Nasif v. Palladino (In re Palladino), Case No. 14–15774–JNF

• Decision Date: 03 November 2016
• Docket Number: Adv. P. No. 15–1055,Case No. 14–15774–JNF
• Citation: 560 B.R. 608
• Parties: In re Gregory Steven Palladino, Debtor Kenneth and Teresa Nasif, Plaintiffs, v. Gregory Steven Palladino, Defendant
• Court: U.S. Bankruptcy Court — District of Massachusetts

560 B.R. 608

In re Gregory Steven Palladino, Debtor

Kenneth and Teresa Nasif, Plaintiffs,

v.Gregory Steven Palladino, Defendant

Case No. 14–15774–JNF

Adv. P. No. 15–1055

United States Bankruptcy Court, D. Massachusetts.

Signed November 3, 2016

Stephen Delamere, Law Office of Stephen J Delamere, P.C, Stoughton, MA, for Plaintiff.

Eugene C. Johnson, Haverhill, MA, for Defendant.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The issues presented in this adversary proceeding are whether the elements pertinent to the definition of larceny under Mass. Gen. Laws ch. 266, § 30 and 11 U.S.C. § 523(a)(4) are synonymous, and whether the Court is bound by the Defendant's plea of guilty to two counts of larceny in state court such that the Plaintiffs' debt is excepted from discharge under 11 U.S.C. § 523(a)(4). The issues arise in the context of a Motion for Summary Judgment filed by Gregory Steven Palladino (the "Defendant," the "Debtor," or "Palladino") with respect to the "Complaint Objecting to Dischargeability of Debt pursuant to 11 U.S.C. § 523(a)(2) (A & B) and (a)(4)" filed by Kenneth and Teresa Nasif (the "Plaintiffs"). The Plaintiffs filed an Opposition to the Defendant's Motion, and the Defendant filed a Motion to Supplement Exhibits to his Motion for Summary Judgment. The Court heard the Motion for Summary Judgment, the Opposition, and the Motion to Supplement Exhibits on September 13, 2016, and in the absence of objections, granted the Motion to Supplement Exhibits. At the conclusion of the hearing, the Court directed the parties to file supplemental briefs by October 14, 2016 as to the issues identified above.

Following the hearing, the parties filed supplemental memoranda. The Plaintiffs, however, coupled their Memorandum with their own request for summary judgment under § 523(a)(4). Accordingly, from a procedural perspective, the Court shall consider the parties to have filed cross-motions for summary judgment.

In filing his Motion for Summary Judgment, the Defendant failed to comply with United States District Court Rule 56.1, made applicable to this proceeding by MLBR 7056–1, by failing to file a "concise statement of material facts."¹ Nevertheless, based upon the Complaint, the exhibits attached to the Complaint and the Answer, as well as supplemental exhibits submitted by the parties and affidavits, the Court is able to find the following undisputed material facts.

II. BACKGROUND

A. The Debtor's Bankruptcy Case

The Debtor filed a Chapter 7 petition on December 16, 2014.² At the time he was incarcerated and, thus, on his petition, listed his address as South Bay House of Correction, 27 Bradston Street Boston, Massachusetts." On December 19, 2014, he filed Schedules and a Chapter 7 Statement of Current Monthly Income and Means–Test Calculation. The Debtor listed no assets on Schedule A–Real Property and Schedule B–Personal Property and listed no debts on Schedules D–Creditors Holding Secured Claims and Schedule E–Creditors Holding Unsecured Priority Claims. On Schedule F–Creditors Hold Unsecured Nonpriority Claims, the Debtor listed two holders of claims relating to revolving credit card accounts. On December 23, 2014, the Debtor amended Schedule F to list the Plaintiffs as well as Ronald Nasif, Marion Ward, Robert Ward, and Elissa M. Ferris. On Schedule H–Codebtors, he listed "Steven Palladino Cedar Junction Correctional Facility South Walpole, MA 02071." Steven Palladino is the Debtor's father. On Schedule I: Your Income, the Debtor indicated that he was unemployed and had no income. Similarly, he disclosed no expenses. On December 24, 2014, the Debtor filed his Statement of Financial Affairs, disclosing income from "Viking" in the sum of $64,800 in 2012, and income from "Catz & Viking" in the sum of $38,037.47 in 2013.

On March 20, 2015, the Chapter 7 Trustee filed a Report of No Distribution. Ten days later on March 30, the Court entered an order granting the Debtor a discharge of dischargeable debts. The Plaintiffs, as well as Ronald Nasif, Marion Ward, Robert Ward, and Elissa M. Ferris, all of whom are represented by Attorney Stephen J. Delamere, timely filed complaints under 11 U.S.C. § 523(a)(2) (A & B) [sic] and (a)(4).³

On April 17, 2015, the Debtor filed a Notice of Address Change disclosing that he now resides in Stoughton, Massachusetts.

B. The Plaintiffs' Complaint

As noted below, the Plaintiffs' Complaint, while setting forth factual allegations, is deficient with respect to the description of the claims for relief. Nevertheless, the Plaintiffs in cross moving for summary judgment clearly rely upon upon 11 U.S.C. § 523(a)(4) and its exception to discharge for larceny.

