Maersk A/S v. Razzaq (In re Razzaq)

648 B.R. 365

IN RE: Fauzan RAZZAQ, Debtor.

Maersk A/S trading as Maersk Line and Safmarine, Plaintiff,

v.Fauzan Razzaq, Defendant.

Case No.: 21-17142

Adv. Pro. No.: 22-01001

United States Bankruptcy Court, D. New Jersey.

Signed January 6, 2023

Nicholas Fitzgerald, Fitzgerald & Associates, Attorneys at Law, Jersey City, NJ, for Defendant.

Gary Francis Seitz, Gellert Scali Busenkell & Brown, LLC, Wilmington, DE, for Plaintiff.

OPINION

John K. Sherwood, United States Bankruptcy Court

I. INTRODUCTION

Plaintiff Maersk A/S trading as Maersk Line and Safmarine ("Maersk"), an ocean freight shipping company, filed this motion for summary judgment seeking a determination that the debt owed to it by Fauzan Razzaq ("Debtor") is nondischargeable under 11 U.S.C. § 523(a)(2)(A). The debt arises from a default judgment entered in favor of Maersk and against the Debtor for $25,560,937.85. Maersk obtained the default judgment against the Debtor based on his misdeclaration of cargo in containers Maersk shipped to India. In his response to Maersk's motion, the Debtor alleges he did not know what was in the containers because he was defrauded by a third party. Because gross recklessness meets the intent requirement under 11 U.S.C. § 523(a)(2)(A) and the Debtor warranted to the contents of the containers relying solely on information he received from a third party, the Debtor acted with gross recklessness and is not entitled to discharge his debt to Maersk.

II. JURISDICTION

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), and the Standing Order of Reference from the United States District Court for the District of New Jersey. This matter is a core proceeding pursuant 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. §§ 1408 and 1409(a).

III. FACTS AND PROCEDURAL HISTORY

The Debtor, who transacted business under Seatrade Recycling, LLC and Century International M & A, was a middleman, who made money connecting sellers and buyers of scrap items. [ECF Nos. 18-2, ¶ 30-34; 21, ¶ 6]. Typically, a buyer looking for certain scrap items would contact the Debtor, who would find a seller of the scrap items, arrange for the loading of shipping containers, and arrange for transportation of the containers to a port. The Debtor would then forward the shipping line booking number to the buyer of the scrap items. The buyer would then "handle everything." [ECF No. 25, pp. 49-50, 52]. The Debtor would get paid a certain amount per container shipped, typically $50 per container. [ECF No. 25, p. 50].

In 2020, Mason Impacts Private Ltd., a company the Debtor had "[known] quite some time," contacted the Debtor about shipping waste paper to India. [ECF No. 25, pp. 40-41]. The Debtor deviated from his usual way of doing business because his only role in this transaction was to arrange for the shipping of the containers. He was not asked to find suppliers in the United States because Mason Impacts Private Ltd. allegedly had a supplier lined up for waste paper. The Debtor testified he had never done business like this before. [ECF No. 25, pp. 42-43, 53-54].

The Debtor contracted with Maersk to ship 433 containers to India. Maersk believed the containers contained waste paper. Based on that information, Maersk accepted the cargo. [ECF No. 18-3, ¶¶ 3, 5 and 9]. When the containers got to India, Maersk and Indian customs agents found that the containers did not contain waste paper, but scrap tires. Maersk and the Debtor both knew that shipping scrap tires to India is restricted. Maersk returned 71 of the 433 containers to the United States. The other 362 containers remained in India. [ECF No. 21, ¶¶ 3-4; 18-3, ¶ 9]. As a result, Maersk incurred $25,560,937.85 in damages which is memorialized in the District Court default judgment dated June 30, 2021. [ECF No. 18-2, Ex. C].

Before shipping cargo, Maersk creates bills of lading based on a shipper's warranty as to the description of the cargo. Specifically, Maersk's bills of lading provided:

The Shipper warrants to the Carrier that the particulars relating to the Goods as set out on the reverse hereof have been checked by the Shipper on receipt of this bill of lading and that such particulars, and any other particulars furnished by or on behalf of the Shipper, are adequate and correct. The Shipper also warrants that the Goods are lawful goods, and contain no contraband, drugs or other illegal substances or stowaways, and that the Goods will not cause loss, damage or expense to the Carrier, or to any other cargo.

[ECF No. 18-3, ¶ 5, emphasis added].

