In re Inflight Newspapers, Inc., Bankruptcy No. 807-71796-reg.
| Decision Date | 06 January 2010 |
| Docket Number | Adversary No. 8-08-08166-reg.,Bankruptcy No. 807-71796-reg. |
| Citation | 423 B.R. 6 |
| Parties | In the Matter of INFLIGHT NEWSPAPERS, INC., Debtor. R. Kenneth Barnard, Esq., Trustee of Inflight Newspapers, Inc., Plaintiff, v. Josh Joffe a/k/a Joshua E. Joffe, a/k/a Joshua Joffe and Deborah Joffe a/k/a Debbie J. Joffe, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Holly R. Holecek, Joseph S. Maniscalco, LaMonica Herbst & Maniscalco LLP, Wantagh, NY, for Plaintiff.
Roy J. Lester, Garden City, NY, for Defendants.
This matter is before the Court pursuant to cross-motions for summary judgment filed by the plaintiff and one of the defendants in adversary proceeding no. 08-08166 pending in the bankruptcy case of Inflight Newspapers, Inc. (the "Debtor"). The plaintiff is R. Kenneth Barnard, Esq. (the "Trustee" or "Plaintiff"), the Chapter 7 trustee for the Debtor's estate. The defendants are Josh Joffe a/k/a Joshua E. Joffe, a/k/a Joshua Joffe (the "Defendant"), an alleged officer and Vice-President of the Debtor and his wife, Deborah Joffe a/k/a Debbie J. Joffe (the "Co-Defendant")(together, the "Defendants"). The complaint in this adversary proceeding alleges that the Defendants diverted funds belonging to the Debtor in violation of the Defendant's fiduciary duties. In the motions before the Court, each party seeks summary judgment on the first, second, fourth, fifth, sixth, ninth, tenth, eleventh, twelfth, thirteenth, twenty-first and twenty-second claims for relief by the Trustee.
In addition, the Trustee asks the Court to strike and not consider the affidavit in opposition filed by the Defendant (the "Affidavit"), in light of the fact that the Defendant previously asserted his Fifth Amendment privilege during discovery proceedings. The Court finds, for the reasons stated below, that the Affidavit should not be considered.
As a rule of law, the Court is free to draw an adverse inference against the Defendant because the Defendant asserted his Fifth Amendment privilege. However, this adverse inference is in tension with the inference the Court must draw, as a matter of law, in favor of the nonmoving party in a summary judgment motion; in this case, the Defendant. Notwithstanding the potential for the adverse inference that may be drawn against the Defendant to counter the inference that must be drawn in favor of the Defendant as the nonmoving party, the moving party must still present independent evidence to meet his burden on summary judgment. Thus, the burden on the Trustee to show that there is no genuine issue of material fact remains unaltered by the drawing of the adverse inference.
With respect to the motions before the Court, the Defendant argues that any funds that may have been diverted were not in fact diverted from the Debtor, but rather from another non-debtor entity. For the reasons set forth below the Court finds there is a genuine issue of material fact regarding whether the diverted funds were property of the Debtor's estate. Because resolution of this issue is central to the Trustee's motion for partial summary judgment, the Court denies the motion. Finally, Defendant argues in his cross-motion for partial summary judgment that the statutes of limitations have expired on nearly all of the Trustee's claims. For the reasons set forth below, the Court denies the Defendant's motion.
On May 21, 2007, an involuntary bankruptcy petition was filed against the Debtor by the petitioning creditors, Road Carriers Local 707 Pension Fund, Road Carriers Local 707 Welfare Fund, Lois Dua and Lorraine Lehner, seeking relief pursuant to Chapter 7 of the Bankruptcy Code. An order for relief was entered on August 10, 2007 and R. Kenneth Barnard, Esq. was appointed and duly qualified as Chapter 7 Trustee of the Debtor's estate.
On December 19, 2007, pursuant to an order of the Court, the Trustee, through his counsel, conducted a Rule 2004 examination of the Defendant regarding the financial affairs of the Debtor during the time period when the Defendant was allegedly employed by the Debtor. During the examination the Defendant did not answer the Trustee's questions because he asserted his Fifth Amendment privilege against self-incrimination.
