In Re Ko Yoshida

• Decision Date: 23 August 2010
• Docket Number: Bankruptcy No. 1-09-46070-jf.,Adversary No. 1-09-01415-jf.
• Citation: 435 B.R. 102
• Parties: In re Ko YOSHIDA, a/k/a Ko O. Yoshida, Debtor. Grow Up Japan, Inc., Plaintiff v. Ko Yoshida, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

435 B.R. 102

In re Ko YOSHIDA, a/k/a Ko O. Yoshida, Debtor.Grow Up Japan, Inc., Plaintiff

v.Ko Yoshida, Defendant.

Bankruptcy No. 1-09-46070-jf.

Adversary No. 1-09-01415-jf.

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

Aug. 23, 2010.

COPYRIGHT MATERIAL OMITTED.

Tristan C. Loanzon, Loanzon Sheikh LLC, New York, NY, Attorney for the Plaintiff.

Erica R. Feynman, Rattet, Pasternak & Gordon Oliver, LLP, Harrison, NY, Attorney for the Defendant.

DECISION AND ORDER GRANTING DEBTOR'S MOTION TO DISMISS

JEROME FELLER, Bankruptcy Judge.

Grow Up Japan, Inc. (“GUJ”), commenced this Chapter 13 adversary proceeding against Ko Yoshida (“Yoshida”), the Debtor/Defendant, seeking a determination that an amended federal court judgment in the amount of $40,460.16 (“Judgment Debt”) is excepted from discharge pursuant to 11 U.S.C. § 523(a)(4). ¹ Before the Court is Yoshida's contested motion to dismiss the adversary proceeding (“Motion To Dismiss”) pursuant to Fed. R. Bankr.P. 7012(b) and Fed.R.Civ.P. 12(b)(6), for GUJ's failure to state a claim upon which the requested relief can be granted. Specifically, Yoshida maintains that the complaint fails to allege facts constituting fraud or defalcation while acting in a fiduciary capacity.

Upon review of all the submissions and after hearing oral argument, the Court concludes that the complaint should be dismissed. The complaint, even when read in a light most favorable to GUJ, fails to plausibly establish a nondischargeable claim under § 523(a)(4). Accordingly, Yoshida's Motion To Dismiss is granted.

I.

In 2007, GUJ commenced a lawsuit in the United States District Court for Southern District of New York against Yoshida, a former manager of its New York computer store, ² styled Grow Up Japan Inc. v. Ko Computer Inc., & Ko Yoshida, 07 CV 3944, 2007 WL 1993510 (S.D.N.Y.) (“District Court Action”). The amended complaint in the District Court Action alleged that Yoshida reported to GUJ, in 2004, that its New York store was experiencing financial difficulties. GUJ further stated that on or about March 30, 2005, based on Yoshida's reports; it closed the New York store, terminated its lease at 431 Fifth Ave. and paid a penalty for early termination. After closing the New York store, GUJ says that it discovered that Yoshida incorporated “Ko Computer” on or about February 2, 2004, and under that name opened a computer store on or about April 15, 2005 at the same 431 Fifth Ave. location. GUJ charges Yoshida with assorted misconduct, including allegations that, while employed as manager of GUJ's New York computer store, he engaged in competing business and usurped corporate opportunities. GUJ sought judgment against Yoshida based upon separate claims sounding in fraud, conversion, an accounting, breach of fiduciary duty, unfair competition, tortious interference and unjust enrichment.

After extensive discovery, a 4-day jury trial began on January 12, 2009. Upon conclusion of the trial, the only claim deemed worthy and sent to the jury for consideration was the breach of fiduciary duty claim. In his charge to the jury, the district court judge instructed the panel to consider the following:

Mr. Yoshida was the manager of User's Side, the New York store owned by Grow Up Japan. A manager has a duty to his employer to act in good faith and in the employer's best interests during the period of his employment. In short, a manager is what we call a fiduciary who owes his employer undivided and unqualified loyalty and may not act in any manner contrary to the interests of his employer. A person acting in a fiduciary capacity is required to make truthful and complete disclosure to those whom the fiduciary duty is owed and the fiduciary is forbidden to obtain an improper advantage at the expense of his employer.

Declaration in Opposition, Exhibit A at 13 (ECF Docket Number 10). The jury returned a verdict, on January 15, 2009, finding that Yoshida breached a fiduciary duty owed to GUJ under the standards defined by the district court judge. Although, GUJ sought at least $400,000 in compensatory damages, plus punitive damages, for breach of fiduciary duty, the jury awarded compensatory damages of $24,460.16, limited to the penalty paid for early termination of the 431 Fifth Ave. lease. Punitive damages were denied. Subsequently, an amended judgment was entered to include interest and costs in the sum of $40,607.61, as of April 7, 2009.

