Bruinsma v. Zagotta (In re Zagotta)
| Decision Date | 09 February 2023 |
| Docket Number | BG 20-00242,Adversary Proceeding 20-80169 |
| Parties | In re: NICHOLAS M. ZAGOTTA, Debtor. v. NICHOLAS M. ZAGOTTA, JAMIE L. ZAGOTTA, individually and as Trustee of the JAMIE L. ZAGOTTA REVOCABLE TRUST dated December 19, 2016, and All Other Occupants of 3794 Lake Birch Street, N.E., Grand Rapids, Michigan 49525, Defendants. THOMAS A. BRUINSMA, Plaintiff, |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan |
Emily S. Rucker, Grand Rapids, Michigan, attorney for Plaintiff Thomas A. Bruinsma.
Nicholas S. Laue and A. Todd Almassian, Grand Rapids Michigan, attorneys for Defendants Nicholas M. Zagotta, Jamie L. Zagotta, individually and as Trustee of the Jamie L Zagotta Revocable Trust dated December 19, 2016, and all other occupants of 3794 Lake Birch Street, N.E., Grand Rapids, Michigan 49525. [1]
This adversary proceeding involves claims for avoidance of an alleged fraudulent transfer and imposition of a constructive trust brought by Chapter 7 Trustee Thomas A. Bruinsma (the "Plaintiff" or "Trustee") against Nicholas M. Zagotta (the "Debtor"), his wife, Jamie L. Zagotta ("Mrs. Zagotta"), and her revocable trust. The Trustee's claims generally arise out of a transaction that occurred in 2015, wherein the Debtor and his business partner procured a multi-million dollar investment in their newly formed entity, Content Curation and Data Asset Management ("CCDM"), from Alfred Koplin and his entity Jorie, LP. The Debtor and his partner convinced Koplin to invest in their new business by representing that CCDM had a lucrative contract with International Business Machines ("IBM"). As it turned out, that contract never existed. Notwithstanding, the Debtor and Mrs. Zagotta (sometimes referred to collectively as the "Defendants") almost immediately used a portion of the proceeds of Jorie's initial investment in CCDM to purchase a home in Illinois as tenants by the entirety. The Trustee's complaint seeks to avoid that purchase as a fraudulent transfer under § 544(b) of the Bankruptcy Code[2] and the Illinois Uniform Fraudulent Transfer Act ("UFTA"). Alternatively, the Trustee asks this court to impose a constructive trust on the Defendants' current home in Michigan based on the assertion that the initial purchase, along with the subsequent transfer of the property to Mrs. Zagotta's trust, and use of the proceeds to purchase the Michigan property, unjustly enriched Mrs. Zagotta.
In the cross motions for summary judgment currently before the court, the Trustee seeks summary judgment on his constructive trust claims, arguing that there are no disputed material facts regarding Mrs. Zagotta's lack of financial contribution in acquiring the properties. The Defendants dispute this assertion, arguing instead that the Trustee has failed to establish that the Mrs. Zagotta was unjustly enriched at the Debtor's expense by the transactions at issue. The Defendants' summary judgment motion asserts that the Trustee's fraudulent transfer claim was not timely under the four year statute of limitations set forth in the Illinois UFTA and that the Trustee has failed to meet the "sole intent" standard that applies to avoidance of fraudulent transfers of property to the entirety under Illinois law. Accordingly, the Defendants' counter motion requests entry of summary judgment in their favor on all of the Trustee's claims.
This court has jurisdiction over the chapter 7 base case. 28 U.S.C. § 1334. The case, and all related proceedings and contested matters, have been referred to this bankruptcy court for determination. 28 U.S.C. § 157(a); LGenR 3.1(a) (W.D. Mich.). The claim for avoidance and recovery of the fraudulent transfer alleged in the Trustee's complaint arises under the Bankruptcy Code and constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(H). See Joint Discovery Plan, AP Dkt. No. 30, at ¶ 5(d)(1). The parties and the court agree that the unjust enrichment and turnover claims alleged in the complaint are, at a minimum, non-core proceedings that are related to the bankruptcy case. 28 U.S.C. § 157(c)(1)-(2); Joint Discovery Plan, at ¶ 5(d)(3). Both parties have consented to this court entering final orders on all claims alleged in this adversary proceeding. Joint Discovery Plan, at ¶ 5(e).
The following factual summary is derived primarily from the Statements of Undisputed Material Facts filed by the parties in support of their respective motions.[3] The facts are generally not disputed, except as noted herein.
The Debtor and Mrs. Zagotta married in 2013, and moved to Chicago, Illinois. (Dft. Facts, at ¶ 1.) At that time, the Debtor practiced law in the Chicago area and Mrs. Zagotta worked at a fine jewelry store, earning an income of approximately $20,000 to $30,000 per year. (Dft. Facts, at ¶ 2; Dft. Exh. A at p. 8-9.) Mrs. Zagotta stopped working when she and the Debtor welcomed their first child in 2014 and has not worked outside of the home since that time. (Dft. Facts, at ¶ 3, 5.) The Defendants had two more children in 2015 and 2016, respectively. (Dft. Facts, at ¶ 4.)
