In re Suarez, Case No.: 08-15732 (DHS) (Bankr.N.J. 4/5/2010)

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In re: MITCHELL SUAREZ, A.K.A. INTERNATIONAL MILL PRODUCTS, INC., INTERNATIONAL MILL PRODUCTS INCORPORATED, Debtor JRC LUMBER CORP., Plaintiff, v. MITCHELL SUAREZ, Defendant.

Case No.: 08-15732 (DHS).

Adv. No.: 08-1713 (DHS).

United States Bankruptcy Court, D. New Jersey.

April 5, 2010.

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Kopelman & Kopelman L.L.C., Michael S. Kopelman, Esq., Hackensack, New Jersey, Counsel for Defendant/Debtor, Mitchell Suarez.

Broege, Neumann, Fischer & Shaver, L.L.C., Peter J. Broege, Esq., Manasquan, New Jersey, Counsel for Plaintiff, JRC Lumber Corp.

OPINION

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DONALD H. STECKROTH, Bankruptcy Judge

Before the Court is a motion for summary judgment. On July 3, 2008, judgment creditor JRC Lumber Corp. ("Plaintiff") filed an adversary complaint against chapter 7 debtor, Mitchell Suarez ("Defendant"), seeking a determination that its claim is nondischargeable under §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6) of the Bankruptcy Code. The Plaintiff thereafter filed the instant motion for summary judgment against the Defendant contending specifically that the debt owed to it by the Defendant arose from the Defendant's commission of: (1) actual fraud or false pretenses; (2) fraud or defalcation while acting in a fiduciary capacity towards the Plaintiff; and (3) a "willful and malicious" injury upon the Plaintiff.

The Defendant filed a Certification in Opposition to Plaintiff's Motion for Summary Judgment, a Response to Plaintiff's Statement of Material Facts Not in Dispute, and a Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment, in which he argued that: (1) collateral estoppel cannot be invoked in establishing that the Defendant engaged in actual fraud; (2) there was no fiduciary relationship between himself and the Plaintiff; and (3) his actions were not willful and malicious because he did not intend to harm the Plaintiff.

For any and all reasons stated hereafter, this Court concludes that the Plaintiff's claim is nondischargeable under § 523(a)(6) of the Bankruptcy Code. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. This is further a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(I). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law in accordance with the Federal Rules of Bankruptcy Procedure 7052.

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Statement of Facts and Procedural History

The Plaintiff is a family-owned lumber molding manufacturing business incorporated in the State of New York.¹ (Pl.'s Stmt. of Mat. Facts Not in Disp., ¶ 12). In June 2003, the Plaintiff sold assets, namely machinery, the right to serve its customers, and lumber inventory, to JRC Millworks, Incorporated ("JRC Millworks"), a New York corporation co-owned by the Defendant's father, Julio Suarez ("Suarez"). (Id. at ¶ 15). JRC Millworks and Suarez later defaulted on a promissory note given to the Plaintiff as partial payment for their purchase of machinery and the right to serve the Plaintiff's customers. (Id. at ¶ 16). JRC Millworks also defaulted on payments for lumber purchased from the Plaintiff, and a check intended for the Plaintiff was converted into a JRC Millworks bank account. (Id.).

In March 2005, the Defendant began working for JRC Millworks for a period of approximately five months. (Dep. of Mitchell Suarez, 9:5-25, March 6, 2007 (Cohen Aff., ¶ 39, Ex. O)). The Defendant did not have an official job title at the company; rather he worked as a "physical laborer." (Id. at 10:3-25). The Defendant further asserts that he did not do any "office work" for the company, though on occasion, he would answer the telephone. (Id. at 11:8-11, 21:2-11).

In June 2005, JRC Millworks ceased operations at its location in Astoria, New York as a result of "cash flow problems." (Pl.'s Stmt. of Mat. Facts Not in Disp., ¶ 20; Dep. of Mitchell Suarez, 145:13-25, 146:1). The Defendant was aware of these problems, as his father had previously told him that cash flow had become an issue.² (Id. at 164:23-25, 165:1-3).

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The closing of JRC Millworks coincided with the formation of International Mill Products, Incorporated ("International Mill").³ (Pl.'s Stmt. of Mat. Facts Not in Disp., ¶ 20). The materials, machines, and customer lists previously used by JRC Millworks at the Astoria location were sent to the International Mills facility in Paterson, New Jersey for use in connection with that business. (Id.; Dep. of Mitchell Suarez, 32:5-25; 62-9-23; 163:12-17). No consideration was received by JRC Millworks in exchange for this transfer. (Dep. of Mitchell Suarez, 163:12-17; Dep. of Janet Corona, 142:13-24, March 6, 2007 (Cohen Aff., ¶ 35, Ex. K) (stating that "[e]verthing was just transferred over," "[f]ree of charge")).

