O'Hearn v. Gormally (In re Gormally)

• Citation: 550 B.R. 27
• Decision Date: 05 April 2016
• Docket Number: Case No. 13–22109RDD,Adv. No. 13–08212SHL
• Parties: In re: Thomas Gormally, Debtor. Suzanne O'Hearn, Elise Chin and James Sinatro, as Executors of the Estate of Frances Sinatro, Plaintiffs, v. Thomas Gormally, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

550 B.R. 27

In re: Thomas Gormally, Debtor.Suzanne O'Hearn, Elise Chin and James Sinatro, as Executors of the Estate of Frances Sinatro, Plaintiffs

v.Thomas Gormally, Defendant.

Case No. 13–22109RDD

Adv. No. 13–08212SHL

United States Bankruptcy Court, S.D. New York.

Signed April 5, 2016

SUSSMAN & WATKINS, Counsel for the Plaintiffs, 145 Main Street, 2nd Floor, Ossining, New York 10562, By: Michael A. Deem, Esq.

STEVEN D. HAMBURG, ESQ., Counsel for the Defendant, 111 Great Neck Road, Suite 206, Great Neck, New York 11021, By: Steven D. Hamburg, Esq.

POST–TRIAL MEMORANDUM OF DECISION

SEAN H. LANE

, UNITED STATES BANKRUPTCY JUDGE

Before the Court are the merits after trial of the above-captioned adversary proceeding commenced by Suzanne O'Hearn, Elise Chin, and James Sinatro, as executors of the estate of Frances Sinatro (collectively, the “Plaintiffs”) against Chapter 7 debtor Thomas Gormally (the “Debtor” or the “Defendant”). The Plaintiffs contend that the Defendant breached a contract with them to buy a piece of real property. The Plaintiffs also claim intentional interference with prospective economic advantage based on a lis pendens filed by the Defendant preventing the Plaintiffs from selling the same property to a different party. The Plaintiffs further allege that the Defendant made misrepresentations during and after the contract negotiations between the parties. The Plaintiffs seek damages for these three claims, as well as a finding that the Defendant is not entitled to a bankruptcy discharge of his debts under Sections 727(a)(3) and 727(a)(4) of the Bankruptcy Code

.

For the reasons set forth below, the Court finds that the Defendant intentionally interfered with the Plaintiffs' prospective economic advantage, but rejects the Plaintiffs' two other claims. The Court awards $60,000 to the Plaintiffs. Finally, the Court finds that the Defendant is not entitled to a discharge under Section 727(a)(3) and Section 727(a)(4) of the Bankruptcy Code

. This memorandum constitutes the Court's findings of fact and conclusions of law.¹

BACKGROUND

A. The Contract

On December 17, 2007, the Defendant made his initial offer to purchase 30 Durst Place, Yonkers, New York (“30 Durst”) for $400,000 from the estate of Frances Sinatro, for which the Plaintiffs serve as executors. (PX 1; PX 2). The next day, he increased his offer to $435,000. (PX 3). On December 19, 2007, an individual who is not a party to this case—Maureen Maloney—offered to purchase 30 Durst for the same amount. (PX 4). After additional offers by Ms. Maloney and the Defendant (PX 42 at 007–008; PX 5), Ms. Maloney made a final offer of $445,000, but informed the Plaintiffs' real estate counsel that she was unable to go any higher. (PX 6). The Defendant ultimately made the highest offer for the property at $475,000. (PX 5; PX 42 at 009).

The two parties then started negotiating the details of the contract. On January 4, 2008, Michael King, Esq., the Plaintiffs' real estate counsel, forwarded a Contract of Sale with a rider (“Version 1”) to the Defendant's real estate counsel, Kathleen Bradshaw, Esq. (PX 7). It provided for a purchase price of $475,000—all in cash with no mortgage contingency—and a down payment in the amount of $47,500.² (PX 7 at 002–003, 008). Version 1 also included a provision acknowledging the existence of other offers:

The purchaser acknowledges that the seller has entered into this contract on the specific representations by the purchaser that this is an all cash deal and that the seller is rejecting other all cash offers that would have completed this transaction by February 5, 2008.

(PX 7 at 009). Paragraph 4 of the contract rider provided for closing on February 5, 2008 (PX 7 at 008–009), and a $1,000 per day charge for every day closing was delayed. (PX 7 at 009). This charge would continue until February 29, 2008, at which point the contract would expire by its terms and the seller would refund the down payment, less $24,000 to compensate for “the lost opportunity cost.” (PX 7 at 009).

By letter dated January 9, 2008, the buyer's attorney, Ms. Bradshaw, disagreed with several terms in Version 1. (PX 8). Ms. Bradshaw complained that “while there is no mortgage contingency, your forfeiture language is onerous, especially considering your client is an estate. I have no problem with an on or about date, closing on or about February 15, 2007 [sic], thereafter you can declare a time of the essence.” (PX 8). After noting that she would not be available to close between February 16 and February 24, 2008, she further complained that the “$1000.00 per day penalty is excessive ... and while there is no mortgage contingency we did not agree to this penalty.” (PX 8). Ms. Bradshaw stated that her client had “left the downpayment and authorized me to send the contracts with these clauses redacted, I do not want to just send the contract without discussing the changes first.” (PX 8).

