In re Kalabat
| Decision Date | 19 October 2018 |
| Docket Number | Case No. 11-60831,Case No. 11-60667 |
| Citation | 592 B.R. 134 |
| Parties | IN RE: Jamal S. KALABAT, Debtor. In re: Salam Kalabat, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Robert N. Bassel, Clinton, Michigan, Attorney for Debtors, Jamal S. Kalabat and Salam Kalabat.
Max J. Newman, Butzel Long, Bloomfield Hills, Michigan, Attorney for James A. Akouri and James A. Akouri Living Trust.
These two bankruptcy cases require the Court to decide whether certain claims, alleged in a state court lawsuit against two bankruptcy Debtors, were discharged in the Debtors' Chapter 7 bankruptcy cases.
In these cases, the Debtors, Jamal Kalabat and Salam Kalabat, each obtained a discharge. Several years later, the Kalabats (who are brothers) and others were sued in state court, by James A. Akouri and the James A. Akouri Living Trust (the "Akouri Parties"). After the parties litigated in state court for several months, the Akouri Parties filed a second amended complaint. The Kalabats now allege, in this Court, that the second amended complaint asserts claims that were discharged in their bankruptcy cases. The Akouri Parties deny this.
In each of these cases, the Debtor filed a motion entitled "Motion for Civil Contempt and to Enforce Discharge Injunction" (Docket # 53 in Case No. 11-60667 and Docket # 85 in Case No. 11-60831) (together, the "Motions"). The Motions allege the same facts and involve the same issues. Each of the Motions seeks an Order finding the Akouri Parties in contempt, and awarding injunctive and monetary relief, for the Akouri Parties' alleged violations of the discharge injunction under 11 U.S.C. § 524(a)(2). The Akouri Parties oppose the Motions.
The Court held a joint hearing on the Motions, then permitted certain post-hearing filings and briefing by the parties. The Court then took the Motions under advisement.
The Court has considered all the briefs and oral arguments of the parties, and the exhibits and other documents filed by the parties,1 as well as the rest of the record in each of these bankruptcy cases. This Opinion and the orders to follow will constitute the Court's decision on the Motions. For the reasons stated in this Opinion, the Court will deny each of the Motions.
This Court has subject matter jurisdiction over these contested matters under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). These are core proceedings, under 28 U.S.C. § 157(b)(2)(O).
In addition, these contested matters each fall within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc .), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). These are a proceedings "arising under title 11" because they are "created or determined by a statutory provision of title 11," see id. , including Bankruptcy Code § 524(a)(2). And these are proceedings "arising in" a case under title 11, because they are proceedings that "by [their] very nature, could arise only in bankruptcy cases." See Allard v. Coenen , 419 B.R. at 27.
The following facts are undisputed.
In 2007, one or both of the Akouri Parties loaned $250,000.00 to two Michigan limited liability companies, named K-LV Investment LLC and K 4 DEVELOPMENT LLC. The loan was evidenced by, among other things, a promissory note dated July 3, 2007 in the amount of $250,000.00 with a stated maturity date of July 3, 2009, under which the borrowers agreed to repay the stated amount, plus interest, by paying to the order of "James A. Akouri Living Trust, dated March 26, 2003."2 Jamal Kalabat and Salam Kalabat each personally guaranteed payment of the loan and promissory note, in a written guaranty agreement dated July 3, 2007 (the "Guaranty Agreement").3 That Guaranty Agreement expressly referred to and guaranteed payment of the $250,000 promissory note dated July 3, 2007, and the guarantees were expressly made by the Kalabats to "James A. Akouri Living Trust, dated March 26, 2003," which is defined as "the ‘Lender.’ "4
To secure payment of the $250,000.00 loan and their guaranty obligations, Jamal Kalabat and Salam Kalabat each signed a written security agreement, entitled "Membership Interest Security and Pledge Agreement," dated July 2, 2007 (the "Security Agreements").5 In the Security Agreements, the Kalabats each granted a security interest "in favor of JIMMY AKOURI," in (1) their membership interests in a limited liability company called "Birmingham Property, LLC;" and (2) their shares of stock in a corporation named Waterford Hotel, Inc.6
Jamal Kalabat and Salam Kalabat each filed a Chapter 7 bankruptcy case in 2011, and each obtained a discharge of debts. Thus, the personal liability of Jamal Kalabat and Salam Kalabat to the Akouri Parties, under the 2007 Guaranty Agreement, was discharged in the bankruptcy cases, in 2011.
