United States District Court, E.D. New York
Appellant is represented by Daniel Walsh, of Belowich & Walsh LLP, White Plains, NY.
Appellee is represented by John M. Stravato, Esq., Bethpage, NY.
MEMORANDUM AND ORDER
JOSEPH F. BIANCO, District Judge.
This bankruptcy appeal arises out of the bankruptcy proceeding of debtor Chris Karanasos ("Karanasos" or "debtor") in the United States Bankruptcy Court for the Eastern District of New York (the "Bankruptcy Court"). On October 6, 2011, United General Title Insurance Company ("UGT") commenced an adversary proceeding against debtor, asserting that debtor's discharge should be denied pursuant to 11 U.S.C. § 727. Specifically, UGT alleged the following: (1) within one year of filing for bankruptcy, and with the intent to hinder, delay or defraud his creditors, debtor concealed a secret interest in real property that he had purportedly conveyed to his wife, see 11 U.S.C. § 727(a)(2)(A); and (2) debtor knowingly and fraudulently made certain material false oaths in his bankruptcy petition and accompanying schedules, see id. § 727(a)(4)(A). UGT and debtor agreed to a trial by stipulated record. On October 21, 2013, based on the stipulated record, the Bankruptcy Court determined that UGT had failed to establish either of its claims by a preponderance of the evidence. Thus, the Bankruptcy Court did not deny debtor a discharge. Specifically, the Bankruptcy Court held that (1) debtor had not concealed any secret interest in the property that he had conveyed to his wife; and (2) although debtor made two false oaths in his petition and the accompanying schedules, debtor had not done so with fraudulent intent.
On appeal, UGT contends that the Bankruptcy Court committed reversible error with respect to both of its holdings. For the following reasons, this Court agrees. Thus, the Court vacates the judgment of the Bankruptcy Court and remands the case to the Bankruptcy Court for further proceedings consistent with this Memorandum and Order. As an initial matter, this Court reviews the Bankruptcy Court's conclusions de novo because the Bankruptcy Court tried the case on a stipulated record. Under this standard of review, the Court concludes first that the Bankruptcy Court erred in determining that debtor had not concealed any interest in real property. The real property at issue is debtor's primary residence, which he and his wife owned as tenants by the entirety until 2008. In 2008, debtor purportedly conveyed all interest in his residence to his wife. However, even after conveying legal title to the residence, debtor continued to live there and to pay mortgage, utility, and real estate taxes. Moreover, debtor even filed a joint tax return with his wife, in which they took a deduction for mortgage interest payments. Finally, in the bankruptcy proceeding of debtor's wife, debtor's wife actually referred to her own interest in the residence as a tenancy by the entirety. All of these facts establish by a preponderance of the evidence that debtor concealed an ownership interest in his primary residence. Finally, under the well-established "continuing concealment" doctrine, the Court concludes that debtor concealed his ownership interest in his residence within one year of filing for bankruptcy. Thus, the Court remands the case to the Bankruptcy Court, so that the Bankruptcy Court may determine whether debtor harbored improper intent in concealing this interest for purposes of § 727(a)(2)(A). Second, in light of the Court's holding on debtor's concealment, the Court also concludes that debtor made a false oath by failing to disclose his ownership interest in his primary residence anywhere in his bankruptcy petition or accompanying schedules. The Court also agrees with the Bankruptcy Court that debtor made an additional false oath by failing to disclose the existence of a lawsuit against him in his petition or schedules. However, the Court does not find that debtor committed a false oath in describing his ownership interest in another property as "sole tenant, " when he should have stated "tenant in severalty." Again, in light of the Court's determination concerning debtor's two false oaths, the Court remands the case to the Bankruptcy Court for a determination whether debtor made these false oaths with fraudulent intent, as § 727(a)(4)(A) requires.
The following facts are drawn from the stipulated record submitted in the Bankruptcy Court, which includes (1) eighteen exhibits; (2) the transcript of debtor's January 4, 2013, deposition; (3) a list of stipulated facts; and (4) debtor's trial affidavit. (See R-7,  Stipulation, Apr. 8, 2013.)
1. Debtor's Interests in Real Property
The instant appeal centers around debtor's ownership interests in real property located at 390 Woodbridge Road in Rockville Centre, New York (the "Rockville Centre Property") and 408 East 120 Street in New York, New York (the "Manhattan Property"). Accordingly, the Court examines the facts surrounding debtor's interests in those two properties.