The Debtor had an opportunity to review the bills of lading before the cargo was loaded. [ECF No. 18-3, ¶¶ 5-7]. In his certification in opposition to summary judgment, the Debtor stated he certified the contents of the containers, but did so using information provided by Ravi Sharma,¹ a third party, who Debtor claims was teaching him "how to do the shipping" and defrauded the Debtor in the process. [ECF No. 21, ¶¶ 6-7]. Essentially, the Debtor admits that he provided the false warranties that the containers contained waste paper, but he denies doing so with fraudulent intent.

Shortly after the District Court in Florida entered default judgment against the Debtor for $25,560,937.85 in damages, the Debtor filed a Chapter 7 petition. [ECF No. 1, ¶ 9]. Maersk filed the complaint in this adversary case on January 3, 2022. [ECF No. 1]. The parties unsuccessfully attempted to resolve their dispute through mediation. [ECF No. 24].

On September 30, Maersk filed its summary judgment motion, seeking an order that the Debtor's debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) and (a)(4). On October 11, the Debtor submitted a short and limited objection to the summary judgment motion. He did not dispute most of the facts in Maersk's summary judgment motion but alleged that he did not know the containers were filled with scrap tires because he was defrauded by Ravi Sharma. [ECF No. 21, ¶¶ 6-7].

IV. ANALYSIS

Fed. R. Bankr. P. 7056 incorporates Fed. R. Civ. P. 56. Under Fed. R. Civ. P. 56, summary judgment should be granted "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." A Court must grant summary judgment if the movant shows there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the record could not lead a "rational trier of fact" to rule in favor of the nonmoving party, summary judgment is appropriate. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

First, it is vital to determine whether there is a genuine dispute as to the material facts. If the nonmoving party fails to address the moving party's factual assertions, the Court may consider the facts undisputed for summary judgment. Fed. R. Bankr. P. 7056(e). The Debtor does not dispute most of Maersk's asserted undisputed facts. The Debtor admits that the containers contained scrap tires and that his warranties were inaccurate. [ECF No. 27, pp. 2-3]. However, the Debtor claims he will prove at trial that he sincerely believed the containers contained waste paper and will explain the reasonableness of his belief. Id. at 3. The Debtor does not dispute or allege any other facts in his responses to Maersk's summary judgment motion.

Maersk cites 11 U.S.C. § 523(a)(2)(A) and (a)(4) to argue the Debtor is not entitled to discharge the debt he owes Maersk.² Section 523(a)(2)(A) prevents a discharge from any debt for money, property, services, or an extension, renewal or refinancing of credit obtained through "false pretenses, a false representation, or actual fraud ...." To find that a debt is nondischargeable on the basis of § 523(a)(2)(A), the Court must find (1) the debtor received money through a material misrepresentation, (2) knew the representation was false or made the representation with gross recklessness as to its truth, (3) intended to deceive the creditor, (4) the creditor reasonably relied on the misrepresentation, and (5) the creditor sustained damages as a result of that reliance. In re Cohen , 191 B.R. 599, 604 (D.N.J. 1996), aff'd , 106 F.3d 52 (3d Cir. 1997).

Several elements necessary to establish nondischargeability under § 523(a)(2)(A) are undisputed. It is undisputed that the Debtor ordered and received valuable shipping services through a material misrepresentation. Maersk relied on the Debtor's statement that the containers contained waste paper. The reliance caused damages for Maersk. The amount the Debtor owes Maersk is undisputed and set forth in the final judgment of the District Court in Florida.

The Debtor argues that Maersk's reliance on the Debtor's representations was not justifiable and reasonable. The United States Supreme Court held that reliance under § 523(a)(2)(A) requires justifiable reliance which, according to the Court, is a lower level of reliance than reasonable reliance. Field v. Mans , 516 U.S. 59, 72-74, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). But the Court still regarded reasonable reliance as relevant for the purposes of § 523(a)(2)(A). Id. at 75, 116 S.Ct. 437. The Debtor argues that Maersk also had a responsibility to investigate the contents of the containers, especially given the significant costs Maersk could incur if the contents of the containers were misdeclared. Thus, the Debtor contends it was not justifiable nor reasonable for Maersk to rely solely on the Debtor's warranty.

The Debtor's argument amounts to a general and conclusory assertion that Maersk had a duty to check the contents of the containers. Though the argument has some common sense appeal, Maersk has explained it could not investigate the contents of the containers. In order to check the containers, Maersk would have had to break the seals on the containers. The sellers sealed the containers after loading them with the...