Wank v. Gordon (In re Wank)
| Citation | 505 B.R. 878 |
| Decision Date | 29 January 2014 |
| Docket Number | BAP No. CC–13–1137–PaKuBa.,Bankruptcy No. SV 12–11628–MT.,Adversary No. SV 12–01156–MT. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
| Parties | In re Jordan WANK, Debtor. Jordan Wank; Bruce Wank, Appellants, v. Daniel Gordon; Basil Simona; A & S Investment, LLC; Athar Siddiqi; Mark Ferguson; George Tsoupakis, Appellees. |
OPINION TEXT STARTS HERE
Lincoln Browning Quintana, argued, for appellants Jordan Wank and Bruce Wank. David Paul Bleistein, argued, Los Angeles, CA, for appellees Daniel Gordon, Basil Simona, A & S Investment, LLC, Athar Siddiqi, Mark Ferguson and George Tsoupakis.
Before PAPPAS, KURTZ and BALLINGER 1, Bankruptcy Judges.
Chapter 7 2 debtor Jordan Wank (“Wank”) 3 appeals the summary judgment of the bankruptcy court determining that a portion of a judgment debt owed by Wank to appellees Daniel Gordon, Basil Simona, A & S Investment, LLC, Athar Siddiq, Mark Ferguson and George Tsoupakis (together, “the Appellees”) is excepted from discharge under § 523(a)(2)(A). We VACATE the summary judgment and REMAND this matter to the bankruptcy court for further proceedings.
Wank is a California attorney who filed a chapter 7 bankruptcy petition. The Appellees are creditors who assert that their claim against Wank should be excepted from discharge under various provisions of § 523(a). They assert that Wank induced each of them to invest in a fraudulent currency speculation scheme known as the European Investment Structure (“EIS”).5 Basil Simona resides in Michigan and is the managing member of A & S Investments, LLC, an entity that invested $125,000. Athar Siddiqui resides in Michigan and invested $400,000. Mark Ferguson resides in Los Angeles and invested $150,000. George Tsoupakis and Daniel Gordon reside in Colorado, and they invested $100,000 and $50,000 respectively.
Jerry Neidich (“Neidich”) is a friend and neighbor of Wank. Neidich, along with Daniele Romer (“Romer”), solicited the Appellees to invest in EIS. There is no evidence in the record, nor any contention by the Appellees, that Wank knew, or communicated with, any of the Appellees before the first contact was made with them regarding the investments. Wank concedes, however, that he received funds by wire transfer from each of the Appellees, and that he in turn transmitted all $825,000 of the money they sent him, plus $25,000 of his own funds, to UNIFICO Holdings, LLC, and its principal, Kurshid Shah (“Shah”), in care of a bank account in London, United Kingdom, to invest that money in currency speculation. Wank entered into written contracts (the “EIS Agreements”) with each of the Appellees regarding the investments, although these contracts have not been included in either the appellate record or the docket of the bankruptcy court adversary proceeding. The parties agree that there is no evidence that UNIFICO Holdings, LLC, or Shah made any trade with the funds; they also agree that the Appellees and Wank never received the anticipated profits from their investment nor, indeed, any return of their invested funds.
Having lost their investments, in May 2007 the Appellees sued Wank, Neidich, Romer, Shah, EIS, UNIFICO Holdings, LLC, and UNIFICO Trading, Ltd. (apparently a d/b/a of UNIFICO Holdings, LLC) in Los Angeles Superior Court. Gordon v. Wank, case no. BC 371 999 (the “State Court Action”). A First Amended Complaint, filed on September 11, 2009, in the State Court Action, contained twenty causes of action, including false promise, fraud and conspiracy to defraud, against all defendants.
On December 28, 2009, Wank, Neidich and Romer entered into a settlement agreement and stipulated judgment with the Appellees (collectively, the “Settlement Agreement”) concerning the state court action. Under the terms of the Settlement Agreement, Neidich, Romer and the Appellees mutually released each other from all claims on condition that Wank pay the Appellees the total sum of $750,000. If Wank failed to pay the Appellees by March 15, 2010, he stipulated that a judgmentcould be entered against him by the state court for the full amount of the Appellees' claim of $1,100,000. Of critical interest in this appeal, however, was the following provision in the Settlement Agreement:
THIS JUDGMENT SHALL BE EXEMPT FROM DISCHARGE IN BANKRUPTCY
The Parties agree that the obligations arising from this Settlement Agreement shall be non-dischargeable under the provisions of the Bankruptcy Code. Mr. Wank has also executed his attached Declaration in Support of the factual basis of why his obligation under this Agreement should not be discharged in Bankruptcy (Exhibit E).
