Valley Nat'l Bank v. Botticelli (In re Botticelli)
| Decision Date | 14 December 2022 |
| Docket Number | 8-13-70167-las,Adv. Pro. 8-13-08148-las |
| Parties | In re: Giuliano Botticelli and Assuntina Botticelli, Debtors. v. Giuliano Botticelli and Assuntina Botticelli, Defendants. Valley National Bank, successor by merger to State Bank of Long Island, Plaintiff, |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Plaintiff Valley National Bank, as successor by merger to State Bank of Long Island ("State Bank"), commenced this adversary proceeding seeking judgment denying defendants Giuliano ("Giuliano") and Assuntina ("Assuntina") Botticelli, the debtors in this chapter 7 case, a discharge of their debts under 11 U.S.C § 727(a)(2), (a)(3), and (a)(4)(A).[1] Specifically plaintiff alleges that defendants concealed or transferred property of the estate with actual intent to hinder, delay or defraud creditors pursuant to § 727(a)(2), concealed or failed to keep or preserve records from which their financial condition or business transactions might be ascertained pursuant to § 727(a)(3), and knowingly and fraudulently made false oaths in connection with their bankruptcy case pursuant to § 727(a)(4)(A). In the alternative plaintiff seeks to except from discharge under § 523(a)(2)(B) a debt owed to it by defendants in the amount of $1,304,436.18. Plaintiff contends that defendants obtained the debt by submitting to it a materially false financial statement with the intent to deceive and plaintiff reasonably relied upon such financial statement.
For their part, defendants deny they transferred property with the intent to conceal it from creditors, deny they withheld disclosure of their financial transactions, and assert that the misstatements or omissions in their bankruptcy schedules and statement of financial affairs were not because they exhibited a cavalier disregard for their disclosure obligations, but because they relied on the advice of their bankruptcy counsel, which reliance they claim rebuts any inference of fraud. Additionally, defendants challenge the authenticity of the financial statement plaintiff claims to have relied upon in support of its nondischargeability action, contending that they neither signed nor submitted the financial statement to plaintiff.
The Court has subject matter jurisdiction under 28 U.S.C. § 1334 and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012. Proceedings to determine objections to discharge and the dischargeability of debt are core proceedings that the Court may hear and decide. 28 U.S.C. § 157(b)(1), (b)(2)(I) and (J).
Having considered the parties' pre-trial and post-trial submissions and the evidence presented at trial, the Court makes the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P."), as made applicable here by Rule 7052 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"). To the extent a finding of fact includes a conclusion of law, it is deemed a conclusion of law, and vice versa. The findings of facts are based on the trial record, which includes the parties' stipulation of certain facts contained in the Joint Pre-Trial Statement ("JPTS"), exhibits admitted into evidence and trial testimony.[2]
For the reasons set forth below, the Court finds that plaintiff has met its burden of establishing that defendants' discharge should be denied under § 727(a)(4)(A). Accordingly, the Court enters judgment for plaintiff on the third cause of action in its complaint. Because the Court denies defendants' discharge under § 727(a)(4)(A), it need not, and does not, address whether their discharge should be denied under § 727(a)(2) or (a)(3), or whether the debt owed to plaintiff in the amount of $1,304,436.18 should be excepted from discharge under § 523(a)(2)(B).
Plaintiff commenced this adversary proceeding by filing a complaint seeking to deny defendants a discharge or, in the alternative, to determine the dischargeability of the debt owed to it by defendants. [Dkt. No. 1]. Defendants filed an answer to the complaint. [Dkt. Nos. 11, 12]. In the third cause of action, plaintiff alleges two grounds for the denial of the defendants' discharge under § 727(a)(4)(A). First, that defendants made a "false oath or account" in their bankruptcy schedules and statement of financial affairs when they disclosed that Giuliano transferred fifty percent of his interest in Jericho Plaza LLC to his mother-in-law, Silvia Cerrone, despite an operating agreement and an assignment that, according to plaintiff, shows Giuliano retained a twenty-five percent interest. [Dkt. No. 1]. Second, that defendants made a "false oath or account" in their bankruptcy schedules and statement of financial affairs by understating their 2011 income by hundreds of thousands of dollars. [Id.].
