United States District Court, N.D. New York
EDWARD E. KOPKO, ESQ., EDWARD E. KOPKO, LAWYER, P.C., Ithaca, NY, Counsel for Appellant Shao Ke.
EDWARD Y. CROSSMORE, ESQ., THE CROSSMORE LAW OFFICE, Ithaca, NY, Counsel for Appellee Jianrong Wang.
DECISION and ORDER
GLENN T. SUDDABY, District Judge.
Currently before the Court, in this adversary proceeding, is an appeal from a Decision and Order of United States Bankruptcy Judge Diane Davis finding that a state court judgment debt owed to Plaintiff/Appellee Jianrong Wang ("Wang") by Defendant/Appellant Shao Ke ("Ke") is nondischargeable pursuant to 11 U.S.C. § 523(a)(4), because it was incurred by Ke through fraud or defalcation while acting in his fiduciary capacity. For the reasons set forth below, Ke's appeal is denied, and Bankruptcy Judge Davis's decision is affirmed.
I. RELEVANT BACKGROUND
A. Events Giving Rise to Wang's Adversary Complaint
In May 2004, Ke became an officer and director of Peace Food Inc.
In September 2005, Wang sued Ke in the state trial court, asserting four causes of action: (1) a cause of action for theft or defalcation of corporate monies by Ke pursuant to N.Y. Bus. Corp. Law § 717(a); (2) a cause of action to compel Ke to account for his transfer of corporate assets to himself and others pursuant to N.Y. Bus. Corp. Law § 720(a)(1)(B); (3) a cause of action to remove Ke as director and officer of Peace Foods; and (4) a cause of action to cancel stock certificates issued to Ke's former brother-in-law and Wang's former wife. The actions were consolidated.
In May 2009, the state trial court issue a judgment for Wang against Ke for the following amounts: (1) $11, 411.37 for attorneys' fees paid by the corporation to Ke's personal attorney; (2) $234, 581.46 plus interest for failure to account for corporate profits; and (3) $70, 000.00 for reasonable attorneys' fees incurred by Wang in connection with the state court action.
In October 2010, the Third Department modified the state trial court's ruling by (1) reducing the surcharge for failure to account for corporate profits from $234, 581.46 with interest to $177, 186.72 with interest, and (2) reducing the number of corporate shares credited to Ke from 150 to 50 (i.e., from 75% of the shares to 50% of them). However, the Third Department left undisturbed the state trial court's finding of that Ke was a fiduciary and that he was liable for unaccounted-for corporate revenue.
Meanwhile, in August 2009, Ke filed a voluntary chapter 7 bankruptcy petition, listing Wang as a pre-petition creditor holding a $313, 090.00 claim subject to discharge.
In November 2009, Wang initiated an adversary proceeding against Ke in the Bankruptcy Court, claiming that Ke's judgment debt to Wang is nondischargeable pursuant to 11 U.S.C. § 523(a)(4), which excludes from discharge, inter alia, debts "for fraud or defalcation while acting in a fiduciary capacity."
B. Relevant Procedural History
In May 2012, Bankruptcy Judge Margaret Cangilos-Ruiz partially granted summary judgment to Wang in this adversary proceeding, finding that the state trial court's findings of fact and conclusions of law conclusively established (pursuant to the doctrine of collateral estoppel) two elements of a claim under 11 U.S.C. § 523(a)(4): (1) that Ke was a fiduciary, and (2) that Ke misappropriated, or failed to account for, corporate funds while acting in his fiduciary capacity. However, Judge Cangilos-Ruiz found that the state trial court's findings of fact and conclusions of law did not conclusively establish the third element ...