Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-5_07-ap-05147/USCOURTS-canb-5_07-ap-05147-0/pdf.json

Parties Involved:
Avi Mukherjee
Plaintiff
Kumar S. Sripadam
Plaintiff
Raymond J. Sir
Defendant
Global OEM Solutions, LLC
Defendant

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re Case No. 07-52029-RLE

RAYMOND J. SIR, Chapter 7 Debtor. Adv. Proc. No. 07-5147

_________________________________/

 

AVI MUKHERJEE & KUMAR S. SRIPADAM,

 Plaintiffs,

 vs. RAYMOND J. SIR,

 Defendant. 

_________________________________/

MEMORANDUM DECISION AFTER TRIAL

The following constitutes 

the order of the court. Signed May 25, 2010

________________________________________

Roger L. Efremsky

________________________________________ U.S. Bankruptcy Judge

Entered on Docket 

May 26, 2010

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

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1 GOEM was the debtor in chapter 7 case no. 07-52027 ASW. 

The case is now closed. Plaintiffs filed an adversary

proceeding with identical allegations in the GOEM case which

was dismissed at plaintiffs’ request. See AP no. 07-5148.

Plaintiffs have failed to submit an order dismissing it as

requested by the court. 

[sir.mukherjee.sripadam.final.memo.decis] -2-

I. Introduction and Procedural Posture

The court has jurisdiction to hear this matter pursuant

to 28 U.S.C. § 1334(b). This is a core proceeding under 28

U.S.C. § 157(b)(2)(I). 

Raymond J. Sir (“Sir”) filed this chapter 7 case on July

6, 2007. Plaintiffs Avi Mukherjee (“Mukherjee”) and Kumar

Sripadam (“Sripadam” and, with Mukherjee, “plaintiffs”) timely

filed the Complaint commencing this adversary proceeding on

September 12, 2007. The Complaint states one claim for relief

under Bankruptcy Code § 523(a)(2)(A). The other defendant

initially named in the Complaint - chapter 7 debtor Global OEM

Solutions, LLC (“GOEM”) - was dismissed on the eve of trial.1

Through counsel, Sir answered the complaint, generally

denying its allegations and raising affirmative defenses. He

responded to plaintiffs’ discovery and was deposed. Sir’s

counsel withdrew in September 2008 and was not replaced. The

case went to trial on January 5, 2010. Sir represented himself

at trial and James Cai and Seth Weiner represented plaintiffs. 

This is the court’s decision following trial and

constitutes its findings of fact and conclusions of law as

required by Federal Rule of Bankruptcy 

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2

 The following abbreviations will be used: “Tr.”

indicates the trial transcript; “Exh.” indicates exhibit. 

3

 There was no corroborating evidence for this selfdiagnosis - other than the apparent gambling debts involved in

here. The court notes that the Diagnostic and Statistical

Manual of Mental Disorders (DSM-IV) of the American

Psychiatric Association classifies pathological gambling as an

impulse control disorder.

[sir.mukherjee.sripadam.final.memo.decis] -3-

Procedure 7052.2

The gaps in the record in this case have created

analytical problems which will be apparent in the discussion

that follows. The problems stem in large part from the way

plaintiffs’ counsel presented the case and the fact that Sir

had no counsel at trial. If there appear to be missing facts

in what follows, it is not due to the court’s oversight of any

available facts.

II. Relevant Facts

A. Background Facts re Sir

Sir testified that he had received a bachelor’s degree

from the University of California at Berkeley (with a major in

biophysics) and had received an MBA from the University of

California at Los Angeles. Tr. 72:6-8. Sir said he had been

a “gambling addict” during the time relevant to this adversary

proceeding and was now a recovering gambling addict.3

 Tr.

89:14-21; 90:1-5; 134:1-8; 141:15-19. He claimed he had lost

millions of dollars gambling. Tr. 73:3-9. He is separated

from his wife, unemployed, and living in southern California

with his parents. Tr. 71:17-24; 73:3-6.

Sir formed GOEM in 1999 and it operated until it filed

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4 Sir listed $1.3 million in unsecured debt on his

schedule F. Approximately $70,000 of this appears to be credit

card debt. Approximately $715,000 of this appears to be two

real property secured debts on what was Sir’s home. Sir Docket

no. 11.

[sir.mukherjee.sripadam.final.memo.decis] -4-

its chapter 7 case at the same time he filed this case in July

2007. Sir Docket no. 12, p. 5. At all times relevant to this

adversary proceeding, Sir owned the controlling interest in

GOEM and was its only manager. Exhs. 1-3. GOEM’s statement

of financial affairs described it as a “technology consulting

company covering both hardware and software.” GOEM Docket no.

11, p. 5. The trustee in the GOEM case filed a no asset

report and a final decree was entered in December 2007. GOEM

Docket no. 15. 

Sir’s schedules showed unsecured debt of approximately

$1.3 million, no secured debt, and no priority debt. His

schedule A listed no real property. Sir Docket no. 11. He

apparently transferred his interest in what had been a jointly

owned house to his ex-wife in June 2006 according to the terms

of a marital property agreement entered into in September

2005. Sir Docket no. 12, p. 3; Exh. 21.4

 However, he resided

in the home until September 2009 and the marriage has not been

formally dissolved. Tr. 133:5-18. According to his statement

of financial affairs, his income, derived solely from GOEM,

was less than $10,000 in 2007, less than $54,000 in 2006, and

less than $28,000 in 2005. Sir Docket no. 12, p. 1. 

B. Plaintiff Mukherjee’s Testimony

Mukherjee had been employed at IBM and Hitachi from 1978

to 2006. Tr. 40:8-17. There was no evidence at trial

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5 In his poker terminology, he would “get some

reimbursement of the rake” from Bay 101. Tr. 30:11-12. This

employment was not during the time relevant to this case. Tr.

