In re Duncan

• Decision Date: 02 September 2005
• Docket Number: Bankruptcy No. 02-85792-dte.,Adversary No. 02-08406-ess.
• Parties: In re Eugene DUNCAN, Debtor. Elaine L. Chao, Secretary of Labor, United States Department of Labor, Plaintiff, v. Eugene Duncan, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

331 B.R. 70

In re Eugene DUNCAN, Debtor.

Elaine L. Chao, Secretary of Labor, United States Department of Labor, Plaintiff, v. Eugene Duncan, Defendant.

Bankruptcy No. 02-85792-dte.

Adversary No. 02-08406-ess.

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

September 2, 2005.

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Office of the Solicitor, New York, By John G. Campbell, Esq., Patricia M. Rodenhausen, Esq., for the U.S. Department of Labor.

Zinker, Gelfand & Herzberg, LLP, Smithtown, By Jeffrey Herzberg, Esq., for Eugene Duncan.

MEMORANDUM DECISION GRANTING THE MOTION FOR SUMMARY JUDGMENT BROUGHT BY THE U.S. DEPARTMENT OF LABOR

ELIZABETH S. STONG, Bankruptcy Judge.

Before the Court is a motion for summary judgment (the "Motion" or the "Motion for Summary Judgment") of Elaine Chao, the Secretary of Labor, United States Department of Labor in this adversary proceeding (the "Adversary Proceeding"). Eugene Duncan (the "Defendant") filed for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on August 13, 2002, and the case was converted to one under Chapter 7 on February 24, 2003.¹ On November 12 2002, the Secretary of Labor (the "Secretary" or "DOL") filed a complaint (the "Complaint") commencing this Adversary Proceeding, which seeks to establish the nondischargeability of a debt under Section 523(a)(4) of the Bankruptcy Code. This section creates an exception to discharge for debts arising from "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." 11 U.S.C. § 523(a)(4).

On December 12, 2002, the Defendant filed an answer (the "Answer") to the Complaint. On October 15, 2004, the Secretary filed the Motion for Summary Judgment, which consisted of Plaintiff's Memorandum of Law in Support of Her Motion for Summary Judgment ("Pl. S.J. Br."), and Plaintiff's L.B.R. 7056-1 Declaration ("Campbell Decl."). On December 27, 2004, the Defendant filed Defendant's Memorandum of Law in Opposition to the Plaintiff's Memorandum of Law ("D. Opp. Br."), together with a Local Rule Affidavit in Opposition to the Motion for Summary Judgment filed by the United States Department of Labor ("Herzberg Aff."). On January 19, 2005, the Secretary filed a Reply Memorandum of Law in Support of Her Motion for Summary Judgment ("Pl. Reply"), and the Defendant filed the Debtor-Defendant Eugene Duncan's Sur-Reply to Plaintiff's Reply Memorandum in Support of Her Motion for Summary Judgment ("D. Sur-reply").

Hearings on the Motion for Summary Judgment were held on January 28, 2005, February 9, 2005, and May 19, 2005, at which counsel for the Secretary and the Defendant appeared and were heard. After consideration of the submissions, the arguments of counsel, and the entire record before the Court, for the reasons set forth below, the Motion for Summary Judgment is granted.

Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(b)(2)(I), as it is a core proceeding concerning the dischargeability of a particular debt. The following are the Court's findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure, as made applicable herein by Bankruptcy Rule 7052.

Procedural History

The Defendant seeks a discharge of, among other debts, liability resulting from a partial consent judgment dated February 6, 2001 (the "Consent Judgment"), that was entered in an action brought in the U.S. District Court for the Eastern District of New York (the "District Court Action") by the DOL seeking equitable relief, including restitution, under Section 502 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132, for ERISA violations allegedly committed by the Defendant in his role as a fiduciary of the International Workers' Guild Health and Welfare Trust (the "Plan"). The Defendant and the Secretary reached a settlement in the District Court Action on January 16, 2001, and a Consent Judgment memorializing this settlement was approved by the District Court by an order dated February 6, 2001. See Campbell Decl. ¶¶ 11, 16, and Exh. F (Consent Judgment). The Defendant also pleaded guilty to one felony count of a violation of 18 U.S.C. § 1347, health care fraud, on September 22, 2000. Second Motion for Summary Judgment by the Defendant Eugene Duncan ("D. Second S.J. Motion"), Adversary Proceeding Docket Entry 19, Exh. D (judgment in U.S. v. Duncan entered on May 3, 2002).

