Caitlin Energy, Inc. v. Rachel (In re Rachel)

• Decision Date: 17 March 2015
• Docket Number: ADV. PROC. NO. 14–5044,CASE NO. 13–75423–WLH
• Parties: In re: David Rachel, Debtor. Caitlin Energy, Inc., Plaintiff, v. David P. Rachel, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

527 B.R. 529

In re: David Rachel, Debtor.

Caitlin Energy, Inc., Plaintiff

v.David P. Rachel, Defendant.

CASE NO. 13–75423–WLH

ADV. PROC. NO. 14–5044

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed March 17, 2015

Scott A. Schweber, Cohen Cooper Estep & Allen, LLC, Atlanta, GA, for Plaintiff.

Neville Francis, Atlanta, GA, for Defendant.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION TO STRIKE

Wendy L. Hagenau, U.S. Bankruptcy Court Judge

Plaintiff obtained a judgment against the Debtor in the Superior Court of Fulton County, and the Debtor has been convicted in the United States District Court for the District of Arizona of conspiracy to commit wire fraud and money laundering and of twelve counts of money laundering. Plaintiff seeks to use the state court judgment and the district court verdict to have its debt deemed non-dischargeable under 11 U.S.C. §§ 523(a)(2)(A) and (a)(4). The Court has reviewed the Plaintiff's Motion for Summary Judgment and related Motion to Strike, the Debtor's responses thereto, the parties' briefs and submissions in connection therewith, and now enters this Order. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 as the matter seeks to determine the dischargeability of a debt. This adversary proceeding is core under 28 U.S.C. § 157(b)(2)(I) and the Court has authority to enter a final judgment herein.

UNDISPUTED FACTS

The Defendant did not respond to the individually numbered Statement of Undisputed Facts as required by Local Rule 7056–1, but instead stated his own version of undisputed facts. The Court has reviewed both Statements of Undisputed Facts and concludes the following facts are undisputed. Caitlin Energy, Inc. (“Caitlin” or “Plaintiff”) is a Canadian corporation which sought a loan for approximately $11 million to finance a solar project in Toronto, Ontario, Canada. Caitlin found Platinum Diversified Holdings, Inc. (“PDH”) as a potential lender. As a pre-condition to obtaining the loan, Caitlin was required to enter into an escrow agreement among PDH, Caitlin and David P. Rachel, Attorney at Law (“Rachel” or “Debtor”) and to deposit $330,000 into escrow with the Debtor. On September 27, 2010, Caitlin, Rachel and PDH executed the escrow agreement (“Escrow Agreement”).

The Debtor is identified as escrow agent, PDH is identified as lender, and Caitlin is identified as borrower. The Escrow Agreement recites that PDH and Caitlin have executed a letter of intent for $11 million “with respect to the funding of the development of several rooftop solar power generation systems”. The Debtor does not dispute that funds in the amount of $330,000 were deposited by Caitlin with the Debtor as escrow agent on September 29, 2010, and that the funds were deposited into his IOLTA account. When funds were not received by Caitlin on any loan from PDH, Caitlin made several demands on the Debtor for return of the $330,000. None of the funds were returned because all but about $11,000 was disbursed from the IOLTA account on September 30, 2010.

On April 23, 2012, Caitlin filed a complaint in Fulton County Superior Court seeking a judgment against the Debtor for professional malpractice, breach of fiduciary duty, negligent misrepresentation, breach of contract and attorney's fees. On October 19, 2012, the Superior Court entered an order granting Caitlin's motion for sanctions, and striking the Debtor's answer and counterclaim due to discovery violations, including his failure to attend a deposition. A default judgment was entered against the Debtor on October 31, 2012, in the amount of $330,000 (“Superior Court Judgment”).

About a year later, the Debtor and four other individuals were indicted in the District Court for the District of Arizona. In the indictment, the government alleged that Debra Ann Nickolas owned and operated PDH, which allegedly provided funding for large business projects. It was alleged that Nickolas and others identified “victims” around the world who were looking for loans to fund business projects. “Nickolas told these victims to send a refundable deposit to a designated escrow agent who would hold the deposit as collateral until the loan funded.” Superseding Indictment at 2 United States v. Rachel, et. al., No. CR–12–1927–PHX–NVW (D. Ariz. filed Oct. 8, 2013). The Debtor was identified as one of the escrow agents who would allegedly hold the deposit as collateral until the loan was funded. The indictment alleges specifically that the Debtor and others “falsely told victims that the refundable deposits would be held in escrow until the loans funded.” Id. The indictment further alleges that none of the victims ever obtained funding for the business projects and their deposits were never refunded. The indictment states, “Instead of holding the refundable deposits in escrow ... Rachel disbursed the money to themselves and other co-conspirators and spent the money on luxury cars, vacations, interior design services, and other personal expenses. In some cases the refundable deposits were disbursed to the co-conspirators within days of being deposited.” Id. The indictment alleges there were at least 15 different victims, and that the defendants collectively obtained over $10 million from those victims.

