Louis A. Scarcella, United States Bankruptcy Judge.
Plaintiff R. Kenneth Barnard, as the chapter 7 trustee (the "Trustee") of the estate of Ideal Mortgage Bankers, LTD, a/k/a Lend America, a/k/a Consumers First Lending Key (the "Debtor"), filed a complaint (the "Complaint") against Helene DeCillis (the "Defendant") alleging that the Defendant (i) breached her fiduciary duties to the Debtor, and (ii) aided and abetted a breach of fiduciary duty by the Debtor's chief business strategist, Michael Ashley ("Ashley"). In the Complaint, the Trustee seeks damages in excess of $52,000,000. Now before the Court is the Trustee's unopposed motion for summary judgment (the "Motion"). For the reasons set forth in this Memorandum Opinion, the Trustee's Motion is granted with respect to the issue of liability and the Court shall conduct a separate hearing on the issue of damages.
The Court issues the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure ("Fed. R. Civ.P."), made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure ("Fed. R. Bankr. P.").
The Court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012, but made effective nunc pro tunc as of June 23, 2011.
The Debtor was a mortgage banker/mortgage lender that participated in
On December 4, 2009, the New York Superintendent of Banks issued a cease and desist order (the "Cease and Desist Order")
On November 3, 2011, the United States Attorney for the Eastern District of New York filed an Information charging the Defendant with bank fraud under 18 U.S.C. §§ 1344, 2 and 3551, et seq. in the matter of United States of America v. Helene DeCillis, No. 11-cr-0682 (E.D.N.Y. 2011) ("DeCillis Criminal Action"). (See DeCillis Criminal Action, Dkt. No. 3).
On December 17, 2012, the Trustee commenced this adversary proceeding against the Defendant seeking damages in excess of $52,000,000 incurred by the Debtor as a result of the Defendant's alleged failure to
Under Fed. R. Civ. P. 56, made applicable to this proceeding by Fed. R. Bankr.P. 7056, summary judgment may not be granted unless the movant shows, based on admissible evidence in the record placed before the Court, "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is considered material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The moving party bears the burden of demonstrating the absence of a genuine dispute as to any material fact. Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548. Thus, the moving party bears the initial burden of identifying those portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine dispute of material fact. See, Celotex, 477 U.S. at 323, 106 S.Ct. 2548. See also Anderson, 477 U.S. at 249, 106 S.Ct. 2505. The evidence on each material element of its claim or defense must be sufficient to entitle the moving party to relief in its favor as a matter of law. Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir.2004).
If the movant meets its initial burden, the nonmoving party must then produce "specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324, 106 S.Ct. 2548. See also Fed. R. Civ. P. 56(c). To meet this burden, the non-moving party must offer more than a "scintilla of evidence" that a genuine dispute of material fact exists, Anderson, 477 U.S. at 252, 106 S.Ct. 2505, or that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
On a motion for summary judgment, the court must "construe all evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor." Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010). A court should grant the motion if "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there [being] no genuine issue for trial." Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (internal quotation marks omitted).
Even when a motion for summary judgment is unopposed, the Court cannot grant the motion "without first examining the moving party's submission to determine if it has met its burden of demonstrating that no material issue of fact remains for trial." Vermont Teddy Bear Co., 373 F.3d at 244 (citing Amaker v. Foley, 274 F.3d 677, 681 (2d Cir.2001)). If the evidence submitted in support of the motion fails to satisfy the movant's burden, then summary judgment must be denied even if no opposing evidentiary matter is presented. Id.
The Trustee has standing to pursue an action on behalf of the Debtor's estate under New York law for breach of fiduciary duty against the Debtor's fiduciaries. See Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 458 B.R. 87, 122-123 (Bankr.S.D.N.Y.2011). Under New York law, to establish a breach of fiduciary duty, a plaintiff bears the burden of demonstrating "(1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct." Id., 458 B.R. at 127 (citation omitted).
In the first claim for relief under the Complaint, the Trustee alleges essentially two separate grounds upon which the Defendant breached her fiduciary duties to the Debtor for which the Trustee seeks summary judgment. The Trustee claims the Defendant, as the chief operating officer, had a supervisory role and a relationship of confidence such that she owed a duty of care and a duty of loyalty to the Debtor and its creditors (i) to carefully manage the Debtor's business operations, and (ii) to devise, implement and maintain proper controls and reported procedures with respect to the Debtor's financial affairs, among other things. (Compl. ¶ 67). The Trustee asserts that the Defendant neglected and failed to perform her duties in the management and disposition of the Debtor's assets committed to her care and thereby breached her fiduciary duties. (Compl. ¶ 69). First, the Defendant allowed the Debtor to use monies received under a warehouse line of credit with Gateway Bank, FSB to satisfy first mortgage loans the Debtor previously represented as being paid off and closed, rather than using the line of credit for its intended use, i.e., to fund original mortgage loans or to satisfy at closing current first mortgage loans that were being refinanced (the "Misappropriation of Mortgage Funds"). (Compl. ¶ 71). Second, the Defendant permitted the Debtor to transfer funds from its bank accounts to Ashley or to entities owned and/or controlled by Ashley or to his family members (collectively, the "Ashley Entities"), without receiving fair consideration or reasonably equivalent value in return (the "Ashley Transfers"). (Compl. ¶¶ 70, 72). In support of his claim of breach of fiduciary duty, the Trustee submits (i) the guilty plea and allocution of the Defendant to the charge of bank fraud
The Defendant does not deny in her Answer that she was the Debtor's chief operating officer.
