Fink v. Indzheyan et al

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Oganes Indzheyan
Greta Mnatsakanyan
Debtor(s).
David Fink
Plaintiff(s),
v.
Oganes Indzheyan, Hovick Indzheyan,
Greta Mnatsakanyan
Defendant(s).
Case No.: 1:11-bk-15103-GM
Adv No: 1:11-ap-01472-GM
Chapter 7
MEMORANDUM OF OPINION REGARDING
PLAINTIFF’S MOTION FOR SUMMARY
JUDGMENT
Date: August 28, 2012
Time: 10:00 a.m.
Courtroom: 303
The complaint in this case is for both denial of discharge under §727 and for non-
dischargeability of this debt under §523(a)(2)(A).
FILED & ENTERED
DEC 13 2012
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	gonzalez
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Standard for Summary Judgment
Summary judgment is proper when the pleading, discovery, and affidavits show
that there is “no genuine dispute as to any material fact and that the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Material facts are those which
may affect the outcome of the proceedings. Anderson v. Liberty, Inc., 477 U.S. 242,
248 (1986). The party moving for summary judgment bears the burden of identifying
those portions of the pleadings, discovery, and affidavits that demonstrate the absence
of a genuine issue of a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). On an issue for which the opposing party will have the burden of proof at trial,
the moving party need only point out “that there is an absence of evidence to support
the nonmoving party’s case.” Id. at 325. The facts must be viewed in the light most
favorable to the party opposing the motion. Anderson, 477 U.S. at 249; Masson v. New
Yorker Magazine, 501 U.S. 496, 520 (1991). Mere allegations or denials do not defeat
a moving party’s allegations. See Gasaway v. Northwestern Mut. Life Ins. Co., 26 F.3d
957, 960 (9th Cir. 1994).
In reviewing this motion, it is appropriate to summarize the arguments and to
incorporate the Court’s comments and some of the rulings within those summaries. For
that reason, the Court’s comments are set out in italics.
Non-Dischargeability: §523(a)(2)
The motion (Court’s comments in italics)
On 7/24/08 David Fink (“Plaintiff”), who is the assignee of certain checks that
were returned NSF, obtained a default judgment for $70,533.43 damages plus
prejudgment interest of $15,142.93 ($85,676.36 total) against Classic Tile & Stone, Inc.
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(“Classic”), as well as against Oganes Indzheyan and Greta Mnatsakanyan (“Debtors”)
and also several other individuals who are collectively referred to as “Other
Defendants.” The group of Other Defendants included Debtors’ son Agop (referred to
as Akop in the complaint) and daughter Tagui. (This default judgment was in Orange
County Superior Court 07cc12326, is Plaintiff Exhibit 30, and is referred to hereafter as
the “OC Judgment.”)
The underlying complaint, which is Plaintiff Exhibit 29, had three claims:
1. The Breach of Contract claim alleges that Classic and certain of the Other
Defendants passed two NSF checks (the “2006 Checks”), each dated 12/8/06
in the respective amounts of $5,000.00 and $6,561.45, both drawn on the
account of Classic.
2. The Fraud claim alleges that Debtors and certain of the Other Defendants
engaged in a scheme to cheat creditors by writing numerous NSF checks and
fraudulently transferring assets out of Hollywood Marble, Inc. (“Hollywood”)
and into Classic, and that certain Other Defendants passed the NSF 2006
Checks that they did not intend to pay. Further, there were two other NSF
checks (the “2003 Checks”), one dated 2/19/03 and signed by Greta
Mnatsakanyan for $20,000 and one dated 8/24/03 and signed by Oganes
Indzheyan for $21,444, each drawn on the account of Hollywood and Debtors
and one Other Defendant did not intend to pay these checks either.
3. The Fraudulent Transfer claim alleges that Debtors and certain of the Other
Defendants fraudulently transferred assets from Hollywood into Classic to
avoid paying debts, including a prior judgment that Plaintiff obtained against
Hollywood on 3/10/06 for $55,971.98 in Los Angeles Superior Court Glendale
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Judicial District case EC041353, which was on account of the NSF 2003
Checks. (This is referred to herein as the “LA Judgment.”)
