Salim v. VW Credit, Inc.
MEMORANDUM AND ORDER. For the reasons set forth in the attached Memorandum and Order, the judgment of the Bankruptcy Court is AFFIRMED in its entirety, and the appeal is dismissed. The Clerk of Court is respectfully directed to enter judgment in favor of Appellee VW Credit, Inc., and close the case. Ordered by Judge Kiyo A. Matsumoto on 9/29/2017. (Grover, Vanish)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MEMORANDUM AND ORDER
-againstVW CREDIT, INC.,
KIYO A. MATSUMOTO, United States District Judge:
Julian Salim (“Salim” or “appellant”) brings this appeal
from the March 16, 2015 Memorandum Decision of Judge Elizabeth S.
Stong of the Bankruptcy Court for the Eastern District of New York,
which granted partial summary judgment to VW Credit, Inc. (“VCI”
For the reasons set forth below, the court DENIES
appellant’s appeal, and AFFIRMS the Bankruptcy Court’s decision in
The facts giving rise to this dispute are not contested
by either party.1
Many of the underlying facts were litigated in two summary judgment motions
before Judge Paul A. Engelmayer of the United States District Court for the
Southern District of New York.
Additionally, appellant did not contest
appellee’s Statement of Undisputed Material Facts under Local Rule 7056.1 before
the bankruptcy court.
dealership in the Bronx, New York. Appellant was a managing member
and a part owner with John Koeppel and Gzregorz Samborski of Big
(ECF No. 5, Appellant Br. at 5; Adv. Proc. No. 31, Salim
Aff. ¶ 2.)3
The Loan Agreements
VCI provided Big Apple with a loan to enable Big Apple
to purchase an inventory of motor vehicles, and provided Big Apple
with a working capital line of credit in the form of promissory
notes, executed on June 12, 2006, and March 19, 2007, respectively.
On June 12, 2006, Big Apple executed a promissory note,
in the amount of $3,347,500.00, and a master security agreement
(collectively, “Wholesale Loan Agreement”).
(ECF No. 7, Appellee
Opp. Br. at 4; Adv. Proc. No. 24, Jeffrey-Alexander Aff. ¶ 9.)
Under the terms of the Wholesale Loan Agreement, upon the sale or
lease of any vehicle, Big Apple was obligated to, inter alia, remit
to VCI all sums owing from VCI’s advance on the vehicle.
Proc. No. 24, Jeffrey-Alexander Aff. Ex. 1, Master Sec. Agmt. at
outstanding under the note, in the event of a default.
On March 19, 2007, Big Apple executed a second promissory
Koeppel’s partnership stake was purchased by Samborski and Salim in or around
2010, at which point Koeppel’s ownership interest in Big Apple was extinguished.
(Adv. Proc. No. 31, Salim Aff. ¶¶ 2-3.)
3 Citations to the adversary procedure Bankruptcy Record before Judge Stong,
contained in ECF No. 2, shall be referenced as citations to “Adv. Proc.”
note, in the amount of $250,000.00, and a master security agreement
(collectively, “Capital Loan Agreement”).
(Adv. Proc. No. 24,
Jeffrey-Alexander Aff. ¶ 13.) Pursuant to the terms of the Capital
Loan Agreement, Big Apple agreed to repay the sums owing, with
interest, at a schedule specified therein.
(Id. ¶ 14.)
Under the terms of both loan agreements, Big Apple
granted to VCI a security interest in Big Apple’s inventory of
vehicles, chattels, and proceeds.
(Adv. Proc. No. 24, Jeffrey-
Alexander Aff. Ex. 1, Master Sec. Agmt. at 2; id. Ex. 2, Sec. Agmt.
and Capital Loan Agmt. at 2.)
The two loan agreements were cross-
defaulted, meaning that a default under either loan agreement would
constitute a default of the other.
(Id. Ex. 1, Master Sec. Agmt.
at 4; id. Ex. 2, Sec. Agmt. and Capital Loan Agmt. at 5.)
October 29, 2008, appellant executed a continuing guaranty, under
which he personally guaranteed Big Apple’s obligations to VCI under
both loan agreements.
