In re Vebeliunas, Bankruptcy No. 98 B 45466. Adversary No. 99-2379
| Decision Date | 21 April 2000 |
| Docket Number | 00-2297.,Bankruptcy No. 98 B 45466. Adversary No. 99-2379 |
| Citation | 252 BR 878 |
| Parties | In re Vytautas VEBELIUNAS, Debtor. Roy Babitt, Trustee, Plaintiff, v. Vytautas Vebeliunas, Defendant. Roy Babitt, Trustee, Plaintiff, v. Vytautas Vebeliunas, individually and as trustee of a Revocable, Vart Trust, Vanda Vebeliunas, individually and as trustee of an Irrevocable Vart Trust, Daniel Lipman, Melissa Lipman, Chase Manhattan Bank, and Citibank, N.A., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Bauner Baron Rosenweig & Klein, LLP, by Jon D. Kaplon, Son K. Le, New York City, for Roy Babitt, Plaintiff-Trustee.
Feder, Goldstein, Tannenbaum, D'Errico & Arnedos, LLP, by Frank N. D'Errico, Carle Place, NY, for Defendant Vanda Vebeliunas, individually and as trustee of the Irrevocable Vart Trust.
Vytautas Vebeliunas, individually and as trustee of the Revocable Vart Trust, Richmond Hill, Defendant, pro se.
Dollinger Gonski & Grossman, by Matthew Dollinger, Leslie Foodim, Carle Place, NY, for Chase Manhattan Bank.
Moses & Singer, by Alan Gamza, Jerome Lasky, New York, NY, for Citibank, N.A.
Steinberg & Associates, by Herbert Noel Steinberg, Kew Gardens, NY, for Daniel and Melissa Lipman.
This memorandum, following a trial, is made pursuant to Rule 52 of the Federal Rules of Civil Procedure which is adopted in bankruptcy proceedings by Rule 7052 of the Federal Rules of Bankruptcy Procedure. Two separate adversary proceedings have been consolidated for trial.
When the plaintiff rested his case Vanda Vebeliunas moved for judgment as a matter of law under Rule 52(c) Fed.R.Civ.P. The court declined to rule on this motion until the close of all the evidence. She rested her case and the parties presented their closing arguments. Accordingly, the motion was deemed moot and the case taken under submission. Post trial briefs have now been received and considered.
One of the adversary proceedings concerns ownership of a valuable residential estate located in Lattingtown, New York (the "Lattingtown Estate") and an adjacent estate property ("Lot 384"). The trustee-plaintiff seeks to have these properties turned over to the estate pursuant to 11 U.S.C. § 542, arguing that the debtor is an alter ego of the trust which holds record title to them and, therefore, it should be disregarded.
The second proceeding is an objection by the plaintiff-trustee to the discharge of the debtor, contending that he knowingly made fraudulent, false oaths and withheld recorded information, under 11 U.S.C. § 727(a). In addition the trustee seeks to except debts to Chase Manhattan Bank and Citibank, N.A. from any discharge granted to the debtor, under 11 U.S.C. § 523(a).
The debtor does not schedule the Lattingtown Estate nor Lot 384 as assets in connection with the bankruptcy petition. He denies that he ever owned either of these properties. The debtor's wife, Vanda Vebeliunas ("Vanda"), argues that the properties are owned by an Irrevocable Vart1 Trust of which she is sole trustee and the debtor and family members are beneficiaries. The defendants Lipman own and reside on property adjoining the Lattingtown Estate and are named due to an agreement their predecessor in title made with the debtor concerning boundaries. They have not actively participated in the proceedings and did not attend the trial.
Chase Manhattan Bank ("Chase") is named for it claims a first lien on the Lattingtown Estate due to a mortgage executed by the debtor. Likewise, Citibank, N.A. ("Citibank") claims a junior lien as holder of a second mortgage also executed by the debtor. These banks participated in the trial.
This court has jurisdiction pursuant to 28 U.S.C. § 1334(a) and the adversary proceedings are core proceedings pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B), (E), (J) and (O).
Venue is proper pursuant to 28 U.S.C. § 1409(a).
Vytautas Vebeliunas is the debtor and he, with his wife, Vanda, resides at the Lattingtown Estate. His bankruptcy petition was filed under chapter 11 of the Bankruptcy Code on May 21, 1998 in the United States Bankruptcy Court for the Eastern District of New York. Subsequently, it was transferred to this court because it was deemed related to another case already pending here. In November, 1998 the case was converted to one under chapter 7 and Roy Babitt was appointed trustee.
