineer. Tr. at 380; 453. In 1971, he began subleasing rental properties and thereafter purchased apartment buildings to lease. Tr. at 453–54; 493. In 1973, he became a real estate broker. Tr. at 454.

By sometime in 1975, Mr. Bavelis no longer worked as an engineer, but instead was engaged full time in the real estate business. Tr. at 454. He organized Pella Company, a Columbus real estate investment and management company, Debtor's Ex. 118 at 6, and over the years formed more than 30 real estate investment partnerships operating in Columbus (“Ohio Partnerships”). Tr. at 454–55. Mr. Bavelis personally guaranteed the mortgage debt incurred by the Ohio Partnerships. Tr. at 465–66.

In 1996, Mr. Bavelis and other investors acquired Sterling Bank. Tr. at 226–27; 456; Debtor's Ex. 118, Confidential Memorandum Summary at 1. A federally-chartered savings bank, Sterling Bank converted into a commercial bank chartered by the State of Florida in 2004. Debtor's Ex. 118 at 1. Mr. Bavelis was a director of Sterling Bank and also was the chairman of the board, chief executive officer and president of its parent, Sterling Holding. Debtor's Ex. 118 at 6. At one point, Mr. Bavelis and members of the Bavelis family, directly and through trusts, owned somewhere between 52–55% of Sterling Holding. Tr. at 177; 458.

2. The Debtor's Relationship with Mr. Qureshi

In the early 2000s, a Sterling Bank lending officer suggested that Mr. Bavelis meet Mr. Qureshi, a customer of Sterling Bank, because Mr. Bavelis owned interests in six or seven gas stations, and Mr. Qureshi held interests in over 100 gas stations. Tr. at 458–59. The meeting went well, and the two men decided to go into business together. Tr. at 459. As Mr. Bavelis put it, “[Mr. Qureshi] came to my office and we met and we talked about what he was doing and what I was doing in the gas stations.” Tr. at 459:11–13. “And we hit it [off] pretty well there, I thought he was a very nice guy and we kept talking and at some point we said, ‘Why don't we just buy some gas stations together, invest some money together.’ And we decided to get into the partnerships.” Tr. at 459:13–18. From 2004 to 2007, Mr. Bavelis and Mr. Qureshi worked together to form limited liability companies for the purpose of investing in not only gas stations, but also office buildings and mixed-use real estate developments.

The result was an alphabet soup of companies. First, there was FLOMAQ, LLC (“FLOMAQ”), which was owned 50% by FLOHIO, LLC (“FLOHIO”), an Ohio limited liability company in which Mr. Bavelis had an indirect interest, and 50% by MAQ Management, Inc. (“MAQ Management”), named with the initials of its president, Mr. Qureshi. Tr. at 459–60. The successor in interest to FLOMAQ was FLOVEST, LLC (“FLOVEST”), formed in 2004 by equal members MAQ Management and FLOHIO. Tr. 461; Debtor's Ex. 14. The members of FLOHIO were Bavelis Family, LLC (“Bavelis Family”), Yessios Limited Partnership and Vakaleris Family Limited Partnership, with each owning one-third of FLOHIO. The Bavelises' three daughters each owned 30% of Bavelis Family, with Mr. Bavelis and Mrs. Bavelis each owning 5%. Mr. Bavelis was the manager of FLOHIO. Tr. at 460.

After FLOVEST came BMAQ, LLC (“BMAQ”), formed in 2005 by equal members Bavelis Family and Qureshi...