(Id. Ex. 3, Continuing Guaranty.)
Salim’s mother, which he states was used to provide initial funding
for Big Apple.
(ECF No. 5, Appellant Br. at 6.)
A letter loan
agreement, “effective June 1, 2006,” reflects that Big Apple and
appellant would make annual payments to Salim’s mother, with the
loan to be paid in full by April 1, 2011.
Little Decl. at 1118.)
(Adv. Proc. No. 23,
Appellant testified that he believed the
loan from his mother was a secured debt, noticed with a UCC
financing statement, but could not explain why the UCC financing
statement was filed two years after the purported loan from his
(Adv. Proc. No. 23, Little Decl. Ex. 18, Julian Salim
Dep. at 39-40; Adv. Proc. No. 23, Little Decl. at 1124.)
VCI’s Interest and Audit
On March 11, 2011, upon learning that Big Apple was four
months past due on a mutual vendor’s account, VCI sought to audit
Big Apple’s automobile inventory.
Alexander Aff. ¶¶ 21-22.)
(Adv. Proc. No. 24, Jeffrey-
VCI’s audit team was initially turned
away by Big Apple management.
(Id. ¶ 23.)
On March 15, 2011, VCI
learned that Big Apple was conducting a “secret liquidation of its
(Id. ¶ 24.)
VCI was successfully able to complete an
audit by March 16, 2011.
The audit revealed that Big Apple had
sold seventy-eight vehicles from its inventory and failed to remit
payments, in the amount of $1,237,615.86, to VCI as required by
the loan agreements.
(Id. ¶ 26.)
In the automobile finance
industry, such a sale is sometimes termed a “sale out of trust.”
VW Credit, Inc. v. Salim (In re Salim), No. 13-42974, Adv. Proc.
No. 13-01442, 2015 WL 1240000, at *3 (Bankr. E.D.N.Y. Mar. 16,
In response, VCI accelerated Big Apple’s obligations under
the loan documents.
(Adv. Proc. No. 23, Little Decl. at 255.)
that time, the accelerated amount immediately due and payable to
VCI from Big Apple was $3,888,059.84 under the Wholesale Loan
Agreement and $54,263.45 under the Capital Loan Agreement.
Southern District of New York District Court Proceedings
On March 21, 2011, VCI filed a complaint against Big
Apple, appellant, Koeppel, and Samborski, in the Southern District
of New York alleging claims for breach of contract, breach of
guaranties, and replevin of the collateral.
VW Credit, Inc. v.
Big Apple Volkswagen, LLC, No. 11-cv-1950, 2012 WL 919386, at *2
(S.D.N.Y. Mar. 15, 2012) (“Big Apple I”).
On March 30, 2011, Big
Bankruptcy Court for the Southern District of New York, and the
District Court action against Big Apple was stayed.
parties completed discovery, it was revealed that Big Apple had
withdrawn and transferred $718,000.00 out of its account on March
14, 2011, and had withdrawn and transferred $504,271.14 out of its
account on March 15, 2011.
Aff. ¶¶ 34-41.)
(Adv. Proc. No. 24, Jeffrey-Alexander
Appellant admits that money was transferred out
bankruptcy at that time.
Specifically, appellant states that he
transferred $485,000.00 to Rami Osman, an individual in Syria from
whom appellant sought to purchase vehicles, $325,000.00 to his
brother in Syria to deliver to Osman in order to purchase vehicles,
and $335,000.00 to his mother to repay her for her initial loan.
(ECF No. 5, Appellant Br. at 6.)
On March 15, 2012, Judge Paul A. Engelmayer granted VCI
summary judgment as to the liability portion of VCI’s breach of
contract claims against Koeppel, Samborski, and appellant.
Engelmayer found that Big Apple had sold numerous vehicles, but
failed to remit any payment to VCI.
Because Koeppel, Samborski,
Engelmayer concluded that they had breached their contract with
VCI and were liable for damages.
Id. at *3-4.
