In re Inc.

• Decision Date: 24 August 2010
• Docket Number: Adversary No. 06-08419-reg,Bankruptcy No. 05-86636-reg
• Citation: 441 B.R. 181
• Parties: In re MARINE RISKS, INC., Debtor. Neil H. Ackerman, Ch. 7 Bankr. Trustee of Marine Risks, Inc., Plaintiff, v. Walter Pilipiak, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

441 B.R. 181

In re MARINE RISKS, INC., Debtor.

Neil H. Ackerman, Ch. 7 Bankr. Trustee of Marine Risks, Inc., Plaintiff,

v.Walter Pilipiak, Defendant.

Bankruptcy No. 05-86636-reg.

Adversary No. 06-08419-reg.

United States Bankruptcy Court,

E.D. New York.

Aug. 24, 2010.

Kamini Fox, Kevin R. Toole, Michael H. Masri, Meltzer, Lippe, Goldstein & Breitstone, Mineola, NY, for Plaintiff.

John E. Keough, III, Waische Sheinbaum & O'Regan PC, Tracy L. Klestadt, Klestadt & Winters LLP, New York, NY, for Defendant.

MEMORANDUM DECISION

ROBERT E. GROSSMAN, Bankruptcy Judge.

This matter is before the Court pursuant to a third-party complaint commenced by the Debtor pre-petition, which was subsequently removed to the Bankruptcy Court. Neil H. Ackerman, Esq. ("Trustee"), the Chapter 7 trustee in the matter of Marine Risks, Inc. ("Debtor") has been substituted as the plaintiff in place of the Debtor, and Walter Pilipiak ("Defendant") is the defendant. The first cause of action in the complaint asserts that the Defendant breached his fiduciary duties as an officer and a director of the Debtor by soliciting the Debtor's clients for his own benefit while he was employed by the Debtor. In the second cause of action, the Trustee asserts that the Defendant breached his fiduciary duties as an officer and director of the Debtor by appropriating for his own benefit a business opportunity belonging to the Debtor while he was employed by the Debtor. In the third cause of action, the Trustee alleges that the Defendant tortiously interfered with a proposed transaction between the Debtor and a third party.

The Trustee has concluded his case in chief and requests that the first two causes of action in the complaint be amended to conform to the evidence presented at trial pursuant to Fed.R.Civ.P. 15(b). The Trustee seeks to amend the first and second causes of action to include the Defendant's conduct after he resigned from the Debtor, and to add to the second cause of action that the Defendant misappropriated key employees of the Debtor. The Trustee also seeks to add to the second cause of action a claim that the Defendant breached his fiduciary duties as an officer and director of the Debtor by misappropriating a second business opportunity of the Debtor's for his own benefit. The Defendant opposes the Trustee's request and moves for judgment in favor of the Defendant dismissing all three counts of the complaint pursuant to Fed.R.Civ.P. 52(c) and Fed.R.Bankr.Proc. Rule 7052 ("Motion"). For the reasons set forth below, (1) the Trustee's request to amend the complaint is granted except as to the allegation that the Defendant breached his fiduciary duties to the Debtor after he resigned, and (2) the Motion is granted as to all causes of action as amended. The Plaintiff has failed to establish a prima facie case under any of the three causes of action. As to the first two causes of action, the Trustee failed to meet his burden of proof that the Defendant breached his fiduciary duties as an officer and director of the Debtor, and that the Defendant's conduct caused injury to the Debtor, resulting in quantifiable damages. The Plaintiff has also failed to establish a prima facie case for tortious interference with a proposed transaction between the Debtor and a third party because there was no binding agreement that the Defendant could interfere with, and there is no evidence that the Defendant's conduct caused the third party to breach any contract. In addition, there is no evidence of damage to the Debtor flowing from the Defendant's conduct.