"A corporate officer's fiduciary duty includes discharging corporate responsibilities `in good faith and with conscientious fairness, morality and honesty in purpose' and displaying `good and prudent management of the corporation.'" Gully v. Nat'l Credit Union Admin. Bd., 341 F.3d 155, 165 (2d Cir.2003) (quoting Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 569, 483 N.Y.S.2d 667, 473 N.E.2d 19 (1984)). See also In re PHS Grp., Inc., Nos. 811-70413, 811-72285, 2015 WL 3528235, at *5 (Bankr.E.D.N.Y. June 4, 2015). Fiduciaries are held to a standard "stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is . . . the standard of behavior." Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545 (1928). A breach of fiduciary duty can also include the failure to do anything to correct or prevent misconduct by another and the failure to exercise reasonable diligence. Gully, 341 F.3d at 166-67 (affirming credit union board's determination that plaintiff breached her fiduciary duty as a manager when she failed to prevent the continued misuse of a corporate credit card by a board member and consultant, who was also her father, by failing to monitor her father's use of the credit card after she learned about his misconduct).
The Trustee asserts that the guilty plea and allocution of the Defendant to bank fraud leave no genuine issue of material fact for this Court to decide regarding the Defendant's misconduct and liability with respect to the Misappropriation of Mortgage Funds. The guilty plea and allocution of the Defendant are set forth in the transcript of the Plea Conference of the DeCillis Criminal Action. (Pl. 7056-1 Stm. at ¶ 10; Seidman Decl. ¶ 13, Ex. D). At the Plea Conference, the Assistant United States Attorney recited the charges in the Information
The guilty plea and allocution are admissible in this adversary proceeding. See Gowan v. Amaranth Advisors L.L.C. (In re Dreier LLP), No. 08-15051, 2014 WL 47774, at *11 (Bankr.S.D.N.Y. Jan. 3, 2014); Bayou Accredited Fund, LLC v. Redwood Growth Partners, LP (In re Bayou Grp., LLC), 396 B.R. 810, 835 (Bankr. S.D.N.Y.2008).
Based on the uncontested evidence set forth in the guilty plea and allocution, the Court finds that there is no triable issue of fact as to whether the Defendant breached her fiduciary duties to the Debtor with respect to the Misappropriation of Mortgage Funds.
In addition, the Trustee asserts that the Defendant allowed the Debtor to transfer at least $52,681,799.03 of the Debtor's money to Ashley and the Ashley Entities (Seidman Decl. ¶ 10), and that "[t]he Debtor's books and records do not reflect that any consideration was provided to the Debtor in exchange for the Transfers." (Pl. 7056-1 Stm. at ¶¶ 8, 9). In support of his argument, the Trustee submitted (i) the Transfers Summary and (ii) the Seidman Declaration wherein Mr. Seidman states that "[t]he Trustee's forensic accountants have reviewed the Debtor's books and records, and those records do not reflect that any consideration was provided to the Debtor in exchange for the [t]ransfers."
Because the Court finds in favor of the Trustee for breach of fiduciary duty based on the Defendant's guilty plea and allocution, the Court need not consider the Trustee's claim for breach of fiduciary duty based on the alleged Ashley Transfers.
For the third element of a cause of action for breach of fiduciary duty, the Trustee must show "damages directly caused by the defendant's misconduct." In re Bernard L. Madoff Inv. Sec. LLC, 458 B.R. at 127. The Defendant's guilty plea establishes the fact that the Defendant used her position as the Debtor's chief operating officer to misappropriate funds in violation of the law and against the interests of the Debtor. The Debtor suffered damages as a result of the Defendant's misconduct as evidenced by the bank fraud itself and the cessation of the Debtor's business. While the Trustee has asserted over $52,000,000 in damages, the Trustee does not seek to prove the amount of damages through this Motion. Rather, the Trustee asserts only the fact of damages as a necessary element to satisfy his burden of proof on the cause of action for breach of fiduciary duty.
Based on the Defendant's statements at the Plea Conference and the uncontroverted evidence as to the guilty plea and allocution of the Defendant submitted in connection with this Motion, the Court concludes that the Trustee has met his burden of demonstrating that the Defendant breached her fiduciary duties as an officer of the Debtor and that summary judgment on the first claim for relief is appropriate.
For the reasons set forth above, the Trustee's Motion is granted with respect to liability on the first claim for relief and a hearing on the amount of damages shall be scheduled by the Court.
A separate order shall be entered by the Court.
The Defendant did not submit a responsive Rule 7056-1 statement as required by Local Bankruptcy Rule 7056-1 ("LBR 7056-1"), and the Court therefore deems the facts contained in the Trustee's Local Rule 7056-1 Statement admitted and uncontroverted. See LBR 7056-1 ("All material facts set forth in the statement required to be served by the moving party will be deemed to be admitted by the opposing party unless controverted by the statement required to be served by the opposing party."). However, a local rule, such as LBR 7056-1, "does not absolve the party seeking summary judgment of the burden of showing that it is entitled to judgment as a matter of law, and a Local Rule 56.1 statement is not itself a vehicle for making factual assertions that are otherwise unsupported in the record." Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 74 (2d Cir.2001). Accordingly, the Court must determine whether the admitted facts are sufficient to entitle the moving party to summary judgment, even if the opponent does not specifically deny the asserted fact. See Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir.2003); Benavidez v. Plaza Mex. Inc., Nos. 09 Civ. 5076, 09 Civ. 9574, 2012 WL 500428, at *3, 2012 U.S. Dist. LEXIS 19206, at *9-10 (S.D.N.Y. Feb. 14, 2012) (A court must ensure the "averments in the movant's Rule 56.1 Statement are supported by evidence and show an absence of a genuine issue for trial.") (citing Morisseau v. DLA Piper, 532 F.Supp.2d 595, 618 (S.D.N.Y.2008). The Court recites only those facts relevant to the claims and defenses at issue.