The Consent Judgment requires the Defendant to make restitution to the Plan in a series of scheduled payments. The total amount of restitution is not less than $250,000, and could be as much as $8 million, depending on the Defendant's financial condition. Campbell Decl., Exh. F (Consent Judgment). The Defendant acknowledges that he signed the Consent Judgment establishing the debt, and the parties do not dispute the meaning of the provisions of the Consent Judgment, including the amounts that the Defendant owes under it. See Pl. S.J. Br. at 7; D. Opp. Br. at 4-5. Nor do the parties dispute that the Defendant has made no payments due under the Consent Judgment. Complaint ¶ 8; Answer ¶ 5. The Secretary seeks a declaration that the debt resulting from the Consent Judgment (the "Consent Judgment Debt") is nondischargeable under Section 523(a)(4) of the Bankruptcy Code because it arises from defalcations that the Defendant committed in a fiduciary capacity.

The Defendant answered the Complaint and then made two motions for summary judgment. In his first motion for summary judgment, the Defendant argued that because the Secretary had entered into a settlement agreement with the Defendant without reserving the right to challenge the dischargeability of the debt in the event of the Defendant's bankruptcy, the Secretary waived any right to seek a determination that the debt was nondischargeable. Defendant's Motion for Summary Judgment at 7. The first motion for summary judgment was withdrawn after the Supreme Court decided Archer v. Warner, 538 U.S. 314, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003). Adversary Proceeding Docket Entry 12 (letter dated April 9, 2003, from Jeffrey Herzberg).

In his second motion for summary judgment, the Defendant argued that the Secretary lacked standing to bring, and the District Court lacked subject matter jurisdiction over, the District Court Action. D. Second S.J. Motion at 12, Adversary Proceeding Docket Entry 19. This Court denied that motion on March 24, 2004. Chao v. Duncan (In re Duncan), 308 B.R. 138, 143 (Bankr.E.D.N.Y.2004). This Court held, among other things, that the Secretary, in light of her statutory role as "protector of employee benefit plans," coupled with several significant public policy considerations in her favor, has standing to bring this Adversary Proceeding to contest the dischargeability of the Defendant's debt. Id. at 145. In addition, this Court found that principles of res judicata barred the Defendant from contesting the District Court's subject matter jurisdiction or the Secretary's standing in the District Court Action. Id. at 149. Finally, this Court concluded that the Defendant, as the moving party, did not meet his burden to show that he was entitled to summary judgment on the merits of the Secretary's dischargeability claim. Id.

The Secretary filed this Motion for Summary Judgment on October 15, 2004. She argues that the record shows the Plan was an ERISA plan (or several smaller ERISA plans with an identifiable trust res), and thus a trust of which Duncan was the fiduciary. Pl. S.J. Br. at 11-12. The Secretary also asserts that the record shows the Defendant was a fiduciary of the Plan, even though he was not formally named a fiduciary. Id. at 19. Finally, the Secretary argues that the record shows that the Defendant committed defalcations while he was acting as a fiduciary to the Plan, and breached his ERISA duties as a fiduciary, by causing the Plan to make payments to sham entities that rendered no legitimate services to the Plan's participants and causing the Plan to make excessive payments to Fidelity Group, Inc. ("Fidelity"), of which the Defendant was the President and fifty-percent owner. Id. at 23.

After consideration of the entire record, including hearings held on January 28, 2005, February 9, 2005, and May 19, 2005, the Secretary's motion for summary judgment is granted.

Discussion

The Standard for Summary Judgment

Federal Rule of Civil Procedure 56, made applicable to this adversary proceeding by Bankruptcy Rule 7056, provides that summary judgment is appropriate when "`the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56(c)). See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "A fact is material only if it affects the result of the proceeding and a fact is in dispute only when the opposing party submits evidence such that a trial would be required to resolve the differences." Hassett v. Altai, Inc. (In re CIS Corp.), 214 B.R. 108, 118 (Bankr.S.D.N.Y.1997).

The moving party has the burden of demonstrating the absence of any genuine issue of material fact, and all of the inferences to be drawn from the underlying facts must be viewed by the Court in the light most favorable to the party opposing the motion. See Anderson, 477 U.S. at 249, 106 S.Ct. 2505. But to defeat a motion for summary judgment, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. Rather, it must...