Myer's Lawn Care Servs., Inc. v. Fragala (In re Fragala)

645 B.R. 488

IN RE: Russell FRAGALA aka Russell L. Fragala, Debtor.

Myer's Lawn Care Services, Inc., Plaintiff,

v.Russell Fragala, Defendant.

Case No. 8-19-75714-reg

Adv. No. 19-08150-reg

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

Signed September 22, 2022

William M. Burke, William M. Burke, P.C., Manchester, MD, for Plaintiff.

Jeb Singer, J. Singer Law Group, New York, NY, for Defendant.

DECISION AFTER TRIAL

Robert E. Grossman, United States Bankruptcy Judge

Before the Court is an adversary proceeding commenced by Myer's Lawn Care Services, Inc. ("Myer's" or "Plaintiff") against the debtor, Russell Fragala ("Fragala" or the "Debtor") seeking: (1) to hold the Debtor individually liable on a fraud theory, and also to pierce the corporate veil and hold the Debtor liable for the alleged obligations of his company, Russ Fragala Landscape Corporation ("Landscape") to Myer's; and (2) a finding that Myer's has an allowed claim in this case in the amount of $92,366.80 and that such claim is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6). Fragala argues that Myer's is not a creditor in the instant bankruptcy, but even if the Court determines Myer's has an allowed claim that claim is dischargeable.

For the reasons that follow, the Court finds that as of this writing Myer's has an allowed claim in this case in the amount of $93,366.80 by virtue of the uncontested proof of claim filed by Myer's against the Debtor. See 11 U.S.C. § 502(a) ; Fed. R. Bankr. P. 3001(f). However, regardless of the basis for the finding that Myer's has an allowed claim Myer's has failed to prove that such claim is non-dischargeable under either § 523(a)(2)(A) or (a)(6).

This case highlights the distinction between establishing an allowed claim and seeking a finding that such claim is non-dischargeable. Courts have been very clear that claims generally should be dischargeable in bankruptcy. That is the basis for our bankruptcy laws—providing an honest debtor with a fresh start. Only where the facts establish that a debtor's actions violate very specific sections of the Bankruptcy Code will a debt be excepted from discharge. See 11 U.S.C. § 523(a). What was proven in this case is that Myer's has a claim and is entitled to receive a distribution from the estate. What was not proven is that the conduct of the Debtor satisfies the statutory basis to find the claim non-dischargeable. Judgment will enter in favor of the Debtor.

FACTS AND PROCEDURAL HISTORY

The Debtor owned and operated Russ Fragala Landscape Corporation, a New York corporation, from 2014 through early 2018. Plaintiff, Myer's Lawn Care Services, Inc., is a Maryland corporation. At some point in 2016, Landscape contracted with BrightView Solutions LLC ("BrightView"), as agent for Walmart, Sam's Club and Burlington, to provide snow removal services during the 2016/2017 winter snow season for twenty-two (22) Walmart and Sam's Club stores and a Burlington store (each a "Work Site" and together the "Work Sites") located in Maryland on a fixed-fee basis. Ex. 1.¹ That is, Landscape would be paid a fixed amount under the contract independent of how much or how often it snowed. Fragala Depo., Sept. 2, 2021, Ex. 3 at 37–38. On November 3, 2016, Landscape and Myer's entered into twenty-two (22) subcontracts under which Myer's would provide snow removal services for each Work Site. E.g. , Ex. 2. Payment under the subcontracts was on a per occurrence basis; the amount due under the subcontract depended on the occurrence of a snow event, the amount of snow, and equipment and material used following each snow occurrence. Id. ; Myer Depo., Aug. 31, 2021, Ex. B at 73–76.

Each subcontract contained the name and address of each Work Site, a breakdown of pricing, and a "Statement of Subcontract Work." Ex. 2. Under the Statement of Subcontract Work, Myer's was to document all pre-existing damage present at each Work Site prior to the first snowfall of the season on a pre-season inspection form with notes and photos ("pre-season inspections"). Ex. 2. Myer's agreed to indemnify and hold Landscape harmless "against all liability for claims and liens for labor performed or materials used or furnished to be used on the job ...." Id. Additionally, the subcontracts contained a "Repair of Damage" provision pursuant to which Myer's would be held liable for post-season damages attributable to its snow removal activities. See Ex. 2.

It is undisputed that Myer's did not provide a report of pre-season damages at the Work Sites to Landscape prior to the first snowfall. However, in October 2016, BrightView, through several of its employees, conducted pre-season inspections and documented the condition of the Work Sites prior to the snow season, which included varying degrees of damage at nearly all Work Sites. Ex. 9–12. Fragala testified that Landscape's employee, Mark Hornstein, joined the pre-season inspections but he did not provide a pre-season inspection report to Landscape. Tr. 71–73, May 2, 2022.

