St. George v. Hampton Ventures, LLC (In re Hampton Ventures, LLC)

• Citation: 599 B.R. 474
• Decision Date: 12 March 2019
• Docket Number: ADV. PRO. NO. 18-02903 (JJT),CASE NO. 18-21217 (JJT)
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut
• Parties: IN RE: HAMPTON VENTURES, LLC, Debtor. Lucille St. George, Plaintiff v. Hampton Ventures, LLC and Anthony Novak, Chapter 7 Trustee, Defendants.

599 B.R. 474

IN RE: HAMPTON VENTURES, LLC, Debtor.Lucille St. George, Plaintiff

v.Hampton Ventures, LLC and Anthony Novak, Chapter 7 Trustee, Defendants.

CASE NO. 18-21217 (JJT)

ADV. PRO. NO. 18-02903 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division.

Signed March 12, 2019

Michael P. Berman, Esq., Berman & Sable LLC, 100 Pearl Street, 4th Floor West, Hartford, CT 06103, Attorney for the Plaintiff, Lucille St. George

Patrick Tomasiewicz, Esq., Fazzano & Tomasiewicz, LLC, 96 Oak Street, Hartford, CT 06106, Attorney for the Plaintiff, Lucille St. George

David M.S. Shaiken, Esq., Shipman, Shaiken & Schwefel, LLC, 433 South Main Street, Suite 319, West Hartford, CT 06110, Attorney for the Defendant, Anthony S. Novak

Anthony S. Novak, Esq., Novak Law Office, P.C., 280 Adams Street, Manchester, CT 06042, Chapter 7 Trustee

MEMORANDUM OF DECISION AFTER TRIAL OF ADVERSARY PROCEEDING AND RULING ON OBJECTION TO PROOF OF CLAIM 6-1

James J. Tancredi, Unites States Bankruptcy Judge

I. INTRODUCTION

In 2004, the plaintiff, Lucille St. George ("Ms. St. George" or "Plaintiff"), and William Nappo ("Mr. Nappo") were divorced. Since then, the parties have been involved in interminable litigation in a variety of cases both here and in the Connecticut Superior Court. After the marriage, in 2005, Mr. Nappo's corporation, R.E.T. Capital Corporation ("RET"), prevailed in an ad valorem suit in New York and received, after fees and expenses, approximately $ 225,000.00. Mr. Nappo directed that money to be paid in a loan to the debtor, Hampton Ventures, LLC ("Debtor"), a single-member limited liability company owned by Karen Nappo ("Ms. Nappo"), Mr. Nappo's current wife. In return, the Debtor gave RET a promissory note for $ 225,000.00 ("Note"). The Debtor used that money in 2005, along with other financing, to purchase a commercial building located at 1098-1110 New Britain Avenue, West Hartford, CT ("Property") for $ 650,000.00.

Upon learning of the ad valorem suit from a 2013 deposition of Mr. Nappo, the Plaintiff filed suit in the Connecticut Superior Court, claiming, inter alia , a constructive trust over the Debtor.¹ When the Debtor subsequently filed for protection under Chapter 7 of the Bankruptcy Code in 2018, the Plaintiff filed the present adversary proceeding ("Adversary Proceeding") in this Court against the Debtor and the Chapter 7 Trustee, Anthony S. Novak ("Trustee," collectively "Defendants"), claiming a constructive trust over the Debtor's main asset, the Property.

Additionally, the Plaintiff filed a proof of claim ("Claim 6-1") in the amount of $ 1,582,517.00 on the basis of her constructive trust claim, which amount was meant to encapsulate an attributed value of the Property ($ 774,900.00) and estimated rents received by the Debtor from May 4, 2005 to August 9, 2018.² The Trustee objected to Claim 6-1 ("Objection"), arguing that the Plaintiff has no right to a constructive trust under applicable law. The Trustee also requested that the Adversary Proceeding and the proceedings on the Objection be consolidated for trial. The Court, with the consent of the parties, has done so and conducted a consolidated trial of these matters on March 4, 5, and 6, 2019.

After reviewing the law and the evidence, the Court finds that the Plaintiff has failed to meet her burden to warrant the imposition of a constructive trust on the Property. On that basis, the Court also sustains the Objection and, accordingly, disallows Claim 6-1.

II. JURISDICTION

The Court has jurisdiction over these matters pursuant to 28 U.S.C. § 1334(b) and derives its authority to hear and determine these matters on reference from the District Court pursuant to 28 U.S.C. §§ 157(a) and (b)(1). The Objection is a core proceeding under 28 U.S.C. § 157(b)(2)(B).

The Court, pursuant to 28 U.S.C. § 157(b)(3), has previously determined that the Adversary Proceeding before the Court is a core proceeding. See 28 U.S.C. §§ 157(b)(2)(A), (E), and (O). Even if the Adversary Proceeding concerns a " Stern claim," see generally Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), or is a noncore "related to" matter, see 28 U.S.C. § 157(a), the Plaintiff has expressly consented to this Court's entry of final judgment in this matter. See 28 U.S.C. § 157(c)(2).

