Quick Capital of L.I. Corp. v. Bavelis (In re Bavelis)

Summarized by Dean Langdon , DelCotto Law Group PLLC
12 years 2 months ago

Citation:

6th Cir. BAP File No. 13b0009n.06; Docket No. 13-8015

Tag(s):

Ruling:

Affirming the bankruptcy court for the Southern District of Ohio, the Sixth Circuit Bankruptcy Appellate Panel held claims of lender under a note and loan agreement were properly disallowed where loan was induced by fraud and there was a failure of consideration. The BAP also affirmed the bankruptcy court ruling that the lender's owner had no claim against the debtor under Florida securities laws. The precedential effect of the ruling is limited to the parties.

Procedural context:

The Debtor filed an adversary action seeking a declaration that a loan from Quick Capital was void for lack of consideration or should be rescinded for fraud in the inducement. Quick Capital filed, then amended, a proof of claim seeking to recover $14 million under the note and loan agreement. Quick Capital's owner also alleged a violation of Florida securities law by the Debtor during the course of the adversary. Quick Capital and its owner appeal from order entered by the bankruptcy court for the Southern District of Ohio after a four day hearing, disallowing its claims and finding no violation of Florida securities laws.

Facts:

George Bavelis emigrated from Greece to America in 1958 and ultimately acquired substantial real estate holdings in addition to majority ownership in Sterling Bank. Through various business dealings, in the fall of 2008 he became acquainted with a fellow countryman, Ted Doukas. At the same time, several of Mr. Bavelis' closely held companies and the bank were experiencing financial distress. The main transaction at issue involved a purported loan of $14,000,000 from Quick Capital of L.I. Corporation to the Debtor. Quick Capital was owned by Mr. Doukas. The bankruptcy court found that the following misrepresentations were made in conjunction with the loan: i) that Mr. Doukas would assist Sterling Bank by making regular deposits at the bank; ii) that Mr. Doukas would assist the debtor in resolving business disputes with another business partner; iii) that Mr. Doukas would assist in resolving personal guarantees from Mr. Bavelis to two other lenders; and iv) that Mr. Doukas would help Mr. Bavelis with estate planning. The bankruptcy court also found only $250,000 had been advanced under the Quick Capital loan, and that it had been fully repaid by Mr. Bavelis. The bankruptcy court disallowed Quick Capital's claim on the grounds that the loan was induced by fraud and there was a failure of consideration. The BAP cited to substantial evidence in the record in affirming this ruling. The bankruptcy court also considered whether Mr. Doukas had any prospective claims against the Debtor under Florida securities laws arising from efforts to increase the capitalization of Sterling Bank. The bankruptcy court found that although such claims were not specifically pleaded, they were properly considered under the "invited error" theory. The BAP found no error in the bankruptcy court's holding that Mr. Doukas did not timely exercise his right of rescission, and that the bank made adequate disclosures in connection with the stock offering.

Judge(s):

Emerson, Harris and McIvor; opinion by McIvor

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