The motion argues that the OC Judgment has a preclusive effect in this
proceeding and the Debtors are collaterally estopped from denying fraud. Because the
Orange County judgment was by default, there are no findings of fact and no indication
of the claim(s) on which the OC Judgment is based. At the hearing on 8/28/12, Plaintiff
argued that because Debtors are not named in the breach of contract claim, the
judgment against them must arise out of the fraud claims.
There is no dispute that both the 2003 Checks and 2006 Checks were returned
NSF.
The motion attempts to trace the business dealings of the Debtors and their
children in order to show a pattern of giving NSF checks, which would establish the
necessary fraudulent intent and knowledge to support a §523(a)(2) judgment. This is all
documented in the plaintiff's exhibits. The objections to Plaintiff's exhibits are overruled.
Some of the objections to Plaintiff's declaration are sustained (generally where Plaintiff
moves into commentary or argument), some are overruled. These rulings are set forth
below. Plaintiff has failed to provide admissible evidence that Classic is a dba of
Hollywood. Classic was incorporated by the Debtors' son and although there are
certain similarities as to the checks and at one time they appear to have operated out of
the same location, this does not lead to a finding that one was a dba (or perhaps an
alter ego) of the other.
The opposition (Court's comments in italics)
The opposition states that there is an issue as to whether Debtors were properly
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served with the OC complaint and received due process. However Plaintiff has
introduced a declaration by Mr. Indzheyan testifying that he learned of the lawsuit in late
2009. Plaintiff Exhibit 7. Debtors’ daughter Tagui sought to set aside the OC Judgment
as against her, but Debtors did not. Opposition at 2.
The judgment is not subject to res judicata or collateral estoppel since it does not
state the necessary findings.
The declarations of Debtors show that Classic is not a dba of Hollywood. The
judgments against Hollywood have nothing to do with Classic and many of them have
been satisfied. Two of the checks were issued on a Hollywood account and not on a
Classic account. The declaration of Oganes Indzheyan dated 8/3/12 (“Indzheyan
Declaration”) shows that the funds were not improperly withdrawn.
Mr. Indzheyan also testified that there were adequate funds in the bank account
to cover the $21,444 check signed by him and returned NSF, but a sheriff's levy was
served on the bank account prior to negotiation. Indzheyan Declaration ¶ 7. Ms.
Mnatsakanyan testified that there were adequate funds in the bank account to cover the
$20,000 check signed by her and returned NSF, but a sheriff's levy was served on the
bank account prior to negotiation. Declaration of Greta Mnatsakanyan dated 8/3/12
(“Mnatsakanyan Declaration”) ¶ 6. However, their testimony violates Federal Rule of
Evidence 1002, which requires an original writing (in this case the levies themselves or
a bank statement showing the levies) to prove its contents. At the hearing, Plaintiff
argued that he had conducted a search through the Los Angeles Country Sheriff’s
website and had been unable to find any levies executed against Classic that would
account for the 2003 Checks being NSF. Declaration of David Fink dated 6/27/12 (“Fink
Declaration”) ¶17; Plaintiff Exhibit 16. However, the website used by Plaintiff clearly
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notes that it is not an official record and disclaims liability for any inaccuracies.
Furthermore, Plaintiff’s submission of summaries of the levies issued against Debtors’
bank account likewise violates Federal Rule of Evidence 1002, which requires the
underlying documentation, rather than summaries thereof.
Ruling on §523(a)(2) (except as noted above)
Although plaintiff mentions §523(a)(4) at the end of his motion, this appears to be
a typographical error and will be disregarded by the Court. Also to the extent that he
seeks judgment under §523(a)(2)(B), there is no evidence of a false financial statement.
The giving of a check does not qualify under this section. Thus, this ruling is based on
§523(a)(2)(A), which excepts from discharge any debt “for money, property, services, or
an extension, renewal or refinancing of credit, to the extent obtained by . . . false
pretenses, a false representation, or actual fraud, other than a statement respecting the
debtor’s or an insider’s financial condition.”
