In re West
| Citation | 339 B.R. 557 |
| Decision Date | 21 March 2006 |
| Docket Number | Bankruptcy No. 105-16249-JF.,Adversary No. 105-01219-JF. |
| Parties | In re Jerry B. WEST, Debtor. James & Mary Artis, Plaintiffs, v. Jerry B. West, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Koehler and Isaacs, LLP, New York City, By Mathew Paulose Jr., Esq., for Plaintiffs.
Silverman, Sclar, Shin & Byrne PLLC, New York City, By Thomas H. Herndon, Jr., Esq., for the Defendant.
DECISION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT EXCEPTING DEBT FROM DISCHARGE UNDER 11 U.S.C. § 523(a)(4)
Plaintiffs James and Mary Artis commenced this adversary proceeding against debtor/defendant Jerry B. West, seeking an order declaring a pre-petition judgment debt owed by West nondischargeable. The complaint alleges that the judgment debt is nondischargeable under 11 U.S.C. § 523(a)(2), (4), and (6). Before the Court is plaintiffs' motion for summary judgment. Plaintiffs claim they are entitled to judgment as a matter of law under the doctrine of collateral estoppel because the issues to be decided under § 523(a)(4) and (6) were already decided in their favor in the lawsuit that created the judgment debt. For the reasons hereinafter set forth, we grant the motion for summary judgment and find that the judgment debt is nondischargeable under § 523(a)(4).
The saga set forth below is derived from the parties' statements of facts. Jerry West is a clergyman, serving as the reverend of the Mount Moriah Church of God ("Mount Moriah") located in Brooklyn, New York. Throughout the 1990's he ran a program at the church to assist persons with "financial difficulty." The program offered budget counseling and assistance to those seeking mortgage refinancing. The plaintiffs are an elderly couple. In early 1995, they owned two inherited homes in New Jersey and had difficulty staying current with the mortgage payments on the properties.
In February 1995, plaintiff Mary Artis heard an advertisement on the radio about West's program. She told her husband and together they went to meet with West. At the meeting, West told them he could assist them in obtaining favorable refinancing through the church and requested a power of attorney so that he could make the arrangements. The plaintiffs agreed.
In or about September 1995, West contacted plaintiffs and told them to come to the church with the deeds to their homes for another meeting. At the second meeting, West had plaintiffs transfer ownership of the homes to Mount Moriah. The plaintiffs were told that the homes must be in the name of Mount Moriah to obtain favorable refinancing, but that six months after the refinancing they could regain title and assume the new mortgage. The plaintiffs were further instructed that, until they regained ownership of their homes, they must make payments on the new mortgage by paying rent to Mount Moriah, with the rent to be about the same or less than their prior mortgage payments.
Thereafter, the plaintiffs started to receive rent invoices, but from an entity named the Interdenominational Brotherhood, Inc., ("Interdenominational"). The rent invoices were for a higher amount than their prior mortgage payments. When the plaintiffs called West to inquire, West informed them that title to the homes had been transferred from Mount Moriah to Interdenominational and if they failed to pay rent, the homes would be lost in foreclosure. The plaintiffs made the rent payments for a few months, but then stopped upon the advice of an attorney. The homes were later lost in foreclosure.
On June 16, 1998, plaintiffs filed a diversity suit against West, James Christian,1 and Mount Moriah in the United States District Court for the Eastern District of New York. James Artis and Mary Artis v. Mount Moriah Church of God, Rev. Jerry B. West, and James Christian, Index No. 98-CV-4247 ("District Court Action"). The complaint, as amended on March 24, 2003, asserted claims for fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, and deceptive acts and practices in violation of New York General Business Law § 349. In sum, the complaint alleged that West engineered a scheme to swindle plaintiffs out of their homes. The complaint charged that West was using his position as a reverend at Mount Moriah to induce unsophisticated retirees to transfer their homes to Mount Moriah so that West could transfer them to Interdenominational, an entity owned by West. Further, the complaint alleged that once the homes were transferred to Interdenominational, West refinanced them at a higher amount, taking out all the equity for himself.