Between November 3, 2016 and February 9, 2017, Myer's performed under the subcontracts. Id. at 115–16. As of February 9, 2017, Landscape had paid Myer's in full under the subcontracts. Id. at 118; Ex. 15. In March 2017, there was a significant snow event which impacted the Work Sites. As a result, Myer's resumed snow removal activities at the Work Sites and invoiced Landscape $183,460.00 for services performed. See Myer Depo., Aug. 31, 2021, Ex. B at 38, 51; Ex. 15. Landscape paid Myer's $127,070.00, leaving an unpaid balance of $58,460.00. Ex. 15. Fragala asserts that the reason Myer's was not paid in full was that there were post-season damages requiring repair. Tr. 135, 138, May 3, 2022.

In June 2017, BrightView conducted post-season inspections of the Work Sites and reported no damages with the exception of damage to a cart corral and some curbs. Exs. 9–12, 32. This was also supported by a letter from BrightView's counsel, dated May 24, 2018, stating that BrightView had not received any communication from Landscape, Walmart, Sam's Club or Burlington stores about damage caused by snow removal services in the 2016/2017 snow season. Ex. 9.

Despite this documentary evidence to the contrary, Fragala testified in a deposition and at trial that BrightView contacted Landscape about post-season damages to the Work Sites. Tr. 121–22, May 2, 2022; Tr. 142, May 3, 2022. As a result, according to Fragala, BrightView withheld $160,000.00 under their contract until the damages were repaired and Landscape provided to BrightView "job sheets" signed by each store showing the repairs completed. Tr. 110–12, May 2, 2022; see also Fragala Depo., Sept. 2, 2021, Ex. 3 at 53, 61–64.

On June 6, 2017, Hornstein, on behalf of Landscape, emailed Myer's stating that Hornstein had conducted Work Site inspections and discovered damage caused by Plaintiff's snow removal services. Hornstein stated that he would forward a list of the repairs to be completed by Myer's before June 23, 2017. Ex. 16. Hornstein never sent the list. Hornstein Depo., Oct. 6, 2021, Ex. 5 at 134. Myer's disputed that it caused the alleged damage and did not conduct any repairs.

Fragala testified that Landscape sent employees to Maryland to repair the alleged damage in late July and August 2017. Tr. 112, May 2, 2022; Tr. 40–41, May 3, 2022. Fragala produced twenty (20) "Landscaping Job Sheets" stamped and signed by each store reflecting the damage repaired at each Work Site. Ex. 21. Each Landscaping Job Sheet is dated between August 1, 2017 and August 5, 2017, with the exception of one which is dated August 31, 2017. Landscape also prepared corresponding invoices to Myer's reflecting the repairs completed and the cost of repairs for each Work Site. Id. Every invoice is dated August 29, 2017. A spreadsheet apparently created by Landscape summarized the invoices and the travel, lodging, and meal expenses associated with the repairs.² Ex. 26. However, Fragala could not produce receipts or invoices for materials purchased to repair the damages, receipts for fuel to travel from Long Island to Maryland, or food or lodging receipts. Tr. 88–90, 93–95, May 3, 2022. According to Fragala, these documents were destroyed by a disgruntled employee. Tr. 125–26, May 2, 2022. Fragala testified that it was not until 2018, once the repairs were completed, that BrightView paid Landscape in full for the contracted-for snow removal services.³ Tr. 110–12, May 2, 2022; see Ex. 8.

On August 11, 2017, Landscape's attorney, Rompel Alam, sent a letter to Plaintiff's counsel advising that Myer's was in substantial breach of the subcontract with Landscape because Myer's had not repaired the damage caused to the Work Sites. Ex. 17. As a result of Plaintiff's refusal to take responsibility for the damage, the letter explains that Landscape began making repairs to the Work Sites in July 2017. Id. Plaintiff's attorney responded by letter on August 17, 2017, denying the allegations that Myer's caused the damage and reasserting that Landscape owed Myer's $58,460.00 plus late fees of $11,119.01 and accruing by $38.97 per day pursuant to the "Addendum to 2016-2017 Snow Removal Contract." Ex. 18.

On September 17, 2017, Myer's sued both Fragala individually and Fragala doing business as Russ Fragala Landscape Corporation, in Maryland state court alleging that defendants breached the subcontracts and demanding judgment against both defendants in the amount of $70,592.23. Ex. 22. According to Plaintiff's counsel, he sued Fragala individually and sued Landscape as a "dba" because under Maryland law he believed that a New York corporation that was not registered to do business in Maryland could not be sued in Maryland state courts. See Ex. 18. Fragala answered the state court complaint in his individual capacity on January 10, 2018 (Ex. 24) and filed a counterclaim, also in his individual capacity, against Myer's for $83,755.00 in damages related to the alleged costs to repair the damaged Work Sites, Ex. 25.⁴

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