P R O C E E D I N G S
2 (Whereupon, the hearing commenced at 9:42 a.m.)
3 THE COURTROOM DEPUTY: Case No. 11-7915, Ahmet
4 Sandikci; Adversary 11-1151.
5 Judge, we have Gregory Weiss attending by
6 telephone.
7 THE COURT: Okay. Mr. Weiss, do you want to make
8 your appearance?
9 MR. WEISS: Yes, Your Honor. Greg Weiss on behalf
10 of the Plaintiffs, and I appreciate the Court allowing me to
11 appear by telephone.
12 THE COURT: Certainly.
13 MR. TREUHAFT: Joel Treuhaft on behalf of Ahmet
14 Sandikci.
15 THE COURT: Thank you.
16 And, Marti, is this CourtCall or is this --
17 THE COURTROOM DEPUTY: Yes.
18 (Discussion off the record.)
19 THE COURT: Okay. Very well. The Court has
20 before it --
21 (The Court requested courtroom to become quiet.)
22 THE COURT: Okay. Very well. The Court has
23 before it a final ruling in this case. The case was tried
24 by the Court and very well-presented by both sides. I
25 considered very carefully the evidence presented and took 4
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1 careful notes and considered the testimony of the witnesses
2 and their demeanor and credibility of the various witnesses.
3 I reviewed the extensive documentary evidence and
4 considered carefully the post-trial submissions, both of
5 which were excellent, on the issues involved. And based on
6 that, I'm prepared and will now make my findings of fact and
7 conclusions of law.
8 This case involves the not unusual situation of a
9 fairly complicated series of transactions done without the
10 assistance of counsel at any stage of the parties' dealings.
11 In such cases, a Court must analyze the facts established by
12 the evidence and determine the legal consequences of the
13 parties' actions.
14 And, here, the facts regarding the parties'
15 transactions really are not in material dispute. In fact,
16 the Defendant admits in his answer that he's indebted to the
17 Plaintiffs collectively in the amount of $3,691,000, subject
18 to certain unspecified setoffs.
19 The parties have also stipulated that from
20 November 2, 2007 and March 1, 2008, Dennis and Robert Detrie
21 transferred $500,000 to the Debtor for the purchase and sale
22 of rare currency. Between March 26th, 2008 and August --
23 excuse me, October 26th, 2008, Dennis and Robert Detrie,
24 either individually or through entities they owned,
25 transferred an additional 1.2 million to the purchase and 5
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1 sale of rare currency. Daniel Schmidt also transferred
2 $200,000 to the Debtor for the purchase and sale of rare
3 currency during that same period.
4 Some of the funds that Dennis Detrie transferred
5 to the Debtor were used to buy rare currency for a retail
6 currency store that Dennis Detrie, DeJames Builders and the
7 Debtors opened on Worth Avenue in Palm Beach, Florida, in
8 April 2008. DeJames Builders paid for the material to build
9 out the store and also performed the labor.
10 The Debtor repaid Detrie the initial 500,000 that
11 was transferred to him, along with some profit, but the
12 Plaintiffs were never repaid the additional $1.2 that they
13 transferred, nor do they have any of the currency that was
14 supposedly purchased with their money.
15 It is now up to the Court to sift through the
16 facts to determine what legal construct is most appropriate
17 for the relationship between these parties. The parties
18 dispute the nature of the relationship. The Plaintiffs say
19 they had a joint venture with the Debtor. The Debtor says
20 that the money the Plaintiffs transferred to him were merely
21 a series of loans.
22 Determining whether the transfer of funds was part
23 of a joint venture or merely a loan or a series of loans is
24 critical because it affects whether the debt owed to the
25 Plaintiffs is dischargeable under Section 523(a)(4). 6
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1 523(a)(4) excepts from discharge any debt for fraud or
2 defalcation while acting in a fiduciary capacity, and
3 embezzlement or larceny.
4 There are no allegations of larceny. So the debt
5 owed to the Plaintiffs is nondischargeable: (1) if the
6 Debtor committed fraud or defalcation while acting in a
7 fiduciary capacity; or (2) if the debt resulted from
8 embezzlement. The Plaintiffs can satisfy the fiduciary
9 requirement by proving the existence of a joint venture.
10 And, here, the evidence is overwhelming that the parties
11 were part of a joint venture or a series of joint ventures.
12 To begin with, this issue was previously litigated
13 in State Court in connection with a motion to appoint a
14 Receiver and for injunctive relief. And the State Court
15 specifically determined that the Debtor solicited DeJames
16 Builders' involvement as a joint venture partner in retail
17 rare currency business.
18 The State Court found that: (1) The parties
19 agreed that the Debtor would provide the rare currency
20 expertise and DeJames would provide the capital; (2) The
21 parties opened a bank account solely for the joint venture
22 and DeJames funded the opening of the operating account; and
23 (3) Dennis Detrie was the sole partner onsite operating the
24 joint venture.