30:21.

[sir.mukherjee.sripadam.final.memo.decis] -5-

regarding his educational background or what he had done at

IBM or Hitachi; the court assumes he was an engineer. He met

Sir playing poker at Bay 101 in 2002 or 2003. Tr. 7:21-25. 

At all times relevant to this case, they both played there

regularly - at least several times a week. Tr. 27:16-17. He

had also been employed at Bay 101 in some capacity because he

was a regular player there and knew the owner.5

 Tr. 30:8-15.

After retiring from Hitachi in 2006, Mukherjee formed Global

Tech Consultants, LLC (“GlobalTech”). Tr. 40:2-21.

Mukherjee testified that on September 4, October 14 and

December 17, 2005, he loaned Sir cash while they were together

at Bay 101. Tr. 8:2-24. Mukherjee said these three personal

loans, totaling $30,000, were used by Sir to play poker. Tr.

8:2-24. These loans were not supported by any contemporaneous

written documentation but Mukherjee believed there had been an

agreement to repay these loans within a month or less but they

had not been. Tr. 9:1-7.

Mukherjee testified that even though the $30,000 loan had

not been repaid, in February 2006, Sir told him it would be in

his “best interest” to convert the unpaid $30,000 personal

loan into an investment in GOEM and to make an additional

investment of $70,000. Tr. 9:22-25; 11:4-10. He testified

that Sir told him that Sir controlled GOEM and that GOEM

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6

 It is unclear what Mukherjee understood “hedge fund” to

mean. Black’s Law Dictionary defines hedge fund as “a

specialized investment group - usu. organized as a limited

partnership or offshore investment company - that offers the

possibility of high returns through risky techniques such as

selling short or buying derivatives.” Blacks Law Dictionary,

(8th ed. 2004).

[sir.mukherjee.sripadam.final.memo.decis] -6-

controlled “significant hedge funds”6 in Korea. Tr.9:17-21.

Mukherjee claimed that Sir told him that this investment in

GOEM could provide a “significantly higher” return than any

other investment he could make - that it could be as high as

10 - 15%. Tr. 10:3-7.

In February and March 2006, before the additional $70,000

was transferred, Mukherjee (or his LLC) and Sir (or GOEM)

entered into the following agreements: 

1. The “Consultant Retainer Agreement” (“Consultant

Agreement”). See Exh. 7. The work to be performed by

Mukherjee was described as “assessing technology,” “business

development,” and “project management.” According to Exhibit

A to the Consultant Agreement, GOEM was to pay Mukherjee a fee

of $10,000 per month for this work plus a “net profit of 30%”

on two projects identified on Exhibit A. Mukherjee testified

that this consulting arrangement was a way of repaying the

personal gambling loans and he performed the consulting

services on an almost full time basis for 3 months. He claims

to be owed $30,000 for this work performed between March and

May 2006. 

2. The “Subscription Agreement and Suitability

Statement” (“Subscription Agreement”). See Exh. 5. The

Subscription Agreement provided that Mukherjee “agrees to

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7 Mukherjee testified that he transferred his personal

interest in these documents to his LLC, GlobalTech. The

documents are inconsistent. See Exh. 5, p. 55 listing

“Mukherjee c/o Globaltech” as the member of GOEM, and see Exh.

5, p. 56-57 listing Globaltech as the member. Mukherjee’s

explanation for this transfer was that he wanted to use

Globaltech as the vehicle for this investment and for any

income to be received under the Consultant Agreement. Sir

testified that these decisions were Mukherjee’s alone and he

had no interest in them or influence over them. 

[sir.mukherjee.sripadam.final.memo.decis] -7-

invest” $100,000 in GOEM and is to become a “limited partner.” 

The Subscription Agreement contains representations regarding

Mukherjee’s “suitability” to make this investment and an

acknowledgment of the risks associated with it. The key terms

of the Subscription Agreement include: 

The undersigned ... has such knowledge and experience in

financial and business matters that he is capable of

evaluating the merits and risks of an investment in the

Company and the suitability of such investment in the

Company ... is able to bear the economic risk of the

investment ... has received no representations or

warranties from the Company or the General Partner other

than those contained in the Operating Agreement ...

See Exh. 5, p. 2-3. 

3. As contemplated by the Subscription Agreement, the

Operating Agreement for GOEM dated March 26, 2006 shows that

GlobalTech became a member with a $100,000 investment and

acquired a 5% interest in GOEM (the Subscription Agreement and

the Operating Agreement, collectively, the “LLC Documents”).

See Exh. 3.7

Exhibit 17 is an undated and unsigned document prepared

by Mukherjee entitled “Loans and other payments to Raymond

Sir.” It lists the amounts and dates of each of Mukherjee’s

transfers. It shows the unpaid $30,000 “personal loan” made

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[sir.mukherjee.sripadam.final.memo.decis] -8-

in three installments between September 4, 2005 and December

17, 2005. This entry is followed by this statement: “2/14/06

verbal agreement with RJ Sir to convert Loan to investment -

add $70k more for minimum unit of $100k. Agree to pay $70k in

installments over 3 months.” The document then lists twelve

transfers in amounts ranging from $3,500 to $10,000 between

February 15, 2006 and May 12, 2006 and ends “total to date

$100k.” See Exh. 17. Exhibit 17 also shows that, with one

exception, these twelve transfers were made in cash while the

parties were together at Bay 101. The one exceptional

transfer was a wire transfer of $8,000 to Sir’s account at the

Bellagio in Las Vegas where Sir was apparently playing poker. 

