The Lawyers' Fund for Client Prot. of the State of N.Y. v. Ehrenfeld (In re Ehrenfeld)
| Docket Number | 19-10290 (LGB),Adv. Pro. 19-01128 (LGB) |
| Decision Date | 07 June 2023 |
| Parties | In re: SAMUEL EHRENFELD, Debtor. v. SAMUEL EHRENFELD, Defendant. THE LAWYERS' FUND FOR CLIENT PROTECTION OF THE STATE OF NEW YORK, Plaintiff, |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
OFFICE OF THE ATTORNEY GENERAL Counsel for The Lawyers' Fund for Client Protection of the State of New York The Capitol Albany, NY 12224 By: Letitia James, Esq. Norman P. Fivel Esq. Richard L. Rodgers, Esq. Kenneth Lee Gellhaus, I, Esq WHITE & WOLNERMAN, PLLC Counsel for Samuel Ehrenfeld 950 Third Avenue, 11th Floor New York, NY 10022 By: David Y. Wolnerman Esq. Randolph E. White, Esq.
The Lawyers' Fund for Client Protection of the State of New York (the "Plaintiff") filed a complaint against debtor Samuel Ehrenfeld (the "Defendant") seeking non-dischargeability of debt [ECF No. 1] (the "Complaint") on May 3, 2019. The Defendant filed their answer [ECF No. 5] (the "Answer") on July 17, 2019.
Plaintiff filed a motion for summary judgment on December 4, 2019 (the "Motion") [ECF No. 12], as well as an accompanying Statement of Material Facts under Local Bankruptcy Rule 7056-1(b) [ECF No. 13]. In support of the Motion, Plaintiff also filed the affidavit of Michael J. Knight [ECF No. 14] (the "Knight Affidavit") and their memorandum of law (the "Plaintiff's Memorandum") [ECF No. 15].
Defendant filed their memorandum of law and declaration in opposition to the Motion (the "Defendant's Memorandum") [ECF No. 19 & 20] and a Counter-Statement of Material Facts [ECF No. 21] on January 6, 2020.
Plaintiff subsequently filed a reply in support of the Motion (the "Reply") [ECF No. 22] on January 21, 2020.
Bankruptcy Rule 7056, which incorporates Rule 56 of the Federal Rules of Civil Procedure, states summary judgment is appropriate "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 moving party "bears the burden of establishing that no genuine issue of material fact exists" and that the undisputed facts entitle the movant to judgment as a matter of law. See Morales v. Holder, 351 Fed.Appx. 554, 555 (2d Cir. 2009) (quoting Rodriguez v. City of N.Y., 72 F.3d 1051, 1060-61 (2d Cir. 1995)).
If the moving party satisfies this burden, "the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial to avoid summary judgment." Saenger v. Montefiore Med. Ctr., 706 F.Supp.2d 494, 504 (S.D.N.Y. 2010) (citation and internal quotation marks omitted). If, however, "the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim." Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008). In determining whether a genuine issue of fact exists, the court must draw all factual inferences in the light most favorable to the nonmoving party. Rodriguez, 72 F.2d at 1061 (citations and internal quotation marks omitted). If "there is any evidence in the record from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Id. (citing Brady v. Town of Colchester, 863 F.2d 205, 210-11 (2d Cir.1988)). In reviewing the available evidence, the court cannot "weigh the evidence, assess the credibility of witnesses, or resolve issues of fact." Id. (citations omitted).
Plaintiff sought summary judgment under sections 523(a)(4) and 523(a)(6) of the United States Bankruptcy Code (the "Bankruptcy Code") concerning the non-dischargeability of a $400,000 payment that Plaintiff made to the Talmidei Luboml Libviner Congregation (the "Congregation"). See Motion, ¶ 1. This payment represented a reimbursement under a reimbursement agreement (the "Agreement") between Plaintiff and the Congregation made on October 20, 2017. In the Agreement, the Congregation assigned and subrogated its rights, claims, and causes of action against Defendant to Plaintiff for losses caused by Defendant as former counsel to the Synagogue. See Knight Affidavit, Exhibit H.
Plaintiff invoked the doctrine of collateral estoppel to support its section 523(a)(4) claim. See Motion, ¶ 30. Specifically, the Plaintiff relied on the Defendant's guilty plea to two counts of second-degree larceny under New York Penal Code section 155.40(1) on January 22, 2017,[1] as section 523(a)(4) states that "[a] discharge under section[s] 727 . . . does not discharge any individual debtor from any debt- . . . (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny." Id.
