Mammo v. Sako (In re Sako)
| Decision Date | 06 March 2015 |
| Docket Number | Bankruptcy Case No. 13-05182-CL7,Adversary Proceeding No. 13-90210-CL |
| Court | U.S. Bankruptcy Court — Southern District of California |
| Parties | In re: SUNDUS YOUSIF SAKO, Debtor, HIKMAT MAMMO, Plaintiff, v. SUNDUS YOUSIF SAKO, Defendant. |
WRITTEN DECISION - NOT FOR PUBLICATION
In 2007, debtor-defendant Sundus Yousif Sako formed El Nopal Market, LLC to run a grocery business in Chula Vista, California. In 2008, plaintiff Hikmat Mammo joined the LLC as a member; he agreed to make a passive investment of $95,000 in the business. But the business did not do well. Among other things, it repeatedly failed to pay bills on time. Its trade creditors required cash-on-delivery payments for goods. And - without informing Mr. Mammo - Ms. Sako was apparently giving company funds to a Mr. Samir Toma. The three later went into business to form a second store in San Diego, California. But both stores eventually failed.
On May 17, 2013, Ms. Sako filed a voluntary Chapter 7 petition in Case No. 13-05182-CL7. Approximately three months later, on August 12, Mr. Mammo initiated the above-captioned adversary proceeding. He seeks damages, costs, and findings of nondischargeability against Ms. Sako under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6). On October 2, Ms. Sako answered the complaint. And the court tried the matter over three days. The court then took the matter under submission. Now, for the following reasons, the court: (1) awards Mr. Mammo $311,500 in damages; and (2) finds this award nondischargeable under 11 U.S.C. § 523(a)(2)(A).
The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b) and 157(b)(2)(I). Venue is proper under 28 U.S.C. § 1409(a).
Creditor-plaintiff Hikmat Mammo ("Mammo"), Debtor-defendant Sundus Yousif Sako ("Sako"), Father Sabri Kejbo ("Kejbo"), and Mr. Samir Toma ("Toma") are all members of the Chaldean community - the latter three living in San Diego. Kejbo and Mammo are childhood friends; Mammo became Kejbo's brother-in-law. Kejbo and Toma are also very good friends; they visit each other multiple times per week. Mammo operates a grocery business in Michigan. And Sako has worked in San Diego grocery businesses for many years.
In 2005, Sako became the sole owner of "San Pedro Market" - a grocery store in San Diego's Chula Vista neighborhood. She later renamed this store to "El Nopal Market." And in March 2007, she executed a written operating agreement to form El Nopal Market, LLC ("El Nopal 1") - a California limited liability company that would run the grocery business. Later that June, Sako met Toma. At that time, Sako was some $30,000 behind in rent for El Nopal 1, and she was trying to sell the business. She informed Toma about this, and he expressed interest. He inspected El Nopal 1. But, rather than purchase it whole, he offered to become Sako's partner: Toma would provide $95,000 to the business and Sako would continue to operate it.
Sako accepted Toma's offer and they entered escrow. But before escrow closed, Toma cancelled it due to issues related to his pending divorce. Toma then contacted Kejbo, Kejbo contacted Mammo, and Mammo went into business with Sako. Mammo and Sako amended El Nopal 1's operating agreement effective August 2008; Mammo joined El Nopal 1 as a member, and Sako took the position of "Chief Executive Member." Neither Sako. Mammo, Toma, nor Kejbo dispute that these events occurred. They disagree, however, on the nature of this transaction and the legal relationships it created.
In evaluating the trial testmimony, the court generally finds Mammo highly credible, Sako somewhat credible, and Toma hardly credible at all. Sako testified that - although they used only her and Mammo for business papers - she, Mammo, Toma, and Kejbo were all partners in the husiness. She alleges that Toma did not want his name on any documents because he sought to hide his assets from his soon-to-be ex-wife. To support her position, Sako asserts that Mammo never asked for any of the grocery's financial documents before forming the LLC. She points to Toma and Kejbo's involvement in the business. And, at trial, she maintained that she never met Mammo in person until 2009. Sako later contradicted this testimony by post-trial declaration.1
Toma was heavily involved in the business's affairs. He acted as an intermediary between Sako, Mammo, and Kejbo. Sako admits that Toma never directly gave money to her or El Nopal 1. But she testified, without objection, that Toma told her he gave money to Mammo and Kejbo; that Toma claimed he held an interest in El Nopal 1 "so [he could] collect [his] money through the company;" and that Toma eventually told Sako, "I'm not putting any more money in the company." According to Sako, Toma also knew everything about the business's activites. He often told Sako what to do. He came to the store almost every day and asked for money, which Sako gave him. And he regularly took store food and lottery tickets without paying.