On November 29, 2012, Judge Engelmayer granted summary
judgment on VCI’s motion as to damages on the breach of contract
claim against Koeppel, Samborski, and appellant.
found that there was no genuine issue of material fact as to the
damages owed to VCI, and determined that Koeppel, Samborski, and
Salim were liable to VCI in the amount of $1,146,758.11.
Credit, Inc. v. Big Apple Volkswagen, LLC, No. 11-cv-1950, 2012 WL
5964393, at *5 (S.D.N.Y. Nov. 29, 2012) (“Big Apple II”).
sum was composed of $514,835.20 in principal and $59,476.29 in
interest owing under the Wholesale Loan Agreement, $54,166.98 in
principal and $2,245.24 in interest owing under the Capital Loan
Agreement, $349,204.65 in attorneys’ fees, $50,578.10 in private
security expenses and $116,242.65 in management expenses.
On May 15, 2013, appellant filed for Chapter 7 bankruptcy
in the Eastern District of New York, in which he sought to
discharge the $1,146,758.11 judgment entered against him in the
Southern District action.
In re Salim, 2015 WL 1240000, at *3.
On August 15, 2013, VCI commenced an adversary proceeding by filing
a complaint seeking a determination that the judgment against Salim
is nondischargeable pursuant to Bankruptcy Code Section 523(a)(4),
on the grounds that appellant’s conduct of directing the sale of
vehicles, failing to remit payments to VCI, and making unauthorized
alternatively, embezzlement; VCI also alleged nondischargeability
pursuant to Section 523(a)(6) on the grounds that, by converting
the funds from the sale of VCI’s collateral, appellant willfully
and malicious injured VCI.
Id. at *5.
On June 11, 2014, VCI moved for summary judgment on its
claims against appellant.
On March 16, 2015, Bankruptcy Judge
Elizabeth S. Stong denied VCI’s motion for summary judgment with
respect to its claims under Bankruptcy Code Section 523(a)(4), but
granted VCI’s motion for summary judgment under Bankruptcy Code
determinations that Big Apple “sold 78 vehicles from its inventory,
but did not remit payment, as required under the Wholesale Loan
Agreement, to VCI,” and that, in accordance with the terms of the
continuing guaranty executed by appellant, appellant was liable to
VCI in the amount of $1,146,758.11.
Id. at *13.
Judge Stong next
denied VCI’s motion for summary judgment on its Section 523(a)(4)
Finally, Judge Stong granted VCI summary judgment as to
its claim under Bankruptcy Code Section 523(a)(6).
concluded that summary judgment was appropriate because appellant
had acted willfully and maliciously, and injured VCI.
Id. at *25-
Judge Stong’s Memorandum Decision and Order entering summary
judgment in favor of VCI was entered on March 16, 2015.
STANDARDS OF REVIEW
Standard on Bankruptcy Appeal
decisions of a bankruptcy court pursuant to 28 U.S.C. § 158(a),
which provides in relevant part that “[t]he district courts of the
United States shall have jurisdiction to hear appeals . . . from
final judgment, orders, and decrees . . . of bankruptcy judges.”
28 U.S.C. § 158(a).
A district court generally reviews the
findings of fact of a bankruptcy court for clear error and reviews
conclusions of law de novo.
3939 WPR Funding LLC v. Campbell (In
re Campbell), 539 B.R. 66, 72 (S.D.N.Y. 2015).
standard of review is de novo.”
Hanover Direct, Inc. v. T.R.
Acquisition Corp. (In re T.R. Acquisition Corp.), 309 B.R. 830,
835 (S.D.N.Y. 2003); see also Cohen v. Treuhold Cap. Grp., LLC (In
re Cohen), 422 B.R. 350, 365 (E.D.N.Y. 2010).
Summary Judgment Standard
Pursuant to Federal Rule of Civil Procedure 56(a), which
applies in an adversary proceeding pursuant to Bankruptcy Rule
7056, the court “shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Fed. R. Civ.
P. 56(a); Bronx Household of Faith v. Bd. of Educ. of City of N.Y.,
492 F.3d 89, 96 (2d Cir. 2007).
“A fact is material if it might
affect the outcome of the suit under governing law.”
