30 Thompson Aw Holdings, LLC v. Kovacs (In re Kovacs)

In re: Zoltan Karoly Kovacs, Debtor.

30 Thompson AW Holdings, LLC and9 Minetta AW Holdings, LLC, Plaintiffs, v. Zoltan Karoly Kovacs, Defendant.

Case No.: 8-18-75875-las

Adv. Pro. No.: 8-19-08028-las

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

April 23, 2021

Chapter 7

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT

Plaintiffs 30 Thompson AW Holdings, LLC ("Thompson AW") and 9 Minetta AW Holdings, LLC ("Minetta AW") commenced this adversary proceeding against defendant Zoltan Karoly Kovacs, the debtor in this chapter 7 case, seeking a determination that debts owed by defendant to each of them are excepted from discharge under 11 U.S.C. § 523(a)(2) and (a)(4).¹ The debts arise out of two judgments entered in the Supreme Court of the State of New York, County of New York, one in favor of Thompson AW in the amount of $4,360,275 and the other in favor of Minetta AW in the amount of $1,090,225.² The thrust of plaintiffs' argument is that the debts at issue are nondischargeable under § 523(a)(2) by reason of (i) an allegedly false and misleading oral statement by defendant to plaintiffs, (ii) an allegedly falseand misleading personal financial statement and statement of net worth provided to plaintiffs by defendant, and (iii) an allegedly false and misleading loan application provided by Erin Wicomb ("Wicomb") and Joseph Ferrigno ("Ferrigno") to plaintiffs, all relating to a certain real estate investment made by plaintiffs.³ Additionally, plaintiffs assert that the debts were fraudulently incurred while defendant was acting as fiduciary to plaintiff, thus excepting the debts from discharge under § 523(a)(4). According to plaintiffs, the alleged falsity relates to (i) the joint liability of defendant and his brother, Peter Kovacs ("Peter"), to a third party in the amount of $1,250,000 to which they were not made aware of, and had plaintiffs been made aware of this joint liability they would not have invested $5,000,000 in the real estate transaction, and (ii) the source of funds used by Wicomb and Ferrigno in connection with the real estate transaction. Plaintiffs contend that defendant's misrepresentation of his and Peter's true financial condition as well as the source of funds used by Wicomb and Ferrigno renders the debts owed them, which exceed $6,600,000, nondischargeable. Understandably, defendant disagrees.

The Court has subject matter jurisdiction over this matter under 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York, dated August 28, 1986, as amended by Order dated December 5, 2012. A proceeding to determine the dischargeability of a debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I) that bankruptcy courts may hear and decide. 28 U.S.C. § 157(b)(1).

Now before the Court is defendant's motion to dismiss plaintiffs' amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief and, pursuant to Federal Rule of Civil Procedure 9(b), for failure to state with particularity the circumstances alleged by plaintiffs to constitute fraud.⁴ [dkt. no. 13.] Plaintiff opposed that motion [dkt. no. 17], and defendant replied. [dkt. no. 18.] The Court has carefully considered the arguments and submissions of the parties in connection with the motion to dismiss. For the following reasons, the Court grants defendant's motion and dismisses the amended complaint in its entirety.⁵

BACKGROUND

A. Facts⁶

Plaintiffs allege that in or about 2015, Adam Weis ("Weis"), plaintiffs' principal, was approached by defendant, Peter, Wicomb and Ferrigno about his making an investment in real property located at 30 Thompson Street, New York, and 9 Minetta Street, New York. Am. Compl. ¶ 18. To induce Weis to loan them funds to renovate the real property, defendant, Peter, Wicomb and Ferrigno provided Weis with financial information relating to the real property and Mavrix Equity Group ("Mavrix"). Id. ¶ 19.⁷

Plaintiffs allege that, on or about April 21, 2015, Zoltan provided "certain financial documents" to Weis, including a signed financial statement and a statement of net worth. Id. ¶ 20; Ex. A. The Amended Complain defines "certain financial documents" as the "Zoltan Financial Documents," but does not specify what these "certain financial documents" consist of, and only the financial statement and statement of net worth allegedly given by defendant to Weis are attached as an exhibit. Id. ¶ 20; Ex. A. The Amended Compliant does not specify whether defendant's financial statement and statement of net worth were given to Weis in his individual capacity or as a member of plaintiffs.

