In re Carretta
| Decision Date | 17 March 1998 |
| Docket Number | Bankruptcy No. 97-20465,Adversary No. 97-2303. |
| Parties | In re Joseph CARRETTA, Debtor. MERCEDES-BENZ CREDIT CORPORATION v. Joseph F. CARRETTA and Carretta Trucking, Inc. and Corestates Bank, N.A., Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Timothy R. Greiner, Greiner & Langer, Parsippany, NJ, for Mercedes-Benz Credit Corporation.
Peter A. Pizzani, Jr., Okin, Hollander & Deluca, L.L.P., Fort Lee, NJ, for Joseph F. Carretta.
Presently before the Court is a motion by the Debtor/Defendant Joseph F. Carretta to dismiss the first Count of the Plaintiff, Mercedes Benz Credit Corporation's, Amended Complaint for failure to state a claim upon which relief can be granted. Plaintiff opposes Debtor/Defendant's Motion to Dismiss the first Count of Plaintiff's amended complaint, and requests a determination that the Debtor/Defendant's obligations to Plaintiff are non-dischargeable pursuant to § 523(a)(4). A hearing was conducted on February 19, 1998. The following constitutes this Court's findings of fact and conclusions of law.
Mercedes-Benz Credit Corporation ("MBCC") is a Delaware Corporation with its principle place of business in Norwalk, Connecticut. Carretta Trucking, Inc. ("CTI") is a New Jersey Corporation with its principle place of business in Paramus, New Jersey. The Debtor/Defendant, Joseph F. Carretta ("Carretta"), is an individual who resides in Teaneck, New Jersey and who is the sole officer and share holder of CTI.
Commencing in May of 1990 CTI leased 204 freight liner tractors from North Jersey Truck Center, Inc. ("NJTC") (the "Equipment Lease"). NJTC assigned its rights under the Equipment Lease to MBCC. Thereafter, CTI defaulted on the Equipment Lease.
On November 5, 1992 CTI filed a voluntary Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey (Case No. 92-29015). On or about November 16, 1992 MBCC filed an adversary proceeding with respect to its rights under the Equipment Lease.
MBCC and CTI reached a Settlement Agreement (the "First Settlement Agreement") on July 27, 1993, which included a modification of the Equipment Lease. On August 24, 1993 CTI's reorganization plan was confirmed by the court. As of February 23, 1994, however, CTI was in default of the First Settlement Agreement and the Equipment Lease as modified.
On or about June 7, 1994, MBCC and CTI executed a new Settlement Agreement (the "Second Settlement Agreement"). The Second Settlement Agreement required CTI to deliver and execute a promissory note (the "Note") in the amount of $200,000 and to pay all of plaintiff, MBCC's, costs and expenses including interest, penalties and attorneys fees incurred in recovering CTI's obligation. The Second Settlement Agreement also provided to secure payment of CTI's obligation that upon request CTI was to execute and deliver to MBCC mortgages on six parcels of real property owned by CTI and/or held by Carretta, including three properties in Texas, one in California, one in Georgia, and one in Illinois. According to the Complaint, MBCC was also to be given a priority lien.
It is alleged here that on August 8, 1994 Carretta incorporated Load To Ride, Inc. ("LTR"). Carretta is the sole shareholder, officer, and director of LTR. It is alleged here that CTI became insolvent as of not later than August 8, 1994 in that, among other things, CTI was not able to meet its pecuniary obligations as they matured by either available assets or the honest use of credit. It is further alleged that in December of 1994 Carretta, for his own benefit and gain, abandoned CTI and began to do business as LTR. LTR allegedly used the good will, customer lists, furniture, fixtures, equipment, proprietary computer software, inventories, leasehold improvements, trade names and trademarks of CTI. CTI and LTR allegedly have continuity of ownership, management, employees, location, customers and general business operations.
On June 7, 1995 CTI failed to make its first payment due MBCC under the Second Settlement Agreement. On December 26, 1995 MBCC filed an action against both CTI and LTR in the Morris County Superior Court Law Division for the sum due from CTI on the note under the Second Settlement Agreement.
On October 11, 1996 MBCC was granted partial Summary Judgment by order of the Superior Court of New Jersey in the amount of $314,821.92, which included $200,000 from the Note and the Second Settlement Agreement, plus unpaid interest at the contract rates to October 11, 1996 in the amount of $48,821.91 and fees and costs, including attorney's fees of $50,000, plus taxed costs.
