Vill. Mortg. Co. v. Veneziano (In re Veneziano)

• Decision Date: 27 March 2020
• Docket Number: Adv. Pro. No. 19-5001 (JAM),Case No. 18-51243 (JAM)
• Citation: 615 B.R. 666
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: IN RE: James George VENEZIANO, Debtor. Village Mortgage Company, Plaintiff, v. James George Veneziano, Defendant.

615 B.R. 666

IN RE: James George VENEZIANO, Debtor.

Village Mortgage Company, Plaintiff,

v.James George Veneziano, Defendant.

Case No. 18-51243 (JAM)

Adv. Pro. No. 19-5001 (JAM)

United States Bankruptcy Court, D. Connecticut.

Signed March 27, 2020

David M. Shaiken, Esq., Shipman, Shaiken & Schwefel, LLC, 433 South Main Street, Suite 319, West Hartford, Connecticut, 06110, Attorney for the Plaintiff.

Gregory T. Nolan, Esq., Renzullo & Associates, 65 Elm Street, Winstead, Connecticut, 06098, Attorney for the Defendant.

MEMORANDUM OF DECISION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

ECF NO. 63

Julie A. Manning, Chief United States Bankruptcy Judge

I. Background

James George Veneziano (the "Defendant") filed a voluntary petition under Chapter 7, Title 11, of the United States Code on September 26, 2018. On January 3, 2019, Village Mortgage Company (the "Plaintiff") commenced this adversary proceeding against the Defendant. The complaint seeks a determination that a debt owed to the Plaintiff by the Defendant is non-dischargeable pursuant to 11 U.S.C. § 523(a)(4). On November 12, 2019, the Plaintiff filed a Motion for Summary Judgment (the "Motion for Summary Judgment"). The Defendant filed a Response to the Motion for Summary Judgment (the "Response") on December 16, 2019. On December 17, 2019, the Plaintiff filed a Reply in support of the Motion for Summary Judgment (the "Reply"). For the reasons that follow, the Motion for Summary Judgment is granted.

II. Jurisdiction

The United States District Court for the District of Connecticut has jurisdiction over the instant proceeding pursuant to 28 U.S.C. § 1334(b). The Bankruptcy Court derives its authority to hear and determine this matter pursuant to 28 U.S.C. §§ 157(a) and (b)(1) and the District Court's General Order of Reference dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(I).

III. Undisputed Facts

The Court finds the following undisputed facts relevant to the determination of the Motion for Summary Judgment:¹

1. The Defendant and Laurel Caliendo co-founded the Plaintiff in 1996. It was incorporated on July 1, 1998.

2. The Plaintiff is a closely held stock corporation. It brokers residential first mortgages which it then sells in the secondary market.

3. The Defendant was a shareholder, officer, and director of the Plaintiff. He began actively working in the Plaintiff's office in 1999.

4. Ms. Caliendo was initially the Plaintiff's corporate secretary and became its president in 2000.

5. In 2010, the Defendant retired from the Plaintiff. In 2012, the Defendant was removed from the board of directors.

6. In 2012, after the Defendant's removal from the Board, Justin Girolimon, the Plaintiff's then-chief financial officer, began to investigate withdrawals the Defendant had made from corporate funds.

7. On October 16, 2012, the Plaintiff filed a two-count complaint against the Defendant in Connecticut Superior Court seeking injunctive relief and damages for conversion, statutory theft, and embezzlement. See Village Mortgage Company v. James Veneziano , No. LLI-CV-12-6007694-S (the "2012 State Court Action").

8. The Defendant filed a ten-count counterclaim in the 2012 State Court Action.

9. The Superior Court held a twelve-day bench trial in the 2012 State Court Action in May 2015, after which the parties filed post-trial briefs. On January 25, 2016, the Superior Court issued a Memorandum of Decision entering judgment in favor of the Plaintiff, awarding damages to the Plaintiff in the amount of $693,395.03, trebled to provide for a total award of $2,080,185.09, and ruling against the Defendant on each of his counterclaims (the "2016 Judgment").

