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In re Snyder

United States District Court, D. Connecticut

April 23, 2018

IN RE STUART SCOTT SNYDER, and DOREEN ANNE SNYDER, Debtors.
v.
JOSEPH J. MURPHY, and NANCY A. MURPHY, Plaintiffs-Appellees. STUART SCOTT SNYDER, and DOREEN ANNE SNYDER, Defendants-Appellants,

          RULING AND ORDER

          STEFAN R. UNDERHILL UNITED STATES DISTRICT JUDGE.

         Stuart Scott Snyder and Doreen Anne Snyder appeal from an order of the United States Bankruptcy Court for the District of Connecticut (Manning, C.J.) (the “Bankruptcy Court”) deeming nondischargeable a judgment rendered against the Snyders in favor of Joseph Murphy and Nancy Murphy by the United States District Court for the Eastern District of New York (the “District Court”). For the following reasons, I affirm the judgment of the Bankruptcy Court.

         I. Standard of Review

         The district courts have jurisdiction to hear appeals from “final judgments, orders and decrees” of the bankruptcy courts. 28 U.S.C. § 158(a). In the context of an adversary proceeding within a bankruptcy case, an award of summary judgment is a final appealable order because it “completely resolve[s] all of the issues pertaining to the discrete claim.” In re Miner, 222 B.R. 199, 202 (2d Cir. BAP 1998); see Hoffman v. Cheek, 90 B.R. 21, 21 (D. Conn. 1988).

         “Generally in bankruptcy appeals, the district court reviews the bankruptcy court's factual findings for clear error and its conclusions of law de novo.” In re Charter Commc'ns, 691 F.3d 476, 482-83 (2d Cir. 2012). Because a motion for summary judgment does not permit the court to find any facts, however, see Flaherty v. Lang, 199 F.3d 607, 615 (2d Cir. 1999), “[a] grant of summary judgment is reviewed de novo by the appellate court.” Andrews v. McCarron (In re Vincent Andrews Mgmt. Corp.), 507 B.R. 78, 81 (D. Conn. 2014).

         II. Background[1]

         Plaintiffs Joseph Murphy and Nancy Murphy are a married couple who live in Suffolk County, New York. Bankr. Compl., App'x at 3; Bankr. Answer, App'x at 15. Joseph Murphy's sister, defendant Doreen Anne Snyder, is married to defendant Stuart Scott Snyder. The Snyders live in Greenwich, Connecticut. Bankr. Compl., App'x at 3; Bankr. Answer, App'x at 15. Prior to the events that are the subject of the District Court lawsuit, the parties “had a very close relationship . . ., celebrated holidays and vacationed together, and enjoyed a relationship of personal trust.” Bankr. Answer, App'x at 15-16; see Bankr. Compl., App'x at 4 (same).

         Scott Snyder has worked in the construction business for more than twenty years, owning several entities through which he builds and renovates luxury homes and commercial properties. Joseph Murphy is a retired New York City firefighter and police officer. In 2005, Joseph approached Stuart to discuss investment opportunities for real estate projects. Stuart “offered the Murphys an opportunity to participate as ‘silent partners' by investing $100, 000 in two luxury home projects in Haworth, New Jersey” (the “Haworth Project”). Murphy v. Snyder, 2014 U.S. Dist. LEXIS 134097, at *4 (E.D.N.Y. Aug. 15, 2014), report and recommendation adopted, 2014 U.S. Dist. LEXIS 133179 (E.D.N.Y. Sept. 22, 2014). In exchange for the $100, 000, Stuart “guarantee[d] the Murphys the return of their initial investment plus twenty percent in approximately one year.” Id. The Murphys accepted the arrangement and entered into an oral agreement with the Snyders. On behalf of himself and his wife, on December 28, 2005, Joseph wire-transferred $100, 000 to an attorney trust account in the name of “Defendants' then counsel, Steven Freesman.”[2] Murphy, 2014 U.S. Dist. LEXIS 134097, at *41. One week later, the Murphys received the blueprints for the Haworth Project.