Plaintiff argues that the OC Judgment has a preclusive effect estopping Debtors
from denying fraud. Plaintiff is correct that collateral estoppel applies to §523(a)
proceedings even if they underlying judgment is by default -- provided certain threshold
requirements (discussed below) are met. See Harmon v. Kobrin (In re Harmon), 250
F.3d 1240 (9th Cir. 2001).
Because the OC Judgment was by default, the defaulting defendants are
deemed to have admitted its well-pleaded material allegations. Johnson v. Stanhiser,
72 Cal.App.4th 357, 361-362 (Cal. Ct. App. 4th Dist. 1999). The Court must first review
the OC Complaint to see whether it states a cause of action for fraud against either or
both of the Debtors. It alleges as follows:
¶¶ 26-27 – states that Greta and Oganes passed the two NSF checks to
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obtain merchandise they had no intention of paying for. The $20,000 check was
signed by Greta, whereas the $21,444 check was signed by Hovik
Mnatsakanyan (identified in Complaint as the brother-in-law and roommate of the
Debtors’ son Akop, but subsequently described by Plaintiff as an alias of Mr.
Indzheyan). OC Complaint ¶10; Fink Declaration ¶ 2. (In fact, the $21,444
check appears to be signed by Oganes Indzheyan, or some close variation of
that name. See Plaintiff Exhibit 14.)
¶ 30 - describes the assignment of the checks to Fink.
¶ 32 - notes that the $55,971 judgment was entered against Hollywood.
¶¶ 34-36 - alleges that the defendants used or are using Hollywood and
Classic as an alter ego. The only fact to support this contention is that these two
entities operate two blocks away from each other.and that their checks and
incorporation papers have “identical” typeface and handwriting.
¶ 60 - alleges that the defendants wrote numerous NSF checks, then
fraudulently transferred assets from Hollywood to Classic so as to keep
customers for their business.
¶ 61 – describes a conversation with Hovik in which he admitted that he
had no intention of paying for the merchandise.
¶ 71-72 – identifies the LA Judgment against Hollywood and states that
during that litigation the defendants started fraudulently transferring assets from
Hollywood to Classic to avoid paying debt.
The prayer incorporates the LA judgment in the amount of $55,971.98
plus accruing interest. But, as stated in the appellate opinion on the LA
Judgment, that “complaint did not state facts constituting the elements of a cause
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of action for fraud; accordingly, the defendants’ failure to answer the complaint
did not constitute an admission of fraud.”1 (citations omitted). The Court of
Appeal further ruled that, in order to fill the gap, the plaintiff should have filed an
amended complaint.
Unlike an action on contract, one seeking judgment for fraud must specifically
state the facts that would entitle the plaintiff to prevail:
In California, fraud must be pled specifically; general and conclusory allegations
do not suffice. [citations omitted] Thus “the policy of liberal construction of the
pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any
material respect.” [citation omitted] This particularity requirement necessitates
pleading facts which “show how, when, where, to whom, and by what means the
representations were tendered.” [citation omitted]
Lazar v. Superior Court, 12 Cal. 4th 631, 645 (Cal. 1996). The required elements to
state a cause of action for fraud are a follows: “(a) misrepresentation (false
representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter");
(c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting
damage.” 5 Witkin Sum. Cal. Law Torts 10th Ed. §772. These are the same elements
required for nondischargeability under §523(a)(2)(A). Harmon, 230 F.3d at 1246.
Only after the court decides that the complaint in a default situation contains
specific factual allegations on each of these issues does it look at the evidence
presented at the prove-up hearing to see whether these allegations are substantiated.
Thus, the OC Complaint, standing alone, must state facts constituting the elements of a
cause of action for fraud. It does not.
