Shcherbakovskiy et al v. Malakhov

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re:
Chapter 7
ARKADY MALAKHOV,
Case No. 05-47081 (ALG)
Debtor.
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VADIM PRISIVKO,
Plaintiff,
- against - 	Adv. Proc. No. 07-01716 (ALG)
ARKADY MALAKHOV,
Defendant.
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MEMORANDUM AND ORDER
A P P E A R A N C E S:
LOWENSTEIN SANDLER PC
Attorney for Plaintiff, Vadim Prisivko
By: 	Steven M. Hecht, Esq.
1251 Avenue of the Americas
New York, NY 10020
SATTERLEE STEPHENS BURKE & BURKE LLP
Attorney for Defendant, Arkady Malakhov
By: 	Howard G. Seitz, Esq.
230 Park Avenue, Suite 1130
New York, NY 10169
ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
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Plaintiff Vadim Prisivko (“Prisivko”) has moved for reconsideration of this
Court’s January 7, 2011 order granting a discharge to defendant, Arkady Malakhov
(“Malakhov”), and for the entry of amended findings pursuant to Fed. R. Civ. P.
52(b), 59(e), and 60(b). In the alternative, Prisivko has moved for leave to amend the
complaint to conform to the evidence presented in the case pursuant to Fed. R. Civ. P.
15(b). Malakhov has cross-moved pursuant to Fed. R. Civ. P. 59(e) for reconsideration of
the findings regarding the adequacy of Malakhov’s notice to Grigoriy Shcherbakovskiy
(“Shcherbakovskiy”), Prisivko’s predecessor-in-interest and the original plaintiff in this
case. The facts underlying this dispute are set forth in this Court’s previous decision and
will not be restated. See In re Malakhov, 2011 WL 65603 (Bankr. S.D.N.Y. Jan. 7, 2011).
I. Plaintiff’s Request for Amended or Additional Findings
Prisivko argues that this Court failed to adequately consider two issues relating to
Malakhov’s sale of certain shares (the “Gift Shares”) to Sigford Hogsbro (“Hogsbro”):
(1) Malakhov’s non-disclosure of income resulting from the sale; and (2) his failure to
identify his alleged “management positions” at ZeTek Power, PLC (“ZeTek”) and
Cenergie Corporation (“Cenergie”). Prisivko argues that non-disclosure of income, by
itself, warrants a revocation of Malakhov’s discharge for “fraudulent understatement of
income.” Prisivko’s Motion at 9 (Dkt. No. 62). Prisivko argues that the second issue is
also relevant because it is “directly probative of his fraudulent intent in failing to disclose
his equity interest in Cenergie PLC.” Id. In addition, Prisivko requests that this Court
make additional and amended findings, pursuant to Fed. R. Civ. P. 52(b), with respect to
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Malakhov’s alleged failure to schedule a debt owed to Shcherbakovskiy in the amount of
$760,000. 1
With regard to Prisivko’s first allegation and contrary to his assertions, the Court
was well aware of Malakhov’s non-disclosure of a minimal amount of income and failure
to list his positions at ZeTek and Cenergie on his Statement of Financial Affairs
(“SOFA”) and took those non-disclosures into account when considering the record as a
whole. In re Malakhov, 2011 WL 65603 at *5. In the Court’s view, Malakhov’s failure to
account for $1,000 in proceeds received for the transfer of the Gift Shares was
immaterial.2 See In re Natale, 136 B.R. 344, 350 (Bankr. E.D.N.Y. 1992) (failure to list
annuity valued at $2,000 was “immaterial as a matter of law”); see also In re Woerner, 66
B.R. 964, 973 (Bankr. E.D. Pa. 1986); In re Morris, 48 B.R. 422, 429-30 (Bankr. N.D.
Tex. 1986). Moreover, Malakhov credibly testified he believed in good faith he did not
have a position at either ZeTek or Cenergie which had to be disclosed in his SOFA.
Question 18 of the SOFA requires the disclosure of certain identifying information about
businesses in which the debtor was “an officer, director, partner, or managing executive”.
