645 B.R. 733
E.D. Pa.2022Background
- Afoluso Adesanya worked for Novartis (2010–2013); her application and resume contained false statements and she signed an Employee Agreement, Relocation Agreement, and received AIP bonuses.
- While employed she failed to relocate as required, accepted relocation funds, and secretly owned/consulted for competing pharmaceutical entities without disclosure.
- Novartis sued (counterclaims) in D.N.J.; the district court entered a judgment (damages + attorneys’ fees) based on fraud, breach of contract/policy, and discovery misconduct; Third Circuit affirmed and judgment was domesticated in Pennsylvania.
- The Adesanyas filed bankruptcy; Novartis brought an adversary complaint under 11 U.S.C. § 523 seeking nondischargeability of most of the NJ Judgment (claims under §523(a)(2)(A), (a)(2)(B), and (a)(6)).
- After summary judgment narrowed the disputed issues, a bench trial addressed remaining elements (primarily debtor knowledge/intent and credibility); the bankruptcy court ruled most of the Judgment nondischargeable and denied a stay; the district court on appeal affirmed.
Issues
| Issue | Plaintiff's Argument (Adesanyas) | Defendant's Argument (Novartis) | Held |
|---|---|---|---|
| Court rescheduled deadline to object to dischargeability | Bankruptcy court abused discretion in resetting Rule 4007(c) deadline sua sponte | Reset was proper after chapter 13→7 conversion; new §4007 timing applied | Waived on appeal; alternatively affirmed as correct under Rule 1019(2) and 4007(c) |
| Timeliness of Novartis’s adversary complaint | Complaint was filed late under Rule 4007(c) | Complaint was timely (filed June 7, 2019) before deadline | Complaint was timely; no error |
| Denial of leave to add counterclaims and striking affirmative defenses | Denial prevented discovery into Novartis/counsel and was improper | Proposed counterclaims were futile (criminal statute, FDCPA inapplicable) and prejudicial | Denial and striking of eighth affirmative defense affirmed as non‑prejudicial and futile to amend |
| Admission/authentication of Exhibit 83 (Novartis Code of Conduct materials) | Exhibit 83 was a sham, improperly authenticated, and misleading; collateral estoppel should bar its use | Exhibit 83 and related documents were relevant to debtor knowledge; portions authenticated | Court abused discretion in admitting the undated portion (first 19 pages) but 2012 Code and U.S. Supplement were properly authenticated; error was harmless for most rulings |
| Count I — Fraud on employment application (§523(a)(2)(B)) | Debt dischargeable because Novartis did not reasonably rely or should have verified facts; Broyles compels discharge | Novartis reasonably relied on application and practices; circumstantial evidence supports reasonable reliance | Bankruptcy court’s reasonable‑reliance finding affirmed; reliance and inference about Global Drug credibility not clearly erroneous |
| Count II — Breach of Relocation Agreement (§523(a)(2)(A)) | Court focused only on Afoluso’s intent and ignored Novartis’s conduct | Novartis justifiably relied on relocation promise tied to her offer/payment | Finding nondischargeable affirmed; court properly considered Novartis’s state of mind and Afoluso’s credibility |
| Count III — Breach of duty of loyalty / conflicts policy (§523(a)(2)) | Debtor unaware or not bound by policies; training record gaps undermine nondischargeability | Employee Agreement and summary‑judgment findings show she knew and withheld external employment; collateral estoppel applies | Nondischargeability on this count affirmed; prior NJ findings binding and evidence supports lack of disclosure/knowledge |
| Count IV — Breach of AIP (bonus eligibility) (§523(a)(2)) | Inconsistent findings about when debtor knew she’d forfeit bonuses; reliance on Exhibit 83 was prejudicial | U.S. Supplement and 2012 Code (properly authenticated) show bonus eligibility conditioned on compliance and were taught in 2012 | Judgment largely nondischargeable; admission error as to undated code was harmless because authenticated documents suffice |
| Counts V & VI — Sanctions (willful and malicious conduct) (§523(a)(6)) | Sanctions were general legal fees or not tied to willful/malicious injury; NJ court relied on counsel’s assertions | NJ court found willful, fraudulent conduct and discovery misconduct by debtors; those findings preclude relitigation | Bankruptcy court correctly held sanctions nondischargeable under §523(a)(6) based on NJ findings; collateral estoppel applies |
| Motion to stay bankruptcy judgment pending appeal | Bankruptcy court erred in denying stay where Novartis filed no opposition | Stay denied because appellants failed to satisfy Rule 8007 factors (likelihood of success, irreparable harm, balance of harms) | Denial affirmed; bankruptcy court properly exercised discretion |
| Motion under Rule 60(d) to vacate NJ judgment for fraud on the court | Novartis counsel committed fraud/ex parte conduct and submitted unauthenticated evidence—NJ judgment should be vacated | Alleged authentication issues do not meet demanding standard for fraud on the court; issues were or should have been raised in NJ case | Rule 60(d) relief denied; allegations do not meet clear‑and‑convincing, officer‑of‑the‑court fraud standard and many claims are waived |
Key Cases Cited
- In re Cohn, 54 F.3d 1108 (3d Cir. 1995) (reasonableness of creditor reliance under §523(a)(2)(B) analyzed via objective three‑factor test)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (§523(a)(2)(A) requires justifiable, not reasonable, reliance)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance standard for nondischargeability and collateral‑estoppel application)
- In re Broyles, 55 F.3d 980 (4th Cir. 1995) (creditor’s commercial benefit may bear on reliance analysis but does not automatically defeat nondischargeability)
- In re 15375 Mem. Corp., 589 F.3d 605 (3d Cir. 2009) (appellate review of bankruptcy factual findings and inferred facts)
- Revel AC, Inc. v. Trustees, 802 F.3d 558 (3d Cir. 2015) (factors for stay pending appeal under Fed. R. Bankr. P. 8007)
- Herring v. United States, 424 F.3d 384 (3d Cir. 2005) (demanding standard for relief for fraud upon the court)