In re Usoskin, Bankruptcy No. 183-31433-21
| Decision Date | 27 November 1985 |
| Docket Number | Adv. No. 183-0400.,Bankruptcy No. 183-31433-21 |
| Parties | In re Barbara USOSKIN, Debtor. Hukumad CHAUDHRY and Haridas Shah, Plaintiffs, v. Barbara USOSKIN, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
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Robert Tauber, Brooklyn, N.Y., for debtor.
Manojkumar D. Patel, New York City, for plaintiffs Chaudhry & Shah.
This is an adversary proceeding brought by two creditors, Hukumad Chaudhry and Haridas Shah, of the debtor, Barbara Usoskin, objecting to the discharge of her debts in bankruptcy. Although their complaint invokes only 11 U.S.C. § 727, covering objections to the discharge in toto of all debts, their post-trial memorandum also implicates § 523(c) which deals with the dischargeability of specific debts.
This is a core proceeding which this Court is authorized to hear and determine. 28 U.S. § 157(a), (b)(2)(I) and (J).
For the reasons set out more fully below, this Court finds the complaint to be wholly without substance and not to have been filed in good faith.
Barbara Usoskin filed a petition for relief under Chapter 7 on July 22, 1983. She acted pro se. Her petition shows as assets a car, household furniture and clothing: all claimed as exempt and having a total value of $1,100.00. It shows liabilities totaling $42,228.40, including a debt to the plaintiffs in the amount of $25,450.44. (Tr. 11/16/84 at 69). Among the debts shown are $5,000.00 owed to Murray and Evelyn Usoskin, subsequently identified as Usoskin's parents, and $8,000.00 owed Frank and Jean Rosenberg, her uncle and aunt. (Tr. 10/26/84 at 91; 11/16/84, at 35-36, 58-65).
On October 24, 1983, Shah and Chaudhry filed a complaint objecting to Usoskin's discharge. The complaint pleaded that Usoskin, with one Simion Ksenzowski, had purchased a store from the plaintiffs, had defaulted on the notes given as part of the purchase price, and requested judgment against the defendants in the amount of $26,500.00.1
After the Court had, at a pre-trial hearing, noted that the complaint was vulnerable to dismissal for failure to state a claim, the plaintiffs served an amended complaint which incorporated in haec verba, several sections of 11 U.S.C. § 727. It also alleged that Usoskin, by a materially false statement in writing respecting her financial position, had obtained the "business property and loan-money by fraud".
Barbara Usoskin filed an answer prepared on her behalf by Richard Koral, Esq., a friend. (Tr. 11/16/84 at 157-58). At the pre-trial hearing on February 7, 1984, the Court scheduled the trial for April 30, 1984. On March 23rd or 24th, 1984, plaintiffs' attorney, Manojkumar D. Patel, left for India, advising neither the Court nor Koral nor Usoskin of his departure. Just before leaving he sent Koral a demand for discovery and inspection of documents demanding production within the next 30 days at his office, which he closed on his departure. (Application of Richard Koral, Esq., dated May 1, 1984; Plaintiffs' Application to Set Aside a Default Order and to Restore Adversary Proceeding to Calendar, dated July 26, 1984).
On the scheduled trial date of April 30, 1984, neither Patel nor plaintiffs were in court, whereupon the Court adjourned the matter peremptorily to May 17, 1984. Thereafter, Koral filed a motion to dismiss based on the failure of the complaint to state a cause of action and failure to prosecute.
Patel, on his return May 14, made no inquiry respecting what had happened on the scheduled trial date, nor he claims, did he learn of Koral's motion, but he did communicate with Koral to demand compliance with his discovery demand. In accordance with that demand, Usoskin and Koral came to the court on May 25, 1984 with her records and displayed to Patel and to his clients her checks, receipts, invoices and bank statements. (Tr. 10/26/84 at 69-73). She did not produce any tax returns; she had filed none in 1983 because her income was too low to require a return. (Tr. 10/26/84 at 101). She also produced no promissory notes showing debts to persons other than the plaintiffs and no general ledger. (Tr. 10/26/84 at 101). The same records she produced pre-trial she also produced in court on November 16, 1984, adding a new document she received from her uncle showing the dates and the amounts of the loans he had made her. (Tr. 11/16/84 at 20-33, 63-65, 202-205).
On May 17th, for the convenience of the Court, both Usoskin's motion to dismiss and the pending trial were adjourned to June 7, 1984. On that day, neither Patel nor his clients were in court, nor was the defendant. The proceeding was thereupon closed by the Court. When Patel learned of these events, he moved to reopen the default, to which Robert Tauber, Esq., who had replaced Koral as attorney for Usoskin, agreed. Mr. Tauber also waived a decision on the motion to dismiss, so that the case could go to trial on the merits, which it then did.
