Casini v. Graustein (In Re Casini)Casini v. Graustein (In Re Casini)
OPINION
This is an adversary proceeding to determine dischargeability of a debt. Plaintiff, Peter J. Casini, filed a voluntary peti
Casini denies any liability to Graustein. Alternatively, Casini asserts that any liability he may have to Graustein arose before his bankruptcy petition was filed on August 19, 1997 and was discharged. Defendant, Timothy Graustein, avers that his claim was not discharged under 11 U.S.C. § 523(a)(3) because he was not listed or scheduled in Casini’s bankruptcy schedules and his debt was the result of fraud, defalcation while acting in a fiduciary capacity, or wilful and malicious injury under 11 U.S.C. § 523(a)(2),(4) or (6). Furthermore, Graustein maintains that his debt arose post petition and was not discharged.
FACTS
Peter Casini has been around boats his whole life. He is now 44 years old. In 1991, Casini started a business designing, manufacturing and selling power boats under the Cobra trade name. He utilized a catamaran hull design with kevlar and fiberglass which gave the Cobra boats unique qualities. Although his boats achieved some racing success and his fishing boats were featured with glowing praise in boating publications, his businesses all failed. Casini was the design talent behind several entities all of which are now defunct. He ended up in personal bankruptcy in 1997 and later filed an unsuccessful chapter 13 case. He has a foreclosure judgment against his residence and is behind in child support and taxes. He has relied on the generosity of family and friends for survival.
Timothy Graustein purchased a 30 foot Cobra Terminator power boat from Meucke’s Marine in Texas in the summer of 1995. The hull of the boat had been manufactured by Cobra but the motors and other accessories were supplied by the dealer. Within a few weeks of acquiring the boat, Graustein had an accident severely damaging the boat. He entered into a written contract in September 1995 with Marine Investors, Inc. 1 of Lower Bank, New Jersey for repair of the boat. The total price for the work was $16,900 payable in installments of $8,450 on contract, $4,225 at “beginning of rigging” and $4,225 on completion. Graustein paid the deposit and arranged to ship the hull from Texas to New Jersey. Later, after being advised that the boat was ready for the motors and mechanicals, Graustein paid the second installment and shipped the motors, etc., to New Jersey.
The parties dispute what happened after the motors, etc. were shipped to New Jersey. Graustein says he inquired about the progress of the work and got the runaround from Marine Investors. Casini says the motors were too large for the boat and
As mentioned, Graustein sued Marine Investors, Inc. in Texas state court by complaint filed on August 25, 1997, nearly 2 years after the repair contract. After judgment by default, Graustein domesticated the Texas judgment against Marine Investors, Inc. in New Jersey on December 23, 1998 (16 months later) for $265,615.72 plus costs of $215.00. Grau-stein then subpoenaed Casini for a deposition to discover if Marine Investors, Inc. had assets to satisfy the judgment. At his deposition on July 21, 1999, Casini testified that Marine Investors, Inc. had ceased doing business, that it never made a profit, that it had numerous warranty claims and judgments, and that its only assets were some obsolete molds which were available. 3
Following this, Graustein retreated to Texas and filed a second amended complaint in Texas state court on August 25, 1999 naming Casini and others as additional defendants. The second amended complaint alleged breach of warranty, negligence and breach of contract. Furthermore, Casini and the other defendants were alleged to be alter egos of one another “and for purpose of liability they are one and the same.”
Once again a default judgment was entered on July 20, 2000 in Texas state court and domesticated in New Jersey state court on December 27, 2000, more than five years after the boat repair contract. Another year passed before this adversary proceeding was commenced. In the meantime, Graustein retrieved his boat in September 2000.
Peter Casini has been associated with a number of failed business ventures, including the following:
Cobra Marine Industries, Inc. — incorporated in New Jersey on December 3, 1992 — this was Casini’s original entry into the business of designing, manufacturing and selling Cobra power boats. Peter Casini was the only principal of this corporation which faded out of business in 1995.