The Debtor was indicted on one count of conspiracy to commit wire fraud and money laundering and twenty counts of money laundering. The indictment includes numerous specific acts which the government contended constituted a crime, including, “On or about September 22, 2010, Rachel and another co-conspirator, D.C., falsely told victim CM. that the refundable deposit would stay in the escrow account and would only be disbursed after Rachel received funding from the loan.” Id. at 4. This allegation matches the allegation contained in the affidavit of Claudiu Murgan [Docket No. 19], paragraph 12. Mr. Murgan's testimony and the transcript of the September 22, 2010 telephone call referenced in his affidavit and in the indictment were used in the criminal case against the Debtor. After trial, a verdict was returned on October 8, 2014, finding the Debtor guilty of conspiracy to commit wire fraud and money laundering, and of 12 counts of money laundering (“Federal Court Verdict”).

The Debtor filed his petition under Chapter 7 of the United States Bankruptcy Code on November 22, 2013. Caitlin filed this adversary proceeding timely on February 18, 2014, alleging that its claim of $330,000 is non-dischargeable under 11 U.S.C. §§ 523(a)(2) and (a)(4).

The Motion for Summary Judgment (“Motion”) was filed by Caitlin and included the affidavit of Murgan as discussed above which attached numerous documents. The Debtor opposed the Motion and attached his own affidavit. Thereafter, Caitlin filed a motion to strike the Debtor's affidavit, alleging the notary signature on the affidavit was forged. The Debtor submitted additional information, which Caitlin alleged was not timely filed.

MOTION TO STRIKE

The Court will first address Caitlin's Motion to Strike [Docket No. 27]. A motion to strike is filed pursuant to Fed. R. Civ. P. 12 incorporated in the Bankruptcy Rules at Fed. R. Bankr. P. 7012. This rule provides, “The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Motions to strike are generally disfavored. Juniper Networks, Inc. v. Palo Alto Networks, Inc., 881 F.Supp.2d 603, 605 (D.Del.2012) (citations omitted). “When ruling on a motion to strike, the [c]ourt must construe all facts in favor of the non-moving party”. Id. (alteration in original) (citations omitted).

Caitlin contends it is “highly probable” the notary did not execute the affidavit and that her signature was forged. In support of the Motion to Strike, Caitlin attached a report from Farrell Shiver, a certified forensic document examiner, who purportedly examined various signatures of the notary. Mr. Shiver concluded it was “highly probable” the notary did not write her signature on the affidavit. Additionally, Caitlin relied upon deposition testimony of the notary given after the submission of the Debtor's affidavit, that she did not recall having seen the Debtor during the time period the affidavit was notarized.

The Court concludes the information submitted by Caitlin is not sufficient to justify striking the Debtor's affidavit. First, in the excerpt of the notary's deposition, she was never asked directly whether she signed the affidavit. Rather, she was asked to give a writing sample, and was asked when she last saw the Debtor. The notary's response was, “I would say three to four months ago.” Based on this response, Caitlin concludes the notary could not have signed the affidavit. This excerpt is insufficient. The Court needs to review the entire deposition to determine that there was no other discussion or explanation by the notary related to the affidavit. Moreover, the notary's answer is not an answer to the direct question of whether her signature is n the affidavit. Given that all issues must be resolved in favor of the non-moving party on a motion to strike, the notary's testimony is an insufficient basis on which to strike the affidavit.

The second basis for the Motion to Strike is the affidavit of Mr. Shiver, opining that after reviewing the various signatures of the notary, he finds it highly probable the signature of the notary on the Debtor's affidavit is not the notary's signature. Exhibit C1 to Mr. Shiver's affidavit is an explanation of “standard terminology for expressing conclusions of forensic document examiners.” It explains that the term “highly probable” means “the evidence is very persuasive, yet some critical feature or quality is missing so that ‘an identification’ is not in order; however, the examiner is virtually certain that the questioned and known writings were [or were not] written by the same individual.” Given that there is some item missing that does not...