3N Int'l, Inc. v. Carrano (In re Carrano)
| Citation | 530 B.R. 540 |
| Decision Date | 23 April 2015 |
| Docket Number | ADV. PRO. NO. 13–03008 JAM,CASE NO. 12–31159 JAM |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re: Vincent J. Carrano, Debtor. 3N International, Inc., Plaintiff, v. Vincent J. Carrano, Defendant. |
Barbara H. Katz, Esq., 57 Trumbull Street, New Haven, CT 06510, Attorney for the Plaintiff
Neil Crane, Esq., James Heffernan, Esq., Stuart Kaplan, Esq., Law Offices of Neil Crane, LLC, 2679 Whitney Avenue, Hamden, CT 06518, Attorneys for the Defendant
Before the Court is the six-count Complaint of 3N International, Inc. (“3N”), in connection with an overpayment it made to VJC Logistics, LLC, a company owned by Vincent J. Carrano (“Carrano”). Counts One, Two, and Three of the Complaint allege that Carrano is personally liable under state law causes of action for failing to return the overpayment to 3N. Counts Four, Five, and Six of the Complaint allege that if Carrano is personally liable for failing to return the overpayment, the debt to 3N should be deemed nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and/or (a)(6).
Following trial, on July 17, 2014, the parties submitted their respective Proposed Findings of Fact and Conclusions of Law for the Court's consideration. For the reasons that follow, judgment will enter in favor of 3N on Counts One, Two, Three, Five, and Six of the Complaint and judgment will enter in favor of Carrano on Count Four of the Complaint.
The United States District Court for the District of Connecticut (the “District Court”), has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). The Bankruptcy Court derives its authority to hear and determine this matter pursuant to 28 U.S.C. § 157(a) and the Order of Reference of the District Court dated September 21, 1984. Although the Complaint does not allege that the proceeding is core or non-core as required by Fed. R. Bankr.P. 7008, this matter is a “core proceeding” pursuant to 28 U.S.C. §§ 157(b)(1), (b)(2)(A) and (b)(2)(I).
The recent decisions of the United States Supreme Court in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), and Exec. Benefits Ins. Agency v. Arkison, ––– U.S. ––––, 134 S.Ct. 2165, 189 L.Ed.2d 83 (2014), have cast doubt on the constitutional authority of a bankruptcy court to enter a final judgment in some statutorily “core” proceedings. However, the claims in this dischargeability action are not Stern claims. 28 U.S.C. § 157(b)(2)(I) ; Deitz v. Ford (In re Deitz), 760 F.3d 1038, 1044 (9th Cir.2014) (); Trinity Christian Ctr. o f Santa Ana, Inc. v. Koper (In re Koper), 516 B.R. 707, 719 (Bankr.E.D.N.Y.2014) ; Hyundai–Wai Mach. Am. Corp. v. Rouette (In re Rouette), 500 B.R. 670 (Bankr.D.Conn.2013).
In dischargeability actions decided after Stern, several courts have noted, “the issues of liability ... and dischargeability are so intertwined that ... a separation of issues in the context of Section 523(a)(2), (4), and (6) of the Bankruptcy Code ” is not feasible. In re Koper, 516 B.R. at 721 ; see also, In re Rouette, 500 B.R. 670, 676 (Bankr.D.Conn.2013) ; Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 311–12 (Bankr.N.D.Tex.2011)aff'd sub nom. Carroll v. Farooqi, 486 B.R. 718 (N.D.Tex.2013). Based upon this Court's interpretation of Stern and the case law in dischargeability actions decided after Stern, this Court concludes that it has both the constitutional and statutory authority to enter a final judgment on all counts of the Complaint.
The factual circumstances in this adversary proceeding are unfortunate. The controversy regarding the overpayment was caused by the actions of all of the parties—3N, VJC, and Carrano—and no party is without fault.
After analyzing and reviewing the evidence introduced at trial, the following are the Court's findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52 and Fed. R. Bankr.P. 7052.
1. Carrano lived in and operated several businesses in Connecticut. (Complaint at ¶ 2; Testimony of Carrano at May 19, 2014 trial; Defendant's Exhibit 1).
2. In 2002, Carrano formed and became the sole owner of VJC Logistics, LLC (“VJC”), a storage, transportation, and distribution service provider. (Defendant's Exhibit 1; Testimony of Carrano at May 19, 2014 trial).
3. In addition to VJC, Carrano also owned: (i) VJC Warehouse and Distribution, Inc. (“VJC Warehouse”); (ii) Carrano Transportation and Logistics LLC (“Carrano Transportation LLC”); and (iii) Carrano Transportation and Logistics, Inc. (“Carrano Transportation Inc.”) (collectively, the “Carrano entities”).