Day Care LLC v. Dep’t of Health and Mental Hygiene of the City of
N.Y., 746 F.3d 538, 544 (2d Cir. 2014) (quotation marks omitted).
The moving party bears the burden of showing that it is
entitled to summary judgment. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 256 (1986).
After the moving party satisfies its
burden, the burden shifts to the nonmoving party to “come forward
with specific evidence demonstrating the existence of a genuine
dispute of material fact.”
Brown v. Eli Lilly & Co., 654 F.3d
347, 358 (2d Cir. 2011).
“The mere existence of a scintilla of
insufficient; there must be evidence on which the jury could
reasonably find for the [non-movant].”
Hayut v. State Univ. of
N.Y., 352 F.3d 733, 743 (2d Cir. 2003) (alterations in original)
The nonmoving party cannot avoid summary
unsubstantiated speculation,” Brown, 654 F.3d at 358 (quotation
marks and citations omitted), but must offer “some hard evidence
showing that its version of the events is not wholly fanciful.”
Miner v. Clinton Cnty. N.Y., 541 F.3d 464, 471 (2d Cir. 2008)
The court is required to view the evidence in the light
most favorable to the party opposing summary judgment, and to draw
all reasonable inferences in favor of that party.
Amnesty Am. v.
Town of West Hartford, 361 F.3d 113, 122 (2d Cir. 2004).
must find a genuine issue of material fact to exist “if the
evidence is such that a reasonable jury could return a verdict for
the nonmoving party.”
Dalberth v. Xerox Corp., 766 F.3d 172, 182
(2d Cir. 2014) (quoting Anderson, 477 U.S. at 248).
record taken as a whole could not lead a rational trier of fact to
find for the nonmoving party, there is no genuine issue for trial.”
Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (citation omitted);
accord Fabrikant v. French, 691 F.3d 193, 205 (2d Cir. 2012).
Appellant argues that Judge Stong incorrectly applied
collateral estoppel to the issue of intent, and that appellant has
raised a genuine issue of fact regarding whether or not his actions
were willful and malicious.
Appellee argues that Judge Stong’s
opinion should be affirmed, that appellant’s appeal should be
dismissed as untimely, and that appellant’s appeal should be
dismissed for failure to comply with Bankruptcy Rule 8014.
the following reasons, the court denies appellant’s appeal because
it is untimely.
In the alternative, even if appellant had timely
filed his appeal, the court would affirm Judge Stong’s decision in
Timeliness of Appeal
VCI argues that the court should dismiss appellant’s
appeal as untimely because the March 16, 2015 Order granting
summary judgment to VCI that appellant’s debt was not dischargeable
was a final order that was appealable under 28 U.S.C. § 158(a).
VCI asserts that the March 16, 2015 Order fully adjudicated the
“singular” claim that appellant’s debt was nondischargeable.
No. 7, Appellee Br. at 20-22.)
Appellant argues that the March
16, 2015 Order only granted partial summary judgment, and was
Appellant Reply at 2-3.)
For the following reasons, the court
concludes that the Bankruptcy Court’s March 16, 2015 Order was a
final order that disposed of VCI’s claim that Salim’s debt is
This court has appellate jurisdiction to hear bankruptcy
appeals “from final judgments, orders, and decrees,” or, “with
leave of the court, from other interlocutory orders and decrees.”
28 U.S.C. § 158(a)(1).
Generally, “a final order is one that
litigation, leaving nothing for the district court to do but
execute the order.”
Shimer v. Fugazy (In re Fugazy Exp., Inc.),
982 F.2d 769, 775 (2d Cir. 1992).
“The standards for determining
finality in bankruptcy differ from those applicable to ordinary
Ades-Berg Investors v. Breeden (In re The
Bennett Funding Grp.), 439 F.3d 155, 160 (2d Cir. 2006) (quoting
Sonnax Indus., Inc. v. Tri Component Products Corp. (In re Sonnax
Indus., Inc.), 907 F.2d 1280, 1283 (2d Cir. 1990)).
Circuit has “thus recognized that Congress intended to allow for
immediate appeal in bankruptcy cases of orders that finally dispose
of discrete disputes within the larger case.” Id. at 160 (emphasis
In the context of a bankruptcy appeal, a “dispute”
means “at least an entire claim on which relief may be granted.”
