STUART M. BERNSTEIN, United States Bankruptcy Judge:
The plaintiff Jose Borges commenced this adversary proceeding against the debtor and defendant Alfred Placeres to dismiss his chapter 7 case, determine the dischargeability of Placeres' debts owed to Borges and deny Placeres a general discharge. Placeres moved for summary judgment on all claims and Borges cross-moved for partial summary judgment on his non-dischargeability claim under Bankruptcy Code § 523(a)(6). As more fully discussed below, the Court disposed of all but one of the claims from the bench, reserving decision on Placeres' motion for summary judgment dismissing Borges' non-dischargeability claim brought under § 523(a)(4). Having considered the supplemental briefing requested from the parties, the Court grants partial summary judgment dismissing the § 523(a)(4) claim.
Although both sides have moved for summary judgment, the facts are hotly contested. Borges is a native of Venezuela who originally came to the United States in 1996 as a nonimmigrant B-2 Visitor with temporary authorization to remain in the country until June 12, 1997. (See Decision and Order of the Immigration Judge, dated Mar. 10, 2003 (the "Immigration Court Order"), at 1 (ECF Doc. #12).)
Placeres is an attorney licensed to practice law in the State of New York. (Id. at ¶ 1.) On January 10, 1998, Borges went to the offices of Entra America, a paralegal service firm owned and operated by Adela Ivan who claimed to be Placeres' paralegal.
Borges appeared unrepresented at the Fourth Hearing on January 27, 1998, and provided the Immigration Court with a copy of the Venue Motion. (Id. at ¶ 9.) The Immigration Judge denied the Venue Motion and directed Borges to appear for another hearing on February 3, 1998 (the "Fifth Hearing"), warning him that a failure to appear would result in the issuance of a deportation order. (Id. at ¶¶ 10-11.)
A few days before the Fifth Hearing, on January 29, 1998, Borges married Julie LaMarca, a U.S. citizen. (Id. at ¶ 14.) Borges and his wife brought birth certificates, passports and other documents to Ivan at Entra America in order to complete the requisite paperwork to complete a green card application (Form I-130) and permanent residency application (Form I-485). (Id. at ¶ 14; see also Tr. (2/27/12) at 30.) While at Entra America's office, Borges and LaMarca signed various forms, which Borges contends were pre-signed in Placeres' name and pre-filled with Entra America's phone number and P.O. Box address. (Declaration of Plaintiff, dated June 17, 2016 ("Borges Declaration") at ¶ 6 (ECF Doc. #20).)
Additionally, Ivan — either on her own or pursuant to Placeres' instructions — directed Borges not to appear at the Fifth Hearing, explaining that his green card application obviated the need for him to appear. (Compare 7056-1 Response at ¶ 12, with 7056-1 Statement at ¶ 12.) Ivan further cautioned him that he would be deported if he attended the Fifth Hearing. (Borges Declaration at ¶ 5; see also Plaintiff's Complaint to Disciplinary Committee, dated Jan. 8, 2003 ("Ethics Complaint") at 3 (ECF Doc. #20).)
In April 1998, Borges received a notice from the INS regarding his immigration status. (Id. at ¶ 15; see also Borges v. Gonzales, 402 F.3d 398, 402 (3d Cir. 2005) ("Borges Appeal").) The parties dispute the exact contents of the INS notice, (compare 7056-1 Response at ¶ 15 with 7056-1 Statement at ¶ 15), but agree that the notice informed Borges that he was subject to deportation to Venezuela. (7056-1 Response at ¶ 15.) Placeres asserts that he subsequently submitted a motion to reopen Borges' removal proceedings (the "First Motion to Reopen"), although Borges disputes whether it was Placeres who actually filed the motion. (Compare 7056-1 Response at ¶ 16, with 7056-1 Statement at ¶ 16)
In the meantime, Borges continued to work with Entra America on matters related to his green card and permanent residency applications. See Borges Appeal, 402 F.3d at 401. These were filed, in error, with the INS in New York rather than the INS in New Jersey. Apparently unaware of the In Absentia Order, the New York INS office granted Borges an adjustment of status interview. Id.