III. UNDISPUTED FACTS³ AND PROCEDURAL HISTORY

The Court notes the following undisputed facts and procedural history of these matters and the related cases:

A. The Debtor and the Property

1. The Debtor is a limited liability company organized under the laws of Connecticut.

2. Ms. Nappo is the sole member and owner of the Debtor.

3. Ms. Nappo is the current wife of Mr. Nappo.

4. On May 4, 2005, the Debtor purchased the Property for $ 650,000.00.

5. The Debtor paid the purchase price through two mortgages totaling $ 400,000.00, with the remainder paid through $ 225,000.00 obtained from RET as a loan and $ 25,000.00 in undisclosed funds.

6. Mr. Nappo is the sole owner of RET.

7. RET was administratively dissolved by the State of New York in 2002 but remains in wind-down.

8. RET received the $ 225,000.00 through the successful prosecution of an ad valorem suit in New York. After receiving the funds, Mr. Nappo directed that they be loaned to the Debtor.

9. In return for the $ 225,000.00, Ms. Nappo, on behalf of the Debtor, executed the Note payable to RET. The Note was payable in 2015 at 1.5% interest per annum, with the maturity date extendable by five years to 2020 by mutual consent, which was exercised.

10. The Debtor never granted RET a mortgage over the Property.

11. The Debtor subsequently refinanced and consolidated the first two mortgages with Webster Bank, N.A., which currently holds the mortgage lien on the Property.

B. The Bankruptcy Case: In re Hampton Ventures, LLC

1. The Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on July 27, 2018 (MC ECF No. 1).⁴

2. After John J. O'Neil, Jr. resigned as trustee, Bonnie C. Mangan was appointed as successor trustee on August 6, 2018 (MC ECF No. 8).

3. In the schedules it filed, the Debtor listed assets of $ 778,870.60, with $ 760,500.00 of that amount attributed to the Property (MC ECF No. 11).

4. Bonnie C. Mangan subsequently resigned as trustee, and was replaced by the Trustee, Anthony S. Novak, on August 27, 2018 (MC ECF No. 25).

5. The Trustee then sought to sell the Property on September 20, 2018 and applied to employ a real estate broker to do so (MC ECF No. 36), which the

Court approved without prejudice to the Plaintiff's claims (MC ECF No. 47).

6. On October 5, 2018, the Plaintiff filed Claim 6-1", in the amount of $ 1,582,527.00, which amount included the value of the Property and the rents derived from it.

7. The Plaintiff then initiated the Adversary Proceeding on November 16, 2018 against the Debtor, claiming a constructive trust over the Property (MC ECF No. 49). The Plaintiff filed her amended complaint on December 21, 2018 to add the Trustee as a defendant (AP ECF No. 14).

8. The Trustee initially moved to sell the Property free and clear of liens and interests for $ 625,000.00 to Draymore and Flynn Properties, LLC ("Motion to Sell," MC ECF No. 60). The Trustee subsequently noticed a higher and better offer of $ 725,000.00 from Juniper Home Care, LLC (MC ECF No. 81), which is the offer currently pending in the Motion to Sell and proposed Notice of Sale (MC ECF No. 62).

9. The Trustee filed the Objection to Claim 6-1 on February 4, 2019 (MC ECF No. 87), claiming, inter alia , that the claim should be disallowed because the Plaintiff is not entitled to a constructive trust on the Property under applicable law.

10. The Court held hearings on the Trustee's Motion to Sell to Juniper Home Care, LLC for $ 725,000.00 on February 7, 13, and 26 and March 1 and 6, 2019.

11. On February 11, 2019, the Court ordered the Trustee and the Plaintiff to consider and brief whether the pending Adversary Proceeding needed to be decided before the Property could be sold (MC ECF No. 109). After receiving briefing from the parties, the Court determined it must decide this Adversary Proceeding to determine whether the Property was property of the estate or belonged to the Plaintiff before the Court could authorize a sale (MC ECF No. 121).

12. The Court consolidated the trial on the Adversary Proceeding and the Objection and received evidence on March 4, 5, and 6, 2019. The testimony taken from the hearings held on the Motion to Sell was incorporated into the record of the Objection and Adversary Proceedings and vice versa, by agreement of the parties.

13. The Court has substantially contemporaneously with this Memorandum issued a Ruling and Order approving the Trustee's Motion to Sell.

C. The Divorce Case: Nappo v. Nappo⁵

1. The Plaintiff and Mr. Nappo were divorced on May 6, 2004.

2. The docket reflects near-constant litigation in the intervening years.

3. In connection with proceedings before the Superior Court, the Plaintiff and Mr. Nappo submitted financial affidavits, both before and after the divorce was finalized.

4. Although Mr. Nappo listed his 100% ownership of RET on his financial affidavits, he initially listed the value as $ 0. That valuation reflected RET's patent insolvency, attributable in large part to a multimillion-dollar environmental clean-up claim pertaining to its oil and gas operations at Mott Basin in New York.5. Mr. Nappo initially did not disclose the ad valorem suit (which was pending at the time of the divorce), the receipt of a net litigation recovery from it in 2005, the transfer of the proceeds to the Debtor, or the Note on his financial affidavits.

6. During a deposition in 2013, for the first time, Mr. Nappo revealed the existence of the ad valorem suit, the proceeds from it, and the loan of the proceeds to the Debtor.

7. The Note and its face value of $ 225,000.00 is listed on Mr. Nappo's financial affidavits as RET's asset from September 5, 2014 onward.

8. The divorce decree ordered the Plaintiff and Mr. Nappo to report any change in...