In re Fugazy Exp., Inc., 982 F.2d at 775-76; In re Gibson & Cushman
Dredging Corp., 101 B.R. 405, 407 (Bankr. E.D.N.Y. 1989) (a final
order is one that finally resolves a particular controversy or
“conclusively determines a separable dispute over a creditor’s
In contrast to a final judgment, which requires a
document is not necessary to effectuate the finality of a final
order in a bankruptcy case.
See In re The Bennett Funding Grp.,
439 F.3d at 161 (“In this case we are dealing with a final order
as opposed to a final judgment, and no separate document is
necessary to effect its finality.”).
Appellant asserts that the Bankruptcy Court only granted
partial summary judgment, and that VCI’s claim under Bankruptcy
Code 523(a)(4) was still pending.
Therefore, appellant argues,
the March 16, 2015 Order is an interlocutory order and did not
become appealable until VCI’s remaining claims under Bankruptcy
Code Section 523(a)(4) were voluntarily dismissed.
The court disagrees, and holds that the March 16, 2015
Order was a final order and was, therefore, appealable as of right
under 28 U.S.C. § 158(a)(1).
Judge Stong’s order conclusively
adjudicated an entire claim upon which relief could be granted.
By granting summary judgment to VCI on its claim under Bankruptcy
Code Section 523(a)(6), the order determined that Salim’s debts
VCI’s claims under Bankruptcy Code Section
523(a)(4) did not provide for separately enforceable recovery.
Rather, Salim’s conduct was alleged to have only caused a single
harm which resulted in a judgment of liability and damages.
Whether VCI was granted summary judgment on either theory presented
in its claim of nondischargeability in the adversary proceeding,
VCI sought the same remedy of nondischargeability on the same debt,
irrespective of the specific basis under the Bankruptcy Code.
After the Bankruptcy Court concluded that Salim’s debts were
nondischargeable under Section 523(a)(6), there was no further
relief for VCI to seek, and “there was simply nothing further to
be done in the Bankruptcy Court.”
In re The Bennett Funding Grp.,
Muscatello), No. 06-cv-453, 2006 WL 3437469, at *3 (N.D.N.Y. Nov.
29, 2006) (“A final order in a bankruptcy case becomes ripe for
appeal when nothing is left for the bankruptcy court to decide on
Accordingly, because Judge Stong’s March 16, 2015
Order conclusively determined the rights and liabilities of both
parties to the adversary proceeding, the nondischargeability of
appellant’s debt, it was a final order that was appealable pursuant
to 28 U.S.C. § 158(a)(1).
To appeal timely from an order of a bankruptcy court to
a district court, a party must file a notice of appeal within the
time prescribed by Federal Rule of Bankruptcy Procedure 8002. Fed.
R. Bankr. P. 8001(a).
Rule 8002 requires that a party file a
notice of appeal within fourteen days of the “date of the entry of
the judgment, order, or decree appealed from.”
Fed. R. Bankr. P.
8002(a). Over a year had elapsed between Judge Stong’s final order
was entered on March 16, 2015, and appellant filing this appeal on
April 20, 2016, and consequently, the appeal is dismissed as
The court dismisses this appeal because it is untimely.
Even if the appeal were timely, however, the court would affirm
Judge Stong’s March 16, 2015 Order that appellant’s debt is not
First, upon de novo review, the court concludes
that Judge Stong properly applied collateral estoppel.
upon de novo review, the court affirms Judge Stong’s conclusion
that Salim’s conduct was willful and malicious under Bankruptcy
Code Section 523(a)(6).
A. Collateral Estoppel
“Parties may invoke collateral estoppel to preclude
Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir.