Mukherjee testified that he began asking for his money

back in May 2006 and learned at this time that there were two

lawsuits pending against Sir or GOEM. Tr. 14:12-25. Exhibit

13, an email from Sir to Mukherjee dated May 25, 2006,

indicates that, due to cash flow problems, GOEM was unable to

pay the $30,000 consulting fee but apparently did not dispute

that $30,000 was owed. It also indicates that Sir offered to

“buy back” Mukherjee’s interest in GOEM. 

In an email to Sir dated February 12, 2007, Mukherjee

summarized the history of his relationship with Sir: 

You told me that, as I obviously saw with my own eyes,

the money I gave you for [GOEM] investment was in fact

lost at the gambling and poker tables at Bay 101 and

elsewhere ... You told me you would regard the money owed

as a personal loan - since obviously it went into poker

and gambling losses - and make me ‘whole’ ($130k)

personally.

See Exh. 12.

The email goes on to describe Sir’s apparent promise to

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[sir.mukherjee.sripadam.final.memo.decis] -9-

fully repay the $130,000 by December 2006, his failure to do

so, his promise to begin making monthly payments starting in

January 2007, and an apparent failure to do that. See Exh.

12.

C. Plaintiff Sripadam’s Testimony

Sripadam described himself as a self-employed

“entrepreneur and business consultant.” Tr. 55:9-10. He

stated he was on the board of directors of a “couple of

companies” and was working on a start-up of some kind. Tr.

55:11-12. There was no testimony regarding his educational

background and no details were offered on his business other

than as stated here. Sripadam met Sir in 2005 at Bay 101

where he also played poker on a regular basis. Tr. 55:13-20. 

Sripadam had loaned money to Sir for poker playing in the past

but as of April 2006, all such loans had been repaid. Tr.

63:12-23.

In April 2006, according to Sripadam, Sir told him that

GOEM had an opportunity to invest in a $1 million “mezzanine

deal” in South Korea involving an “ipo track company” whose

name Sripadam did not recall. Sir said GOEM was going to

invest $300,000 in this deal, and invited Sripadam to invest

$100,000 of the $300,000. Tr. 56:6-24. Sripadam thereafter

delivered to GOEM a $100,000 cashiers check made payable to

GOEM. Tr. 59:1-6.

Two documents were offered to support this transaction. 

Exhibit 14 is an email string dated April 10 and April 11,

2006 between Sir and Sripadam in which Sir wrote: 

I am inviting you to participate in a [m]ezzanine

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8 It is unclear what they understood this phrase to mean.

Generally, mezzanine financing can be structured either as

debt or equity and is often a more risky investment than

secured lending.

http://wikipedia.org/wiki/Mezzanine_financing.

[sir.mukherjee.sripadam.final.memo.decis] -10-

financing deal with an IPO track company in Korea. This

deal is through one of [the] premier Venture Capital

companies, KTIC (Korean Technology Investment Corp[.]),

www.ktic.co.kr in Korea. I have done numerous deals

with this company [in the] last 6 years and they have a

solid track record. Since this is [the] first deal for

us, my company will guarantee the minimum return of 15%

with the principle [sic] in 6 (six) months. In my

experience, you can expect around 30% return on this

deal in six months. I am making this deal a “No Risk”

deal for you.

Id.

In response to this initial email, Sripadam asked for

additional details and Sir responded with the name of the

company (“the company name is 3sdigital...they are backed by

Samsung and KTIC...”) and suggested they arrange a meeting.

See Exh. 14. 

Two days later, on April 13, 2006, as president and CEO

of GOEM, Sir signed a document addressed to Sripadam entitled

Letter of Guarantee (the “Letter”) and Sripadam delivered his

$100,000 check. See Exh. 19. Sripadam testified that they

had exchanged a draft of the Letter on which he had commented

before it was finalized. Tr. 60:5-7. The Letter says

Sripadam is making a “personal investment” of $100,000 for a

“Mezzanine Financing Project”8 in South Korea by and between

GOEM and Korea Exchange Bank (defined as the “Investment”)

and GOEM is issuing its “irrevocable and unconditional letter

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9 Exhibit 14 refers to Korean Technology Investment Corp.

but the Letter refers to Korea Exchange Bank. This unexplained 

discrepancy may or may not be significant. 

[sir.mukherjee.sripadam.final.memo.decis] -11-

of guarantee” in favor of Sripadam.9 The next two paragraphs

say: 

If the Investment fails to perform and fulfill the

expected returns, [w]e, as primary obligor and not

merely as surety, do hereby irrevocably and

unconditionally guarantee, jointly and severally, to

perform and fulfill the expected return rate up to 15%

with the principal. We hereby irrevocably and

unconditionally undertake to pay [Sripadam] immediately

if the Investment fails to earn expected returns up to

15% upon [Sripadam’s] simple demand with your [sic]

signed statement certifying that the Investment was not

returned with a guarantee earning of 15% by October 31st, 2006.

See Exh. 19 (emphasis added).

Sripadam acknowledged that he had done no due diligence

regarding this transaction before he delivered his $100,000

to GOEM. Tr. 58:10-12. He testified that he suspected the

$100,000 was used by Sir for gambling but acknowledged that

it was possible it had been invested by GOEM. Tr. 69:1-22.

On January 23, 2007, he sent a letter demanding immediate

payment of $115,000 on the “note.” See Exh. 15. 

D. Sir’s Testimony re Mukherjee and Sripadam

Sir admitted there was an unpaid $30,000 personal

gambling debt owed to Mukherjee but denied that there was an

intention to convert this $30,000 loan into an “investment”

in GOEM. He also denied that the additional $70,000 given to

him by Mukherjee was intended to be an “investment” in GOEM. 

