Hartford Fire Ins. Co. v. Lewis (In re Lewis)
| Citation | 478 B.R. 645 |
| Decision Date | 19 July 2012 |
| Docket Number | Bankruptcy No. 10–12633 JKF.,Adversary No. 10–0354. |
| Parties | In re Wendy Ann LEWIS, Debtor. Hartford Fire Insurance Company, Plaintiff, v. Wendy Ann Lewis, Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
OPINION TEXT STARTS HERE
Joanne Marie Bonacci, Dreifuss Bonacci & Parker LLP, Philadelphia, PA, Paul Harry Mandal, Dreifuss Bonacci & Parker LLP, Florham Park, NJ, for Plaintiff.
Paul J. Winterhalter, Law Offices of Paul J. Winterhalter, P.C., Philadelphia, PA, for Defendant.
The Plaintiff in this adversary proceeding (the “Adversary Proceeding”), Hartford Fire Insurance Company (“Hartford”), is the insurer and indemnitor for the losses of Aerogroup International, Inc. (“Aerogroup”).1 In this litigation, Hartford seeks to hold the Defendant/Debtor Wendy Ann Lewis (“Ms. Lewis”) liable for a scheme in which the Shipping Manager of Aerogroup, Samuel Nysenbaum (“Nysenbaum”), created a sham entity allegedly in order to defraud his employer.2 According to the Plaintiff, an entity called KIS Transport, Inc. a/k/a KIS Transport, a/k/a KIS Logistics (“KIS” or the “Company”),3 was used as a bogus shipping corporation in order to skim money from Aerogroup. Nysenbaum allegedly charged Aerogroup for shipping merchandise, obtaineda lower price for shipping through KIS, and pocketed the difference. This scheme apparently amounted to a windfall of approximately $309,000. Hartford alleges that because Ms. Lewis was a necessary, willing and essential participant in Nysenbaum's plan, she is responsible and liable for Aerogroup's (and thus Hartford's) loss.
The seven-count complaint (the “Complaint”) filed by Hartford against Ms. Lewis states the following causes of action: 1) violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); 2) Conspiracy to Violate RICO; 3) Fraud; 4) Conspiracy to Commit Fraud; 5) Unjust Enrichment; 6) Conversion; and 7) Negligent Misrepresentation. (Doc. # 1). The Complaint also seeks a denial of the discharge of any debt owed by Ms. Lewis to Hartford pursuant to §§ 523(a)(2) and (4) of the Bankruptcy Code. In addition to the Complaint, Hartford is pursuing its proof of claim in the Debtor's bankruptcy case in the amount of $929,985.60.4 ( See proof of claim # 3, the “Proof of Claim”). The Debtor opposes the relief sought in the Proof of Claim and in the Complaint.
Following a one-day consolidated trial 5 of these matters on February 28, 2012, and for the reasons discussed in detail below, the court determines that Hartford has failed to prove Ms. Lewis' liability with regard to any of the seven causes of action stated in the Adversary Proceeding and failed to sustain its burden as to the Proof of Claim. No damages, therefore, will be assessed in favor of the Plaintiff and the Proof of Claim will be disallowed.
The Debtor filed for Chapter 13 bankruptcy protection on April 1, 2010. On April 15, 2010, she proposed a plan providing for payments of $30 a month (the “Plan”). However, following objections to the Plan by both the Chapter 13 Trustee and Hartford, ( see Doc. # 's 28 and 53 in the main case), the confirmation hearing has been continued many times and is currently scheduled for July 26, 2012. The seven-count Complaint in the Adversary Proceeding was filed on September 7, 2010 and is substantially similar to the District Court Complaint (on which the Proof of Claim is based). An Answer to the Complaint was filed by the Debtor on October 8, 2010. On July 6, 2011, for reasons stated on the record, the court denied the Plaintiff's motion for partial summary judgment (on Count III). (Doc. # 38).
The Proof of Claim was filed by Hartford on October 4, 2010; the Debtor objected to the Proof of Claim on November 12, 2010. Following an uncontested motion by Hartford, the Proof of Claim and the Adversary Proceeding were consolidated. (Doc. # 14).
Three witnesses testified at the consolidated trial on February 28, 2012: John Spina (“Spina”), Vice President and Corporate Counsel of Aerogroup; the Debtor; and James Palumbo (“Palumbo”), President of William Palumbo Trucking, Inc.6
Upon consideration of the testimony and documentary evidence offered at trial, as well as the pleadings, including the Joint Pretrial Statement, the court makes the following findings of fact:
Background of Ms. Lewis
1. Ms. Lewis is in her early forties and lives in a home she owns, located at 105 Beaumont Drive in Newtown, PA (the “Debtor's Address”). She purchased this home in approximately 2001. (N.T. at 101).
2. The Debtor did not complete high school, nor has she received an equivalent degree (a “GED”). Ms. Lewis went to a “career center” for two years after leaving high school. (N.T. at 23).
3. Ms. Lewis met Jim Condon (“Condon”), her current boyfriend and the father of her only child, when she was 26 or 27. (N.T. at 101). Condon and the Debtor have been living together since about 2007. (N.T. at 102–103). He pays their household bills. (N.T. at 102).