The Defendant, who has undergraduate and graduate degrees in accounting as well as one and one-half years of experience working as an auditor at Deloitte & Touche, LLP, served as International Mill's president. (Pl.'s Stmt. of Mat. Facts Not in Disp., at ¶¶ 35-38). Despite this title, however, the Defendant insists that his father was the "actual owner" of the company and made all of the business decisions. (Def.'s Certif. in Opp'n to Pl.'s Mot. for Summ. J., ¶¶ 7, 11; Dep. of Mitchell Suarez, 27:18-25, 133:1-15).

In November 2005, International Mill ceased operations and a new and unrelated company, Erion and Farias Millworks Incorporated, began using the Paterson facility. (Cohen Aff., ¶ 9).

A. State Court Judgments Involving the Defendant and the Defendant's Associates

On May 5, 2006, the Supreme Court of New York, New York County ("New York Court") entered judgment in favor of the Plaintiff and against JRC Millworks and Suarez in the amount of

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$151,902.74 for JRC Millworks' default on the promissory note given to the Plaintiff. (New York Ct. J., May 5, 2006 (Cohen Aff., ¶ 29, Ex. E)). Thereafter, on October 19, 2006, the same court entered another judgment against JRC Millworks in the amount of $309,790.22 for the company's failure to pay for goods and services received from the Plaintiff and to pay an account stated. (New York Ct. J., Oct. 19, 2006 (Cohen Aff., ¶ 30, Ex. F)).⁴

On July 26, 2006, in a separate action between the Plaintiff and JRC Millworks, International Mill,⁵ and Erion and Farias Millworks, Inc., the New York Court granted the Plaintiff's petition to set aside a transfer of assets from JRC Millworks to International Mill. (New York Ct. J., Oct. 25, 2006 (Cohen Aff., ¶ 31, Ex. G)).⁶ The court found that the transfer of any assets between the two companies was null and void as a fraudulent conveyance under New York Debtor and Creditor Law § 276 ("§ 276"). (Id.).

Furthermore, in August 2007, the New York Court entered a default judgment in favor of the Plaintiff in which it pierced the corporate veils of JRC Millworks and International Mill⁷ and held the Defendant and two others personally liable for the debts, acts, and omissions of both corporations ("the August 2007 judgment"). (New York Ct. J., Aug. 8, 2007 (Cohen Aff., ¶ 32, Ex. H)). Specifically, the court determined that the three individuals were liable for: (1) the amounts of the October 19, 2006 judgment entered against JRC Millworks and Suarez; (2) JRC Millworks' fraudulent transfer of assets to International Mill; and (3) receiving fraudulent conveyances of assets from JRC Millworks and International Mill in violation of §§ 273 thru 276 of New York's Debtor

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and Creditor Law. (Id.). The Defendant was properly served with process in this action and also received several additional required notices from the time of service until the time of an attempted garnishment of his wages.⁸ (Pl.'s Stmt. of Mat. Facts Not in Disp., ¶ 28; Affs. of Alice and Henry Dobson (Cohen Aff., ¶ 40, Ex. P)).

The Defendant moved to vacate the August 2007 judgment. (Opp'n to Order to Show Cause to Vacate Default J., at 7 (Cohen Aff., ¶ 45, Ex. U)). However, the appellate judge denied this motion in light of the "extensive prior record" proving that the fraudulent transfers at issue had occurred. (New York Ct. J., Feb. 15, 2008 (Cohen Aff., ¶ 33, Ex. I)).

On March 31, 2008, the Defendant filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. The Plaintiff instituted this adversary proceeding on July 3, 2008.

Discussion

I. Summary Judgment Standard

A court may grant summary judgment under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. At the summary judgment stage, the role of the court "is not to weigh evidence, but to determine whether there is a genuine issue for trial." Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). In doing so, the court must construe facts and inferences in a light most favorable to the non-moving party. See Am. Marine Rail NJ, LLC v. City of Bayonne, 289 F. Supp.

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2d 569, 578 (D.N.J. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). "Only evidence admissible at trial may be used to test a summary judgment motion. Accordingly, evidence whose foundation is deficient must be excluded from consideration." Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989) (citations omitted).

The moving party bears the initial burden in showing that there is no genuine issue of material fact. See Knauss, 289 F. Supp. 2d at 549 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986))....