         The Murphys and the Snyders subsequently entered into a second oral agreement to purchase a vacant lot located on Bible Street in Greenwich, Connecticut, for the purpose of constructing a custom-built luxury home for sale (the “Bible Street Project”). Unlike the Haworth Project, the Murphys were to be the Snyders' only partners on the Bible Street Project, and Joseph Murphy intended to actively participate in the construction and sale of the property. “Stuart again guaranteed the Murphys their initial investment plus a [twenty percent] return and possibly more.” Id. at *5. On August 28, 2006, Joseph Murphy wire-transferred $275, 000- which he and Nancy Murphy allegedly obtained by mortgaging their family home, id.-to a bank account in the name of one of the Snyders' companies.

         The Haworth Project was finished by July 2009, when one of the houses was sold for $1.4 million. Bankr. Compl., App'x at 9; Bankr. Answer, App'x at 22. The other house appears to have eventually been sold in March 2012 for $1.3 million, see Deed, App'x at 281, after a period in which it was leased for $9, 000 per month. Dist. Ct. Compl., App'x at 90; Appellants' Br., Doc. No. 16, at 15. With respect to the Bible Street Project, however, the Snyders never purchased the property in Connecticut. Instead, they used the Murphys' $275, 000 to build two other luxury homes in Demarest, New Jersey (the “Demarest Project”).[3] Those houses were sold in 2010 for over $3 million each. Bankr. Compl., App'x at 9; Bankr. Answer, App'x at 22.

         Despite at least portions of the Haworth and Demarest Projects turning a profit, [4] the Murphys never recovered their investments and never received the promised 20 percent returns. In addition, Scott Snyder spent at least $20, 000 of the Murphys' investment on personal items. See Appellants' Br., Doc. No. 16, at 14. Records and checks obtained from the Snyders' bank indicate that there was less than $1, 000 in the Snyders' account at the time the Murphys wired their $275, 000 investment on August 28, 2006. Over the next two months, nearly all of the Murphys' money was depleted-even though the Snyders failed to purchase the Bible Street property-as the Snyders withdrew money to pay for an expensive meal in Washington, D.C., car repairs, yacht club dues, and the Snyders' daughter's college textbooks. See Bankr. Local Rule 56(a)2 Statement, App'x at 338-39. The Snyders also used the account to withdraw more than $10, 000 in cash and pay off more than $50, 000 of credit card debt. Id.

         On April 6, 2010, the Murphys filed a seven-count complaint against the Snyders, their companies, and other defendants in the United States District Court for the Eastern District of New York, alleging (1) breach of contract; (2) conversion; (3) unjust enrichment; (4) fraudulent inducement; (5) money had and received; (6) breach of fiduciary duty; and (7) an accounting. See Murphy, 2014 U.S. Dist. LEXIS 134097, at *7. The Snyders answered the complaint on November 12, 2010. Id. at *8. A farcical four years of litigation ensued, in which the Snyders abruptly shuffled attorneys, neglected to respond to discovery, and failed to appear at hearings and conferences held by the District Court.

         On September 15, 2011, as a sanction for the defendants' “obstreperous conduct regarding the discovery responses” and “blatant[] [disregard[] [of] prior Orders, ” the District Court struck the Snyders' answer and entered a default judgment against the Snyders and their companies. Id. at *10. While the court was calculating the Murphys' damages, the Snyders appeared through new counsel and moved to vacate the default judgment. On March 29, 2013, the District Court vacated the default judgment. Subsequently, the Snyders' attorneys-who had changed once again-moved to withdraw because they “had been unable to communicate with their clients and had accrued large sums of outstanding attorneys' fees.” Id. at *15. The District Court granted the motion to withdraw, and the Snyders appeared pro se. The court warned the Snyders that their corporations could not proceed pro se, and that “failure to retain counsel for the corporate entities would very likely result in default judgments being entered against them.” Id. Despite the warning, the Snyders never retained new counsel for their companies.

         After they appeared pro se, the Snyders “provided no responses” to discovery, “failed or refused to appear at their scheduled depositions, ” and neglected to attend several hearings before the court. Id. at *17. The Murphys moved the District Court to strike the Snyders' answer as a sanction and enter a default judgment against the Snyders and their companies. Concluding that the Snyders had “consistently disregarded their discovery obligations as well as multiple Orders of the Court, ” id. at *20, and had continued in their “recalcitrant conduct . . . despite numerous warnings and the issuance of multiple sanctions, ” id. at *22-*24, the District Court granted the Murphys' motion and struck the Snyders' answer.