At a 1999 meeting to prepare for the interview, Ivan informed Borges that Placeres was no longer working with Entra America, and that another attorney with the firm, Jamal Jbara, would continue representing him. (7056-1 Response at ¶ 22.) Placeres contends that his representation terminated at this point, but Borges disputes this assertion. (Compare 7056-1 Statement at ¶ 22 with 7056-1 Response at ¶ 22.) As he prepared Borges for the interview, Jbara advised Borges not to mention the In Absentia Order during the interview process. See Borges Appeal, 402 F.3d at 402. Borges apparently believed that the order had been vacated anyway and complied with Jbara's instructions during his interview in February 2000. See id. As a result, Borges ultimately obtained approval of permanent resident status. See id.
In April 2000, Borges planned to travel to Venezuela to visit his ailing mother Id. He contacted Jbara to make sure he would be able to re-enter the United States because he had not received his green card, and discovered, apparently for the first time, that the In Absentia Order had not been vacated. Id. According to Borges, Jbara agreed to remedy the situation by filing a renewed motion to reopen his removal proceedings in New Jersey. (Borges Declaration at ¶ 10.)
Borges changed lawyers in 2002. Through his new counsel, he learned of various deficiencies in his immigration forms filed up to that point, and discovered other information suggesting that Placeres had not performed the actual legal work in connection with those matters. (Id. at ¶ 11.) As a result, Borges filed an ethics complaint (the "Ethics Complaint") against Placeres with the Disciplinary Committee of the Appellate Division of the Supreme Court of the State of New York, First Judicial Department on January 8, 2003, and a motion to reopen the removal proceedings in the Immigration Court and vacate the In Absentia Order on January 27, 2003 (the "Second Motion to Reopen"). (See Immigration Court Order at 1.) Finally, Borges filed a civil action against Placeres and others on August 4, 2003 (the "Civil Action"). (Verified Complaint, dated Nov. 17, 2003 (the "State Court Complaint") (ECF Doc. #23).)
The Ethics Complaint charged that Placeres and Jbara had mishandled Borges' immigration matters and lied to him.
Placeres responded to the Ethics Complaint denying each of Borges' allegations. (Defendant's Answer to Disciplinary Complaint, dated Mar. 11, 2004 ("Disciplinary Response") (ECF Doc. #20).)
The Disciplinary Committee temporarily closed the Ethics Complaint pending resolution of the Civil Action described below.
In connection with the Second Motion to Reopen, Borges submitted Placeres Disciplinary Response, contending he was required by law to do so.
On February 18, 2004, while the BIA appeal was pending, the Department of Homeland Security ("DHS") arrested and detained Borges. (See 7056-1 Response at ¶ 38.) While Borges was detained, the BIA affirmed the denial of his Second Motion to Reopen and referenced Placeres' Disciplinary Response noting that it contained "the ring of truth." (BIA Decision at 2.) Specifically,
The Third Circuit reversed, ruling that Placeres' alleged fraud tolled the period within which to make the Second Motion to Reopen, and remanded to the BIA to determine whether fraud had been committed. Borges Appeal, 402 F.3d at 408-09. It further held that "[i]f the BIA finds fraud and finds that, by virtue of equitable tolling, the motion to reopen was timely filed, it is instructed to vacate the in absentia order of removal so that Borges can apply for adjustment of status." Id. at 409. On remand, the BIA vacated the In Absentia Order, (7056-1 Response at ¶ 28), and DHS ultimately released Borges from custody on April 1, 2005. (Id. at ¶ 38.)
Prior to his arrest, Borges filed the Civil Action against Placeres, Ivan, Jbara, and Entra America in the New York Supreme Court (the "State Court"), but by February 2012, the Civil Action had been dismissed or settled as to all defendants other than Placeres. (Borges Declaration at ¶¶ 29-30.) Borges alleged that Placeres had committed legal malpractice, fraud, negligence, breach of contract, negligent supervision, intentional and negligent infliction of emotional distress and breach of fiduciary duty, and sought compensatory, treble and punitive damages based upon his handling of his immigration and deportation issues. (State Court Complaint at ¶¶ 45-85.) Borges subsequently asserted that Placeres' false statements and submissions to the Disciplinary Committee also constituted fraud. (Transcript of hearing held Feb. 24, 2012 ("Tr. (2/24/12)") at 30.)
