Szanto v. Szanto (In re Szanto)

In Re: PETER SZANTO, Debtor.

PETER SZANTO, Plaintiff, v. EVYE SZANTO, VICTOR SZANTO, NICOLE SZANTO, KIMBERLEY SZANTO, MARIETTE SZANTO, ANTHONY SZANTO,AUSTIN BELL, JOHN BARLOW, and BARBARA SZANTO ALEXANDER, Defendants.

Bankruptcy Case No. 16-33185-pcm7

Adv. Proc. No. 16-3114-pcm

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF OREGON

November 25, 2019

MEMORANDUM OPINION REPORT AND RECOMMENDATION

This adversary proceeding is just the latest in a long history of litigation between Peter Szanto ("Peter")¹ and members of his family,originally stemming from a dispute about Peter's deceased parents' family trust. Over the years, Peter's claims against the family have escalated from a probate matter challenging the amendment of the family trust documents to remove Peter as co-trustee and beneficiary, to claims of identity theft, fraud, conspiracy, and physical abuse of Peter's parents, among others. It is this court's intent that the decision in this adversary proceeding will finally resolve the issues between Peter and the other family members and stem the flow of litigation that has occupied Peter, defendants, and multiple courts for years.

PROCEDURAL BACKGROUND

Peter filed his Chapter 11 case in July 2016, his third bankruptcy case since 2013.² According to Peter, his primary purpose for filing his 2016 Chapter 11 petition in Oregon was to challenge and restructure the two mortgages on his multi-million dollar residence in Newport Beach, California.

A month after the Oregon Chapter 11 case was filed, Peter filed this adversary proceeding against members of his family and John Barlow. The complaint alleged numerous claims for relief, based on Peter's belief that he was improperly removed as a trustee and beneficiary of his deceased parents' family trust. He alleged that his siblings and their spouses and children conspired to use mental and physical abuse to force Peter's parents to alter their estate plan to eliminate Peter as a beneficiary. In addition, he alleged that defendants conspired to steal his identity and participated in financial transactions in his name.Doc. 34.

Defendants asserted three counterclaims against Peter: (1) attorney fees; (2) wrongful use of civil proceedings; and (3) injunction and vexatious litigant designation. Doc. 66.

The court granted summary judgment to defendants on all of Peter's claims and entered a final judgment pursuant to Fed. R. Civ. P. 54(b), made applicable to this proceeding by Fed. R. Bankr. P. 7054. Doc. 369, 370.

More than three years after this adversary proceeding was filed, the court held a trial on the counterclaims³ that lasted three days. The court took the matter under advisement. The following are the court's findings and conclusions, pursuant to Fed. R. Bankr. P. 7052 and Fed. R. Civ. P. 52(a).

FACTUAL BACKGROUND

Paul and Klara Szanto were the parents of Peter, Victor, Anthony, and Barbara. Evye is Victor's wife; Mariette is Anthony's wife. Kimberley and Nicole are Peter's nieces, the adult daughters of Victor and Evye. Austin Bell is Kimberley's husband. John Barlow is not a family member, but provided evidence against Peter in a previous case involving the family.

Paul and Klara had a family trust. At some time before they bothdied in the mid-2000s, they amended the trust documents to remove Peter as a co-trustee and beneficiary from the trust. Peter concluded, based on a telephone conversation that he had with his mother before she died, that defendants were depriving her of food, water and medical treatment, and were providing Klara with mind-altering drugs, all in an attempt to get her to change the trust and remove Peter from the estate plan. Peter says that, in this telephone conversation, his mother complained that she was very, very hungry and very, very thirsty. She did not answer his question about her dialysis, and sounded stressed. From this information, Peter decided that his family members, who were helping to care for Klara, were abusing her for their own gain.

After his mother died, Peter started bringing actions against the family members, including against his father before his father died, claiming that the amendment to the trust to remove him as co-trustee and beneficiary was invalid, and that all of the trust assets actually belonged to him. This is based on his allegation that, when he was a young person in the 1960s, he received an award of $250,000 for false imprisonment in California. Doc. 34, ¶¶ 23-30. Peter's theory is that his parents' fortune, acquired over the next 40 years, all derived from that $250,000, which they were holding in trust for him, and therefore all of their assets at their death belonged to him.⁴ Any of those assets that were distributed to the other family members were, then, actually Peter's property and should be returned to him.