25 Ordinarily, the findings by the State Court would 7
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1 be collateral estoppel. The Debtor is precluded from re-
2 litigating that same issue before this Court. But even if
3 it weren't, this Court comes to the same conclusion as the
4 State Court.
5 The evidence is clear that the parties engaged in
6 a series of joint ventures in which each would invest in a
7 joint enterprise to buy rare currency and resell it at a
8 substantial profit. The Debtor contributed his alleged
9 expertise and would perform the service of purchasing the
10 currency in bulk. And the Plaintiffs provided investment
11 capital. They would invest in the purchase of rare
12 currency; it would be resold; the initial capital would be
13 returned to the Plaintiff; and the parties could split the
14 profits.
15 The opening of the Palm Beach store was just
16 another step in this series of joint ventures. And as part
17 of that transaction, Dennis Detrie provided the capital, not
18 only for acquisition of inventory, but for the start-up
19 costs and build-out of the Worth Avenue store. Dennis also
20 executed the first and second addendum to the lease for the
21 Worth Avenue store, although that evidence overwhelmingly
22 supports a finding of a joint venture.
23 And the reality is, there is no evidence the
24 parties' relationship was anything other than a joint
25 venture. To be sure, the parties did sign a series of 8
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1 promissory notes as part of the initial transfers of funds.
2 But the Court does not give much weight to that, considering
3 that, as mentioned at the outset, none of the parties were
4 represented by counsel. These notes were simply executed to
5 reflect that money had been transferred and the Plaintiffs
6 needed some evidence of that.
7 How the parties framed their pleadings in the
8 previous State Court filings is also not determinative of
9 their relationship. Even if it had some bearing on what the
10 Plaintiffs really thought, it certainly does not outweigh
11 the overwhelming evidence of a joint venture.
12 So, for all of those reasons, the Court concluded
13 that the parties were engaged in a joint venture. And
14 because the parties were part of a joint venture, the Debtor
15 was acting in a fiduciary capacity in his dealings with the
16 Plaintiffs.
17 The Court must now turn to whether the Debtor
18 committed a fraud or defalcation while acting in a fiduciary
19 capacity. And the evidence is likewise overwhelming that he
20 did.
21 The evidence at trial showed that the Debtor
22 befriended the Plaintiffs; he visited them at their homes;
23 he invited them to his home for social occasions. He even
24 went so far as to buy one of the Plaintiffs' daughters a
25 birthday present. 9
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1 And once he befriended them, he engaged in a
2 pattern of misrepresentations at every turn in his dealings
3 with them. He misrepresented his expertise in the rare
4 currency area. For instance, he told them he was the most
5 knowledgeable expert in the field of currency trading in the
6 United States. In fact, he had only recent experience in
7 the field.
8 He misrepresented -- when he said he was using
9 their money to buy currency, to the contrary there is no
10 currency to show for the enormous investment made by the
11 Plaintiffs, only unfulfilled promise.
12 And he lied with respect to specific transactions
13 in which he overstated the price he paid for rare currency.
14 And as a consequence, the Plaintiffs overpaid for the
15 currency they acquired for the Palm Beach store.
16 Perhaps the most egregious transaction was the
17 $2-1/2 Indian Head coin transaction. In that one, the
18 Debtor represented that the Indian Head coin could be
19 purchased for 310,000, and that he needed a hundred thousand
20 from Dennis to match the hundred thousand he was investing
21 and a hundred thousand that his friend, Mr. Raneire
22 (phonetic), would be investing. It was represented that
23 those coins had a value of $550,000.
24 In fact, the coins were never graded, which is
25 significant in the coin industry. Grading is required to 10
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1 determine the value of any coin. And there was absolutely
2 no basis upon which the Debtor could make the representation
3 of value that he made.
4 He also deceived the Plaintiffs by creating a
5 catalog in which he listed rare currency that he either
6 owned or had previously sold as having a value of over
7 $1 billion. He induced the Plaintiffs to continue investing
8 with him by representing that the market was booming.
9 The Eleventh Circuit has previously stated that
10 defalcation refers to a failure to produce funds entrusted
11 to a fiduciary. Although, the Court acknowledged that the
12 precise meaning of "defalcation" for purposes of Section
13 523(a)(4) has never been entirely clear. More recently, the
14 Eleventh Circuit has held that defalcation under 523(a)(4)
15 requires a showing of
16 recklessness.
17 The Plaintiffs have more than satisfied that
18 standard here. The Debtor's conduct was plainly fraudulent
19 under Section 523(a)(4). At a minimum, it was grossly
20 negligent.
21 As a consequence, the Court concludes that the
22 Debtor committed a fraud or defalcation while acting in a
23 fiduciary capacity. Accordingly, the Court concludes that
24 the debt owed to the Plaintiffs is nondischargeable.
25 Though the Court is focused on whether the Debtor 11
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1 committed a fraud or defalcation while acting in a fiduciary
2 capacity, there is an additional basis for determining the
3 debt owed to the Plaintiffs as being nondischargeable.
