Bavelis v. Doukas (In re Bavelis)

Docket No. 14-3067; File name 14a0284p.06
Affirming the decision of the Bankruptcy Appellate Panel (which affirmed the Bankruptcy Court), the Sixth Circuit Court of Appeals rules that the Bankruptcy Court had constitutional authority to enter a judgment sustaining an objection to the proof of claim filed by Quick Capital in Bavelis' bankruptcy case. The Sixth Circuit also affirmed the BAP ruling that the Bankruptcy Court properly interpreted and applied Florida securities law to find no violation of such laws by the debtor, Bavelis.
Procedural context:
Bavelis took the offensive by filing a complaint against Quick Capital (and its principal, Ted Doukas), seeking a declaration that a $14 million note from Bavelis was void for lack of consideration, was fraudulently induced, or had been fully satisfied. Quick Capital filed a claim, and the court held a four-day evidentiary hearing after denying Quick Capital's motion for summary judgment. In a published opinion, 453 B.R. 832 (Bankr. S.D. Ohio 2011), the Bankruptcy Court disallowed Quick Capital's claim and held Doukas had no valid claim for violation of Florida securities laws, Quick Capital and Doukas appealed to the BAP, which affirmed. Doukas then appealed to the Sixth Circuit Court of Appeals.
Bavelis built a real estate empire in central Ohio, starting in the early 1970's. By 1996, he and others acquired Sterling Bank and its holding company, based in Florida. Bavelis met Doukas through the bank, and when the Great Recession hit, Doukas assisted by purchasing bank stock, placing money in accounts and offering help with Bavelis' estate planning. One of the transactions in dispute was a June, 2009 promissory note from Bavelis to Quick Capital for $14 million, although only $200,000 was transferred to Bavelis, which was repaid within one month. Doukas promised the note would not be collected, but would be returned upon completion of the estate planning for Bavelis. Quick Capital filed a claim seeking to enforce this note. In September, 2009, Doukas agreed to purchase about $1.5 million of stock in the Sterling Bank holding company. Doukas claimed the sale violated Florida law as the stock was not registered, and that he was not given a proper rescission notice. Doukas also claimed that the $1.5 million was an advance under the June, 2009 promissory note. The Court of Appeals affirmed the Bankruptcy Court's holding that it had core jurisdiction to apply Florida law to Bavelis' objection to Quick Capital's claim under 28 U.S.C. Sec. 157(b)(2)(B) and (O). The Court of Appeals also affirmed the Bankruptcy Court holding that Doukas was provided with reasonable access to material information about the stock subscription, that a proper rescission notice was provided, and that Doukas' attempt to rescind the purchase was not only too late, but was not a right against Bavelis, but against the holding company.
Batchelder, Gilman and Gibbons; opinion by Gilman

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