Malakhov’s testimony was that he was not an officer, director, partner or managing
executive and that Nicholas Abson (“Abson”), his former boss, described Malakhov as
part of the management only in situations where it was beneficial for Abson to do so.
Prisivko has produced no new evidence regarding Malakhov’s alleged fraudulent intent
or in support of his allegations that this Court made a manifest error in law or fact with
respect to these issues.
1 Fed. R. Civ. P. 52(b) is applicable to this proceeding under Federal Rule of Bankruptcy Procedure 7052.
2 Malakhov testified at trial that he sold the Gift Shares for $10,000: the $1,000 currently at issue and
$9,000 Malakhov allegedly received in meals, plane tickets and other in-kind payments. Prisivko has not
raised any issues concerning the remaining $9,000 and there is no evidence that Malakhov actually
received goods worth $9,000 from Hogsbro.
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Prisivko cites In re Mick, 310 B.R. 255, 259 (D. Vt. 2004), for the proposition that
Malakhov’s allegedly false answers to Questions 1 and 18 of his SOFA prohibits his
discharge.3 In Mick, the debtor’s discharge was ultimately denied because the court did
not 	find 	the 	bankrupt 	credible, 	pointing 	to his 	“disparate 	answers” 	and 	multiple
amendments to his SOFA, which was ultimately contradicted by the evidence at trial.
Malakhov made no amendments to his SOFA, his answers to questions at trial were
forthright and the evidence does not support a finding that Malakhov had a “reckless
disregard for the truth” or that he demonstrated fraudulent intent.
Prisivko also moved, pursuant to Rule 52(b) for amended findings regarding
Malakhov’s alleged failure to schedule a $760,000 debt to Shcherbakovskiy. Rule 52(b)
motions are appropriate only when the moving party can show either a manifest error of
law or fact, or newly discovered evidence, and are not intended to be an opportunity for
parties to relitigate old issues or to advance new theories. See e.g. United States v. Int’l
Longshoreman’s Ass’n, 831 F. Supp. 167, 169 (S.D.N.Y. 1993); Wallace v. Brown, 485
F. Supp. 77, 78 (S.D.N.Y. 1979). Prisivko’s requested relief is unwarranted. There was
no error of law or fact in the original decision. First, Malakhov testified that the claimed
$760,000 debt was a non-recourse obligation secured by shares in ZeTek that was
discharged 	when 	that 	collateral 	was 	surrendered 	to 	Shcherbakovskiy. 	Malakhov’s
position was far more credible than Shcherbakovskiy’s when viewed in light of the
history of this dispute. Thus, when Shcherbakovskiy filed his complaint seeking to
revoke his cousin’s discharge, he complained only about the Gift Shares and not about
his supposed $760,000 claim against Malakhov. In any event, Shcherbakovskiy was
3 Question 1 of the SOFA requires the disclosure of certain income from prior employment or the operation
of a business. The disclosure requirements of Question 18 are discussed above.
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listed as a creditor on Malakhov’s petition in the amount of $7,567 and would not have
received any greater notice or recovery had his debt been listed as $760,000 instead of
$7,567. Prisivko has failed to establish a sufficient basis to amend this Court’s previous
finding, and his motion to amend the findings under Fed. R. Civ. P. 52(b) is denied.
II. Motion to Reconsider, Relief from Judgment and Amended Pleadings
Prisivko moves for reconsideration pursuant to Fed. R.Civ. P. 59(e). Such motions
have a narrow reach, In re Crozier Bros., Inc., 60 B.R. 683, 687 (Bankr. S.D.N.Y. 1986),
and may only be granted if there is “newly discovered evidence, an intervening change in
controlling law, or to prevent manifest injustice.” In re Lufkin, 393 B.R. 585, 600 (Bankr.
E.D. Tenn. 2008). 	Prisivko, however, has not cited any newly discovered evidence,
change in controlling law, manifest injustice, nor has he demonstrated that this Court
made a mistake in its prior decision.
