In re Calypso Zamias L.P.
| Decision Date | 04 June 2003 |
| Docket Number | Bankruptcy No. 01-25077-BM.,Bankruptcy No. 01-25079BM.,Adversary No. 01-2175-BM. |
| Citation | 293 B.R. 668 |
| Parties | In re CALYPSO ZAMIAS L.P., Debtor. Whitehall Street Real Estate Limited Partnership IX, Whitehall Street Real Estate Limited Partnership XI, WXI/BUF/W Real Estate Limited Liability Company, WXI/BUF Gen-Par/W, L.L.C., WXI/MLM/W Real Estate Limited Partnership, WXI/MLM Gen-Par/W, L.L.C., W9/MLM Real Estate Limited Partnership, W9/MLM Gen-Par, L.L.C., W9/MLM/B Real Estate Limited Partnership, W9/MLM/B Gen-Par, L.L.C., and W9/MLM/E Real Estate Limited Partnership, Plaintiffs, v. Zamias Services, Inc., Calypso Zamias Limited Partnership, Protesilaus Zamias Limited Partnership, Damian Zamias, Proteus Zamias, L.P., Proteus Zamias Euclid, L.P., Proteus Zamias Brickyard, L.P., First Commonwealth Financial Corporation, d/b/a Cenwest Bank, and Promistar Bank, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
James R. Walsh, Esq., Spence, Custer, Saylor, Wolfe & Rose, Johnstown, PA, for debtor.
George M. Cheever, Esq., Kirkpatrick & Lockhart, LLP, Gary J. Gaertner, Grenen & Birsic, P.C., Michael Kaminski, David W. Lampl, Leech, Tishman, Fuscaldo & Lampl, LLC, Pittsburgh, PA, Jeffrey A. Crossman, M. Colette Gibbons, Stuart L. Larsen, Kahn, Kleinman, Yanowitz & Arson Co., Cleveland, OH, John R. O'Keefe, Jr., Metz, Schermer & Lewis, LLC, Richard Allen Pollard, Pietragallo, Bosick & Gordon, Peter A. Santos, Dickie, McCamey & Chilcote, P.C., Pittsburgh, PA, Mark D Taylor, Akin, Gump, Strauss, Hauer & Feld L.L.P., Washington, DC, for creditor.
Kathleen Robb, Pittsburgh, PA, U.S. Trustee.
Plaintiffs in this adversary action ("the Whitehall entities") seek to recover the sum of $5,095,701.20 which debtor Zamias Services, Inc. ("ZSI") withdrew at the direction of debtor Damian Zamias ("DZ") from various bank accounts under its control plus interest on this amount. The Whitehall entities also seek a determination that a portion of the interest is entitled to priority as a post-petition administrative expense. Finally, the Whitehall entities assert that debtors Damian Zamias and George Zamias are personally liable to them for this amount and seek a determination that the resulting debt is excepted from discharge.
Seeking to nullify the claim of the Whitehall entities, ZSI has asserted a counterclaim against them in the amount of $5,078,795.34 for fees and expenses allegedly owed by the Whitehall entities. Debtors Damian and George Zamias deny that they owe any debt to the Whitehall entities which is excepted from discharge.
We conclude for reasons set forth in this Memorandum Opinion that the Whitehall entities are entitled to a judgment in their favor and against debtors ZSI and Damian Zamias in the amount of $4,729,044.66. Said debt is excepted from discharge in the case of Damian Zamias by virtue of § 523(a)(4) of the Bankruptcy Code. The Whitehall entities have, however, failed to demonstrate that debtor George Zamias is personally liable to them in any amount and, accordingly, have failed to demonstrate that he owes them a debt which is excepted from discharge.
— FACTS —
Plaintiffs are joint ventures which own shopping malls in various locations or are the operating members or general partners of the joint ventures (hereinafter "the Whitehall entities").
Defendants Calypso Zamias Limited Partnership, Protesilaus Zamias Limited Partnership and Proteus Zamias, L. P., are limited partners of the entities operating the properties.
Defendant Zamias Services, Inc. (hereinafter "ZSI") managed the joint venture properties pursuant to various leasing and management agreements.
Defendant Damian Zamias is president and CEO of ZSI. Defendant George Zamias is the father of Damian Zamias.
Defendants Proteus Zamias Euclid and Proteus Zamias Brickyard are entities controlled by one or more members of the Zamias family.
