In re Hambley
| Decision Date | 23 August 2005 |
| Docket Number | Bankruptcy No. 8-99-85575-mlc.,Adversary No. 8-99-8483-dem. |
| Parties | In re Richard Robert HAMBLEY and Renee Marie Smith-Hambley, Debtors. Theodosios Voyatzoglou and TE 2000, Inc., Plaintiffs, v. Richard Robert Hambley and Renee Marie Smith-Hambley, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Sanford P. Rosen & Associates, New York City, By Sanford Rosen, Esq., for the Plaintiffs.
Renee Marie Smith, Esq., Miami, FL, Pro Se Defendant.
Richard Robert Hambley, Fort Lauderdale, FL, Pro Se Defendant.
DECISION AND ORDER AFTER TRIAL
The plaintiff Theodosios Voyatzoglou is an individual and the plaintiff TE 2000 Inc. ("TE 2000") is a Florida corporation with its principal place of business in Broward County, Florida. In 1997 and 1998, the defendants Richard Robert Hambley ("Hambley") and Renee Marie Smith ("Smith")1 owned all of the equity of Millennium IT (Thailand) Ltd. ("Millennium"). Voyatzoglou formed TE 2000 for the purpose of holding the shares of Millennium which he had agreed to purchase from the defendants. On May 14, 1998, Voyatzoglou and the defendants entered into a "Heads of Agreement" pursuant to which the defendants agreed to sell to Voyatzoglou fifty per cent of the equity of Millennium for $300,000. Voyatzoglou made installment payments to the defendants on May 15, 1998 and June 2, 1998, in the amounts of $50,000 and $125,000, respectively. Subsequently, a dispute arose between Voyatzoglou and the defendants, and Voyatzoglou failed to make any additional payment for the shares of Millennium.
On July 13, 1999, the defendants Hambley and Smith filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. The plaintiffs timely filed their proof of claim. The plaintiffs listed the basis for the claim as conversion, fraud, breach of contract, RICO violations, and civil theft.2 The defendants did not object to the proof of claim.
On November 3, 1999, the plaintiffs commenced this adversary proceeding by filing the Complaint. The Complaint contained five causes of action, which plaintiffs denominated as Claims for Relief. On July 19-20, 2004, the Court held a trial on the issue of the dischargeability of the claim. On February 28, 2005, the plaintiffs filed their Proposed Findings of Fact and Conclusions of Law. On March 25, 2005, Hambley filed a letter in lieu of a post-trial submission. On April 5, 2005, the plaintiffs submitted a reply to Hambley's letter. The Court then reserved decision.
As set forth more fully below, the Court holds that the defendants are not barred from contesting the allegations of the Complaint in this adversary proceeding as a result of their actions in defaulting in the State Court Action (First Claim For Relief). The Court finds that the plaintiffs have met their burden of proof with regard to their claim and the Court fixes the amount of this claim in the amount of the proof of claim, $ 700,000.00 plus interest costs and attorneys fees (Second Claim For Relief). The Court further finds that this debt is non dischargeable under Bankruptcy Code Sections 523(a)(2)(Third Claim For Relief), 523(a)(4)(Fourth Claim For Relief) and 523(a)(6)(Fifth Claim For Relief).
This Court has subject matter jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2) and the Eastern District of New York standing Order of reference dated August 28, 1986. This decision constitutes the Court's findings of facts and conclusions of law to the extent Fed. R. Bank. P. 7052 requires.
The Court makes the following findings of fact. In 1997, the defendants owned all of the equity in Millennium. Compl.¶ 7, Answer ¶ 1. The defendants sought outside investors in the company, which was based in Thailand. Voyatzoglou, Tr. I at 5, lines 11-22;3 Millennium Solicitation Letter, Ex. 1. The defendants claimed Millennium was in the business of distributing computer software designed to address the year 2000 Millennium Bug.4 Solicitation Letter Pl.Ex.1. By January 1998, the need for investors became acute as the company's financial situation worsened. Smith, Tr. I at 146-147.
In early 1998, a mutual friend, Alex Villalon ("Villalon"), introduced Voyatzoglou to the defendants. Tr. I at 5; Smith Tr. I at 147, lines 23. Villalon knew the defendants were seeking investors and that Voyatzoglou was also in the computer software business. Voyatzoglou, Tr. I at 5, lines 13-20; Smith Tr. I at 147-148.
