Carver Fed. Sav. Bank v. Cedillo (In re Cedillo), Case No. 13–42445–ess

573 B.R. 405

IN RE: Cesar CEDILLO, Debtor.

Carver Federal Savings Bank, Plaintiff,

v.Cesar Cedillo, Defendant.

Case No. 13–42445–ess

Adv. Pro. No. 15–01001–ess

United States Bankruptcy Court, E.D. New York.

Signed September 11, 2017

Frank C. Dell'Amore, Esq., Jaspan Schlesinger LLP, 300 Garden City Plaza, Garden City, NY 11530, Attorneys for Carver Federal Savings Bank

Norma E. Ortiz, Esq., Ortiz & Ortiz LLP, 32–72 Steinway Street (Suite 402), Astoria, NY 11103, Attorneys for Cesar Cedillo

MEMORANDUM DECISION ON CARVER FEDERAL SAVINGS BANK'S MOTION FOR PARTIAL SUMMARY JUDGMENT

HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

Before the Court is the motion of Carver Federal Savings Bank ("Carver") for partial summary judgment on three claims asserted in the Complaint dated January 1, 2015 (the "Summary Judgment Motion"), on grounds that there is no genuine dispute as to a material fact as to each element of these claims and that as a result, Carver is entitled to the entry of judgment as a matter of law. Carver moves for summary judgment on its claim that a debt owed to it by Cesar Cedillo, the debtor in this Chapter 7 case, is nondischargeable pursuant to Bankruptcy Code Section 523(a)(2)(B) because the debt arises from Mr. Cedillo's submission of a materially false personal financial statement (the "PFS"), a writing concerning his ownership interests in several corporations and which Carver relied on when it made several loans to corporations controlled by him.

Alternatively, Carver moves for summary judgment on its claim against Mr. Cedillo arising under Bankruptcy Code Section 727(a)(2), to deny Mr. Cedillo a discharge in his Chapter 7 bankruptcy case, on grounds that Mr. Cedillo transferred all of his right, title, and interest in assets of a hardware store owned by him, within one year of the petition date, and with the intent to hinder, delay, or defraud creditors of his estate, including Carver. And Carver moves for summary judgment on its claim against Mr. Cedillo arising under Bankruptcy Code 727(a)(4)(A), to deny Mr. Cedillo a discharge here, on grounds that Mr. Cedillo, knowingly and fraudulently, in connection with his bankruptcy case, made false oaths and accounts.

Mr. Cedillo opposes Carver's Summary Judgment Motion on grounds, among others, that he was forthcoming with respect to his financial condition in his PFS and in connection with this bankruptcy case. He also argues that any errors and omissions in his Schedules and Statements were inadvertent and unintentional and do not provide a basis for the harsh remedy of denial of his bankruptcy discharge. And at a minimum, Mr. Cedillo argues, Carver has not shown that there is no genuine dispute as to a material fact as to whether he acted with the intent to deceive or defraud his creditors, or that he knowingly and fraudulently made a false statement in this bankruptcy case.

Jurisdiction

This Court has jurisdiction over this adversary proceeding pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012, of the United States District Court for the Eastern District of New York. In addition, this Court may adjudicate these claims to final judgment to the extent that they are core proceedings pursuant to Judiciary Code Section 157(b), and to the extent that they are not core proceedings, pursuant to Judiciary Code Section 157(c) because the parties have stated their consent to this Court entering a final judgment. See Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1940, 191 L.Ed.2d 911 (2015) (holding that in a non-core proceeding, a bankruptcy court may enter final orders "with the consent of all the parties to the proceeding.").

Background

Mr. Cedillo's Chapter 7 Bankruptcy Case

The Petition

On April 24, 2013 (the "Petition Date"), Cesar Cedillo filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code. That same day, Alan Nisselson was appointed as the Chapter 7 Trustee.

The Schedules and Statements

On May 8, 2013, Mr. Cedillo, under the penalty of perjury, filed Schedules and Statements in connection with his bankruptcy case.¹

Mr. Cedillo does not list any real property on his Schedule A—Real Property. He lists personal property totaling $13,853 on his Schedule B—Personal Property. Specifically, in response to Question 13, Mr. Cedillo lists a five percent ownership interest in "Katy & Tania" valued at $1.00, and in response to Question 18, he lists a 2012 tax refund valued at $4,000. In response to Question 21, "other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims," Mr. Cedillo lists two items of personal property. These are an action by him against Web Holdings, LLC ("Web Holdings") pending in the New York Supreme Court, Kings County, valued at $1.00; and a note from NY Electric Supplies LLC ("NY Electric") dated October 1, 2012, for $50,000, for the sale of inventory and fixtures from Kevin & Richard Hardware Corp. ("K & R Hardware"), also valued at $1.00. Case No. 13–42445, Schedule B, ECF No. 12, at 3. And Mr. Cedillo lists his interest in "machinery, fixtures, equipment, and supplies used in business" in the aggregate amount of $7,500. Id.

