In re Parikh

• Decision Date: 24 May 2011
• Docket Number: Adversary No. 808–8062–reg.,Bankruptcy No. 807–72869–reg.
• Citation: 456 B.R. 4
• Parties: In re Sunil PARIKH, Debtor.John Desiderio, Plaintiff,v.Sunil Parikh, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

456 B.R. 4

In re Sunil PARIKH, Debtor.John Desiderio, Plaintiff,

v.Sunil Parikh, Defendant.

Bankruptcy No. 807–72869–reg.

Adversary No. 808–8062–reg.

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

May 24, 2011.

Marc A. Pergament, Weinberg Gross & Pergament LLP, Garden City, NY, for Debtor.

DECISION AFTER TRIAL

ROBERT E. GROSSMAN, Bankruptcy Judge.

Before the Court is an adversary proceeding commenced by John Desiderio (the “Plaintiff”), seeking to dismiss the Debtor's petition as a bad faith filing pursuant to 11 U.S.C. § 707(a), or alternatively, to deny the Debtor's discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), 727(a)(3), 727(a)(4)(A), 727(a)(4)(B), 727(a)(4)(D), 727(a)(5), and/or 727(a)(6)(A).¹ With respect to the relief sought under section 707(a) the Plaintiff alleges, in sum, that the Debtor filed this bankruptcy case in bad faith and solely as part of a scheme to impede the Plaintiff's efforts to collect on a series of judgments entered against the Debtor in Plaintiff's favor. In support of the section 727 causes of action, the Plaintiff argues that the Debtor fraudulently transferred assets within the year preceding the bankruptcy filing with the intent of defrauding creditors; the Debtor failed to preserve financial records from which his financial condition or business transactions could be examined; the Debtor knowingly and fraudulently omitted assets and liabilities from his schedules and statements, and gave knowingly false testimony at the section 341 meeting; the Debtor failed to satisfactorily explain the loss of assets sufficient to meet his liabilities; and the Debtor failed to obey a lawful order of this Court.

The Debtor argues that the Plaintiff failed to satisfy his burden of proof at trial. He maintains that he made repeated offers to settle with the Plaintiff but those offers were rejected. According to the Debtor, this bankruptcy case was filed in response to the Plaintiff's efforts to have the Debtor incarcerated pursuant to a state court warrant of commitment. The Debtor also argues that his education, experience and sophistication must be taken into consideration when examining the causes of action under section 727(a), and in this case, those factors weigh in the Debtor's favor. According to the Debtor, his lack of formal education and business experience, and the fact that English is not his first language, are justification for most of the deficiencies in this case. The Debtor admits that certain information was omitted from his schedules, but maintains that those omissions were inadvertent, not fraudulent. He also claims that he did not review his petition before signing it because he was under duress resulting from the threat of incarceration, and maintains that this duress persisted at the point of his section 341 meeting. The Debtor argues that the information omitted from his schedules was or should have been known to the Plaintiff, and the mistakes were subsequently corrected by amended schedules. Finally, the Debtor contends that the Plaintiff's claims are barred by the doctrine of judicial estoppel because the Plaintiff, in a related malpractice lawsuit, acknowledged that the Debtor owned no significant assets.

The Court held a trial over several days from November 2009 through June 2010. The Plaintiff called five witnesses: Harendra Koya, accountant; Sunil Parikh, the Debtor; Meena Parikh, the Debtor's wife; and Lynda Fergesun, a friend of the Plaintiff's counsel. The Debtor offered no witnesses. The Plaintiff's Exhibits 1 through 8 and Debtor's Exhibits A through J were received into evidence without objection prior to the commencement of the trial. At trial, Plaintiffs exhibits 23, 28 B & C, 29, 29A, 31, 32–33, 39, 40, 42, 43, 45, 46, 53–58, 61, 63, 69, 71, 72 and 79 were admitted, some for limited purposes only.² Defendant's Exhibits V and an unmarked Settlement Stipulation were admitted.³

On July 23, 2010, the Plaintiff and Debtor each filed proposed findings of fact and conclusions of law and post-trial memoranda of law. On July 26, 2010, the Plaintiff filed a response to the Debtor's proposed findings of fact and conclusions of law.⁴

In this case, the Court has been presented with facts which are relevant to proving a case for dismissal under section 707(a) and also denial of the discharge under section 727(a)(4)(A) and (a)(2)(A). After considering the evidence and weighing the credibility of the witness, the Court finds that the Plaintiff has sustained his burden of proof to dismiss this case “for cause” as a bad faith filing under section 707(a). However, the Plaintiff also has sustained his burden of proof to deny the Debtor's discharge under section 727(a)(4)(A) and (a)(2)(A).

