In re Perry

423 B.R. 215

In re Will Clay PERRY, Debtor David Wallace, Costa Bajjali, Jacquelyn Marie Wallace 1996 Sub-S Trust and Whitney Leigh Wallace 1996 Sub-S Trust, Plaintiffs, v. Will Clay Perry, Defendant.

Bankruptcy No. 08-32362-H4-11.

Adversary No. 08-03299.

United States Bankruptcy Court, S.D. Texas, Houston Division.

February 3, 2010.

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Johnie J. Patterson, Walker & Patterson, P.C., Houston, TX, for Plaintiffs.

John Wesley Wauson, Matthew Brian Probus, Wauson Probus, Sugar Land, TX, for Defendant.

MEMORANDUM OPINION RELATING TO COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT

[Adv. Docket No. 1]

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

This Memorandum Opinion relates to a lengthy, multi-day trial over a dischargeability complaint involving numerous state law issues. These issues include, but are not limited to, breach of contract and state law defamation claims. The Court makes the following findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052.¹ To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties.

II. BRIEF PROCEDURAL BACKGROUND

On August 20, 2008, the plaintiffs filed their Complaint to Determine Dischargeability of Debt. [Adv. Docket No. 1.] The plaintiffs brought this suit under § 523(a)(2), (4), & (6). However, in an order issued by this Court on March 17, 2009, sanctioning the plaintiffs for discovery abuse, this Court struck all causes of action concerning dischargeability brought under §§ 523(a)(2) & (a)(4); hence, the only manner in which the plaintiffs could obtain a judgment of nondischargeability in this adversary proceeding would be to successfully prove the elements of § 523(a)(6). [Adv. Docket No. 37.] The trial in this suit was therefore whether the defendant (who is the debtor in the main case) owes debts to the plaintiffs based upon breach of contract (failure to abide by a nondisparagement clause and failure to indemnify), defamation, breach of fiduciary duty, and fraud, and whether such debts are non-dischargeable because they arose due to the debtor's willful and malicious injury of the plaintiffs.²

The trial in this case lasted twelve days. Specifically, trial was held on the following days in 2009: June 1, June 2, June 3, June 4, June 5, June 19, June 23, June 24, June 25, July 14, July 20, and July 24.

III. FINDINGS OF FACT

A. General Background

1. On or about October 22, 2004, Will Clay Perry (Perry or the Debtor) and Costa Bajjali (Bajjali) became partners in W.C. Perry Properties, LP (Perry Properties or the Partnership). [Adv. Docket No. 87, p. 13, ¶ V. — A.]

2. In January of 2005, the Jacquelyn Marie Wallace 1996 Sub-S Trust and the Whitney Leigh Wallace 1996 Sub-S Trust (collectively, the Wallace Trusts) also became partners in Perry Properties. Jacquelyn Marie Wallace and Whitney Leigh Wallace are the daughters of David Wallace (Wallace), one of the plaintiffs in this adversary proceeding number 08-03299 (the Adversary Proceeding). Each trust held a one-sixth (1/6) partnership interest in Perry Properties. Thus, collectively, the Wallace Trusts held a one-third 1/3 partnership interest in Perry Properties, as evidenced by the January, 2005 partnership agreement (the Partnership Agreement). [Adv. Docket No. 87, p. 13, ¶ V. — B.] Wallace himself was never a partner in Perry Properties, either before or after the Wallace Trusts became partners. [Pls.' Ex. Nos. 2 & 3.]

3. While they were partners, Perry and Bajjali entered into two agreements regarding a certain tract of real estate known as the Imperial property (the Imperial Property).³ As part of the Imperial Property transaction (the Imperial Property Transaction), Perry signed and executed a $50,000.00 note payable to Bajjali. [Adv. Docket No. 87, p. 13, ¶ V. — D.]

4. Effective on November 15, 2006, Perry purchased all of the partnership interests in Perry Properties owned by Bajjali and the Wallace Trusts, the details of which are set forth in a signed purchase agreement (the Purchase Agreement). [Adv. Docket No. 87, p. 13, ¶ V. — C] The Purchase Agreement defines Bajjali and the Wallace Trusts as "Sellers." [Pls.' Ex. No. 4, p. 1, ¶ 5, pp. 8-10.] When he testified at trial, Wallace admitted that the Purchase Agreement did not involve him as a partner. [June 23, 2009 Tr. 109:17-19.] Moreover, Wallace admitted that when he filed his proof of claim, he did not have a guaranty from Perry. [June 23, 2009 Tr. 123:3-13.]