On August 6, 2013, Mr. Cedillo filed an amended Schedule B. His amended Schedule B omits descriptions of his personal property that were included in his initial Schedule B filed on May 8, 2013.

On his Schedule E—Creditors Holding Unsecured Priority Claims, Mr. Cedillo lists one creditor, the New York State Department of Taxation & Finance ("New York State"), as holding an unsecured priority claim in the aggregate amount of $150,000. On his Schedule F, he lists several creditors holding unsecured, nonpriority claims, including a judgment in favor of Carver in the amount of $166,447.29, and an unsecured, nonpriority claim held by Web Holdings in an unknown amount.

Mr. Cedillo does not list any co-debtors on his Schedule H—Codebtors. On his Schedule I—Current Income of Individual Debtor, he states that he was employed as a plumber for one week, but does not provide his exact dates of employment. He also states that he received other monthly income in the amount of $600, and lists his combined average monthly income as $2,600. He does not identify any contributors. Mr. Cedillo lists expenses totaling $2,580 on his Schedule J—Current Expenditures of Individual Debtor, and these expenses include food, clothing, taxes, "payment to roommate for Rent, Utilities, Phone and Food," "Personal Care and Grooming," and "Vehicle Fuel and Maintenance." Case No. 13–42445, Schedule J at 1–2.

Mr. Cedillo also filed a Statement of Financial Affairs. In response to Question 18, he identifies four businesses in which he had an interest within six years preceding the Petition Date. These are Kathy & Tania Inc. ("Kathy & Tania"), 654 Myrtle Ave. Corp. ("654 Myrtle"), 1111 Willoughby Ave. Realty Corp. ("1111 Willoughby"), and Troutman Realty Corp. ("Troutman"). In response to Question 10, Mr. Cedillo lists the transfer of a hardware store to NY Electric. In response to Question 19, Mr. Cedillo identifies Humbert Suremott as having kept his books of accounts and records within the two years preceding his filing for bankruptcy.

On August 6, 2013, Mr. Cedillo filed an amended Statement of Financial Affairs. He amended his response to Question 18, concerning businesses in which he had an interest within six years preceding the Petition Date, to include an interest in Kevin & Richard Plumbing & Heating Serv., and also updated the status or disposition of the suits and administrative proceedings in which he is or was a party within one year preceding the Petition Date to include Carver's state court action against him. Mr. Cedillo also updated his description of Web Holdings, LLC v. Steal Corp., et al. , Index No. 41979–2007, from "unknown," to "judgment." Case No. 13–42445, Stmt. of Fin. Affairs at 2; Am. Stmt. of Fin. Affairs at 2.

The Proofs of Claim

The deadline for filing proofs of claim in Mr. Cedillo's bankruptcy case was June 20, 2014, and three creditors filed timely claims. On July 19, 2013, Carver, the plaintiff in this action, filed a timely proof of claim in the unsecured amount of $408,030.66. Carver alleges that its proof of claim arises from three separate deficiency judgments entered by the New York Supreme Court, Kings County, with respect to three separate defaults under three separate notes and mortgages on three separate pieces of real property each personally guaranteed by Mr. Cedillo. Just over one month later, on August 21, 2013, Web Holdings filed a timely proof of claim in the secured amount of $506,665.21. New York State's proof of claim followed, and on April 17, 2014, it filed a timely proof of claim in the amount of $63,762.32, $51,898.70 of which is a priority claim.

The last day to object to Mr. Cedillo's discharge was August 5, 2013. From time to time, Mr. Cedillo and Carver, among others, agreed by stipulation to extend the time to object to Mr. Cedillo's discharge, and on November 12, 2014, the Court entered a Stipulation and Order, extending the time of Carver, among others, to object to Mr. Cedillo's discharge until January 16, 2015.

The Rule 2004 Examination and Section 341 Meeting of Creditors

On November 14, 2013, the Court entered an Order pursuant to Bankruptcy Rule 2004, directing Mr. Cedillo to produce documents and appear for an examination pertaining to his bankruptcy case. Pursuant to that Order, on September 10, 2014, counsel for Carver and counsel for Web Holdings examined Mr. Cedillo.² And as described below, Carver alleges that Mr. Cedillo's Rule 2004 Examination and Section 341 meeting of creditors (the "Section 341 Meeting") brought to light several inconsistencies in his bankruptcy filings.

This Adversary Proceeding

On January 2,...