Opinion
Case No. 01-13444-RGM.
September 30, 2008
MEMORANDUM OPINION
THIS CASE is before the court on the debtor's objection to the proof of claim of the Estate of Ali Aligar Payrow, Deceased, asserting that the debtor was indebted to it in the amount of $150,000.00. For the reasons stated on the record and in this memorandum opinion, the objection will be sustained and the proof of claim disallowed.
Debtor's Testimony
The debtor testified that rather than he being indebted to the decedent, the decedent was indebted to him. He testified that he loaned the decedent more than $200,000.00 over a long period of time. The loans were evidenced by a promissory note dated December 18, 1994, which was handwritten by the debtor and signed by both the decedent and him. Later, on May 8, 1995, the decedent assigned a life insurance policy to him as collateral to secure repayment of the loans. The debtor further testified that the decedent issued checks to him on both the decedent's company's account and his personal account. The checks were intended to evidence the loans and were not cashed. One check that was deposited was returned for insufficient funds. The debtor testified that the loans to the decedent were largely in cash, but also by wire transfer and by check. One occurred at an auction where the debtor wanted to purchase a Persian carpet for resale. Other times, the decedent expressed the need for cash to buy inventory. The original handwritten notes, checks, and acknowledgments from the life insurance company of the collateral assignment were received into evidence.
The debtor testified to their relationship. They were both of Iranian origin who immigrated to the United States and met in the United States in 1988. They became good friends. The families vacationed together in Florida, and the debtor and the decedent saw each other frequently. The decedent's son testified that the debtor was frequently in the decedent's store.
The decedent started business as a carpet merchant buying and selling Persian carpets. When they first met, the decedent had a storage facility which contained all of his inventory. By the time of his death, he was operating three stores, one in Bethesda, one in New York City, and one in San Francisco.
Procedural Background
The debtor filed a voluntary petition in bankruptcy pursuant to chapter 7 of the United States Bankruptcy Code in this court on August 28, 2001. The case was closed on December 18, 2001, as a no asset case. The debtor did not schedule Payrow's debts to him or his interest in the collaterally assigned life insurance policy. The decedent who was in his early 40's was alive and in apparent good health. A few years later, Payrow died unexpectedly. After his death, a claim was made on the insurance policy. There was a dispute between the decedent's wife and the debtor. The decedent's wife apparently claimed the proceeds of the policy as the named insured. The debtor claimed them as the collateral assignee. The debtor filed suit in state court. The insurance company interpled the disputed life insurance proceeds and was dismissed from the case. The rival claimants litigated the case to its conclusion. A final order was entered on September 1, 2006. It determined that the collateral assignment was a valid assignment and ordered the clerk of the state court to pay the funds over to the debtor's chapter 7 trustee who had reopened the bankruptcy case and intervened in the state court case.
The decedent's estate then filed the proof of claim in this court that is at issue. The debtor filed an objection to the proof of claim which the trustee supports. There are $15,000.00 in claims pending that are not disputed in addition to the $150,000.00 proof of claim filed by the decedent's estate. If the proof of claim is allowed, the funds will be distributed to pay the decedent's estate's claim and ultimately to the decedent's wife. If the claim is disallowed, there will be a significant surplus which will be distributed to the debtor.
Discussion
The debtor was never indebted to the decedent. Neither the decedent's widow nor his son testified with particularity as to any loan made by the decedent to the debtor. At best, the testimony could support the conclusion that the debtor obtained carpets for which he did not fully pay. The evidence on this, however, is unclear. In addition, there was no testimony of the value the carpets, if any, that the debtor received or the amount that he paid for them. Weighted against this testimony is the significant evidence that the debtor loaned money to the decedent. The court finds that the debtor was never indebted to the decedent and will disallow the proof of claim which asserts such an indebtedness.
This, though, is not really the argument of the decedent's estate. The decedent's estate's case at heart is different. Its assets that the collateral assignment was invalid, or, if valid, the loan that was secured by the collateral assignment was paid in full or did not exceed $30,000.00.
The final order of the state court quite clearly adjudicated the validity of the collateral assignment of the life insurance policy. This court must give full faith and credit to that final order. It is res judicata. The matter has been litigated once and cannot now be litigated a second time. Giving effect to the circuit court's order, the court finds that the collateral assignment is a valid collateral assignment of the life insurance policy.
Even if the court were not to give any effect to the prior adjudication, the debtor presented the assignment duly accepted by the life insurance company. The decedent's widow testified that she did not know about the assignment until after her husband died. Without any actual knowledge of the assignment or the circumstances giving rise to it and in light of the presentation of the assignment itself, the court would, if required independently of the state court order, find the collateral assignment to be a valid collateral assignment.