The Lattingtown Estate consists of about 17 acres of land containing a large main house, a cottage, a swimming pool, a pool house, a tennis court and a five car garage. Testimony indicates the estate has a value of $4,000,000 to $5,000,000. Lot 384 abuts the Lattingtown Estate and contains about five acres upon which there is a nine-room house. Evidence shows that Lot 384 may have a value in excess of $1,000,000. The properties are located on the north shore of Long Island in the vicinity of the Town of Oyster Bay in an area of exclusive homes and estates.
Since 1977, except for two years during which he was in federal prison, the debtor, Vanda and other family members have lived on the Lattingtown Estate.
The debtor has many years experience as a public accountant and has been engaged in numerous business ventures and projects during a lengthy career.2 Many of his ventures were related to real estate development in the New York City vicinity and in Florida. He served a sentence in federal penitentiary for bank fraud, misapplication of credit union funds, criminal conflicts of interest, filing false loan applications and related charges. The sentence was served following conviction and appeal.3
On June 12, 1977 an entity known as North Shore Partnership ("NSP") was created. While the debtor was not a partner he caused its formation. The partners were Vanda, other family members and business associates of the debtor.
On July 12, 1977 the Lattingtown Estate, which then contained approximately 65 acres, was acquired by Litas Investing Co., Inc. ("Litas"). It also was one of the entities, concerning which the debtor was an insider, used for real estate and other business ventures. Shortly after Litas acquired the property the debtor and his family began residing at the estate.
On July 15, 1977 NSP and Litas entered into an agreement regarding the Lattingtown Estate. Their arrangement provided generally that NSP would develop and subdivide the Lattingtown Estate into lots for sale. Title remained in Litas but, upon satisfaction of terms of the arrangement, it would transfer or "release" specific lots to either Litas or the ultimate buyer.
The debtor caused creation of the "Vart Trust, a revocable, living trust" ("RVT") which is dated March 4, 1983. He is the sole trustee and the beneficiaries are Vanda and certain children. The trust was to be the owner of a life insurance policy on the debtor's life and was to hold "my residence in Locust Valley, New York . . ."4 Neither were ever transferred to the RVT.
On February 16, 1985 Vanda caused to be created the "Vart Trust", an irrevocable trust ("IVT"). Under its terms she is the sole trustee, and the debtor is a beneficiary "eligible to 20% of all of the distributions from the Corpus of the Trust."5 Other beneficiaries are the parties' children. The stated purpose of the IVT was to hold title to the Lattingtown Estate.
On February 25, 1985 Litas conveyed the Lattingtown Estate, now containing about 17 acres, to the IVT and this deed was recorded with the County Clerk of Nassau County, New York.6 Neither trust instrument was ever placed in the public records.
The debtor and his family continued to live in the Lattingtown Estate and treated it as their own property.
Additionally, the IVT did not follow the usual "formalities" expected of trusts. In this connection the trustee-plaintiff established at trial that:
1. From its creation, until 1997, the IVT never filed a tax return;
2. From its creation, until 1997, the IVT never opened a bank account;
3. The debtor and Vanda received and kept rents from the Lattingtown Estate;
4. After Vanda's son, Aras Vebeliunas, the named successor trustee of the IVT, became involved he also routinely retained rent monies to which the IVT was entitled;
5. In April, 1984 the debtor granted an easement over the Lattingtown Estate to the local utility company;
6. Neither the debtor, Vanda nor any family member have ever paid any rent to the IVT for their use and occupancy of the Lattingtown Estate;
7. The debtor and Vanda have taken deductions from their personal income tax for real estate taxes and interest relating to the Lattingtown Estate;
8. The IVT was not a named insured in connection with insurance policies on the Lattingtown Estate;
9. Virtually all of the expenses of the IVT were paid by the debtor, even though he was only supposed to fund trust liabilities in excess of profits, according to the trust instrument;
10. Other than the trust instrument and tax returns for 1997 and 1998 Vanda, as trustee of the IVT, has not turned over, produced or identified any books or records concerning the IVT;
11. In February, 1987, in connection with a loan application, debtor represented to Chase that the RVT, over which he had complete control, was the owner of the Lattingtown Estate;
12. In May, 1987 debtor, as sole trustee of a "Vart Trust", purported to convey the Lattingtown Estate to himself;
13. In May and September, 1987 debtor granted separate mortgages to Chase and Citibank to secure notes totaling $1,700,000 with the Lattingtown Estate;
14. In August, 1987, in connection with the loan application to Citibank, debtor signed a sworn affidavit stating that the RVT owned the Lattingtown Estate and there was no IVT;
15. On February 3, 1998 debtor purportedly transferred the Lattingtown Estate back to the "Vart Trust";
16. In 1989 the debtor, alone, signed an easement agreement with the neighbors to the...
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