The Court notes that the only evidence it has concerning the criminal proceeding is the indictment (Exhibit D to the Motion), the certificate of disposition indictment (Exhibit E to the Motion), and an unsigned copy of the restitution order (Exhibit I to the Reply). It does not have the actual plea agreement or any other document signed by Defendant concerning his conviction for larceny. The Court has a copy of the Affidavit of Resignation (the "Resignation Affidavit") signed by the Defendant on April 20, 2015 (Exhibit B to the Motion) when he sought to resign as a member of the bar of the State of New York.
Defendant did not dispute that the "guilty plea has collateral estoppel effect" but opposed summary judgment based on a limited state court record. Def.'s Mem., at 4. New York Penal Code section 155.40(1) states that "[a] person is guilty of grand larceny in the second degree when he steals property and when: (1) The value of the property exceeds fifty thousand dollars." Defendant argued that because the state court did not opine on the value of the misappropriated escrow funds but only determined that the property's value exceeded $50,000, the Court must limit any summary judgment ruling regarding non-dischargeability to $50,001. Id. at 5.
Defendant further argued that various material issues of fact exist, including (i) the authorization needed, if any, for the Defendant to disburse funds from the escrow account; (ii) his belief that Rabbi Label Katz, the Congregation and Yeshiva Chasdei Torah "were all the same for all practical purposes;" (iii) the veracity of certain invoices that the Defendant claims he issued to his clients; (iv) the propriety of certain payments Plaintiff made to the Congregation; and (v) whether the Defendant has setoff claims against the debt for restitution. Id. at 2, 4, 5-6.
Plaintiff responded to certain portions of the Defendant's arguments in the Reply. Plaintiff argued that the Resignation Affidavit included an admission by Defendant that he withdrew approximately $480,000 without his client's knowledge and authorization. Reply ¶ 3. Defendant acknowledged that he improperly took the money. Id. Plaintiff also attached the restitution order to the Reply, demonstrating that only $25,000 of the restitution was paid to the attorney for Yeshiva Chasdei Torah, not $100,000 as alleged by Defendant. Id., Exhibit I. Accordingly, the total loss was reduced to $454,956.74 by the restitution which exceeds the $400,000 paid by Plaintiff to the Congregation. Id. Thus, Plaintiff argued that the setoff of the restitution against the amount paid by Plaintiff is inappropriate. Id. ¶ 6. Furthermore, Plaintiff stated that the reimbursement made to the Congregation was due to Defendant's "dishonest conduct," as defined under NYCRR 7200.8 (c)." Id. ¶ 7.
Section 523(a)(4) of the Bankruptcy Code states that "[a] discharge under sections 727, 1141, 1192, 1228(a), 1228(b) or 1328(b) of this title does not discharge any individual debtor from any debt- … (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny." A cause of action for embezzlement requires that a plaintiff establish: (1) the creditor entrusted his property to the debtor; (2) the debtor appropriated the property for a purpose other than that for which it was entrusted; and (3) the circumstances indicate that the debtor acted with fraudulent intent or to deceive. Sec. Investor Prot. Corp. (In re Nappy), 269 B.R. 277, 296-97 (Bankr. E.D.N.Y. 1999).
Several cases in this District have held that a plaintiff must also establish fraudulent intent or intent to defraud to bring a cause of action for embezzlement. Marashi v. Glaser (In re Marashi), No. 17 CV 10122 (VB), 2019 WL 120726, at *2 (S.D.N.Y. Jan. 7, 2019) (); Forest Diamonds Inc. v. Aminov Diamonds LLC, No. 06 CIV. 5982 (GEL), 2010 WL 148615, at *14 (S.D.N.Y. Jan. 14, 2010); Vidomlanski v. Gabor (In re Gabor), No. 05-18719 (ALG), 2009 WL 3233907, at *6 (Bankr. S.D.N.Y. Oct. 8, 2009). Based on the Court's review of these cases, it appears that, though not explicitly stated, courts focus more on fraudulent intent than deceit and courts may determine such fraudulent intent from the facts and circumstances surrounding the act. See Vill. Mortg. Co. v. Veneziano (In re Veneziano), 615 B.R. 666, 678 (Bankr. D. Conn. 2020); see also Conn. Attys. Title Ins. Co. v. Budnick (In re Budnick), 469 B.R. 158, 176 (Bankr. D. Conn. 2012); see also Marriott Int'l Inc. Emple. Profit Sharing, Sav. & Ret. Plan & Trust v. Suarez (In re Suarez), No. 95 CV 5038 (EHN), 1996 WL 480809, at *4 (E.D.N.Y. Aug. 9, 1996); see also In re Bevilacqua, 53 B.R. 331, 334 (Bankr. S.D.N.Y. 1985); see also In re Nappy, 269 B.R. at 298.
The Court...
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