Families who may have been defrauded by Michael S. Tomaszewski when they purchased prepaid funeral arrangements may want to consult with an attorney who is an expert in bankruptcy if they wish to recover any lost funds, according to a law school professor from the University at Buffalo.
S. Todd Brown is the vice dean for Academic Affairs for the UB School of Law and teaches bankruptcy law at the school.
"They would need to talk with someone to make sure their interests can be protected in the bankruptcy," Brown said. "I suspect there are lawyers who have been going around talking to different people, some people have probably already reached out to an attorney. This is an incredibly complex area of law."
Tomaszewski, both personally, and his company Acme Holdings of N.Y. filed for bankruptcy in Federal Court Feb. 5. Combined, Tomaszewski lists $1,094,346 in assets against $3,242,390 in liabilities.
That doesn't include any restitution he may be ordered to pay if convicted of the nearly 200 criminal charges he faces locally.
The 48-year-old funeral director is charged with 91 counts of failure to deposit monies paid in advance in connection with agreements for funeral merchandise or services. He also charged with 61 counts of third-degree grand larceny, 29 counts of fourth-degree grand larceny, 4th, and three counts of petit larceny.
According to the Sheriff's Office arrest report from July 23, Tomaszewski received deposits form customers ranging from $350 to $15,500. His customers allegedly suffered a combined loss of more than $525,000.
That is a sum of money that people might expect a criminal court judge be repaid to victims once the defendant is convicted but it doesn't necessarily work that way, Brown said, when the criminal defendant has also filed for bankruptcy.
In general, bankruptcy allows an individual to discharge debts and get a fresh start. For businesses, Chapter 11 is a chance to reorganize debts. The judge may help the creditors and debtors work out a repayment plan that lowers the debt burden or if assets are liquidated, the bankruptcy judge will issue an order on how cash obtained during the liquidation is divided among creditors.
Creditors who provided secured loans -- meaning collateral for the money borrowed -- are top priority for repayment. If there is any money left over after secured loans have been paid off, the administrative creditors -- people handing the bankruptcy proceedings, such as attorneys -- are paid. Last in line are unsecured creditors. That is people or entities that are owed money but did not secure the debt with collateral.
The exception to this pecking order, Brown said, is when fraud can be proven.
A common example is if a person or business borrowed money under false pretenses, such as claiming assets that didn't exist or using the money for purposes other than promised.
For a funeral director, Brown used the example of borrowing money on the promise to build a new cemetery but then spending the cash on a new Ferrari or a monthlong trip to Las Vegas.
A funeral home director who accepts prepaid deposits for funeral arrangements could be considered a fiduciary (a person legally responsible for ensuring the money is handled only in the way specified by the contract and in the best interest of the person who owns the money). In order to determine whether Tomaszewski had a fiduciary responsibility to his clients, a lawyer would need to review any specific agreement along with applicable state and federal law.
A fiduciary who converts money to some other users cannot discharge the resulting debt in bankruptcy.
Using pre-need funds for other expenses in violation of the pre-need contract may also be considered fraud and fraud can't be discharged.
In either case, a bankruptcy court judge would need to make the determination on the debtor's obligation based on the case presented by an attorney representing such victims.
"This is really important," Brown said. "If they think they've been defrauded by this individual, they need someone who knows how the process works guiding them through it."
He added, "I tell my students when they enter my Intro to Bankruptcy class, I tell them, most of what we cover is general bankruptcy law. Unless you're working under the guidance of a talented and experienced bankruptcy attorney for at least two or three years, you're to commit malpractice if you go out and practice on your own right away because this is a very technical and complicated area of law. The importance of that story is to stress how easy it is for trained attorneys to mess up if they aren't practicing bankruptcy law regularly."
Brown also noted that a person who filed for bankruptcy can't make any payments on debt without the judge's authorization, even to creditors not listed in the bankruptcy. That rule applies for all debts paid for 90 days prior to filing for bankruptcy and until the bankruptcy case is resolved. The bankruptcy trustee has the option to recover any unauthorized payments from the creditors who received them.
Asked if a County Court judge to order restitution paid first, Brown gave an emphatic, "no."
"In terms of who gets paid when that's entirely the role of the bankruptcy court," Brown said.
For anybody who allegedly lost money to Tomaszewski through means other than fraud -- consider the petit theft charges he's facing -- any potential restitution there will be considered unsecured debt, meaning those possible victims will be among the last to get repaid, Brown said.
"People who have been defrauded need to have someone who is expert in bankruptcy law who is keeping a close on out for their interest in this case," Brown said but also acknowledge that for many people in a case such as this, they haven't lost enough money to interest an attorney taking on their case.
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