From 1997 through 1999, the above property owners entered into substantially identical leasing and management agreements with ZSI after lengthy negotiations in which both sides were represented by experienced legal counsel. Damian Zamias was personally involved and was a key participant in the negotiations preceding the leasing and management agreements. ZSI was responsible, among other things, for managing, operating, leasing and maintaining the properties and for collecting rents due from tenants.
ZSI was obligated by the leasing and management agreements to establish and maintain separate operating accounts for each property into which it was to deposit all revenues received from the operation of the properties. ZSI held the funds in the operating accounts in trust for the property owners (¶ 3.01(a)).
Pursuant to this provision, ZSI established and maintained various operating accounts at Cenwest Bank and Promistar Bank into which it deposited revenues generated from its management of the properties.
ZSI was authorized to collect rents and other amounts due from tenants of the properties. All amounts so collected were the property of the property owner and were to be deposited into the operating accounts (¶ 2.06(a)).
ZSI's authority to make withdrawals from the operating accounts ceased immediately upon termination of the leasing and management agreements (¶ 3.01(d)).
The term of a leasing and management agreement became effective on the date set forth therein and terminated on the first anniversary thereof. Said term was automatically renewable for successive one-month periods, unless either party delivered written notice of termination at least thirty days prior to commencement of the then next succeeding renewal period (¶ 7.01).
A property owner also could at any time terminate a leasing and management agreement for cause on five business days' prior written notice to ZSI (¶ 7.03). ZSI's authority under the agreement ceased immediately upon its termination and it had no further right to act on behalf of the owner or to draw checks on the operating account (¶ 7.04(b)). ZSI was entitled in the event of its termination to payment of any management fees and reimbursable expenses that had accrued through the effective date of its termination (¶ 7.04(d)).
As its fee for managing a property, ZSI was entitled to an amount equal to four percent of gross receipts it actually collected during the immediately preceding month. Upon submission to the property owner of a monthly report for the preceding month, ZSI had the right to withdraw its management fee from the appropriate operating account (¶ 6.01(a)). ZSI also was entitled to payment of various leasing and legal fees (¶ 6.01(c)).
If an audit disclosed a deficiency in the amount of funds ZSI should have delivered to the property owner, ZSI was required to deliver such deficiency to the property owner along with simple interest at the rate of ten percent per year (¶ 3.05).
Each leasing and management agreement was governed by and was to be construed in accordance with the laws of the State of New York and represented the entire agreement of the parties with respect to its subject matter. An agreement could not be changed, waived, discharged or terminated orally but only by a written instrument signed by the person or entity against whom enforcement was sought (¶ 9.05).
The operating general partners of the joint ventures notified ZSI by letter on December 7, 2000, that the leasing and management agreements were being terminated for cause. In the event termination for cause was ineffective, ZSI was to be terminated without notice effective thirty days from the date of the notice.
Follow-up letters were sent to ZSI the next day which stated that, during the transition to a new property manager, ZSI would have no authority without prior approval to pay itself from the operating accounts for any fees or expenses that had accrued.
The operating general partners sent ZSI a second round of letters on January 16, 2001. The letters stated, among other things, that the notices of termination without cause contained in the previous letter were "now effective and the Management Agreement is therefore terminated". In addition, the letters stated that ZSI was in default of the leasing and management agreements and was terminated for cause pursuant to ¶ 7.03 thereof. A demand was made that ZSI vacate all the properties within five days.
Letters were sent to ZSI eight days later, on January 24, 2001, confirming ZSI's termination and reminding ZSI that it no longer had authority to make withdrawals or to otherwise direct application or payment of funds in the operating accounts.
Unbeknown to the property owners and the operating general partners, and without their consent, at the direction of Damian Zamias ZSI withdrew $1,086,314.00 from certain of the operating accounts on January 22, 2001. Damian Zamias further directed ZSI to make four additional withdrawals on February 21, 2001, February 22, 2001, March 29, 2001, and April 27, 2001, respectively. These additional withdrawals were made after General Growth had supplanted ZSI as manager of the properties late in January of 2001 and amounted to $590,594.03. The total amount of all five withdrawals was $1,676,908.03. ZSI also refused to turn over to the Whitehall entities the amounts still remaining in the operating accounts after these withdrawals were made.
At the direction of Damian Zamias, the withdrawn funds initially were deposited into the account of another Zamias-related entity for the purpose of placing them beyond the reach of American Property Consultants (hereinafter "APC"), which had garnished ZSI's bank accounts in an attempt to satisfy a $12,000,000.00 judgment APC had against ZSI. Thereafter the funds were used to pay obligations of ZSI and other Zamias-related entities.
ZSI, Calypso Zamias, Protesilaus Zamias, Damian Zamias and ...
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