The opinion of the court was delivered by: JED RAKOFF, District Judge
Debtor-appellant Foster J. Gibbons appeals the March 7, 2003
decision of the Honorable Allan L. Gropper, United States
Bankruptcy Judge, granting summary judgment in favor of
plaintiff-appellee Louise M. Smith on her adversary petition to
bar Mr. Gibbons from discharging in bankruptcy his debt to Ms.
Smith arising from an arbitral award issued in Ms. Smith's favor
in connection with a securities fraud.
The pertinent facts are undisputed. In 1997, Ms. Smith opened a
brokerage account with the Golden Lender Financial Group, Inc.,
later known as J.P. Gibbons & Co., Inc., a corporation that
employed Foster J. Gibbons as, inter alia, its chief legal
and compliance officer. See Affidavit of Louise Smith, sworn to
September 5, 2002, at ¶¶ 3-4, 7. Between 1997 and 1999, Ms.
Smith's account was seemingly "churned," i.e., a total of more
than $1.5 million in purchases and sales of securities were made
through Ms. Smith's account even though the account's average
daily balance was $28,762. Ultimately, Ms. Smith lost her entire
investment. Id. at ¶ 5. Ms. Smith then commenced an arbitration
proceeding against Mr. Gibbons and others, alleging violations of
the federal securities laws, fraud, deceit, negligence and breach
of fiduciary duty. Id. at ¶ 8; Declaration of Dayton P.
Haigney, III, dated January 9, 2004, Ex. 1 (Exhibits attached to
plaintiff's motion for summary judgment) at Ex. B (Statement of
Claim and Demand for Arbitration).
On November 6, 2000, the arbitration panel issued a monetary
award in favor of Ms. Smith and against Mr. Gibbons and others.
The award explicitly states that "[t]he case involved the
purchase and/or sale of numerous securities" and that "[t]he
panel made a specific finding that Respondent . . . Foster J.
Gibbons . . . committed fraud." See In the Matter of
Arbitration Between Louise M. Smith v. Golden, Lender Financial
Group, et al., No. 99-04363, 2000 WL 33171772, at *2, 4
(N.A.S.D. December 21, 2000). The award was confirmed by the
applicable federal courts. See Gibbons v. Smith, No. 01 Civ.
1224 (S.D.N.Y. March 22, 2002), aff'd, Gibbons v. Smith, 67
Fed. Appx. 52, 2003 U.S. App. LEXIS 11548 (2d Cir. June 9, 2003)
Meanwhile, in July 2001, Mr. Gibbons filed for bankruptcy in
the Southern District of New York. In response, Ms. Smith filed
the petition here in issue, opposing any discharge in bankruptcy
of the arbitration award she had obtained against Mr. Gibbons.
In granting summary judgment in favor of Ms. Smith's petition,
the Bankruptcy Court relied on a provision of the Sarbanes-Oxley
Act of 2002 now codified in 11 U.S.C. § 523(a)(19), that
disallows discharge for any debt that:
(A) is for
(i) the violation of any of the Federal securities
laws . . . any of the State securities laws, or any
regulation or order issued under such Federal or
State securities laws; or(ii) common law fraud,
deceit, or manipulation in connection with the
purchase or sale of any security; and
(B) results from
(i) any judgment, order, consent order, or decree
entered in any Federal or State judicial or
administrative proceeding; (ii) any settlement
agreement entered into by the debtor; or (iii) any
court or administrative order for any damages, fine,
penalty, citation, restitutionary payment,
disgorgement payment, attorney fee, cost, or other
payment owed by the debtor.
Although Mr. Gibbons makes a half-hearted attempt to argue
otherwise, it is facially apparent that the arbitration award
against him falls four-square within the scope of this provision.
Gibbons' primary argument, however, is that, since the provision
was enacted after he filed for bankruptcy and since, in his view,
it does not apply retroactively, therefore it should not be
applied to his case.
A petition in bankruptcy, however, is merely an application for
discharge; prior to receiving a discharge, a debtor has "no
vested right in having the law remain as it was at the time he
filed his petition." Hudson Welfare Dep't v. Roedel, 34 B.R. 689,
694 (D.N.J. 1983). See also In re Sloss, 192 F. Supp. 136, 137
(S.D.N.Y. 1961) (at the time of filing, a debtor does not have a
vested right to discharge). Thus, as the Second Circuit has
repeatedly held, determinations of whether or not a debtor is
entitled to a discharge in bankruptcy of any given debt are
governed by the law in force at the time the judge passes on the
question of the discharge of that debt. In re Spell,
650 F.2d 375, 377 (2d Cir. 1981); In re Blair, 644 F.2d 69, 69 (2d Cir.
1980). See also In re Sloss, 192 F. Supp. at 137.*fn1 Here,
the Bankruptcy Court did not rule on the discharge of the debt
here at issue until well after the enactment of the
Sarbanes-Oxley Act. Thus, no problem of retroactivity is here
Accordingly, the Court affirms Judge Gropper's decision and
denies Mr. Gibbons' appeal. Clerk to enter judgment.