W. Valley Med. Partners, LLC v. Shapow (In re Shapow)

• Decision Date: 08 March 2019
• Docket Number: Adv. No. 1:16-ap-01021-MB,Case No. 1:15-bk-13962-MB
• Citation: 599 B.R. 51
• Parties: IN RE: Morris SHAPOW, Debtor. West Valley Medical Partners, LLC, Plaintiff, v. Morris Shapow aka Mike Shapow, Defendant.
• Court: U.S. Bankruptcy Court — Central District of California

599 B.R. 51

IN RE: Morris SHAPOW, Debtor.West Valley Medical Partners, LLC, Plaintiff,

v.Morris Shapow aka Mike Shapow, Defendant.

Case No. 1:15-bk-13962-MB

Adv. No. 1:16-ap-01021-MB

United States Bankruptcy Court, C.D. California, San Fernando Valley Division.

Signed March 8, 2019

Jamie R. Schloss, Santa Monica, CA, for Plaintiff.

Michael Jay Berger, Beverly Hills, CA, for Defendant.

MEMORANDUM OF DECISION FOLLOWING TRIAL

Martin R. Barash, United States Bankruptcy Judge

On March 2, 5, and 9, 2018, the Court conducted a trial in this adversary proceeding. Jamie R. Schloss represented plaintiff West Valley Medical Partners, LLC ("West Valley" or the "Plaintiff"). Michael Jay Berger represented defendant Morris Shapow aka Mike Shapow ("Shapow" or the "Defendant"), the chapter 7 debtor herein. This memorandum constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure, made applicable here by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

Plaintiff objects to Defendant's discharge pursuant to Bankruptcy Code sections 727(a)(2)(A), (a)(3), and (a)(4)(A).¹ For the reasons set forth herein, the Court finds that Plaintiff has not met its burden on any of its causes of action. Accordingly, the Court will enter judgment in favor of Defendant on the entire complaint.

I. JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). Venue is proper pursuant to 28 U.S.C. § 1409(a). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J), and this Court has the constitutional authority to enter a final judgment on the Complaint. Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015) ; Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

II. PROCEDURAL HISTORY

On November 30, 2015, Defendant filed his voluntary petition under chapter 7 of the Bankruptcy Code (the "Petition Date").² David K. Gottlieb was appointed the chapter 7 trustee (the "Trustee"). On August 11, 2016, the Trustee moved to dismiss the bankruptcy case based on Defendant's alleged failure to provide the following: (1) a copy of a complaint filed against Defendant by a former employee (and failure to amend his schedules to include the former employee as a creditor); (2) an explanation for a sale or transfer of a property located on Abington Drive in Beverly Hills; (3) an explanation of who owns the entities Java, LLC and Mc3rd Trust; (4) an explanation for whether or not Defendant was a beneficiary of any estate or trust; (5) a copy of the closing statement from the sale of the Abington Drive property; (6) a list of all lienholders that were paid from the sale of the Abington Drive property with an explanation of Defendant's relationship to the lienholder; and (7) copies of all trust documents for all trusts indicating the identity of all trustees and beneficiaries. Case Dkt. 35. On August 31, 2016, Defendant filed a declaration responding to the issues raised in the Trustee's motion to dismiss. Case Dkt. 41. The Trustee withdrew his motion to dismiss on the following day. Case Dkts. 42, 44. On September 16, 2016, the Trustee filed his "no-asset" report.

On February 24, 2016, Plaintiff commenced this adversary proceeding by filing a complaint against Defendant timely asserting claims under Bankruptcy Code sections 727(a)(2), (a)(3), and (a)(5). Adv. Dkt. 1. On March 25, 2016, Defendant moved to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. Adv. Dkt. 3. On May 6, 2016, the Court granted Defendant's motion to dismiss with leave to amend as to all three causes of action. See Adv. Dkt. 14.

On June 3, 2016, Plaintiff filed its First Amended Complaint ("FAC"), the operative complaint herein, asserting claims under Bankruptcy Code sections 727(a)(2)(A),³ (a)(3), and (a)(4)(A). Adv. Dkts. 18 (unsigned), 39 (signed). On July 6, 2016, Defendant moved to dismiss the FAC pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. Adv. Dkt. 22. On August 15, 2016, the Court denied Defendant's motion to dismiss. See Adv. Dkts. 37, 38. On August 25, 2016, Defendant answered the FAC. Adv. Dkt. 43. The parties thereafter had a contentious relationship, and Defendant moved to dismiss the proceeding for failure to prosecute, see Adv. Dkt. 52, which motion was denied, Adv. Dkt. 68. The parties could not agree on a pre-trial stipulation until the Court intervened at a pre-trial conference on December 14, 2017. See Adv. Dkts. 88, 89. The Court imposed a monetary sanction on Plaintiff's counsel for his role in the parties' failure to file a pretrial stipulation by the ordered deadline. See Adv. Dkt. 90.

