In re Chalasani

• Decision Date: 23 March 1995
• Docket Number: Bankruptcy No. 892-84977-20. Adv. No. 892-8549-20.
• Citation: 187 BR 67
• Parties: In re Prasad CHALASANI, Debtor. STATE BANK OF INDIA, New York Branch, Plaintiff, v. Prasad CHALASANI, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

187 B.R. 67 (1995)

In re Prasad CHALASANI, Debtor.

STATE BANK OF INDIA, New York Branch, Plaintiff, v. Prasad CHALASANI, Defendant.

Bankruptcy No. 892-84977-20. Adv. No. 892-8549-20.

United States Bankruptcy Court, E.D. New York, at Westbury.

March 23, 1995.

Abel Jack Schwartz, Garden City, New York, for debtor.

Allan B. Mendelsohn, Chapter 7 Trustee, Syosset, New York.

Richard S. Last, Dunn & Zuckerman, P.C., New York City, for State Bank of India.

Aaron R. Cahn, Ober, Kaler, Grimes & Shriver, New York City, for Society of Savings.

DECISION AND ORDER GRANTING MOTION TO REOPEN ADVERSARY PROCEEDING TO AMEND DEFAULT JUDGMENT

ROBERT JOHN HALL, Bankruptcy Judge.

PRELIMINARY STATEMENT

This matter comes before this Court¹ upon Prasad Chalasani's ("Debtor" or "Defendant") motion to reopen his chapter 7 case in order to bring a motion to reopen the instant adversary proceeding to vacate the default judgment. Additionally, Society for Savings ("Society"), a secured creditor of the Debtor, has requested that adversary proceeding captioned "State Bank of India, New York Branch, Plaintiff v. Prasad Chalasani, Defendant," Adversary Proceeding Number XXX-XXXX-XX, commenced on December 8, 1992 and closed on October 29, 1993, be reopened so that Society can be substituted as plaintiff and be allowed to amend this Court's September 29, 1993 Order that granted a default judgment against the Debtor. Society filed a Memorandum of Law in Support of their motion. In response to Society's motion, State Bank of India ("SBI" or "Plaintiff") filed an Affidavit in Opposition. Society filed a Reply in Further Support.

Arguments in support of and in opposition to the motions were heard. The Debtor's motion was denied from the bench and an order was directed to be settled. The order as settled did not accurately reflect the Court's ruling and was not entered. The disposition of that motion will be encompassed in this decision. For the reasons set forth below, Society's motion to reopen the adversary proceeding to be substituted as plaintiff and request to amend the default judgment is GRANTED.

HISTORY

Prasad Chalasani subjected himself to the jurisdiction of this Court when he filed a chapter 7 petition with this Court on September 9, 1992. The Law Office of T. Kevin Murtha was listed as his representative. Allan B. Mendelsohn, Esq., was appointed the chapter 7 trustee ("Trustee"). The Statement Pursuant to Rule 2016(b) indicates that $3,880.00 was paid for legal services. The Statement of Financial Affairs lists thirteen lawsuits pending against the Debtor in New York and New Jersey courts. SBI is listed as plaintiff in three of those lawsuits. Debtor lists in "Schedule B — Personal Property," subsection (20) "other contingent and unliquidated claims of every nature," two claims against SBI valued at approximately $50,739,600.00. The remainder of the claims are listed at $50,000,000.00 for a total of $100,739,600.00. Society is listed on Schedule D as a secured creditor in the amount of $565,000.00 as the holder of a mortgage on Debtor's residence at Oakley Court, Mill Neck, New York ("Residence"). There are two other secured creditors listed. Both are mortgagees on the Residence. These secured claims total approximately $1.5 million. Schedule F lists 32 creditors totalling approximately $6.4 million. SBI is listed as a creditor for claims arising out of personal guarantees:

                     1990 personal guarantee                     $957,953.00 (listed as disputed)
                     February 1991 personal guarantee            $310,000.00
                     November 1991 personal guarantee            $120,000.00
                

Interestingly, Debtor's summary of schedules lists the following figures:

                       Total Assets:              $101,592,100.00
                       Total Liabilities:         $  8,008,956.25
                

There was an order and application filed to amend Schedule F to add an additional $5 million in "potential claims."

SBI commenced an adversary proceeding on December 8, 1992 seeking to have their debt of approximately $1.7 million deemed nondischargeable pursuant to 11 U.S.C. section 523(a)(2)(A) and (B). Additional relief requested a denial of Debtor's discharge pursuant to 11 U.S.C. section 727(a)(3), (4) and (5). On April 29, 1993, an answer was filed on behalf of the Debtor by T. Kevin Murtha & Associates, P.C., containing general denials, no counterclaims, and a "Wherefore" clause requesting that the "Verified Complaint" be dismissed.

