Israel v. Wolf (In re Wolf)

• Citation: 577 B.R. 327
• Decision Date: 09 November 2017
• Docket Number: Adv No: 1:12–ap–01016–MT,Case No.: 1:11–bk–22172–MT
• Parties: IN RE: Oded WOLF, Debtor(s). Yahalomey Paz Israel, G.P. dba/aka Paz Diamonds Israel, an Israeli general partnership, Plaintiff(s), v. Oded Wolf, Defendant(s).
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California

577 B.R. 327

IN RE: Oded WOLF, Debtor(s).

Yahalomey Paz Israel, G.P. dba/aka Paz Diamonds Israel, an Israeli general partnership, Plaintiff(s),

v.Oded Wolf, Defendant(s).

Case No.: 1:11–bk–22172–MT

Adv No: 1:12–ap–01016–MT

United States Bankruptcy Court, C.D. California, San Fernando Valley Division.

Signed November 9, 2017

Dates: October 24, 2017

Nico N. Tabibi, Law Offices of Nico N. Tabibi, APC, Beverly Hills, CA, for Plaintiff.

Stella A. Havkin, Havkin & Shrago, Woodland Hills, CA, Leslie Richards, Law Offices of Leslie Richards APC, Encino, CA, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER TRIAL

Maureen A. Tighe, United States Bankruptcy Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Trial in the above-captioned adversary action took place October 2–4, 2017. Plaintiff Yahalomey Paz Israel, G.P. dba/aka Paz Diamonds Israel, an Israel general partnership ("Plaintiff," "Paz Israel," or "Paz") was represented by Nico N. Tabibi, Esq. of the Law Offices of Nico N. Tabibi, APC and Defendant Oded Wolf, Debtor herein ("Defendant," "Debtor," or "Wolf"), was represented by Stella A. Havkin, Esq. of Havkin & Shrago.

The Court, having considered the Complaint, Answer, subsequent pleadings and discovery, Joint Pre–Trial Order, [Docket No. 117], the evidence and declarations admitted prior to and/or during trial, the live testimony and exhibits admitted at trial, those matters of which the Court took judicial notice, and the entire record, makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. Plaintiff is a general partnership organized and existing under the laws of Israel. Plaintiff is a dealer involved in the consignment of fine diamond goods to various persons in the jewelry industry.

2. Wolf Diamonds, Inc., a California corporation ("Corporation"), was an entity owned and controlled by Defendant at all relevant times. Defendant's brother, Amir Wolf ("Amir") was also a shareholder.

3. During 2000 to 2004, when Plaintiff and Defendant transacted with one another, Defendant's primary if not exclusive source of income was the proceeds and assets of the Corporation.

4. Defendant supervised Ma Kristilyn Mallari ("Ilyn"), who was in charge of keeping the Corporation's book and records. Defendant and Amir testified that in 2008, the Corporation was shut down entirely and ultimately was dissolved in 2009. Defendant and his brother Amir made all decisions at the Corporation. (JPS ¶ 15.)

5. Defendant is an individual. On October 17, 2011, Defendant filed a voluntary petition in bankruptcy in this Court under Chapter 7 of the Bankruptcy Code ("Code"), Case No. 1:11–bk–22172–MT. The order fixing the time for filing complaints to determine dischargeability of any debt and/or objection to discharge set the deadline of January 17, 2012, on or before which Plaintiff filed its Complaint.

6. Defendant filed a prior bankruptcy action relating to mostly the same debts as in this bankruptcy action. Defendant filed a Chapter 13 bankruptcy petition, case No. 1:09–bk–24346–MT, which was dismissed on October 20, 2010, due to Defendant's failure to make plan payments ("First Bankruptcy Case").

7. Defendant listed an unsecured, disputed debt to Plaintiff, based on Plaintiff's claims of a personal guarantee for diamonds consigned by Plaintiff to the Corporation, in the sum of $2,940,839.16 in this bankruptcy action. (Joint Pre–Trial Order, ¶ 8.)

8. On October 29, 2008, Plaintiff filed a lawsuit in Los Angeles Superior Court Case No. BC400951 ("State Court Action") against Defendant, Corporation, and Defendant's brother, Amir, seeking to recover for such diamonds in the sum of $2,940,839.16. Defendant filed an Answer on September 21, 2009. Although Plaintiff obtained a default judgment against Amir, Plaintiff was prevented from obtaining a judgment or litigating on the merits due to the repeated bankruptcy filings of Defendant.

The Dealings between the Parties

9. Between September 2000 and July 2004, the Corporation entered into a series of written agreements for the consignment of diamonds ("Memoranda of Consignment") from Plaintiff to Defendant and his Corporation. (See Joint Pre–Trial Order, ¶ 10.)

10. Pursuant to the Memoranda of Consignment, Plaintiff delivered diamonds on consignment to Defendant and his Corporation. Additionally, upon the terms stated therein, Defendant and his Corporation agreed to return all the diamonds described in the Memoranda of Consignment, or alternatively to pay for the value of such diamonds, upon Plaintiff's demand.