Debtor began living at the Rockville Centre Property in 2002, when his wife Rosa Karanasos ("Mrs. Karanasos") acquired title to that property. (R-4, Joint Pre-Trial Memorandum ("JPTM") at 4, ¶¶ 1-4.) Mrs. Karanasos financed the purchase with a mortgage from Interamerican Bank. (JPTM Ex. A, Deposition of Chris Karanasos, Jan. 4, 2013 ("Debtor Dep."), at 16-17, 24-25.) Debtor and Mrs. Karanasos made payments on the mortgage from a joint checking account. ( Id. at 25-26.) A little over one year later, debtor and Mrs. Karanasos mortgaged their home to Flagstar Bank, F.S.B., and Mrs. Karanasos satisfied the Interamerican mortgage. ( Id. at 26-27; see JPTM at 5, ¶ 10.) At around the same time, by deed dated June 20, 2003, Mrs. Karanasos conveyed her interest in the Rockville Centre Property to herself and debtor. (JPTM at 5, ¶ 8; Debtor Dep. at 26-27.) After refinancing with Flagstar, debtor and Mrs. Karanasos made payments on the Flagstar mortgage from their joint checking account. (Debtor Dep. at 28.)
Also in 2003, debtor and his wife obtained a home equity line of credit from JPMorgan Chase Bank, N.A. (the "Chase HELOC") in the amount of $210, 000. ( Id. at 32-33; see JPTM at 5, ¶ 10; R-17, Ex. 9, Credit Line Mortgage.) Debtor and Mrs. Karanasos increased the Chase HELOC to $275, 000 in 2005. (Debtor Dep. at 38.)
Sometime in 2008, debtor invested $200, 000.00 in the Manhattan Property. (Debtor Dep. at 41, 65-67.) Specifically, debtor loaned $200, 000.00 to the person who wanted to purchase the Manhattan Property, Mohammed Khan ("Khan"), and debtor and Khan acquired title to the Manhattan Property as joint tenants. ( Id. at 65-67.) The terms of debtor's arrangement with Khan were as follows. Khan agreed to repay debtor $200, 000.00, plus interest. ( Id. ) As collateral for the loan, Khan gave debtor an unrecorded deed conveying his interest in the Manhattan Property to debtor. ( Id. ) If Khan repaid debtor in full, Khan would have acquired sole ownership of the Manhattan Property. If Khan did not repay debtor, then debtor had the right to record the deed conveying the Manhattan Property from debtor and Khan to debtor. ( Id. ) As it turned out, Khan defaulted on the loan, and consequently, debtor acquired title to the Manhattan Property on September 29, 2008. ( Id. at 67; JPTM at 6, ¶¶ 18-19; see R-21, Ex. 18, Deed.)
Debtor borrowed approximately $100, 000.00 from the Chase HELOC in order to finance his transaction with Khan. (Debtor Dep. at 41-46.) Mrs. Karanasos did not approve of the transaction. ( Id. at 41.) She allowed him to draw approximately $100, 000.00 from the Chase HELOC, but only on the condition that debtor give her his ownership interest in the Rockville Centre Property. ( Id. at 41-43; R-5, Trial Affidavit of Chris Karanasos ("Debtor Aff.") ¶2.) As debtor explained it, "for her the only way to let me borrow the money from my home line of credit as investment to this property, I had to take off my name from the deed to protect her and our children." (Debtor Dep. at 42.) Accordingly, debtor and Mrs. Karanasos conveyed the Rockville Centre Property to Mrs. Karanasos by deed that was dated December 17, 2008, and recorded on April 9, 2009. (JPTM at 5, ¶9.) The deed itself indicates that the consideration for the conveyance was $100, 000.00. (R-16, Ex. 6, Deed.)
Although debtor conveyed his ownership interest in the Rockville Centre Property to Mrs. Karanasos, debtor continued to reside there, and he identified the Rockville Centre Property as his address in his petition for bankruptcy. (JPTM at 4, ¶¶ 4-5.) Moreover, debtor and Mrs. Karanasos continue to share the payment obligations associated with the mortgages on the Rockville Centre Property, and, according to Schedule J to his petition, debtor makes monthly mortgage and utility payments for the Rockville Centre Property. ( Id. at 4-5, ¶¶ 6, 12.) In fact, debtor and Mrs. Karanasos took a deduction on their 2010 jointly filed tax return for real estate taxes and mortgage interest payments relating to the Rockville Centre Property. ( Id. at 5, ¶ 11.) Finally, in Schedule A to Mrs. Karanasos's separate petition for bankruptcy, she lists her ownership interest in the Rockville Centre Property as a tenant by the entirety. ( Id. at 5, ¶ 13; see R-20, Ex. 13, Mrs. Karanasos's Petition.)