Marine Investors, Inc.' — incorporated in New Jersey on May 4, 1995. Craig K. Smith (President) and Peter Casini (Vice President) were the principal shareholders. This company seems to have been the successor to Cobra Marine Industries, Inc. — its letterhead proclaimed Marine Investors, Inc. as “Builder of ‘Cobra’ World Champion Power Boats”. This company had the written boat repair contract with Graustein dated September 11, 1995. It became defunct in 1997 when Smith left and moved to Florida. Subsequently, Marine Investors, Inc. filed for bankruptcy in 1999.
Cobra Sport Fishing Boats, Inc. — incorporated in New Jersey on May 15, 1997' — this company controlled by Casi-ni, designed and built fishing boats, whereas the prior companies did racing and pleasure boats. In June 2000, Cobra Sport Fishing Boats, Inc. shut its doors. It filed for bankruptcy on April 24, 2001.
Cobra World Champion Power Boat Corp. — incorporated in New Jersey on February 2, 2000 along with 2 other corporations. Casini’s plan was to have 3 entities — a design company, a manufacturing company and a sales company. Cobra World Champion Power Boat Corp. was to be the sales company controlled by employees. Cobra World Champion Power Boat Corp. filed bankruptcy on July 6, 2001.
Top Cat Design Co. — also formed February 2, 2000. This was the design company controlled by Casini and his friends and family.
Tsunami Marine Manufacturing Corp— the third entity formed on February 2, 2000. This was the manufacturing company controlled by the employees. Tsunami Marine Manufacturing Corp. also filed bankruptcy on July 6, 2001.
Top Cat Marine Security, Inc. — incorporated approximately 2002. To design boats for the U.S. Government for coastal security.
None of the corporate bankruptcies was completely administered. Each case was dismissed for failure to file schedules, except for Marine Investors, Inc.’s second case which was dismissed for failure to cooperate with the trustee. Despite numerous discovery requests and orders in this adversary proceeding, no books and records of any of these corporations were produced. There are numerous judgments against these corporations and Peter Casi-ni. Laura Casini, a lawyer and cousin of Peter Casini, who did some minor legal work for his businesses summed it up well, “[F]rom what I could see and from what I was told, it was like pathetic, horrible, mismanagement.”
DISCUSSION
I. Burden of Proof
Although Casini is the plaintiff in this adversary proceeding to determine dischargeability, he denies any liability to Graustein. Indeed, the contract for boat repair giving rise to the dispute was between Graustein and Marine Investors, Inc., not Casini. In pretrial proceedings, the court directed that Graustein, though nominally the defendant, should proceed first to present evidence that his claim arose post petition or that his claim, if prepetition, was the kind described in 11 U.S.C. § 523(a)(2), (4) or (6). At trial, Graustein argued that Casini, as plaintiff, should be required to present his evidence first. The court rejected this argument and required the defendant, Graustein, to put his evidence in first. He did. As it turned out Graustein called Casini as a witness and offered Casini’s deposition transcripts in evidence. After Graustein rested, Casini offered no evidence,
4
so the
A creditor bears the burden of proving an exception to discharge under Section 523 of the Bankruptcy Code by a preponderance of the evidence.
Grogan v. Garner,
As to whether the debt arose pre-petition or post petition (and perhaps not discharged), under these circumstances it was also appropriate to place the burden of going forward on the creditor, Graustein.
5
In re J. Levitt, Inc.,
II. Pre or Post Petition
Graustein maintains that his claim arose post petition, and therefore was not discharged, on two grounds. First, he argues that his right to assert that Casini was the alter ego of Marine Investors, Inc. did not accrue until he learned of its insolvency at Casini’s deposition on July 21, 1999. Secondly, Graustein alleges that Ca-sini has committed a continuing tort by creating then abandoning a series of entities for the same boat business all to defraud Graustein and other creditors. Thus, argues Graustein, his claim arose post petition and was not discharged.