It can be inferred from the Complaint that Plaintiff’s assignor suffered some
1 The Plaintiff had originally brought an action against both the Debtors and Hollywood in Los Angeles Superior Court alleging
fraud and breach of contract on account of the 2003 Checks. The ensuing LA Judgment (by default) granted judgment for
Plaintiff against Hollywood, but also judgment for the Debtors. Plaintiff appealed the LA Judgment as to the Debtors, but his
appeal was dismissed on the grounds that his complaint did not state facts constituting the elements of a cause of action for fraud.
See Decision of California Court of Appeal and Judgment of Los Angeles Superior Court, which are Exhibits B and 2 to
Defendant’s Further Supplemental Brief, dated 9/12/12.
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damages because it wasn’t paid. While it is implied that the assignor relied on the
checks when providing merchandise, the complaint does not allege any facts showing
either reliance or justification. The other three elements are also missing, at least in
part.
Each Debtor signed one of the 2003 Checks, but there are no other facts
pleaded that support the other two required elements of fraud – that they had
knowledge that the check would not be honored by the bank and that they intended to
deceive the assignor when they prepared the checks. For the 2006 Checks, all three
elements – misrepresentation, knowledge of falsity and intent -- are missing.
But the real basis of the OC Judgment is the assertion that Oganes and Greta
are alter egos of Hollywood. Although the complaint attempts to allege an alter ego
relationship between the Debtors, Classic, and Hollywood, there are insufficient facts
pleaded. There must be facts alleged which show that justice cannot otherwise be
accomplished: “the plaintiff must plead and prove such a unity of interest and ownership
that the separate personalities of the corporation and the individuals do not exist, and
that an inequity will result if the corporate entity is treated as the sole actor.” Vasey v.
California Dance Co., 70 Cal. App. 3d 742, 749 (Cal. Ct. App. 2d Dist. 1977). This is
certainly missing from the OC Complaint in that the only “facts” are that Hollywood and
Classic were, at one time, two blocks apart and have the same typeface and writing on
their checks and corporate documents.
In addition, in order for a default judgment to have collateral estoppel effect,
Plaintiff must provide evidence that (i) Debtors either were personally served with the
complaint or had actual knowledge of the litigation in Orange County Superior Court and
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(ii) the default judgment necessarily required a finding of fraud. Cal-Micro, Inc. v.
Cantrell (In re Cantrell), 329 F.3d 1119, 1123-1124 (9th Cir. 2003).
Plaintiff provided a declaration that Mr. Indezheyan had knowledge of the OC
Judgment in late 2009 (Plaintiff Exhibit 7 ¶ 6), which is within the two years provided by
Cal. Code Civ. Pro. §473.5 for defendants to file a motion to set aside a default
judgment and meets this first requirement of actual knowledge. Cantrell, 329 F.3d at
1124. Moreover, Plaintiff has provided evidence that Mr. Indezheyan was personally
served with the complaint on 12/26/07. See Declaration of Shawn O’Malley dated
4/14/12 (“O’Malley Declaration”), which is Plaintiff Exhibit 21.
However, Plaintiff has not introduced evidence that Ms. Mnatsakanyan was
either personally served with the complaint or had actual knowledge of the litigation in
Orange County Superior Court. Plaintiff has introduced evidence of “subservice”
(service by delivery to her husband) and service by mail (O’Malley Declaration ¶6) on
Ms. Mnatsakanyan, but neither subservice nor service by mail is personal service.
Plaintiff introduced evidence of notice to Ms. Mnatsakanyan with summaries from Los
Angeles County Sheriff’s website showing garnishment of Debtors’ bank account and
their daughter’s bank account. See Plaintiff’s Response to Court’s 9/25/12 Order,
Exhibits 3, 4. However, even leaving aside the evidentiary inadequacies of summaries
from the Los Angeles County Sheriff’s website (as noted above) and the fact that these
summaries do not identify the account holder or account number, notice is simply not
the same as actual knowledge.
