Girouard v. Cestaro (In re Cestaro)

• Decision Date: 14 March 2019
• Docket Number: Adv. Pro. No. 15-3026 (AMN),Case No.: 15-30766 (AMN)
• Citation: 598 B.R. 520
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: IN RE: Michael H. CESTARO, Debtor Richard Girouard, Plaintiff v. Michael H. Cestaro, Defendant

598 B.R. 520

IN RE: Michael H. CESTARO, DebtorRichard Girouard, Plaintiff

v.Michael H. Cestaro, Defendant

Case No.: 15-30766 (AMN)

Adv. Pro. No. 15-3026 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division.

Signed March 14, 2019

Counsel for the Plaintiff: Timothy F. Butler, Esq., Thomas B. Noonan, Esq., Tibbetts Keating & Butler, LLC, 43 Corbin Drive, Darien, CT 06820

Counsel for the Defendant: Miguel A. Almodovar, Esq., Kenneth M. Rozich, Esq., Jacobs & Rozich, LLC, P.O. Box 1952, New Haven, CT 06509

MEMORANDUM OF DECISION AFTER TRIAL

Ann M. Nevins, United States Bankruptcy Judge District of Connecticut

A trial in this adversary proceeding was held on August 7, 2017, and the Court ruled in favor of the defendant on the first three counts¹ brought pursuant to 11 U.S.C. §§ 523(a)(2), 523(a)(4), and 727(a)(2). After review of the full record of the trial as supplemented by post-trial briefing of the parties, the Court amends a portion of its previously announced findings of fact and conclusions of law, but continues to rule in favor of the defendant on the first three counts of the complaint. As to the fourth count, in which the plaintiff seeks to deny the debtor a discharge pursuant to 11 U.S.C. § 727(a)(3), the Court concludes that judgment shall enter in favor of the defendant. A separate judgment in favor of the defendant as to all counts will enter.

JURISDICTION

This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1334(b) and 157(b), and the District Court's Order of Referral of Bankruptcy Matters, dated September 21, 1984. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(I) and (J) (determinations as to the dischargeability of debts and objections to discharge). This adversary proceeding arises under a Chapter 7 bankruptcy case pending in this District, and therefore venue is proper pursuant to 28 U.S.C. § 1409. This Memorandum of Decision After Trial constitutes the findings of fact and conclusions of law required by Fed.R. Bankr.P. 7052, incorporating Fed.R.Civ.P. 52.

FACTS

The plaintiff, Richard Girouard ("Girouard"), commenced this adversary proceeding by filing a complaint against Michael Cestaro ("Mike" or "defendant"). Girouard alleged in the first and second counts of the complaint that Mike's debt to Girouard should be determined to be non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(2) (false pretenses, false representation, or actual fraud) or 523(a)(4)(fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny). In the third and fourth counts of the complaint, Girouard alleged that Mike should be denied a bankruptcy discharge of his debts to all creditors pursuant to 11 U.S.C. §§ 727(a)(2) (transfer, removal, concealment of property before or after the petition) or 727(a)(3)(failure to keep records).

According to the allegations set forth in the complaint and testimony at trial, Girouard claimed to have an oral agreement with Mike and his brother Pasquale Cestaro, Jr. (also known as Pasquale, referenced herein as at trial as "Pat", or together with Mike, the "Cestaro brothers"), individually, to provide financing for the purchase of high-end automobiles. Mike and Pat owned and operated a car dealership called Cestaro & Sons, Inc. ("C & S"), but Girouard's testimony at trial was clear that his agreement was with the individuals rather than with the corporation.

Question: "But the agreement was with Mike and Pat, individually?"

Girouard: "Correct."

Question: "With [sic] the agreement with Cestaro and Sons?"

Girouard: "No."

See AP-ECF No. 73² , pp. 17-18.

According to Girouard, his oral agreement with Mike and Pat was that they would use the money he provided to purchase and refurbish high-end luxury vehicles, and then sell them at a profit. See AP-ECF No. 1, p. 3. Upon a sale, Girouard and the Cestaro brothers would split the profit evenly, or "50-50." See AP-ECF No. 73, p. 17. The principal or initial money used to purchase the car would then be used to purchase another vehicle, and so on. Girouard also testified that he was able to drive the fixed-up luxury cars while C & S was looking for a buyer. See AP-ECF No. 73, p. 182.

There was no specific plan to repay Girouard, and there was no plan about repayment if the economy soured or the market for high-end luxury cars dried up. This was made clear in Girouard's answers to the Court's questions as follows:

Court: What was your expectation on the term -- the time when you would get the money back?

Girouard: I felt that I -- that I would keep rebuying particular cars. You know, car 1, 2, 3 sold, that either get -- replenish the funds, or that I would use those funds to purchase cars 4, 5, 6.