At the trial, the only witnesses were the two plaintiffs and the defendant.2
On August 19, 1982, Barbara Usoskin and Simion Ksenzowski entered into a contract to buy a stationery store, which the plaintiffs had been operating for about two and a half years. Usoskin and Ksenzowski had just sold for about $6,000.00, a car service business, which they were then operating in partnership, Ksenzowski having bought out Usoskin's previous partner some time earlier. (Tr. 10/26/84, at 39, 82, 109; Tr. 11/16/84 at 48-51, 119, PX 12).
Usoskin and Ksenzowski agreed to pay $40,000.00 for the business. The contract of sale assigned a value of $10,000.00 to the inventory, $1,000.00 to the furniture and fixtures and the balance to good will and the seller's covenant not to compete. (Tr. 11/16/84 at 53-54, 220; PX 12). In the contract of sale, the gross receipts of the business were represented to be $2,500.00 a week, to be confirmed by a test week chosen by the sellers who selected the week following Labor Day. (Tr. 11/16/84 at 211-212, 216-217 PX 12).
Neither Shah nor Chaudhry requested a written statement as to financial history. (Tr. 10/26/84 at 83). They did not learn that she had resorted to bankruptcy in 1972 as a result of an illness. (Tr. 11/16/84 at 137-144, 229).
The closing took place on September 14, 1982, following the week chosen by the sellers as a trial period, the opening of school after Labor Day. Usoskin and Ksenzowski paid Shah and Chaudhry $14,500.00 in cash and gave notes for the balance of $26,500.00, consisting of 40 promissory notes, each in the sum of $807.08, the first due on October 14, 1982, and monthly thereafter. As security for the payment of the note, the sellers were given a security interest in all the inventory and equipment. They also retained, in escrow, the lease and the assignment of the lease. The closing took place in the office of Usoskin's attorney. A sales tax was paid on the sale of the equipment. (Tr. 10/26/84 at 9-20, 54-60; PX's 1-6, 9).
Usoskin obtained the cash for the down payment from the proceeds of the sale of the car business, from loans from her relatives and from her partner, Ksenzowski. (Tr. 10/26/84 at 7, 55, 82-83; 11/16/84 at 200-201; PX 13).
When Usoskin took possession of the store, the Monday following the closing, she found the inventory left her to be worth no more than $500.00. (Tr. 10/26/84 at 84; 11/16/84 at 55-56). The greeting cards were water damaged, the edible stock had been eaten by mice, no stationery or cigarettes were left, and all the paper goods were filthy. (Tr. 10/26/84 at 85-86). When she asked Chaudhry what had happened to the stock, he told her that he and Shah had sold it off up to the date of the closing and she would have to replace everything. (Tr. 10/26/84 at 85). Usoskin telephoned her attorney to complain that Shah and Chaudhry had lied and cheated her, but he advised her that there was nothing she could do and that she was bound by the contract. (Tr. 10/26/84 at 85; 11/16/84 at 54).
Unable to extricate herself from her bargain, Usoskin tried to make the best of it. After she found the store had no credit, she borrowed money from her uncle and bought about $2,000.00 worth of school supplies. (Tr. 10/26/84 at 86; PX 13).
She shortly encountered other problems. She discovered that the basement was a shambles and learned that as a tenant she was expected to take care of the heat and all repairs. (Tr. 11/16/84 at 189-190). After she had been there a month or two, the compressor broke and its repair cost $475.00. (Tr. 11/16/84 at 184). When she complained to the landlord, he told her that under the lease she was completely responsible for the maintenance of the building. (Tr. 11/16/84 at 190). The rent was $350.00 a month and the electricity cost $100.00 a month or more. (Tr. 11/16/84 at 10).
Although she had been told that everything was in working order, she discovered that the freezer did not work in the summer and the ice cream spoiled. She tried to repair the store's equipment, but none of it ever worked properly because of the age of the store. (Tr. 11/16/84 at 190-191).
Trying to make a go of the place, she opened up at 6:00 in the morning and closed at 7:00 at night, working six and a half days a week. Her partner, Ksenzowski, usually came in about 2:00 p.m. and stayed until 7:00 p.m., also working six days a week. In addition, she had a young assistant whom she paid about $30.00 a week, who worked about 14 hours. (Tr. 11/16/84 at 7-8).
After the first two weeks of operation, when she and her partner each drew $150.00 a week as salary, she reduced their draw to $50.00 or $75.00 a week. (Tr. 10/26/84 at 87). Because she could not live on what she drew and had no other income, she began to borrow money from a friend and accept gifts from her relatives. (Tr. 11/16/84 at 16-19, 34).
The stationery store was entirely a cash business, it operated on the margin of 35 to 50 percent. (Tr. 10/26/84 at 39,...
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