The Plaintiffs, who are husband and wife, filed their Complaint, referencing "Findings of Fact on Assessment of Damages, and Order for Entry of Final Judgment" entered by the Suffolk Superior Court, Department of the Massachusetts Trial Court, in a case captioned, Ronald Nasif, Kenneth P. and Teresa Nasif, Elissa Ferris, and Marion and Robert Ward v. Viking Financial Group, Inc., Steven P. Palladino, Gregory Palladino, and Lori Palladino, C.A. No. 2013–1382–C (the Suffolk Superior Court action) and the Criminal Docket in the case of Commonwealth v. Palladino, Gregory, Case No. SURC2013–10892. The Plaintiffs alleged that the Debtor is the son of Steven Palladino and the step-son of Lori Palladino (collectively, the "Palladinos") and that the Palladinos operated Viking Financial Group, Inc. ("Viking"), "an alleged asset based corporation that made short term, high interest loans to developers and builders who could not secure traditional financing." The Plaintiffs further alleged that the Debtor "worked closely with his father" at Viking for approximately four years from 2009 to 2013. According to the Plaintiffs, Viking issued promissory notes to investors bearing high interest rates of "10% or more per year, depending on the terms of the Note," and represented to investors that "their investments would be used to make secured loans to borrowers at a higher interest rate than Viking would pay to its investors." In addition, the Plaintiffs averred that Steven Palladino represented that the loans were secured by first mortgages on properties that had significant equity.

The Plaintiffs further alleged that Viking made very few loans and "instead used the investors' money to fund a lavish lifestyle for the Palladino family, including trips to casinos, luxury automobiles, vacations, jewelry, and to pay interest to investors so as to keep them in the dark on the true nature of their business, a Ponzi Scheme." The Plaintiffs averred that the Debtor, while employed by Viking, performed "a lot of the banking, such as depositing checks, cashing checks, sending wire transfers, and delivering some interest payment to Investors."

The Plaintiffs represented that, "on or about May 1, 2011," Viking executed a note in their favor in the original principal amount of $60,000. Thereafter, they increased their investment in Viking several times. They alleged that, on January 1, 2013, Viking executed a final note in their favor in the original principal amount of $470,000.

The Plaintiffs also alleged that the Debtor was indicted on charges stemming from the Ponzi scheme and "plead [sic] guilty to criminal offenses, including usury, conspiracy, larceny over $250, larceny over $250 from person over 60, and tampering with records." The criminal docket reflects that the Debtor entered his guilty plea on January 21, 2014. As noted above, the Plaintiffs attached to their Complaint the Findings of Fact on Assessment of Damages, and Order for Entry of Final Judgment. The Suffolk Superior Court issued its Order on October 22, 2013, after all the defendants in that action were defaulted pursuant to Mass. R. Civ. P. 55(a) between June 20, 2013 and September 10, 2013, but before the Debtor pled guilty to two counts of larceny. In the Superior Court civil action, the state court entered a judgment against the Defendant and his fellow defendants (i.e., the Palladinos and Viking), jointly and severally, in the following amounts: $470,000 in favor of the Plaintiffs, $1,960,000 in favor of Ronald Nasif, $800,000 in favor of Robert Ward and Marion Ward;⁴ and $1,485,000 in favor of Elissa M. Ferris. Less than three weeks later, as discussed below, the Plaintiffs, together with Ronald Nasif, Marion Ward, Robert E. Ward, Marion Ward's husband, and Robert J. Ward commenced an action against Ernest C. Nasif, Jr., Jenay Nasif, Joseph G. McNally, Melanie A. McNally, Renay M. Beers, Frank L. Beers, Victoria Wesalowski and Mark Wesalowski in the Norfolk Superior Court, Department of the Massachusetts Trial Court, Case No. 13–1608 (the "Norfolk Superior Court action").

Based upon the foregoing, the Plaintiffs formulated two counts: Count I under 11 U.S.C. § 523(a)(2) (A & B) [sic] and (a)(4), and Count II under 11 U.S.C. § 523(a)(4). Notably, the averments pertinent to each count are identical and set forth the following:

The Debtor committed fraud and larceny by using the monies received from the Nasifs to support a lavish lifestyle, including but not limited to jewelry, clothing, luxury automobiles and vacations.

The Debtor, along with his co-conspirators in Viking, fraudulently represented that the Nasifs' money was being used to fund loans to secured investors in connection with real estate transaction, and provided Promissory Notes allegedly protecting Nasifs' interest when Debtor knew or should have known that such investments did not exist.

At the hearing on the Defendant's Motion for Summary Judgment, the Plaintiffs, through their counsel, clarified that they intended Count I to set forth a cause of action under 11 U.S.C. §. 523(a)(2)(A) and Count II to set forth a cause of action under 11 U.S.C. § 523(a)(4). This Memorandum addresses only Count II.

C. Debtor's Answer and Affirmative Defenses

The Defendant answered the Complaint, denying its substantive...