In re Fustolo

• Decision Date: 16 December 2013
• Docket Number: No. 13–12692–JNF.,13–12692–JNF.
• Citation: 503 B.R. 206
• Parties: In re Steven C. FUSTOLO, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

503 B.R. 206

In re Steven C. FUSTOLO, Debtor.

No. 13–12692–JNF.

United States Bankruptcy Court,

D. Massachusetts.

Dec. 16, 2013.

David M. Nickless, Nickless, Phillips and O'Connor, Fitchburg, MA, for Debtor.

Michael O'Neil, Murphy & King, Professional Corporation, Boston, MA, for Harold B. Murphy, Trustee.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are Cross–Motions for Summary Judgment with respect to an “Answer to Involuntary Petition” filed by the alleged debtor, Steven C. Fustolo (the “Alleged Debtor” or “Fustolo”), pursuant to which he seeks dismissal of the Involuntary Petition filed by three creditors: 50 Thomas Patton Drive, LLC (“Patton Drive”); the Patriot Group, LLC (“Patriot”); and Richard Mayer (“Mayer”) (collectively, the “Petitioning Creditors”). Specifically, in his Answer, the Alleged Debtor challenged the claim of Patton Drive and his alleged liability to it, disputing the claim in its entirety. In addition, he asserted that he had more than 12 creditors and that the Involuntary Petition failed to meet the requirement of 11 U.S.C. § 303(b), namely that each of the petitioning creditors holds a claim that is “not contingent as to liability or the subject of a bona fide dispute as to liability or amount.”

The issues presented include whether this Court should adopt the majority view that an unstayed, non-default state judgment on appeal is not subject to bona fide dispute for purposes of § 303(b)(1), see In re Drexler, 56 B.R. 960, 967 (Bankr.S.D.N.Y.1986), or the minority view, which requires the petitioning creditors to make a prima facie case but affords the alleged debtor the opportunity to demonstrate the existence of a bona fide dispute as to liability or amount. See Platinum Fin. Servs. Corp. v. Byrd (In re Byrd), 357 F.3d 433, 438 (4th Cir.2004).

This is a core matter over which this Court has jurisdiction. See28 U.S.C. §§ 1334(b), 157(b)(1), and (b)(2)(A).

II. BACKGROUND

On May 6, 2013, the Petitioning Creditors filed an Involuntary Petition against the Alleged Debtor seeking the entry of an order for relief under Chapter 7. Each Petitioning Creditor is a judgment creditor of the Alleged Debtor. The Petitioning Creditors have alleged that (1) they are eligible to file the petition pursuant to 11 U.S.C. § 303(b); (2) the Alleged Debtor is a person against whom an order for relief may be entered; and (3) the Alleged Debtor is generally not paying his debts as they become due.

On May 7, 2013, the Petitioning Creditors caused a summons and a copy of the petition to be served upon the Alleged Debtor by first class mail, postage prepaid at his home address. The Alleged Debtor filed his Answer to the petition, which he supplemented with leave of the Court on July 22, 2013. The Alleged Debtor did not challenge the eligibility of Patriot to file the petition pursuant to § 303(b) and did not dispute the amount of his indebtedness to Patriot, namely $20,423,216.44. Moreover, the Alleged Debtor did not contest his indebtedness to Mayer in the amount of $150,000.00, although he alleged that Mayer is a fully secured creditor.

With respect to Patton Drive, the Alleged Debtor contested his liability with respect to a judgment obtained by Patton Drive (the “Patton Drive Judgment”) based upon “fundamental errors committed by the Superior Court in calculating the damages assessed against Fustolo and the other defendants,” and the stay of the judgment pursuant to Mass. R. Civ. P. 62(d). The Alleged Debtor also alleged that Patton Drive is a fully secured creditor. The Alleged Debtor, however, did not deny that he is a person against whom an order for relief may be entered. In addition, he did not deny that he is generally not paying his debts as they become due.

The Court scheduled a hearing on Fustolo's request to dismiss the Involuntary Petition set forth in his Answer to the Involuntary Petition. Prior to the hearing, on July 19, 2013, the Petitioning Creditors filed a “Request for Judicial Notice,” asking the Court to take judicial notice of various facts and statements set forth in certain documents prepared and adopted by Fustolo and filed in the Suffolk Superior Court, Department of the Massachusetts Trial Court, in a pending civil action, captioned 50 Thomas Patton Drive LLC v. Steven C. Fustolo, et al., Civil Action No. 09–3567–BLS2, together with the affidavit of Cliff Schorer (“Schorer”), the manager and sole owner of Patton Drive. In addition, prior to the hearing, the Alleged Debtor, as noted above, filed a Motion to Supplement Answer to Involuntary Petition, as well as Schedules D and F, and a Summary of Schedules, and an affidavit. ¹ In his Motion to Supplement Answer, the Alleged Debtor stated that “any debt that could be owed to 50 Thomas Patton Drive, LLC is secured by equity of over $4.0 million in real property” and that “the debt owed to Mayer is secured by equity of at least $230,000 in real property located at 110 Church Street, Winchester, MA.” As noted above, the Alleged Debtor did not challenge the final judgment obtained by Patriot, or dispute any of the $20,423,216.44 in indebtedness alleged in the Petition.