Peter also concluded that, sometime after their parents' death, the other family members had taken his identification papers that he says he had left in their parents' house, and used those papers to steal his identity and incur credit card and tax debt in his name. He bases this conclusion on his assertion that there was some credit card debt and tax liability incurred in his name that he did not incur, that his family members had access to the parents' house where the identification papers were kept and a motive to harm Peter because of their animosity toward him, and that his two brothers look like him and so could easily obtain benefits in Peter's name.

Over more than the past decade, despite having sued his family members numerous times on various theories, Peter has never provided any credible evidence to support any of his claims.

Defendants' claim for wrongful use of civil proceedings is based on ten lawsuits Peter filed against family members or related entities over the last 14 years ("the Prior Lawsuits"). In addition, defendants rely on the filing of this adversary proceeding in support of their request for an injunction and designation of Peter as a vexatious litigant. Facts relating to the Prior Lawsuits will follow in the discussion of the claim for wrongful use of civil proceedings.

PRELIMINARY MATTERS

1. Demand for jury trial

At the commencement of the trial, Peter demanded a jury trial. The court denied the request for a jury trial for the reasons set out on the record at the beginning of the second day of trial.

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2. Request for default judgment against John Barlow

Also at the commencement of the trial, Peter asked the court to enter a default judgment against defendant John Barlow.

On August 14, 2017, the court entered an order dismissing John Barlow, who is deceased, from this adversary proceeding. Doc. 192. He has not been a party to this action since 2017, and there is no basis for entering a default judgment against him.

3. Dismissal of claims by Mariette

Defendant Mariette did not participate in the trial of these counterclaims, and there was no evidence submitted on her behalf. Therefore, she failed to carry her burden of proof on her claims. Mariette's claims against Peter will be dismissed.

4. Defendants' request for punitive damages

During closing argument at the trial, defendants for the first time requested an award of punitive damages. Defendants did not plead a request for punitive damages in their answer to Peter's First Amended Complaint and Counter-Claims. See Doc. 66.

Although wrongful use of civil proceedings is a state law claim, the Federal Rules of Civil Procedure govern the requirements for seeking punitive damages. Punitive damages, which are a form of special damages, must be specifically pled. Fed. R. Bankr. P. 7009; Fed. R. Civ. P. 9(g); Pruett v. Erickson Air-Crane Co., 183 F.R.D. 248, 250-51 (D. Or. 1998).

Because defendants failed to plead a request for punitive damages, they are not entitled to such relief. Therefore, the untimely request for punitive damages, made at trial, is denied.

5. Defenses asserted by Peter

a. Constitutional right to redress grievances

Peter generally denied the allegations of defendants' counterclaims, and alleged as an affirmative defense that he has a constitutional right to seek redress of his grievances against defendants. Doc. 96.

Peter cites no authority, and the court found none, in support of the proposition that a party is constitutionally entitled to bring duplicitous or meritless lawsuits. The court rejects this claimed defense.

b. Statute of limitations

During trial, Peter argued that defendants' claims are barred by the statute of limitations.

The statute of limitations is an affirmative defense that must be pled in a party's answer. Fed. R. Bankr. P. 7008; Fed. R. Civ. P. 8(c)(1).

"In general, a party waives any affirmative defense, such as a statute of limitations, not raised in its first responsive pleading. This general rule, however, is subject to exceptions. In the Ninth Circuit, for example, a party may raise an affirmative defense after an initial pleading if the other party is not prejudiced."

United States v. Colasanti, 282 F.Supp.3d 1213, 1216-17 (D. Or. 2017) (citing Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir. 1984)).

Peter failed to raise the statute of limitations argument until after defendants had rested their case. Allowing him to raise the defense at such a late date, after failing to raise it in his responsive pleading, would severely prejudice defendants. Therefore, he failed to properlyraise the statute of limitation defense and waived it.

6. Credibility

The testimony of Peter and of defendants was often diametrically opposed. As a general proposition, the court finds the testimony of defendants to be credible and truthful. The court finds much of the testimony of Peter to be incredible and not truthful. The findings below are based on that determination of credibility or lack thereof.

FACTS

Defendants' claims are based on Peter's malicious and improper misuse of the civil legal system. The evidence established the following facts with regard to each of the ten lawsuits on which de...