On July 21, 2009, Yoshida filed a petition for relief under chapter 13 of the Bankruptcy Code. GUJ filed a proof of claim as unsecured creditor based upon the Judgment Debt. On November 2, 2009, GUJ commenced the instant adversary proceeding. The complaint filed is skeletal in both length and content. Excluding the customary introductory paragraphs, the complaint amounts to six brief paragraphs, which read as follows:

5. Debtor Yoshida owes GUJ a sum of $40,607.61 (“Judgment Debt”) as of April 7, 2009. An amended judgment from the United States District Court

for the Southern District of New York is attached as Exhibit A.

6. The Judgment Debt was assessed against Yoshida after a jury trial before Judge Gerard E. Lynch in the United States District Court held from January 12 through January 16, 2009 [sic]. A copy of the judgment is attached as Exhibit B.

7. The Judgment Debt arose from Yoshida's breach of fiduciary [duty] owed to Plaintiff GUJ.

8. Specifically, GUJ brought suit against Yoshida in case styled Grow Up Japan, Inc. v. Ko Yoshida, 07 CV 3944 (S.D.N.Y.), alleging that Yoshida (while the manager of GUJ's office in New York) breached his fiduciary duties to GUJ by engaging in competing business and usurping corporate opportunities of GUJ. After a 4-day jury trial, the jury found that Yoshida breached his fiduciary duty to GUJ.

9. Debtor Yoshida did not appeal the judgment.

10. An April 6, 2009 order from the Court shows that the only allegation for which the jury found in favor of GUJ involved a breach of fiduciary duty.

Complaint, at 2 (ECF Docket Number 1). In light of these recitations, the complaint concludes that “Yoshida's Judgment Debt to GUJ arises from ‘fraud or defalcation while acting in a fiduciary capacity,’ within the meaning of 11 U.S.C. Section 523(a)(4) and therefore should be excepted from discharge.” Id.

In lieu of filing an answer, Yoshida filed the Motion To Dismiss. He argues that GUJ wrongly assumes that the breach of fiduciary duty finding in the District Court Action and resultant Judgment Debt alleged in the complaint warrant a determination of nondischargeability under § 523(a)(4). Yoshida contends that GUJ has not pleaded facts establishing that he was a fiduciary for purposes of § 523(a)(4) and that GUJ also failed to allege any facts to support a finding of fraud or defalcation. While the complaint employs the term “fraud”, counsel for GUJ retracted and conceded at oral argument that his client is not alleging fraud. Transcript, at 8-9, 13 (ECF Document Number 14). Accordingly, we only address whether GUJ stated a claim of defalcation while acting in a fiduciary capacity.

II.

Fed.R.Civ.P. 12(b)(6), made applicable to this adversary proceeding by Bankr.Proc.Rule 7012(b), provides for dismissal of a lawsuit for “failure to state a claim upon which relief can be granted.” ³ The court's task in reviewing a dismissal motion under Rule 12(b)(6) is “necessarily a limited one.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). A plaintiff is required only to allege, not prove, sufficient facts establishing a claim to survive a motion to dismiss. The role of the court is merely to assess the legal sufficiency of the complaint and not to assess the weight of evidence which might be offered in support of the complaint. Koppel v. 4987 Corp., 167 F.3d 125, 133 (2d Cir.1999); see Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir.1984); Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir.1980). In so doing, the court must accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff. See Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009); Scheuer, 416 U.S. at 236, 94 S.Ct. 1683; Acito v. IMCERA Group, Inc., 47 F.3d 47, 51 (2d Cir.1995); Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991).

A complaint will be deemed sufficient if it satisfies the general notice pleading requirements set forth in Rule 8(a)(2). Rule 8(a)(2) calls for “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); see City of Clinton v. Pilgrim's Pride Corp., 653 F.Supp.2d 669, 671 (N.D.Tex.2009); In re Bunker Exploration Co., 42 B.R. 297, 300 (Bankr.W.D.Okl.1984).

While pleadings are to be liberally construed in favor of the plaintiff, the deference accorded to a plaintiff is not without limitation. A defendant is entitled to fair notice of a plaintiff's claim and the grounds upon which it rests so as to prepare an appropriate defense. Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 n. 3, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Ricciuti v. New York City Transit Auth., 941 F.2d 119, 123 (2d Cir.1991). Thus, in drafting a complaint, a plaintiff's obligation to set forth the grounds for entitlement to relief requires more than mere labels, conclusions, or some overly generalized statement that a plaintiff has a claim against the defendant. Iqbal, 129 S.Ct. at 1949. Naked assertions devoid of factual enhancements will not suffice. Id. “Factual allegations must be enough to raise a right to relief above the speculative level,” and create a plausible entitlement for such relief. Twombly, 550 U.S. at 555, 127 S.Ct. 1955; Iqbal, 129 S.Ct. at 1949-50. In sum, to survive a motion to dismiss, a complaint must assert a cognizable legal theory and enough factual...