Tr. 83:17-19; 85:20-24; 86:14-20; 88:14-25; 89:2-5. He

viewed the $100,000 as a gambling debt. Tr. 89:2-21. He

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denied promising Mukherjee a 20% return - or any specific

return - on any investment. Tr. 91:13-18.

Sir’s explanation for Mukherjee’s 5% interest in GOEM

was that Mukherjee was experienced and knowledgeable in the

technology area, and because of his years at IBM and Hitachi,

had contacts that could prove beneficial to GOEM. Tr. 90:19-

25. Accordingly, while the testimony on this point was less

than clear, he apparently transferred a portion of his 90%

interest in GOEM to Mukherjee (or to Globaltech) so that

Mukherjee (or Globaltech) had a 5% interest and Sir then had

an 85% interest. Tr. 88:10-12; Exh. 2, p. 66; Exh. 3, p. 65.

In Sir’s view of the transactions involved in this adversary

proceeding, the $100,000 gambling debt owed to Mukherjee and

the transfer of the 5% interest in GOEM were two entirely

separate issues. Tr. 90:19. Nonetheless, he testified that

he believed Mukherjee’s true intention in obtaining the GOEM

interest was to secure repayment of his gambling debt. Tr.

86:14-20.

Sir also denied that GOEM owed consulting fees to

Mukherjee because the services provided were either without

benefit to GOEM or Mukherjee had made only insignificant

efforts to provide services. Tr. 94:2-5; Exh. 28, Response

to Request for Admission no. 8. However, he also

acknowledged that GOEM’s accounts payable included a $30,000

debt to Mukherjee or Globaltech which GOEM had been unable to

pay. Tr. 6:1-5; 96:8-9; Exh. 13.

Sir denied he had misrepresented any facts and denied

any intent to deceive Mukherjee. Tr. 87:23-25. He claimed

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10 GOEM’s schedules and Sir’s schedules are silent as to

any such loss, perhaps because it occurred more than one year

before either case was filed. Sir’s explanation for the

apparent disappearance of this $300,000 was murky at best.

Nevertheless, plaintiffs failed to ask any relevant follow-up

questions, and failed to present any documents regarding this

aspect of their case. 

[sir.mukherjee.sripadam.final.memo.decis] -13-

that Mukherjee had known that his funds were going to be used

for gambling rather than invested in GOEM. Tr. 13:17-19;

91:21-23. Sir acknowledged that he owed money to Mukherjee

but the money had been lost gambling and he could not repay

it. Tr. 5:20-25; 98:5-6. He also testified that at one

point Mukherjee had tried to teach him to be a better poker

player in order to minimize his losses. Tr. 90:7-10.

Sir stated that Sripadam’s $100,000 had been used to

“support general operations” of GOEM and was not used for

“identifiable expenses.” See Exh. 29, Response to

Interrogatory no. 10. Sir denied that GOEM had invested any

“capital” in investments “in which Korean Technology

Investment Corp. had participated.” See Exh. 29, Response to

Interrogatory no. 19. At trial, Sir testified that

Sripadam’s $100,000 was deposited into GOEM’s bank account

and an equivalent amount had been allocated to some

investment in Korea from GOEM’s or his accounts there. Tr.

102:10-13; 105:11-14. Sir claimed that the full $300,000 had

been lost when someone in Korea absconded with the funds.10

The mezzanine financing project never took place. Tr.

104:22-24; 105:6-9; 111:3-4.

//

//

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[sir.mukherjee.sripadam.final.memo.decis] -14-

III. Alter Ego Issue

Plaintiffs argue that Sir and GOEM must be treated as

alter egos. Through use of this alter ego doctrine, plaintiffs

seek to hold Sir liable for the alleged obligations of GOEM.

At paragraph 5, the Complaint alleges, inter alia, that 

there was a “unity of ownership and interest” between Sir and

GOEM, that “separateness between them has never existed,” that

there was “inadequate capitalization,” “inadequate insurance,”

a failure to “respect corporate formalities,” commingling of

funds and assets. Sir’s Answer generally denied the

allegations of paragraph 5.

Without citation to any authority, plaintiffs’ trial brief

asserted - in a similar conclusory fashion - that Sir

controlled GOEM, conducted it without observing corporate

formalities, and used its funds as his own to pay his gambling

debts. At trial Sir made no effort to refute this contention. 

In general, the law regarding alter ego liability is easy

to state but difficult to apply. Talbot v. Fresno-Pacific

Corp., 181 Cal. App. 2d 425, 432 (Cal. Ct. App. 1960). When a

corporate form is used to perpetrate a fraud, circumvent a

statute, or accomplish some other wrongful or inequitable

purpose, a court may disregard the corporate entity and treat

the acts as if they were done by the individuals or by the

controlling corporation. The doctrine is to be narrowly

applied. Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (Cal.

2003) (“The doctrine of piercing the corporate veil, however,

is the rare exception, applied in the case of fraud or certain

other exceptional circumstances.”)

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Under California law, two conditions must be met before

the alter ego doctrine will be invoked. First, there must be

such a unity of interest and ownership between the corporation

and its equitable owner that the separate personalities of the

corporation and the shareholder do not in reality exist.

Second, there must be an inequitable result if the acts in

question are treated as those of the corporation alone. 

Automotriz Del Golfo De California S.A. De C.V. v. Resnick, 47

Cal. 2d 792, 796 (Cal. 1957); Tomaselli v. Transamerica Ins.

Co., 25 Cal. App. 4th 1269, 1285 (Cal. Ct. App. 1994).