With Placeres as the only remaining defendant, the State Court sua sponte dismissed Borges's negligence, breach of contract, negligent supervision, intentional and negligent infliction of emotional distress and breach of fiduciary duty claims as duplicative of his legal malpractice claim. (Id. at 10; see also Complaint for Determination of Dischargeability and Objecting to Debtor's Discharge Pursuant to Sections 523 and 727 of the Bankruptcy Code, dated Oct. 13, 2015 (the "Adversary Complaint"), at ¶ 39 (ECF Doc. #1).) The State Court reserved decision whether to dismiss Borges's fraud claim, (Tr. (2/24/12) at 10), but expressed skepticism as to whether Placeres' false statements and submissions to the Disciplinary Committee could constitute fraud against Borges. (Id. at 29-31.)
The balance of the case went to trial before a jury. At the close of testimony but before the case was sent to the jury, the State Court dismissed the fraud claim, finding that "there are no facts that have been demonstrated or proven that are separate and apart from those set forth which would establish [Borges's] claim for malpractice, nor are there any damages established or set forth that would be separate and apart from those as alleged for the damages sustained as a result of any legal malpractice." (Transcript of hearing held Mar. 1, 2012 ("Tr. (3/1/12)") at 19-20.)
Placeres appealed the resulting judgment to the Supreme Court, Appellate Term. Among other things, he argued that an award of nonpecuniary damages (here, $900,000 for pain and suffering) was generally unavailable to a plaintiff in an action for attorney malpractice. Borges v. Placeres, 43 Misc.3d 61, 986 N.Y.S.2d 298, 300 (N.Y. Supp. App. Term 2014). Placeres had, however, failed at trial to object to the evidence, jury instruction or verdict sheet relating to pain and suffering, and he consequently consented to the trial of the issue. Id. The Appellate Term, affirmed the judgment, id. as did the Appellate Division agreeing that Placeres' "pain and suffering" argument had not been preserved, Borges v. Placeres, 123 A.D.3d 611, 2 N.Y.S.3d 75, 76 (2014), and Placeres' motion for leave to appeal to the Court of Appeals was denied on June 30, 2015. Borges v. Placeres, 2015 WL 3952546 (N.Y. App. Div. June 30, 2015).
After the entry of judgment by the state trial court, the Disciplinary Committee reopened the matter. On July 22, 2015, it issued a formal admonition to Placeres based on his violations of the Disciplinary Rules of the Code of Professional Responsibility (the "Lawyer's Code").
On March 23, 2015, Placeres filed a chapter 7 petition in this Court. Schedule B listed total assets in the amount of $4,226.00, and Schedule F listed unsecured debt in the sum of $1,292.832.00, mostly consisting of Borges' judgment. (ECF/Main Case Doc. #1.) His schedules did not list a malpractice claim that he had against his own state court lawyer based upon his failure to object to the pain and suffering evidence and jury instructions, and Placeres testified under oath at his section 341 meeting that he had no reason to sue anyone for malpractice. (Transcript of Creditor's Committee Meeting held August 25, 2015 (the "341 Transcript") at 9-12 (ECF Doc. #20).)
At the conclusion of oral argument, the Court granted summary judgment from the bench dismissing Count I, denied summary judgment as to Counts II and IV, and Borges conceded that Count V should be dismissed.