Likewise, Sako alleged that Kejbo came to the store periodically to take pizza and lottery tickets. She asserted that Kejbo provided funds for the business. Further, Sako, Toma, or store employees would go to Kejbo's church to get coins for the store's cash registers. And Sako claimed that both Toma and Kejbo paid for El Nopal 1's liquor license. Sako also testified that Toma, Kejbo, and Mammo met at the store in April 2010 to clarify each person's contribution to the business. To corroborate Sako's testimony, Ms. Michelle Melton ("Melton") - Sako's roommate and El Nopal 1's bookkeeper - asserted that she was also present at this meeting. Melton created the document that was the product of that meeting. And Melton claims that Toma asked her to modify figures on the document to make it appear that El Nopal 1 did not have as many losses as it actually did.
For their part, Toma and Kejbo denied any interest in El Nopal 1. Together with Mammo, they contend El Nopal 1 had only two members: Mammo and Sako. Toma further denied ever taking money from the business. And Mammo insists he was simply a passive investor. He provided money for the business, but left its operation to Sako. Indeed, he could have no hand in its operation because - at the time - he lived in Michigan. He trusted Kejbo when Kejbo proposed this business opportunity. Further, he trusted Sako to manage the business properly.
Mammo, however, did visit San Diego occasionally. Sako admitted to meeting with him and discussing the business. And Sako told him the business was doing fine - she just needed more time and money to build it up. Mammo also kept in regular contact with Sako by phone. He would ofteninquire about the state of the business. And when he did, Sako would again affirmatively represent that it was doing well, but reiterate her need for more time and money. Mammo testifed that Sako was always asking "for more money." Moreover, Mammo asserted that he had no knowledge of Toma's acts or his involvement in the business. And Mammo claimed that any funds Kejbo provided were paid on Mammo's behalf.
El Nopal 1's operating agreement specifically names Sako as the managing member. Sako herself admits that she was responsible for operating the business; she was in charge of hiring and firing employees; and she managed its day-to-day duties. Apparently, however, Sako did not conduct these operations with diligence or prudence. Sako regularly wrote business checks payable to cash or various people - employees, friends, and family. She alleges that the payees would cash the check at a store or bank, then bring the cash back for the store to use. And she asserts she needed to do this to pay trade creditors: business vendors had issues with bad checks from El Nopal 1 in the past. As a result, the vendors would only accept cash on delivery ("COD") for their goods. Accordingly, she couldn't issue checks to the vendors; she had to pay cash for her inventory.
But Sako never produced any invoices that showed COD vendor payments. And, without explanation, these check-to-cash amounts increased dramatically in late 2009; they went from approximately $5,000 per month to approximately $15,000 per month. Further, it appears El Nopal 1 had virtually no accounting practice; Sako produced no books or ledgers accounting for El Nopal 1's inventory, transactions, or cash. Sako also failed to timely pay the business's income and payroll taxes. She failed to consistently pay the business's rent. She used the business's bank account for personal expenses, such as her own rent and gambling. Again, she gave store money to Toma on a regular basis. And, importantly, she failed to disclose many of these practices to Mammo. Instead, Sako informed Toma about her activities and she asserts - for what it's worth - that Toma gave her permission to run the business this way.
Despite El Nopal 1's shortcomings, in early 2010, Toma expressed interest in opening another store with Mammo and Sako. Sako herself wanted to open a small store that primarily servedparticipants of the federal government's Women, Infants, and Children program ("WIC"). But Toma desired a larger store in a location where he had owned or operated a previous business. Sako, Toma, and Mammo eventually agreed on the larger store, and became partners in it. They named it "El Nopal Market Too" ("El Nopal 2"); Toma contributed equipment, fixtures, and inventory; Mammo contributed funds; and Sako again provided her labor.
El Nopal 2, however, appeared to perform worse than El Nopal 1. It had complications with its premises lease and its landlord - Mr. Saiam Razuki ("Razuki"...
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