The federal principles of collateral estoppel, used to
establish the preclusive effect of a prior federal judgment,
require that “(1) the identical issue was raised in a previous
proceeding; (2) the issue was actually litigated and decided in
Appellee urges the court to dismiss appellant’s appeal for failure to comply
with Federal Rule of Bankruptcy Procedure 8014. Because the appeal is dismissed
as untimely, the court need not consider appellant’s additional procedural
grounds for dismissal.
opportunity to litigate the issue; and (4) the resolution of the
issue was necessary to support a valid and final judgment on the
Id. (citing Purdy v. Zeldes, 337 F.3d 253, 258 & n.5 (2d
Judge Stong held that collateral estoppel applied to the
following determinations by Judge Engelmayer: “that Big Apple sold
vehicles without remitting payment to VCI, that VCI accelerated
payments due under the Loan Agreements after discovering Big
Apple’s breach, . . . that Salim personally guaranteed those
agreements[,] . . . determined VCI’s damages from the sale out of
trust, and . . . [that] VCI’s damages included consequential
damages such as VCI’s expenses to protect its collateral, as well
as its attorneys’ fees and costs.”
In re Salim, 2015 WL 1240000,
Appellant argues that VCI’s allegations of fraud and the
issue of whether he was willful and malicious was not considered
in Judge Engelmayer’s opinions, and therefore would not be subject
to collateral estoppel. Although Judge Stong agreed with appellant
that Judge Engelmayer did not consider appellant’s intent, Judge
Stong’s opinion expressly acknowledged that, and did not apply
collateral estoppel to the issue of appellant’s intent.
Furthermore, upon a de novo review, the court finds that
Engelmayer’s findings: the sale out of trust by Big Apple, which
sold vehicles without remitting payment to VCI; VCI accelerated
payments due under the loan agreements after discovering Big
Apple’s breach; Salim signed a personal guaranty and was thus
liable; VCI suffered damages from Big Apple’s sale out of trust;
and VCI’s damages were in the amount of $1,146,758.11.
foregoing identical issues to those that were actually litigated,
considered and decided by Judge Engelmayer were again raised by
appellant in the adversary proceeding.
Appellant was represented
in each proceeding and had a full and fair opportunity to litigate
the issues, and the resolution of these same issues was necessary
to support a full and final judgment on the merits in the district
court case before Judge Engelmayer.
See Big Apple I, 2012 WL
919386 at *3-6; Big Apple II, 2012 WL 5964393 at *2-5.
reverse the Bankruptcy Court’s application of collateral estoppel
B. Section 523(a)(6)
The Bankruptcy Code permits individuals to discharge
preexisting debts in order to give afford relief to “honest but
Cohen v. de la Cruz, 523 U.S. 213, 217
Bankruptcy Code Section 523, however, provides numerous
exceptions to this principle.
One of those exceptions, Section
523(a)(6), provides in pertinent part, that “[a] discharge under
. . . this title does not discharge an individual debtor from any
debt . . . for willful and malicious injury by the debtor to
another entity or the property of another entity.”
elements, and both elements must be satisfied.”
Vyshedsky (In re Soliman), 539 B.R. 692, 698 (Bankr. S.D.N.Y. 2015)
(internal citation and quotation marks omitted).
seeking to establish nondischargeability under § 523(a) must do so
by the preponderance of the evidence.”
Ball, 451 F.3d at 69.
523(a)(6), the injury caused must have been willful. See Kawaauhau
v. Geiger, 523 U.S. 57 (1998).
The section’s word “‘willful’ . .
modifies the word ‘injury,’ indicating that nondischargeability
takes a deliberate or intentional injury, not merely a deliberate
or intentional act that leads to injury.” Id. at 61. This language
is read to impose a requirement “that the actor intend ‘the
consequences of an act,’ not simply ‘the act itself.’”
62 (emphasis in original).
Id. at 61-
Injuries inflicted negligently or
recklessly are an insufficient basis to deny a debtor a discharge
under the statute.
Id. at 64.
Extrapolating from the Supreme Court’s analysis of the
willfulness requirement of Section 523(a)(6) in Geiger, district
courts and bankruptcy courts in this Circuit have coalesced around
a “substantially certain” test; courts find willful intent to cause
injury where “the actor knows that the consequences are certain,
or substantially certain, to result from his act.”
Hough (In re Margulies I), 517 B.R. 441, 452 (S.D.N.Y. 2014)
(citing Restatement (Second) of Torts § 8a, cmt. b).
the Second Circuit has not yet provided guidance, courts in this
Circuit have further concluded that “substantial certainty” must
be judged subjectively rather than objectively.
