589 B.R. 36
IN RE: Konstantinos Ioannis KATSIROUMBAS, Debtor.
Frank H. Suits, Jr., Plaintiff,
v.
Konstantinos Ioannis Katsiroumbas, a/k/a Gus Kats, Defendant.
Case No. 16-31762
Adv. Proc. No. 17-50007
United States Bankruptcy Court, N.D. New York.
Signed August 1, 2018
Edward Crossmore, The Crossmore Law Office, 115 West Green Street, Ithaca, NY 14850, for Plaintiff
Zachary De Curtis McDonald, Orville & McDonald Law, PC, 30 Riverside Drive, Binghamton, NY 13905, for Defendant
Memorandum-Decision and Order
Margaret Cangilos-Ruiz, United States Bankruptcy Judge
Konstantinos Ioannis Katsiroumbas ("Debtor") filed a chapter 7 bankruptcy case on December 28, 2016. Frank H. Suits, Jr. ("Plaintiff") holds two money judgments against Debtor, totaling $407,775.23. Plaintiff alleges that (i) Debtor's list of assets on his schedules A and B are false; (ii) Debtor has failed to keep sufficient records from which his financial condition can be determined; (iii) Debtor has failed to satisfactorily explain the loss, disappearance or disposition of assets and (iv) Debtor has knowingly and fraudulently in connection with this case made one or more false oaths. Plaintiff seeks an order denying Debtor a discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), (a)(3), (a)(4)(A), and (a)(5).1 On March 20, 2018, the court held a trial, the parties filed post-trial briefs and the matter is now before the court for decision.2 For the reasons that
follow, the court finds that Debtor is not eligible for discharge.
Jurisdiction
The court has jurisdiction to hear and decide this core proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), (b)(1), and (b)(2)(J). This memorandum-decision and order incorporates the court's findings of fact and conclusions of law as permitted by Fed. R. Bankr. P. 7052.
Background
In 2006, Debtor sold his successful business, A-1 Restaurant, a pizzeria in Dryden, New York for $1.5 million dollars. The proceeds were payable pursuant to two contracts: (i) $850,000 due at the time of purchase, as reflected in a standard purchase and sale contract written in English and in the New York State real-estate transfer forms and (ii) $650,000 payable in 84 monthly installments at 6% interest, as memorialized in a private agreement in Greek, executed in Greece ("Note").3 The Note was secured by a mortgage on property located in Greece. The parties dispute whether (i) any pending or recent payments on the Note were properly disclosed on Debtor's schedules, (ii) Debtor satisfactorily explained the receipt and disposition of recent payments on the Note, and (iii) Debtor knowingly and fraudulently misrepresented payments on the Note.
After Debtor closed on the A-1 Restaurant sale, he entered into other restaurant business ventures. Plaintiff's claim arises from one of Debtor's subsequent business ventures. At the time Debtor filed bankruptcy, these businesses were either closed or no longer affiliated with Debtor. In May of 2016, Debtor helped to open and operate Bravo, a pizzeria owned by his uncle, Peter Constantine. The parties dispute the nature of Debtor's work there at the time of his bankruptcy filing, specifically whether he had an ownership interest in the restaurant and whether he received compensation for his work which is not reflected in his bankruptcy schedules. It is undisputed that a large portion of Bravo's transactions are in cash, and that the restaurant's process for handling and tracking cash payments is not rigorous.4 Seven months after
Debtor filed for bankruptcy, he acquired sole legal ownership of Bravo.
