In re D'Atria
| Decision Date | 10 June 1991 |
| Docket Number | 90 Adv. 6163.,Bankruptcy No. 90 B 20672 |
| Citation | 128 BR 71 |
| Parties | In re John D'ATRIA, Debtor. Mirella FUDA, Plaintiff, v. John D'ATRIA, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Cole, Schotz, Bernstein, Meisel & Forman, P.A., Hackensack, N.J., for Mirella Fuda; Jeffrey S. Feld, of counsel.
Fink, Weinberger, P.C., White Plains, N.Y., for debtor; Richard Koral, of counsel.
DECISION ON COMPLAINT TO DETERMINE DISCHARGEABILITY OF CERTAIN OBLIGATIONS AND TO DENY DISCHARGE
The plaintiff, Mirella Fuda, is the former wife of the individual debtor, John D'Atria, in this voluntary, Chapter 11 case. She has filed a complaint with this court objecting to the debtor's discharge under 11 U.S.C. § 727(a)(2) and to the dischargeability of her claims against him pursuant to 11 U.S.C. § 523(a)(2), (4), (5) and (6). The following findings of fact and conclusions of law are made following a hearing on the merits of the adversary proceeding.
1. On July 11, 1990, the debtor filed with this court his voluntary petition for relief under Chapter 11 of the Bankruptcy Code and proceeded as a debtor in possession in accordance with 11 U.S.C. §§ 1107 and 1108.
2. On July 20, 1989, the plaintiff and the debtor were divorced. As part of their divorce, the parties entered into a negotiated Property Settlement and Support Agreement (the "Agreement"), whereby the plaintiff agreed to receive no alimony or support and, instead, the parties agreed to an equitable division of their assets.
3. At the time of the Agreement, the debtor owned 51% of the shares of Showcase Tile, Inc. and the plaintiff owned 49% of the shares. Showcase Tile, Inc. was a corporation formed by the plaintiff and the debtor in 1982 as a distributor of floor and wall tiles in the retail and wholesale business. The corporate business was located at 455 Route 17 in Ramsey, New Jersey. It also had business locations in Middletown and Nanuet, New York and Union, New Jersey. Showcase Tile, Inc. later opened up a store in Paramus, New Jersey.
4. Pursuant to the Agreement, which was incorporated in their divorce judgment, in lieu of alimony and support, the plaintiff agreed to transfer her 49% interest in Showcase Tile, Inc. to the debtor and the debtor agreed to transfer to the plaintiff all of his interest in certain real estate, including his interest in real estate in Eastchester, New York, and the tile store and inventory in Ramsey, New Jersey, as well as their former marital residence. The plaintiff's former wife assumed the first mortgage debt with respect to the marital residence and the debtor assumed the second mortgage debt covering both the marital residence and the Ramsey store in the amount of $80,000.00. The debtor agreed to pay the second mortgage debt in the sum of $80,000.00 from the proceeds of sale from certain real estate his corporation, Showcase Tile, Inc., owned in Union, New Jersey (the "Union property"). In the event the sale of the Union property did not occur, the debtor agreed to pay the second mortgage debt on the Ramsey store in the sum of $80,000.00 from other assets available to him. The Union property was sold, but the debtor failed to pay the $80,000.00 second mortgage.
5. Pursuant to subparagraph (r) in the Agreement dealing with the equitable distribution of their assets, the debtor agreed to a restrictive covenant in favor of Fuda Tile, Inc., which is a corporation owned by the plaintiff's family and is engaged in the same line of business as Showcase Tile, Inc. Fuda Tile, Inc. operates a chain of marble tile stores. The plaintiff has a 10% interest in her family's tile business. The restrictive covenant in the equitable distribution portion of the Agreement provides:
(r). The husband agrees that he will not operate a ceramic tile store in a geographical radius of seven (7) miles from any presently owned Fuda Tile location limited to Howell, Flemington, Eastchester, Elmwood Park, Ridgefield, Bogota and Ramsey (sic) as well as from 455 Route 17 for a period of five (5) years.
