Signature Bank v. Banayan (In re Banayan), Bankruptcy No. 08–60954.Adversary Nos. 08–80042

• Decision Date: 31 January 2012
• Docket Number: 08–80073.,Bankruptcy No. 08–60954.Adversary Nos. 08–80042
• Citation: 468 B.R. 542
• Parties: In re Moise BANAYAN, Debtor.In re Signature Bank, Plaintiff, v. Moise Banayan, Defendant.In re Signature Bank, Plaintiff, v. Moise Banayan, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of New York

468 B.R. 542

In re Moise BANAYAN, Debtor.In re Signature Bank, Plaintiff,

v.Moise Banayan, Defendant.In re Signature Bank, Plaintiff,

v.Moise Banayan, Defendant.

Bankruptcy No. 08–60954.Adversary Nos. 08–80042

08–80073.

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

Jan. 31, 2012.

Gary F. Eisenberg, Esq., Herrick, Feinstein LLP, New York, NY, for Plaintiff.

Sari E. Kolatch, Esq., Leo Esses, Esq., Cohen Tauber Spievack & Wagner P.C., New York, NY, Former Attorneys for Debtor–Defendant.¹

Moise Banayan, Monsey, NY, Pro Se Debtor–Defendant.

MEMORANDUM–DECISION AND ORDER

DIANE DAVIS, Bankruptcy Judge.

Before the Court are separate adversary proceedings initiated by Plaintiff Signature Bank (“Signature” or “Plaintiff”) against Debtor seeking a denial of Debtor's discharge pursuant to section 727(a) ² of the United States Bankruptcy Code ³ and to except from Debtor's discharge a pre-petition judgment debt (the “Debt”) owed by Debtor to Signature in the approximate amount of $11,587,220.62 pursuant to § 523(a).⁴ These actions arise out of a commercial banking relationship between the parties that commenced in 2005 and slowly unwound beginning in 2007, culminating in a state court judgment ⁵ and ultimately the present litigation before this Court. On consent of the parties, Signature's adversary proceedings were consolidated for purposes of trial and decision.⁶ The consolidated trial in these matters spanned two and a half days, and after consideration of the arguments of counsel, the documentary and testamentary evidence presented, and post-trial memoranda of law, this Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable here by Federal Rule of Bankruptcy Procedure 7052. For the reasons set forth herein, Signature's Discharge and Dischargeability Complaints are dismissed.

I. JURISDICTION

This Court has jurisdiction over the parties and subject matter of these adversary proceedings pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and (b). These are core proceedings which this Court may hear and determine pursuant to 28 U.S.C. §§ 157(b)(2)(I) and (J).

II. PROCEDURAL HISTORY⁷

A. The Main Case

On April 25, 2008, Debtor filed a voluntary petition for bankruptcy relief under Chapter 11 of the Bankruptcy Code.⁸ Signature moved immediately thereafter for appointment of a trustee pursuant to § 1104 ⁹ and for stay relief pursuant to § 362(d).¹⁰ Debtor, through his former counsel, filed opposition to both motions.¹¹ Prior to adjudication of its first § 362(d) motion, Signature filed a second § 362(d) motion (the “Second § 362(d) Motion”),¹² which Debtor did not directly oppose. Rather, Debtor voluntarily moved pursuant to § 1112(a) to convert his case from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code, ¹³ which this Court granted by Order issued August 12, 2008.¹⁴

After a hearing held on Signature's Second § 362(d) Motion on September 16, 2008, this Court granted stay relief permitting Signature to foreclose on certain parcels of real property owned by Debtor.¹⁵ On December 29, 2008, Christian H. Dribusch, Esq., appointed Chapter 7 trustee of Debtor's estate (“Trustee”), moved pursuant to Federal Rule of Bankruptcy Procedure 9019(a) to settle certain third party claims held by the estate and to sell the estate's interest in certain assets to Signature for $25,000.00 (the “9019 Motion”).¹⁶ By Order issued February 20, 2009, this Court granted the 9019 Motion.¹⁷ Through the post-petition sale of certain assets, Signature was able to realize approximately $1,000,000.00, thereby reducing the Debt at issue. Debtor does not dispute that Signature is owed the amount claimed and in fact listed Signature on Schedule D of his petition as a secured creditor holding a claim in the amount of $11,000,000.00.¹⁸

B. Adversary Proceedings 1 and 2

On May 25, 2008, the Court issued a Second Amended Scheduling Order. ¹⁹ In accordance with the Court's directives therein, the parties timely submitted pre-trial statements and exhibit lists.²⁰ Also as required by the Second Amended Scheduling Order, the parties filed written objections to each other's proposed exhibits and witnesses,²¹ and a Joint Stipulation of Facts.²² The consolidated trial took place on October 19, 2010,²³ November 29, 2010,²⁴ and November 30, 2010.²⁵ As an initial matter, the Court heard and ruled upon the parties' numerous evidentiary objections, with the exception of a select few, which were taken under advisement.²⁶ At the conclusion of trial, Debtor moved to dismiss Signature's complaints in their entirety based upon Signature's alleged failure to prove material elements of its various claims. ²⁷ The Court advised the parties that the matter would be reserved for decision pending the Court's receipt of post-trial submissions.²⁸ The Court directed the parties to simultaneously file post-trial memoranda of law including proposed findings of fact and conclusions of law on or before January 21, 2011. Signature and Debtor each filed post-trial submissions on January 21, 2011.²⁹

