492 B.R. 640
Bankr. E.D.N.Y.2013Background
- Debtor filed Chapter 7; Yankowitz seeks nondischargeability under §523(a)(4) and (a)(6).
- Plaintiff alleges Debtor diverted potential clients from Yankowitz to his own or others’ firms.
- Debtor was Yankowitz’s full-time office manager handling client intake, not a licensed attorney.
- Allegations claim Debtor used firm resources to further the scheme during business hours.
- State court action against Debtor and others for related torts is pending and stayed as to Debtor.
- Court grants motion to dismiss §523(a)(4) claim, with narrow exception for alleged embezzlement of firm resources.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor was in fiduciary capacity under §523(a)(4) | Yankowitz: office manager position created fiduciary duties. | Tashlitsky: no fiduciary status; no express/technical trust. | No fiduciary relationship under §523(a)(4). |
| Whether diversion constitutes embezzlement under §523(a)(4) | Yankowitz: diversion of clients is embezzlement of firm property. | Tashlitsky: no property interest; intangibles not embezzled. | Diversion not embezzlement; only potential embezzlement of firm resources may survive. |
| Whether the complaint states a claim under Rule 9 (fraud) | Yankowitz asserts fraud elements satisfied. | Tashlitsky: pleading insufficiency under Rule 9. | Rule 9 pleading not addressed; the §523(a)(4) claim dismissed for failure to state a claim. |
Key Cases Cited
- Hayes, Andy Warhol Found. v. Hayes (In re Hayes), 183 F.3d 162 (2d Cir. 1999) (defines fiduciary capacity for §523(a)(4) and limits to express/technical trusts)
- Yoshida, Grow Up Japan, Inc. v. Yoshida (In re Yoshida), 435 B.R. 102 (Bankr.E.D.N.Y. 2010) (attorney-client and related duties; office manager not per se fiduciary)
- West, Artis v. West (In re West), 339 B.R. 557 (Bankr.E.D.N.Y. 2006) (fiduciary relation may arise from statutory/common-law duties; manager not always fiduciary)
- Paley, Air Traffic Conference of Am. v. Paley (In re Paley), 8 B.R. 466 (Bankr.E.D.N.Y. 1981) (agency/employer-employee relation does not automatically create fiduciary under §523(a)(4))
- Zohlman v. Zoldan, 226 B.R. 767 (Bankr.S.D.N.Y. 1998) (fiduciary scope narrowed; state-law duties may create fiduciary status)