The second defense that the decedent's estate probably raised in the state court action was that the debt secured by the collateral assignment was paid in full. This issue was probably presented to the state court because the court had to determine to whom the interpled proceeds were to be paid. Finding that there was a valid collateral assignment does not establish to whom the funds should be paid. They should be paid to the creditor only to the extent of the outstanding indebtedness. The final order paid the proceeds to the debtor's chapter 7 trustee suggesting that the court found that there was an outstanding loan in excess of the proceeds available. The only evidence presented in this case of the state court proceedings, however, was the final order, which while clear as to the finding of the validity of the collateral assignment is unclear as to whether there was a determination of the amount of the outstanding debt. Thus, this court must determine whether there was an outstanding debt.
The debtor testified to the financial transactions with the decedent and presented the documentation discussed above. The decedent's son testified that he worked in the store with his father and never saw his father receive cash from the debtor. The son worked with his father from when he was eight years old until he was 22, which was when his father died. The testimony is not sufficient to show that the son knew of the father's financial transactions or the manner in which he ran the business. While the son may well have participated with his father in sales and perhaps other aspects of the business, his age, his presence at school for many of the hours while the store was open, and the lack of evidence that he was involved in the financial management of the three stores leads the court to the conclusion that he was not in a position to be aware of his father's financial transactions. His testimony is not sufficient to prove the negative, that is, that there were no loans made to his father.
The decedent's widow also testified. She worked in the store, although she only worked in the sales end. She did not have any significant involvement in the financial end. She did not keep the books of the business. An accountant kept the books and prepared tax returns. She was unaware of any loans. She was unaware of the collateral assignment of the life insurance policy. In these circumstances, the court does not believe that she was in a position to know all of her husband's financial transactions. Her lack of knowledge is not sufficient evidence that no loans were ever made by the debtor to her husband, or if made, were paid. In weighing her testimony and taking into consideration that she was not in a position to know all of her husband's financial transactions and admittedly did not know of the assignment of the life insurance policy, and taking into consideration the documentary evidence presented by the debtor, the court finds that the loans were made as testified to by the debtor.
The court notes that the debtor's testimony has weaknesses. As pointed out by the decedent's widow, it is surprising that an individual would loan up to $200,000.00 over a long period of time without receiving payments of principal or interest. The debtor was clearly indulgent of his friend's borrowings. While the conduct is inconsistent with an arm's length creditor-debtor relationship, the debtor's evidence is more credible than the decedent's estate's evidence notwithstanding the great indulgences the debtor showed his friend. While those indulgences could be construed to suggest that there were no loans or that the loans were paid, the court does not draw this conclusion.
The court is also aware that the debtor did not list the debt due him or the collateral assignment of the life insurance policy on his schedules. This is, of course, troubling to the court and was taken into account in reaching its decision. The debtor asserts that these omissions were an oversight because he did not recognize the debt from Payrow or the assignment of the life insurance policy were assets that should have been listed on his schedules. They were, he thought, valueless. This is best described in portions of the debtor's deposition taken in the state court proceeding and included in the United States Trustee's motion to reopen this case. The footnote in which the excerpts appear is as follows:
Deposition of Abbas Habibzadeh, conducted in Abbas Habibzadeh v. Nooshin Payrow, et al., Fairfax Circuit Court, Law No. CL-2005 1157, transcript, commencing page 59, line 19.
Q. [Robert D. Dain, Esq.] You actually were owed money in 2001 when you filed this; [bankruptcy case] were you not, from Mr. Parow?
A. [Abbas Habibzadeh] But, at that time, the note and the money, everything was valueless. He couldn't pay the money. There was no money to pay. There was no money.
Q. Sir, this doesn't say that. It just says "Were you owed money?" You did not disclose that to the bankruptcy trustee; did you?
A. I did not.
Commencing page 60, line 16.
Q. But you were still owed $200,000 when you filed this bankruptcy; were you not?
A. Yes, I was.
Q. And you did not tell them in this petition?
A. I did not tell them, because there was no money at that time. It was valueless.
Q. Look at number 19, just two numbers down. It says "Contingent and noncontingent interests in life insurance policy." When you filed this bankruptcy, you did have an interest in life insurance policy; did you not, by the assignment?
A. Yes.
Q. But you did not disclose that here; did you?
A. I did not, because the assignment was for life insurance, and the only way that I could get it was if he died. The average mortality was 72. And he was 45. Who knew that he was going to die in the next two or three years?
Motion to Reopen Case at 2 n. 1. (Docket Entry 7).
There was little evidence presented at the trial to support or challenge the position expressed in the deposition testimony recited in the motion. In light of the totality of the evidence presented, the court does not find the omissions to be determinative of the issue presented.
Mrs. Payrow eloquently set forth her unfortunate and dire circumstances. As a widow supporting three children who is in turn being supported by her father, she is most surely disappointed at the loss of the life insurance policy that she had expected would be available if the unthinkable happened as in this case it did. However dire her circumstances or however much her personal situation may cry out for assistance, these are not factors that may be considered in determining whether there was an outstanding loan.
Conclusion
The proof of claim of the Estate of Ali Aligar Payrow, Deceased, will be disallowed.