In re Gianopolous
In re Gianopolous
Opinion of the Court
Introduction
Nikolaus Gianopoulos ("Niko "), the debtor in this closed no asset chapter 7 bankruptcy case, received his discharge in bankruptcy by order of this Court (Peck, J.)
The Loan is in default. In 2014, Round Table sued Gus in New York State Supreme Court, New York County (the "State Court ") to enforce the Guaranty. In that litigation, which is pending, Gus denies that he is liable under the Guaranty, and maintains that he did not authorize Niko to execute it on his behalf. Round Table contends that it would not have made the Loan without Gus's guaranty, and that if what Gus says in that litigation is true, then Niko fraudulently induced Round Table to make the Loan. In 2016, Round Table sued Niko in State Court (the "State Court Action ") to recover approximately $3.5 million in damages caused by Niko's alleged fraud. Niko denies liability and also asserts that his indebtedness to Round Table-including that arising from the alleged fraud-was discharged in his chapter 7 case. He made that and other arguments in the State Court in support of his unsuccessful motion to dismiss the complaint in the State Court Action. Niko is appealing that ruling.
The matter before the Court is Niko's motion (the "Motion ") pursuant to section 350(b) of the Bankruptcy Code,
For the reasons set forth below, the Motion is DENIED.
Jurisdiction
This Court has jurisdiction over the Motion pursuant to
Facts
On or about November 30, 2007, Round Table made loans aggregating $3,487,000 (collectively, the "Loan ") to three limited liability companies owned or controlled by members of the Gianopoulos family (the "Borrowers "). The Loan is evidenced by an agreement dated November 13, 2007 (the "Loan Agreement ") and four promissory notes (the "Promissory Notes "). Niko executed the Guaranty both on his own account and on behalf of Gus, as Gus' attorney-in-fact. See Guaranty (R31-65).
*601As support for the Guaranty, Niko submitted an affidavit to Round Table dated November 7, 2007 (the "Niko Affidavit "), in which he represented that pursuant to a Durable General Power of Attorney dated April 12, 2006 (the "Power of Attorney "), a copy of which he provided to Round Table, Gus designated Niko as his attorney-in-fact, and that the Power of Attorney had not been revoked or repudiated, and was still in full force and effect. See Affidavit That Power of Attorney Is In Full Force (R29), ¶¶ 1, 2;
Niko, as attorney in fact for Gus pursuant to the certain power of attorney dated April 12, 2006, has all requisite power and authority to execute the Loan Documents and this Guaranty on behalf of Gus.
Guaranty, ¶ (C)(3)(d)(iv). Finally, in the Niko Affidavit, Niko stated, as follows:
I make this affidavit for the purpose of inducing [Round Table] to make the loan set forth in that certain Loan Agreement dated as of November 13, 2007 to accept delivery of the following Instrument(s), as executed by me in my capacity as the ATTORNEY-IN-FACT, with full knowledge that this affidavit will be relied upon in accepting the execution and delivery of the Instrument(s) and in paying good and valuable consideration therefor.
Niko Affidavit, ¶ 3. The Instruments referenced in the affidavit were the Loan Agreement and Promissory Notes underlying the Guaranty.
On September 13, 2010, Niko filed his voluntary chapter 7 petition herein. In amended Schedule F to his petition, Niko listed Round Table as a creditor holding an unsecured debt (the "Round Table Debt ") that arose in 2007 on account of a "Personal/Business Loan" in an "unknown" amount. [ECF No. 16]. Judge Peck fixed December 6, 2010 (the "Objection Deadline ") as the last day of the period (the "Objection Period ") in which creditors could file objections to Niko's bankruptcy discharge, and for filing complaints objecting to the dischargeability of debts of the sort designated in
*602The Borrowers defaulted under the Loan Agreement. In 2014, Round Table filed multiple actions against Gus in the State Court seeking to enforce the Guaranty. In support of his motions to dismiss those actions, Gus submitted substantially identical affidavits in which he denied any knowledge of the Guaranty, and asserted that he did not "ever give [his] consent to anyone to sign the ... Guaranty on [his] behalf." See, e.g. , Affidavit of Constantine Gianopoulos, sworn to July 21, 2014 (R76-84), ¶ 6. Moreover, after noting that "[his] signature does not appear anywhere on the ... Guaranty," he contended that "Round Table has not provided any evidence whatsoever to show that [he] authorized [Niko] ... to sign the ... Guaranty on [his] behalf."
On July 13, 2016, nearly two years after learning that Gus denied that Niko was authorized to execute the Guaranty on his behalf, Round Table commenced the State Court Action against Niko. See Complaint, dated July 13, 2016 (R158-168) (the "Complaint ") ¶ 1. The gravamen of the Complaint is that if what Gus says in his affidavits is true, "then Niko fraudulently swore to and signed false instruments in order to induce Round Table to loan almost $3.5 million without any plan or intention for Round Table to be paid back."
