In re Zois, Bankruptcy No. 95-41543 (BRL). Adversary No. 98-8101A.

• Decision Date: 05 March 1999
• Docket Number: Bankruptcy No. 95-41543 (BRL). Adversary No. 98-8101A.
• Citation: 269 BR 89
• Parties: In re Christ ZOIS, Debtor. Gloria Vanderbilt Cooper, Plaintiff, v. Christ Zois, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

269 B.R. 89 (1999)

In re Christ ZOIS, Debtor.

Gloria Vanderbilt Cooper, Plaintiff, v. Christ Zois, Defendant.

Bankruptcy No. 95-41543 (BRL). Adversary No. 98-8101A.

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

March 5, 1999.

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Jerome Walsh, Lane & Mittendorf LLP, New York City, for Plaintiff.

Bruce J. Zabarauskas, Gerard Catalanello, Baer Marks & Upham LLP, New York City, for Defendant-Debtor.

BURTON R. LIFLAND, Bankruptcy Judge.

Judgment Creditor-Plaintiff, Gloria Vanderbilt Cooper ("Vanderbilt"), commenced this adversary proceeding against Defendant and chapter 7 debtor, Christ Zois (the "Debtor"), seeking a determination that her judgment debt is non-dischargeable under section 523(a)(2)(A) and (a)(4) of title 11 of the United States Code (the "Bankruptcy Code"). This non-dischargeability action arises out of alleged fraud committed by the Debtor, a former psychiatrist and close friend of Vanderbilt, and Andrews, Vanderbilt's former attorney. Vanderbilt now moves for summary judgment arguing that the Debtor is collaterally estopped from relitigating issues already determined by the New York Supreme Court and a Disciplinary Committee Hearing Panel and which have been subjected to appellate review. The Debtor has cross-moved for summary judgment on the same grounds.

Background

At the outset, I note that this non-dischargeability action follows a long and tortured history in the state courts including multiple trial and appellate court decisions. A to Z Assocs. v. Cooper, 232 A.D.2d 196, 648 N.Y.S.2d 74 (N.Y.App.Div.1996); A to Z Assocs. v. Cooper, 215 A.D.2d 161, 626 N.Y.S.2d 143 (N.Y.App.Div.1995); Gloria Vanderbilt Home Furnishings, Inc. v. Cooper, 215 A.D.2d 162, 626 N.Y.S.2d 135 (N.Y.App.Div.1995); Matter of Andrews, 184 A.D.2d 195, 591 N.Y.S.2d 406 (N.Y.App.Div.1992), lv. denied, 81 N.Y.2d 912, 597 N.Y.S.2d 930, 613 N.E.2d 962 (1993); A to Z Assocs. v. Cooper, 161 Misc.2d 283, 613 N.Y.S.2d 512 (N.Y.Sup. Ct.1993) ("A to Z I"), aff'd, 215 A.D.2d 161, 626 N.Y.S.2d 143 (N.Y.App.Div.1995). The foregoing state court decisions describe an illicit and secret partnership between a psychiatrist (the Debtor) and a lawyer founded on a conspiracy to isolate and defraud a mutual patient and client, Vanderbilt; a partnership in which the Debtor used knowledge obtained from Vanderbilt's psychiatric treatments to assist Andrews in plundering her assets. At each judicial intersection, Andrews and the Debtor have been found to be acting in a fraudulent cooperative, the purpose of which was embezzlement of Vanderbilt's funds. The following background is culled from relevant decisions and the pleadings submitted in these proceedings.

The Debtor saw Vanderbilt as a psychiatric patient for a three-year period beginning in 1973 and ending in 1976. After their doctor-patient relationship ended, Vanderbilt and the Debtor remained friends. Vanderbilt, regarding the Debtor as a confidant, continued to discuss her personal and financial problems with the Debtor.

At the Debtor's urging,¹ Vanderbilt discharged her old attorney, Newman Lawler, and retained a childhood friend of the Debtor, Andrews,² as her new attorney. In 1980, Andrews and Vanderbilt entered into a written agreement (the "Service Agreement"), whereby Andrews would provide legal, business advisory, management and agency services to Vanderbilt in exchange for ten percent of her earnings after deducting commissions payable to third party agents. Andrews and Vanderbilt operated under the Service Agreement for its stated term, three years. After the Agreement expired, Andrews continued to pay himself commissions but at the increased rate of twenty percent and both parties continued to operate under the Service Agreement beyond its stated term.

Also in 1980, at Andrews' instruction, Vanderbilt terminated her long time accountant entrusting Andrews with complete control of Vanderbilt's finances. Finally in 1980, without Vanderbilt's knowledge, the Debtor and Andrews formed a secret partnership, prophetically named A to Z Associates ("A to Z"), from which they received equal distributions of the earnings secured from Vanderbilt. During the period in which A to Z was operational, Andrews paid A to Z and himself in excess of 1.5 million dollars from Vanderbilt's earnings. The majority of those commissions and fees were paid to Andrews who endorsed them to A to Z for the benefit of himself and the Debtor.

