In re Lewandowski

• Decision Date: 27 January 2005
• Docket Number: Adversary No. 5-03-ap-50324.,Bankruptcy No. 5-02-bk-01435.,Bankruptcy No. 5-02-bk-01434.,Bankruptcy No. 5-02-bk-01433.
• Citation: 325 B.R. 700
• Parties: In re Jan J. LEWANDOWSKI, Debtor. In re Jan Lewan Show Gifts, Debtor. In re J.R.D. Productions, Inc., Debtor. Peter C. Harvey, Attorney, General of New Jersey on behalf of Franklin L. Widmann, Chief of the New Jersey Bureau of Securities, Plaintiff, v. Jan J. Lewandowski, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

325 B.R. 700

In re Jan J. LEWANDOWSKI, Debtor.

In re Jan Lewan Show Gifts, Debtor.

In re J.R.D. Productions, Inc., Debtor.

Peter C. Harvey, Attorney, General of New Jersey on behalf of Franklin L. Widmann, Chief of the New Jersey Bureau of Securities, Plaintiff, v. Jan J. Lewandowski, Defendant.

Bankruptcy No. 5-02-bk-01435.

Bankruptcy No. 5-02-bk-01433.

Bankruptcy No. 5-02-bk-01434.

Adversary No. 5-03-ap-50324.

United States Bankruptcy Court, M.D. Pennsylvania.

January 27, 2005.

COPYRIGHT MATERIAL OMITTED

John H. Doran, Esq., Wilkes-Barre, PA, for Debtor.

OPINION¹

JOHN J. THOMAS, Bankruptcy Judge.

Currently pending before this Court is the New Jersey Bureau of Securities' ("NJBS") Motion for Summary Judgment. For the reasons set forth herein, NJBS' Motion is granted.

PROCEDURAL HISTORY

On October 9, 2003, NJBS filed its Complaint to Determine Debt to Be Non-Dischargeable against the Defendant, Jan Lewandowski. Defendant filed a timely answer on November 10, 2003.

NJBS filed its pending motion on March 11, 2004. Mr. Lewandowski caused a response to be filed on his behalf on March 31, 2004. Oral argument was held on January 13, 2005, whereby the parties addressed the Court's concerns with respect to particular legal issues.

JURISDICTION

The present adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and this Court has jurisdiction under 28 U.S.C. §§ 1334, 157(a) and Middle District of Pennsylvania Standing Order Misc. 84-0203 to render a decision on the pending motion.

UNDISPUTED MATERIAL FACTS

Mr. Lewandowski, filed a petition for relief under Chapter 13 of the Bankruptcy Code ("Code") on April 5, 2002.

The Attorney General for the State of New Jersey filed a "Civil Action" against Mr. Lewandowski, Jan Lewan Show Gifts, Inc., and JRD Productions, Inc. in the Superior Court of New Jersey, Chancery Division-General Equity, on June 25, 2002 on behalf of New Jersey's Bureau of Securities.² The complaint alleged several violations of New Jersey's Uniform Securities Law and demanded equitable and penal relief.³ On January 23, 2003, New Jersey State Judge R. Benjamin Cohen issued an order in favor of the NJBS based on oral argument and a showing of good cause. Pursuant to the order, the defendants were found to have violated the asserted statutory provisions, enjoined from engaging in certain activities, ordered to refund purchasers' money, pay restitution, disgorge all profits gained through their violations and pay a "civil monetary penalty of $950,000." See Doc. 1A, Exhibit A.

Mr. Lewandowski's Chapter 13 case was converted into a Chapter 7 on April 18, 2003.

DISCUSSION

The party moving for summary judgment bears the burden of proving the absence of any genuine issue as to all material facts relevant to the cause of action. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once satisfied, the respondent must present evidence sufficient to establish the existence of each element of its case that warrants a decision in its favor. See Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir.2001)(citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548).

When ruling on a motion for summary judgment, a "judge must view the evidence presented through the prism of the substantive evidentiary burden." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253-54, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The standard of proof applicable to the asserted cause of action should be taken into account when measuring a movant's success on the motion. See id.

