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IN RE APPEL

September 29, 2004.

In re: RANDALL S. APPEL, Debtor. NORMAN BARD and SHIRLEY BARD, Plaintiffs-Appellees,
v.
RANDALL S. APPEL, Defendant-Appellant.



The opinion of the court was delivered by: JOANNA SEYBERT, District Judge

MEMORANDUM AND DECISION

Pending before this Court is an appeal arising from a Chapter 7 bankruptcy action filed in the United States Bankruptcy Court for the Eastern District of New York by Debtor Randall S. Appel ("Debtor"). Appellees, Norman Bard and Shirley Bard, filed an adversary proceeding against Debtor, seeking a declaration that the Debtor was not entitled to discharge under § 523 of the Bankruptcy Code. Debtor appeals from that portion of the Order of the Honorable Dorothy Eisenberg, U.S.B.J., dated October 2, 2003, which granted Appellees motion for summary judgment and declared that the Debtor was not entitled to a discharge under § 523 of the Bankruptcy Code (the "Bankruptcy Order").

  BACKGROUND

  Debtor represented the Appellees as their registered investment advisor. Appellees, an elderly couple, entrusted Debtor to conservatively manage their life savings. Debtor instead placed Appellees' funds into a series of high-risk investments, while receiving enormous commissions, "kickers" and other bonuses from the companies he recommended. The Appellees' investments ended in an incredible loss of their life savings.

  The Appellees then commenced an arbitration proceeding against Debtor and his entities encaptioned Norman Bard and Shirley Bard v. Randall S. Appel, Appel Financial Planning, Ltd., Strategic Assets, Inc. and Ameriprop, Inc., National Association of Securities Dealers (NASD) Arbitration No. 00-01340, in Boca Raton, Florida on or about March 27, 2000 ("Arbitration Proceeding"). Appellees sought recovery against Debtor on claims for breach of contract, violations of Sections 517.01 and 517.301 of the Florida Securities and Investor Protection Act, breach of fiduciary duty, breach of duty of loyalty, violation of SEC Rule 10b-5 and Section 10(b) of the Securities and Exchange Act of 1934, negligence and common law fraud.

  On October 23, 2001, the eve of trial in the Arbitration Proceeding, Debtor and his entities filed voluntary petitions under Chapter 7 of the Bankruptcy Code. Thereafter, the Appellees obtained relief from the automatic stay from the Bankruptcy Court for leave to prosecute the Arbitration Proceeding. Debtor failed to comply with at least three orders previously entered in the Arbitration Proceeding. Due to Debtor's failure to comply, he was precluded from presenting testimony and cross-examining witnesses at the Arbitration Proceeding. Debtor was, however, permitted to appear at the Arbitration Proceeding and the Arbitration Panel did read and consider Debtor's answer. The Arbitration Panel issued an award on or about December 5, 2002 against Debtor and in favor of Appellees. Debtor never appealed the award.

  On January 17, 2002, the Appellees commenced an adversary proceeding in the United States Bankruptcy Court for the Eastern District of New York seeking a ruling that Debtor's liability to them was non-dischargeable under Sections 523(a)(2), 523(a)(4) and 523(a)(6) of the United States Bankruptcy Code. On October 2, 2002, the Bankruptcy Court entered the Bankruptcy Order which granted Appellees' motion for summary judgment and stated that Debtor was collaterally estopped from relitigating the issues that were previously determined after years of litigation in the Arbitration Proceeding. Debtor now appeals the Bankruptcy Order.

  STANDARD OF APPELLATE REVIEW

  Under Rule 8013 of the Federal Rules of Bankruptcy, "on an appeal the district court . . . may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." FED. R. BANK. P. 8013. The court's "finding[s] of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous. . . ." Id.; see also In re Momentum Mfg. Co., 25 F.3d 1132, 1136 (2d Cir. 1994); In re PCH Assoc., 949 F.2d 585, 597 (2d Cir. 1992). The bankruptcy court's legal conclusions are evaluated de novo. See In re Momentum Mfg. Co., 25 F.3d at 1136.

  DISCUSSION

  A court may properly grant summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The burden of proof is on the moving party to show that there is no genuine issue of material fact, Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1223 (2d Cir. 1994) (citing Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975)), and "all ambiguities must be resolved and all inferences drawn in favor of the party against whom summary judgment is sought." Id. (citing Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 249 (2nd Cir. 1985)); See also Hayes v. New York City Dept. of Corrs., 84 F.3d 614, 619 (2d Cir. 1996). "Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986) (citing 10A Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedures § 2725, at 93-95 (1983)).

  A party opposing a motion for summary judgment "may not rest upon the mere allegations or denials of his pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (quoting First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968)). Under the law of the Second Circuit, "when no rational jury could find in favor of the nonmoving party because the evidence is so slight, there is no genuine issue of material fact and a grant of summary judgment is proper." Gallo, 22 F.3d at 1224 (citing Dister v. Continental Group, Inc., 859 F.2d 1108, 1114 (2d Cir. 1988)). Mere conclusory allegations, speculations or conjecture will not avail a party opposing summary judgment. Kulak v. New York, 88 F.3d 63, 71 (2d Cir. 1996).

  "`The relief of discharge is a cornerstone of the debtor's "fresh start" in bankruptcy. It enables the debtor to begin his post-bankruptcy life with a clean slate vis-à-vis his creditors.' Such relief, however is a privilege not a right and should inure only to the benefit of the honest Debtor." In re Pimpinella, 133 B.R. 694, 697 (Bankr. E.D.N.Y. 1991) (internal citations omitted). The provisions of the Bankruptcy Code which pertain to exceptions to discharge state:
§ 523. Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt —
. . .

  (2) for money, property, services, or an extension, renewal, or refinancing of credit, ...


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