Section 523(a)(4) exempts from discharge, inter alia, any debt "for fraud or defalcation while acting in a fiduciary capacity." 11 U.S.C. § 523(a)(4) (emphasis added). "Exceptions to dischargeability are `narrowly construed against the creditor's objections, and confined to those plainly expressed in the [Bankruptcy] Code.'" Bethpage Fed. Credit Union v. Furio (In re Furio), 77 F.3d 622, 624 (2d Cir. 1996) (quoting Household Finance Corp. v. Howard (In re Howard), 73 B.R. 694, 700 (Bankr. N.D. Ind. 1987)); see Kawaauhau v. Geiger, 523 U.S. 57, 62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) (stating that "exceptions to discharge `should be confined to those plainly expressed'") (quoting Gleason v. Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 59 L.Ed. 717 (1915)). The principle of narrow construction strikes the balance between penalizing specific conduct deemed undesirable and promoting the honest debtor's fresh start. The Andy Warhol Foundation for Visual Arts, Inc. v. Hayes (In re Hayes), 183 F.3d 162, 167 (2d Cir.1999). The creditor asserting the non-dischargeability of a debt bears the burden of proof by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
Borges bases his § 523(a)(4) claim on false statements and submissions Placeres allegedly made to the Disciplinary Committee. The Disciplinary Committee proceedings took place well after his representation of Borges ended, and Placeres argues that he no longer owed any fiduciary obligations to Borges when the challenged statements and submissions were made. Federal law determines whether a debtor acted in a fiduciary capacity, although state law may influence the scope of the debtor's fiduciary obligations. See Hayes, 183 F.3d at 166-67. Assuming without deciding that Placeres' statements and submissions met the requirements for fraud, Borges' § 523(a)(4) claim must fail because Placeres did not commit the offending conduct while acting in a fiduciary capacity.
Although the parties dispute the precise date when Placeres' representation of Borges terminated, it occurred before Borges initiated the Ethics Complaint. Under New York law, "the attorney's fiduciary duty to the client necessarily ends when the representation ends." Access Point Med., LLC v. Mandell, 106 A.D.3d 40, 963 N.Y.S.2d 44, 47 (N.Y. App. Div. 2013); accord Shaub & Williams, L.L.P. v. Augme Tech., Inc., No. 13 Civ. 1101(GBD), 2014 WL 625390, at *3 (S.D.N.Y. Feb. 14, 2014). Placeres was no longer Borges' attorney when Borges filed the Ethics Complaint, and Borges has failed to identify a legal basis for his contrary argument. Furthermore, even though an attorney has a continuing duty to a former client not to disclose confidential and secret communications, Solow v. Grace & Co., 83 N.Y.2d 303, 610 N.Y.S.2d 128, 632 N.E.2d 437, 440 (1994); Greene v. Greene, 47 N.Y.2d 447, 418 N.Y.S.2d 379, 391 N.E.2d 1355, 1358 (1979), an attorney sued by a former client may reveal confidences and secrets to defend himself against an accusation of wrongful conduct. Nesenoff v. Dinerstein & Lesser, P.C., 12 A.D.3d 427, 786 N.Y.S.2d 185, 186 (N.Y. App. Div. 2004) (citing to Code of Professional Responsibility DR 4-101(C)(4)).
Here, Borges filed a grievance with the Disciplinary Committee against Placeres, and accused him of engaging in wrongful conduct. Placeres was entitled to respond, and did not owe Borges a fiduciary duty to refrain from defending himself. This does not mean that Placeres was entitled to commit fraud, but that fraud would breach a common law duty, not a fiduciary duty. Borges may be able to prove that the debt arose from willful and malicious conduct on Placeres' part or that Placeres' should not receive a general discharge, but he cannot assert a claim under § 523(a)(4) for the reasons stated. In light of this conclusion, it is unnecessary to address Placeres' argument that the fraud claim is precluded by the state court's post-trial dismissal of Borges' fraud claim.
In the post-argument briefing, Borges contended that even if Placeres was entitled to use confidential or secret information to defend himself, his actions went beyond the scope of the defense exception because his statements and submissions were not necessary to defend against Borges's accusations, see Meyerhofer v. Empire Fire & Marine Ins. Co., 497 F.2d 1190, 1194-95 (2d Cir. 1974), were false, contained information that was damaging to Borges and irrelevant to the disposition of the complaint.
This is a new theory; Borges always contended until the Supplemental
Accordingly, Placeres is granted partial summary judgment dismissing Count II. The parties are directed to settle an order on notice that reflects the disposition of the motion and cross-motion, and schedule a conference with the Court to fix a trial date.