Court: But there was no specific end time in your mind?

Girouard: No, as long as we were making money, then I'd be fine with it. As long as there were profits.

Court: And what was the mechanism when you would get the money back?

Girouard: The mechanism --

Court: How did you think that would work?

Girouard: -- was supposed to be when the, when the cars were sold. I didn't -- I neglected to chase the money at that time.

Court: And there was no agreement as to an interest rate. Is that fair to say?

Girouard: No, strictly on a 50/50 profit split.

AP-ECF No. 73, pp. 74-75.

Contrary to this testimony, the other evidence at trial, including documents, evidence of wire transfers to C & S, and testimony by both Girouard and Mike, support a finding that Girouard made an agreement with C & S rather than with Mike and Pat, individually.

Question: And the business transactions were going to be done through their business. Cars were going to be purchased, and then cars were going to be sold.

Girouard: Correct.

Question: And so, it looks like you did business with their business based on those facts. But you never had them sign anything to be personally responsible for these loans. Correct?

Girouard: Correct.

See AP-ECF No. 73, p. 70.³

According to the wire transfer information introduced by the plaintiff, a trust named the "A Gerry Girouard M. Claire Girouard Real Est Trust" (the "Real Estate Trust") made four wire transfers of substantial funds from the Real Estate Trust's account to a bank account in the name of "Cestaro and Sons Auto Sales." Pl. Exh. 101. The transfers by the Real Estate Trust to the C & S account totaled $ 535,000.00 (the "Funds") and occurred during 2006 and 2007 as follows:

                Date Amount Payment Detail Noted
                on Wire Transfer
                December 1, 2006      $145,000.00     (blank)
                December 7, 2006      $125,000.00     Ref Richard Girouard
                December 15, 2006     $134,000.00     Rick Girouard
                March 29, 2007        $131,000.00     Rick Girouard
                

The Real Estate Trust is not a party to this adversary proceeding, nor was any evidence other than Girouard's testimony offered regarding the nature of the Real Estate Trust, or the relationship – if any – between plaintiff Girouard and the Real Estate Trust. Girouard testified that he established the Real Estate Trust for his parents, "to help them out financially, and so [he,] would have access to the funds when [he] was later incarcerated." AP-ECF No. 73, p. 73. Girouard's father was "basically the escrow agent"⁴ for the Real Estate Trust and his father wired the money detailed above to C & S because Girouard didn't want to do it.⁵ But no evidence other than Girouard's testimony was submitted regarding the role of the elder Girouard as an escrow agent, the terms of the Real Estate Trust documents, the beneficiaries of the Real Estate Trust, or Girouard's authority to collect monies originally disbursed by the Real Estate Trust.

While the evidence was clear that the money in issue originated from an account titled in the name of the Real Estate Trust, there was a lack of clarity as to the operation of C & S. Mike testified that he and his accountant were responsible for the bookkeeping for C & S, but the high-end cars that are relevant here were purchased from a high-end account, which was the responsibility of Pat, only. See AP-ECF No. 73, pp. 145-146. Pat, however, testified that he did not recall if Girouard loaned C & S money, that he handled the car sales, and that Mike handled all of the banking and finance. See AP-ECF No. 73, pp. 99-100.

Regarding the specific vehicles that were part of the alleged agreement, the parties agreed that plaintiff's Exhibit 103, described as an inventory list ("Inventory Sheet") labeled "Rick's Money" with some handwritten notes, should be admitted as a full exhibit. Neither Mike nor Pat adopted authorship of the Inventory Sheet, but it is substantially recreated in the table, below.

                                                   [Hand-written note] FLOOR PLAN
                Mike                               $180,000.00
                Bentley GT                         103,000.00
                06 Porsche Cayenne                 36,000.00
                06 Bentley White (into Rick's)     30,000.00
                01 BMW 328                         8,000.00
                04 Acura TL                        16,800.00
                04 Turbo Cayenne                   38,000.00
                05 Maserati                        60,000.00
                01 CLK 430                         14,000.00
                06 525 XI                          26,900.00
                                                   512,000 Total [handwritten and circled]
                                                   [actual total is $512,700]
                

Girouard testified that he retained possession and title to the $ 103,000 Bentley GT, referenced in the table above, which reduced the principal amount he claimed to be owed to approximately $ 409,000.00.

Later, between 2010 and 2012, Girouard was incarcerated for felony bank fraud. See AP-ECF No. 73, pp. 65-66. During that time, on November 5, 2010, Girouard's brother and Mike engaged in correspondence that tends to support the conclusion the agreement was between Girouard and C & S. Girouard's brother, acting on Girouard's behalf, sent a letter addressed to Mike Cestaro at C & S, enclosing an amortization schedule for $ 450,000 with monthly payments of $ 5,000 on "the loan [Girouard] has provided to you...