The defendants had prepared a solicitation letter for the purpose of soliciting new investors and marketing Millennium (the "Solicitation Letter"). Smith, Tr. I at 53, lines 11-14, 17-18. In the Solicitation Letter, the defendants claimed that Millennium was a distributor of ConSyGen 2000 Y2K Bug Software (the "Y2K Program"). See Pl.Ex. 1. The Solicitation Letter alleged that this program was the only automated program which could fix the Millennium Bug, and that it could do so faster and with fewer errors than hand correction. Id. The defendants also alleged that they had exclusive rights to distribute the Y2K program in Thailand, as well as exclusive rights to other computer programs:
We [the defendants] are holding exclusive rights for Thailand, to the only technology existing that can perform mainframe conversions through a fully automated process....
We have ...[s]igned all of the contract and agreements that grant us exclusive rights to ConSyGen 2000 Y2K solution in Thailand.
Pl.Ex. 1. Voyatzoglou testified that Villalon gave him the Solicitation Letter in or around March 1998. Tr. I at 11-12. Voyatzoglou also testified the defendants told him that they had exclusive rights to the Y2K Program when he first spoke to them in March 1998 and that they were aware he had seen the Solicitation Letter. Id. at 8, lines 4-9, at 12, lines 4-9 and at 102, lines 10-15.5
However, the defendants did not have exclusive rights to the Y2K Program in Thailand. Id. at 145-46. Smith testified that the defendants had entered into a teaming agreement with ConSyGen which they believed granted them exclusive rights to the Y2K Program in Thailand. Id. at 146. Smith stated that the defendants learned in January 1998 that they were mistaken when ConSyGen cancelled the original teaming agreement and entered into a new one with the defendants.6 Ibid. Examination of the second teaming agreement between ConSyGen and the defendants revealed a date of April 2, 1998, three months after Smith claimed the original one had been cancelled and the new one issued. See Conversion Services Teaming Agreement between ConSyGen and Millennium, Pl.Ex. 2. The new teaming agreement unequivocally stated that the agreement was nonexclusive: Pl.Ex. 2 at 1, ¶¶ 1, 4.
In April 1998, the sale price for the purchase of fifty per cent of the stock in Millennium was $250,000. Smith, Tr. I at 153, lines 10-25. Tr. I at 18, lines 2-16. In December 1997, the Solicitation Letter had claimed the defendants had incurred $150,000 in expenditures, in addition to the $250,000 for the "exclusive" rights to the Y2K Program. Voyatzoglou testified that the defendants informed him that they had invested almost $250,000 in Millennium by April 1998. He testified that he agreed to invest an amount equal to the amount of the defendants' investment in exchange for fifty per cent of Millennium's stock, and an extra $50,000 to capitalize the business and move Millennium's headquarters into better office space. Tr. I at 18, lines 9-16, at 24-26. See also Heads of Agreement, Compl., Ex. A. Voyatzoglou testified that he was unaware that Millennium's rights to the Y2K Program were nonexclusive until the discovery phase of this adversary proceeding. Tr. I at 13, lines 10-17.
The Court finds that the defendants falsely informed Voyatzoglou, both in writing and orally, that Millennium had exclusive rights to the Y2K Program, and that they falsely stated in writing that they had invested $250,000 for that exclusive right, when they knew that they were no longer liable to ConSyGen on the promissory note.
The Solicitation Letter also alleged that Millennium had numerous customers. It provided in pertinent part that "[e]very one of [60 mainframe users in Bangkok] [Thailand] will be coming to us" for the Y2K program. Pl.Ex. 1. In addition, the defendants claimed that manufacturers of mainframes were "recommending us [the defendants] to perform the Y2K conversions on their equipment...." Id. Voyatzoglou testified before they signed the Heads of Agreement on May 14, 1998, the defendants had informed him that Millennium had many large clients for the Y2K Program including IBM Thailand, Sun Microsystems, Digital, Hewlett Packard, Tandem as well as telecommunication companies, financial institutions, and Thai government agencies. Tr. I at 21-23. Voyatzoglou later learned that none of these entities was a customer of Millennium and that some were direct competitors. Id. at 23, lines 7-9.
Smith testified the defendants had informed Voyatzoglou that they had no signed customers. Id. at 149, lines 21-24. Smith's testimony is contradicted by an e-mail from Hambley to Voyatzoglou dated March 25, 1998 which read: "[o]ur clients include: IBM Thailand, Sun Microsystems, Digital, Hewlett Packard ... Financial Institutions and the government agencies." Pl.Ex. 5. On May 13, 1998, the same date Voyatzoglou signed the Heads of Agreement, the defendants sent...
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