Section 727(b) discharges the debt- or from all debts that arose before the date of the petition. Debt means liability on a claim. 6 11 U.S.C. § 101(12). Claim is broadly defined as:
(5) “claim” means—
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. 7
11 U.S.C. § 101(5). Thus, a debt arose prepetition if the creditor had a right to payment prepetition.
The Third Circuit has interpreted similar language in § 362(a) which stays action on “a claim against the debtor that arose before the commencement of the case.” In
Avellino & Bienes v. M. Frenville Co., Inc. (In re M. Frenville Co., Inc.),
Similarly, in
Jones v. Chemetron,
Pursuant to the Texas state court judgment, Casini is liable for Marine Investors’ debt to Graustein as the alter ego of Marine Investors. The question is, did Grau-stein’s right to payment from Casini as the alter ego of Marine Investors arise at a later date than Graustein’s right to payment from Marine Investors? 10
A. Alter Ego Theory
Graustein says his claim that Casi-ni is liable as the alter ego of Marine Investors, Inc. did not arise until he learned that Marine Investors, Inc. was insolvent on July 27, 1999, almost two years after Casini’s August 1997 bankruptcy petition. In his trial brief, Graustein relies on New Jersey law as the basis for piercing the corporate veil to impose personal liability on Casini for the debts of Marine Investors, Inc. to Graustein.
“The principal is well settled in New Jersey that the doctrine of piercing the corporate veil is employed when fraud or injustice has been perpetrated.” Tsai
v. Buildings by Jamie, Inc. (In re Buildings by Jamie, Inc.),
Before invoking the doctrine, a plaintiff must first establish an independent basis to hold the corporation liable.
Trustees of the National Elevator Industry Pension v. Andrew Lutyk,
A cause of action for breach of contract accrues when the breach occurs.
In re Retort,
B. Discovery Rule
Graustein argues that New Jersey law applies the discovery rule to postpone accrual of a cause of action until plaintiff discovers that there was a claim. “The discovery rule is a rule of equity that ameliorates ‘the often harsh and unjust results [that] flow from a rigid and automatic adherence to a strict rule of law.’ ”
Grunwald v. Bronkesh,
In order to take advantage of the discovery rule, a party must have exercised “due diligence” in investigating the alleged wrongdoing.
12
The “polestar” of
The discovery rule fashioned by the New Jersey courts to ameliorate the harsh effects of a statute of limitations on unwilling tort victims has no impact on the Bankruptcy Code’s discharge of contract claims in light of Congress’ broad definition of a claim. Parties to a contact know the terms of their agreement and any subsequent breach is obvious. As such, the discovery rule generally does not apply to contract actions.
Morris v. Fauver,
The cause of action accrued in this case when the injury occurred — Marine Investors’ failure to perform under the contract. Graustein was well aware of the breach. Thus, no “investigation” was necessary to ascertain the wrongdoing. These parties bargained for a legal relationship during the contracting phase, and Graustein acknowledges that it would be imprudent to assume that Marine Investors would “always have sufficient liquidity to pay its debts.”
14
This situation is a far cry from tort claimants who remain unaware of
C. Continuous Tort
Graustein maintains that the statute of limitations has not yet begun to run because Casini continues to engage in continuous tortious activity by setting up various fraudulent companies. Under the continuous tort doctrine, when an individual is subject to continuous tortious conduct, that statute of limitations begins to run only when the tortious conduct ceases.
Wilson v. Wal-Mart Stores,
Application of the continuous tort doctrine is most appropriate where the wronged party can demonstrate a causal connection between the continuing tortious conduct and the wronged party’s renewed injuries. Graustein had actual knowledge of his injury when Marine Investors, Inc. failed to perform in accordance with the contract. Graustein’s exposure to Casini’s alleged fraudulent activities is not creating new injuries or damages. Graustein argues that Casini continues to engage in fraudulent activities by and through the various companies he has set up, however, Graustein does not have a cause of action for fraud for each fraudulent activity because Graustein has not suffered damages. Even if Casini set up these companies in an effort to defraud his creditors, there were no assets to divert, and therefore, no injury to the creditors. More specifically, Graustein is not experiencing separate injuries by each new company that Casini sets up. Graustein’s claim is not based on a cumulative injurious effect; rather, he is unable to collect a single breach of contract judgment. A continuous tort argument is more appropriate for claims that are inherently and cumulatively wrongful, rather than discrete wrongful acts. As such, the continuing tort doctrine is not typically applied in bankruptcy or contract actions. 15 Accordingly, a continuous tort argument is inapplicable in this case.
