In re Sapru

Decision Date15 February 1991
Docket NumberAdv. No. 186-0021.,Bankruptcy No. 184-40988-260
PartiesIn re Moti SAPRU, Debtor. BANK OF INDIA, Plaintiff, v. Moti SAPRU[*], Defendant.
CourtU.S. Bankruptcy Court — Eastern District of New York

COPYRIGHT MATERIAL OMITTED

O'Melveny & Myers by Robin L. Dahlberg, Louis B. Kimmelman, New York City, for plaintiff.

Alan J. Weiner, New York City, for debtor and defendant.

CONRAD B. DUBERSTEIN, Chief Judge.

The plaintiff, Bank of India (hereinafter "the Bank" or "Plaintiff") moves for summary judgment pursuant to Fed.R.Civ.P. 56, made applicable to this proceeding by Bankruptcy Rule 7056, denying the debtor Moti Sapru (hereinafter "the Debtor") his discharge pursuant to 11 U.S.C. § 727(a)(4)(A). The Debtor cross-moves for summary judgment to dismiss the Plaintiff's complaint for failure to state a claim upon which relief may be granted. For the reasons set forth below, the Plaintiff's motion for summary judgment is granted, the Debtor's cross-motion is denied, and the Debtor's discharge is denied.

FACTS
a. The Relationship Between The Debtor And The Bank

In 1981, the Bank agreed to extend credit facilities to Indian Fantasy, Inc. ("Indian Fantasy"), a New York corporation which from 1978 until 1983 engaged in the importation and sale of clothing. The Debtor owns 100% of the stock in Indian Fantasy and is its president. Under the terms of the credit agreement, the Bank opened various letters of credit on behalf of Indian Fantasy to finance the importation of goods. Upon the arrival of these goods in the United States, Indian Fantasy executed trust receipts in favor of the Bank. Pursuant to the terms of the trust receipts, Indian Fantasy was obligated to repay the Bank for the sums advanced under the letters of credit plus interest and charges within a time period specified in the trust receipts. To induce the Bank to extend the aforementioned credit facilities, the Debtor executed and delivered to the Bank a continuing guarantee dated July 30, 1981 ("Guarantee"). Under the terms of the Guarantee, the Debtor guaranteed the payment of all obligations of Indian Fantasy to the Bank. Between 1981 and 1983 the Bank advanced over $1.5 million to Indian Fantasy pursuant to various letters of credit. Despite repeated oral and written demands by the Bank, Indian Fantasy failed to repay $724,310 of the advances made by the Bank. Demands upon the Debtor to pay Indian Fantasy's obligation to the Bank as required by the Guarantee were also unsuccessful. It is alleged in the complaint that Indian Fantasy and the Debtor as guarantor, is indebted to the Bank for at least $860,000.

b. The Bankruptcy Case And Related Proceedings

As this case has been pending since 1984, it is useful to catalogue the events responsible for its prolonged life in this court.

On June 15, 1984, the Bank filed involuntary petitions for relief under Chapter 7 of the Bankruptcy Code (the "Code") against the Debtor, the Debtor's wife Sunita Sapru, and Indian Fantasy (collectively the "Debtors"). After answers were interposed by the Debtors this court ordered that trials of the issues raised by the pleadings be held. Subsequent to that order counsel for the Debtor, Moti Sapru and counsel for the Bank engaged in settlement discussions as a result of which both sides agreed to adjourn the trial on a month to month basis. Orders for Relief were ultimately granted. The first meeting of creditors was scheduled for July 25, 1985. September 23, 1985 was set in each case as the last day to file objections to discharge or dischargeability of a debt.1

The first meeting of creditors scheduled for July 25, 1985 was adjourned to August 23, 1985 on the grounds the Debtor was not in the country and was adjourned again until September 20, 1985. At the § 341 meeting held that day, the Debtor swore to the veracity of the information contained in his petition, and the meeting was then adjourned to October 17, 1985 on the grounds the Debtor had yet to file schedules of his assets and liabilities ("Schedules") and statement of affairs for a debtor not engaged in business ("Statement of Affairs") pursuant to § 521 of the Bankruptcy Code. The Bank timely moved, and the Court granted its motion, to extend the time to object to the Debtor's discharge and the dischargeability of its debt from September 23, 1985 to December 19, 1985.