Debtors’ liability for the 2006 Checks is alleged only in the second claim for fraud,
so the OC judgment against Debtors on the 2006 Checks was necessarily based on
fraud. On the other hand, Debtors’ liability for the 2003 Checks is alleged in both the
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second claim of fraud and the third claim of fraudulent transfer. The third claim alleges
fraudulent transfers from Hollywood to Classic in order to avoid paying the earlier LA
Judgment. These alleged fraudulent transfers occurred well after inventory was
provided on account of these checks, so §523(a)(2)(A) – which covers debts for
property obtained by fraud, etc – does not apply. Thus, the OC Judgment does not
necessarily require a finding of the fraud covered by §523(a)(2)(A) for the 2003 Checks.
The OC Complaint does not state facts constituting the elements of a cause of
action for fraud. Furthermore, Ms. Mnatsakanyan did not receive the personal service
or have the actual notice of the OC Judgment required for a default judgment to have
preclusive effect. And the OC Judgment was not necessarily based on a finding of
fraud against the Debtors with respect to the 2003 checks. Accordingly, this Court finds
that the OC Judgment does not have a preclusive effect collaterally estopping Debtors
from denying fraudulent conduct covered by §523(a)(2)(A).
Turning to the evidence presented in this proceeding, there is no question that
both the 2003 Checks and the 2006 Checks were returned NSF and that Debtors each
signed one of the 2003 Checks.
There is a great deal of confusion in the 9th Circuit as to whether the giving of an
NSF check constitutes a representation that the check is covered by good funds. The
Ninth Circuit BAP has held that tendering a check is an implicit representation that the
check is good. Bear Stearns v. Kurdoghlian (In re Kurdoghlian), 30 B.R. 500 (BAP 9th
Cir. 1983). But, as a result of the Supreme Court opinion in Williams v. United States,
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458 U.S. 279, 284-85 (1982)2 and a change in Uniform Commercial Code §3-413(2), a
Central District Bankruptcy Court decision in Mandalay Resort Group v. Miller (In re
Miller), 310 B.R. 185, 195 (Bankr. C.D. Cal. 2004), determined that Kurdoghlian was no
longer to be followed. But the BAP in Levitt v. Cook (In re Levitt), 2008 Bankr. LEXIS
4683 (B.A.P. 9th Cir. 2008) decided to follow its own precedent from Kurdoghlian.
However Levitt is an unpublished opinion with no binding effect.
As it applies to this case, the tendering of bad checks is not conclusive evidence
of fraud under either ruling. In addition to a misrepresentation, the other elements of
knowledge, intent, justifiable reliance and damages must be established. Harmon, 250
F.3d at 1246. Again, damages may be inferred from Plaintiff’s assignor’s failure to
receive payment, but Plaintiff has not shown any evidence of reliance by his assignor.
Intent requires that the checks were given with fraudulent intent or with reckless
disregard for the truth or reckless indifference to it. See Anastas v. Am. Sav. Bank, 94
F.3d 1280, 1286 (9th Cir. 1996). Defendants have stated under penalty of perjury that
the reason each check was returned NSF was due to a sheriff’s levy on the bank
account prior to negotiation of the checks, but this evidence fails to satisfy FRE 1002 as
discussed above. Plaintiff attempts to establish that no levies were conducted on
Hollywood accounts at the time the checks were negotiated but, as also noted above,
the website used by Plaintiff is not an official record and not reliable, and the summaries
also fail to meet the requirements of FRE 1002. Plaintiff Exhibit 16. Without admissible
evidence, a triable issue of fact remains on the issue of intent. (The Defendants’ intent
will be inferred from the circumstances; the parties are urged to obtain admissible
2 Williams held, in the context of interpreting a federal criminal statute, that a check is not a factual assertion and so
cannot be true or false. 458 U.S. at 284. Although decided prior to Kurdoghlian, Williams is not referred to in the
Kurdoghlian decision.
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evidence on this point for trial.)
The Court will grant partial summary adjudication for the Plaintiff on the issues
that Ms. Mnatsakanyan signed the $20,000 2003 check and that Mr. Indzheyan signed
the $21,444 2003 check and that both of the 2003 Checks, as well as the 2006 Checks,
were returned NSF. The remainder of Plaintiff’s motion for summary judgment on 11
U.S.C. §523(a)(2) will be denied.
