Mirarchi v. Nofer (In re Nofer)

• Decision Date: 12 August 2014
• Docket Number: Adv. Proc. No. 1–12–01342–NHL,Case No. 1–12–46694–NHL
• Citation: 514 B.R. 346
• Parties: In re: Thomas Nofer, Debtor. Daniel Mirarchi, Plaintiff, v. Thomas Nofer, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

514 B.R. 346

In re: Thomas Nofer, Debtor.Daniel Mirarchi, Plaintiff,

v.Thomas Nofer, Defendant.

Case No. 1–12–46694–NHL

Adv. Proc. No. 1–12–01342–NHL

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

Signed August 12, 2014

Daniel Mirarchi, Pro Se Plaintiff.

Joel M. Shafferman, Shafferman & Feldman LLP, 18 East 41st Street, Suite 1201, New York, New York 10017, Attorney for Defendant.

Chapter 7

DECISION GRANTING IN PART AND DENYING IN PART MOTION FOR JUDGMENT ON THE PLEADINGS

HONORABLE NANCY HERSHEY LORD, United States Bankruptcy Judge

Daniel Mirarchi (the “Plaintiff”) initiated this adversary proceeding by filing a pro se complaint (the “Complaint”), against his former brother-in-law, ¹ debtor/defendant Thomas Nofer (the “Debtor”), objecting to the dischargeability of three pre-petition judgment debts, pursuant to 11 U.S.C. § 523(a)(4). The Debtor filed a motion pursuant to Federal Rule of Civil Procedure (“Rule”) (12)(c) for judgment on the pleadings dismissing the Complaint (the “Motion”). For the reasons that follow, the Court grants the Motion in part and denies the Motion in part.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 7052.

II. BACKGROUND²

In February 2001, the Plaintiff and the Debtor, together with non-parties Michael Fontana and Vincent Mirarchi, formed Viking Mechanical Inc. (“Viking”), a New York Corporation.³ Compl. ¶ 5, ECF No. 1. The Plaintiff served as Viking's President and Chief Executive Officer. Compl. ¶ 7, ECF No. 1.

The Debtor was also the sole shareholder of Central Design Systems Inc. (“Central”), a subcontractor of Viking. Compl. ¶¶ 7–8, ECF No. 1. In September 2005, the Debtor, on behalf of Central, began demanding advance payments from Viking, which the Plaintiff refused to tender. Compl. ¶ 9, ECF No. 1. Then, on October 27, 2005, the Debtor and Vincent Fontana seized control of Viking and barred the Plaintiff from Viking's business operations. Compl. ¶ 11, ECF No. 1; Compl. Ex. A ¶ 19, ECF No. 1–3.

In January 2006, the Plaintiff petitioned the New York State Supreme Court, County of Suffolk for judicial dissolution of Viking, due to the Debtor's alleged wrongful management and fraudulent conduct (the “Dissolution Action”). Compl. ¶ 12, ECF No. 1; Compl. Ex. A, ECF No. 1–3. For example, after the seizure, Viking opened bank accounts under false authorization and defaulted on its corporate line of credit, which the Plaintiff had personally guaranteed. Compl. ¶ 11, ECF No. 1; Compl. Ex. A ¶¶ 14–15, ECF No. 1–3. Additionally, Viking subcontracted its entire sheet metal business to Central without competitive bidding, overpaid Central, and purchased equipment for Central without reimbursement. Compl. ¶ 11, ECF No. 1; Compl. Ex. A ¶¶ 16, 18, ECF No. 1–3.

The parties settled the Dissolution Action through a Securities Purchase Agreement (the “Agreement”). Compl. ¶ 14, ECF No. 1. The Agreement provided, inter alia, that the Plaintiff would discontinue the Dissolution Action with prejudice and release any and all potential claims against Viking, Central, and the Debtor. Compl. ¶ 14, ECF No. 1; Compl. Ex. B 2 § 1.04, ECF No. 1–4. In exchange, the Debtor would purchase the Plaintiff's interest in Viking for the sum of $150,000 (the “Purchase Price”), with $60,000 due on signing, and the remainder paid in monthly installments. Compl. ¶ 14, ECF No. 1. The Agreement also required the distribution of Viking's 2004 profits (the “Profits”) to shareholders. Compl. ¶ 15, ECF No. 1; Compl. Ex. B § 1.01, ECF No. 1–4. The Plaintiff, however, never received his 34% share of the Profits. Compl. ¶¶ 14–15, ECF No. 1.

When the Debtor defaulted on the Purchase Price payments, the Plaintiff initiated an action in New York State Supreme Court, Suffolk County to enforce his rights and remedies under the Agreement. Compl. ¶¶ 14, 18, ECF No. 1. The Plaintiff demanded judgment against the Debtor for the unpaid balance of the Purchase Price, plus 12.5% default interest; and judgment against Viking for the undistributed Profits.⁴ Compl. Ex. G 7 ¶¶ 30–34, ECF No. 1–10. On April 28, 2008, the state court granted the Plaintiff a default judgment and ordered that the Debtor pay the Plaintiff $148,891.05, plus attorney's fees of $7,980.00 and costs of $104.26 (the “Supreme Court Judgment”).⁵ Compl. Ex. I, ECF No. 1–12.

