In re SHARON M. LOGIUDICE, Debtor.
SHARON M LOGUIDICE, Defendant-Appellee. DARREN COMMANDER, Plaintiff-Appellant,
FREDA L. WOLFSON, District Judge.
This matter arises from an adversary proceeding under 11 U.S.C. §§ 523(a)(2), 523(a)(4), and 523(a)(6) of the Bankruptcy Code against Sharon LoGuidice ("Debtor") contesting the dischargeability of certain debts (the "Nondischargeability Action"). Here, Darren Commander ("Appellant" or "Commander") appeals the Bankruptcy Judge's Order, dated May 13, 2013 (the "May 13 Order") dismissing the Nondischargeability Action. Appellant takes issue with the Bankruptcy Judge's finding that a previous state court order collaterally estopped and barred relitigation of the issues underlying the Nondischargeability Action. For the reasons that follow, the Court AFFIRMS the Bankruptcy Judge's May 13 Order.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The facts are taken from the Record on appeal and are not disputed. Commander, Debtor, and Kenneth Skerianz each owned one-third of Metropolitan Architectural Woodwork, LLC ("Metropolitan"). Debtor's husband, Eric LoGuidice ("Mr. LoGuidice"), served as President of Metropolitan. In the spring of 2007, the FBI executed a search warrant at 601 Lehigh Ave, Union, New Jersey, which housed the offices of Metropolitan. The FBI was searching for evidence of criminal activity by Mr. LoGuidice. Unbeknownst to Commander, Mr. LoGuidice had cashed checks from general contractors who hired Metropolitan, used the money as his own personal funds, and manipulated the books of Metropolitan to hide his activity. Once the FBI executed the search warrant, Commander and Mr. Skerianz discovered Mr. LoGuidice's activity. They then fired Mr. LoGuidice and expelled Debtor from her membership in Metropolitan.
In response, Debtor filed an action in the Superior Court of New Jersey, Chancery Division (the "State Court") on November 21, 2007, seeking, among other things, reinstatement as a member of Metropolitan and the appointment of a receiver over Metropolitan (the "State Court Action"). In the State Court Action, on January 22, 2008, Commander brought a counterclaim against Debtor asserting a breach of fiduciary duty for Debtor's failure to disclose her husband's embezzlement to Metropolitan, unjust enrichment for accepting the benefit of Mr. LoGuidice's activity, and fraud for her participation and misappropriation of Metropolitan's money.
Discovery went on for nearly four years and the trial lasted several days. Both Debtor and Commander testified at trial held before the State Court. Having heard testimony and considered all the evidence, on October 4, 2011, the State Court issued a letter opinion (the "Letter Opinion") finding that the facts did not support Debtor's expulsion from Metropolitan and moreover, Commander's counterclaim had no merit. In particular, the State Court found that while Commander's claim was based upon his position that Debtor, together with her husband, engaged in acts of theft of company assets, there was insufficient evidence to prove the claim. To the extent Commander claimed that Debtor was unjustly enriched by the fraud, the proofs submitted failed to establish the source of funds. There was also no evidence that Debtor personally participated in any theft, and in sum, the evidence did not prove any wrongful conduct on the part of Debtor sufficient to substantiate her expulsion from Metropolitan. The State Court determined that Debtor was entitled to be reinstated and compensated for the full benefit of her membership equal to the amount provided to the other members since August 2007. At the end of the Letter Opinion, the State Court directed Debtor to submit an order consistent with the decision within ten days.
On November 18, 2011, the State Court issued an order appointing Ramco Asset Management, LLC ("Ramco") as fiscal agent for Metropolitan. However, despite the findings made by the State Court that Commander's counterclaims had no merit, there was no official order filed dismissing the counterclaims. Commander timely filed a notice of appeal of the order appointing a fiscal agent to the Superior Court of New Jersey, Appellate Division (the "Appellate Court"). But, on February 22, 2012, the Appellate Court informed Commander that he would have to proceed by way of an interlocutory appeal because the State Court had yet to enter a final order. Meanwhile, Debtor commenced bankruptcy proceedings on February 16, 2012, under Chapter 7 of Title 11 of the United States Code, staying the state court proceedings.
In the Chapter 7 bankruptcy proceedings, which were later converted to Chapter 11, Commander was scheduled as a creditor of Debtor in the amount of $7, 691, 236.99 and filed a corresponding proof of claim. On November 19, 2012, Commander commenced the Nondischargeability Action, arguing that Debtor's liability to Appellant resulting from her husband's embezzlement represents a nondischargeable debt within the scope of U.S.C. § 523(a)(2), (a)(4), and (a)(6) of the Bankruptcy Code. Specifically, he argued that (1) Debtor committed constructive or actual fraud that led to the extension of credit; (2) Debtor committed fraud or defalcation while acting in a fiduciary capacity; and (3) Debtor's conduct was willful and malicious.
Debtor moved to dismiss the Nondischargeability Action, and the Bankruptcy Judge held a hearing on May 11, 2013. After hearing counsel's arguments, the Bankruptcy Judge found that the disputes underlying the Nondischargeabililty Action - whether there was any wrongful conduct on the part of Debtor - were already resolved in the State Court Action. In particular, he found that the State Court Judge was quite clear in making his findings of fact, after conducting a lengthy trial, that Debtor did not commit any wrongful acts. Moreover, the Bankruptcy Court further found that "had there been any wrongful conduct, there would have been grounds... to disassociate [Debtor] from Metropolitan."
The Bankruptcy Judge also determined that the factual findings in the Letter Opinion were sufficiently litigated and final for purposes of applying collateral estoppel. He found that the Letter Opinion - issued after extensive discovery and trial - squarely addressed the issues related to whether Debtor engaged in any culpable conduct. As a result, the Bankruptcy Judge reasoned that collateral estoppel applied and barred relitigation of the issues underlying the Nondischargeability Action. The Bankruptcy Judge, therefore, granted the motion to dismiss the adversary proceeding. The instant appeal ensued.
II. STANDARD OF REVIEW
"The proper standard of review to be applied by a district court when reviewing a ruling of a bankruptcy court is determined by the nature of the issues presented on appeal." In re Beers, No. 3:09-CV-01666, 2009 WL 4282270, at *3 (D.N.J. Nov. 30, 2009) (quoting Baron & Budd, P.C. v. Unsecured Asbestos Claimants Comm. , 321 B.R. 147, 157 (D.N.J.2005). A district court reviews "the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof." In re United Healthcare Sys., Inc. , 396 F.3d 247, 249 (3d Cir.2005) (quoting In re Trans World Airlines, Inc. , 145 F.3d 124, 130-31 (3d Cir.1998)). Because Appellant is seeking review of legal determinations made by the Bankruptcy Court on motion to dismiss, the Court finds that the plenary standard of review applies. Accord Sheehan v. Dobin, No. 10-6288(FLW), 2011 WL 3625586, at *2 (D.N.J. Aug. 15, 2011).
Pursuant to 11 U.S.C. 523(a)(2), (a)(4), and (a)(6), a discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) does not discharge an individual debtor from any debt for an extension of credit that was obtained by constructive or actual fraud, for fraud or defalcation while acting in a fiduciary capacity, or for willful and malicious injury by the debtor to another entity or to the property of another entity. 11 U.S.C. §§ 523(a)(2), (a)(4), (a)(6). Here, Appellant argues the Bankruptcy ...