Plaintiffs further allege that, on or about April 22, 2015, to induce Weis to make the real estate investment, Wicomb and Ferrigno provided "additional documents" to Weis. Id. ¶21. These "additional documents" are defined as the "Mavrix Financial Documents" and are lumped together with the "Zoltan Financial Documents" under the defined term "Financial Documents." Id. ¶21. This allegation does not specify what documents were provided by Wicomb and Ferrigno other than a reference to a uniform residential loan application allegedly provided to plaintiffs by Mavrix and which is attached as Exhibit B. Id. ¶ 21. The uniform residential loan application, dated April 22, 2015, is signed by Wicomb and Ferrigno, as co-borrowers, and lists Mavrix as their employer and each of them as managing partner. Id. Ex. B. Mavrix is not listed as a borrower under the uniform residential loan application, nor did it sign the loan application. Id. Ex. B. As with the financial statements allegedly provided by defendant, the Amended Compliant does not specify whether the loan application was given to Weis in his individual capacity or as a member of plaintiffs.

Although the Amended Complaint does not say what, if anything, was requested by plaintiffs of defendant, plaintiffs assert that defendant, Peter, Wicomb and Ferrigno failed to provide true and correct copies of all documents establishing their combined financialwherewithal. Id. ¶ 22. Without specifying what, if anything, was said by defendant, plaintiffs further assert that defendant, Peter, Wicomb and Ferrigno "indicated" that Wicomb and Ferrigno used personal funds to invest in the real property. Id. ¶¶ 23-24. And again, without specifying what, if anything, was said by defendant, plaintiffs allege that defendant and Peter "indicated" that neither of them had any personal liability related to Mavrix or the real property. Id. ¶ 25.

As for the debt owed by defendant to Thompson AW, plaintiffs claim that on or about May 20, 2015, 30 Thompson LLC, an entity owned by defendant and Peter, executed a secured promissory note in the original principal amount of $4,000,000 in favor of Thompson AW ("30 Thompson Note"). Id. ¶ 33. The 30 Thompson Note is not attached as an exhibit to the Amended Complaint. Defendant and Peter signed a personal guarantee ("Thompson AW Guarantee") of the 30 Thompson Note and a separate confession of judgment in the amount of $4,360,000 ("Thompson AW Confession of Judgment"). Id. ¶ 34. The Amended Complaint does not tell us when defendant and his brother signed the Thompson AW Guarantee and the Thompson AW Confession of Judgment, nor are these documents attached as exhibits to the Amended Complaint. Additionally, the Amended Complaint does not tell us anything about the make-up of 30 Thompson LLC, other than a general factual allegation that it is an entity owned by defendant and Peter.

As for the debt owed by defendant to Minetta AW, plaintiffs claim that on or about May 6, 2015, Minetta Off 6^th LLC, an entity owned by defendant and Peter, executed a secured promissory note in the original principal amount of $1,000,000 in favor of Minetta AW ("Minetta Off 6^th Note"). Id. ¶ 39. The Minetta Off 6^th Note is not attached as an exhibit to the Amended Complaint. Defendant and Peter signed a personal guarantee ("Minetta AW Guarantee") of the Minetta Off 6th Note and a separate confession of judgment in the amount of $1,090.000 ("Minetta AW Confession of Judgment") Id. ¶ 40. The Amended Complaint doesnot say when the Minetta AW Guarantee and the Minetta AW Confession of Judgment were signed by defendant and his brother, and they are not attached as exhibits to the Amended Complaint. Additionally, the Amended Complaint does not say anything about the make-up of Minetta Off 6^th LLC, other than a general factual allegation that it is an entity owned by defendant and Peter.

The Amended Complaint states that the 30 Thompson Note matured on November 20, 2015, the Minetta Off 6th Note matured on November 6, 2015, and defendant did not perform under his guarantee of the respective notes. Id. ¶¶ 35-36; 41-42. Plaintiffs filed the Thompson AW Confession of Judgment and the Minetta AW Confession of Judgment with the Clerk of the Supreme Court of the State of New York, County of New York, and judgment was entered against defendant on February 23, 2016 in favor of Thompson AW in the amount of $4,360,275 ("Thompson AW Judgment") and on June 1, 2016 in favor of Minetta AW in the amount of $1,090,225 ("Minetta AW Judgment"). Id. ¶¶ 37, 43. Plaintiffs filed a transcript of the Thompson AW Judgment and the Minetta AW Judgment with the Clerk of the Supreme Court of the State of New York State, County of Suffolk. Id. ¶¶ 38, 44. The Thompson AW Judgment and the Minetta AW Judgment are not attached as exhibits to the Amended Complaint.

After defendant defaulted under his personal guarantee of the respective notes, Weis "discovered" that defendant, Peter, Wicomb, Ferrigno and Mavrix had signed a promissory note in the amount of $1,250,000 ("Mavrix Note") in favor of John Delillo ("Delillo"). Id. ¶ 26. Weis claims to have discovered the Mavrix Note from an action titled Delillo v. Kovacs et al. (Index Number 650265/2017), commenced...