11. Defendant dealt primarily with Ronit Fouzilev ("Ronit"), who is the daughter to the founder of Paz Israel. Ronit made all arrangements with Defendant Wolf and represents her elderly father in the business. She is involved in all aspects of Paz Israels' business, including sales, marketing, and finances. She is a distant relative of Wolf and resides in Israel.

12. As of October 2004, Plaintiff delivered to Defendant and his Corporation diamonds valued at $10,314,129.63 pursuant to Memoranda of Consignment. (Exhibit 1; Ronit Trial Testimony.) Exhibit 1, together with Ronit's testimony at trial, accounted for the diamond goods provided by Plaintiff to Defendant and the Corporation, including descriptions and values of the goods at all relevant times. Defendant was listed as consignee on certain Memoranda and/or invoices in Exhibit 1.

13. Ronit testified at trial, and was corroborated by Ilyn in connection with Exhibit 1–115, that Defendant purchased a total of $4,522,751.42 worth of diamonds from Plaintiff, but made only $2,666,489.41 in payments prior to the October 2004 Agreement (as defined in ¶ 36). Prior to the October 2004 Agreement, Defendant delivered written documentation to Plaintiff that the value of diamonds on hand with the Corporation was $1,127,857.72, with an additional $561,053.83 in diamonds on hand that had been memoed. (Exhibit 14–16; Exhibit 1–115; Ilyn Trial Testimony).

14. Defendant executed written Guaranty agreements ("Wolf Guaranties") for certain Memoranda of Consignment. (Exhibit 15.) Pursuant to the Wolf Guaranties, Defendant personally guaranteed all obligations imposed by the respective Memoranda of Consignment, including but not limited to the financial obligations and performance obligations.

15. No evidence was presented that the Wolf Guaranties were waived, nullified, rescinded, or otherwise cancelled, and said guaranties are in full force and effect.

Corporate Records

16. Plaintiff and Defendant stipulated to admission of all exhibits that are part of the record. Additionally, Exhibits 6, 8, 12, 13, and 35 were deemed to have been produced by the Defendant's accountant, Amnon Mahller, CPA. The internal records of the Corporation produced by Defendant's accountant were partial, sporadic, and not for the entire duration of time at issue in this present action.

17. Ilyn testified that the Corporation's computers used the software system "Diamond Software," which kept track of the Corporation's diamond purchases, sales, and inventory. (Ilyn Trial Testimony; reading into the record Ilyn Deposition Transcript 12:7–15.)

18. At all relevant times, while working at the Corporation, Ilyn was responsible for managing accounts receivable and accounts payable and creating diamond inventory reports using the Diamond Software. (Ilyn Trial Testimony, reading from Ilyn Dep. 12:7–15.)

19. Based on Ilyn's testimony about the data recorded in the Diamond Software, the Corporation's diamond inventory at any point in time (including all times relevant to this litigation) could be determined by calculating the difference between the diamonds that were received and sold by the Corporation. (Ilyn Trial Testimony.)

20. Based on Ilyn's testimony about the Diamond Software, data recorded in such software included records of the ID of each diamond, which evidences the consignor of the diamonds that made up the Corporation's diamond inventory. (Id.)

21. Based on Ilyn's testimony about the Diamond Software, the data recorded in such software detailed whether payments for the diamonds had been made, but did not record the method of payment, i.e. cash payments versus credit and check payment.

22. Defendant testified that he kept "a cash book," which he destroyed about every two months when it was full, and eventually the last cash book at the time of the Corporation closed.

23. The data recorded in the Diamond Software regarding the Corporation's inventory of consigned diamonds from Plaintiff, the valuation of such diamonds, the identification of such diamonds, and the records of diamonds bought and sold by the Corporationwas true and accurate except that Plaintiff and Defendant would sometimes agree on a lower valuation for a specific diamond which would be documented in an email. Changes were made on the software, and a new identification number was possibly assigned to the diamond, although it was not clear if that always was done.

24. Ilyn and Ronit both explained that the diamond inventory report dated October 26, 2004 ("October 2004 Inventory Report") was created by Ilyn based on the information and data stored in the Diamond Software on the Corporation's computer(s). (Exhibit 14.)

25. The October 2004 Inventory Report was a true and accurate record of Plaintiff's diamonds that were consigned to the Corporation.

26. Ilyn testified that the Corporation moved its books and records, including some of the Corporation's computers, during multiple changes of office location. The first move was from the Hill Street address to the City National Bank address, and the second move was to the Encino address. Ilyn further testified that the move from the City National Bank office to the Encino office took place after the Corporation closed sometime in 2008. It was, however, not clear from Ilyn's testimony what software was still on her computer and which computers were kept in the move.

27. Although Ilyn testified that the Diamond Software preserved the records relating to inventory, assets,...