320 B.R. 493 (Bkrtcy.S.D.N.Y. 2005), 03 B 22150, In re Hyman
| Citation | 320 B.R. 493 |
| Party Name | In re Andrew HYMAN, Debtor. G. Hallett Denton, as Executor of the Estate of George W. Denton, Plaintiff, v. Andrew A. Hyman, Defendant. |
| Case Date | January 21, 2005 |
| Court | United States Bankruptcy Courts, Second Circuit |
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M. Stuart Goldberg, LLC, by M. Stuart Goldberg, White Plains, NY, for Debtor/Defendant.
Meyers Tersigni Feldman & Gray LLP, by Anthony Torsini, New York City, Co-Counsel for Debtor/Defendant.
Greenfield Stein & Senior, LLP, by Kenneth L. Stein, New York City, for Plaintiff.
Sanford P. Rosen & Associates, P.C., by Kenneth M. Lewis, New York City, Co-Counsel for Plaintiff.
SUPERCEDING DECISION DISMISSING CLAIMS BASED ON COLLATERAL ESTOPPEL FOR NON-DISCHARGEABILITY UNDER SECTION 523(a)(2), (4) AND (6) OF THE BANKRUPTCY CODE
ADLAI S. HARDIN, JR., Bankruptcy Judge.
Plaintiff G. Hallett Denton, as Executor of the Estate of George W. Denton ("plaintiff," the "Executor" or the "Estate") obtained a pre-petition judgment in the Westchester County Surrogate's Court against defendant/debtor Andrew Hyman (the "debtor" or "Hyman") in the amount of approximately $2.7 million. After Hyman filed for bankruptcy in this Court, plaintiff timely commenced this adversary proceeding seeking (i) an order fixing and allowing the Estate's claim in the debtor's bankruptcy case in the amount of the Surrogate's Court Judgment and (ii) an order and judgment declaring that plaintiff's claim is excepted from the debtor's discharge pursuant to Sections 523(a)(2), (4) and (6) of the Bankruptcy Code.
Plaintiff and the debtor each filed a motion and cross-motion seeking summary judgment. At a final hearing on the cross-motions on November 15, 2004, the Court rendered an oral decision granting in part and denying in part both motions and, following the oral decision, the Court established a schedule of further proceedings leading to a trial on the merits of plaintiff's claim under Section 523(a)(4).
Plaintiff's motion for summary judgment is based on the supposed collateral estoppel effect of the findings of fact and conclusions of law rendered after trial in a written decision by the Surrogate's Court as the predicate for the Surrogate's Court
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Judgment. In the oral ruling at the November 15, 2004 hearing, this Court concluded that neither the allegations of the complaint nor the Surrogate's Court Decision set forth any factual grounds for a declaration of non-dischargeability under Section 523(a)(2) or (6) of the Bankruptcy Code. On plaintiff's claim under Section 523(a)(4), this Court ruled that because the legal standards for non-dischargeability under the Bankruptcy Code are not the same as the state law requirements for liability, the findings and conclusions expressed by the Surrogate's Court could not be given preclusive effect as to the materially different legal issues arising under the Bankruptcy Code. Accordingly, both plaintiff and the debtor are entitled to an opportunity to present evidence at a trial necessary to establish, and defend against, plaintiff's claim of non-dischargeability under Section 523(a)(4).
At the November 15 hearing, counsel stated that plaintiff would not rely exclusively on the doctrine of collateral estoppel but would seek an opportunity to establish the facts necessary to support his claim at a trial. Since the November 15 ruling was interlocutory, and since plaintiff's counsel did not fully address the bankruptcy issues framed by the Court during briefing or oral arguments on the motion for summary judgment, the Court established a briefing schedule on the legal issues and did not include in the November 15 oral ruling citation or discussion of the governing legal authorities.
Plaintiff has now moved to withdraw its claims of non-dischargeability under Section 523(a) other than as may be established by the Surrogate's Court Decision under the doctrine of collateral estoppel, thereby withdrawing and waiving the Estate's right to present evidence at a trial or further argument on the law in support of such claims. Consequently, the Court's November 15 oral ruling and the November 29 order based upon it, which were interlocutory pending further briefing and a trial on the merits, may now be superceded by a final decision and order.
The Court issues this Superceding Decision amplifying the November 15 oral ruling by citation to and analysis of the governing legal authorities, as a basis for a final, and appealable, order concluding this adversary proceeding.
