Munoz v. Boyard (In re Boyard)

• Decision Date: 24 September 2015
• Docket Number: Adv. Pro. No. 1–13–01499–nhl,Case No. 1–13–44501–nhl
• Citation: 538 B.R. 645
• Parties: In re : Crisor A. Boyard, aka Crisor Boyard, Debtor. Regis Munoz, Plaintiff, v. Crisor A. Boyard, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

538 B.R. 645

In re : Crisor A. Boyard, aka Crisor Boyard, Debtor.Regis Munoz, Plaintiff

v.Crisor A. Boyard, Defendant.

Case No. 1–13–44501–nhl

Adv. Pro. No. 1–13–01499–nhl

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

Signed September 24, 2015

Lisa Cohen, Esq., Ruff & Cohen PA, 4010 Newberry Road, Suite 6, Gainsville, FL 32607, Attorney for Regis Munoz

Hersh Jakubowitz, Esq., 42–34 162nd Street, Flushing, NY 11358, Attorney for Crisor A. Boyard

DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Nancy Hershey Lord, United States Bankruptcy Judge

Regis Munoz (the “Plaintiff”) brought an adversary proceeding against chapter 7 debtor Crisor A. Boyard (the “Defendant”) seeking a determination that an arbitration award (the “Award”) rendered against the Defendant on default is nondischargeable under § 523(a)(2), (4), and (6) of the Bankruptcy Code (the “Code”), and that the Defendant is ineligible to receive a discharge under § 727(c), (d), and (e). The Plaintiff now moves for summary judgment on its § 523 claims, asserting that the Award has collateral estoppel effect because the findings of fact and conclusions of law in the Award satisfy the elements of nondischargeability. The Defendant opposes summary judgment, arguing that the Award lacks sufficient factual findings to satisfy the elements of § 523(a), and that collateral estoppel is inapplicable to default judgments. For the reasons set forth below, the Plaintiff's motion for summary judgment is granted.

I. BACKGROUND

The Plaintiff, an inventor residing in France, developed a battery charger but lacked the funds to capitalize on his invention. Award 2, ECF No. 16–1. On December 10, 2008 he entered into a limited partnership agreement with the Defendant to produce and market the invention. Partnership Agreement, ECF No. 18–1. Pursuant to their partnership agreement, the Plaintiff transferred all of his rights in the battery charger to the partnership, Avendale Investments, LLP. Award 2, ECF No. 16–1. In exchange, the Defendant promised the Plaintiff a 20% interest in the partnership, a 10% ownership interest in Innov–Nature (a French company), and royalty payments for every charger sold. Id. The Defendant also agreed to contribute $250,000 to the partnership. Id.

In 2010 the parties ceased operations as a limited partnership, and the Defendant formed a new entity, Avendale Technology, LLC (“Avendale”), to continue the business of marketing and selling the battery chargers. Id. at 3. The Defendant took a 50% interest in Avendale, while the Plaintiff was given a 49% interest.¹ Avendale's operating agreement (the “Operating Agreement”) is governed by Florida law, Operating Agreement 19, ECF No. 18–2, and provides that all disputes between members of Avendale are to be settled by “mediation prior to taking the Company Dispute to arbitration or court,” Id. at 18. If a resolution through mediation cannot be reached, despite the parties' “good faith efforts to facilitate the mediation process,” then the dispute will be “exclusively and finally resolved by arbitration ... governed by the Rules of Commercial Arbitration of the American Arbitration Association.” Id.

A dispute arose between the Plaintiff and the Defendant due to the Defendant's alleged inaction and failure to deliver on his promises. Award 3, ECF No. 16–1. After unsuccessful attempts to enter into mediation, the Plaintiff submitted the dispute to arbitration with the International Center for Dispute Resolution. During an initial scheduling conference call with Arbitrator Abigail Fessen, Esq. (the “Arbitrator”), the Defendant “specifically requested the [h]earing date of February 9, 2012,” (the “Hearing”) to which the Plaintiff agreed. Id. at 1. Written notice of the Hearing was then mailed to the Defendant. Id. The Plaintiff traveled from France to attend the Hearing in New York, but the Defendant failed to appear or to request an adjournment. Id. The Defendant explains that he traveled to New York to attend the Hearing, but was unable to find the location of the Hearing and eventually went home. Aff. in Opp'n 7, ECF No. 21.