Mrs. Zagotta did not own any real property or other significant assets when she married the Debtor in 2013. (Plf. Facts, at ¶ 52.) Since Mrs. Zagotta left her job at the jewelry store in 2014, she has not brought any income into the household. (Plf. Facts, at ¶ 51.) She also has not received any inheritances or substantial gifts and has not liquidated any personal property since she has been married. (Plf. Facts, at ¶ 53; Dft.
Exh. A at p. 52-53.) In short, all of the expenses for the Defendants' family are funded by the Debtor's income and Mrs. Zagotta is a stay-at-home parent. (Dft. Exh. A at p. 11.)
In June 2014, the Debtor and Christopher Johnson formed a limited liability company called Content Curation and Data Asset Management. (Dft. Exh. C.) CCDM performed technology consulting services early in its existence, but later focused its attention on licensing technology. (Plf. Facts, at ¶ 4.) Johnson was responsible for the technical aspects of the business, while the Debtor acted as the attorney for CCDM and generally ensured that Johnson met his obligations to clients. (Dft. Facts, at ¶ 8; Dft. Exh. B at p. 11-13.)
Alfred Koplin is a Chicago-area investor who the Debtor became acquainted with through his father, Nicholas C. Zagotta, and his father's law firm, Roberts McGivney Zagotta, LLC. (Plf. Facts, at ¶ 6-7.) The Debtor initially approached Koplin for advice on taking CCDM's business to the "next level", but those discussions eventually turned into a conversation about Koplin investing in CCDM. (Plf. Facts, at ¶ 8-9.) In the first half of September 2015, the Debtor, his father, and Johnson met with Koplin to discuss the potential investment. (Plf. Facts, at ¶ 10.) At this meeting, Johnson advised Koplin that CCDM had an agreement with IBM under which CCDM had "sold a set of algorithms to IBM that allows their cloud computing system to work more [efficiently]." (Plf. Facts, at ¶ 10; Plf. Exh. 2, at p. 34.)
After the meeting, negotiations and an exchange of information continued between the parties. Koplin retained counsel and signed a nondisclosure agreement on September 17, 2015. (Plf. Facts, at ¶ 11; Dft. Facts, at ¶ 12.) The Debtor then emailed a copy of what appeared to be a Software License Agreement between CCDM and IBM to his counsel, who forwarded the purported contract to Koplin's counsel. (Plf. Facts, at ¶ 12-13; Plf. Exhs. 4 & 5.) The purported IBM contract was signed by Laura Thompson, who is listed as an executive officer for IBM. (Plf. Facts, at ¶ 14.) Thompson is also Johnson's aunt. (Plf. Facts, at ¶ 15.) In addition to the contract, the Debtor provided Koplin, through their respective counsel, several other documents purporting to establish that Thompson had authority to sign the contract on IBM's behalf and to otherwise validate the contractual relationship between CCDM and IBM. (Plf. Facts, at ¶ 17-19.) The Debtor also told Koplin that CCDM had a contract with IBM on multiple occasions. (Plf. Facts, at ¶ 24.)
Koplin ultimately formed a limited partnership, Jorie, LP, to invest in CCDM by purchasing a membership interest in the company. (Dft. Facts, at ¶ 14-15.) Jorie invested its first $2,750,000 into CCDM on September 29, 2015. (Plf. Facts, at ¶ 26.) That same day, the Debtor signed a check on behalf of CCDM, and payable to himself, in the amount of $1,225,000 and deposited the check in his "Law Offices of Nicholas M. Zagotta" bank account at Lakeside Bank. (Plf. Facts, at ¶ 27; Dft. Facts, at ¶ 17; Plf. Exh. 13.) According to the Debtor, this payment was consideration for the sale of the Debtor's membership interest in CCDM. (Dft. Facts, at ¶ 17.) CCDM received a second investment from Jorie in the amount of $2,950,000 on November 2, 2015. (Plf. Facts, at ¶ 28.) The next day, the Debtor received a $1,400,000 wire transfer from CCDM. (Plf. Facts, at ¶ 29.)
Approximately two weeks after receiving his portion of Jorie's initial investment in CCDM, the Debtor used $895,000 of the funds in his law office bank account to purchase real property located at 1453 South Prairie Avenue, Unit A-91, in Chicago, Illinois (the "Illinois Property"). (Dft. Facts, at ¶ 18-19.) The deed, dated October 15, 2015, shows that the Debtor and Mrs. Zagotta acquired the property "as husband and wife, tenants by the entirety." (Dft. Exh. G.) The total purchase price was $949,000, and the closing statement shows that the Debtor and Mrs....
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