Denial of Discharge: §727(a)(2)
The motion and opposition (Court's comments in italics)
Plaintiff alleges the following facts, based on bank statements introduced into
evidence as Plaintiff Exhibits 32 and 33:
- In the two months prior to filing for Chapter 7 relief, Debtors withdrew
approximately $75,000 from the bank account of their wholly-owned corporation,
Terrazza Design, Inc. (“Terrazza”). Plaintiff Exhibit 32.
- In the preceding nine months, Debtors had withdrawn only $7,330.00 in cash
cumulatively. Plaintiff Exhibit 33.
- Debtors had also made 33 money transfers into other bank accounts. Plaintiff
Exhibit 33. The Court has looked at the statements but has not verified the accuracy of
Plaintiff’s calculation of cash withdrawals and transfers.
Plaintiff argues that Debtors should be denied a discharge for failure to disclose
these cash withdrawals and transfers, pursuant to Bankruptcy Code §727(a)(2), which
provides:
The court shall grant the debtor a discharge, unless . . . the debtor, with intent to hinder,
delay, or defraud a creditor or an officer of the estate charged with custody of property
under this title, has transferred, removed, destroyed, mutilated, or concealed, or has
permitted to be transferred, removed, destroyed, mutilated, or concealed -- (A) property
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of the debtor, within one year before the date of the filing of the petition; or (B) property
of the estate, after the date of the filing of the petition.
11 U.S.C. §727(a)(2).
Debtors respond that these cash withdrawals were used to purchase various
goods and services for the business and to pay rent on the family residence. Indzheyan
Declaration ¶16. Debtors also respond that they have submitted invoices and receipts
for the payments made with these funds. Id.; Defendant Exhibit C. Most of these
invoices and receipts have post-petition dates, so they cannot account for pre-petition
withdrawals and transfers.
Ruling on §727(a)(2)
A party seeking denial of discharge under § 727(a)(2) must prove two things: "(1)
a disposition of property, such as transfer or concealment, and (2) a subjective intent on
the debtor's part to hinder, delay or defraud a creditor through the act [of] disposing of
the property." Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 (9th Cir. 1997).
The disposition must be of property of the debtor within the year preceding bankruptcy
(or property of the estate after the petition date). 11 U.S.C. §727(a)(2). A debtor's
intent need not be fraudulent to meet the requirements of §727(a)(2). Because the
language of the statute is in the disjunctive, it is sufficient if the debtor's intent is to
hinder or delay a creditor. Bernard v. Sheaffer (In re Bernard), 96 F.3d 1279, 1281 (9th
Cir. 1996). Furthermore, "lack of injury to creditors is irrelevant for purposes of denying
a discharge in bankruptcy." Id. at 1281-82 (quoting In re Adeeb, 787 F.2d 1339, 1343
(9th Cir. 1986)).
With respect to the disposition requirement, Plaintiff has introduced a bank
statement and has highlighted a number of cash withdrawals and transfers to other
accounts. However, these transfers are from a bank account belonging, not to the
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Debtors, but to Terrazza, which is Debtors’ wholly-owned corporation. Transfers of
property by a subsidiary, thereby reducing the value of Debtor’s equity in the subsidiary,
are not transfers of property of the Debtor or of the estate for purposes of §727(a)(2):
MBank has cited no authority, and we have found none, which holds that the
transfer of property of another which has incidental effect upon the assets of a debtor
satisfies the requirements of § 727(a)(2)(A). MBank argues that the analysis employed
by the bankruptcy and district courts raises form over substance. While facially
appealing, that argument simply fails to consider the language employed by Congress in
the adoption of § 727(a)(2)(A).
The words: "Property of the debtor," are not the same as "property in which the
debtor has a derivative interest." To the contrary, the language of the statute is
sufficiently circumscriptive to eliminate such an interpretation.