Difficulty in enforcing a judgment or collecting a debt does

not satisfy this inequitable result standard. Sonora Diamond

Corp. v. Superior Court, 83 Cal. App. 4th 523, 539 (Cal. Ct.

App. 2000). There must be some evidence of bad faith. 

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d

825, 842 (Cal. Ct. App. 1962).

Courts have considered numerous factors, including

inadequate capitalization, commingling of funds and other

assets of the two entities, the holding out by one entity that

it is liable for the debts of the other, identical equitable

ownership in the two entities, use of the same offices and

employees, use of one as a mere conduit for the affairs of the

other, disregard of corporate formalities, lack of segregation

of corporate records, and identical directors and officers. 

Tomaselli, 25 Cal. App. 4th at 1285. 

The incompleteness of the record in this case makes it

impossible to make a fair assessment of enough facts to reach a

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11 It is undisputed that Sir managed and owned the

controlling interest in GOEM. Plaintiffs stress that the GOEM

bank records show that Sir withdrew cash from the GOEM bank

account and wrote checks to his wife which totaled at least

$87,000 between December 2005 and December 2006. The franchise

tax board and what appear to be other GOEM trade creditors

were also paid approximately $22,000 from this account during

this time period. See Exh. 20. 

[sir.mukherjee.sripadam.final.memo.decis] -16-

sound conclusion on the issue of alter ego liability.11

Despite an opportunity to do so, plaintiffs failed to meet

their burden of proof. Nonetheless, such a conclusion makes no

difference to the outcome of this case. For purposes of the

discussion that follows, the court will assume that Sir and

GOEM were alter egos.

IV. Bankruptcy Code § 523(a)(2)(A)

The central purpose of the Bankruptcy Code is to permit a

debtor to make peace with creditors and obtain a fresh start

free of preexisting debt. Grogan v. Garner, 498 U.S. 279

(1991). The bankruptcy discharge provides this fresh start. 

To implement that purpose, the discharge is interpreted broadly

and the exceptions to discharge are interpreted narrowly in

favor of the debtor. Snoke v. Riso (In re Riso), 978 F.2d

1151, 1154 (9th Cir. 1992); Su v. Carillo (In re Su), 259 B.R.

909, 912 (9th Cir. BAP 2001), aff’d 290 F.3d 1140 (9th Cir.

2002). To maintain the integrity of the bankruptcy process, a

discharge must be limited to the honest but unfortunate debtor. 

See Grogan, 498 U.S. at 286-87. 

Bankruptcy Code § 523(a)(2) provides that a discharge

under Bankruptcy Code § 727 does not discharge an individual

debtor for any debt - (2) for money, property, services, or an

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extension, renewal, or refinancing of credit, to the extent

obtained, by - (A) false pretenses, a false representation, or

actual fraud, other than a statement respecting the debtor’s or

an insider’s financial condition. 

The Complaint alleges that the plaintiffs’ debts are

nondischargeable on the grounds that the debtor obtained money

by false pretenses, a false representation and actual fraud. 

In the Ninth Circuit, the terms “false pretenses” and “false

representation” have the same meaning in § 523(a)(2)(A) as the

term “actual fraud” and do not provide an independent basis for

finding a debt nondischargeable. See Mandalay Resort Group v.

Miller (In re Miller), 310 B.R. 185 (Bankr. C.D. Cal. 2004)

(analyzing the history of the use of these terms in bankruptcy

law). 

A creditor who seeks to establish nondischargeability on

the basis of actual fraud must prove (1) the debtor made a

representation; (2) at the time debtor knew the representation

was false; (3) debtor made the representation with the

intention of deceiving the creditor; (4) the creditor

justifiably relied on the representation; and (5) the creditor

sustained damage as the proximate result of the representation

having been made. Citibank (South Dakota), N.A. v. Eashai (In

re Eashai), 87 F.3d 1082, 1086 (9th Cir. 1996); Britton v.

Price (In re Britton), 950 F.2d 602, 604 (9th Cir. 1991). 

Plaintiff has the burden of proof as to each of these elements

by a preponderance of the evidence. Grogan, 498 U.S. at 291.

// 

//

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A. False Representation

The Complaint alleges Sir made two representations to

Mukherjee - that there would be a 20% return on a $100,000

investment in GOEM and that GOEM would pay Mukherjee $30,000

based on an agreement to pay him $10,000 per month as a

consultant. See Complaint at ¶7(b)[represent 20% return];

¶7(d) [represent pay $10,000/month]; ¶7(j) [knew promise and

representations false]; ¶7(l) [no intent to perform]. 

To prevail on a claim of actual fraud, Mukherjee must show

that Sir made a false statement of fact in February 2006 and

March 2006 when he allegedly promised a 20% return on an

investment in GOEM and the LLC Documents and Consultant

Agreement were signed. In the alternative, he must show that

Sir made some such promise with no intention of performing.

First, Mukherjee’s contention that there was an investment

of $100,000 in GOEM is simply not credible. He handed $100,000

in cash to Sir while they were together playing poker or wired

it to Sir while Sir was in Las Vegas playing poker. He failed

to prove that Sir misrepresented how these funds were going to

be used. 

Second, assuming (for purposes of discussion only) that

there was an investment in GOEM rather than a loan to enable

Sir to gamble, the LLC Documents do not represent there will be

a specific return or promise a 20% return on any investment. 

The alleged oral representation by Sir of a 20% return from an

investment in GOEM - which Sir denies making - contradicts the

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12 Parole evidence is admissible with respect to issues of

fraud, illegality or other invalidating causes. See Cal. Code

Civ. Pro. § 1856(g). But this fraud exception to the parole

evidence rule does not apply when the evidence is offered to

show a promise directly at variance with a promise in the

written agreement. Bank of America v. Pendergrass, 4 Cal. 2d

258, 263 (Cal. 1935). 