The Agreement further stipulated that the Plaintiff would receive $300 for each day that he was required to appear in connection with a law suit pending against Viking. Compl. Ex. B 2 § 1.05, ECF No. 1–4. The Plaintiff subsequently expended two days on that litigation, for which he was not paid. Compl. ¶ 17, ECF No. 1. Thus, he brought two actions in the District Court of the County of Suffolk against Viking and the Debtor to recover his fees under the Agreement. Compl. ¶ 17, ECF No. 1. Neither Viking nor the Debtor appeared in either action. Consequently, the Plaintiff was awarded judgment in the amount of $300, plus interest and costs, in each action (the “District Court Judgments”). Compl. ¶ 17, ECF No. 1; Compl. Ex. E, ECF No. 1–7; Compl. Ex. F, ECF No. 1–8.

On September 19, 2011, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On December 19, 2012, the Plaintiff objected to the dischargeability of the Supreme Court Judgment and District Court Judgments under 11 U.S.C § 523(a)(4).

III. LEGAL STANDARD

A motion for judgment on the pleadings under Rule 12(c), applicable through Bankruptcy Rule 7012, may be made “after the pleadings are closed—but early enough not to delay trial.” Fed. R. Civ. P. 12(c). In the interest of due process, courts sparingly grant such motions, limiting relief to circumstances “where material facts are undisputed and where a judgment on the merits is possible merely by considering the contents of the pleadings.” Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 642 (2d Cir. 1988).

In ruling on a Rule 12(c) motion, “the Court must accept as true all of the non-movant's well pleaded factual allegations, and draw all reasonable inferences in favor of the non-movant.” Mennella v. Office of Court Admin., 938 F.Supp. 128, 131 (E.D.N.Y. 1996), aff'd, 164 F.3d 618 (2d Cir. 1998). Exhibits attached to the complaint may be considered in deciding a Rule 12(c) motion. SeeGregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001). It is the movant's burden “to show the absence of any material issue appearing genuinely to be in dispute.” Falls Riverway Realty, Inc. v. City of Niagara Falls, N.Y., 754 F.2d 49, 54 (2d Cir. 1985) (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)).

If a defendant succeeds on a motion for judgment on the pleadings, he is “entitled to a judgment as a matter of law.” Juster Assocs. v. City of Rutland, Vt., 901 F.2d 266, 269 (2d Cir. 1990). However, a court should not dismiss a complaint pursuant to a Rule 12(c) motion “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (discussing Rule 12(b)(6)); George C. Frey Ready–Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir. 1977) (applying Conley standard to Rule 12(c)). The court is “not bound to accept as true legal conclusions couched as factual allegations.” LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 476–77 (2d Cir. 2009). Accordingly, “[t]o survive a Rule 12(c) motion, the complaint must contain sufficient factual matter to ‘state a claim to relief that is plausible on its face.’ ” Graziano v. Pataki, 689 F.3d 110, 114 (2d Cir. 2012) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Furthermore, when a plaintiff acts pro se, the “complaint, however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.” Estelle v. Gamble, 429 U.S. 97, 106, 97 S.Ct. 285, 50 L.Ed.2d 251 (1976) (quotation omitted); see alsoErickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). Courts liberally construe pro se pleadings “to raise the strongest argument that they suggest.” Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994). Nevertheless, the court may not “invent factual allegations that [a pro se litigant] has not pled.” Chavis v. Chappius, 618 F.3d 162, 170 (2d Cir. 2010).

IV. DISCUSSION

The discharge of debts pursuant to 11 U.S.C. § 727 gives a “fresh start” to the “honest but unfortunate debtor.” Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). However, the Bankruptcy Code provides for “certain categories of nondischargeable debts that Congress has deemed should survive bankruptcy.” Giaimo v. DeTrano (In re DeTrano), 326 F.3d 319, 322 (2d Cir. 2003). 11 U.S.C. § 523(a)(4) exempts from discharge any debt arising from “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” When, as here, the debt arises from a settlement agreement, “courts are to look beyond the contractual nature of [the] settlement agreement to determine whether an underlying debt was a debt ‘for fraud or defalcation while acting in a fiduciary capacity’ as defined by § 523(a)(4).” In re DeTrano, 326 F.3d at 322; see alsoArcher v. Warner, 538 U.S. 314, 323, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003).⁶

A. Defalcation⁷

A claim of defalcation need only satisfy the general pleading requirements of Rule 8(a). SeeGrow Up Japan, Inc. v. Yoshida (In re Yoshida), 435 B.R. 102, 110 (Bankr. E.D.N.Y. 2010). Rule 8(a) requires...