Appeal from the United States Bankruptcy Court for the District of Nevada Honorable Gregg W. Zive, Bankruptcy Judge, Presiding Bankr. No. 05-51094-GWZ Adv. Proc. 05-05121-GWZ
SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on June 15, 2012, at Las Vegas, Nevada
Before: PAPPAS, DUNN and KIRSCHER, Bankruptcy Judges.
Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Michael Harris ("Harris") appeals the bankruptcy court's judgment denying his motion for a partnership accounting and settling title to certain real property in his adversary proceeding against chapter 11*fn2 debtor Bechara Victor Honein ("Honein"). We AFFIRM.
Unless otherwise noted, the parties do not dispute the underlying facts in this appeal.
In 2002, Honein and Harris entered into an oral partnership agreement to purchase real property on which a gas station would be operated. The parties never prepared a written partnership agreement. The partnership was to be equally owned by Honein and Harris, with each partner to have an equal responsibility to contribute the sums necessary to fund the partnership. While it was intended that the partnership acquire and own the real property, it would not own or operate the gas station business.
The parties agreed that, when acquired, title to the real property would be placed in Honein's name, because Harris had outstanding money judgments against him and was experiencing other problems with his creditors:
COUNSEL FOR HONEIN: And, in fact, sir, you told
Mr. Honein that you could put nothing in your name because of your problems with the creditors.
Trial Tr. 107:17-21, April 26, 2007. It was agreed that Honein, alone, would own and operate the gas station business.
Harris' initial obligation to the partnership was to contribute $45,000, which the partners then expended on costs and offers on properties that were not ultimately purchased. Harris was also primarily responsible for obtaining the financing for any real property purchase.
From 2002 to 2003, Honein and Harris inspected various properties and made offers to acquire them. Ultimately, one offer proposed by Honein was accepted for a property in Carson City, Nevada (the "Property") owned by BP West Coast Products LLC
("BP/ARCO").*fn3 Honein and BP/ARCO executed a sale contract for $550,000. Although it is not clear in the record the date when the offer was accepted, on March 25, 2003, BP/ARCO informed Honein that if the sale of the Property did not close within five business days, the sale contract would be rescinded. Harris was unable to obtain commercial financing for this purchase. Instead, Harris arranged for a short-term loan from his brother, Lee
Harris, in the amount of $450,000 to close the sale. Honein alone signed a promissory note in favor of Lee Harris, with no reference to any partnership with Harris.
Although the parties do not dispute that the amount owed on this
promissory note was $450,000, the note executed by Honein was for
$850,000. The bankruptcy court later found that both Honein and
Harris intended that this false document would be used to
inflate the value of the Property to induce banks to provide
2 much higher commercial loan. Then, through this scheme,
3 paying off the $450,000 to Lee Harris, the parties could
4 the fraudulently obtained surplus in loan proceeds. See
5 Findings of Fact no. 21, November 3, 2010.
6 The sale of the Property closed on May 23, 2003; all 7 documents were signed by Honein with no reference to a partnership 8 with Harris; title vested in Honein. At some point not clear in 9 the record, Honein gave a grant deed to Lee Harris for a 50 10 percent interest in the Property, which deed was never recorded.
11 Lee Harris, in turn, provided a quitclaim deed to Harris, again at 12 a time not clear in the record, which was also not recorded. 13 A condition on title to the Property was that it be used to 14 operate a BP/ARCO service station. At closing of the sale, Honein 15 applied for a BP/ARCO franchise to operate a service station and 16 convenience store on the Property. Honein then attended and 17 successfully completed the mandatory franchise holder "training 18 school," paying the $15,000 tuition, and was awarded the franchise 19 in his own name. Harris never attended the training school or 20 attempted to obtain the status of a franchise holder. Indeed, 21 because Harris never qualified as a BP/ARCO franchise holder, the 22 terms of the deed to the Property prevented him from ever owning 23 it.
24 Honein has owned and operated the service station and 25 convenience store since 2003. Harris was employed there at times, 26 receiving total wages of $38,400.
The bankruptcy court would ultimately determine, and the 28 parties do not dispute, that the partnership between Honein and 1 Harris ended in June 2004. Harris alleges that Honein punched 2 him; Honein alleges that Harris threatened his children. Honein 3 obtained a restraining order against Harris.
4 Apparently in response to a continuing dispute with Lee 5 Harris over repayment of the $450,000 loan, Honein filed a 6 chapter 11 petition on April 15, 2005. Honein's Schedule D lists 7 a disputed secured claim of $450,000 in favor of Lee Harris. 8 Neither Honein's schedules nor statement of financial affairs 9 makes any reference to any partnership with Harris, or in any way 10 lists Harris as a creditor.
11 Harris filed a complaint commencing the subject adversary 12 proceeding against Honein on December 6, 2005. The complaint was 13 amended on June 19, 2006 (the "First Amended Complaint"). The 14 First Amended Complaint sought an order from the bankruptcy court 15 declaring that the Property was held in trust by Honein for the 16 benefit of Harris; adjudging Harris to have an equitable lien for 17 the value of 50 percent of the Property; quieting title to, and 18 determining that Harris is the beneficial and legal owner of, 19 50 percent of the Property; and monetary damages. Honein filed an 20 Answer and Counterclaim on September 15, 2006, seeking an award of 21 money damages from Harris for his alleged fraud, and a declaratory 22 judgment that Honein was the sole owner of the Property.
The bankruptcy court conducted a trial in the adversary 24 proceeding on April 26 and 27, 2007. Honein, Harris and Lee 25 Harris testified. At the end of trial, the bankruptcy court 26 orally ruled on the record that both parties were in pari delicto, 27 because they had established and pursued the partnership business 28 for an illegal purpose and, therefore, the bankruptcy judge 1 stated, "I am finding against both parties and all their claims 2 for relief." Trial Tr. 30:19-21, April 27, 2007. The bankruptcy 3 court entered Findings of Fact and Conclusions of Law on 4 January 6, 2009.
Regarding the counterclaim, the court ruled that 5 Honein was prevented from recovery under the doctrine of in pari 6 delicto. As to Harris' claims, the court determined:
- Harris had breached the partnership agreement by failing to 8 contribute his 50 percent of the funds needed by the partnership, 9 and in fact "contributed nothing towards the purchase of the 10 Property, or its improvement and maintenance through June 2004."
11 - The grant deed from Honein to Lee Harris was intended for 12 security purposes only, and did not transfer any ownership 13 interest in the Property to him. As a result, the quitclaim deed 14 from Lee Harris to Harris ...