On July 31, 2008, the Plaintiff commenced the instant adversary proceeding against Defendants (the "Complaint"). In the Complaint, the Plaintiff seeks to recover six million dollars that the Defendant allegedly transferred from the Debtor to himself for his personal use, which transfers allegedly occurred between 1999 and 2004 (the "Transfers"). The Trustee is seeking to recover the Transfers under the following theories: conversion on the first claim for relief; money had and received on the second claim for relief; property of the estate on the third claim for relief; breach of fiduciary duty under New York law on the fourth, fifth and sixth claims for relief; accounting on the seventh claim for relief; declaratory judgment on the eighth claim for relief; fraudulent conveyance avoiding transfers on the ninth, tenth, eleventh, twelfth, and thirteenth claim for relief; injunctive relief on the fourteenth claim for relief; aiding and abetting a conspiracy to commit fraudulent conveyance on the fifteenth claim for relief; constructive trust against property on the sixteenth claim for relief; equitable lien against property on the seventeenth claim for relief; fraudulent concealment of property on the eighteenth claim for relief; accounting regarding property on the nineteenth claim for relief; declaratory judgment determining the nature, extent and value of property on the twentieth claim for relief; unjust enrichment on the twenty-first claim for relief; and self-dealing on the twenty-second claim for relief.
On November 17, 2008 the Defendant filed an answer denying all allegations and asserting the following affirmative defenses: failure to state a claim, failure to plead with particularity, money and property received is not property of the estate, claims are barred by the applicable statute of limitations, and claims are barred by the doctrine of laches, waiver and/or estoppel.
On December 4, 2008, the Plaintiff served a request for the production of documents on the Defendant. In response to the request, the Defendant asserted his Fifth Amendment privilege against the production of self-incriminating documents and failed to produce any of the requested documents.
On December 16, 2008, Plaintiff's counsel examined Defendant, who responded to each of the Trustee's questions by asserting his Fifth Amendment privilege.
On May 26, 2009 the Trustee filed a motion seeking partial summary judgment against the Defendant. In the motion for partial summary judgment, the Trustee alleges that he is entitled to judgment as a matter of law as to the first, second, fourth, fifth, sixth, ninth, tenth, eleventh, twelfth, thirteenth, twenty-first and twenty-second claims for relief asserted in the Complaint.
In support of the Trustee's motion, Trustee's counsel relies on filings in a criminal action commenced against the Defendant in the United States District Court for the Eastern District of New York bearing Index number 08-CR-206 (the "Criminal Action"). The Plaintiff cites to an Information1 (the "Information") filed against the Defendant by the Office of the U.S. Attorney charging the Defendant with conspiring to defraud the United States. According to the Information, between 1999 and 2004 the Defendant and others "knowingly and intentionally conspire[d] to defraud the United States by impeding, impairing, obstructing and defeating the lawful functions of the Internal Revenue Service of the United States Department of the Treasury in the ascertainment, computation and collection of ... income taxes." The Information contains allegations that the Defendant did not report as income on his federal income tax returns the proceeds of checks that he kept for his personal use and, further, that he and others committed at least one overt act in furtherance of that conspiracy.
The Trustee alleges that Defendant was an officer and Vice-President of the Debtor during the time period that the Transfers occurred, which is supported by the allegations set forth in the Information. The Defendant does not dispute that the Information contains allegations with respect to the Defendant acting as a Vice President of Inflight Newspapers and Magazines, Inc. ("INM"). However, the Debtor is not specifically named as the entity from which the Defendant received the unreported income. In the record of the Defendant's plea hearing before the Honorable Roanne L. Mann, the Defendant testified,
[F]rom about 1999 to 2004 I along with others [inaudible] magazines in Valley Stream, New York agreed to withdraw money from the company for the personal use of the owner of the company and myself. We did this with the understanding that the owner of the company and I would not report this money as income on our federal income returns. In furtherance of this agreement in 2003, I filed a federal income tax return for 2002 which did not report as income a certain amount that I received from the company for my personal use. I knew that my actions were wrong.
The Plaintiff also relies on non-party witness testimony consisting of depositions from Thomas C. Bracken, Barry Alper, and Barry Saines; and the Plaintiff has introduced transcripts from these depositions in support of his motion for partial summary judgment. Notwithstanding that the Trustee and the Defendant disagree as to whether the use of "Inflight" and "Inflight Newspapers" in the depositions refers to the debtor or another entity, the following depositions are submitted in support of the Trustee's motion.2
On January 13, 2009 Plaintiff's counsel examined Mr. Thomas C. Bracken, who testified...
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