Graustein’s claim against Casini arose prepetition. There is no reason to postpone the accrual date and no evidence of a continuing tort. Consequently, Grau-stein’s debt was discharged under § 727 unless excepted from discharge under § 523.
III. Exception from Discharge
Understandably, Casini did not list Graustein on the schedule of creditors he filed with his petition because he never envisioned any liability to Graustein. Section 523(a)(3) excepts from discharge debts that were not properly scheduled. Generally, if an unscheduled creditor has no notice of the bankruptcy, his claim is not discharged. However, in a no asset, no
A. Fraud § 523(a)(2) 16
A debt obtained by fraud is excepted from discharge. Section § 523(a)(2)(A) provides:
A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud.
As noted by the Supreme Court, “courts that have previously construed this statute routinely require intent, reliance, and materiality before applying § 523(a)(2)(A).”
Field v. Mans,
A plaintiff does not have a cause of action for fraud until the plaintiff actually suffers damages, because actual damages are an element of the cause of action for fraud.
Holmin v. TRW, Inc.,
B. Fiduciary Status § 523(a)(4)
11 U.S.C. § 523(a)(4) provides that an individual debtor is not discharged from any debt “for fraud or defalcation while acting in a fiduciary capacity....” Grau-stein asserts that when Marine Investors became insolvent, Casini, as a director, owed a fiduciary duty to its creditors with respect to its assets, which he continues to breach by changing legal identities.
The phrase “while acting in a fiduciary capacity” has been the subject of several historical Supreme Court opinions and has developed a particular meaning from the earliest days of United States bankruptcy law. Not everyone labeled a fiduciary falls within the bankruptcy law’s definition of “acting in a fiduciary capacity.” In the seminal case
Chapman v. Forsyth,
The cases enumerated, “the defalcation of a public officer,” “executor,” “administrator,” “guardian,” or “trustee,” are not cases of implied but special trusts, and the “other fiduciary capacity” mentioned, must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract.
Id.,
Furthermore, the Court felt that if all fiduciaries were included in the exception to discharge it would be too broad and could be stretched to encompass most commercial relations.
If the act embrace such a debt, it will be difficult to limit its application. It must include all debts arising from agencies; and indeed all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transactions of the country, confidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the first section of the act.
Id. at 208.
Almost fifty years later the Court revisited the phrase “while acting in any fiduciary character” from the nation’s third bankruptcy law, the Bankruptcy Act of 1867.
Upshur v. Briscoe,
It said that the trust reposed in Briscoe was a trust simply in his “punctuality” and “integrity,” the same trust whichlies at the base of every agency, and of every loan or other credit; that the fact that the trust was expressed in the instrument added nothing to its nature, force, or effect; and that if the word “trust” had not been used, it would, nevertheless, have been implied in identical measure and strength.
Upshur v. Briscoe,
Again, nearly two generations passed when the Supreme Court addressed the phrase “while acting in a fiduciary capacity” under the Bankruptcy Act of 1898. In
Davis v. Aetna Acceptance Co.,
The substance of the transaction is this, and nothing more, that the mortgagor, a debtor, has bound himself by covenant not to sell the mortgaged chattel without the mortgagee’s approval. The resulting obligation is not turned into one arising from a trust because the parties to one of the documents have chose to speak of it as a trust.
Id.
at 334,
Justice Cardozo explained, “It is not enough that, by the very act of wrongdoing out of which the contested debt arose, the bankrupt has become chargeable as a trustee
ex maleficio.
He must have been a trustee before the wrong and without reference thereto.”