5. Effective on November 14, 2006, Perry, in his capacity as manager of W.C. Perry Real Estate Group, L.L.C. (the Perry Group), executed the Agreement Regarding Origination Fees (the Origination Agreement), relating to the Imperial Property Transaction. [Adv. Docket No. 87, p. 13, ¶ V. — E.] Perry, in his individual capacity, guaranteed payment and performance as part of the Origination Agreement. [Adv. Docket No. 87, p. 13, ¶ V. — G.]

6. Perry filed a Chapter 11 petition on April 11, 2008. [Docket No. 1.] At that time, Wallace and Bajjali had pending causes of action in state court against Perry for defamation and breach of contract, styled: W.C. Perry Properties, LP, et al. v. R.D. Tanner, et al., Cause No. 07-CV-154130, in the District Court of Fort Bend County, Texas, 400th Judicial District. [Adv. Docket No. 87, p. 13, ¶ V. — H.]

B. Perry's Background and Contacts with Certain Individuals

7. Perry obtained a B.B.A. degree in business management operations and a M.B.A. in business finance from Loyola University in Chicago, Illinois. [June 1, 2009 Tr. 30:12-23.] Perry received his MBA in 1997. [June 1, 2009 Tr. 30:22-25.] Additionally, Perry has been a licensed real estate broker since the autumn of 2001. [June 1, 2009 Tr. 31:9-15.] He is a sophisticated businessman.

8. Perry has extensive experience in commercial real estate development. [June 1, 2009 Tr. 31:1-32:14.]

9. John Lunsford (Lunsford), an investor involved in radio media, met Perry, Wallace, and Bajjali while consulting for BizRadio—a Texas-based radio station specializing in business news and strategies—at an event in New York City. [June 3, 2009 Tr. 10:15-11:14.]

10. Around 2005 or 2006, Daniel Frishberg (Frishberg), a former business associate of Perry, invested substantial amounts of his clients' money with Perry Properties. [June 3, 2009 Tr. 34:9-35:20.] Frishberg, a BizRadio talk show host, is a manager of assets for individuals and institutions valued collectively at approximately $1.5 billion. Out of that amount, approximately $200 million are available to invest at Frishberg's discretion. [June 3, 2009 Tr. 33:9-17.]

11. Within Perry Properties, Perry was responsible for brokerage activities, Bajjali was responsible for the real estate development activities, and Wallace was responsible for both finance and private equity activities. [June 4, 2009 Tr. 166:22-167:2.]

12. Sylvia Hoffman (Hoffman) served as Perry's administrative assistant from February of 2006 until 2008. [June 1, 2009 Tr. 100:21-23; 102:5-6.] Based upon certain testimony adduced, and certain exhibits introduced, at trial, this Court also finds that Hoffman was Perry's confidant during her tenure as his administrative assistant.

C. Wallace's Background and Contacts with Certain Individuals

13. Wallace has developed real estate and invested in private equity ventures for a number of years. [June 4, 2009 Tr. 161:17-20.] Indeed, with an extensive background in real estate development, Wallace has held numerous positions in investment banking companies that operate in real estate development. [June 5, 2009 Tr. 80:12-99:5.] Moreover, Wallace has dealt in the purchase and sale of troubled businesses. [June 5, 2009 Tr. 11:22-12:18.] He is a sophisticated businessman.

14. Mark Thatcher (Thatcher), the son of Margaret Thatcher, the former Prime Minister of England, had a business relationship with Wallace. Their business consisted of operating investment banks buying troubled assets, buying troubled companies, and buying bankrupt companies. As early as 2002, stories circulated that Wallace and Thatcher participated in arms sales. Wallace convincingly testified, however, that he was never aware of any arms dealings by Thatcher nor was he himself involved in arms dealings. [June 4, 2009 Tr. 181:22-182:11; June 5, 2009 Tr. 5:24-6:3; June 19, 2009 Tr. 20:21-21:17.]

15. Contrary to statements made about him, Wallace also convincingly testified that he was never involved in a plot to overthrow the government of Equatorial Guinea. [June 5, 2009 Tr. 6:4-9.] This Court finds that not only were the statements published by Perry about Wallace involving himself in a plot to overthrow the government of Equatorial Guinea false, but all of the defamatory allegations made or published by Perry against Wallace were false.

16. Wallace met Bajjali through Perry. [June 4, 2009 Tr. 164:22-25.]

17. Wallace's political career began in May of 2001 when he was elected to the City Council of the City of Sugar Land, Texas. He then decided to run for Mayor of the City of Sugar Land against the incumbent mayor, Dean Hrbacek. Wallace subsequently received threats to himself, his family, and his business as a result of his candidacy. Despite the threats, Wallace was elected and served as mayor from 2002 to 2008. [June 4, 2009 Tr. 163:11-16; June 19, 2009 Tr. 14:21-...