Tosto v. Tosto, Case No. 09-77053-MBM
| Decision Date | 13 May 2011 |
| Docket Number | Case No. 09-77053-MBM,Adv. Pro. No. 10-4902 |
| Parties | In the matter of: Lenny Rocco Tosto, Debtor. Paul Arslanian, Plaintiff, v. Lenny Rocco Tosto, Defendant. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan |
This matter comes before the Court on Plaintiff's Motion for Summary Judgment. Plaintiff asserts that he lost a significant amount of money as a result of misrepresentations made by Defendant. He seeks a judgment for his losses and asserts that the judgment should be nondischargeable pursuant to 11 U.S.C. § 523(a)(2), (4) and (6). For the reasons set forth below, Plaintiff's Motion for Summary Judgment is denied.
Plaintiff, Paul Arslanian ("Plaintiff"), is an attorney and certified public accountant. His practice is located in Bloomfield Hills, Michigan.
Defendant, Lenny Rocco Tosto ("Defendant") is a licensed real estate broker employed by Colliers International. Colliers International is an international commercialreal estate broker and investment firm. In addition to his employment at Colliers, Defendant owned companies which buy and sell properties in Michigan, for investment purposes. Those companies have included LRT Investment Properties, LLC ("LRT") and SBT Properties LLC ("SBT") (Tosto dep, Exhibit 6A at 54, 55, 56 - 57, 66 - 67). SBT ceased operations several years ago; LRT was still operating at all times relevant to this Complaint. (Tosto dep., Exhibit 6A at 125, 126, 160; Beer dep., Exhibit 6B at 21 and 22.) Many of Defendant's real estate transactions included deals with parties tangentially involved in this litigation, specifically, Thomas Beer and Allen Stalter. (Tosto dep.,.Exhibit 5; Defendant's Exhibit 6A, at 103 and Stalter dep, Exhibit 6B.)
On September 9, 2002, Thomas Beer and Allen Stalter organized Laker Group LLC. The Laker Group was formed to buy and sell properties for investment purposes. The Laker Group sought to make money for its principals and parties that invested in the properties purchased by the Laker Group. (Stalter dep., Exhibit B at 12, 32 and 157.)
In January 2005, Defendant and his father Leo Tosto formed T & T Investment Properties, LLC ("T&T"). Defendant and Leo originally each owned a fifty (50%) percent interest in T&T. The purpose of T&T was to lend money for the purpose of buying and rehabilitating properties, and then selling the properties for a profit. (Tosto dep., Exhibit 6A at. 58-59, 61-62.)
In October 2005, Thomas Beer and Allen Stalter formed One Nation Financial ("One Nation") in which they each held a fifty (50%) percent interest. One Nation was a mortgage broker. (Stalter dep., Exhibit 6B at 38). One Nation existed, in part, to finance mortgages for purchasers of properties owned by the Laker Group.
Between 2005 and 2007, T&T worked with the Laker Group and One Nation. T&T provided money to the Laker Group for the purchase of properties and to One Nation to fund mortgage loans. These transactions were profitable for both Defendant and T&T. Tosto Affidavit, Exhibit 5; Tosto dep., Exhibit A at 50, 51.)
In 2007, Plaintiff sought the services of Defendant, in his capacity as a commercial real estate broker, to locate an office building for Plaintiff's law firm. Although Defendant did not locate a building, Plaintiff and Defendant discussed possible investment opportunities. Defendant told Plaintiff about T&T, the real estate investment business which Defendant owned with his father. Defendant also explained in a broad sense how T&AT made money through investing in real estate deals. (Arslanian dep., Exhibit 6E at 64-67.)
In July 2007, Plaintiff invested money with Defendant and T&T for purposes of purchasing and then rapidly reselling a property referred to by both parties as "the Brewster Property." The Property was bought and sold again within 18 days. Plaintiff earned 40% interest on his 18 day investment. (Defendant's Exhibit G.)
Plaintiff proceeded to participate in four other investments with T&T and/or Defendant. In three of the investments (1) Defendant and T&T advised Plaintiff of the investment opportunity; (2) Defendant and T&T both invested in the opportunity (approximately 50 - 50); and (3) Defendant and/or T&T entered into the investments for the purpose of making a profit for both Plaintiff and Defendant. (Tosto Affidavit, Defendant's Exhibit 5; Tosto dep., Defendant's Exhibit 6A at 92-93, 98, 100-101, 125127.) Each of the investments is detailed below.
Investment I was a "hard money loan" deal. The hard money loan deals worked as follows: (1) the Laker Group found properties and borrowers to purchase the properties. The borrowers/purchasers financed the purchase of the properties and any repair work through One Nation. In exchange for the financing to purchase and repair a home, the borrower/purchaser granted One Nation a mortgage on the home. In addition the borrower paid One Nation monthly interest. The expectation was that the borrower/purchaser would sell or refinance the property shortly after the purchase. If the borrower/purchaser was unable to sell or refinance the property within a certain time, the borrower could obtain an extension and pay a fee which ranged from $500.00 to $1,000.00. (Tosto dep., Defendant's Exhibit 6A at 59-60.)
