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Customers Bank v. Osadchuk

United States District Court, D. New Jersey

September 24, 2018

CUSTOMERS BANK, Appellant,
v.
ROMAN P. OSADCHUK, Appellee.

          REBECCA K. MCDOWELL, ROBERT I. SALDUTTI, SALDUTTI LAW GROUP Attorneys for Appellant

          ROMAN P. OSADCHUK Pro Se Defendant/Appellee.

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         This appeal arises from the Bankruptcy Court's order and judgment in favor of Appellee Roman P. Osadchuk (“Appellee” or “Osadchuk”), which rejected Appellant Customers Bank (“Appellant” or “Customers Bank”) argument that its claim is not dischargeable under 11 U.S.C. § 532(a). For the reasons expressed below, the decision of the Bankruptcy Court will be affirmed, and the appeal will be dismissed.

         BACKGROUND

         Appellant, Customers Bank, is the successor in interest to the underlying obligation at issue in this case, having acquired InterSTATE Net Bank (“ISN”) via an FDIC receivership. The underlying obligation originally held at ISN was a $2, 000, 000 loan entered into by Seawinds LLC (“Seawinds”) on March 16, 2005. Seawinds is an entity whose members include Appellee Roman P. Osadchuk and his business partner Charles Stanfa. The loan was intended to finance the development of single family homes on 37 lots in Wildwood, New Jersey and was to mature, according to a mortgage note executed on that same day (“Note”), on March 16, 2007.

         The Note was secured by the 37 lots in Wildwood, New Jersey, which were set to be developed under a contract with K. Hovnanian, a real estate developer (the “K. Hovnanian Contract”). For additional security, Osadchuk and Stanfa also each executed personal guarantees.

         The guaranty agreement (“Guaranty”) executed by Osadchuk required him to provide annually personal financial statements and individual tax returns. The Note matured in March 2007. At some point, the parties engaged in negotiations to extend the life of the Note. As part of that process, Osadchuk submitted to ISN a Statement of Financial Condition (“SFC”). This SFC was prepared by the accounting firm of Capaldi, Reynolds & Pelosi. A few months later, on October 28, 2007, Seawinds and ISN executed a Change in Terms Agreement to extend the maturity date of the Note for another eighteen months (“CIT Agreement”).

         The statements contained in the SFC and their effect on ISN are the subjects of this appeal. Specifically at issue are two valuations disclosed in the SFC which contribute to Osadchuk's, and his wife Geraldine's, joint net worth of $6, 715, 978.00. First, the SFC valued Osadchuk's 50% interest in Seawinds at $1, 825, 000. Second, the SFC states that Osadchuk's former residence - located at 131 Seaspray Court, North Wildwood, New Jersey (the “Seaspray Property”) - was valued at $3, 500, 000. It is undisputed that Osadchuk provided these valuations to his accountant to include in the SFC.

         The Note eventually entered default. On May 22, 2012, Customers Bank obtained a judgment against Osadchuk in the amount of $3, 081, 281.39. Customers Bank was unable to collect on this judgment for three years and, on October 28, 2015, Osadchuk filed the underlying bankruptcy proceeding in the Bankruptcy Court. On March 18, 2016, Customers Bank filed an Adversary Proceeding against Osadchuk to render the debt nondischargeable by reason of fraud under 11 U.S.C. § 523(a)(2)(B).

         After almost eighteen months of motion practice, a bench trial was held before the Bankruptcy Court on August 10, 2017, September 28, 2017, and October 5, 2017. Customers Bank presented testimony from Kathleen Hansen, a representative of Customers Bank, Robert Reynolds, the accountant that prepared the SFC, two valuation experts, Mary Fox and Stephen Scherf, who both opined on the property values stated in the SFC, and Osadchuk. On October 5, 2017, Osadchuk moved for a directed verdict. Osadchuk did not present a case-in-chief.

         After deliberation, the Bankruptcy Court made an oral ruling on the record granting Osadchuk's motion. The Bankruptcy Court found that Customers Bank had failed to meet its burden on three of the four required elements under 11 U.S.C. § 523(a)(2)(B) thus failing to prove the debt was not dischargeable. This ruling and the corresponding testimony are both discussed in more detail, infra. A timely appeal followed.

         DISCUSSION

         A. Jurisdiction

         This Court has jurisdiction over the appeal from the Bankruptcy Court's October 5, 2017 order pursuant to 28 U.S.C. § 158(a), which provides in relevant part: “The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders and decrees . . . of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.”

         B. Standard of Review

         In reviewing a determination of the bankruptcy court, the district courts “review the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof." Reconstituted Comm. of Unsecured Creditors of the United Healthcare Sys., Inc. v. State of N.J. Dep't of Labor (In re United Healthcare Sys.), 396 F.3d 247, 249 (3d Cir. 2005) (quoting Interface Grp.-Nev. v. TWA (In re TWA), 145 F.3d 124, 130-31 (3d Cir. 1998)).

         C. Analysis

         The case centers on whether the $2, 000, 000 loan is dischargeable in bankruptcy or not. “The overriding purpose of the Bankruptcy Code is to relieve debtors from the weight of oppressive indebtedness and provide them with a fresh start. Exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors.” Insurance Co. of N. Am. v. Cohn (In re Cohn), 54 F.3d 1108, 1113 (3d Cir. 1995). Thus, to render a debt not dischargeable a creditor must prove its case by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991)

         Here, Customers Bank pursued a finding of nondischargeability under 11 U.S.C. § 523(a)(2)(B), which generally allows a finding of nondischargeability if credit was obtained fraudulently. Customers Bank was therefore required to prove, by a preponderance of the evidence, that a written statement - here the statements referenced above that were contained in the SFC: (i) was “materially false”; (ii) concerned “the debtor's . . . financial condition”; (iii) was “reasonably ...


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