New York state has sued David DeSilva Jr. to stop him from using bankruptcy protection to avoid paying back defrauded fuel oil customers.
The state filed an adversarial proceeding March 8 in federal bankruptcy court in Poughkeepsie where DeSilva Jr. had filed for Chapter 7 liquidation. The state accuses him of embezzlement, larceny and fraud, and argues that the court should not discharge his debts.
The lawsuit was the fourth since 2013 in which the state has tried to make DeSilva Jr. and his father, David DeSilva Sr., reimburse their customers.
Then-Attorney General Eric T. Schneiderman filed a special proceeding in 2013 against their Nu Way Fuel & Service Corp. in Peekskill, accusing them of delivering less fuel or none at all to customers who had paid in advance. Westchester Supreme Court ordered the father-son team to pay $692,879 in damages and banned them from the home fuel oil business unless they posted a $200,000 performance bond.
The DeSilvas paid less than $50,000, never posted the bond and created a new company, Champion Fuel & Service Corp.
Schneiderman filed a second special proceeding in 2017, accusing the DeSilvas and Champion Fuel of scamming more customers and failing to pay $27,000 in state business taxes.
The DeSilvas denied the new charges and blamed the problems on a partner. But a judge last year ordered DeSilva Sr. to stop selling fuel oil and to pay $176,000 in damages.
Within three weeks of the ruling, DeSilva Sr. filed for Chapter 7 bankruptcy protection, automatically stopping creditors from collecting debts. DeSilva Jr. did the same last June.
Schneiderman filed an adversarial bankruptcy proceeding against the father, last year. Attorney General Letitia James sued DeSilva Jr. on March 9.
Both complaints make the same argument: the DeSilvas should not be allowed to discharge their debts because they knowingly and intentionally engaged in repeated, fraudulent and illegal acts. And the state should be allowed to collect on the judgments it has won in the special proceedings.
Last summer, DeSilva Sr. signed a stipulation, pledging not to oppose the state’s right to collect its debts. DeSilva Jr. signed a similar stipulation recently, but it has not yet been approved by the court.
Whether the state, or any other creditors, can collect is questionable.
DeSilva Sr. had claimed assets of about $770,000 – all but $20,000 for his house – and $1.2 million in liabilities.
DeSilva Jr. claimed $4,653 in assets and more than $1.4 million in liabilities.