On March 10, 2011, Signature moved to amend the complaint in Adversary Proceeding 1 to add a § 523(a)(6) cause of action based upon the proof adduced at trial.³⁰ Debtor filed written opposition to Signature's motion on March 10, 2011,³¹ and the Court heard oral argument on this limited matter on March 15, 2011. By Order issued on March 17, 2011, the Court denied Plaintiff's Rule 15(b) Motion.³² On July 25, 2011, Signature moved to supplement the trial record with respect to its § 523(a)(2)(A) claim based upon newly discovered evidence unearthed in connection with a lawsuit by one of Debtor's former lenders against Signature over the relative priority of their respective security interests and rights to collateral proceeds.³³ Debtor also opposed this post-trial motion.³⁴ Following a hearing on August 16, 2011, the Court issued an order denying Plaintiff's Rule 59(a) Motion.³⁵ Adversary Proceedings 1 and 2, therefore, were ripe for decision as of August 18, 2011.

III. SIGNATURE'S ABANDONMENT OF MULTIPLE CLAIMS

The Court here is compelled to depart from its usual format of rendering its conclusions of law after its factual findings because it is apparent from the trial and post-trial record that Signature abandoned seven of the eight claims set forth in its Discharge and Dischargeability Complaints, thereby leaving the Court to decide only one claim under § 523(a)(2)(A). Signature initially sought relief under §§ 523(a)(2)(A), (a)(2)(B), (a)(4), and 727(a)(2)(A), (a)(2)(B), (a)(4)(A), (a)(5), and (a)(7). Plaintiff's Memorandum, however, presents proposed conclusions of law only with respect to § 523(a)(2)(A) and (a)(6).³⁶ Plaintiff did not therein argue, or even reference, any of the other original claims asserted.

Because the plaintiff bears a heavy burden of proof in discharge and dischargeability litigation, this Court agrees with the line of cases holding that a plaintiff's failure to argue the applicability of certain causes of action in a post-trial brief may result in the abandonment of such claims and, hence, their removal from the court's consideration.³⁷ In this case, following a lengthy trial that included approximately a day and a half of testimony from Debtor, Signature has neither submitted proposed conclusions of law nor set forth specific elements and corresponding offers of proof with respect to any claims other than § 523(a)(2)(A). Signature did make passing references to the existence of its § 523(a)(4) claim in its Rule 15(b) Motion,³⁸ but those references were followed by Signature's concession that the evidence it has submitted may not establish embezzlement under § 523(a)(4).³⁹ Under the circumstances, the Court concludes that Signature has abandoned all claims for relief other than § 523(a)(2)(A) and, hence, the Court's consideration is now limited to the same.

IV. FACTUAL FINDINGS⁴⁰

As is typical in many cases brought under § 523(a)(2)(A), the parties in the present case focused on two elements: (1) whether Debtor acted with the requisite intent to deceive Signature; and (2) whether Signature actually relied upon false representations made by Debtor. The Court has given careful consideration to each party's respective proposed findings of fact and conclusions of law, which for obvious reasons portray markedly differing accounts of their dealings with one another. With these two key elements in mind, the Court, drawing from the evidence presented at trial, the demeanor of the witnesses, and the complete record developed by the parties in the Main Case and in connection with this litigation, makes the following findings of fact.

A. Debtor's Background

1. Debtor is an individual debtor residing in the state of New York, having an address at 51 Parker Boulevard, Monsey, New York.⁴¹

2. Debtor holds an MBA from the University of British Columbia in finance, organizational behavior, and international finance. He has held various positions during his career as a consultant for the Canadian government, hotel entrepreneur, banker, and, for the past twenty years, owner of a multi-corporation Cholov Yisroel kosher dairy business.⁴²

3. Debtor testified that the Cholov Yisroel kosher dairy business requires constant rabbinic supervision during the milking process of kosher cows and adherence to strict kosher laws at all times during farming operations. ⁴³ In order to obtain raw materials for kosher dairy products, Debtor contracted with kosher farms in upstate New York.⁴⁴

4. Debtor started the business in 1983 under the name of Ahava Dairy Product Corporation (“Ahava Dairy”), which was a distributor of dairy products until approximately 2000 or 2001.⁴⁵

5. On October 27, 1999, Debtor formed Ahava Food Corporation (“AFC”), a New York corporation, which had its principal place of business at a large industrial facility located at 110 Beard Street, Brooklyn, New York (“110 Beard”).⁴⁶ Debtor started...