Mirarchi v. Nofer (In re Nofer)
514 B.R. 346
Bankr. E.D.N.Y.2014Background
- Mirarchi (Plaintiff) and Nofer (Debtor) were co-owners/officers in closely held Viking Mechanical Inc.; Nofer also controlled subcontractor Central Design Systems.
- After Nofer and a co-owner seized control of Viking in 2005, Mirarchi sued for dissolution and settled via a Securities Purchase Agreement under which Nofer agreed to purchase Mirarchi’s interest and distribute 2004 profits; Mirarchi alleges he never received his share and Nofer defaulted on payments.
- Mirarchi obtained a state-court default judgment against Nofer (Supreme Court Judgment for ~$148,891 plus fees) and two district-court default judgments ($300 each) arising from the Agreement.
- Nofer filed Chapter 7 in 2011; Mirarchi objected to dischargeability of those judgments under 11 U.S.C. § 523(a)(4) (fraud or defalcation in a fiduciary capacity, embezzlement, larceny).
- Nofer moved for judgment on the pleadings under Fed. R. Civ. P. 12(c); the bankruptcy court applied Rule 8/Twombly plausibility standards, liberal construction for pro se pleadings, and Rule 9(b) for fraud-related claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Nofer acted in a fiduciary capacity such that defalcation under §523(a)(4) applies | Mirarchi alleges Nofer dominated Viking, excluded him from records, and used corporate funds for other entities | Nofer argued dismissal; disputed facts and legal sufficiency (via Rule 12(c)) | Court: Mirarchi sufficiently pleaded fiduciary status for Rule 8 purposes; defalcation claim survives |
| Whether Mirarchi pleaded actual fraud with required particularity under Rule 9(b) | Mirarchi ties the debts to alleged fraudulent management and the settlement but did not identify specific false statements or timing | Nofer moved to dismiss fraud claims for failure to plead specifics under Rule 9(b) | Court: Fraud claim dismissed without prejudice for failure to meet Rule 9(b); leave to amend in 30 days |
| Whether embezzlement and larceny under §523(a)(4) were sufficiently pleaded | Mirarchi alleges wrongful transfers, overpayments to Central, equipment purchases for Central, and diversion of Viking assets to entities Nofer controlled | Nofer sought dismissal arguing insufficient particularity or failure to state intent | Court: Facts plausibly plead embezzlement/larceny (opportunity, motive, pattern); claims survive Rule 8 and pro se leniency applies |
| Whether judgment on the pleadings was appropriate overall under Rule 12(c) | Mirarchi: factual allegations (liberally construed) state nondischargeability claims | Nofer: movant must show no material fact in dispute and that plaintiff can prove no set of facts entitling relief | Court: Granted in part (fraud dismissed), denied in part (defalcation, embezzlement, larceny remain) |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (explaining bankruptcy "fresh start" policy)
- Archer v. Warner, 538 U.S. 314 (permitting courts to look behind settlement agreements to the source of a debt)
- Bullock v. BankChampaign, N.A., 572 U.S. ...? (defalcation requires intentional or reckless conduct)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must be plausible under Rule 8)
- Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124 (fraudulent intent may be pleaded by strong inference under Rule 9(b))
- Pepper v. Litton, 308 U.S. 295 (fiduciary duties of controlling shareholders/officers)
- In re DeTrano, 326 F.3d 319 (look beyond settlement agreements for §523 analysis)
- In re Hayes, 183 F.3d 162 (scope of defalcation and fiduciary capacity under federal law)
(Note: Bullock's official U.S. Reporter citation is to the Supreme Court; the opinion—cited for its standard on defalcation—was relied on for the intentional/reckless mens rea requirement.)