Similarly, Prisivko is not entitled to relief from this Court’s judgment under Fed.
R. Civ. P. 60(b). Rule 60(b)(1) and (6) provide that a “court may relieve a party . . . from
a final judgment, order, or proceeding for . . . excusable neglect,” or for “any other reason
that justifies relief.” Fed. R. Civ. P. 60(b)(1), (6). Excusable neglect claims are analyzed
by considering “all relevant circumstances surrounding the party’s omission.” In re
Miller, 2009 WL 174902 (S.D.N.Y. Jan. 26, 2009), quoting Pioneer Investment Services
Co. v. Brunswick Associates Partnership, 507 U.S. 380, 395 (1993). Prisivko claims he is
entitled to relief under Rule 60(b)(1) because he believed Malakhov’s failure to disclose
the alleged debt owed to Shcherbakovskiy and his alleged managerial positions at ZeTek
and Cenergie were not considered by the Court. While the Court did not specifically
address these issues, as stated above, they were taken into account.
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Prisivko also seeks relief from final judgment under Rule 60(b)(6). Rule 60(b)(6)
is “properly invoked only when there are extraordinary circumstances justifying relief,
when the judgment may work an extreme and undue hardship, and when the asserted
grounds for relief are not recognized in clauses (1)–(5) of the Rule.” Nemaizer v. Baker,
793 F.2d 58 (2d Cir. 1986) (citing Matter of Emergency Beacon Corp., 666 F.2d 754, 759
(2d Cir. 1981)). Here, there are no extraordinary circumstances or undue hardship which
would warrant relief under Rule 60(b)(6) in this case.
In the alternative, Prisivko contends that, pursuant to Fed. R. Civ. P. 15(b),4 this
Court should allow the amendment of his pleadings to conform them to the evidence.
Rule 15(b)(2) provides:
When an issue not raised by the pleadings is tried by the parties’
express or implied consent, it must be treated in all respects as if
raised in the pleadings. A party may move . . . to amend the
pleadings to conform them to the evidence . . . [b]ut failure to amend
does not affect the result of the trial of that issue.
Generally, amendments to pleadings under Rule 15(b) are liberally allowed when
necessary to further justice and where the adverse party will not be prejudiced. In re
Adelphia Commc’ns Corp., 376 B.R. 87, 106 (Bankr. S.D.N.Y. 2007). In this case,
Prisivko is not attempting to add a new cause of action, but rather to revisit issues this
Court has already taken into consideration. For the above stated reasons, Prisivko’s
motion to amend his pleadings under Fed. R. Civ. P. 15(b) is denied.
III. Malakhov’s Fed. R. Civ. P. 59(e) Motion
Malakhov has responded to Prisivko’s Rule 59(e) motion with one of his own. He
seeks reconsideration of the Court’s findings regarding the adequacy of the notice
afforded to Shcherbakovskiy. This Court previously held that Shcherbakovskiy did not
4 Fed. R. Civ. P. 15(b) is applicable to this proceeding under Bankruptcy Rule 7015.
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receive timely notice of Malakhov’s chapter 7 petition, and that the motion to revoke the
discharge was timely under § 727(e) of the Bankruptcy Code. Although Malakhov moves
to amend this finding, he has provided no additional evidence that would require the
Court to change its position regarding the inadequacy of the notice provided to
Shcherbakovskiy. Therefore, Malakhov’s motion is denied.
CONCLUSION
For the foregoing reasons, the Prisivko’s motions for amended or additional
findings under Fed. R. Civ. P. 52(b), 59(e), and 60(b), as well as for amended pleadings
under Fed. R. Civ. P. 15(b) are denied. Malakhov’s motion to amend findings regarding
adequacy of his notice to Shcherbakovskiy under Fed. R. Civ. P. 59(e) is also denied.
IT IS SO ORDERED.
Dated: New York, New York
April 28, 2011
/s/ Allan L. Gropper 	_
UNITED STATES BANKRUPTCY JUDGE
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