One Nation obtained the funds it loaned to borrowers from "hard money loans" made to One Nation by investors. T&T was one such investor. When the Laker Group found a purchaser for a property, One Nation, would advise T&T of the loan necessary to fund the purchase and repair work. T&T received 15% interest on the use of its money until the property sold, and four points (4% of the loan amount). (Stalter dep., Defendant's Exhibit 6B at 94, 158; Arslanian dep., Defendant's Exhibit 6E at 140-141). Once the property sold, T&T was repaid the entire amount of its initial investment.
On April 20, 2007, Allen Stalter from One Nation corresponded with Defendant (by email) to discuss the hard money process. (Defendant's Exhibit 6H.) In the email, Allen Stalter represented that One Nation would loan the borrower a maximum of 70% of the appraised value, that the appraised value was to be on an "after repair basis" andthat T&T would be protected by an assignment of the mortgage given by the borrower to One Nation. (Defendant's Exhibit 6H; Stalter dep., Defendant's Exhibit 6B at. 40, 77 and 97.) Plaintiff expressed an interest to Defendant in getting involved in the hard money loans. On June 20, 2007, Defendant forwarded Allen Stalter's email to Plaintiff. (Defendant's Exhibit 6H.) In June 2007, Defendant, Thomas Beer, Allen Stalter, and Plaintiff met at Plaintiff's law office to discuss the hard money loan investments. (Stalter dep., Defendant's Exhibit 6B at 73-75; Arslanian dep., Defendant's Exhibit 6E at 102103.) Both Plaintiff and Defendant (through T&T) decided to invest in Investment 1, Plaintiff and Defendant agreed that Plaintiff and T&T would make a like investment and each would be paid points and interest on the individual loans. (Tosto dep., Defendant's 6H; Arslanian dep., Defendant's Exhibit 6E at 138-139). Both Plaintiff and Defendant expected that T&T and Plaintiff would profit on Investment I, based on the 15% interest, the payment of 4 points at the time the hard loan money was advanced, and the representation that the principal would be repaid when the borrower either sold of re-financed the property. (Tosto Affidavit, Defendant's Exhibit 5; Tosto dep., Defendant's Exhibit 6A at 117-118; Arslanian dep. Defendant's Exhibit 6E at 112.)
Starting in July, 2007, One Nation contacted T&T and Defendant and advised Defendant as to the amount of investment money needed in order to fund each hard money loan. (Stalter dep., Defendant's Exhibit 6B at 56.) Defendant would present the investment opportunity to Plaintiff with no obligation for Plaintiff to participate and with the option of passing on the opportunity. (Arslanian dep., Defendant's Exhibit 6E at 135-136, 148-149, 153-154, 154-165, 167.) If Plaintiff decided to participate, Defendant would tell Plaintiff the amount needed and instruct him to make the checks payable tothe title company conducting the closing on the property. Plaintiff would write checks to the title company which were picked up by Defendant or One Nation and taken to the closing. (Arslanian dep., Defendant's Exhibit 6E at 136; and Defendant's Exhibit 6 I.)
Between July 9, 2007 and August 23, 2007, Plaintiff invested $645,539.28 in Investment I properties. (This amount appears to include the Brewster Property.) Plaintiff received fifteen (15%) percent interest on most of the properties bought with Investment I money. The fifteen (15%) percent interest was paid on monthly basis. Plaintiff also received a payment of 4 points (4% percent) on the initial loan amount. As the properties were sold, Plaintiff received his principal investment back. (Arslanian dep., Defendant's Exhibit 6E at 150, 152; Plaintiff's Exhibit 6, Part 8, Exhibit 6Q.) T&T invested approximately the same amount in hard money loans as Plaintiff. (Tosto Affidavit; Defendant's Exhibit 5.) Between July 9, 2007 and September, 2008, Plaintiff received interest, points and some principal payoffs. By September, 2008, Plaintiff had received a total of $391,539.28, including the repayment of principal, interest and points on some of the properties. (Plaintiff's Exhibit 6, Part 8, Exhibit 6Q.) Defendant received approximately the same return on the hard money loans. (Tosto Affidavit, Defendant's Exhibit 5.)
In 2008, the real estate market crashed nation wide. (Stalter dep., Defendant's Exhibit B at 99.) In 2008, One Nation stopped making interest payments on the hard money loans. Some properties which were part of Investment I were never sold and the principal amount invested was not repaid to either Plaintiff or Defendant. Both Plaintiff and Defendant lost money when One Nation...
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