During the period just after Andrews gained exclusive control of Vanderbilt's finances, Andrews began paying the Debtor, without Vanderbilt's knowledge, for alleged past and future medical services. Andrews signed and delivered five checks to the Debtor.

$31,000, dated December 10, 1980, with the notation "Medical Services 1976, 75, 74 & 73";

$30,300, dated January 9, 1981, with the notation "Psych./Med.-1977 thru 1980";

$12,000, dated September 16, 1981, with the notation "Retainer for 1981";

$12,000, dated January 14, 1982, with the notation "1st half 1982 retainer";

$12,000, dated July 12, 1982.

After Andrews was discharged by Vanderbilt in 1986, he and the Debtor brought an action (the "Civil Action") in the Supreme Court of the State of New York (the "N.Y. Supreme Court") against Vanderbilt seeking recovery of fees and commissions under the Service Agreement. Vanderbilt raised six counterclaims in the Civil Action against Andrews, the Debtor and A to Z. Vanderbilt alleged (1) breach of fiduciary duties Andrews and the Debtor owed to Vanderbilt; (2) repeating the previous allegations but limiting the requested recovery to amounts over and above that due under the Service Agreement; (3) fraud with respect to payments made to the Debtor by Andrews under the guise of psychiatric services rendered by the Debtor from 1973 to 1982; (4) breach of fiduciary duty with respect to Gloria Concepts, Inc. ("Gloria Concepts"), a home furnishings company allegedly fraudulently transferred to Andrews; (5) fraud and deceit with respect to facts asserted in the first and fourth counterclaims; and (6) breach of fiduciary duty and fraud and deceit with respect to facts asserted in the first and fourth counterclaims and including additional facts surrounding Gloria Concepts.

While the Civil Action was pending, in 1988, Andrews was charged with six counts of professional misconduct (the "Charges"), before the Disciplinary Committee for the First Judicial Department of New York. The six counts included: (I) improper payments to the Debtor Zois and commingling Vanderbilt's funds with his own, (II) improper relationship with a non-lawyer, the Debtor, (III) engaging in transactions with Vanderbilt in which Andrews had a conflict of interest, (IV) failure to maintain complete books and records and render appropriate accounts, (V) failure to promptly deliver client property, and (VI) false testimony to the disciplinary committee at a deposition. After numerous adjournments at Andrews request, the Disciplinary Committee Hearing Panel (the "Hearing Panel") convened for thirty-one days of trial, produced 4,581 pages of transcripts and hundreds of exhibits. The Debtor testified at the trial for Andrews and was cross-examined. In 1991, the Hearing Panel issued a fifty-eight page decision (the "Report"). The Report sustained the first three counts in the Charges by clear and convincing evidence and recommended that Andrews be disbarred. The Hearing Panel found counts four, five and six in the Charges could not be sustained.

The Hearing Panel determined that the Debtor's participation in the trial was extensive and his testimony lacked credibility. The Hearing Panel made the following findings with respect to the Debtor's and Andrews' participation during the 31 days of trial.

The Panel determined that respondent and the Debtor both had testified untruthfully during the hearing on material issues. They were skillful witnesses who departed from the truth only when necessary to accomplish their purpose. During the many days and lengthy sessions at which both of them testified, the Hearing Panel found their demeanor to be quite revealing; they clearly projected their dishonesty to the Panel members.

Moreover, much important testimony given by Andrews and the Debtor was utterly incredible. At times it conflicted with documentary evidence, and it often defied common sense.

(Report, p. 8)

Also, below are some of the Hearing Panel's findings regarding the Debtor's and Andrews' participation in the scheme to defraud Vanderbilt.

By early 1980, and with the able assistance of the Debtor, Andrews began misappropriating Vanderbilt\'s assets and diverting them to himself and the Debtor. Taking advantage of the complete trust which Vanderbilt placed in them, her neglect of business matters and total inattention to detail, Andrews utilized various subterfuges and devises to purloin Vanderbilt\'s assets.

(Report, p. 6)

On or about February 1, 1980, Andrews and the Debtor formed a partnership named "A to Z Associates" in which they were equal partners. This partnership was the recipient of Vanderbilt\'s funds taken under the Agreement, and otherwise. Over the next six years, more than $1.5 million of Vanderbilt\'s funds were transferred by Andrews to this entity, and 50% of these funds went to the Debtor.

* * * *

In addition, the entire arrangement was deceitful since it was done without Vanderbilt\'s knowledge or consent. Vanderbilt was unaware of the fact that relationship with the Debtor had become commercial in nature.

(Report, pp. 18, 19)

A six year scheme to misappropriate assets from a client, accomplished with the client\'s former psychiatrist and trusted friend, surely demonstrate unfitness to practice law.

(Report, p. 52)

The Appellate Division for the First Department confirmed those findings in a published decision dated December 17, 1992. Matter of Andrews, 184 A.D.2d 195, 591 N.Y.S.2d 406 (N.Y.App.Div.1992...