Thazhathuputhenpurac v. Abraham (In re Abraham)

582 B.R. 202

IN RE: Thomas ABRAHAM, Debtor.

Jacob Thazhathuputhenpurac, Plaintiff,

v.Thomas Abraham, Defendant.

Bankruptcy Case No. 13 B 09806

Adversary Case No. 13 A 00917

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed March 22, 2018

Ryan Mahoney, Sullivan Hincks & Conway, Oak Brook, IL, for Plaintiff.

David P. Lloyd, David P. Lloyd, Ltd., LaGrange, IL, James P. Wognum, Law Office of James P. Wognum, Worth, IL, for Defendant.

MEMORANDUM OPINION

Janet S. Baer, United States Bankruptcy Judge

Plaintiff Jacob Thazhathuputhenpurac (the "Plaintiff") filed a three-count adversary complaint against debtor-defendant Thomas Abraham (the "Debtor"), seeking a determination that a judgment debt owed to him by the Debtor is not dischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(4) and objecting to the Debtor's discharge pursuant to 11 U.S.C. § 727(a)(3).¹ The matter is now before the Court on the parties' cross-motions for summary judgment on the nondischargeability claims under §§ 523(a)(2)(A) and (a)(4) in Counts I and II of the complaint.² For the reasons set forth below, the Court finds that there are no genuine issues of material fact and that the Plaintiff is entitled to judgment as a matter of law on those claims in Counts I and II. As such, the Plaintiff's motion will be granted, and judgment will be entered in the Plaintiff's favor. The Debtor's motion for summary judgment on all three counts will be denied.

BACKGROUND

The material facts in this case are gleaned from the docket, the pleadings, and the summary judgment statements and responses, as well as the exhibits attached thereto. Among those exhibits are an initial judgment order and two subsequent orders, all entered in favor of the Plaintiff and against the Debtor by the Circuit Court of Cook County (the "state court") after conducting a four-day bench trial; an order entered by the Appellate Court of Illinois, First District (the "appellate court") affirming the state court's judgment; and the four transcripts from the state court trial. (See Adv. No. 13–00917, Docket No. 67, Exs. A(1)–(3) & C–G.³ ) Virtually all of the facts that follow are drawn from these exhibits and, unless otherwise noted, are undisputed by the parties.⁴

The Plaintiff and the Debtor had been friends since childhood. In 1997, they decided to invest in JT Enterprises of Chicago, Inc. ("JT"), a newly-established corporation whose business was the operation of a Shell gasoline station and convenience store in Chicago Ridge, Illinois. The property on which the gas station was located was leased by JT from Shell. To pay the purchase price for the station of about $320,000, the Plaintiff and the Debtor each invested $115,000 and then financed the remaining balance by taking out a loan for $90,000. Although they intended to be equal shareholders, Shell required that one hold 51% of the shares. Accordingly, the Plaintiff and the Debtor agreed that the Debtor would be the majority shareholder.

In 1999, the Debtor formed a second corporation called TVA of which he was the sole shareholder. The business of TVA was the operation of a Shell gas station, convenience store, and car wash in Bridgeview, Illinois. (Docket No. 67, Ex. A–1 at 2 & Ex. E at 9:13–10:3.) TVA also leased the property on which the station was located from Shell. In addition to TVA, the Debtor solely-owned another corporation called G & P whose business, like JT's and TVA's, was the operation of a gas station. (Docket No. 67, Ex. C at 33:17–20 & Ex. G ¶ 6.)

From 1997 to 2002, the Plaintiff worked for JT, managing the gas station on a full-time basis. In addition to supervising JT's employees, he was responsible for the cash, stocked merchandise in the convenience store, kept the daily receipt book, paid vendors, and performed various other tasks in connection with the operation of the station. Although the Debtor was employed by the United States Postal Service during this time, he would often meet with the Plaintiff to discuss JT's business. Additionally, the Debtor handled the rent, dealt with the banks, communicated with the accountant, took care of most of the fiscal issues in connection with JT, and made the financial decisions for the business.

At some point in 2001, the Plaintiff experienced health problems and, as a result, stopped working at JT. Although he returned to work in December 2001, he left again in April 2002 after a dispute arose between him and the Debtor. Not surprisingly, the parties characterize the Plaintiff's departure in contrasting ways. According to the Plaintiff, the Debtor took the Plaintiff's keys and "kicked him out." (Docket No. 67, Ex. A–1 at 2; see also Docket No. 67, Ex. C at 47:4, 75:3–4.) According to the Debtor, the Plaintiff "walk[ed] away" from the business. (Docket No. 67, Ex. A–1 at 5; see also Docket No. 67, Ex. C at 35:8–10 & Ex. F at 57:20–21.) Four months later, in August 2002, the Plaintiff relocated to Florida and notified the Debtor of his move. Despite his relocation, the Plaintiff remained a shareholder of JT and tried to contact the Debtor on a monthly basis. Although the Debtor had the Plaintiff's phone number, at no time did he ask the Plaintiff for his new address in Florida.