After the Hearing, the Arbitrator issued the Award. The Arbitrator determined that the dispute was properly submitted to arbitration, although it was not first mediated, and that the mediation pre-condition in the Operating Agreement was either waived or breached by the Defendant due to his “pattern of deliberate delay, inconsistency, and obstruction for more than one year in response to Mr. Munoz's persistent attempts to engage in mediation.” Award 1–2, ECF No. 16–1. The Arbitrator found by clear and convincing evidence that the Defendant fraudulently induced the Plaintiff to transfer his rights in the battery charger to the partnership by promising him Innov–Nature stock, which proved worthless, and a $250,000 contribution that the Defendant did not have the ability or intention to make. Id. at 3–4. The Arbitrator also found by clear and convincing evidence that the Defendant converted $36,000.00 from Avendale's bank account for his personal use, and that the Plaintiff incurred legal fees and was delayed in developing his invention. Id. at 3. The Arbitrator voided the transfer agreement, returning all rights in the battery charger to the Plaintiff, and awarded the Plaintiff damages of $190,000.00 to accrue interest at 9% annually. Id. at 4.

The Circuit Court of the Ninth Judicial Circuit in Orange County, Florida (the “Florida Circuit Court”) confirmed the Award in April 2013. Order, ECF No. 16–2. The Defendant filed his bankruptcy petition soon thereafter. The Plaintiff filed a $209,427.54 proof of claim in the bankruptcy case and commenced this proceeding for a determination that the amount owed to him under the Award is nondischargeable under § 523(a)(2), (4), and (6) of the Bankruptcy Code, and that the Defendant is not entitled to a discharge under § 727(a)(2)(A), (a)(4), and (a)(6). The Defendant filed an answer denying all material allegations in the complaint and asserting affirmative defenses and counterclaims. The Plaintiff then moved for summary judgment, with respect to his § 523(a) claims (the “Motion”).

The Plaintiff asserts that the Arbitrator made sufficient findings of fact to satisfy the elements of § 523(a)(2), (4), and (6), such that the Award is entitled to preclusive effect. Mot. for Summ. J. 9–11, ECF No. 16; Suppl. Mem. 6–7, ECF No. 26. The Plaintiff believes that the federal law of preclusion applies because the Award was made pursuant to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which was adopted into the U.S. Code at title 9, §§ 201 –208. Id. at 2–5. The Defendant agrees that federal preclusion law should apply, but argues that the elements of collateral estoppel under federal law are not satisfied. Aff. in Opp'n 3, ECF No. 21–1. The Defendant maintains that an identity of issues is lacking between the Award and the dischargeability elements because the Award fails to specifically make findings of fact. Id. at 3–5. The Defendant also contends that the issues were never actually litigated, and that a default judgment does not have preclusive effect under federal law. Id. at 5–7.

II. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The following are the Court's findings of fact and conclusions of law to the extent required by Rule 52, as made applicable by Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 7052.

III. DISCUSSION

Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil Procedure (the “Rules”), which is made applicable to bankruptcy proceedings by Bankruptcy Rule 7056. Rule 56 provides in pertinent part that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The court's task is “to determine whether a genuine issue as to any material fact exists, not to resolve any factual issues.” In re Hanna, 163 B.R. 918, 922 (Bankr.E.D.N.Y.1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). A fact is material if it “might affect the outcome of the suit under the governing law,” and a dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Here, to decide whether the Plaintiff's adversary complaint presents any genuine issues of material fact, the Court must determine the Award's preclusive effect. This determination requires analysis of the effect of the Florida Circuit Court's confirmation of the Award, and the law of preclusion that should be applied to the Award.

A. Confirmation of the Award by the Florida Circuit Court

The Arbitrator derived her authority from the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”), which is codified at 9 U.S.C. §§ 201 –208. A party to the arbitration has three years to seek confirmation of an arbitral award issued pursuant to the Convention. 9 U.S.C. § 207. “The district courts of the United States ... shall have original jurisdiction over such an action or proceeding.” 11 U.S.C. § 203; Goel v. Ramachandran, 823 F.Supp.2d 206, 211 (S.D.N.Y.2011). But, an arbitral award may also be confirmed in state court. See Oh Young Indus. Co., Ltd. V. E & J Textile Group, Inc., No. B179884, 2005 WL 2470824 at *2 (Cal.Ct.App. Oct. 7, 2005) (affirming state court's confirmation of an arbitral award under the Convention); see also Dial 800 v. Fesbinder, 118 Cal.App.4th 32, 49–50, 12 Cal.Rptr.3d 711 (Ct.App.2004). A defendant in a ...