[sir.mukherjee.sripadam.final.memo.decis] -19-

terms of the LLC Documents.12 

Third, assuming Mukherjee’s theory is that Sir promised to

repay his alleged $100,000 investment in GOEM with a 20% return

(within some unspecified time frame), without an intention to

perform, Mukherjee also fails to establish this basis for the

first element of a § 523(a)(2)(A) claim. 

A promise of future performance or intention is generally

not actionable as fraud at common law. However, if the debtor

does not actually intend to honor the promise when it is made,

this lack of intention may support a fraud claim. See, e.g.,

Desert Palace, Inc. v. Baumblit (In re Baumblit), 229 B.R. 50

(Bankr. E.D. N.Y. 1999), aff’d in part, rev’d in part on other

grounds, 251 B.R. 442 (E.D.N.Y. 2000). Sir testified that

there was no investment in GOEM, and no promise of a 20% return

on any such investment. Sir also testified that he intended to

repay Mukherjee and would have if he had been able to. 

Mukherjee’s summary of their relationship that is Exhibit 12

confirms this, as did Exhibit 13 and Sir’s testimony at trial. 

Thus, there was no proof that Sir made a promise without an

intention to perform.

Exhibit 17, the other document prepared by Mukherjee

regarding the background for the $100,000 in transfers, also

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cuts against Mukherjee on this point. It shows Mukherjee knew

the first $30,000 was a loan made to enable Sir to gamble. It

also shows Mukherjee knew the 12 transfers totaling $70,000

were going to be used by Sir to gamble at each point a transfer

was made because it shows that the transfers were made while

they were together at Bay 101 or while Sir was at the Bellagio

in Las Vegas. Therefore, Mukherjee failed to prove that Sir

made a false statement or representation regarding the use of

the $100,000 at the times Sir received the money or at the time

Sir and Mukherjee executed the LLC Documents. Based on this

evidence, Mukhrejee also failed to prove there had been a

promise made without the intention to perform. 

The Complaint alleges that Sir represented that Sripadam

would receive a 15% return on his investment of $100,000 in

GOEM’s mezzanine financing deal. See Complaint at ¶8(a) and

(b). Sripadam claims this representation was false because Sir

did not intend to use the money for a mezzanine financing

project in South Korea and instead used it for gambling and to

pay personal debts.

Sripadam failed to prove that Sir (or GOEM) made a false

representation of fact at the time of this transfer and failed

to prove a promise without intention to perform. It is

undisputed that Sripadam transferred $100,000 to GOEM in April

2006. At trial, he argued that the $100,000 was “earmarked” to

go directly to a vaguely described mezzanine financing deal in

South Korea. A close review of the only documents offered in

support of the transaction shows that this earmarking point

fails. The April 10, 2006 email refers only to a “mezzanine

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financing deal with an ipo track company” through an entity

called “Korean Technology Investment Corp.” See Exh. 14. The

Letter refers to a “mezzanine financing project” in South Korea

by and between GOEM and an entity called “Korean Exchange

Bank.” See Exh. 19. Sir’s discovery responses denied that

GOEM had made any investments in which “KTIC” had participated. 

See Exh. 29, Response to Interrogatory no. 19. At trial Sir

described GOEM losing $300,000 in some vaguely described

investment in South Korea.

While it is called a “letter of guarantee,” Exhibit 19 is

in fact a promissory note made by GOEM by which GOEM promised

“as primary obligor” that if the investment “fails to perform

and fulfill the expected returns,” GOEM agreed to “perform and

fulfill the expected return rate up to 15%” and GOEM

“unconditionally undert[ook]” to pay Sripadam “if the

“investment fails to earn expected returns up to 15%” upon his

demand. By its terms, the Letter was a promise by GOEM to

repay principal plus 15% to Sripadam no matter how the

“investment” performed. Thus, it does not support an

earmarking theory. Based on Exhibit 14, GOEM apparently

contemplated contributing $300,000 to some “mezzanine financing

deal” and Sripadam apparently believed his $100,000 was to go

to some such undertaking. However, he made a loan to GOEM that

required repayment by GOEM without regard to the performance of

any such investment. 

Sir testified that the $100,000 was deposited into GOEM’s

bank account but an equivalent amount had been allocated to an

investment in Korea. He claimed that the entire $300,000 GOEM

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13 GOEM’s and Sir’s statement of financial affairs list

four breach of contract lawsuits, two of which were pending

and two of which had proceeded to judgment. See GOEM Docket

no. 11; Sir Docket no. 12. The total owed to the two judgment

creditors was approximately $71,000 according to schedule F in

each case. GOEM Docket no. 10, Sir Docket no. 11. It is

unclear what stage these disputes were in in May 2006. If the

nondisclosure theory involves other allegations in paragraph 7

of the Complaint, it fails for the reasons articulated above.

[sir.mukherjee.sripadam.final.memo.decis] -22-

had devoted to this transaction was lost when one of the

parties involved absconded with the funds. Based on this

record, the court finds there was no false representation by

Sir in the Letter and the Letter does not support a finding

that Sir made a promise without an intention to perform. 

