In re Kressner
| Citation | 155 BR 68 |
| Decision Date | 25 May 1993 |
| Docket Number | Bankruptcy No. 91-B-21431,No. 93 ADV. 5045.,93 ADV. 5045. |
| Parties | In re Mark KRESSNER, Debtor. Hilda GORE, Executrix of the Estate of Bernard Gore, Deceased Plaintiff, v. Mark KRESSNER, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Holm Krisel & O'Hara, New York City, for plaintiff.
Richard A. Osserman, New York City, for debtor.
HEARING ON MOTION FOR SUMMARY JUDGMENT
Mark Kressner, the debtor in this Chapter 7 case, has moved for summary judgment in an adversary proceeding commenced by Hilda Gore, the executrix of the estate of Bernard Gore ("Gore"), to declare the estate's claim non-dischargeable under 11 U.S.C. §§ 523(a)(2) and (4) and to deny the debtor's discharge under 11 U.S.C. §§ 727(a)(3), (4) and (6). The debtor argues that he is entitled to judgment as a matter of law for various reasons. With respect to the First Cause of Action which is based upon 11 U.S.C. § 523(a)(2)(A), the debtor contends that the action should be dismissed because the plaintiff is barred by the doctrine of res judicata from asserting fraud allegations which were previously litigated in a state court action. The debtor argues that the plaintiff's Second and Third Causes of Action which charge him with fiduciary fraud and embezzlement under 11 U.S.C. § 523(a)(4) must be dismissed because he was not a fiduciary and his activities did not constitute embezzlement as contemplated by the statute. In addition, the debtor argues that the plaintiff's action to deny his discharge must be dismissed because the undisputed facts do not support the asserted claims. The plaintiff opposes the debtor's motion and argues that summary judgment is inappropriate in this case because there are material facts in issue.
The debtor in this voluntary Chapter 7 case was formerly a practicing attorney. The plaintiff is the executrix of the estate of Gore, a deceased lawyer. Gore was an attorney who practiced law in New York State from 1935 until his death in 1982. In 1980, Gore began to refer negligence and medical malpractice cases to the debtor who agreed to share the net fee earned in each case equally with Gore. It is unclear from the papers submitted to the court in connection with this motion whether the fee splitting agreement was oral or written. If the contract was written, neither the debtor nor the plaintiff submitted a copy to the court as an exhibit nor has either party submitted a statement of undisputed facts required under Local Bankruptcy Rule 13(h).
The debtor paid Gore a referral fee in connection with most of the cases. However, the debtor did not split his fees with Gore with respect to some of the referred cases. The debtor contended that Gore was not entitled to a referral fee for those cases because he did not contribute any legal work to them. As a result of the debtor's failure to divide the legal fees, the plaintiff, on behalf of Gore's estate, commenced an action in the Supreme Court, New York County seeking a determination that the agreement entered into between Gore and the debtor was valid and enforceable. The plaintiff also sued the debtor for fraudulently inducing Gore to enter into the referral agreement. In the state court complaint, the plaintiff alleged:
Debtor's Exhibit B, at ¶ 28 and 29.
The state court, in a written decision dated December 30, 1988, ruled that the agreement between Gore and the debtor was enforceable because Gore had performed work on the cases in question. The court determined that the debtor was liable on the contracts to Gore for $507,938.07. The court dismissed the plaintiff's fraud claim. In dismissing that cause of action, the court explained:
Plaintiff\'s second cause of action is dismissed since fraud is not an available remedy where the claim is that the defendant entered into a contract with no intention of performing it (Aces Mechanical Corp. v. Cohen Bros. Realty and Constr. Corp., 136 A.D.2d. 503).
Plaintiff's Exhibit C, at 3. A judgment reflecting the state court decision was entered on March 2, 1989. Thereafter, on September 16, 1991, the debtor filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code.
On August 28, 1992, this court so ordered a stipulation between the debtor and the plaintiff extending until November 3, 1992 her time to object to the dischargeability of her debt and to the debtor's discharge. Thereafter, on October 29, 1992, the court so ordered a stipulation between the parties further extending the plaintiff's time to object to February 2, 1993. Despite the fact that the plaintiff's time to file a complaint was extended, the clerk's office inadvertently issued a formal notice of the debtor's discharge on September 17, 1992. This order was subsequently vacated after the stipulation extending time was discovered. On February 2, 1993, the plaintiff filed the complaint in this action. The complaint was timely because it was filed within the time authorized by the stipulation.