MBank contends the Bankruptcy Code defines "property" to include equitable
interests of the debtor, 11 U.S.C. § 541(a)(1). Hence, the creditor maintains the transfer
of an asset of a corporation is the transfer of property in which a stockholder has an
equitable interest to which § 727(a)(2)(A) would extend. We disagree.
The purpose of § 541(a)(1) is to define "property of the estate." If MBank's theory
is correct, the estate of a debtor who holds a share in a corporation would not only
include the value that share would bring, but also a liquidatable interest in any asset
owned by that corporation. That is not the scope of § 541(a)(1).
Congress intended to limit the reach of § 727(a)(2)(A) only to those transfers of
property in which the debtor has a direct proprietary interest. MBank's argument to the
contrary is creative, indeed ingenious, but it is not persuasive, and the district and
bankruptcy courts correctly so concluded.
In re Thurman, 901 F.2d 839, 841 (10th Cir. 1990); see also Miller v. Scott (In re Scott),
462 B.R. 735, 741 (Bankr. D. Alaska 2011)(“weight of authority holds that a fraudulent
transfer of corporate property does not constitute grounds for denial of discharge in an
individual's case” citing Thurman). Plaintiff has not introduced evidence to establish that
Debtors and Terrazza should be treated as the same entity, so Plaintiff has not shown a
transfer of estate property or property of the Debtor under §727(a)(2).
Plaintiff’s motion for summary judgment on 11 U.S.C. §727(a)(2) will be denied.
Denial of Discharge: §727(a)(4)
The motion and opposition
Debtors valued their 100% ownership of Terrazza at $20,000. Schedule B, item
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13. Plaintiff has introduced expert testimony that (1) inventoried and documented
Terrazza’s more valuable merchandise on 7/8/11 and (2) valued this property at
$260,000 (not including equipment and less valuable inventory). See Declaration of
Kelly O’Kelly dated 7/11/11 (“O’Kelly Declaration”) and photographs annexed thereto,
which is Plaintiff Exhibit 35.
Plaintiff argues that Debtors should be denied a discharge for providing a false
account of the value of the Terrazza stock, pursuant to Bankruptcy Code §727(a)(4)(A),
which denies a discharge to a debtor who "knowingly and fraudulently" makes a false
oath or account in the course of the bankruptcy case. 11 U.S.C. §727(a)(4)(A).
Debtors respond that the inventory is on consignment and does not belong to
Terrazza. See Indzheyan Declaration ¶¶ 13, 18 and Debtor Exhibit C (Consignment
Agreement). Any remaining stone and the equipment was of de minimis value and well
within Debtors’ $20,000 valuation of Terrazza. Indzheyan Declaration ¶¶ 18, 19.
Ruling on §727(a)(4)
Debtors’ $20,000 valuation of their interest in Terrazzo is susceptible to
§727(a)(4) scrutiny as a false statement. “A false statement or an omission in the
debtor's bankruptcy schedules or statement of financial affairs can constitute a false
oath.” Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (B.A.P.
9th Cir. 2007).
Plaintiff’s evidence of large quantities of stone inventory valued at $260,000 is
countered by the consignment agreement introduced by Debtors and Mr. Indzheyan’s
testimony that the only valuable inventory is on consignment and does not belong to
Terrazza. Thus, a triable issue of fact remains as to the falsity of the statement. Plaintiff
has not introduced any evidence or even argued in his motion that debtors acted
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“knowingly and fraudulently” in any misstatement of the value of Terrazza.
Plaintiff’s motion for summary judgment on 11 U.S.C. §727(a)(4) will be denied.
###
United States Bankruptcy Judge
DATED: December 13, 2012
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Objections to evidence
The court rules as follows on the parties objections to evidence:
Defendants' Objections to Plaintiff's Declaration
¶2 sustain as to Hovick Indzheyan, Hovic Ingian, and Hovik Mnatsakanyan; overrule as
to the balance.
¶3 sustain as to the claim that Classic Tile and Stone is a dba of Hollywood Marble.
¶5 sustain.