4. After leaving high school, the Debtor worked as a waitress and at a retail store before becoming an exotic dancer at Delilah's Den in Philadelphia (the “Club”) when she was 23 or 24 years old. (N.T. 23). Ms. Lewis worked at other similar establishments in New Jersey and Pennsylvania.
5. While employed as a dancer, the Debtor earned between five hundred and one thousand dollars a night in cash. (N.T. at 92).
6. Ms. Lewis discontinued her employment at the Club when she became pregnant with her daughter in early 2004; she has not worked at all since that time. (N.T. at 30).
7. Ms. Lewis maintains her own checking account and has never bounced a personal check. (N.T. at 78).
8. Ms. Lewis met Sam Nysenbaum 7 sometime in approximately 1998 while working at the Club. (N.T. at 24).
9. Nysenbaum was morbidly obese, weighing approximately 600 pounds. (N.T. at 27).
10. During the time that Ms. Lewis was employed, Nysenbaum would visit the Club two or three times a week for several hours at a time. (N.T. at 24, 25).
11. Nysenbaum paid the Club $400 an hour to spend time with Ms. Lewis. The two spent this time talking or watching sports. (N.T. at 26).
12. Nysenbaum and the Debtor became friends approximately one year after they met at the Club. They began socializing outside of Ms. Lewis' work, going to the movies or out to eat together. (N.T. at 26, 27).
13. Ms. Lewis found Nysenbaum “kind” and “funny,” and appreciated that he treated her “like a human being.” (N.T. at 27, 28).
14. At no time was the Debtor dating Nysenbaum, nor did the two have a sexual relationship. (N.T. at 27).
15. The Debtor took a few trips with Nysenbaum, to Atlantic City and to Las Vegas. (N.T. at 28). Ms. Lewis' daughter and parents accompanied her at times on trips to Atlantic City with Nysenbaum. (N.T. at 28–29).
16. Ms. Lewis met Nysenbaum's family. (N.T. at 28).
17. Ms. Lewis and Nysenbaum did not spend time talking about Nysenbaum's work and the Debtor had no real understanding of what he did for a living. Ms. Lewis understood that Nysenbaum “did something for Aerosols, 8 the shoe company, and he also had a couple of consulting companies that were his own.” (N.T. at 30).
18. Mr. Nysenbaum helped Ms. Lewis with various matters, such as buying a home and finding an accountant to assist with her tax returns. (N.T. at 31).
19. Nysenbaum bought the Debtor and her daughter gifts in the nature of “trinkets” and gave Ms. Lewis small amounts of money to run errands for him. (N.T. at 81, 110–111). Occasionally, while Ms. Lewis was working at the Club, Nysenbaum bought gowns for her to wear while she performed. (N.T. at 110).
20. Because the Debtor appreciated this assistance, she wanted to help Nysenbaum in return. (N.T. at 31).
21. Nysenbaum died on December 11, 2006. (Joint Pretrial Statement (“JPS”) at ¶ 16).
22. Prior to 2005, KIS operated as “KIS Logistics” with an address of P.O. Box 7666 Hicksville, N.Y. 11801. ( See check # 's 046097, 046833, et seq. in Ex. 16). (N.T. at 115–116).9
23. Nysenbaum did not trust his former partner at KIS Logistics, Christopher Henning. (N.T. at 32, 120).
24. In approximately 2005, Nysenbaum told Ms. Lewis that he was very upset that Chris Henning, his former partner, was stealing from him, and that she could help him by signing some checks. (N.T. at 32).
25. Ms. Lewis had no knowledge of the difference between KIS and KIS Logistics, but did understand there to be “two KISes.” (N.T. at 38, 127).
26. Ms. Lewis viewed KIS as “Sam's company.” (N.T. at 37).
27. An unsigned and undated KIS Operating Agreement states that Ms. Lewis was a Member and President of KIS Transport, LLC. (the “Operating Agreement,” Ex. P–2). The Debtor testified that she has no knowledge of and has never seen this document. (N.T. at 47, 90).
28. The Debtor signed a one-page document, dated February 24, 2005, titled “Limited Liability Company Banking Resolution” (the “Banking Resolution”). (Ex. P–3). The document showed her as a “Manager of KIS Transport LLC.” Ms. Lewis testified that she has no idea of what is in this document and did not read or even look at the document prior to signing it. (N.T. at 33–34, 43).
29. Ms. Lewis testified that she did not have an ownership in KIS, never participated in the business, never prepared invoices or arranged for shipping and never made any operational decisions for the Company. (N.T. at 38, 39, 121).
30. Ms. Lewis never spoke with anyone from Aerogroup or Aerosoles, nor did she have any written communication with the company. (N.T. at 39).
31. KIS maintained a bank account at Commerce Bank; the account number was 7858121861 (the “Bank Account”). (JPS ¶ 10).
32. Ms. Lewis was a signatory on the Bank Account. (Ex. P–3).
32. The Debtor twice signed a form regarding the Bank Account with Commerce Bank dated ...
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