Niko did not answer or otherwise respond to the Complaint. Accordingly, on September 9, 2016, Round Table moved for the entry of an Order and Judgment pursuant to Rule 3215 of the New York Civil Practice Law and Rules (the "CPLR" ) directing entry of a default judgment against Niko for all the relief requested by Round Table in the Complaint. See Notice of Motion for Default Judgment (R1-139). In response thereto, Niko filed (i) a cross-motion to vacate the default, and (ii) a motion to dismiss the Complaint (the "Motion to Dismiss ")
*603(R140-244). Round Table opposed both motions. The State Court vacated the default, but denied the Motion to Dismiss. Only the latter is germane to the matter before the Court.
Niko sought to dismiss the Complaint pursuant to CPLR 3211(a)(2), (5) and (7), on the grounds that the State Court lacked subject matter jurisdiction over the State Court Action, the action was barred by the Discharge Order, and the Complaint failed to state a claim for relief against him, respectively. Niko argued that by application of §§ 523(a)(2) and 523(c) of the Bankruptcy Code, fraud claims like the one asserted in the State Court Action, are discharged in a bankruptcy case, unless the bankruptcy court (and only the bankruptcy court) determines otherwise pursuant to a timely filed objection (here, prior to the Objection Deadline) to the dischargeability of that claim. He contended that since there is not dispute that Round Table had notice of the Objection Deadline, and that it did not object to the dischargeability of the Round Table Debt, it follows that the Round Table Debt (including any liability based on fraud) was discharged pursuant to the Discharge Order. Moreover, he asserted that, in any event, the State Court lacked subject matter jurisdiction to determine whether that debt was procured by fraud, because the bankruptcy court has the exclusive jurisdiction to make that determination. In opposing Niko's motion, Round Table contended that under state law, it has two claims against Niko associated with the Guaranty. One is a contract claim to enforce the Guaranty (the "Contract Claim "). The other is the fraud claim (the "Fraud Claim ") which is based upon Niko's alleged misrepresentations "outside the four corners of the loan documents," that allegedly induced Round Table to make the Loan. In focusing on whether the Fraud Claim had been discharged in Niko's chapter 7 case, Round Table contended that the Discharge Order did not extend to that claim because, as alleged in the Complaint, Round Table was unaware of the Fraud Claim, and could not have discovered it until 2014. Round Table maintained that to find otherwise, would deny it its rights to due process. Round Table also contended that because the Fraud Claim was not impacted by the bankruptcy case, the State Court had jurisdiction to adjudicate the merits of that claim. On June 8, 2017, the State Court heard argument on the Motion to Dismiss. See Transcript of June 8, 2017 hearing (R427-464) ("Transcript "). At the close of the argument, and by order of that date (the "June 8 Order "), the State Court denied Niko's motion to dismiss the State Court Action, and directed Niko to answer the Complaint. See June 8 Order (R424).
On July 7, 2017, Niko filed his answer to the Complaint. See Schriever Decl. Ex. 5. In the answer, he denies that he defrauded Round Table (id. at ¶¶ 27, 36) and asserts, as a Second Affirmative Defense, that the claim being sued on has been discharged in bankruptcy.
Discussion
Bankruptcy Rule 5010 provides that "[a] case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code." Fed. R. Bankr. P. 5010. In turn, § 350(b) states that "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S. C. § 350(b). The Bankruptcy Code does not define "cause" under this section. State Bank of India v. Chalasani (In re Chalasani),
Pursuant to § 727(b) of the Bankruptcy Code, a debtor is discharged from all of its debts that arose prior to the order for relief, "except as provided in § 523."
*605Fed. R. Bankr.P. 4007(c) ; see also Massa v. Addona (In re Massa) ,
Section 523(a)(3)(B) states a limited exception in the application of §§ 523(a)(2), (4) and (6). In substance, it provides that if the debtor fails to schedule a debt in time for the creditor to seek a determination of dischargeability under §§ 523(a)(2), (4) or (6), and the debt is of the kind specified in any of those sections, the debt is nondischargeable. See
*606see also In re Bachman ,
Round Table does not deny that the Contract Claim was discharged by the Discharge Order, and Niko does not challenge Round Table's assertion that the Fraud Claim is distinct from the Contract Claim.
Niko maintains that because Round Table is asserting that it did not have "notice" of the Fraud Claim, to obtain relief under § 523(a)(3)(B), it must prove both that it did not have notice of the claim, and that it could not have discovered that claim within the Objection Period. Gelberg Reply Aff. ¶ 19; see also id. at ¶ 16 (Round Table "fails to provide any evidence as to why it could not have detected the alleged fraud."). To that extent, he is correct because it is settled that "[a] creditor invoking section 523(a)(3) must ... plead and prove both that its debt was not listed in time to timely file a complaint and that its debt comes within paragraphs (2), (4) or (6) of section 523(a)." In re Malandra ,
Under Mullane v. Central Hanover Bank & Trust Co., due process is satisfied by "notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections."
Although the reopening of a case is generally a "ministerial act," see In re Menk,
*609discharge." State v. Wilkes ,
Conclusion
Based upon the foregoing, the Court finds that the Debtor has not established grounds for reopening his chapter 7 case. Accordingly, the Motion is DENIED. The parties are directed to submit an order consistent with the foregoing.
