Vossoughi v. Polaschek (In re Polaschek)
| Decision Date | 03 May 2012 |
| Docket Number | No. 08-81311,Adv. No. 08-8101,08-81311 |
| Court | U.S. Bankruptcy Court — Central District of Illinois |
| Parties | In re: MARK A. POLASCHEK and KARLA A. POLASCHEK, Debtors. AHMAD S. VOSSOUGHI and C,N, & A, INC., Plaintiffs, v. MARK A. POLASCHEK, Defendant. |
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Thomas L. Perkins
This matter is before the Court after trial on the Second Amended Complaint brought by Ahmad S. Vossoughi (VOSSOUGHI) and his wholly owned corporation, C,N, & A, Inc., against Mark A. Polaschek, the Debtor (DEBTOR), seeking a determination that the debt arising from the sale of his business to the DEBTOR is nondischargeable under sections 523(a)(2)(A) and (a)(6).1
VOSSOUGHI, a native of Iran, came to the United States in 1963, when he was sixteen years old. Although he spoke no English on arrival, he graduated from high school in Missouri in 1965. He moved to the Quad Cities, got a job at McDonald's and attended Blackhawk College. VOSSOUGHI was hired by International Harvester, where he worked for nineteen and one-half years. During that time, he married and raised a family. In 1983, VOSSOUGHI invested the money he had saved in a gas station and convenience store known as the "Oasis" in Davenport, Iowa. In 1985, VOSSOUGHI incorporated and the business was operated through his wholly owned corporation, C,N, & A, Inc., an Iowa corporation. During the next twenty years, he worked long hours, improving the property and increasing the revenue from $500 to $700/day to $2,500 to $5,000/day.
In 2006, the DEBTOR, one of VOSSOUGHI'S customers, inquired whether he was interested in selling the business. When VOSSOUGHI told the DEBTOR he was asking $400,000, the DEBTOR did not respond, but continued to come into the store, appearing to inspect the premises. In August, 2006, the DEBTOR told VOSSOUGHI that he wanted to buy the business. Satisfying himself that the DEBTOR had the ability to make the purchase, VOSSOUGHI eventually agreed to sell it to the DEBTOR for $275,000. VOSSOUGHI'S accountant advised him that he should not take the proceeds all at once because of tax consequences. VOSSOUGHI retained Michael Meloy, an attorney with whom he was acquainted. The DEBTOR'S brother, Joseph Polaschek, a Quad Cities lawyer, represented the DEBTOR in the purchase and sale transaction. Preclosing negotiations and an exchange of documents took place between the lawyers. Thetransaction was consummated on September 15, 2006, at Joseph's law office. The closing was attended by VOSSOUGHI, Meloy, the DEBTOR and Joseph and lasted for several hours. The lengthy closing culminated in the execution of three separate, but interrelated, agreements, identified as the Real Estate Contract, Asset and Business Name Purchase Agreement (asset purchase agreement) and Noncompetition Agreement, all dated September 15, 2006. Each of the agreements refer to the other two. The purchase price for the sale was allocated as follows: $40,000 for the purchase of the real estate, $191,281.98 for the purchase of the assets and name of the business, and $70,000 for the noncompetition agreement.
Pursuant to the real estate contract, executed by the DEBTOR as President of PPM Properties, Inc. (PPM), a corporation wholly owned by the DEBTOR, VOSSOUGHI agreed to sell the real estate to PPM for the sum of $40,000. The contract provided for a down payment of $10,000 and the balance of the purchase price of $30,000 to be paid in monthly installments of $249.27, requiring 120 months or ten years of payments. Paragraph 26 of the real estate contract, captioned "Special Provisions," refers to an Addendum. The parties agree that they spent a significant portion of the closing negotiating and drafting the Addendum, a document that had not existed prior to the closing. Paragraph 1 of the Addendum purports to change the payment terms to require ten years of monthly payments of $249.27, plus an additional ten years of monthly payments of $258.32, which payments total $60,910.80. The amortization schedule attached to the Addendum erroneously totals the twenty years of payments as $30,998.40. This error was not acknowledged at trial by either party, much less explained. The real estate contract and theAddendum, with respect to the purchase price, are irreconcilable. When PPM purchased the real estate, according to the HUD-1 settlement statement, it paid a contract balance of $29,816.57. It thus appears that the parties used the terms of the real estate contract to determine the payoff amount, ignoring the Addendum and the erroneous amortization schedule.