Id.
at 333,
In this district Judge Stripp has succinctly summarized the development of the bankruptcy law regarding the exception to discharge for debtors acting in a fiduciary capacity as follows:
The scope of the term “fiduciary” under § 523(a)(4) is a question of federal law. Matter of Rausch,49 B.R. 562 , 563 (Bankr.D.N.J.1985) (citing Matter of Angelle,610 F.2d 1335 , 1341 (5th Cir.1980)). Analysis of state law, however, is necessary to determine when the requisite trust relationship exists. Matter of Angelle,610 F.2d at 1341 ; In re Librandi,183 B.R. 379 , 382 (M.D.Pa.1995). The traditional definition of “fiduciary” involving a relationship of confidence, trust and good faith, is too broad for the purpose of bankruptcy law. Matter of Rausch,49 B.R. at 564 (citing Chapman v. Forsyth,43 U.S. (2 How.) 202 ,11 L.Ed. 236 (1844); Upshur v. Briscoe,138 U.S. 365 ,11 S.Ct. 313 ,34 L.Ed. 931 (1891); Davis v. Aetna Acceptance Co.,293 U.S. 328 ,55 S.Ct. 151 ,79 L.Ed. 393 (1934); Matter of Angelle, supra). Rather, the meaning of “fiduciary” for purposes of Bankruptcy Code section 523(a)(4) is limited to instances involving express or technical trusts. Chapman v. Forsyth,43 U.S. (2 How.) at 207 ,11 L.Ed. at 238 ; Davis v. Aetna,293 U.S. at 333 ,55 S.Ct. at 153-54 . Moreover, the trustee’s duties must be independent of any contractual obligation between the parties and must be imposed prior to, rather than by virtue of, any claim of misappropriation. Davis v. Aetna,293 U.S. at 333 ,55 S.Ct. at 154 ; Upshur v. Briscoe,138 U.S. at 378 ,11 S.Ct. at 317 ,34 L.Ed. at 936 . Accordingly, implied or constructive trusts and trusts ex ma-leficio are not deemed to impose fiduciary relationships under the Bankruptcy Code. Matter of Angelle,610 F.2d at 1339 . The reason for this narrow interpretation is to promote the Bankruptcy Code’s “fresh start” policy. Id.
New Jersey v. Kaczynski (In re Kaczynski),
Does the fiduciary duty imposed by New Jersey courts on the directors of insolvent corporations constitute “acting in a fiduciary capacity” within the meaning of § 523(a)(4) as interpreted by the Supreme Court? The reasons which lead the Court to find an agent, a borrower, and car dealer not to be acting in a fiduciary capacity suggest that a corporate director is not the type of fiduciary whose debts should be excepted from discharge. Viewing the phrase fiduciary capacity in context with executors, trustees and public officials, the quality or characteristics of the position of corporate director is more akin to the agent in
Chapman v. Forsyth
than a trustee of an express trust. Also, in terms of creating an exception t,o discharge that would likely sweep in too many debtors deserving a fresh start, treating a corporate director as acting in a fiduciary capacity would expose many owners of closely held companies to claims of nondischargeability by the creditors of their failed enterprises. After all, the failure of a small business is usually accompanied by the bankruptcy of the individual owners who have staked their fortunes on the success of their business and may have guaranteed a large part of the corporate debt. To treat them as the type of fiduciary covered by § 523(a)(4) exposes them to harassment by all corporate creditors who would have the bankruptcy court second guess every decision by the managers of a declining business. As the court in
First Options of Chicago, Inc. v. Kaplan (In re Kaplan),
[T]he difficulty with finding that the relationship of the director of a corporation to its creditors automatically gives rise to an express trust of all assets held by that corporation for purposes of § 523(a)(4) broadens the scope of that provision to embrace a debtor/creditor relationship. Such an extension of § 523(a)(4) is, in our view, a stretch of § 523(a)(4) beyond the purpose for which it was intended.
Accordingly, this court holds that Casini was not acting in a fiduciary capacity with respect to Graustein as a creditor of the insolvent corporation, Marine Investors, Inc. Thus Graustein’s debt is not excepted from discharge under § 523(a)(4).
The court recognizes a substantial body of case law that treats a director of an insolvent corporation as a fiduciary under § 523(a)(4). Prominent among them is
Mercedes-Benz Credit Corp. v. Carretta (In re Carretta),
Another decision by a bankruptcy court in this circuit held that a director of a dissolving Pennsylvania corporation was acting in a fiduciary capacity within the meaning of § 523(a)(4).
United States v. Bagel (In re Bagel),
Furthermore, the Third Circuit has found that a director who transferred funds of an insolvent corporation to himself violated his fiduciary duty to creditors.