Several years later, on November 4, 2015,7 the Akouri Parties filed a lawsuit in the Oakland County, Michigan Circuit Court, captioned James A. Akouri, Individually, and James A. Akouri Living Trust vs. Birmingham Property, LLC, et al. , (Case No. 2015-150003-CB, the "State Court Case"). The defendants were Jamal Kalabat and Salam Kalabat, and others. After several months of litigation, on May 13, 2016, the Akouri Parties filed a second amended complaint (the "Second Amended Complaint"), containing eight counts.8 Five of these counts (Counts I, II, III, VII, and VIII) stated claims against Jamal Kalabat and Salam Kalabat. The three other counts stated claims against an attorney named Laith Yaldoo (Counts IV, V, and VI).
The Kalabats argue that in asserting the five counts against the Kalabats in the Second Amended Complaint, the Akouri Parties sought to collect on the pre-petition debt of the Kalabats under their 2007 Guaranty Agreement of the $250,000.00 loan made by the Akouri Parties. As a result, the Kalabats argue, this action by the Akouri Parties sought to collect on debts that had been discharged in the Kalabats' 2011 bankruptcy cases.
It is therefore necessary to describe these counts in the Second Amended Complaint.
Count I of the Second Amended Complaint alleges a claim that the Kalabats converted the Akouri Parties' collateral, in the form of the membership interests in Birmingham Property, LLC, which the Kalabats pledged in 2007 as security for their loan guaranties. This count seeks damages for the conversion, including treble damages under Mich. Comp. Laws § 600.2919(a).
Count I alleges that this alleged conversion occurred on or after October 13, 2015, when the Akouri Parties sought to collect on the $250,000.00 loan made in 2007, which was in default. The Akouri Parties sought to realize on their collateral, in the form of the Kalabats' pledged membership interest in Birmingham Property, LLC. This count alleges that on October 13, 2015, the Akouri Parties "sent a notice of default" to Birmingham Property, LLC, directing it to "register the membership interest of Defendants Kalabat in the name of [the Akouri Parties]," and notified Birmingham Property, LLC that "[the Akouri Parties] were entitled to, among other things, receive all distributions and exercise all voting rights relating to the membership interests of Defendants Kalabat in [Birmingham Property, LLC]."9 Count I then alleges that the Kalabats caused "distributions and/or other payments that should have been paid" to the Akouri Parties instead to be paid to an entity owned or controlled by the Kalabats.10 By this conduct, Count I alleges, the Kalabats converted property of the Akouri Parties for their benefit.
Count II alleges a claim of unjust enrichment against the Kalabats, based on the same facts stated in Count I.
In Count III of the Second Amended Complaint, the Akouri Parties seek to foreclose on their security interest in the Kalabats' shares of stock in Waterford Hotel, Inc., because of the default on the $250,000.00 loan. This count seeks an order directing that the stock be sold, and that the proceeds be applied to pay the $250,000.00 loan, plus interest and attorney fees.11
Count VII
Count VII of the Second Amended Complaint seeks damages for an alleged breach of contract by the Kalabats. This count alleges that the Kalabats made an agreement with the Akouri Parties in May 2015, under which the Kalabats agreed to pay the Akouri Parties $250,000.00 "by May 16, 2016," in exchange for unspecified "consideration" given to the Kalabats by the Akouri Parties.12 This count then alleges that the Kalabats have not paid any part of the $250,000.00, but instead "have repudiated their obligations to do so."13
The Second Amended Complaint does not specify what the "consideration" was for the alleged May 2015 agreement. But the allegation that "consideration" was given by the Akouri Parties clearly implies that they gave something of value, rather than a mere release of the Kalabats' personal liability for their pre-petition debt under their 2007 Guaranty Agreement. That personal liability had been discharged in the Kalabats' bankruptcy cases in 2011, so a release of it in 2015 clearly would not constitute "consideration" as that word is used in the Second Amended Complaint.
Although the Second Amended Complaint does not specify what the "consideration" was for the alleged May 2015 agreement, the Akouri Parties have made clear what it was, in their written response to the Kalabats' Motions and in the hearing on the Motions. They say that the...
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