The complaint contains six causes of action against the debtor. The plaintiff asserts in the First Cause of Action that her claim against the debtor is non-dischargeable under 11 U.S.C. § 523(a)(2)(A) on the ground that the debtor obtained the legal fees in question by false pretenses. The plaintiff alleges that the debtor's obligation to her should be excluded from discharge because "All monies obtained by defendant from cases referred to him by plaintiff were obtained by defendant by false pretenses, false representations or actual fraud." Complaint, at ¶ 20. The plaintiff explains in her memorandum of law that the First Cause of Action is based upon the debtor's misrepresentations to her after the state court judgment was rendered in her favor. The plaintiff asserts that, in reliance on the debtor's false statements, she delayed instigating legal action to enforce the judgment. As a result of her forbearance, the plaintiff argues that she is now unable collect on the judgment.
The debtor has moved for summary judgment dismissing this claim for the reason that the fraud allegations asserted are barred by res judicata. The debtor argues that the fraud claims were already litigated in the state court action which underlies the plaintiff's judgment. The plaintiff opposes the debtor's motion arguing that res judicata is inapplicable in this instance because the causes of action presently before this court differ from the claims which were the subject of the state court proceeding.
In the Second Cause of Action, the plaintiff alleges that her claim is not dischargeable under 11 U.S.C. § 523(a)(4) because it arises from the debtor's fraud while he acted as a fiduciary. The plaintiff argues that the fee splitting agreement between the debtor and Gore, by its terms, gave rise to a fiduciary relationship. The debtor argues that this cause of action must be dismissed, as a matter of law, because a contract for splitting of legal fees does not implicate a fiduciary relationship.
The plaintiff also asserts in the Third Cause of Action that her claim is non-dischargeable under 11 U.S.C. § 523(a)(4) because it arose as a result of the debtor's embezzlement. In support of this allegation, the plaintiff argues that the debtor fraudulently misappropriated funds which he was obliged to render to Gore under the fee splitting agreement. The plaintiff asserts that the debtor embezzled the funds while he acted as both a fiduciary and in his individual capacity. The debtor has moved for summary judgment dismissing this cause of action on the grounds that he was not a fiduciary for Gore, as a matter of law, and that he was never indicted or charged with the crime of embezzlement.
In the Fourth Cause of Action, the plaintiff asserts that the debtor's discharge should be denied pursuant to 11 U.S.C. § 727(a)(3) because the debtor failed to keep or preserve books and records. The plaintiff alleges in her Fifth Cause of Action that the debtor's discharge should be denied under 11 U.S.C. § 727(a)(4)(A) because the debtor knowingly falsely listed his assets on his petition. In her Sixth Cause of Action, the plaintiff asserts that the debtor's discharge should be denied under 11 U.S.C. §§ 727(a)(6)(A) and (C) because the debtor failed to appear an examination ordered by the court under Federal Rule of Bankruptcy Procedure 2004 which had been adjourned several times to accommodate the debtor. The plaintiff also alleges that the debtor failed to produce documents in violation of this court's order.
The debtor has moved for summary judgment dismissing the plaintiff's Fourth and Sixth Causes of action on the ground that the plaintiff's attorney failed to proceed with discovery on the adjourned dates. The debtor argues that he was ready to go forward with discovery and to produce all relevant documents in his possession. The debtor seeks a dismissal of the Fifth Cause of action alleging that he disclosed all of his assets and liabilities on his petition.
The debtor seeks costs and sanctions against the plaintiff and her counsel under Federal Rule of Civil Procedure 11 which is incorporated by Federal Rule of Bankruptcy Procedure 9011. In support of his position, the debtor claims that the action asserted by the plaintiff is frivolous and not based upon applicable law. Rather, the debtor alleges that the action was asserted in bad faith in furtherance of a vendetta that the plaintiff and her attorney have against him.
The debtor has moved for summary judgment under Federal Rule of Civil Procedure 56, which is made applicable to this proceeding by...
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