Blake v. Fusco (In re Fusco)

• Decision Date: 03 August 2022
• Docket Number: Case No. 18-42451-ess,Adv. Pro. No. 19-01149-ess
• Citation: 641 B.R. 438
• Parties: IN RE: Anthony FUSCO aka Anthony John Fusco, Debtor. Fred Blake aka Frederick Blake, Plaintiff, v. Anthony Fusco aka Anthony John Fusco, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

641 B.R. 438

IN RE: Anthony FUSCO aka Anthony John Fusco, Debtor.

Fred Blake aka Frederick Blake, Plaintiff,

v.Anthony Fusco aka Anthony John Fusco, Defendant.

Case No. 18-42451-ess

Adv. Pro. No. 19-01149-ess

United States Bankruptcy Court, E.D. New York.

Signed August 3, 2022

Steven S. Newburgh, Esq., McLaughlin & Stern, LLP, 525 Okeechobee Boulevard, City Place Office Tower (Suite 1700), West Palm Beach, FL 33401, Chester R. Ostrowski, Esq., McLaughlin & Stern, LLP, 260 Madison Avenue, New York, NY 10016, Attorneys for Plaintiff Fred Blake, aka Frederick Blake.

Lawrence R. Gelber, Esq., 34 Plaza Street East (Suite 1107), Brooklyn, NY 11238, Attorneys for Defendant Anthony Fusco, aka Anthony John Fusco.

MEMORANDUM DECISION ON THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

Before the Court is the motion for summary judgment of plaintiff Fred Blake, aka Frederick Blake. In his summary judgment motion, Mr. Blake seeks two forms of relief – an order to confirm an arbitration award issued by the Financial Industry Regulatory Authority Office of Dispute Resolution, and separately, a determination that the debt arising from the arbitration award is nondischargeable pursuant to Bankruptcy Code Section 523(a)(19). This Court confirmed the arbitration award in a memorandum decision and corresponding order and judgment on September 3, 2021. The Court now turns to the second matter – that is, whether the debt comes within Section 523(a)(19) ’s exception to discharge for debts arising from securities law violations and securities fraud.

Jurisdiction

This Court has jurisdiction over this adversary proceeding pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012, of the United States District Court for the Eastern District of New York. In addition, this Court may adjudicate these claims to final judgment to the extent that they are core proceedings, pursuant to Judiciary Code Section 157(b), and to the extent that they are not core proceedings, pursuant to Judiciary Code Section 157(c) because the parties have stated their consent to this Court entering a final judgment. July 26, 2021 Hearing Transcript, 101:4-9, 102:5-16, ECF No. 36. See Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 671, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015) (holding that in a non-core proceeding, a bankruptcy court may enter final orders "with the consent of all the parties to the proceeding" (quoting 28 U.S.C. § 157(c)(2) ).

The following are the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Civil Procedure 52, made applicable here by Bankruptcy Rule 7052.

Background

The FINRA Arbitration

On April 7, 2015, Mr. Blake commenced an arbitration by filing a Statement of Claim with the Financial Industry Regulatory Authority ("FINRA") against Mr. Fusco, Legend Securities, Inc. ("Legend"), and certain agents of Legend. See Arbitration No. 15-00802, Frederick Blake v. Legend Securities, Inc., Anthony Fusco, Frank Philip Fusco, Brian Keith Decker, Daren Frances Dorval, Steven John Meyer, and Bernardo Misseri (the "Arbitration" or "FINRA Arbitration"); Plaintiff's Motion for Summary Judgment (the "Motion" or "Mot. Summ. J."), ECF No. 21, ¶ 1. In the Statement of Claim, Mr. Blake alleged that Mr. Fusco and others committed fraud, breach of fiduciary duty, churning, misrepresentations, non-disclosures, omission of facts, unauthorized trading, violation of state "blue sky" laws, failure to supervise, negligence, and mark-ups regarding unauthorized securities transactions performed for him by Legend brokers that were not registered in Florida. Mot. Summ. J., Exh. B (the "Award") at 2. Mr. Blake requested relief in the form of compensatory damages, costs, pre-judgment interest at the statutory rate, and rescission damages. Id . And he sought additional relief in the form of an award of punitive damages and a finding that Mr. Fusco and others were liable under the Florida Securities and Investor Protection Act. Id .

On June 1, 2015, Mr. Fusco and the other respondents in the FINRA Arbitration filed a joint Statement of Answer to Statement of Claim, asserting thirteen affirmative defenses and requesting dismissal of all claims as well as an award of their attorneys’ fees and costs. Declaration of Debtor Anthony John Fusco ("Fusco Decl."), ECF No. 22, ¶ 37; Complaint ("Compl."), ECF No. 1, ¶ 1. On May 13, 2019, Mr. Fusco submitted a hearing brief arguing, among other things, that he had no connection to Mr. Blake's securities accounts, and did not communicate with him in any capacity. Fusco Decl., Exh. Y at 1-2 ("Fusco Hearing Brief"). He also asserted that each Legend broker that sold a security to Mr. Blake was properly registered in Florida. Fusco Hearing Brief at 2.