Upon Judge Peck's retirement from the bench, this case was reassigned to Judge Garrity.
Niko submitted the following documents in support of the Motion: (i) Notice of Motion Pursuant to 11 U.S.C. section 350(b) To Reopen Case To Sanction Round Table Partners 1 LP And Their Attorneys Cuddy & Feder LLP For Violating The Debtor's Discharge & Affirmation of Stuart P. Gelberg In Support [ECF No. 28] ("Gelberg Aff ."); and (ii) Reply Affirmation In Further Support of Motion to Reopen Case, To Sanction Round Table Partners 1 LP and Their Attorneys Cuddy & Feder LLP For Violating The Debtor's Discharge [ECF No. 34] (the "Gelberg Reply Aff." ).
Round Table submitted the following documents in opposition to the Motion: (i) Memorandum of Law In Opposition to Debtor's Motion Pursuant to 11 U.S.C. Section 350(b) To Reopen Case and For Sanctions [ECF No. 33]; and (ii) Declaration of Andrew Schriever In Opposition to Debtor's Motion Pursuant to 11 U.S.C. Section 350(b) To Reopen Case and for Sanctions [ECF No. 33] ("Schriever Decl .").
Except as otherwise indicated, the facts are not in dispute.
Round Table's counsel submitted most of the documents discussed and cited herein in support of Round Table's opposition to the Motion. See Schriever Decl, Exs. 1-9. Exhibit 1 to that declaration contains a copy of the record of certain of the proceedings in the State Court Acton discussed herein, including copies of pleadings filed therein by Niko and Round Table, and transcripts of State Court hearings. Citations to the documents annexed in Exhibit 1 will be to "[Document] R _-_." When necessary, the citation will include references to pages, sections or paragraphs in the particular document.
In that affidavit, Niko represented, as follows:
1. [Gus] did, in writing, appoint me as [his] true and lawful ATTORNEY-IN-FACT in the within Power of Attorney.
2. I have no actual knowledge or actual notice of revocation or termination of the Power of Attorney by death or otherwise, or knowledge of any facts indicating the same. I further represent that [Gus] is alive, has not revoked or repudiated the Power of Attorney and the Power of Attorney still is in full force and effect.
Niko Affidavit ¶¶ 1, 2.
As relevant, the June 8 Order states, as follows:
After oral argument and for the reasons stated on the record[,] the motion to dismiss for lack of subject matter jurisdiction is denied. The remainder of the motion to dismiss is denied.
[Defendant] to file and serve an answer within 30 days ...
June 8 Order. In issuing that order, and in part, the State Court stated, as follows:
With regard to the motion to dismiss ... I do think that there is a distinction between Niko acting on his own behalf, a guarantee that he did list in his bankruptcy proceeding, and Niko acted on behalf of another. So, in essence, he was two people: One of them, a good actor, one of them, a bad actor.... And so, under all these circumstances and the way the complaint is phrased, if the Court were to take as true that Niko knew at the time that he wore the hat as having the power of attorney, that he did not have the power of attorney, that he gave this assurance that the power of attorney was in effect and permitted him to do what he was doing on behalf of Gus, that that would be stating a fraud claim, and that is not protected under [section 523(a).] .... So, under those circumstances, I am going to allow the action to continue, give you an opportunity to file an answer to the complaint. And, clearly, the issue to be decided is whether or not Niko knew that he did not have the authority to enter into the guarantee on behalf of Gus. And because that is a central issue, it must be joined with the action as against Gus ...
Transcript. at 32:16-33:17.
Section 523(c)(1) states, as follows:
Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
(c) Time for Filing Complaint Under § 523(c) in a Chapter 7 Liquidation, Chapter 11 Reorganization, Chapter 12 Family Farmer's Debt Adjustment Case, or Chapter 13 Individual's Debt Adjustment Case; Notice of Time Fixed.... [A] complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a). The court shall give all creditors no less than 30 days' notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
Fed. R. Bankr. P. 4007(c).
Section 523(a)(3)(B) states, in relevant part, that a discharge under section 727 of the Bankruptcy Code does not discharge an individual debtor from any debt-
(3) neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit-
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request[.]
In appropriate circumstances, misrepresentations outside the four corners of a loan document can give rise to a cause of action for fraud that is independent of any remedy under the loan document. See TIAA Global Invs. LLC v. One Astoria Sq. LLC ,
The Bowen court noted the type of evidence that the creditor would have to adduce to demonstrate that its right to due process was violated, as follows:
To support a request for such extraordinary relief, it was incumbent on [the creditor] to produce some evidence (ideally in the form of an admission by [the debtor], or the statement of another witness with actual knowledge) that [the debtor] knew of the basis for [the creditor's] claims before confirmation of his plan, and before [the creditor] uncovered that basis; that he then concealed them from [the creditor] and its assignee; and that he deliberately failed to specify the claims in his bankruptcy schedules.
Reference
- Full Case Name
- IN RE: Nikolas GIANOPOLOUS, Debtor.
- Cited By
- 3 cases
- Status
- Published