Procedural History

On November 6, 2000, the Debtor filed the complaint as a third-party action against the Defendant in New York State Supreme Court, New York County. The third-party action was commenced in response to a complaint filed by the Defendant and Robert Ludemann representing the shareholders of the Debtor, against Bruce Keyes, the Debtor and other directorsof the Debtor. The complaint alleged that Bruce Keyes and the other individual defendants engaged in a course of conduct in violation of their fiduciary duties to the Debtor. The third-party action was removed to the United States District Court for the Southern District of New York on January 4, 2001 (the "SDNY Lawsuit"). The allegations contained in the SDNY Lawsuit describe a course of conduct by the Defendant whereby he intended to and in fact did interfere with and prevent a proposed transaction between the Debtor and a competitor, Nausch, Hogan and Murray ("NHM"). As set forth in greater detail below, the beneficiaries of the NHM transaction would have been solely the shareholders of the Debtor. Under the transaction the shareholders would have received a stream of payments based on a percentage of income generated by the former clients of the Debtor over five years. In the SDNY Lawsuit, the Debtor asserted the following three causes of action against the Defendant: 1) prior to his resignation as an officer and director of the Debtor, Defendant "actively solicited clients of [the Debtor], and diverted those clients and their business away from [the Debtor] for his own purposes" in breach of his fiduciary duties to the Debtor; 2) the Defendant breached his duties as an officer and director of the Debtor when he "utilized his position and information acquired while in a fiduciary role as an officer and director of [the Debtor], to appropriate the business opportunity afforded by [the NHM transaction] for his own benefit, by diverting the business and clients encompassed by [the NHM transaction] to his own use while continuing to serve as a member of the Board of Directors of [the Debtor];" and 3) the Defendant tortiously interfered with the agreement between the Debtor and NHM, resulting in NHM's withdrawal of its proposed NHM transaction. ¹ For each count, the plaintiff sought damages of at least $1 million, a figure based on the aggregate amount of revenues the shareholders would have received from NHM over the five year period had the NHM transaction taken place. On January 8, 2001, the Defendant filed an answer to the complaint and asserted, inter alia, following affirmative defenses: 1) failure to state a claim, 2) a defense is founded upon documentary evidence, 3) any loss or damage resulted from the breach of duty or fault of the Debtor and/or others for whom the Defendant is not responsible, 4) the Debtor is not the real party in interest, failure to mitigate damages, the complaint is interposed in bad faith and is barred by the equitable doctrine of unclean hands. Thereafter, in late 2005, the SDNY Lawsuit was marked off the District Court's calendar for lack of prosecution.

On September 22, 2005, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code, and thereafter the Trustee was appointed as acting trustee in the Debtor's bankruptcy case. By stipulation between the parties so-ordered by the District Court on September 18, 2006, the SDNY Lawsuit was reopened and transferred to the Bankruptcy Court, without any amendment to the claims originally asserted by the Debtor. February 1, 2006, was fixed as the last date to file claims in this case. According to the claims register, there are $153,742.92 in unsecured claims, and one secured claim in the amount of $250,000. The law firm currently representing the Defendant filed the secured claim based on an alleged charging lien against the Debtor. The Trustee's administration claims have not been calculated to date, but the Trustee's professionals have spent considerable time on thiscase. Based on the time spent by the Trustee's professional litigating this adversary proceeding to date, these professionals will be seeking compensation from this estate in amounts which will be significant in relation to the dollar amount of claims filed in this case.

On February 23, 2009, the parties filed a Joint Pretrial Memorandum outlining the parties' summaries of the case and the facts and issues of law in dispute. Included in the Joint Pretrial Memorandum is the Trustee's contention that "[a]s a result of [the Defendant's] breach of fiduciary duty in diverting the clients and key employees of the Debtor for his own benefit, appropriation of the business opportunity of the Debtor presented by [Cosmos Services America, Inc. ("Cosmos"), another insurance broker], and the tortuous (sic) interference with the NHM Sales Agreement, the Debtor became unsalvageable and its demise imminent." The Joint Pretrial Memorandum also includes the Trustee's recitation of issues of law to be determined, including, "[w]hether [the Defendant] breached his fiduciary duty as an officer, director and employee of the Debtor by misappropriating the business opportunity presented by Cosmos?"

The trial took place on February 26, 2009, April 21, 2009, August 4-6, 2009, October 13-15, 2009, October 23, 2009, October 28, 2009, November 17, 2009 and January 5, 2010. On January 25, 2010, the Defendant filed the Motion. On February 24, 2010, the Trustee filed opposition to the Motion, and included his request to amend the complaint to conform to the evidence presented at trial. On April 17, 2010, the Defendant filed a response to the Trustee's opposition in which the Defendant objected to the Trustee's request to amend the complaint. Thereafter, the Motion was marked submitted.

Facts

The Debtor was a New York corporation engaged in the business of brokering marine, automobile and other types of insurance. Bruce Keyes is the majority shareholder of the Debtor, holding fifty-nine (59) shares of common stock, representing 62.8% of the common shares issued, and ten (10) shares of preferred stock, representing 33.33% of the preferred shares issued. The Defendant holds fifteen (15) shares of common stock in the Debtor, representing 16% of the common shares issued, and ten (10) shares of preferred stock, representing 33.33% of the preferred shares issued. The Defendant was an Officer and Director of the Debtor until his...