Ms. Bradshaw and Mr. King spoke on January 14, 2008. (PX 42 at 015). Relying on Mr. King's notes of the telephone conversation, the Plaintiffs assert that the following terms were agreed to on that call: (1) the closing date was to remain February 5, 2008; (2) the penalty amount was to be reduced to $300; (3) the penalty was to commence after February 15, 2008; and (4) the down payment was to be reduced from 20% to 10%. (Plaintiffs' Proposed Findings of Fact ¶ 33). The notes, however, are ambiguous as to what Ms. Bradshaw actually agreed to at that time. Mr. King's notes merely provide that “we wisht o [sic] close by 2/5/08 as recited to Donna of her office—she can reduce the penalty of $300 and start it on 2/15 when we should have closing so there will be no penalty.” (PX 42 at 015). The notes further state that Mr. King “told her to send Contract as it is to be revised with a letter stating her concerns and I will take it up with the 3 heirs.” (PX 42 at 015).

The next day after that call, Ms. Bradshaw's paralegal sent Mr. King a check in the amount of the $47,500 down payment and copies of the contract executed by the Defendant, with handwritten edits made by Ms. Bradshaw (“Version 2”). (PX 10). Most of the contract terms in Version 2 remained unchanged from Version 1. (PX 10). But in Paragraph 4 to the contract rider, Ms. Bradshaw made significant handwritten edits reflecting that the parties still disagreed on some key terms:³

Mortgage Contingency: Not applicable. All Cash. The purchaser acknowledges and represents to the seller that it has in hand funds sufficient to complete this transaction and that the purchaser can deliver at the closing no later than February 515, 2008 the balance of the purchase price by bank or certified checks. In the event that the purchaser does not close and deliver the balance of the purchase price on February 5, 2008,* the purchaser agrees that the price will increase by $1,000.00300 per day foron February 5, 2008 and every day thereafter until February 29, 2008 when the contract will by its own terms expire. The purchaser acknowledges that the seller has entered into this contract on the specific representations by the purchaser that this is an all cash deal and that the seller is rejecting other all cash offers that would have completed this transaction by February 515, 2008. Accordingly, the purchaser acknowledges that if the closing is delayed by the purchaser beyond February 5, 2008, a charge of $1,000.00300 a day will be incurred until February 29, 200 8 when the contract will expire by it's own terms and the seller will refund the purchasers downpayment less $24,000.00 to compensate for the lost opportunity cost / and the purchaser will return the executed contracts anduntil the contract iswill be cancelled.

*provided seller has cleared all title objections and can deliver property in accordance with this contract

In sum, Ms. Bradshaw's edits reflected three main changes:⁴ (1) a new closing date of February 15, 2008, (2) a penalty amount of $300 (reduced from $1,000) to be triggered on February 29, 2008 (changed from February 5, 2015), and (3) deleting the provision for forfeiture of $24,000 of the down payment. (PX 10 at 008–009).

On January 18, 2008, Mr. King deposited the down payment check and told Ms. Bradshaw that he would forward the revised contract to his clients for review and approval. (PX 11; PX 12). Ms. Bradshaw subsequently emailed Mr. King that “we are not ready to schedule for 2/5 [closing] I will call you as soon as I am ready to schedule.” (PX 14).

Rather than agree to all Ms. Bradshaw's changes, Mr. King provided Ms. Bradshaw on January 30, 3008, with a new version of the contract executed by the Plaintiffs (“Version 3”). (PX 16). In a cover letter, Mr. King stated that “we can close on the original proposed closing date of February 5, 2008 which, I believe, you altered to the 15th so as to avoid the penalty provision and to insure that the sellers had cleared all title objections.” (PX 16 at 001). Version 3 of the Contract included handwritten notes by Mr. King next to Ms. Bradshaw's revisions to the closing date, penalty start date and forfeiture provisions, stating that “these changes were not made after being discussed and agreed and are rejected .” (PX 16 at 010; Trial Tr. 78:13–15, 79:7–10, 137:24–138:6, Dec. 3, 2014) (emphasis added). Mr. King also made handwritten edits changing the closing date back to February 5, 2008, and the penalty start date to February 15, 2008. (PX 16 at 010). The penalty amount, however, remained $300.00, the amount suggested by Ms. Bradshaw in Version 2. (PX 10 at 009; PX 16 at 010). On the same day that he sent Version 3, Mr. King emailed Ms. Bradshaw and asked her to “please call me to discuss the closing in our office on February 5, 2008....” (PX 17).

The next day, Mr. King acknowledged Ms. Bradshaw's January 29th email, which had advised that Mr. Gormally was not prepared to close on February 5th; Mr. King said that he would let his clients know that the Defendant was adjourning the...