Jurisdiction
This Court has jurisdiction over this adversary proceeding under 28 U.S.C.§§ 1334(a) and 157(a) and the standing order of referral to Bankruptcy Judges signed by Acting Chief Judge Robert J. Ward on July 10, 1984. It is a core proceeding under 28 U.S.C. Section 157(b).
Background
For purposes of the parties' cross-motions for summary judgment, the facts may be briefly summarized based upon the parties' statements of facts and the Surrogate's Court Decision.
In 1984 Hyman and decedent George W. Denton ("Denton") went to work for an insurance agency formed by one Henry Deppe. Deppe's agency was the general agent in Westchester County of the Guardian Life Insurance Company of America ("Guardian"). Deppe's agency for many years had marketed insurance through pension plans. For this purpose Deppe had formed a separate company to design and administer pension plans called National Pension Services, Inc. The pension business never made a profit but acted as a feeder for the insurance agency, which generated substantial income.
By late 1987 Deppe was ready to retire, and he entered into an agreement to sell his business to Denton and Hyman.
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Guardian approved both Denton and Hyman together as Guardian's agent for Westchester County under an agreement providing that if either left the business their agency relationship with Guardian would terminate.
Denton and Hyman formed their own agency, the Denton Hyman Agency, and their own pension firm, also called National Pension Services, Inc. ("NPS"). The various agreements were executed on or about January 1, 1988, and Denton and Hyman at that time commenced their business.
The precise terms of the agreements are not relevant here. The bottom line was that Denton and Hyman took over Deppe's business and began their own business as Guardian agents with start-up debts of over $1.6 million owed by the Denton Hyman Agency and NPS, which were personally guaranteed by Denton and by Hyman jointly and severally.
Denton and Hyman each owned fifty percent of the capital stock of the Denton Hyman Agency and of NPS, as well as another company called NPA, which apparently was not a significant economic factor based on the record before me.
As was the case when operated by Deppe, the Denton Hyman Agency generated the profits while the pension business, NPS, acted as a generator or feeder of business for the insurance agency but did not make any money itself. In fact, NPS was always operated at a loss by Deppe, Denton and Hyman, and later by Hyman alone.
Unfortunately, George Denton, who was older and more experienced in the insurance business than Hyman, died suddenly and unexpectedly on February 14, 1989, only thirteen months after Denton and Hyman started their business together. 1 Also unfortunately, Denton and Hyman had no shareholder's agreement or a similar agreement providing for a buyout of the other or what would happen to the business or to the rights and obligations of the shareholders if one died or otherwise left the business.
Several hard facts were quite clear, however. One was that the agency relationship between the Guardian and the Denton Hyman Agency was automatically terminated upon Denton's death. Thus, the Denton Hyman Agency was finished except to pay its debts and collect the residual or override commissions it had earned in the thirteen months of its existence. It had no other material assets. To quote the Surrogate's Court:
the agency agreement and Guardian policy automatically terminated the relationship between Denton-Hyman and the Guardian on Denton's death, and precluded the Denton estate or Denton-Hyman from becoming a shareholder in the new general agency.
The second hard fact was that Denton's estate and Hyman each were jointly and severally liable for over $1.6 million in debts for which the only source of repayment had been the Denton Hyman Agency relationship with Guardian, which was terminated by Denton's death.
After Denton's death, Guardian accepted Hyman alone as its insurance agent in Westchester, and Hyman formed the Andrew A. Hyman Agency ("Hyman Agency") to serve as Guardian's agent. Hyman continued to operate NPS, which did not automatically terminate as operated by Denton and Hyman, and to fund its deficit
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operations to serve as a feeder for the Hyman Agency. Hyman formed and operated the Hyman Agency and continued to operate NPS with the full knowledge and acquiescence of the Executor.
Hyman's insurance agency relationship with Guardian terminated in January of 1994 for reasons which are not in the record before me.
The entire $1.6 million debt of the Denton Hyman Agency and NPS was paid off by Hyman, apparently using residual commissions earned by the Denton Hyman Agency in its thirteen months of operation and earnings of the Hyman Agency.
Hyman engaged in lengthy negotiations with the Executor until shortly after termination of Hyman's agency agreement with Guardian regarding a purchase of the Estate's fifty percent interest in the defunct Denton Hyman Agency, NPS and NPA. Both sides were advised in...
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