10. The 2016 Judgment finds the following facts and determines the following legal issues² :

a. From its inception, the Plaintiff's business was the brokering of residential first mortgages, which the company would place and then sell in the secondary market.

b. The Defendant, who held a bachelor's degree in business science and who had experience in banking, was the Plaintiff's vice president and treasurer, positions he held until he retired in 2010. The Defendant directed, supervised, and controlled all the financial aspects of the Plaintiff.

c. Ms. Caliendo, who did not have an educational background in financial services, and completed two years of college, handled operations, including the processing, closing, funding, delivery, and servicing of the loans, and the selling of the loans on the secondary market.

d. The split of responsibility between Ms. Caliendo and the Defendant remained consistent until his retirement.

e. The Defendant admitted at trial that he was a fiduciary of and had a duty to the Plaintiff corporation of undivided loyalty and utmost good faith. In his counterclaim, the Defendant alleged he was employed by the Plaintiff to occupy a position of trust and confidence, and was responsible for, among other things, maintaining the Plaintiff's accounting records. The Defendant further alleged that, as vice president, he had a fiduciary duty to exercise good faith, loyalty, and honesty toward the Plaintiff, to act solely for its benefit in all matters connected with his employment, and to be candid with the Plaintiff by fully disclosing information which would be useful to it in the protection and promotion of its interest.

f. The Defendant officially retired from the Plaintiff in January of 2010, but stayed actively involved with the company, asserting authority over many aspects of the Plaintiff's financial affairs until his removal from the board of directors in April of 2012.

g. Mr. Girolimon's 2012 investigation into the Defendant's withdrawals from corporate funds resulted in a breakdown of all amounts of corporate funds misappropriated by the Defendant and not repaid. Mr. Girolimon determined that the Defendant misappropriated $1,244,661.02 from the Plaintiff from 2004 through 2014 and $693,395.03 since a period that began three years before the date of the filing of the 2012 State Court Action.

h. The Defendant owed a fiduciary duty to the Plaintiff as its vice president and treasurer, and as a director until his removal from the board of directors in 2012. The Defendant also owed a fiduciary duty to the Plaintiff due to the trust and confidence placed in him by Ms. Caliendo, Mr. Girolimon, and others, his control over the Plaintiff's finances, and the opportunity that such control gave for self-dealing.

i. Until his retirement in early 2010, the Defendant was in a superior position to everyone else at the Plaintiff with respect to financial matters, based upon his experience and expertise. The Defendant directed, supervised, and controlled all the financial aspects of the Plaintiff from its inception until his retirement in early 2010 and asserted his influence over financial matters until his discharge from the board in 2012.

j. The Defendant was primarily responsible for the books and records of the Plaintiff and was the employee at the Plaintiff responsible for interacting with accountants. The Defendant had the ultimate responsibility for accounting entries and how transactions were characterized in the Plaintiff's records. He was also solely responsible for working with auditors and reviewing audited financial statements. The Plaintiff's board of directors trusted the Defendant to handle the financial affairs of the corporation. Ms. Caliendo also trusted the Defendant to run the financial aspects of the business.

k. The Defendant owed fiduciary duties to the Plaintiff and he breached those duties by engaging in self-dealing by taking the Plaintiff's funds for his own personal use at his sole discretion without any regard to the Plaintiff or its shareholders.

l. The Defendant misappropriated the Plaintiff's corporate funds and defalcated them, and did not pay the funds back to the Plaintiff, despite the Plaintiff's requests that he do so.

m. The Defendant's improper transactions were for his personal use, not for corporate matters, and were not authorized by the Plaintiff's board of directors.

n. The Defendant viewed the funds in the Plaintiff's accounts as his own, and such an attitude and explanation show a complete disregard for corporate formalities, the rights and interests of the Plaintiff and its shareholders, and the Defendant's fiduciary duties. o. The Defendant acted at his own sole discretion with regard to the Plaintiff's finances, without approval from the board of directors. The Defendant's view that he could authorize and cause advances to himself whenever he wanted without proper approval epitomizes both his misconduct and the mindset he evinced when supervising the financial affairs of the Plaintiff.

p. The Defendant acted without good faith and fair dealing when he manipulated the Plaintiff's accounting records.

q. The Defendant told his son, with regard to Plaintiff's records, that there was "fraud all over those goddamn books."

r. The Defendant manipulated the financial affairs of the Plaintiff in numerous dishonest ways, treated the corporate assets of the Plaintiff as if they were his own, and felt entitled to loot the corporate treasury whenever he wanted to and he did so.

s. The Defendant breached his fiduciary duties to the Plaintiff by stealing, embezzling, and converting funds to his own use.

t. The Defendant was not authorized to abscond with corporate funds.

u. The Defendant looted the corporate treasury to a significant extent for his own personal benefit for at least ten years. Such substantial misappropriations over such a long period of time demonstrates the requisite intent and the requisite wrongful taking of property from its rightful owners, the shareholders, by a preponderance of the evidence.

v. The defendant was in a special and confidential relationship with the Plaintiff. He, as the financial head of the Plaintiff, was entrusted with the corporate funds. He wrongfully converted a substantial amount of corporate funds to his own use.

11. The 2...