A three day trial was held in the District Court Action, running from August 9, 2004, through August 11, 2004. West was represented by counsel during the pretrial discovery process, but not during trial. At trial both plaintiffs and two witnesses testified for the prosecution, and West testified on his own behalf in defense.
Two causes of action were tried: breach of fiduciary duty, and deceptive acts and practices in violation of New York General Business Law § 349. In regard to the breach of fiduciary duty claim, the jury was instructed as follows:
Plaintiffs' first claim is for breach of fiduciary duty. The law recognizes that sometimes a special relationship, known as a "fiduciary relationship," may exist between parties. It exists either by express agreement between the parties, or by implied conditions or circumstances found in the facts, such as when a person reposed special confidence in another person. If a fiduciary relationship is found to exist, then the law imposes upon the parties certain duties to each other. These duties include the duty of full disclosure, the duty of care and loyalty, the duty to account, the duty to act fairly, and the duties of good faith and fidelity. If these duties are breached, then the party who committed the breach is liable to the other party for any damages sustained as a result of the breach. Accordingly, in this case, if you find, from the evidence, that a fiduciary relationship existed between the plaintiffs and defendant Jerry West, and that defendant West breached that duty, then you shall find for the plaintiffs as against defendant West.
(Trial Tr. of District Court Action, 332-33, Aug. 10, 2004). The jury was also instructed on punitive damages as follows:
If you should find that the defendant [sic] is liable for the plaintiff's [sic] injuries, then you have the discretion to award, in addition to compensatory damages, punitive damages. You may award punitive damages if the plaintiff [sic] proves that the Defendants' conduct was malicious and reckless, not merely unreasonable. An act is malicious and reckless if it is done in such a manner and under such circumstances, as to reflect utter disregard for the potential consequences of the fact on the safety and rights of others.
(Id. at 337).
On August 11, 2004, the jury returned a verdict in favor of plaintiffs. The verdict sheet contained a number of questions in which the jury was requested to provide yes/no answers and dollar amounts, if applicable. The questions and answers were, in relevant part, as follows:
1. Was there a fiduciary relationship between defendant Jerry West and plaintiffs?
2. Did defendant West breach his fiduciary duties to plaintiffs?
6. Did plaintiffs suffer damages as a result of the breach?
If yes, in what amount? $390,000
7. Did defendant West act intentionally and deliberately and with evil motive when breaching his duty to plaintiffs?
If yes, what amount would sufficiently punish him? $75,000
(Decl. of Matthew Paulose, Esq., Ex. E). In accordance with the verdict, plaintiffs obtained a judgment against West on November 5, 2004, in the amount of $390,000 in compensatory damages and $75,000 in punitive damages (the "District Court Judgment").
On April 22, 2005, West initiated his bankruptcy case. The plaintiffs were listed by West on his Chapter 7 petition as having an undisputed, unsecured nonpriority claim in the amount of $510,000. No other creditors were listed. On June 14, 2005, plaintiffs filed the instant complaint seeking to have the District Court Judgment deemed nondischargeable. West filed an answer denying nondischargeability. The instant summary judgment motion was filed on November 11, 2005. On January 12, 2006, the Court heard final argument and thereafter supplemental papers were submitted, including the entire transcript of the three day trial in the District Court Action.
Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is proper if, in light of the evidence presented, there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden to demonstrate that no genuine issue of material fact exists falls on the moving party. See Federal Deposit Ins. Corp. v. Giammettei, 34 F.3d 51, 54 (2d Cir.1994). In deciding a summary judgment motion, the trial court must resolve all ambiguities and draw all reasonable inferences in favor of the opposing party. See Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir.2004).
The plaintiffs assert that they are entitled to summary judgment under the doctrine of collateral estoppel. As a general rule, collateral estoppel precludes the relitigation of issues that were actually litigated and decided in a prior proceeding. It is well established that collateral estoppel is an appropriate method of adjudicating dischargeability proceedings when the factual issues underlying the determination of dischargeability were...
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