In re Docteroff,
C. Defalcation
Graustein suggests that Casini committed a defalcation by transferring valuable assets from the insolvent Marine Investors to a series of new corporations, leaving Marine Investors unable to pay anything to its creditors. The court finds as a fact that Casini did no such thing. Marine Investors failed. When it shut down all it had were a few molds of questionable value. Casini, like many entrepreneurs, still wanted to pursue his dream of designing and building boats. He started from scratch again with a new corporation. There is no proof that any of the assets of Marine Investors were diverted.
Furthermore, Graustein has no proof as to any damages he may have suffered through Casini’s alleged defalcation. After all, if Casini diverted one dollar of Marine Investors’ assets, that should not render Graustein’s entire $250,000 judgment nondischargeable. Assuming ar-guendo that Casini was guilty of defalcation while acting in a fiduciary capacity there is no proof of the quantum of damages suffered by Graustein as a result of the defalcation.
There’s an old saying, “you can’t commit murder on a corpse.” That applies to insolvent business entities. If Marine Investors was so far insolvent that it had no chance of paying its priority creditors, then unsecured creditors suffer no damage if the meager assets are dissipated. Grau-stein has no evidence to show that he would have recovered anything from Marine Investors, Inc. He has failed to prove any damages from Casini’s alleged defalcation.
Defalcation refers to a fiduciary’s withholding of funds, and applies to conduct that does not rise to the level of fraud, embezzlement, or misappropriation. 4 Collier on Bankruptcy, P. 523.10[1][b] (15th ed. rev.2003). Nevertheless, some degree of culpability is required to qualify as a defalcation because debts arising from breach of ordinary care are normally dis-chargeable, and exceptions to discharge are strictly construed in favor of the debt- or.
Id.
A defalcation occurs when a fiduciary fails to account for funds received in his fiduciary capacity.
In re Thomas,
While it is true that when a corporation becomes insolvent it owes a fiducia
Due to Graustein’s inability to establish a loss due to the breach of a fiduciary duty, this Court concludes that he is not entitled to relief under the fiduciary prong of § 523(a)(4).
D. Willful Injury § 523(a)(6)
Lastly, Graustein contends that Casini’s conduct constitutes willful and malicious injury because he returned the boat to Graustein in inoperable condition. He argues that his claim is therefore nondis-chargeable under § 523(a)(6).
Section 523 (a)(6) provides:
(а) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(б) for willful and malicious injury by the debtor to another ...
This exception from discharge applies only to acts done with actual intent to cause injury.
Kawaauhau v. Geiger,
Graustein claims that the Texas state court found that Marine Investors, Inc. (and by extension Casini) converted Graustein’s boat by failing to return it after stopping work under the repair contract.
Res judicata
(or claim preclusion) does not apply to dischargeability proceedings because the state court could not have considered that issue pre-bankruptcy. Collateral estoppel (or issue preclusion) does not apply to default judgments because the issue was never actually litigated.
Mattson v. Hawkins (In re Hawkins),
Graustein’s Second Amended Petition in the Texas state action does not use the words conversion or convert. In his initial pleading in the bankruptcy court, Graustein characterized his state court causes of action as “breach of express and implied warranties, breach of contract, negligence, successor liability and piercing the corporate veil.” The only sentence from the Texas state court record that remotely resembles conversion is from the Second Amended petition that reads, “Since that time the Defendant has failed and refused to return Plaintiffs boat to its rightful owner in working condition and fully repaired.” A default judgment based on this one sentence can hardly be considered a binding conclusion that Casini was guilty of willful and malicious injury within the meaning of § 523(a)(6).
There is a complete absence in the record that Casini’s actions were willful or deliberate. Though Graustein may have suffered distress over the failure to havec possession of his boat in undamaged condi
IV. Other Relief
In addition to a determination of dischargeability, plaintiff/debtor Casini seeks “reasonable counsel fees, costs and expenses; sanctions and punitive damages; and, anything else that this Honorable Court deems equitable and just.” Considering that Casini failed to attend the trial in person, presented no evidence on his case, failed to comply with the pretrial order, and provided no legal authority for the award of counsel fees or sanctions, there is no basis to award him any other relief than a determination of discharge-ability. Furthermore, Casini disregarded his obligations to make discovery, did not comply with discovery orders, was held in contempt of court and sanctioned, then failed to pay the monetary sanctions imposed. This court deems it equitable and just to award no further relief to Mr. Casini and to remind him that the monetary sanctions must be paid, if still unsatisfied.
