Helvetia Asset Recovery, Inc. v. Kahn (In re Kahn)
| Decision Date | 27 March 2015 |
| Docket Number | ADVERSARY NO. 14–05052–CAG,CASE NO. 14–50980–CAG |
| Citation | 533 B.R. 576 |
| Parties | In re: Burton M. Kahn, Debtor. Helvetia Asset Recovery, Inc., Plaintiff. v. Burton M. Kahn, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
Elizabeth Conry Davidson, Elizabeth Conry Davidson, Attorney at Law, San Antonio, TX, for Plaintiff.
Burton M. Kahn, San Antonio, TX, pro se.
Came on to be considered the above-numbered adversary proceeding and, in particular, Plaintiff Helvetia Asset Recovery, Inc., Motion for Summary Judgment (ECF No. 16)1 (“Summary Judgment Motion”) filed October 23, 2014, the parties' responses, and supporting evidence. For the reasons provided herein, the Court is of the opinion that Plaintiff's Summary Judgment Motion should be GRANTED.
Although neither of the parties raised the issue of whether the Court has constitutional authority enter a final judgment, federal courts have an ongoing duty to examine their subject-matter jurisdiction, whether the issue is raised by the parties or sua sponte by the court. MCG, Inc. v. Great W. Energy Corp., 896 F.2d 170, 173 (5th Cir.1990). In Stern v. Marshall, the Supreme Court held that a bankruptcy court must have both statutory and constitutional authority to enter final judgment on certain state law claims. Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2611, 180 L.Ed.2d 475 (2011) ().
The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) relating to this Court's determination of the discharge of certain debts. Even after Stern, bankruptcy courts have the constitutional authority to hear and finally determine dischargeability of debts in bankruptcy cases. Deitz v. Ford (In re Deitz), 469 B.R. 11, 23–24 (9th Cir. BAP 2012)aff'd, 760 F.3d 1038 (9th Cir.2014). Determining the scope of a debtor's discharge is a fundamental part of the bankruptcy process. Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 312 (Bankr.N.D.Tex.2011). As the Farooqi court explained:
Congress clearly envisioned that bankruptcy courts would hear and determine all core proceedings, 28 U.S.C. § 157(b)(1), which include, as relevant here, “determinations as to the dischargeability of particular debts.” 28 U.S.C. § 157(b)(2)(I). The Supreme Court has never held that bankruptcy courts are without constitutional authority to hear and finally determine whether a debt is dischargeable in bankruptcy. In fact, the Supreme Court's decision in Stern clearly implied that bankruptcy courts have such authority when it concluded that bankruptcy courts had the constitutional authority to decide even state law counterclaims to filed proofs of claim if the counterclaim would necessarily be decided through the claims allowance process. Stern, 131 S.Ct. at 2618.
Id. Because this case involves a determination as to the dischargeability of particular claims, this Court has both statutory and constitutional authority to enter a final judgment.
Federal Rule of Bankruptcy Procedure 7056 applies Rule 56(c) of the Federal Rules of Civil Procedure to adversary proceedings. Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c) ; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If summary judgment is appropriate, the Court may resolve the case as a matter of law. Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548 ; Blackwell v. Barton, 34 F.3d 298, 301 (5th Cir.1994). The Fifth Circuit has stated “[t]he standard of review is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the non-moving party based upon evidence before the court.” James v. Sadler, 909 F.2d 834, 837 (5th Cir.1990) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).
To the extent that the non-moving party asserts the existence of factual disputes, the evidence offered by the non-moving party to support those factual contentions must be of a quality sufficient so that a rational fact finder might, at trial, find in favor of the non-moving party. Matsushita, 475 U.S. at 585–87, 106 S.Ct. 1348 (1986) (); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (). If the record “taken as a whole, could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue for trial.” LeMaire v. Louisiana, 480 F.3d 383, 390 (5th Cir.2007). In determining whether a genuine issue of material fact exists, the non-moving party must respond to a proper motion for summary judgment with specific facts demonstrating that such genuine issue exists. A genuine issue of material fact is not raised by mere conclusory allegations or bald assertions unsupported by specific facts. Leon Chocron Publ i cidad Y Editora, S.A. v. J i mm y Swaggart Ministries, 990 F.2d 1253 (5th Cir.1993).