B. Non-Disclosure

The Complaint alleges that Mukherjee learned in May 2006

that there were lawsuits pending against Sir and GOEM. See

Complaint at ¶7(g). Paragraph 7(m) of the Complaint also

alleges that Sir “concealed or suppressed the above-stated

facts with the intent to defraud and induce” Mukherjee to make

the $100,000 investment and provide consulting services. See

Complaint at ¶7(m). The phrase “the above stated facts”

apparently refers to all the prior allegations in paragraph 7

of the Complaint. However, Mukherjee focused his nondisclosure

theory on the alleged failure to disclose certain lawsuits

pending against GOEM or Sir.13

Concealment of a material fact that a party has a duty to

disclose can support nondischargeability of a debt on the

grounds of actual fraud. Apte v. Japra, M.D., F.C.C., Inc. (In

re Apte), 96 F.3d 1319, 1323-24 (9th Cir. 1996). Relying on

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the Restatement (Second) of Torts (1976) § 551, in Apte, the

Ninth Circuit explained that one party to a business

transaction is under a duty to exercise reasonable care to

disclose to the other party facts basic to the transaction if

he knows that the other is about to enter into it under a

mistake as to them, and that the other, because of the

relationship between them, the customs of the trade or other

objective circumstances, would reasonably expect a disclosure

of those facts. Id. at 1324.

There was no testimony regarding whether Mukherjee had

ever asked for financial disclosures regarding GOEM in advance

of the February 2006 “agreement” to advance the additional

$70,000. There was no evidence regarding the impact of these

lawsuits - if any - on GOEM’s or Sir’s viability. Nor was

there evidence showing that Mukherjee would not have proceeded

if he had known of these lawsuits. (In fact, at trial

Mukherjee admitted he had learned of their existence in April

2006 and made three or four additional transfers to Sir after

that. Tr. 36:4-9.) In this vacuum, it is impossible to assess

whether the existence of these lawsuits was material and

whether there were any objective circumstances supporting a

duty to disclose them. Mukherjee has failed to establish the

failure to disclose a material fact of the caliber that would

support a claim for non-disclosure under Bankruptcy Code 

§ 523(a)(2)(A). 

C. Intent to Deceive

Each plaintiff must also show Sir’s intent to deceive him

through a false representation. This requires more than just a

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showing that Sir intended to deceive them into lending money

and later failed to repay it. “For actual fraud, the false

representation (whether express or implied) must be the vehicle

for the deceit. A free standing intent to deceive does not

support this element.” Miller, 310 B.R. at 196. Because

intent to deceive is difficult to show, the court must consider

all of the facts and circumstances of the case to determine if

the requisite intent is present. Id. (citing Chevy Chase Bank

v. Briese (In re Briese), 196 B.R. 440 (Bankr. W.D. Wis.

1996)).

Neither Mukherjee nor Sripadam made a sufficient showing

of intent to deceive. As discussed above, the evidence did not

show a false representation by Sir to either of them. There

was also no evidence that Sir had the requisite intent to

deceive at the time the transfers were made by the plaintiffs. 

The evidence showed an unpaid $30,000 gambling loan by

Mukherjee, an agreement to continue funding Sir’s gambling with

an additional $70,000, and an apparent simultaneous agreement

to transform this gambling “bankroll” into an interest in GOEM

in order to achieve a greater chance of being repaid. The

evidence shows a failed investment by GOEM in an ill-defined

deal in South Korea and Sripadam’s loan to GOEM to participate

in that deal. On this record, plaintiffs failed to prove an

intent to deceive coupled with a false representation. 

In addition, on this record, there is no support for a

finding that Sir lacked the subjective intent to repay at the

time he or GOEM received Mukherjee’s or Sripadam’s cash. After

hearing the witnesses at trial and reviewing the documents

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submitted into evidence, the court finds that at the time Sir

obtained plaintiffs’ money he did in fact intend to repay them. 

As the Bankruptcy Appellate Panel has said, “care must be taken

to stop short of a rule that would make every desperate,

financially strapped debtor a guarantor of his ability to

repay, on pain of nondischargeability.” Karelin v. Bank of

America, NTSA (In re Karelin), 109 B.R. 943, 947 (9th Cir. BAP

1990).

Plaintiffs failed to show that Sir intended to deceive

them through false representations or promises made with no

intention to perform. Their claims under § 523(a)(2)(A) fail

on this ground as well. 

D. Justifiable Reliance

Even if Sir had made false representations in either of

the transactions with plaintiffs with the requisite intent to

deceive, the evidence does not show that either plaintiff

justifiably relied on the representations. Justifiable

reliance takes into consideration the individual qualities and

characteristics of the particular plaintiff, and the

plaintiff’s own capacity and knowledge from facts within his

observation. Field v. Mans, 516 U.S. 59, 71-72 (1995). 

Whether a creditor justifiably relies on a representation by

the debtor is determined on a case by case basis. Id. As the

Ninth Circuit has explained: 

The general rule is that a person may justifiably rely on

a representation even if the falsity of the representation

could have been ascertained upon investigation. In other

words, negligence in failing to discover an intentional

misrepresentation is no defense. However, a person cannot

rely on a representation if he knows that it is false or

its falsity is obvious to him. In sum, although a person

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ordinarily has no duty to investigate the truth of a

representation, a person cannot purport to rely on

preposterous representations or close his eyes to avoid

discovery of the truth. 

In re Eashai, 87 F.3d at 1090-91.

Mukherjee testified he played poker at Bay 101 with Sir

several nights a week during the time period relevant to this

case. He was acutely aware of the depth of Sir’s gambling

habit. Mukherjee’s testimony that he believed he was investing

in GOEM by delivering large cash payments directly to Sir -

while they were together playing poker at a casino - is simply

not credible. In the context of this case, Mukherjee’s claim

of reliance on Sir’s alleged representation that there would be

a 20% return on an investment in GOEM - if that is what it was

- is subjectively unjustified. 

Sripadam also failed to prove justifiable reliance. 