         The District Court proceeded to determine whether the Murphys' claims “set forth a valid cause of action, ” as required for entry of default judgment. Id. at *24. The Court concluded that the Murphys had “adequately pleaded a breach of contract claim.” Id. at *26. The alleged facts plausibly indicated that the Murphys “entered into [two] oral investment agreement[s]” with the Snyders; that they transferred a total of $375, 000 in fulfillment of the agreements; that the Snyders “breached the contract[s] by failing to return [the Murphys'] initial investment[s], in addition to the [twenty percent] return[s] on their investment[s]”; and that the Murphys suffered damages. Id. at *26-*27. The District Court also held that the Snyders separately breached the agreement concerning the Bible Street Project “by failing to purchase the Bible Street property, and instead, us[ing] [the Murphys'] monies for other projects and purposes without notice to or authorization by [the Murphys].” Id. at *27. Thus, the Court held that the Murphys had “successfully set out the elements of a claim for breach of contract.” Id.

         The District Court declined to enter default judgment on the Murphys' other claims, however. It concluded that the remaining claims were either “duplicative” of the breach of contract claim, see Id. at *28-*29 (conversion); id. at *31-*32 (fraudulent inducement); id. at *35-*36 (breach of fiduciary duty), or else were precluded due to the existence of a valid contract. Id. at *30-*31 (unjust enrichment); id. at *36-*37 (money had and received); id. at *38-*39 (accounting). The Court also declined to impose punitive damages on the Snyders because it had held that “default judgment [would] not be entered on the breach of fiduciary duty claim.” Id. at *47. As a result, the District Court granted the Murphys' motion for default judgment on the breach of contract claim only, and awarded them $450, 000 in compensatory damages, plus interest and costs. Id. at *51-*52. Judgment entered on September 23, 2014.

         On April 23, 2015, the Snyders filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Connecticut.[5] On July 27, 2015, the Murphys initiated an adversary proceeding by filing a three-count complaint seeking a declaration that the District Court judgment was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4), & (a)(6). The Snyders filed an answer on December 11, 2015. On August 10, 2016, the Murphys filed a motion for summary judgment on all three counts, which the Snyders opposed on September 14, 2016. On May 5, 2017, the Bankruptcy Court issued an order granting the Murphys' motion with respect to Counts Two and Three of the Adversary Complaint (alleging nondischargeability under section 523(a)(4) and section 523(a)(6), respectively) and denying the motion with respect to Count One (alleging nondischargeability under section 523(a)(2)(A)).

         The Snyders timely appealed on May 17, 2017. Doc. No. 1.

         III. Discussion

         A discharge under Chapter 7 of the Bankruptcy Code “discharges the debtor from all debts that arose before the date of the order for relief.” 11 U.S.C. § 727(b). Such a discharge does not, however, discharge any debt incurred through (among other things):

(4) . . . fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; [or]
(6) . . . willful and malicious injury by the debtor to another entity or to the property of another entity . . . .

Id. at § 523(a). “A creditor seeking to establish nondischargeability under § 523(a) must do so by the preponderance of the evidence.” Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006).

         “Parties may invoke collateral estoppel to preclude relitigation of the elements necessary to meet a § 523(a) exception.” Id. Here, the Bankruptcy Court applied collateral estoppel to the District Court Judgment and held that the Snyders' debt was nondischargeable because it had been incurred through “defalcation while acting in a fiduciary capacity, ” In re Snyder, 2017 WL 1839122 (D. Conn. May 5, 2017), at *10; “embezzlement, ” id. at *11; and/or “willful and malicious injury . . . to another.” Id. at *12. The Snyders argue that the District Court Judgment did not render their debt nondischargeable because, among other things, the judgment “had no collateral estoppel effect as to Defendants' intent.” Appellants' Br., Doc. No. 16, at 37.

         First, I will consider whether the Bankruptcy Court's application of collateral estoppel was proper. If it was, then I will proceed to assess whether the District Court Judgment establishes as a matter of law the nondischargeability of the Snyders' debt.

         A. Collateral estoppel

         “[A] bankruptcy court [may] properly give collateral estoppel effect to those elements of the claim that are identical to the elements required for discharge and which were actually litigated and determined in the prior action.” Grogan v. Garner, 498 U.S. 279, 285 (1991). Under federal law-which courts “apply to establish the preclusive ...


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