Plaintiff Helvetia Asset Recovery, Inc. (“Helvetia”) seeks a determination that two state court judgments against Debtor/Defendant Burton M. Kahn (“Kahn”) may be given preclusive effect and that this Court should find on the basis of those judgments that the judgment debts are non-dischargeable under 11 U.S.C. § 523(a)(2012).2 Helvetia alleges in its Complaint the following operative facts:
Helvetia is a Texas corporation with a sole shareholder—Puerto Verde, Ltd., a Bahamian corporation. Puerto Verde's sole shareholder is Robert Ripley (“Ripley”). Complaint (ECF No. 1) (“Cmplt.”) at ¶ 1. Helvetia was formed for the purpose of developing the Key Largo subdivision in Converse, Texas. Ripley hired Kahn to sell property lots in the subdivision to homeowners or home buyers. Cmplt. at ¶ 5. In late 2009, Ripley made Kahn director and president of Helvetia to manage the sale of lots. The Complaint alleges that Kahn misappropriated as much as $1 million of Helvetia funds for his personal use. Cmplt. at ¶ 6. As a result, Ripley attempted to remove Kahn's access to Helvetia funds in September 2013. Cmplt. at ¶ 7. The Complaint alleges that after Ripley attempted to remove Kahn, Kahn continued to misappropriate Helvetia funds and that Kahn transferred Helvetia's remaining funds to bank accounts that Kahn controlled in the approximate amount of $340,000.00. Cmplt. at ¶ 7.
The Complaint details a number of transactions and acts that Kahn allegedly committed while he was president of Helvetia and thereafter when Ripley attempted to remove him. The acts alleged fall generally into the categories of misappropriation of cash, real property, and stock. The Complaint states that Kahn emptied Helvetia's bank accounts—transferring approximately $340,000 in Helvetia funds from the sale of lots into bank accounts of entities Kahn controlled.3 Kahn also purportedly printed a Helvetia “stock certificate,” claiming to purchase the company for a mere $1,000 after “canceling” Puerto Verde's stock ownership based on “forgeries” from 2007. Then, claiming to still be president of Helvetia, Kahn signed and recorded a warranty deed that purported to convey the entire Key Largo subdivision to Paradiv, Kahn's sham corporation. The conveyance included all of the lots Helvetia had already sold and on which houses had been built and where families were living. Paradiv gave no consideration for the attempted conveyance, and as part of the state court litigation, Kahn's warranty deed was deemed fraudulent and a nullity in December 2013. Cmplt. at ¶ 18.
After filing the fraudulent warranty deed to convey Helvetia's lots to Paradiv, Kahn sued Helvetia in state court (the “Kahn Suit”) to invalidate six lot sales Helvetia closed after it terminated Kahn's employment, claiming Helvetia's sales were fraudulent and accomplished without authority. The Kahn Suit culminated in a final judgment on April 1, 2014, adverse to Kahn. The state court found that Kahn had no ownership interest in Helvetia, and that his warranty deed transferring Helvetia's lots to Paradiv was a fraudulent record in violation of state statutory laws. The state court awarded Helvetia over $250,000 in sanctions, which remain unpaid. Kahn has appealed this judgment. Cmplt. at ¶ 33.
Helvetia brought its own suit (the “Helvetia Suit”) against Kahn in state court for his breach of fiduciary duty and other unlawful acts. Kahn then filed a pro se Chapter 7 case on April 14, 2014. On April 28, 2014, the Court lifted the automatic stay to permit the state action to proceed to trial. In re Burton Kahn, Bankruptcy Case No. 14–50980, ECF No. 39. Helvetia alleged in its state court action against Kahn that he never compiled financial statements. Helvetia alleges that Kahn had garbage bags of documents, including receipts and unopened letters unorganized by date or otherwise. Consequently, Helvetia estimates that Kahn stole money from Helvetia in perhaps as many as 100 different transactions beginning in early 2010 shortly after he was hired. Helvetia focused on three categories of damages in presenting its case to the state court jury...
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