6. The Agreement contained a separate Article II entitled "Spousal Support" wherein the plaintiff expressly waived support, alimony or maintenance as follows:
7. After the entry of the final judgment of divorce on July 20, 1989, in the state court in New Jersey, the debtor's corporation, Showcase Tile, Inc., opened a tile store in Paramus, New Jersey. At that time, Showcase Tile, Inc., was also a debtor in possession, having filed with this court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 30, 1989.
8. Following a post-divorce judgment application to the New Jersey court by the plaintiff, the state court concluded on March 28, 1990 that the debtor had failed to pay the $80,000.00 second mortgage on the Ramsey store, which was also secured by a lien on the marital residence. The state court directed that a judgment be entered against the debtor and in favor of the plaintiff in the amount of $80,000.00. D'Atria v. D'Atria, 242 N.J.Super. 392, 576 A.2d 957 (1990).
9. The state court also found that the debtor's corporation, Showcase Tile, Inc., which was then in a Chapter 11 case in this court, had violated the seven-mile restrictive covenant in the Agreement by opening a tile store in Paramus, New Jersey, within seven miles of a store operated by the Fuda Tile chain. The state court recognized that it could not issue orders with respect to the debtor in possession, Showcase Tile, Inc., while it was under the aegis of the federal bankruptcy jurisdiction, but that it could issue directions regarding John D'Atria, who had not yet filed for bankruptcy relief. Hence, the state court ordered the appointment of a special fiduciary of the personal estate of the debtor. The functions of the special fiduciary were described as follows:
In this case, the opportunity for defendant to camouflage himself, chameleon-like, within the orbit of the Bankruptcy Court, makes a compliance package to be imposed by the Court rather difficult. Nevertheless, if the January 19, 1990 Order is to have any meaning, this Court must proceed vigorously and forthrightly, but with due regard to the zones of influence exercised by it and the Bankruptcy Court. For the purpose of effectuating the January 19, 1990 Order, the Court enters the following relief against defendant and in favor of plaintiff: The Court shall appoint an attorney to act as the custodial receiver/fiscal agent/special fiduciary of the personal estate of defendant in so far as it relates to Showcase Tile, Inc., and its affiliates, and bearing upon the establishment and operation of the Showcase Tile Paramus store. The special fiduciary shall be entitled to seize and control all of the shares of stock of John D\'Atria in Showcase Tile, Inc. or any of its affiliates which have an interest in the management and operation of the Paramus store. The special fiduciary shall be entitled to take over in the place and stead of defendant as an officer and director in Showcase Tile, Inc. or any of its affiliates which are involved in the operation of the Paramus store. Finally, the special fiduciary shall, to the extent that it is capable of doing so in accordance with any necessary permission of the Bankruptcy Court, pay into a trust fund to be established by the special fiduciary, any and all dividends, compensation, salary, travel expenses, and other sums that would be due and owing from Showcase Tile, Inc. or any of its affiliates to defendant, for work performed or profits derived at the Showcase Tile Paramus store. The special fiduciary shall be compensated at the rate of $200.00 per hour and shall be paid either by defendant, or out of the trust fund which the special fiduciary creates. The special fiduciary shall be permitted to make an application to the Bankruptcy Court in an attempt to be recognized by that Court as the special fiduciary for the personal estate of John D\'Atria. Whether the Bankruptcy Court will recognize this status and whether it will make any difference to the Bankruptcy Court in determining defendant\'s status as debtor-in-possession, or in any other way, obviously will be left to that Court. It is not this Court\'s function (and it is not intended to be any display of arrogance or disrespect) to displace the Bankruptcy Court in fair administration of the assets of the debtor before it. Nevertheless, the Courts of the United States ought not be misused by a litigant in a matrimonial action as a sword against the other spouse, without strict and scrupulous scrutiny to ensure no overbearing or unfair advantage. It is inconceivable that Congress intended that the Bankruptcy Code be used to such a purpose.
D'Atria v. D'Atria, 242 N.J.Super. at 408-409, 576 A.2d 957.
10. At the hearing held in this court it appears that the debtor's corporation, Showcase Tile, Inc., has since been liquidated by its trustee in bankruptcy. The Paramus store is no longer in business. The debtor is now an employee of a tile store in which he has no interest.
11. After both sides had rested, the plaintiff voluntarily withdrew the Second Count in her complaint which charged the debtor with embezzling and misappropriating assets from the ...
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