La Stanza Diva Ristorante, Inc.

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS

In Re
LA STANZA DIVA RISTORANTE, INC., Chapter 11-Involuntary Fetition
Debtor Case No. 08-18911-JNF

MEMORANDUM
Upon consideration of 1) the Involuntary Petition filed on November 21, 2008 by
Daniel P. Scalley (“Scalley”), Scalley Real Estate, Inc., Boston Factors, Inc. (joirtly with
Scalley Real Estate, Inc., the “Scalley Entities”), and Kristin A. Viveiros' against La Stanza
Diva Ristorante, Inc. (the “Alleged Debtor”); 2) the Answer of the Alleged Debtor to the:
Involuntary Petition; 3) the “Motion to Allow Chute Fuel Company as a Joining C:-editor,”
and the “Motion to Allow Constructionaire Design & Build as a Joining Creditor’? which

the Court allowed on January 14, 2009; 4) the evidence, consisting of exhisits and

' Ms. Viveiros, a former waitress employed by the Alleged Debtor, appeared at
the initial hearing in this.case on January 14, 2009. Subsequently, counsel to the Alleged
Debtor represented that Ms. Viveiros is no longer owed wages which were the subject
of her claim. Neither Scalley nor the Scalley Entities or Ms. Viveiros disputed that
representation, nor did they present any evidence at the evidentiary hearings that Ms.
Viveiros currently is owed a debt by the Alleged Debtor.

? Timothy Scalley, a relative of Daniel Scalley, signed this pleading as
“proprietor” of Constructionaire Design & Build.

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testimony, adduced at evidentiary hearings heid on January 16, 21, and 29, 2009* on the
issues of whether Scalley and the Scalley Entities hold claims against the Alleged Debtor
which are “not contingent as to liability or the subject of bona fide dispute as to liability or
amount” and which together with the claims of Constructionaire Design & Build and
Chute Fuel Company* would total “at least $13,475 more than the value of an: lien on
property of the debtor securing such claims... .” see 11 U.S.C. § 303(b)(1); 5) the
memoranda of law filed by Scalley, the Scalley Entities. and the Alleged Debtar; 6) the
interpretation of the term “bona fide dispute” under 11 U.S.C. § 303(b)(1), in particular the
decisions of and cases referred to in Metz v. Dilley (In re Dilley), 339 B.R. 1 (BAF. Ist Cir.
2006)(explaining that the burden of proof of petitioning creditors in filing an involuntary
petition, as part of their prima facie case, is to show that their claims are not the subject of
bona fide dispute, and determining that, if the burden shifts to the debtor to establish the
existence of a bona fide dispute, courts should utilize an objective standard to decide if
claims are the subject of bona fide dispute); In re Regional Anesthesia Associates P.C., 360
B.R. 466, 477 (Bankr. W.D. Pa. 2007)(The outcome of a dispute need not be resolved, only
its presence or absence. Consequently, the court need only engage in a limited aralysis of
the claims at issue.’”).

Now, therefore, the Court finds and rules as follows:

* In reaching this decision, the Court has.considered the credibility and
demeanor of the witnesses who testified as well as all documentary evidence.

* These claims are not in bona fide dispute.

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Scalley and the Scalley Entities’ claim that they are owed $257,924.42 by the Alleged
Debtor, an operating restaurant. The Alleged Debtor maintains the claims are in |vona fide
dispute as to both liability and amount, requiring disqualification of those claimants from
the. involuntary petition. The Alleged Debtor supports its assertion of a bona fide dispute
by. maintaining that it is a personal two-party disagreement arising out the termination of
the romantic relationship between Scalley and its principal, Lynne Howell (“Howell”), in
the fall of 2008. During their relationship, which spanned several years, Scalley controlled
the financial operations of the Alleged Debtor, while Howell served as the vhef and
manager of the restaurant. Scalley, as business manager of the restaurant, opened and
maintained all of the Alleged Debtor's bank accounts, set up and managed the “Quick
Books” accounting program, opened and had access to a post office box to. which all mail
wassent, prepared all checks, used Howell’s stamp for signing checks, collected al! receipts
and made.all bank deposits, and paid all bills. He handied every aspect of the finances of
the Alleged Debtor until Howell terminated their relationship in 2008.

In addition to providing management services to the Alleged Debtor through Boston
Factors, Inc., Scalley and Scalley Real Estate, Inc. engaged in real estate brokerage and
financing ventures, including ventures with Howell personally. Scalley located a louse for
Howell to purchase near his residence, handled all aspects of the sale, and arranged for
financing through a private lender to enable Howell to acquire the property.

In a similar fashion, in 2000, Scalley enmeshed himself in the financial affairs of

* Scalley is the principal of both Scalley Entities.
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another woman, Kristin Till (’Till”), a recently divorced woman with whom he :lesired a
romantic relationship. He took over her banking, mail collection and bill payin, and he
arranged a refinancing of her home with the same private lender he referred tc Howell.
Till became extremely dissatisfied with her involvement with Scalley and testified that as
a result of his advice her personal financial situation deteriorated.