¶7 sustain in that there is no admissible evidence that Classic Tile and Stone is a dba of
Hollywood Marble. Also, exhibit 9 shows employment at Hollywood Marble from 2001-
2004 and does not mention CT&S.
¶9 sustain only as to the statement that Classic Tile and Stone is a dba of Hollywood
Marble.
¶10 sustain. The judgments are against Hollywood Marble, not CT&S.
¶11 sustain as hearsay and best evidence rule.
¶12 sustain in that checks state that they were from the account of Hollywood Marble,
not CT&S.
¶14 sustain in that checks state that they were from the account of Hollywood Marble,
not CT&S.
¶17 sustain in the there is no evidence that the levies were attempted on the CT&S
bank account. All of the judgments in ex. 16 are against Hollywood Marble. Overrule
as to the balance of the statement.
¶18 sustain - this is only as to Hollywood Marble.
¶19 overrule.
¶20 overrule.
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¶21 overrule
¶22 overrule as to the first sentence. Sustain as to the balance, which is argument.
¶23 through 28 overrule.
¶29 sustain.
¶30-¶44 overrule
¶49 overrule
¶50 overrule
¶51 overrule
¶52 sustain
¶54 sustain
¶55 through ¶57 - sustain as to the last two sentences of ¶¶56 and 57. Overrule as to
the balance of these paragraphs.
Defendants' Objections to Plaintiff's Exhibits
Overrule all objections.
Roadmap: Issues for Trial
To assist the parties in their preparation for trial, the Court has compiled a
preliminary list of factual and legal issues that must be determined at trial:
§523(a)(2)(A)
Legal issue: Is tendering a check an implied representation that the check is good?
Factual issue: Do circumstances show misrepresentation, knowledge of falsity, intent
(either fraudulent intent, reckless disregard or reckless indifference), justifiable reliance
and damages? (Parties have focused on levies (or lack thereof) on the relevant bank
accounts regarding issue of intent, but only admissible evidence will be considered on
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this issue.)
§727(a)(2)
Legal and factual issue: Should Terrazza and Debtors be considered the same legal
entity?
Factual issue: Did Debtors have the intent to “hinder, delay or defraud a creditor” in
making the withdrawals?
§727(a)(4)
Factual issue: Was $20,000 valuation of Terrazza in Debtors’ schedules false? (So far,
Plaintiff has introduced expert testimony that property at Terrazza’s business premises
was worth more than $260,000, while Debtor has countered that the most valuable of
this property was on consignment.)
Factual issue: Did Debtors “knowingly and fraudulently” make this false statement?
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This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9021-1.1.NOTICE.ENTERED.ORDER
NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify): Memorandum of Opinion
regarding Plaintiff’s Motion for Summary Judgment was entered on the date indicated as AEntered@
on the first page of this judgment or order and will be served in the manner stated below:
1. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) B Pursuant to controlling
General Orders and LBRs, the foregoing document was served on the following persons by the court via
NEF and hyperlink to the judgment or order. As of (date)________________, the following persons are
currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to receive
NEF transmission at the email addresses stated below.
David Fink Email: DavidFink2@yahoo.com
Steven Gluck Email: SGluck@juno.com
Nancy Zamora, Chapter 7 Trustee Email: Zamora3@aol.com,
Nzamora@ecf.epiqsystems.com
Service information continued on attached page
2. SERVED BY THE COURT VIA UNITED STATES MAIL: A copy of this notice and a true copy of this
judgment or order was sent by United States mail, first class, postage prepaid, to the following persons
and/or entities at the addresses indicated below:
David Fink
125 Old Grove Road, Suite # 9-408
Oceanside, CA 92057-1217
Steven Gluck
1313 Post Avenue
Torrance, CA 90501
Service information continued on attached page
3. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment
or order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete
copy bearing an AEntered@ stamp by United States mail, overnight mail, facsimile transmission or email
and file a proof of service of the entered order on the following persons and/or entities at the addresses,
facsimile transmission numbers, and/or email addresses stated below:
Service information continued on attached page
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