As part of the settlement, the Appellees required Wank to sign a declaration under penalty of perjury on December 30, 2009, a copy of which was attached to the Settlement Agreement (the “First Declaration”). It included the following statements:
The purpose of this Declaration is to provide a factual basis to further the intention of the Plaintiffs and Defendants in this litigation to ensure that if I do not pay any or all of the Judgment on a timely basis and declare bankruptcy that the amounts due Plaintiffs for their investment in the [EIS], plus interest, of $1,100,000 shall not be discharged in bankruptcy. First Declaration at ¶ 1.
In later Summer and Fall of 2004, I entered into written agreements with [the Appellees] in which I agreed to act as a “primary investor” to invest their moneys that I received from each of them in the [EIS] which was operated by Mr. Kurshid Shah. Id. at ¶ 2.
I advised each of the [Appellees] (and set forth in the EIS Agreements) that before any trade was made, the trading group in England would have an “exit buyer” in place, with a built in profit for each transaction, and that the profits from each trade would be deposited into the account for distribution on a monthly basis. In fact, there was no such “exit buyer” and, as mentioned, all of the [Appellees] and others who invested lost their entire investments. Id. at ¶ 3(e).
I communicated to the [Appellees] that they could expect monthly returns of 30 to 50 percent. Id. at ¶ 3(f).
I made representations to the [Appellees], which were false, to induce them to place their funds in my trust account, and to permit me to act as their “primary investor,” and to permit me to transfer [Appellees'] funds to EIS. Id. at ¶ 4.
I communicated to the [Appellees] that investing in the [EIS] would be a safe investment, and that I was an attorney with expertise in such matters. Under the terms of the EIS Agreements, the [Appellees'] funds were to be returned to the [Appellees] in 45 days if no foreign currency trades were executed. However, I knew at the time I executed the contracts and accepted the wire transfers for the [Appellees'] funds that there was a possibility that the funds could be lost. I did not so inform the [Appellees]. Id. at ¶ 5.
By entering into the EIS Agreements with the Plaintiffs, I did not comply with the following [California Rules of Professional Conduct]: (a) [Rule] 3–110 by failing to act competently; (b) Rule 3–500, keeping clients informed of a situation in which I was acting for them; and (c) Rule 4–100 failing to preserve identity of client funds. Id. at ¶ 14.
The Settlement Agreement provided that the signed, original First Declaration would be kept in a sealed envelope by an escrow agent. If Wank failed to make the $750,000 payment as provided in the Settlement Agreement, and later filed for bankruptcy protection, the Settlement Agreement provided that the First Declaration would be unsealed and submitted to the bankruptcy court. The parties also executed a Stipulation to Judgment providing that, if Wank failed to pay the required $750,000 by March 15, 2010, the state court would be requested to enter judgment in the amount of the full claim of $1,100,00.
Wank did not pay the required $750,000 by the March 15, 2010 deadline and, at the Appellees' request, the state court, on June 18, 2010, entered the stipulated judgment against Wank and in favor of the Appellees in the total amount of $1,100,000.
Wank filed a chapter 7 bankruptcy petition on February 20, 2012. On Schedule F, Wank listed a noncontingent, liquidated, undisputed unsecured nonpriority claim of $1,250,000 for the five Appellees.
On May 5, 2012, Appellees filed an adversary complaint against Wank and his former spouse, Toby Wank, in the bankruptcy court.6 Thereafter, the complaint was amended, seeking a declaration by the bankruptcy court that the $1,100,000 judgment debt owed to the Appellees by Wank was excepted from discharge under §§ 523(a)(2), (4), (6) and (19).7 The Appellees' first claim, the one at issue in this appeal, sought an exception to discharge for fraud under § 523(a)(2)(A), and alleged that (1) Wank “stole” $825,000 from Appellees and did so “deliberately and stipulated as much in the Settlement Agreement,” (2) Wank lied to the Appellees when asked about the “stolen funds,” (3) Wank lied to the Appellees when he sent their invested funds to EIS, and (4) Wank stipulated that he committed fraud against the Appellees in the First Declaration and Settlement Agreement.
Although Wank's answer to the Appellees' amended complaint contained a general denial of the allegations, he admitted the paragraph which quoted the text of the First Declaration noted above, and the paragraph acknowledging that he signed the First Declaration under penalty of perjury.
During the pendency of the litigation, Appellees filed a Motion for Summary Judgment on December 31, 2012. After discussing the general requirements for an exception to discharge under § 523(a)(2)(A), the motion summarized the Appellees' argument in a single paragraph:
Here, the admissions of Mr. Wank in his prejudgment declaration meet these standards. He admitted that the EIS was a fraud. He admitted that the [Appellees] lost all of the $825,000 they invested in the...
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