4. 3N was founded in 1995 in Akron, Ohio, and is in the business of importing and distributing industrial materials. David Li (“Li”), and his wife, Cindy Chen, are both fifty percent (50%) owners of 3N. (Complaint at ¶ 1; Testimony of Li at May 19, 2014 trial).
5. For more than five years, from May 2005 to December 2010, 3N leased storage space from VJC. 3N used the space to store materials for its clients located in Connecticut. (Testimony of Li at May 19, 2014 trial).
The overpayment, VJC business practices, and the VJC bank accounts
6. On July 1, 2010, 3N received a monthly rental invoice from VJC in the amount of $81.95 (the “Invoice”). (Plaintiff's Exhibit A, Testimony of Li at May 19, 2014 trial).
7. On July 6, 2010, VJC received a check from 3N in the amount of $81,095.00 for payment of the Invoice. (Testimony of Li at May 19, 2014 trial, and Plaintiff's Exhibit B).
8. Instead of issuing a check to VJC in the amount of $81.95 to pay the Invoice, 3N mistakenly issued a check to VJC in the amount of $81,095.00 (the “overpayment”). (Testimony of Li at May 19, 2014 trial).
9. On July 9, 2013, VJC deposited the overpayment into its Bank of America, N.A. checking account (the “VJC Checking Account”). (Plaintiff's Exhibit B; Defendant's Exhibit 3).
10. Up to five different VJC employees had the authority to deposit checks into the VJC Checking Account. (Testimony of Carrano at May 19, 2014 trial).
11. VJC did not match incoming payments against invoices. All payments received were retrieved from VJC's mailbox by any one of a number of VJC employees. The checks were then endorsed with a stamp and deposited into the VJC Checking Account. (Testimony of Carrano at May 19, 2014 trial).
12. At the time the overpayment was made, Carrano was in the VJC offices only two or three days a week due to personal issues he was facing, including a divorce and custody dispute. (Testimony of Carrano at May 19, 2014 trial).
13. Carrano admitted that he failed to pay attention to the operations of VJC at the time the overpayment was made. Carrano also admitted that he did not properly supervise his employees who handled the receipt and deposit of funds, and that entrusting his employees with such a responsibility was a mistake. (Testimony of Carrano at May 19, 2014 trial).
14. VJC employees had access to the VJC's bank account through VJC's online banking system. The online banking system information was readily available to VJC employees and was often unattended, enabling any VJC employee to transfer money among the VJC bank accounts or any other accounts linked to the VJC accounts. Funds moved between and among the Carrano entities to allow each entity to have sufficient funds to cover its business expenses. (Plaintiff's Exhibit A, Plaintiff's Exhibit E; Plaintiff's Exhibit J; Testimony of Carrano at May 19, 2014 trial).
15. On July 16, 2010, VJC opened a Business Interest Maximizer Savings Account (the “VJC Savings Account”), and transferred $81,000.00 from the VJC Checking Account into the VJC Savings Account. (Testimony of Carrano at May 19, 2014 trial).
16. The VJC Savings Account was inactive from July 16, 2010, until the middle of September, 2010. (Testimony of Carrano at May 19, 2014 trial).
17. From September 10, 2010, through September 17, 2010, three transfers totaling $23,545.27 were made from the VJC Savings Account into the VJC Checking Account. (Testimony of Carrano at May 19, 2014 trial).
18. In October 2010, $14,500.00 was transferred from the VJC Savings Account into the VJC Checking Account to cover business expenses for VJC. Also in October 2010, two wire transfers totaling $40,000.00 were made from the VJC Savings Account to purchase two Ryder Trucks to be used by Carrano Transportation LLC. (Testimony of Carrano at May 19, 2014 trial; Plaintiff's Exhibit L; Defendant's Exhibit 3).
19. By November 2010, all of the funds in the VJC Savings Account had been withdrawn from or transferred out of the account. (Testimony of Carrano at May 19, 2014 trial).
3N's Discovery of the Overpayment and related events
20. On February 17, 2011, more than seven months after VJC received the overpayment from 3N, Li discovered that the overpayment had been made. Li admitted that 3N's failure to reconcile checks issued to third parties for several months after the checks were issued was not a good business practice. (Testimony of Li at May 19, 2014 trial).
21. Upon discovery of the overpayment, Li immediately attempted to contact VJC. He also faxed and emailed a letter to VJC demanding the return of $81,013.05, which he calculated to be the amount of the overpayment. (Plaintiff's Exhibit C, Testimony of Li at May 19, 2014 trial).
22. On February 23, 2011, funds in the amount of $43,000.001 were deposited into the Carrano Transportation LLC Payroll Account (the “Carrano Transportation LLC Account”). The $43,000.00 deposited into the Carrano Transportation LLC Account was a refund of the wire-transfer from the VJC Savings Account for the purchase of two Ryder Trucks for use by Carrano Transportation LLC. The $43,000.00 refund was...
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