2. UGT's Claim against Debtor
During the time that debtor purchased the Manhattan Property and conveyed the Rockville Centre Property to his wife, debtor was a defendant in a civil suit brought by UGT in New York state court. (JPTM at 5, ¶ 14; see R-20, Ex. 14, Complaint.) In particular, on February 4, 2008, UGT commenced an action against GE Abstract, debtor, and Esther Serrano ("Serrano"). ( Id. ) Debtor and Serrano had been partners in GE Abstract, a title insurance agency that had acted as UGT's title insurance agent. ( Id.; see Debtor Dep. at 10-12.) According to UGT's complaint, UGT had incurred liability to a third party in the amount of $504, 000.00 as a result of GE Abstract's negligence. (R-20, Ex. 14, Complaint.) UGT sought to hold GE Abstract, debtor, and Serrano jointly and severally liable for $504, 000.00. ( Id. ) On August 30, 2010, judgment entered against GE Abstract, debtor, and Serrano in the amount of $677, 351.03 ($504, 000.00 plus $172, 611.03 in interest). (R-15, Ex. 15, Judgment.)
On or about November 5, 2010, UGT commenced a separate action against debtor and Mrs. Karanasos in New York state court. (JPTM at 5, ¶ 16; see R-21, Ex. 16, Complaint.) UGT sought a judgment declaring that the conveyance of the Rockville Centre Property from debtor and Mrs. Karanasos to Mrs. Karanasos was fraudulent and void as to UGT. (JPTM at 5, ¶ 16.) Debtor neither filed an answer nor otherwise appeared in that action. ( Id. ) The record is unclear, however, whether a judgment entered in this action.
B. Bankruptcy Proceedings
Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on July 3, 2011. (R-14, Ex. 1, Petition.) He listed the Rockville Centre Property as his street address on the petition. ( Id. ) On Schedule A to the petition, debtor listed the Manhattan Property as the only real property in which he owns an interest. ( See id. ) Debtor described his interest in the Manhattan Property as "sole tenant." ( Id. ) Debtor's petition does not indicate that he has any ownership interest in the Rockville Centre Property. (JPTM at 5, ¶ 15.) The petition does not mention UGT's fraudulent conveyance action against debtor, at all. ( Id. at 6, ¶ 17.)
UGT commenced an adversary proceeding against debtor on October 6, 2011. (R-22, Bankruptcy Court Docket.) UGT alleged that debtor had concealed a secret interest in the Rockville Centre Property within one year before filing his petition for bankruptcy, and that he had done so with the intent to hinder, delay, or defraud his creditors. ( See R-1, Complaint ¶¶ 58-62.) In addition, UGT claimed that debtor had failed to disclose his secret interest in the Rockville Centre Property, failed to disclose UGT's fraudulent conveyance action against debtor, and misrepresented his ownership interest in the Manhattan Property, all with fraudulent intent. ( Id. ¶¶ 63-73.) Debtor answered the complaint on December 2, 2011. (R-22, Bankruptcy Court Docket.) Debtor moved for summary judgment on December 4, 2012, and the Bankruptcy Court denied debtor's motion on April 5, 2013. ( Id. )
Thereafter, the parties agreed to proceed to trial on a stipulated record. ( Id. ) On October 21, 2013, the Bankruptcy Court ordered that debtor would not be denied a discharge, and that debtor was entitled to recover his costs as the prevailing party. ( Id.; see R-9, Bankruptcy Court Opinion ("Bankr. Ct. Op.").) First, the Bankruptcy Court found that UGT had failed to establish the existence of debtor's alleged secret interest in the Rockville Centre Property by a preponderance of the evidence. (Bankr. Ct. Op. at 8-9.) Because the Bankruptcy Court concluded that debtor had not concealed a secret interest in the Rockville Centre Property, the court did not consider whether debtor had acted with fraudulent intent. ( Id. at 9.) Second, the Bankruptcy Court concluded that debtor should not be denied a discharge under § 727(a)(4)(A) on the basis of any alleged false oath. ( Id. at 9-13.) Specifically, the Bankruptcy Court determined that debtor had not failed to list an ownership interest in the Rockville Centre Property, because he had none, and that debtor did not misstate the value of the Manhattan Property. ( Id. at 11, 13.) However, the Bankruptcy Court did determine that debtor made false oaths by failing to list UGT's fraudulent conveyance action and by representing his ownership interest in the Manhattan Property as "sole tenant." ( Id. at 11-13.) Nonetheless, the Bankruptcy Court found, in light of the entire record, that debtor did not make these false oaths with fraudulent intent. ( Id. ) Judgment entered on November 4, 2013. (22, Bankruptcy Court Docket; see R-10, Judgment.)
UGT filed a notice of appeal in the Bankruptcy Court on November 13, 2013, which was docketed in this Court on December 16, 2013. UGT filed its brief on January 15, 2014. Debtor filed his brief on January 27, 2014. UGT filed its reply brief on February 10, 2014. The ...