CONCLUSION
Graustein had a right to payment which arose when he entered the boat repair contract with Marine Investors, Inc. in September 1995 or, at the latest, when Marine Investors, Inc. breached the contract in 1996. Since the right to payment occurred before Casini’s petition (August 19, 1997), Graustein’s claim arose prepetition and is dischargeable. Though Grau-stein was not listed in Casini’s bankruptcy schedules, because Casini’s chapter 7 case was a no asset, no bar date type, Grau-stein’s debt was, nevertheless, discharged unless it is excepted from discharge because it is of a kind specified in § 523(a)(2), (4), or (6).
Casini’s series of failed corporations did not defraud Graustein but were merely the product of unsuccessful entrepreneurships. Nothing of value was diverted from these corporations that could have satisfied Graustein’s claim. A director of an insolvent corporation is not the type of fiduciary covered by § 523(a)(4); even if he is, Casini did not commit a defalcation because there were no valuable assets or business to preserve for creditors. Lastly, Casini did not cause willful and malicious injury to Graustein’s property.
For the reasons set forth above, the Court holds that Graustein’s claim arose prepetition, is not excepted from discharge under § 523(a)(2), (3), (4) or (6) and was discharged under § 727(b).
Notes
. Marine Investors, Inc.’s letterhead touted itself as the "Builder of 'Cobra' World Champion Power Boats.” Craig R. Smith was President of Marine Investors, Inc. and a shareholder. Peter Casini was a vice-president and also a shareholder. Smith negotiated the contract with Graustein and signed it as President.
. The court in Texas awarded Graustein a judgment by default for damages of $175,000 and attorney's fees of $75,000 for a total of $250,000. At trial in the adversary proceeding, Graustein tried to justify such large damages from a $16,900 repair contract, but came woefully short. Nevertheless, this court will assume the Texas judgment is valid and not attempt to recompute damages.
. At trial Graustein offered Casini’s deposition transcript in evidence, particularly the portions dealing with Marine Investors' financial condition. The court accepts this evidence as accurate and finds as a fact that Marine Investors, Inc. was insolvent on July 21, 1999. Furthermore, Marine Investors, Inc. filed petitions under chapter 7 on August 18, 1999 and December 14, 1999, both of which were later dismissed.
. Casini was an extremely recalcitrant litigant. Several orders compelling discovery were entered against him as well as monetary sanctions. He failed to follow the pretrial order directing him to file a joint statement of stipulated facts. Furthermore, since Casini failed to pre-mark and exchange exhibits, the court indicated he would be prohibited from introducing exhibits. As it turns out, Casini's lawyer had no exhibits to offer. In fact, Casi-ni did not even appear for trial; however, he was reached by telephone, so he testified as Graustein’s witness.
. Graustein cites
In re Costa,
. An illustrative New Jersey case,
In re Mattera
discussed the proper reach of the definition of a "claim” under the Code.
. "... By this broadest possible definition ... the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case. It permits the broadest possible relief....”
Frenville,
.
See also In re Edge,
.
See, e.g., In re Gullone,
. Interestingly, where the debtor's obligations stem from contractual liability, even a
post petition
breach is treated as pre petition liability where the contract was executed pre petition.
Chateaugay,
.
See, e.g., Debiec v. Cabot Corp., 352
F.3d 117 (3rd Cir.2003) (beryllium exposure);
Lapka v. Porter Hayden Co.,
.
See Debiec v. Cabot Corp.,
.
In re Radio-Keith-Orpheum Corp. ("RKO”),
. See Defendant’s Brief § 2, dated November 24, 2003.
.
See, e.g., Hall v. St. Joseph's Hosp.,
. Graustein's initial pleading did not assert that his claim was nondischargeable due to fraud under § 523(a)(2)(A); nevertheless, the court will consider his argument.
.
Cf. with Karo Marketing Corp.,