Parisi v. D'Urso
12-01685
Bankr. D.N.J.Jun 27, 2013Background
- In 2009 Rosario and Maria Parisi leased residential property from SAJ Associates, LLC; debtor Guglielmo D’Urso (50% owner of SAJ) signed the lease and represented himself as owner.
- Plaintiffs paid $12,000 rent and an $18,000 security deposit; D’Urso endorsed and deposited both checks into SAJ’s Wachovia account in April 2009.
- Instead of placing the deposit in a statutorily required segregated/interest-bearing trust account, SAJ’s records show two checks totaling $18,000 drawn from SAJ and paid to D’Urso Holdings, LLC (wholly owned by debtor) the same month.
- Plaintiffs vacated July 31, 2010 and repeatedly requested return/accounting for the deposit; the $18,000 was never returned and SAJ defaulted in state court litigation.
- Plaintiffs filed this adversary seeking nondischargeability under 11 U.S.C. § 523(a)(4); debtor moved for summary judgment arguing SAJ (not him) is liable and that tenants damaged the property.
- The bankruptcy court pierced SAJ’s corporate veil, found the New Jersey Rent Security Deposit Act creates an express trust making the debtor a fiduciary, and held debtor committed defalcation; summary judgment for Plaintiffs granted and debtor’s motion denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether corporate veil should be pierced to hold D’Urso personally liable | D’Urso dominated SAJ, siphoned deposit to his own entity, and corporate form should be disregarded | Lease was with SAJ; SAJ (not D’Urso) is proper defendant; factual disputes about damages | Veil pierced: D’Urso exercised complete control, siphoned the $18,000; personal liability imposed |
| Whether landlord-debtor was a fiduciary under § 523(a)(4) | NJ Rent Security Deposit Act imposes an express statutory trust (shall be held in trust, not mingled) making landlord a fiduciary | No fiduciary relationship between D’Urso and tenants | Fiduciary found: statute creates an express trust and trust res (security deposit) for § 523(a)(4) purposes |
| Whether debtor’s handling of deposit constituted defalcation under § 523(a)(4) after Bullock | D’Urso knowingly or recklessly violated statutory trust: mingled funds, transferred $18,000 to his entity, never returned deposit; meets culpable state-of-mind standard | Transfers were ordinary business disbursements; lacked specific intent to defraud | Defalcation found: debtor acted with knowledge or gross recklessness (or conscious disregard) — debt nondischargeable |
| Procedural sufficiency of debtor’s summary judgment motion | N/A (plaintiffs sought summary judgment) | Debtor contended factual issues (e.g., property damage) preclude judgment | Debtor’s motion denied as unsupported (no affidavits/exhibits); plaintiffs’ motion granted on undisputed record |
Key Cases Cited
- In re Blastein, 192 F.3d 88 (3d Cir.) (veil-piercing is equitable remedy; party seeking veil piercing bears burden)
- Trustee of Nat. Elevator Industry Pension v. Lutyk, 332 F.3d 188 (3d Cir.) (factors to consider in veil-piercing and control/siphoning evidence)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standards and burden shifting)
- Anderson v. Liberty Lobby, 477 U.S. 242 (standard for genuine issue of material fact)
- Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (summary judgment — nonmoving party must show specific facts)
- Bullock v. BankChampaign N.A., 133 S. Ct. 1754 (Sup. Ct.) ("defalcation" requires knowledge or gross recklessness; conscious disregard/willful blindness standard)
- In re Kaczynski, 188 B.R. 770 (Bankr. D.N.J.) (statutory/administrative provisions can create express trust for § 523(a)(4))
- In re Ardolino, 298 B.R. 541 (Bankr. W.D. Pa.) (contrast case finding no express trust under Pennsylvania law for § 523(a)(4))
- In re Johnson, 691 F.2d 249 (6th Cir.) (federal law governs definition of fiduciary under § 523)