Prior to filing this answer, by Notice of Motion dated January 12, 1993, Debtor requested that pursuant to 11 U.S.C. section 707, his chapter 7 proceeding be dismissed. The catalyst for this request was his receipt of the summons and complaint in the instant adversary proceeding. Believing that he needed time to investigate the allegations and believing that it would be in the "best interest of the Trustee, the Court and the Creditors," Debtor asked this Court to dismiss the chapter 7 petition.

SBI filed an Affidavit in Opposition to the Motion noting that the motion was void of any "cause" and reiterated its causes of action pursuant to 11 U.S.C. sections 523 and 727 as contained in its complaint. On March 9, 1993, this Court entered an Order denying the motion to dismiss and directed the Debtor to file an answer by March 30, 1993 and scheduled a pre-trial conference for May 4, 1993.

By Notice of Motion dated June 10, 1993 which scheduled a hearing for July 15, 1993, T. Kevin Murtha & Associates P.C. requested to be relieved as counsel for the Debtor. Failure to cooperate, failure to respond to document requests, difficulty in communicating with the Debtor, and failure to pay legal fees were cited as the basis for the request. A hearing was held on July 15, 1993. The Court docket reflects that no objections were received, a hearing was held, and an order was signed on July 30, 1993 granting the motion. An August 3, 1993 Notice of Entry was received by the Court.

Simultaneously, Plaintiff served a motion with respect to its adversary proceeding, also returnable July 15, 1993, requiring the Debtor to respond to discovery requests and providing that failure to do so would result in Debtor/Defendant's answer being stricken and a default judgment entered. The Notice of Motion dated June 15, 1993 was served on Debtor, T. Kevin Murtha & Associates, P.C., as attorneys for Debtor, the Trustee, and certain creditors including Society. The Court docket reflects that no objections were received, a hearing was held, and the motion was granted. By Order dated July 30, 1993 the Court provided for the following:

. . . that in the event a full and complete response is not provided to plaintiff\'s attorneys of record within the said time period, the answer of debtor to the within adversary complaint shall be stricken pursuant to FRCP Rule 37(d) upon submission of an affidavit from plaintiff\'s attorney attesting to the failure to comply with this order, and plaintiff may settle a proposed judgment by default on notice for the relief requested in the said adversary complaint.

The Order was settled on Debtor, T. Kevin Murtha & Associates, P.C. as attorneys for Debtor, and the Trustee. Moreover, Notice of Entry of said Order was provided to Debtor, T. Kevin Murtha & Associates, P.C., and the Trustee on August 2, 1993.

Notice of Settlement of Judgment was presented to this Court for signature on September 23, 1993. Debtor and the Trustee were served. As of this date, the Court had not been apprised that Debtor had obtained new counsel. Richard S. Last provided the Affidavit in Support of the Judgment and requested, inter alia:

since he has failed to comply with the said Court order, and indeed, is in contempt of its provisions, the remedy provided for in that order if exactly this eventuality occurs, should be administered, mainly his answer stricken, and judgment entered for the relief requested in the adversary complaint.

Affidavit of Richard S. Last, sworn to September 9, 1993, ¶ 8.

The Affidavit further provides:

as Chalasani is equally indifferent to the sanctions threatened in the said order, the Court should have no reservations about administering them. Judgment should be entered accordingly declaring plaintiff\'s claims nondischargeable, and entering judgment for the total amount of the claims.

Affidavit of Richard S. Last, ¶ 12.

The Default Judgment as settled by Plaintiff was signed on September 29, 1993. The following relief was provided:

Adjudged that the answer of defendant-debtor Prasad Chalasani to the adversary complaint of plaintiff State Bank of India, New York Branch, be and hereby is stricken in its entirety, and it is further

Adjudged that judgment by default is hereby entered against defendant Prasad Chalasani, and it is further

Adjudged that all the allegations of fact in plaintiff\'s said adversary complaint have been deemed admitted and resolved in favor of plaintiff, and it is further

Adjudged that SBI\'s claims against Chalasani, as recited in the said adversary complaint which have been reduced to judgments filed in the Office of the Clerk of New York County on June 26, 1992 in the amount of $1,213,979.40, on April 24, 1992 in the amount of $135,482.15 and on October 25, 1991 in the amount of $375,741.75, all of which are wholly outstanding, are hereby deemed non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (B), . . .

Notice of Entry of this judgment was provided to the Debtor, Trustee, and certain creditors including Society.

DISCUSSION

11 U.S.C. section 523 provides in pertinent part:

§ 523. Exceptions to discharge.

(a) A discharge . . . does not discharge an individual debtor from any debt— . . .

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor\'s or an insider\'s financial condition;

(B) use of a statement in writing—

(i) that is

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