The Court conducted a hearing, as scheduled, on July 23, 2013. At the conclusion of the hearing, the Court directed the Petitioning Creditors to file a motion for summary judgment. In accordance with the Court's order, the Petitioning Creditors filed a Motion for Summary Judgment on August 15, 2013, together with the affidavits of Schorer, Mayer, John C. Howe (“Howe”), the Chief Executive Officer of Patriot, and Jonathan M. Horne, Esq., counsel to the Petitioning Creditors, and numerous exhibits. In addition, they filed a “Petitioning Creditors' Statement of Undisputed Facts and Memorandum of Law in Support of Motion for Summary Judgment.”

The Alleged Debtor filed an “Opposition of Steven C. Fustolo to Petitioning Creditors' Motion for Summary Judgment and a Cross–Motion for Summary Judgment and Assessment of Fees and Damages pursuant to 11 U.S.C. § 303(i).” He also filed a Response to the Petitioning Creditors' Statement of Material Undisputed Facts and Statement of Additional Material Undisputed Facts, together with the affidavits of his bankruptcy counsel, David M. Nickless, Esq., his state court trial counsel, Bruce W. Edmands, Esq., and numerous exhibits. The Alleged Debtor also filed an affidavit to which numerous exhibits are attached. The Petitioning Creditors then filed a Reply with additional affidavits and exhibits.

As will be discussed more fully below, the Court finds that there are no material facts in dispute and the cross-motions are ripe for summary judgment. SeeFed.R.Civ.P. 56(a), made applicable to this proceeding by Fed. R. Bankr.P. 7056. Based upon the Involuntary Petition, the Answer to the Involuntary Petition, as supplemented, as well as the affidavits and exhibits, including the 28–page Memorandum of Findings and Rulings and Judgment issued by the Suffolk Superior Court, the Court makes its findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.

III. FACTS²A. The Patriot Judgment

Patriot is a judgment creditor of the Alleged Debtor pursuant to a judgment entered in favor of Patriot by the Middlesex Superior Court, Department of the Massachusetts Trial Court on May 26, 2011 in a civil action captioned The Patriot Group, LLC v. Steven C. Fustolo, et al., Civil Action No.2010–00529 (the “Patriot Judgment”). The Middlesex Superior Court entered judgment against the Alleged Debtor “in the amount of $20,423,216.44, plus interest on the principal sum of $13,600,000 at the contract rate of nineteen percent (19%) from April 25, 2011, pursuant to Count I of the Verified Complaint.” ³ According to Howe, Patriot does not hold security for all of the Patriot Judgment, stating “all of the Patriot Final Judgment is unsecured.”

The Alleged Debtor never filed an appeal with respect to any part of the judgment entered by the Middlesex Superior Court in favor of Patriot, and the time within which the Alleged Debtor could have filed a notice of appeal has expired. He has not paid the Patriot Judgment or any portion of it, although he asserts that “upon information and belief Patriot foreclosed upon its collateral.” He has neither challenged his liability for the Patriot Judgment nor disputed any of the $20,423,216.44 amount of his indebtedness.

B. The Mayer Judgment

On February 19, 2009, Mayer initiated a civil action in the Middlesex Superior Court, Department of the Massachusetts Trial Court, captioned Richard Mayer v. Steven C. Fustolo, et al., Civil Action No. MICV 2009–00674. On February 8, 2011, the Middlesex Superior Court entered an Agreement for Judgment in Mayer's favor and against the Alleged Debtor pursuant to which the Middlesex Superior Court adjudicated, and the Alleged Debtor expressly stated and agreed, that he is indebted to Mayer in the amount of $150,000.00, plus interest at a rate of eighteen percent (18%) per annum accruing from September 13, 2008 to the present (the “Mayer Judgment”). In the Mayer Judgment the Alleged Debtor expressly stated and agreed to waive any and all rights to appeal the Mayer Judgment, all defenses and counterclaims, whether alleged in the litigation or not, and any right to a stay of execution. The Alleged Debtor has not paid the Mayer Judgment or any portion of it. Additionally, he has neither challenged the Mayer Judgment nor disputed any of the $150,000 amount of his indebtedness.

C. The Patton Drive Litigation and Judgment

1. The Randolph Property Loan

On July 17, 2008 the Alleged Debtor owned and controlled 50 TPD Realty, LLC (“TPD”). On July 17, 2008, Patton Drive sold certain real property located at 50 Thomas Patton Drive, Randolph, Massachusetts (the “Randolph Property”) to TPD. As consideration for the sale by Patton Drive of the Randolph Property to TPD, the Alleged Debtor executed and delivered to Patton Drive two...