Based upon the testimony of Till and Howell, the Court observes that Scalley has
exhibited a pattern of conduct whereby he achieves control over the personal! and/or
business finances of women with whom he has or seeks a personal relationship for
purposes of his own financial gain. In the case of Till’s personal finances and “owell’s
business finances, it appears that Scalley achieved undue influence over both through
complex and questionable real estate financings, needlessly elaborate record keeping of
their finances, and control over their bank accounts.

In the involuntary petition, Boston Factors, Inc. claims that it is owed $157,696.43.
On August 1, 2004, Scailey presented Howell with a two page promissory note entitled
“Revolving Line of Credit Promissory Note” (the “Note”) payable to Boston Factors, Inc.,
bearing the signature of Howell, both as an individual and on behalf of the Allege«! Debtor.
The purported original of the Note was introduced into evidence as Petitioning Creditors’
Exhibit 3. The first page of the Note reflects an amount of $150,000. Howell tést:fied that
the amount of the Note was actually $15,000 and that the Alleged Debtor did not borrow
$150,000 from Boston Factors, Inc. The Note references a UCC-1 filing which was not

recorded until after the filing of the involuntary petition, The first page of the Note is

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printed on Boston Factors, Inc. stationary on what appears to be bond paper and the
second page of the Note appears to be printed on plain white paper. The two pages were
stapled together, but there is evidence that the staple had been removed and the pages re-
stapled. Additionally, the second page appears to have been folded in thirds, while the
first page bears no creases or fold marks. In view of Howell’s credible testimony that the
Note was ina different amount than that alleged by Scalley, the Court finds that it is more
likely than not that the document submitted into evidence was not the Note s:gned by
Howell.

Pursuant to the Note, Boston Factors, Inc: claims that it is owed $157,696.43 for
advances to the Alleged Debtor between August of 2004 and August of 2008 in a series of
several hundred transactions. See Petitioning Creditors’ Exhibit 6. It introduced bank
records in support of this claim which would appear to reflect over $300,000 in piecemeal
advances made by Boston Factors, Inc. to the Alleged Debtor. It did not provide any
reconciliation of the amounts allegedly owed.

A review of the voluminous exhibits submitted. by Scalley reveals that i:dvances
totaling in excess of $100,000 were in the form of cash or a “credit memo,” and that over
$250,000 in advances purportedly made by check are unsupported by any corroborating
bank deposit receipt or bank statement of the Alleged Debtor, Due to the lack of
corroboration or substantiation for the amount claimed by Boston Factors, Inc., tae Court
questions the authenticity of the records submitted by Scalley, and concludes thatthe claim

of Boston Factors, Inc. is in bona fide dispute as to liability and amount.

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Scalley Real Estate, Inc. claims thatthe Alleged Debtor owes it the sum of $:'8,727.99
for loans. At the evidentiary hearing, neither Scalley nor the Scailey Entities submitted
loan documents, promissory notes, or other contracts evidencing the basis for tie claim.
Scalley testified that for approximately two years Scalley Real Estate, Inc. made advances
in excess of $300,000 to the Alleged Debtor in the form of checks. While many checks to the
Alleged Debtor drawn on Scalley Real Estate, Inc.'s bank account were introduced into
evidence, advances in excess of $200,000 are not evidenced by the Alleged Debtar’s bank
records. Moreover, the exhibits reflect that Scalley Real Estate, Inc. received in excess of
$100,000 from the Alleged Debtor. Most importantly, there is no evidence of any
agreement, written or otherwise, for the repayment of any loan between Scalley Real
Estate, Inc. and the Alleged Debtor. Thus, the Court finds that the claim of Scalley Real
Estate, Inc. is in bona fide dispute.

Scalley claims that he is personally owed $12,500 by the Alleged Debtor or account
of “Credit Advance:AMEX.” Both he and Howell had American Express credit cards
issued in the name of the Alleged Debtor. When Scalley charged an expense on the credit
card, he decided the amount of his reimbursement by the Alleged Debtor, and he used the
credit card for personal expenses, There was no evidence concerning what his agreement
was with the Alleged Debtor with respect to use of the credit card. He. asserted that
Howell made credit charges or obtained cash advanices from the AMEX card and used the
card to advance monies to the corporation. He also testified that he paid the baliince due

to AMEX and did not receive reimbursement from the Alleged Debtor to the uxtent of

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$12,500.

Scalley also had a Note Payable account with the Alieged Debtor for «which he
maintained records of credits and debits. His accounting records reflect that the balance
due to him personally was $1,168.97, not $12,500. In view of the absence of evidence of an
agreement between him and the Alleged Debtor as to the terms of use and reimbursement
of credit card charges, the Court finds that the claim-of Daniel Sealley is in hona fide
dispute as to liability and amount.

The Court also finds that the totality of evidence warrants the conclusion that the
involuntary petition is not supported by the requisite number of creditors whose claims
are not in bona fide dispute. Accordingly, the Court shall enter an order dismissing the
involuntary petition.

By the Court,

Joan N. Feeney

United States Bankruptcy Judge
Dated: April 10, 2009
cc: Victor Bass, Esq. Richard M. Canzano, Esq., U.S. Trustee, Daniel Scalley, Timothy
Scalley, Chute Fuel Co.