Sripadam was, by his own description, an experienced investor,

and an entrepreneur familiar with various means of investing in

companies and loaning money to companies. He was also a

regular poker player with Sir and Mukherjee at Bay 101. He

understood the different types of documentation involved in

different types of transactions. He did no due diligence -

claiming he could simply “trust” the alleged “guarantee” by

GOEM to return his principal in six months with at least 15%

interest no matter how any “mezzanine financing” performed. 

As explained above, a plaintiff may not blindly rely upon

a representation if its falsity would be obvious if he made a

cursory examination or investigation. Based on Sripadam’s own

description of his background and business experience, he knew

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there was no such thing as a “no risk” deal especially in the

context of “mezzanine financing” which he appeared to

understand entailed significant risk. His testimony also

showed that he understood that there were different ways to

document transactions - and understood the difference between a

loan, and a guarantee, and understood the different ways in

which a loan and an equity investment would be documented. 

Coupled with this, he was aware of Sir’s gambling problem and

acknowledged that in the past he had loaned money to Sir to

enable him to gamble. In the context of this case, Sripadam

had a duty to investigate the terms of this so-called mezzanine

financing transaction and at the very least ask to see the

documentation supporting it. Sripadam’s claim that there was a

fraudulent promise upon which he justifiably relied fails. 

E. Mukherjee Has an Unenforceable Gambling Debt 

Mukherjee’s debt is clearly a gambling debt. Mukherjee

testified that he knew the transfers between September 2005 and

May 2006 were made to enable Sir to gamble. Sir also testified

that Mukherjee’s money was used to fund his gambling. Exhibit

12 and Exhibit 17, prepared by Mukherjee, corroborated the

series of transfers and confirmed that Mukherjee had known the

use of the funds at the time of each advance. 

Gambling debts are not enforceable in California. 

California has a long-standing public policy against judicial

resolution of civil claims arising out of lawful or unlawful

gambling contracts or transactions. This prohibition applies

to actions for recovery of gambling losses and actions to

enforce gambling debts. Kelly v. First Astri Corp., 72 Cal.

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App. 4th 462 (Cal. Ct. App. 1999). 

California Civil Code § 1607 provides that the

consideration for a contract must be lawful within the meaning

of Civil Code § 1667. California Civil Code § 1667 provides

that a contract is unlawful if it is “contrary to the policy of

express law, though not expressly prohibited; or, otherwise

contrary to good morals.” See Union Collection Co. v. Buckman,

150 Cal. 159, 167 (Cal. 1907) (citing Cal. Civ. Code § 1607 and

§ 1667 and concluding that notes given for gambling debts were

“contra bonos mores” and unlawful). As explained in

Metropolitan Creditors Service of Sacramento v. Sadri, 15 Cal.

App. 4th 1821 (Cal. Ct. App. 1993), the reasoning underlying

California’s deep-rooted policy against enforcement of debts

incurred by gambling on credit is that the law should not

invite gamblers to play themselves into debt, and the judiciary

should not thereafter participate in their financial ruin. 

While the LLC Documents are not equivalent to a promissory

note or a check given in payment of a gambling debt, on the

facts of this case, the court finds the LLC Documents were an

effort to evade the rule that gambling debts are uncollectible

and are based on illegal consideration. The testimony

regarding the creation of the LLC Docuemnts was contradictory. 

Sir claimed the LLC interest was not given in payment of

gambling debts and Mukherjee claimed - unconvincingly - that

his money had gone into GOEM. It is undisputed that

Mukherjee’s funds were not put into GOEM and were used - with

Mukherjee’s knowledge - to finance Sir’s gambling. It is clear

that Mukherjee’s $100,000 claim arises out of a gambling

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transaction and its enforcement - either through the fiction

of GOEM or otherwise - is barred as a matter of law.

F. Consultant Fee

There is no § 523(a)(2)(A) cause of action as to the

$30,000 consultant fee. At trial, Sir took the position that

nothing was owed by GOEM because the consulting work was either

not done or was not done well. His statement in Exhibit 13

acknowledging the obligation contradicts this. Mukherjee

claimed to have worked full time for 3 months. This appears to

be a factual dispute involving - at best - a breach of

contract. It does not come within the parameters of § 523 even

in the context of this case. If this arrangement was created

to hide the gambling debt, it also fails for the reasons stated

above. 

V. Conclusion

All parties in this case were habitual gamblers during the

relevant time period. All of them approached this trial as

just another hand to play in the resolution of their

relationship. Based on the documentary evidence and testimony

at trial, plaintiffs have not shown by a preponderance of the

evidence that Sir obtained money from them by false pretenses,

false representations, or actual fraud. Thus, Sir’s debts to

plaintiffs are dischargeable. In addition, $100,000 of Sir’s

debt to Mukherjee is based on loans Mukherjee made to Sir to

enable Sir to gamble. This debt is therefore premised on

illegal consideration and is unenforceable for that additional

reason. The court will enter a judgment for Sir conforming

with this decision. 

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Court Service List [by mail and ecf]

Plaintiffs’ Counsel

Seth Weiner

Schein & Cai, LLP

111 W St. John St. #1250

San Jose, CA 95112

Defendant 

Raymond J. Sir

1087 Foxhurst Way

San Jose, CA 95120

Courtesy copy

Cathleen Cooper Moran

Moran Law Group, Inc.

1674 N Shoreline Blvd. #140

Mountain View, CA 94043-1375 

Plaintiff

Avi Mukherjee

6940 Burning Tree Court

San Jose, CA 95119 

Plaintiff

Kumar S. Sripadam

17821 Vineland Ave.

Los Gatos, CA 95030

Case: 07-05147 Doc# 43 Filed: 05/25/10 Entered: 05/26/10 13:37:53 Page 30 of

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