4 As mentioned earlier, Section 523(a)(4) excepts
5 from discharge any debt for embezzlement. "Embezzlement" is
6 defined as the fraudulent appropriation of property by a
7 person to whom such property has been entrusted or into
8 whose hands it has lawfully come.
9 The evidence is overwhelming that the Plaintiffs
10 entrusted the Debtor with a substantial investment for the
11 purchase of rare currency. At the end of the day, the
12 Debtor has not repaid the Plaintiff, nor has he produced any
13 of the inventory that was in the Palm Beach store.
14 So the Court concludes the debt is
15 nondischargeable for the additional reason that it arose out
16 of the Debtor's embezzlement. Having concluded that the
17 debt owed to the Plaintiffs is nondischargeable, the Court
18 must now turn to the amount of the nondischargeable debt.
19 At the outset, the Court notes that the parties
20 expressly consented at the beginning of trial to this Court
21 entering a final judgment and liquidating the amount of any
22 nondischargeable debt. The Debtor admits in his answer that
23 he's indebted to the Plaintiffs collectively in the amount
24 of $3,691,000. And a party is bound by their own
25 admissions, including admissions in pleadings. That 12
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1 admission establishes the Plaintiff's prima facie case
2 regarding the amount of the debt.
3 Nonetheless, the Debtor contends that he's
4 permitted to rebut that prima facie showing or establish his
5 affirmative defense of setoff, which would ultimately reduce
6 the amount of the nondischargeable debt. Even if the Debtor
7 is permitted to rebut the prima facie showing or establish
8 his setoff defense, the Court has reviewed its notes from
9 the trial and the exhibits introduced into evidence and
10 finds no competent substantial evidence of any payments to
11 the Plaintiffs.
12 Perhaps most telling, the Debtor's own memorandum
13 on judicial admissions or, for that matter, his closing
14 argument, does not cite to a single exhibit reflecting
15 payments by the Debtor to the Plaintiffs which would serve
16 as a basis for a setoff. It appears, from the Debtor's
17 memorandum, that the sole support for the Debtor's setoff
18 defense is his testimony that he repaid Plaintiffs with
19 significant cash payments.
20 Without specificity, that is not the kind of
21 substantial competent evidence that would support this
22 affirmative defense. Frankly, the Court did not find the
23 Debtor's testimony credible at all, much less on that
24 particular issue.
25 The Court also takes judicial notice of its oral 13
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1 ruling in the discharge action the U.S. Trustee filed
2 against the Debtor. In its ruling, the Court found that the
3 Debtor had lost hundreds of thousands of dollars gambling at
4 the Seminole Hard Rock Casino.
5 That finding formed a substantial basis for the
6 Court's ruling denying the Debtor his discharge. And the
7 Court thinks it provides some explanation of what really
8 happened to the money that the Plaintiffs invested with the
9 Debtor. It was not repaid to them in cash. The Debtor
10 simply spent it.
11 Accordingly, the Court concludes that the total
12 owed to the Plaintiff in the amount of $3,691,000 is
13 nondischargeable. That will be apportioned for each
14 Plaintiff in the amount set forth in paragraph 4 of the
15 complaint in either a separate or one final judgment in
16 favor of each of the Plaintiffs in those respective amounts
17 will be entered.
18 Mr. Weiss, if you could prepare a form of final
19 judgment and reciting it's for the reasons stated orally and
20 recorded in open court, which shall constitute the Court's
21 findings of fact and conclusions of law for purposes of Rule
22 52. And then also in that, enter judgment by separate
23 paragraph in favor of each Plaintiff for the respective
24 amounts cited in paragraph 4; and finding that all of those
25 debts are nondischargeable in this bankruptcy case. 14
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1 Again, this case was well-tried. I have to deal
2 with the facts as they're presented. And facts are stubborn
3 things. And no matter what our inclinations or view of the
4 evidence at the end of day, make the decision, and that's
5 how I see this set of transactions and that will be my
6 finding.
7 Is there anything else we can cover at this point?
8 (No response.)
9 THE COURT: Okay. Very well. Thank you. This
10 Court is --
11 MR. WEISS: Thank you, Your Honor.
12 THE COURT: Thank you, Mr. Treuhaft.
13 MR. TREUHAFT: Thank you, Your Honor.
14 (Whereupon, the hearing concluded at 9:56 a.m.)
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C E R T I F I C A T E
STATE OF FLORIDA )
COUNTY OF HILLSBOROUGH )
I, Kimberley S. Johnson, Certified Verbatim
Reporter Master, and Notary Public, do hereby certify that
the foregoing proceeding was transcribed by me and that the
foregoing pages constitute a true and correct copy of my
transcription.
I FURTHER CERTIFY that I am not a relative,
employee, attorney or counsel of the parties, nor a
relative or employee of such attorney or counsel, nor
financially interested in the foregoing action.
WITNESS my hand this 30th day of November, 2012,
at Tampa, Hillsborough County, Florida.
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