Two subsequently scheduled § 341 meetings were also adjourned to November 6, 1985, by which time on October 5, 1985, the Debtor's Schedules and Statement of Affairs were filed. However, on November 5, 1985, the Bank requested an adjournment of the § 341 meeting because it had not yet received copies of the Schedules and Statement of Affairs. The § 341 meeting was finally held on December 11, 1985. Due to various miscommunications, partly attributable to the Bank's failure to send letters confirming the adjourned date, the Bank was not aware of the meeting and failed to attend. However, the meeting did proceed. The Debtor testified under oath as to his Schedules and Statement of Affairs upon his examination by the Chapter 7 trustee.

As of December 12, 1985, the Bank had not examined the Debtor and therefore again moved, and the Court granted its motion, to extend to February 28, 1986 the time to object to the Debtor's discharge and the dischargeability of its debt. Thereafter the Bank examined the Debtor at a § 341 meeting on January 15, 1986 and at an examination pursuant to Bankruptcy Rule 2004 on February 12, 1986.

c. The Bank's Attempts At Taking Discovery

In addition to the difficulty encountered in attempting to orally examine the Debtor, taking discovery of the Debtor proved an onerous burden. As far back as the inception of this case the Bank began to seek discovery of the Debtor shortly after filing the involuntary petition in bankruptcy. The Bank had noticed a deposition for June 13, 1985. A first set of interrogatories and a first request for production of documents dated May 10, 1985 were also served. Additional requests for documents were made at the § 341 meetings by the Bank and the trustee. The Debtor failed to produce many documents requested, prompting the Bank to move for an order, which the Court granted on January 27, 1986, compelling the Debtor to appear for an examination and produce certain documents. Among the documents requested but not produced were certain federal and state income tax returns, and statements of account and cancelled checks from the Debtor's bank accounts with National Westminster Bank ("Westminster") and Citibank, N.A. ("Citibank"). The Bank also requested the business records of American Girls, Inc. ("American Girls")2 as well as all documents relating to the Debtor's relationship with American Girls which had not as yet been produced.

As the Debtor had not fully complied with the order of January 27, 1986, on September 18, 1986 this Court upon application of the Bank signed another order compelling the Debtor to produce documents which provided that the Bank and its attorney be awarded costs if the Debtor did not produce the documents.

On October 15, 1986, the Debtor applied for a protective order with regard to the production of the books and records of American Girls and cancelled vouchers and personal bank statements from Citibank and Westminster on the grounds that: (1) the documents sought were irrelevant since they concerned American Girls, an entity allegedly unrelated to this proceeding; and, (2) the time to object to discharge and dischargeability of debt had already passed and therefore the Bank could no longer use the information as further grounds to object to the Debtor's discharge or dischargeability of a debt. The Debtor's motion was denied.

On November 13, 1986, the Debtor again moved for a protective order preventing disclosure of certain documents on the grounds the information contained in the bank statements from Citibank and Westminster and the books and records of American Girls may contain incriminating information. After a hearing the Debtor's motion was denied on several grounds. First, the Debtor had voluntarily waived the right to claim the privilege with respect to the bank records by previously having produced substantial amounts of bank records.3 Second, as for the books and records of American Girls, a corporate representative such as the Debtor may only claim a Fifth amendment privilege against producing corporate documents where the act of producing the documents would incriminate the corporate agent and, he would be conceding their existence or that he had possession or control.4 In this case the Debtor had already admitted existence and possession of these documents.

Even after two orders to produce were signed and two motions for an order of protection were denied, the Debtor failed to produce many of the remaining documents. Therefore the Bank applied for an order which was signed on August 12, 1987 directing the issuance of subpoenas duces tecum, to both Westminster and Citibank requiring the production of certain documents. A second order signed October 26, 1987 directed the issuance of a subpoena duces tecum for service on Bankers Trust Co. requiring the production of certain documents.5 On March 14, 1989 a request for admissions, interrogatories and requests for production and a notice of deposition were served on defendant. Subsequently the Debtor was scheduled to be examined on July 27, 1989. Answers to the Interrogatories and certain documents were produced in or around January of 1989. However the Debtor refused to testify at the scheduled deposition without a court order due to the long period of time which had elapsed with regard to these proceedings without the plaintiff putting this proceeding on for trial. No order for such relief was submitted to the Court.

d. The Adversary Proceeding To Bar The Debtor's Discharge

Although the Debtor had not produced the remaining documents required by the January 27, 1986 order, the...

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