In re Kavlakian

In re SARKIS KAVLAKIAN, Debtor

Case No. 06-11280-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

Dated: June 3, 2013

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matters before the Court are the "Assented to Motion to Allow Counsel for Mohamad A. Mohamad Be Paid Fees and Expenses" (the "Assented to Motion"), and the "Administrative Application for Legal Fees for Stephen Gordon Counsel for Mohamad" (the "Application"). The Chapter 7 Trustee, Sarkis Kavlakian (the "Debtor"), both individually and in his capacity as Trustee of the 671 Main Street Realty Trust, as well as the beneficiaries of that Trust, objected to the Application filed by Stephen Gordon ("Attorney Gordon"). The Court heard the matters on March 20, 2013 and afforded the parties an opportunity to file supplemental briefs on the issues raised at the hearing.

The facts necessary to determine the matters can be discerned from the records of this Court, as well as published decisions from the Worcester Superior Court, Department of the Massachusetts Trial Court, and the Appeals Court. Unfortunately, neither counsel to Mohamad nor the Trustee provided the Court with a cogent synopsis of the lengthy andcomplex history of the dispute involving the Debtor, Mohamad, and Emanuel Landsman ("Landsman") to enable this Court to determine whether Attorney Gordon uncovered assets which were unknown to the Trustee. Accordingly, this Court has relied extensively upon the decisions of state courts to set forth the material facts. Those facts are not in dispute, however, and none of the parties requested an evidentiary hearing.

The Court now makes its findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7052.

II. BACKGROUND¹

On May 5, 2006, the Debtor filed a Chapter 7 petition.² The United States trustee appointed Stewart F. Grossman, Esq. the Chapter 7 Trustee. Early in the case, numerous adversary proceedings were commenced by and against the Trustee, the Debtor and a creditor, Mohamad A. Mohamad ("Mohamad"), who at all times has been represented by Attorney Gordon.³ A complaint filed by the Trustee resulted in the denial of the Debtor'sdischarge on March 29, 2007. On April 10, 2007, the Court issued a "Notice of Denial of Discharge."

Mohamad's status as a creditor of the Debtor preceded the filing of the Debtor's petition by several years. Mohamad obtained a default judgment against the Debtor in 2004. The Superior Court in Mohamad v. Landsman, No. 2003-01416-B, 2008 WL 4926166 (Mass. Super. Oct. 10, 2008), succinctly summarized the tortuous background of how Mohamad's debt arose and his efforts to collect his judgment:

On or about September 14, 1993, Contempt Defendant Emanuel E. Landsman ("Landsman") loaned Driveway Auto, Inc. ("Driveway Auto"), though [sic] its president and treasurer, Michael R. Forrest ("Forrest") the sum of $270,000.00 for the purchase of a parcel of commercial property and gas station located at 671 Main Street, Winchester, Massachusetts (the "Property"). . . .

On that same date Forrest executed a promissory note ("Forrest Note") in the principal amount of $270,000.00 to Landsman, secured by a mortgage on the Property. . . .

Pursuant to the terms of the Forrest Note, Forrest was to make monthly payments to Landsman at a rate of 8.75%, in the amount of $2,124.09. A finalballoon payment on the remaining principal and interest was due on September 14, 1996. Forrest did not comply with the terms of the Note . . . and ceased making any payments whatsoever to Landsman by 2002. . . .

Landsman was then approached by Defendant Sarkis Kavlakian ("Kavlakian") who offered to pay him $295,000.00 at a rate of 7.00%, pursuant to the terms of a promissory note ("Kavlakian Note") in exchange for Landsman's assigning him the Landsman Mortgage. Kavlakian sought to run the gas station on the Property by foreclosing on Forrest, based on Driveway Auto's default on the Forrest Note. . . .

On December 31, 2002, Kavlakian Executed the Kavlakian Note, an Assignment of Real Estate to Landsman and an Escrow Agreement. The Kavlakian Note called for the payment of $295,000.00 to be paid in monthly installments of $1,961.75 to Landsman beginning on May 1, 2003 with a final balloon payment due on May 1, 2006. The assignment to Kavlakian of the Landsman Mortgage was thereafter recorded . . .

The terms of the agreement between Landsman and Kavlakian were memorialized in a document entitled "Escrow Agreement." The escrow agent was Landsman's attorney, George Foote. In relevant part, the Escrow Agreement provided that in the event of a default by Kavlakian the escrow agent would be entitled immediately to record an "Assignment Back" of the mortgage to Landsman once again, as holder of the Landsman Mortgage. . . .

The default provision of the Kavlakian Note provided Kavlakian would be in default upon failure to pay in full "any installments within thirty (30) days from the date it becomes due or upon failure to perform any security agreement, or any guaranty given as security for this note." . . .

During the term of the Kavlakian Note, Kavlakian was more than 30 days late on his payments to Landsman on numerous occasions, and had otherwise defaulted on the terms of the Kavlakian Note and Escrow Agreement. . . .