At the close of discovery, plaintiff moved for summary judgment on the third cause of action of its complaint. [Dkt. Nos. 56-58]. Defendants opposed, [Dkt. Nos. 64-68], and plaintiff replied, [Dkt. No. 70]. In its motion for summary judgment, plaintiff, for the first time, asserted additional grounds for denying defendants' discharge under § 727(a)(4)(A) aside from alleged misstatements regarding the assignment of Giuliano's interest in Jericho Plaza LLC and defendants' failure to fully report their 2011 income. These additional grounds are based upon alleged misstatements or omissions in defendants' bankruptcy schedules and statement of financial affairs relating to: (1) the amount and sources of defendants' pre-petition income for both 2011 and 2012; (2) a sports memorabilia collection; (3) defendants' ownership of and/or interest in various business entities within the six year period preceding the bankruptcy filing; (4) Assuntina's employment with Weltmann Lighting and related salary on Schedule I; (5) a monthly mortgage expense set forth on Schedule J; (6) lawsuits to which defendants were a party within one year preceding the bankruptcy filing; and (7) a lease of real property located at 37 Tiana Circle, Hampton Bays, New York ("Hampton Property"). [Dkt. No. 57]. In opposing plaintiff's motion for summary judgment, defendants responded to each of the claimed misstatements or omissions. At the Court's request, the parties submitted additional briefing on defendants' advice of counsel defense. [Dkt. Nos. 84, 85, 87]. After careful consideration of the parties' submissions and argument, the Court determined that material issues of fact remained in dispute and denied plaintiff's motion for summary judgment. [Dkt. No. 90].
Subsequently, defendants moved to reopen discovery to (i) disclose a handwriting expert who would testify at trial in connection with the personal financial statement allegedly signed by defendants, and (ii) permit a deposition of plaintiff's anticipated witness on the evidentiary issue of the missing original personal financial statement. [Dkt. No. 93]. Defendants also filed a motion in limine to exclude from evidence a copy of the personal financial statement. [Dkt. No. 97]. Plaintiff opposed both motions. [Dkt. Nos. 96, 98]. The Court denied the motion in limine without prejudice to defendants' right to renew their objection to the admission of the copy of the personal financial statement into evidence at trial and denied the motion to reopen discovery.[4] [Dkt. Nos. 100, 101].
The Court conducted a four-day trial at which the Court heard in-person testimony from six witnesses and received deposition designations from each party in lieu of in-person testimony with respect to another witness. The Court also received exhibits and heard argument from the parties. At trial, the parties primarily focused on whether defendants' nondisclosure in their schedules, statement of financial affairs, and related documents filed in connection with their bankruptcy case was sufficiently intentional to deny defendants a discharge under § 727(a)(4)(A). Because this became the central issue at trial, defendants' assertion of the advice of counsel defense to rebut any inference of fraud was the predominant argument addressed by the parties and the focus of the trial testimony and exhibits introduced into evidence. The principal dispute is not whether defendants made multiple misstatements or omissions in their bankruptcy filing, but rather, whether defendants may prevail on their claimed advice of counsel defense as a credible explanation for their material nondisclosure. That defense rests, in the first instance, on complete disclosure of the required financial information to counsel prior to the preparation and filing of the bankruptcy petition and related schedules and statements. If full disclosure was made, then the inquiry turns to what legal advice was given by counsel and whether it was reasonable to rely on the advice given.
Plaintiff is an unsecured creditor of defendants, holding a non-contingent, liquidated, and undisputed claim in the amount of $1,304,436.18 as of the date defendants filed their chapter 7 petition. [JPTS ¶ 10]. The debt owed plaintiff arises out of a loan transaction between plaintiff and Botticelli Builders, LLC, guarantees signed by defendants and entry of a judgment in favor of plaintiff as follows. On October 31, 2009, Botticelli Builders, LLC executed a promissory note in the original principal amount of $925,000 in favor of plaintiff. [JPTS ¶ 36]. On September 15 2009, Giuliano executed a commercial guaranty of the indebtedness owed plaintif...
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