VOSSOUGHI testified that it was his intent that the real estate secure all of the buyer's obligations, including those under the asset purchase and noncompete agreements. He testified that he did not want to lose the real estate as collateral if the amount due under the real estate contract was paid off before the other obligations. Certain provisions in the Addendum evidence this intent. After providing the buyer a right to prepay the real estate contract, the Addendum provides in Paragraph 5 the following limitation:
The asset purchase agreement identified BVM Enterprises as the purchaser.2 Under its terms, $1 was allocated to the goodwill of the business; $26,280.98 was allocated to thepurchase of the inventory on the date of closing and was to be paid at the closing; $70,000 was allocated to the noncompete agreement, which was to be embodied in a separate agreement; and $165,000 was allocated to the remaining transferred assets, with $40,000 of the $165,000 to be paid at closing and the balance of $125,000 to be paid in monthly payments of $1,038.63 for ten years and an increased monthly payment of $1,091.64 for the following ten-year period.3 The agreed allocation of the purchase price was recommended by VOSSOUGHI'S accountant so as to spread out his tax liability.
The noncompetition agreement, entered into with PPM, calls for monthly payments of $581.63 for ten years with increased payments of $602.75 for the following ten years.4 Section 5(a) of the noncompetition agreement provides:
(a) If PPM fails to timely perform this contract or the land sale contract or the personal assets and business name contract, Vossoughi may forfeit all contract Agreements, and all payments made shall be forfeited or, at Vossoughi's option, upon thirty (30) days written notice of intention to accelerate the payment of the entire balance because of such failure (during which thirty (30) days such failure is not corrected). (sic) Vossoughi may declare the entire balance immediately due and payable on all three contracts. Forfeiture of this Agreement shall also forfeit the land sale contract of the land and building as well as the personal assets and business name contract. PPM agrees to pay Vossoughi reasonable attorney fees in the event of forfeiture.
The real estate contract and the Addendum were recorded in the Office of the Recorder, Scott County, Iowa. The DEBTOR personally guaranteed the obligations arising under the three agreements.
Following the sale of his business to the DEBTOR, VOSSOUGHI moved to California. Several months later, VOSSOUGHI'S attorney notified him that the DEBTOR wanted to pay off the real estate contract. VOSSOUGHI returned to the Quad Cities and though he elected not to retain Meloy to represent him at the closing of the early payoff, Meloy sent a letter to Joseph on January 12, 2007, advising him that VOSSOUGHI would only convey the property to the DEBTOR by a deed that restricted PPM from reselling it to a third party. VOSSOUGHI, without Meloy, met with the DEBTOR at his brother's law office. At that meeting, VOSSOUGHI executed a warranty deed, dated March 29, 2007, conveying the real estate to PPM.5 The warranty deed was recorded on April 9, 2007. The deed contains no restriction on resale or otherwise. In conjunction with the purchase, the DEBTOR obtained a loan from American Bank and Trust Company for $184,000, granting it a mortgage in the real estate.
The DEBTOR continued to make the payments under the asset purchase agreement and the noncompetition agreement for nine or ten months, but the payments had stopped by February, 2008. When VOSSOUGHI contacted the DEBTOR, the DEBTOR told him to contact his attorney. In March, 2008, VOSSOUGHI brought suit against PPM Properties, Inc., BVM Enterprises, LLC and the DEBTOR in Scott County, Iowa. The American Bank and Trust Company foreclosed on the real property.
The DEBTOR and his spouse filed a joint voluntary petition under chapter 7 of the Bankruptcy Code on May 15, 2008. According to the Statement of Affairs, chapter 7 petitions were filed on behalf of some of the DEBTOR'S other business interests, includingPPM. VOSSOUGHI and C,N, & A, Inc., were listed on Schedule F as the holders of an unsecured, non-priority claim in the amount of $216,000. Schedule F debts totaled $2,116,783.90. VOSSOUGHI filed the complaint initiating this adversary proceeding seeking a determination that his claim for damages arising under the asset purchase agreement and noncompetition agreement is excepted from discharge pursuant to section 523(a)(2) or, alternatively, section 523(a)(6). The matter was tried before the...
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