Patel v. Patel (In re Patel)
551 B.R. 488
Bankr. D.N.M.2016Background
- Plaintiffs Usha and H.K. Patel brought an adversary proceeding alleging embezzlement, fraud, and conversion by defendants Danny and Patty Patel arising from misappropriation of funds from Roshan Hospitality, LLC and Usha personally.
- Pretrial Order preserved claims in the general nature of embezzlement, co-mingling, diversion of profits, false reporting, and forged signatures; Plaintiffs later pursued direct claims including a $29,000 misuse of Usha’s personal line of credit and a $6,946 2010 LLC distribution not received by Usha.
- After a multi-day bench trial with extensive exhibits and testimony, the court awarded Plaintiffs a nondischargeable judgment of $35,946 under 11 U.S.C. § 523(a)(4) (embezzlement): $29,000 (line of credit) plus $6,946 (2010 distribution).
- Defendants moved under Fed. R. Civ. P. 59(e) and Rule 59(a)(2) to alter the judgment, arguing (1) the line-of-credit and 2010 distribution claims were not preserved, (2) insufficient evidence showed the 2010 distribution was not received, (3) Usha suffered no damages because she discharged the line-of-credit debt in bankruptcy, and (4) they should be allowed to present additional evidence.
- The court held the Pretrial Order and post-trial briefing adequately preserved the claims; found tax return entries and credible testimony supported the $6,946 distribution inference; treated the $29,000 as prima facie embezzlement damages absent proof of repayment; and denied permission to reopen with non-new evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Preservation of line-of-credit and distribution claims | Claims were within Pretrial Order's broad embezzlement categories and were raised in post-trial brief | Claims were not pled, preserved, or tried; defendants lacked notice of direct claims | Claims were preserved by the Pretrial Order and post-trial briefing; preservation objection waived when not raised earlier |
| 2010 distribution (whether misappropriated) | Tax return (Schedule K-1, capital account) and witness testimony show a $6,946 distribution which Usha did not receive | No proof Hospitality actually paid distribution or that Usha didn’t receive it | Court credited tax return and Usha's testimony, inferred defendants embezzled the 2010 distribution; request to reopen to add evidence denied (not newly discovered) |
| Line-of-credit misappropriation damages ($29,000) | Misuse of Usha’s personal line of credit for defendants’ personal expenses proves embezzlement and prima facie damages equal to the draws | Usha was not damaged because she discharged the debt in her Chapter 7; defendants offered repayment checks | Court applied embezzlement damages rules: established prima facie $29,000 loss; discounted repayment testimony as not credible; Chapter 7 discharge did not negate the nondischargeable embezzlement judgment; damages affirmed |
| Request to reopen post-trial under Rule 59(a)(2) | N/A (defendants sought to present additional documents/testimony to negate liability) | Evidence offered was available at trial (not newly discovered); reopening is improper for rehashing or improving the case | Denied: supplemental evidence was not newly discovered and Rule 59 does not permit a second chance to present evidence readily available at trial |
Key Cases Cited
- U.S. v. Huff, 782 F.3d 1221 (10th Cir. 2015) (standards for relief under Rule 59(e))
- Servants of the Paraclete v. Does, 204 F.3d 1005 (10th Cir. 2000) (grounds for reconsideration under Rule 59(e))
- In re Bucci, 493 F.3d 635 (6th Cir. 2007) (elements of embezzlement described)
- In re Wallace, 840 F.2d 762 (10th Cir. 1988) (definition of embezzlement referenced)
- LiButti v. U.S., 178 F.3d 114 (2d Cir. 1999) (denial of rehearing where losing party seeks a second chance to present evidence)
- Precision Pine & Timber, Inc. v. U.S., 596 F.3d 817 (Fed. Cir. 2010) (denial of Rule 59(a)(2) relief where evidence was not actually new)