Evidence and Testimony Relied upon by Plaintiff
Plaintiff offers documentary evidence to support his main argument that Debtor (i) was owed money on the Note at the time of the filing, (ii) failed to disclose or concealed that account receivable on his schedules, and (iii) cannot satisfactorily account for payments received on the Note. Documents from the sale of the A-1 Restaurant, including New York State real estate transfer forms, show that only $850,000 of the $1.5 million purchase price was paid upon transfer. Exs. 12, 13, 14. In the separate $650,000 Note, Debtor agreed to be paid the remainder in monthly installments, with interest through August 31, 2013. Exs. 15A and 16B. Plaintiff offers five transcripts of Debtor's depositions.5 Exs. 1, 2, 3, 4 and 5. In the first two depositions, taken in 2011 in connection with state court litigation, Debtor provided nonspecific, arguably evasive answers regarding the amount due under the Note, and failed to produce records to support his testimony. During the three latter depositions, taken in 2016 and 2017, Debtor unequivocally claimed that there was no longer an outstanding balance on the Note, and that both his right to payment and the lien securing the Note had been extinguished in 2013 in exchange for a final payment of $19,210. Exs. 3, 4 and 5. That testimony is consistent with the terms of the agreement which released Debtor's lien. Exs. 27C and 28D.
After establishing the existence of the Note and its terms of repayment, Plaintiff presented evidence regarding actual payments received on the Note. Debtor's tax returns from 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 indicate that Debtor received cumulatively $619,663 in installment payments on the Note.6 Exs. 19H, 20I, 21J, 22K, 23L, 24M, 25N and 26O. However, Debtor's records of specific payments, including Debtor's accountant's spreadsheet, Debtor's bank records and deposit slips from Debtor's attorney's escrow account, indicate that Debtor received $705,045 in installment payments on the Note.7 Exs. 17P, 18, R. Debtor offered no evidence to account for the $85,382 discrepancy between his payment records and his representations to the Internal Revenue Service. In addition, Debtor testified that he did not discount the Note, although he did not specifically state whether interest and fees were fully paid.
In support of his arguments that Debtor had undeclared income from Bravo at the time of his filing and an undeclared valuable ownership interest in Bravo, Plaintiff presents testimony and documents which illustrate Debtor's involvement with the restaurant. Plaintiff underscores Peter Constantine's pretrial testimony in which he was somewhat vague on Bravo's operational and organizational details, to suggest that he was an owner in name only. Ex. 6. In addition, Plaintiff offers testimony by Debtor and Mr. Constantine that the two men had a history of joint ventures,
suggesting that Bravo was a joint venture as well. Documentary evidence of Debtor's involvement with Bravo includes i) his authorization to sign checks on Bravo's bank account, ii) his signature on permit applications to the Tompkins County Health Department ("Health Department"), iii) his name on restaurant advertisements, and iv) his email address and name on Health Department reports and correspondence. Exs. 32, 33, 34, 35, 36, 37 and 38. In support of the further assertion that Debtor received compensation, Plaintiff offers deposition testimony by Debtor and Mr. Constantine which shows that i) Debtor regularly worked at Bravo, ii) Debtor regularly had access to cash from Bravo, and iii) Bravo's cash tracking records are limited. Exs. 4, 5 and 6. Plaintiff proposes that the court infer from this information that Debtor received cash compensation beyond the three $500 paychecks in 2016 which Debtor has disclosed.
Evidence and Testimony Relied Upon by Debtor
Debtor's arguments regarding the Note rest heavily upon his own statements, both in deposition testimony and before the court. He does not contest that under the Note he received substantial payments between 2006 and 2013, but he insists that payments ceased in 2013 and that he no longer has any of those funds. Debtor offers documentary evidence of payments received in June 2009, October 2008 and July 2013, in addition to a ledger covering the period from June 22, 2006 to May 1, 2009 which substantially conform to records entered into evidence by Plaintiff. Exs. E, F, G, Q and 17P. Debtor claims that these are all the documents he has, as he did not keep detailed records of the payments he received, and too much time has elapsed for him to reconstruct the records from memory. More importantly, Debtor claims that these payments are moot, as at the time of his bankruptcy filing, he had spent all of the proceeds of the Note.
Debtor's contentions regarding his role in Bravo Restaurant likewise rest upon his testimony. He claims that he helped to start the business, but did not receive compensation, apart from three paychecks at the beginning of the restaurant's operation. He claims that he performs many roles at the restaurant, but is not an owner. He offers both an account application submitted to Ginsberg's Institutional Foods, Inc. and testimony by Richard Vanderpool, an employee of that company, which indicate that Debtor neither opened Bravo Restaurant's account nor held himself out as the business's owner in dealings with suppliers. He also offered the...