Notwithstanding issues of credibility or factual disputes, summary judgment is appropriate when the record, as a whole, points in one direction and the respondent fails to present evidence or inferences that would allow a reasonable mind to rule in its favor. See Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 130 (3d Cir.1998)(citing Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). The moving party cannot succeed on a summary judgment motion if there is any evidence in the record from any source from which a reasonable inference in the respondent's favor may be drawn. See Zenith Radio Corp. v. Matsushita, 723 F.2d 238, 258 (3d Cir.1983), rev'd on other grounds, 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In its motion, the NJBS proffers a number of reasons based on §§ 523(a)(2), 523(a)(4), 523(a)(6), 523(a)(7), and 523(a)(19) of the Code as to why its claim against Mr. Lewandowski should be excepted from discharge as a matter of law. Its ability to succeed under § 523(a)(19) will foreclose further judicial review of dischargeability issues with respect to the remaining counts of the complaint.

Under § 523(a)(19), a debt is excepted from a debtor's discharge if it:

(A) is for —

(I) the violation of any of the Federal securities laws ..., any State securities laws, or any regulation or order issued under such Federal or State securities laws; or

(ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and —

(B) results from —

(I) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding;

(ii) any settlement agreement entered into by the debtor; or

(iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor.

11 U.S.C. § 523(a)(19)

Congress added § 523(a)(19) to the Code on July 30, 2002 as part of Title VIII of the Sarbanes-Oxley Act 2002, commonly referred to as the Corporate and Criminal Fraud Accountability Act of 2002. See Pub.L. No. 107-204, 116 Stat. 745 (2002). Through the Sarbanes-Oxley Act, Congress sought "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes." See id. Congress' inclusion of § 523(a)(19) was "meant to prevent wrongdoers from using the bankruptcy laws as a shield and to allow defrauded investors to recover as much as possible." See Legislative History of Title VIII of HR 2673: The Sarbanes-Oxley Act of 2002, 148 Cong. Rec. S7418 (July 26, 2002).

The NJBS argues that although § 523(a)(19) was enacted after the filing date of Mr. Lewandowski's bankruptcy petition, it is applicable in the current proceeding since courts generally apply the law in effect on the date an issue is decided. It relies on Smith v. Gibbons (In re Gibbons), 289 B.R. 588 (Bkrtcy.S.D.N.Y.2003), aff'd 311 B.R. 402 (S.D.N.Y.2004), for support.

Without reference to supporting caselaw, Mr. Lewandowski asserts the argument that the law in existence at the time his petition was filed should ultimately control the outcome of this proceeding. As such, § 523(a)(19) should be deemed inapplicable. However, if this Court does conclude that § 523(a)(19) applies, Mr. Lewandowski maintains that "at the time of filing the claim was not in the form of a judgment, order, or settlement agreement. Since objections to discharge are construed strictly, the claim in existence at the time of filing was not sufficient to support nondischargeability under § 523(a)(19)." See Doc. 13A at 9.

Several courts have had cause to consider the underlying issue — whether a federal statute, enacted after the events at issue should govern in cases commenced before its enactment — with respect to, then newly enacted, dischargeability exceptions.⁴ Of the few published opinions concerning § 523(a)(19), only Gibbons and Peterman v. Whitcomb (In re Whitcomb), 303 B.R. 806 (Bkrtcy.N.D.Ill.2004)(relying on Gibbons), have reflected on this issue.

The Supreme Court addressed this issue in Landgraf v. USI Film Prod. with respect to a provision in Title VII of the Civil Rights Act of 1964. See 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994). In Landgraf, the Court reconciled two potentially inconsistent rules of statutory construction:

The first is the rule that "a court is to apply the law in effect at the time it renders its decision," Bradley, 416 U.S., at 711, 94 S.Ct., at 2016. The second is the axiom that "[r]etroactivity is not favored in the law," and its interpretive corollary that "congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result." Bowen, 488 U.S., at 208, 109 S.Ct., at 471.

Id. at 264, 114 S.Ct. 1483.

The Supreme Court went on to hold that whenever a question concerning the temporal reach of a newly enacted statute in a pending case is raised, courts must engage in a two-step analysis:

When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increased a party's liability for past conduct, or imposed new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.

Id. at 280, 114 S.Ct. 1483.

The Supreme Court had cause to readdress the Landgraf analysis in Lindh v. Murphy and added an additional step:

In determining whether a statute's terms would produce a retroactive effect, however, and in determining a statute's temporal reach generally, our normal rules of construction apply. Although Landgraf's default rules would deny application when a retroactive effect would otherwise result, other construction rules may apply to remove even the possibility of retroactivity ...