The Plaintiff has stated to the Court that he would prefer that this case be dismissed under section 707(a) as a bad faith filing. Despite the Plaintiff's preference, the Court must find that dismissal would be in the best interest of all parties in interest in order to dismiss the case. The Court finds that it is in the best interest of all parties that this case remain open and under the supervision and control of the chapter 7 trustee and the Court. The Court also believes that where relief is requested under section 727(a) and the burden of proof is met, it is more appropriate to grant relief under that section than it is to dismiss the case for a bad faith filing. Although the conduct necessary to prove claims under section 707(a) and 727(a) overlaps in some instances, section 727 is the more specific of these statutory provisions and it carries a much harsher penalty. Congress has determined that if a debtor engages in conduct which is specifically proscribed by one of the subsections of section 727(a), the appropriate remedy is the more severe sanction accompanying a denial of discharge. This Court will not alter what it believes is the clear construction of the relevant statutes and apply a lesser remedy, such as dismissal.

Jurisdiction

This adversary proceeding is a core proceeding and this Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b) and 1334(b). The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052.

The Bankruptcy Petitions and Schedules

Prior to the instant chapter 7 petition, the Debtor filed a chapter 13 petition on May 30, 2006 with the assistance of experienced legal counsel (Bankr. E.D.N.Y. No. 806–71203). Among the personal property listed on Schedule B in that case was $50 cash; a Citibank checking account (account number ending in X9420) owned jointly with the Debtor's spouse which held a balance of $146.67; household goods; wearing apparel and miscellaneous jewelry with nominal value ascribed to them. Five months later, on October 18, 2006, the Debtor filed an amended Schedule B disclosing Chase checking and savings accounts (account numbers ending X3639–65) held jointly with his spouse with a balance of $22.44. At that time, he also disclosed “Stock & Business Interests” in Health Heaven, Inc. (50%) and Kuliwala Food Corp. (70%), both with unknown value.

In the chapter 13 case, the Debtor also scheduled first and second mortgage liens on his residence in favor of Wells Fargo and Citibank, respectively, totaling approximately $200,000, plus a third mortgage to “Meera Management LLC” ⁵ in the amount of $300,000. The Debtor also scheduled two secured judgment liens owed to the Plaintiff, John Desiderio, in the amounts of $7,062.50 and $76,143.97. The Debtor reported Peter Devani as a co-debtor with respect to the Desiderio judgments, and reported Meena Parikh, his wife, as a co-debtor on the first and second mortgages, but not the third mortgage. The Debtor reported $0 in unsecured debt. However, on August 4, 2006, he filed an amended Schedule F reporting a $181.45 debt owed to Long Island Power Authority for utilities, and then on October 18, 2006 the Debtor filed a further amendment to Schedule F adding a Discover Credit card with a balance of $52.32. On Schedule I, he reported that he was a manager of Mineola Health Food Inc. for a period of one year prior to the petition, and disclosed $0 in “gross wages, salary or commissions” and $866.66 of monthly “regular income from operation of business....” He reported his wife's income from her employment as a lab technician for NYC Health & Hospital Corp. but also reported that she earned $2,500 monthly “regular income from operation of business ...” Schedule J states that his monthly payment on his first mortgage is $823.73, and $550 on the second mortgage.

The chapter 13 case was dismissed on November 2, 2006 on the motion of the Chapter 13 Trustee.⁶

In December 2006, approximately six weeks after the Debtor's chapter 13 case was dismissed and seven months before filing the Chapter 7 case, the Debtor or his wife obtained a $45,000 cash advance from their Citibank Variable Rate Equity Source Account (“Citibank VRESA”) which depleted the available credit on this account. The funds were deposited into an individual checking account held by the Debtor's wife at Washington Mutual.

On July 30, 2007, about nine months after the Chapter 13 case was dismissed, the Debtor filed the instant chapter 7 petition with the assistance of different, but also experienced, legal counsel. In the schedules filed with the petition, the Debtor disclosed his interest in Health Heaven, Inc., but not Kuliwala Food Corp. Six weeks later, on September 17, 2007, the Debtor filed amended schedules disclosing that he held an interest in Kuliwala Food Corp., but only as a nominee. The schedules as originally filed did not disclose Citibank or Chase bank accounts even though they were previously identified in the chapter 13 schedules. Nor did the Debtor list the third mortgage to Meera Management among his secured obligations, although he did note in the statement of financial affairs that there was a pending action to foreclose the third...