Stephen D’Abrosca (the “Debtor”) appeals the bankruptcy court orders granting the motion for summary judgment of Michael Petrucelli (the “Plaintiff”) and denying the Debtor’s motion for reconsideration. On appeal, the Debtor argues that the bankruptcy court erred in giving preclusive effect to a state court jury verdict against the Debtor for breach of fiduciary duty and conversion.
In April 2009, the Debtor filed for relief under chapter 7.3 In August 2009, the Plaintiff filed a one-count complaint seeking to except a jury award from the Debtor’s discharge pursuant to Section 523(a)(4) of the Bankruptcy Code. The Plaintiff cited to the state court jury instruction to characterize the fiduciary duty and breach thereof. The Debtor answered the complaint, denied
the allegations, and asserted seventeen affirmative defenses.
The Plaintiff then moved for summary judgment, arguing that the jury award should be given preclusive effect. The Debtor opposed the motion and filed a cross-motion for summary judgment asserting that although he and the Plaintiff were two shareholders in a closely-held corporation, they were not fiduciaries as that term is construed under the Bankruptcy Code. Further, the Debtor argued that because the jury found some fault lay with the Plaintiff, he could not establish defalcation. This was particularly evident, he explained, because others shared the blame (referring to a settlement the Plaintiff reached with a defendant law firm). The Debtor offered that the jury must have relied more heavily on the negligence counts in assessing damages and urged the court to consider that the Plaintiff played a role in that negligence. The Debtor also urged that the enhanced compensatory damages should be discharged because the unattributed grounds for such an award could not rise to the level of nondischargeability.
The bankruptcy court granted the Plaintiff’s motion for summary judgment.
After its analysis of collateral estoppel and whether Debtor breached a fiduciary duty to Plaintiff under the Bankruptcy Code, the Panel concluded that the bankruptcy court erred in granting summary judgment.
Reversed and remanded.