On December 18, 2017, the parties filed a joint pre-trial stipulation (the "Pre-Trial Stipulation" or "PTS") limiting Plaintiff's claims for relief to three causes of action under Bankruptcy Code sections 727(a)(2)(A), (a)(3), and (a)(4)(A). Adv. Dkt. 88. The Court thereafter entered an order approving the Pre-Trial Stipulation (the "Pre-Trial Order" or "PTO"). Adv. Dkt. 89. Both the Pre-Trial Stipulation and the Pre-Trial Order provide that they supersede the pleadings and govern the course of trial in this proceeding. See PTS at 38; PTO, ¶ 1.⁴

At trial, Plaintiff called as witnesses (1) its principal, Gary Grabel, (2) its counsel, Jamie R. Schloss, and (3) Defendant. Plaintiff also offered the deposition transcript of Lori Milas of Westshore Medical Billing, Inc., Plaintiff's Exhibit 91, and both parties designated portions thereof. After Plaintiff concluded its case in chief, Defendant moved for the equivalent of a nonsuit.⁵ Both parties argued, and the Court denied the motion. Defendant then called himself and Roy Silver as witnesses. The Court had the opportunity to observe each of the witnesses, evaluate their demeanor, consider their testimony, and assess their credibility.

After providing the parties with an opportunity to respond, the Court memorialized its evidentiary rulings on the exhibits offered into evidence by both parties. Adv. Dkts. 113, 127. The Court admitted the following exhibits offered into evidence by Plaintiff: 9, 15, 20, 26, 27, 36, 40, 44, 46, 48, 60, 61, 62, 63, 64, 65, 66, 67, 69-C, 70, 73, 74, 75, 78, 79, 80, 82, 83, 84, 88, 91, 96, 106, 107, and 108. The Court denied admission of the following exhibits offered by Plaintiff: 22, 24, 34, 69, 76, 77, 81, and 97. Plaintiff withdrew its motion to admit Exhibit 110 into evidence. The Court admitted the following exhibits offered into evidence by Defendant: A, F, G, H, I, J, K, N, O, P, and Q. All other exhibits lodged with the Court were never offered into evidence at trial.

With leave of Court, the parties submitted their closing arguments in writing in the form of post-trial briefs. See Adv. Dkts. 120, 121, 124.⁶ Upon Court order, Adv. Dkts. 127, 133, the parties electronically filed on the docket all exhibits that were offered into evidence at trial. See Adv. Dkts. 129, 130, 134. The causes of action asserted in this adversary proceeding are now ripe for decision.

III. FACTS

A. The Parties

Defendant has been a licensed physical therapist for approximately 40 years. Trial Transcript dated March 2, 2018, Adv. Dkt. 115 ("Trial Tr., March 2") at 81:18-82:6. He has operated physical therapy clinics whose patients included those with personal injury and workers' compensation claims. Id. at 83:22-84:12; PTS at 3, ¶ 6. Defendant owns, controls, or has an interest in several corporate entities. PTS at 3, ¶ 7.

Plaintiff is a commercial lessor that used to lease office space to a corporation controlled by Defendant. Trial Tr., March 2 at 12:4-20. Plaintiff obtained a $ 474,000 stipulated judgment on September 17, 2010, against Defendant and his wholly owned corporation, Total Wellness Rehabilitation, Inc., on a breach of contract action in Los Angeles Superior Court, LASC Case No. LC084044 (the "State Court Judgment"). Plaintiff's Ex. 48; PTS at 3, ¶ 8; Trial Tr., March 2 at 14:2-14. In the years that followed, Plaintiff attempted to collect on its State Court Judgment by conducting multiple judgment debtor examinations of Defendant, moving to compel production of documents, and moving for an assignment and restraining order. PTS at 8, ¶¶ 3-5; Trial Transcript dated March 5, 2018, Adv. Dkt. 116 ("Trial Tr., March 5") at 87:16-109:13; Plaintiff's Exs. 66, 67, 69-C, 70, 73, 74, 75, 78, 79, 80, 82. Plaintiff contends that throughout the State Court Judgment debtor proceedings Defendant possessed but failed to produce documents that were responsive to Plaintiff's document demands. Trial Tr., March 5 at 87:16-109:13. Plaintiff's principal, Gary Grabel, testified that Defendant "never paid a penny" on the State Court Judgment. Trial Tr., March 2 at 14:15-18.

Defendant previously filed a chapter 13 bankruptcy petition on December 12, 2012 ("Defendant's First Bankruptcy Case"). See Case No. 2:12-bk-50729-NB. Defendant's First Bankruptcy Case was converted to chapter 11 then dismissed on October 3, 2013. See id. ; PTS at 2, ¶ 1. Defendant filed the instant chapter 7 petition on November 30, 2015. PTS at 2, ¶ 2. Eighteen days earlier, Defendant filed a chapter 7 petition on behalf of his wholly owned and controlled corporation, the same entity against which Plaintiff obtained the judgment, Total Wellness Rehabilitation, Inc. (the "Total Wellness Rehabilitation Case"). See Case No. 1:15-bk-13752-VK; PTS at 2, ¶ 3; Trial Tr., March 2 at 55:23-56:4.⁷ In both this case and the Total Wellness Rehabilitation Case, Defendant prepared the petition, schedules, and statement of financial affairs and signed those documents under penalty of perjury. Trial Tr., March 2 at 55:11-56:24; Plaintiff's Exs. 60-65.

B. Income and Accounts Receivable

On Defendant's Statement of Financial...