In November 2001, Shell announced a substantial rent increase that would almost double the rent to be paid by JT and TVA beginning in 2002. In response, the Plaintiff and the Debtor decided to sue Shell on behalf of JT, and TVA sued as well.

The case against Shell was complex and lasted for years. Finally, in 2005, the parties were able to reach an agreement, and the case settled. The Debtor signed the settlement agreement on behalf of both JT and TVA. As part of the agreement, the Debtor surrendered JT to Shell, Shell sold and TVA bought the Bridgeview property, and Shell lowered the purchase price of the Bridgeview property by $225,000. JT received virtually nothing under the settlement agreement, despite the fact that its tax returns reflected assets of $229,000. Instead, JT returned its gas station to Shell, and Shell bought JT's inventory.

The Debtor never discussed the settlement with the Plaintiff, nor did he inform the attorney representing JT and TVA in the Shell litigation of the Plaintiff's existence or his stake in JT. In fact, the attorney did not become aware of the Plaintiff's involvement in JT until 2010.

TVA closed in February 2005. Four months later, in June 2005, the Debtor closed JT, without contacting or informing the Plaintiff about the closure. Subsequently, in January 2006, JT was involuntarily dissolved by the State of Illinois. (Docket No. 67, Ex. D at 56:3–5 & Ex. G at 2 n.1.)

Throughout the years that JT was in business, the Debtor transferred money back and forth among JT, TVA, and G & P. He never told the Plaintiff about these transfers, nor did he ever get the Plaintiff's consent to make them. Between 2003 and 2006, the net total of transfers from JT to TVA was $67,027, and the net total from JT to G & P was $107,850.

On May 1, 2006, the Plaintiff filed a three-count complaint against JT and the Debtor in the state court. (Docket No. 67, Ex. G ¶ 14.) Count I alleged violation of § 12.56 of the Illinois Business Corporation Act, 805 ILCS 5/12.56 ("Shareholder remedies: non-public corporations"); Count II alleged tortious interference with prospective business; and Count III sought an accounting. (Docket No. 67, Ex. G ¶ 14.) In response, JT and the Debtor filed a counterclaim in which they alleged breach of fiduciary duty. (Id. )

On March 30, 2012, after almost six years of litigation and a four-day bench trial, the state court entered judgment in favor of the Plaintiff and against JT and the Debtor in the amount of $158,699.73, plus attorneys' fees. (Docket No. 67, Exs. A & C–F.) The court also found against JT and the Debtor on their counterclaim. In reaching its decision, the state court entered an order setting out the facts detailed above and, from those facts, concluding that: (1) the Debtor "engaged in self-dealing" throughout the years at issue; (2) the Plaintiff did not "abandon" or "walk away" from JT by moving to Florida; (3) the Plaintiff remained a shareholder, officer, and director of JT after his relocation; (4) the entire benefit of the settlement agreement with Shell went to TVA; (5) JT did not "share in the $225,000 price reduction"; (6) the Debtor "consistently transferred money" among the three corporations; (7) the Plaintiff was entitled to 49% of the "wrongfully diverted funds" and "one-half of the amount of benefit that JT should have received as a result of the settlement agreement"; and (8) the Debtor destroyed financial records of JT, making the records that remained unreliable. (Docket No. 67, Ex. A–1 at 3–5.) In sum, the state court found that in order to engage in self-dealing, the Debtor "froze [the] Plaintiff out" by refusing to share information with him, by failing to keep him informed, and by not including him in decision making. (Id. at 5–6.)

On October 18, 2012, about seven months after entry of the order, the state court modified the judgment in the amount of $103,574.73, plus attorneys' fees. (Docket No. 67, Ex. A–2.) And on February 8, 2013, the court entered an order awarding $16,641.69 in attorneys' fees and $352 in costs as part of the judgment.⁵ (Docket No. 67, Ex. A–3.)

Shortly thereafter, on March 12, 2013, the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. (Bankr. No. 13–09806, Docket No. 1.) About three months later, on June 28, 2013, the Plaintiff filed an adversary complaint against the Debtor, seeking a determination that the state court judgment is excepted from discharge pursuant to §§ 523(a)(2)(A) and (a)(4) and objecting to the Debtor's discharge under § 727(a)(3). (Adv. No. 13–00917, Docket No. 1.) Subsequently, on January 28 and 29, 2014, the parties filed cross-motions for summary judgment, the Plaintiff on the nondischargeability claims in Counts I and II and...