Notwithstanding his questionable performance on the Kavlakian Note, Kavlakian negotiated an agreement with Plaintiff here, Mohamad, to lease Mohamad the Property subject to certain contingencies. In furtherance of the agreement, Mohamad paid Kavlakian $40,000.00 as a deposit. When the contingencies were not met, Mohamad demanded the return of the$40,000.00 deposit, which Kavlakian failed to return. . . .

On or about July 17, 2003 Mohamad filed a civil action in the Worcester Superior Court against Kavlakian, individually, and as Trustee of the 671 Main Street Realty Trust. Civil Action No. WOCV2003-01416 ("the Civil Complaint"), together with an Ex Parte Motion for Real Estate Attachment. The Motion for Real Estate Attachment was allowed (McCann, J.), on that same date in the amount of $40,000. Landsman, Forrest and Driveway Auto were not named parties to the Civil Complaint. . . .

Kavlakian failed to answer the Civil Complaint, and Mohamad then took steps to obtain a Default and Default Judgment. On or about March 16, 2004, Mohamad obtained a Judgment against Kavlakian individually, and 671 Main Street Realty Trust through Kavlakian as Trustee, for breach of contract and violations of G.L.c. 93A, for Kavlakian's failure to return the $40,000.00 deposit to Mohamad and failure to lease the Property to him. . . .

On March 16, 2004 this court (Agnes, J.), ordered that "[P]laintiff shall recover of the defendants double damages under G.L. 93A on $44,500.00 in the sum of $89,000.00, plus interest on $44,500.00 from 4/28/03 at the rate of 12% in the sum of $4,725.58, attorneys fees to be later determined by the Court and its costs of action as provided by law." Id. On May 7, 2004 an award entered for $4,290.00 in attorneys fees. . . .

On June 1, 2004, in an effort to satisfy the judgment(s), Mohamad filed an Ex Parte Motion to Reach and Apply Proceeds of a Mortgage Pursuant to the Court's Equitable Powers and Mass. R. Civ. P. 69. The Court (Billings, J.) entered an order that same day granting Plaintiff's Ex-Parte Motion to Reach and Apply ("the June 1, 2004 Order"). . . .

The June 1, 2004 Order ("Order") provided as follows: "Driveway Auto Inc is to make all payments due on the mortgage dated 9/14/93 and the note secured by the same to the Clerk of the Worcester Superior Court pending further Order of this Court." . . .

The purpose of the June 1, 2004 Order, and thus its design, was to reach and apply the assets of judgment debtor, Kavlakian. At the time of the June 1, 2004 Order, Kavlakian did not hold an interest in the Property, but he was entitled to the proceeds of the Landsman Mortgage. . . .

Landsman was not served with the June 1, 2004 Order, and was never madea party to the Civil Complaint. . . .

On or about June 8, 2004, Executions issued against Kavlakian individually and 671 Main Street Realty Trust in the amount of $101,247.55 including interest and costs. . . .

Landsman's counsel Mr. Foote saw a copy of the June 1, 2004 Order by June 29, 2004. He reviewed it and talked to Landsman about it. . . .

***

On June 29, 2004, Mr. Foote recorded the Assignment Back to Landsman of the 9/14/93 Mortgage . . .

***

In or around October 2004, Attorney Michael Feinman, as counsel for Driveway Auto and Forrest contacted Mr. Foote, to discuss the payoff of the Landsman Mortgage. . . .

The proposed purchase price for the Property was $500,000.00. The full claimed amounts on all of the liens totaled approximately $690,000.00. . . .

Mr. Feinman requested Landsman accept $235,000.00 in satisfaction of the Landsman Mortgage, and thus the debt owed by Kavlakian on the Landsman Note, in lieu of the full amount of $328,694.36. Through Mr. Foote Landsman agreed. Landsman authorized Mr. Foote to compromise his lien amount on the Landsman Mortgage and to execute the discharge of the Landsman Mortgage. . . .

The sale of the Property closed on November 19, 2004 for a total sale price of $500,000.00. The escrow agent for the sale transferred the agreed-upon $235,000 to Mr. Foote from the proceeds. Landsman received a check dated November 24, 2004 in the amount of $235,000 from the sale proceeds, and deposited that amount to his personal funds. The discharge of the Landsman Mortgage was recorded on November 24, 2004. . . .

On or about November 16, 2004 Mohamad filed a Motion to Reach and Apply Proceeds of a Mortgage held by 671 Main Street Realty Trust on the land owned by Driveway Auto, Inc. The Motion was allowed by the court (Kern, J.) on November 29, 2004. . . .

Mr. Feinman did not discuss the June 1, 2004 Order with any party, or direct any portion of his clients' payoff to the Clerk of the Worcester Superior Court. . . .

Landsman had no role in the sale or establishment of

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