In re Ribotsky
| Docket Number | 23-70583-ast |
| Decision Date | 21 December 2023 |
| Parties | In re: Corey S. Ribotsky Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Pending before this Court are the motions of the Debtor, Corey S Ribotsky ("Debtor" or "Mr. Ribotsky") and a creditor, the Securities and Exchange Commission (the "SEC"), each seeking summary judgment on the nondischargeability of a debt owed to the SEC. For the reasons stated herein, this Court will deny summary judgment as to Debtor and grant summary judgment in part as to the SEC and set a trial on the remaining issues.
This Court has jurisdiction over this core proceeding under 28 U.S.C. §§ 157(b)(2)(I) and 1334(b), and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York, dated August 28, 1986, as amended by Order dated December 5, 2012.
Factual History[1]
On September 28, 2011, the SEC filed a complaint against Debtor and various entities in which he allegedly had an interest in or control over in the District Court for the Eastern District of New York (the "District Court"). On August 17, 2013, the SEC filed an amended complaint which exclusively alleged violations of federal securities laws (the "Amended Complaint"). The Amended Complaint alleged, inter alia, that Ribotsky, as the sole managing member of NIR Group LLC ("NIR"): (1) acted through NIR to provide investment advisory services to the AJW family of hedge funds ("AJW Funds"); (2) made materially false and misleading statements to the investors of the AJW Funds; (3) misappropriated over $1 million of assets from the AJW Funds for his personal use; and (4) made numerous false and misleading statements to investors in 2007, 2008, and 2009 about the AJW Funds' performance and liquidity.
The District Court action was settled through a consent order signed on August 21, 2013 (the "Consent Order"). The Consent Order provided, inter alia, that Mr Ribotsky neither admitted nor denied the SEC's allegations, and that he agreed "(i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the Complaint or creating the impression that the Complaint is without factual basis; and (ii) that upon filing of this Consent, Defendant hereby withdraws any papers filed in this action to the extent that they deny any allegation in the Complaint." The District Court entered a final judgment on November 13, 2013 (the "Consent Judgment"), ordering that "[Mr. Ribotsky] is liable for disgorgement of $12,500,000, representing profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $1,000,000, and a civil penalty in the amount of $1,000,000 . . . ." Notably for this dispute, the Consent Judgment contains no findings of fact or conclusions of law.
On June 3, 2021, Mr. Ribotsky filed a motion in the District Court pursuant to Federal Rule of Civil Procedure 60(b)(6) (the "Rule 60(b)(6) Motion") seeking relief from the Consent Judgment.
On June 11, 2021, the SEC filed an objection to the Rule 60(b)(6) Motion.
On March 28, 2022, the District Court denied the Rule 60(b)(6) Motion because it was, "untimely and otherwise contrary to the established law regarding the finality of monetary consent judgments."
On December 17, 2014, Debtor filed a petition for relief (the "First Bankruptcy") under Chapter 7 of Title 11 of the United States Code (case no. 14-75575-AST) (the "Bankruptcy Code").
On January 16, 2016, Debtor received a Chapter 7 discharge (the "Chapter 7 Discharge").
On October 10, 2022, Debtor filed another petition for relief, that time under Chapter 11 of the Bankruptcy Code (case no. 22-72781-AST) (the "Second Bankruptcy").
On January 20, 2023, the Court entered an order dismissing the Second Bankruptcy for failure to pay the filing fee.
On February 17, 2023, Debtor filed his third petition for relief, this time again under Chapter 7 of the Bankruptcy Code (the "Third Bankruptcy"). [Dkt. 1] Thereafter, on February 28, 2023, Debtor filed a motion to extend the automatic stay pursuant to 11 U.S.C. § 362(c)(3)(B) of the Bankruptcy Code, primarily seeking to stop collection efforts of the SEC (the "Motion"). [Dkt. 8]
On March 3, 2023, the SEC filed an objection to the Motion (the "Objection"). [Dkt. 10] In the Objection, the SEC asserted that their claim against Debtor arising from the Consent Judgment was not discharged under section 523(a)(19) of the Bankruptcy Code following the Debtor receiving his Chapter 7 Discharge in his First Bankruptcy.
Following a hearing on the Motion, the Court entered an order dated May 19, 2023, directing parties to file letter briefs on the issue of the dischargeability of the Consent Judgment. [Dkt. 28]
On May 30, 2023, Debtor filed his letter brief on the issue of whether the Consent Judgment is a non-dischargeable debt. [Dkt. 29]
On June 9, 2023, the SEC filed its letter brief in response. [Dkt. 34]
On October 4, 2023, in order to assure procedural certainty for the parties, this Court issued an order directing the parties to treat the Motion as if Debtor had commenced an adversary proceeding pursuant to Bankruptcy Rules 7001(6) and 7003 on the issue of dischargeability pursuant to section 523(a)(19) of the Bankruptcy Code. [Dkt. 43] That order further set forth that the Motion and all responsive papers would be treated as cross-motions for summary judgment pursuant to Rule 7056 and set a schedule for further submissions, including providing the parties the opportunity to supplement the factual record before this Court.
Debtor and the SEC each filed their statement of material facts on October 27, 2023. [Dkts. 46 & 47]
Debtor filed his supplemental briefing on November 10, 2023. [Dkt. 50]
Rule 56(c) of the Federal Rules of Civil Procedure, as incorporated by Bankruptcy Rule 7056(c), provides that summary judgment should be granted to the moving party if the Court determines that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 n.4 (1986) (quoting Fed.R.Civ.P. 56(c)) (internal quotation marks omitted). A movant has the initial burden of establishing the absence of any genuine issue of material fact. See id. at 322-23. A fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. If the movant meets its initial burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (internal citations omitted).
The Second Circuit has repeatedly noted that, "[a]s a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex Corp., 477 U.S. at 330 n.2 (1986) (Brennan, J., dissenting)); see also Tomka v. Seiler Corp., 66 F.3d 1295, 1304 (2d Cir. 1995). "If, when viewing the evidence produced in the light most favorable to the non-movant, there is no genuine issue of material fact, then the entry of summary judgment is appropriate." Pereira v. Cogan, 267 B.R. 500, 506 (S.D.N.Y. 2001).
Case law is clear that this Court may apply rules of issue preclusion and claim preclusion to nondischargeability disputes. See Curtis v. Ferrandina (In re Ferrandina) 533 B.R. 11, 22 (Bankr. E.D.N.Y. 2015) (citing Grogan v. Garner, 498 U.S. 279, 284 (1991)).
In relevant part, section 523(a)(19) prevents an individual debtor from being discharged from any debt that:
(A) is for-(i) the violation of any of the Federal securities laws . . .; and (B) results, before, on, or after the date on which the petition was filed, from-(i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding; [or] (ii) any settlement agreement entered into by the debtor . . . .
11 U.S.C. § 523(a)(19).
Both subsections 523(a)(19)(A) and (B) must be satisfied to hold the debt nondischargeable. See Blake v. Fusco (In re Fusco), 641 B.R. 438, 455 (Bankr. E.D.N.Y. 2022) ("[T]o prevail on a Section 523(a)(19) claim, a plaintiff must establish both that the debt is for a securities law violation . . . and that the debt results from an appropriately memorialized judgment, agreement, or award.").
Debtor concedes that subsection (B) is satisfied here. As such, the Court's analysis focuses solely on the finding of a violation of a federal securities law as required by subsection (A).
In short, Debtor argues that the Consent Judgment makes no finding of fact or...
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