On June 3, 2019, FINRA held an evidentiary hearing in the Arbitration in Boca Raton, Florida, at which Mr. Fusco appeared pro se and testified on his own behalf. Award at 1, 6. At the conclusion of the hearing, Mr. Blake requested an award of damages in the total amount of $966,708.15, comprised of $110,622.95 in compensatory damages, $141,073.76 in statutory interest, $83,890.51 in attorneys’ fees, $1,879.15 in costs, and $629,241.78 in punitive damages. Mot. Summ. J., ¶ 10.

Just over three weeks later, on June 25, 2019, FINRA issued the Award, finding Mr. Fusco jointly and severally liable with the other respondents for damages in the total amount requested by Mr. Blake. The Award also imposed joint and several liability on Mr. Fusco and the other respondents for certain additional fees assessed by FINRA, in the total amount of $10,425.00. Award at 6-7.

In the Award, the arbitration panel found, "based on clear and convincing evidence," that Mr. Fusco and the other respondents intentionally engaged in misconduct with respect to Mr. Blake's securities accounts and "knowingly participated, condoned, ratified and consented to the conduct of [Legend's] employees, brokers and agents." Award at 4. This misconduct included "excessively trading and churning" accounts, "improperly recording trades as unsolicited" on account statements, "fraudulently misrepresenting or failing to disclose markups and exorbitant commissions," failing to disclose that certain brokers who solicited transactions from Mr. Blake were not registered brokers in Florida, and "failing to follow [Mr. Blake's] instructions including instructions to close his accounts." Id .

Following FINRA's issuance of the Award, and as of the date of this Motion, neither Mr. Fusco nor any of the other respondents has paid any portion of the Award to Mr. Blake.

Mr. Fusco's Bankruptcy Case and the Motion for Stay Relief

On April 28, 2018, while the Arbitration was pending, Mr. Fusco filed a petition for relief under Chapter 7 of the Bankruptcy Code. On October 5, 2018, Mr. Blake filed a motion for relief from the automatic stay with respect to the Arbitration. On December 20, 2018, the Court entered an order in Mr. Fusco's bankruptcy case modifying the automatic stay to permit "[t]he FINRA arbitration proceedings [to] be recommenced any time after fourteen (14) days from the entry of this Order" and to limit "[t]he relief from the automatic stay ... to the entry of a final decision and/or award by FINRA." Stay Relief Order, In re Anthony Fusco , Case No. 18-42451, ECF No. 67, at 2. And on November 20, 2019, the Court entered an order discharging Mr. Fusco.

This Adversary Proceeding

On November 15, 2019, following the issuance of the Award, Mr. Blake commenced this adversary proceeding by filing a complaint against Mr. Fusco. He seeks to confirm the Award entered in the FINRA Arbitration and to determine that Mr. Fusco's debt owed to him is nondischargeable under Bankruptcy Code Sections 523(a)(2) and 523(a)(19). On January 24, 2020, Mr. Fusco filed an answer to the Complaint. On March 4, 2021, Mr. Blake filed a motion seeking, among other relief, confirmation of the Award and summary judgment as to his claim that the debt owed to him by Mr. Fusco is nondischargeable under Bankruptcy Code Section 523(a)(19).¹

Confirmation of the Award

This Court first considered Mr. Blake's request to confirm the Award and Mr. Fusco's opposition thereto. From time to time, the Court held hearings on whether the Award should be confirmed, at which Mr. Blake and Mr. Fusco, each by counsel, appeared and were heard. On September 3, 2021, this Court entered a memorandum decision confirming the Award. Memorandum Decision Confirming Arbitration Award (the "Decision"), ECF No. 44. On the same day, this Court entered an order and judgment confirming the Award. Order Confirming Arbitration Award (the "Confirmation Order"), ECF No. 45. Then, on September 14, 2021, Mr. Fusco filed a motion seeking reconsideration of the Decision. Defendant's Motion for Reconsider (the "Motion to Reconsider"), ECF No. 46. This Court entered an order denying the Motion to Reconsider on February 2, 2022. Order Denying Motion to Reconsider, ECF No. 61.

Mr. Blake's Arguments in Support of Summary Judgment

Mr. Blake moved for summary judgment on his Section 523(a)(19) nondischargeability claim in the Motion filed on March 4, 2021. Following this Court's confirmation of the Award, on October 1, 2021, Mr. Blake reiterated and supplemented his arguments in support of summary judgment in his supplemental memorandum of law. Plaintiff's Memorandum of Law in Support of Motion for Summary Judgment on Non-Dischargeability (the "Supplemental Memorandum" or "Plf. Supp. Mem."), ECF No. 50. His arguments in support of summary judgment are set forth in the Motion and in the Supplemental Memorandum.

Mr. Blake notes that a finding of nondischargeability under Section 523(a)(19) is predicated upon two conditions. First, he must satisfy one of the two provisions listed under Section 523(a)(19)(A) – namely,...