On January 16, 1997 Joseph Carretta filed a Chapter 11 petition automatically staying MBCC's prosecution of its claim against Carretta in the State Action. On April 24, 1997, the present Complaint was filed. On May 12, 1997 MBCC amended its adversary complaint. Included as Count One is a request for a determination the Carretta's obligations to MBCC are non-dischargeable pursuant to 11 U.S.C.A. § 523(a)(4). Since the filing of the present motion MBCC, on January 26, 1998, filed a Second Amended Complaint, adding Corestates Bank, N.A. as a party defendant.
On October 15, 1997 this Court entered an order that provided in relevant part:
Effective as of September 8, 1997, the Property 405 West 194th Street, Glenwood, Illinois shall be deemed to have been transferred to CTI, and MBCC's Judgment against CTI in the amount of $314, 821.91, filed October 11, 1996 in the Superior Court of New Jersey . . ., shall attach to the Property as of September 8, 1997 . . .
Debtor/Defendant now seeks to have the First Count of the Plaintiff's Amended Complaint dismissed.
The Debtor/Defendant moves to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which is applicable to all bankruptcy proceedings pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure. Rule 12(b)(6) provides that a motion to dismiss a complaint may be filed for "failure to state a claim upon which relief can be granted." When considering a motion to dismiss, the court must accept as true all allegations in the complaint and all reasonable inferences drawn from those allegations, and view them in light most favorable to the plaintiff. See Jenkins v. McKeithen, 395 U.S. 411, 421-22, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404, 416-17 (1969); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir.1991). Accordingly, a complaint should not be dismissed "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90, 96 (1974); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80, 84 (1957); Commonwealth of Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 175 (3d Cir.1988).
The Debtor/Defendant requests that this Court dismiss the first Count of the Plaintiff's amended complaint. The Plaintiff's amended complaint alleges that the Debtor/Defendant's obligations to MBCC are non-dischargeable under 11 U.S.C.A. § 523(a)(4).
Section 523(a)(4) provides:
MBCC alleges that upon CTI's insolvency, Carretta owed a fiduciary duty to CTI's creditors which he breached by misappropriating assets of CTI for the use and benefit of another corporation that he controlled. MBCC asserts that this constitutes a defalcation by a fiduciary under § 523(a)(4), which makes Carretta personally liable for the indebtedness of CTI to MBCC and makes the debt non-dischargeable.
i. Defining Fiduciary
Debtor/Defendant claims that he did not have a fiduciary relationship with Plaintiff within in the meaning of § 523(a)(4). The Debtor/Defendant asserts that the meaning of the term fiduciary as used in § 523(a)(4) is a question of federal law. In re Kaczynski, 188 B.R. 770, 773 (Bankr.D.N.J.1995) (citing In re Rausch, 49 B.R. 562, 563 (Bankr.D.N.J. 1985)). In determining whether a fiduciary relationship exists for purposes of § 523, the Debtor/Defendant asserts that the court is required to analyze applicable state law to determine whether under state law the relationship between the debtor and the third party meet the criteria for establishing a fiduciary relationship under federal law. See Kaczynski, 188 B.R. at 773.
2. New Jersey's Definition of Fiduciary
The Debtor/Defendant in establishing a definition of "fiduciary" points to In re Kaczynski, 188 B.R. 770, 773-74 (Bankr.D.N.J. 1995) and cites the following:
The traditional definition of "fiduciary" involving a relationship of confidence, trust and good faith, is too broad for the purposes of bankruptcy law. Matter of Rausch, 49 B.R. 562, 564 (Bankr.D.N.J. 1985) (citation omitted). Rather the meaning of "fiduciary" for purposes of Bankruptcy Code section 523(a)(4) is limited to instances involving express or technical trusts. Chapman v. Forsyth, 43 U.S. (2 How.) 202, 207, 11 L.Ed. 236 (1844); Davis v. Aetna, 293 U.S. 328, 333, 55 S.Ct. 151, 153-54, 79 L.Ed. 393 (1934). Moreover, the trustee\'s duties must be independent of any contractual obligation between the parties and must be imposed prior to, rather than by virtue of, any claim of misappropriation. Davis v. Aetna, 293 U.S. at 333, 55 S.Ct. at 154; . . . Accordingly, implied or constructive trusts and trusts ex malaficio are not deemed to impose fiduciary relationships under the Bankruptcy Code. Matter of Angelle, 610 F.2d 1335 at 1339 (5th Cir.1980)...
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