See Margulies v.
Hough (In re Margulies II), 566 B.R. 318, 329-30 (S.D.N.Y. 2017)
(“The Second Circuit has not taken a stance on the question, but
courts in the Second Circuit generally apply a subjective standard
of intent[.]” (internal quotation marks and citation omitted)),
appeal docketed, No. 17-1073 (2d Cir. Apr. 13, 2017); Owens v.
Powell (In re Powell), 567 B.R. 429, 434 (Bankr. N.D.N.Y. 2017)
standard of intent.”); Cocoletzi v. Orly (In re Orly), No. 1511650, 2016 WL 4376947, at *5 (Bankr. S.D.N.Y. Aug. 10, 2016)
(applying a subjective intent standard); Curtis v. Ferrandina (In
re Ferrandina), 533 B.R. 11, 26 (Bankr. E.D.N.Y. 2015) (collecting
cases) (“Courts within the Second Circuit have found that if a
debtor believes that an injury is substantially certain to result
from his conduct, the debtor will be found to have possessed the
requisite intent to injure required” for the purposes of Section
Circuit has stated that, as used in Section 523(a)(6), “‘malicious’
means wrongful and without just cause or excuse, even in the
absence of personal hatred, spite or ill-will.”
In re Stelluti,
94 F.3d 84, 87-88 (2d Cir. 1996); accord Ball v. A.O. Smith Corp.,
451 F.3d at 70.
Malice may either be actual or implied by the
circumstances surrounding the debtor’s conduct and actions.
Stelluti, 94 F.3d at 88.
Judge Stong ruled that a breach of
contract in the context of other aggravating factors may give rise
to a § 536(a)(6) claim, including the “failure to pay [a debt]
from funds that the debtor had agreed specifically to earmark for
that purpose . . . [which were] accessible and not otherwise
intentionally refused to turn over the sale of proceeds.” In re
Salim, 2015 WL 1240000, at *24 (quoting Alessi v. Alessi (In re
Alessi), 405 B.R. 65, 68 (Bankr. W.D.N.Y. 2009)).
implied when anyone of reasonable intelligence knows that the act
in question is contrary to commonly accepted duties in the ordinary
relationships among people, and injurious to another.”
Townsend (In re Townsend), 550 B.R. 220, 227 (Bankr. E.D.N.Y. 2016)
(internal quotation marks and citation omitted), aff’d, 566 B.R.
129 (E.D.N.Y. Feb. 27, 2017).
“[M]alice . . . does not mean with
personal animus, but simply that the act is wrongful and without
cause or excuse.”
Forest Diamonds Inc. v. Aminov Diamonds LLC,
No. 06-cv-5982, 2010 WL 148615, at *14 (S.D.N.Y. Jan. 14, 2010)
A breach of contract, alone, without some independent
tortious conduct, does not generally satisfy Section 523(a)(6).
Vaughn v. Williams (In re Williams), --- B.R. ----, 2016 WL
1092696, at *7 (S.D.N.Y. Mar. 21, 2016).
Where a debtor’s actions are motivated by potential
profits, courts have refrained from implying malice in the absence
of additional aggravating conduct.
See Whitaker Secs., LLC v.
Rosenfeld (In re Rosenfeld), 543 B.R. 60, 76 (Bankr. S.D.N.Y. 2015)
(“Where the debtor is motivated by some potential profit or gain
. . . malice will only be implied where there is additional,
aggravating conduct on the part of the debtor to warrant an
inference of actual malice”); Am. Honda Fin. Corp. v. Ippolito (In
re Ippolito), No. 12-cv-8403, 2013 WL 828316, at *7 (Bankr.
E.D.N.Y. Mar. 6, 2013) (“where a debtor’s conduct has potential
Rescuecom Corp. v. Khafaga (In re Khafaga), 419 B.R. 539, 550
(Bankr. E.D.N.Y. 2009) (a knowing breach of contract does not
preclude a finding of nondischargeability.
See In re Margulies
II, 566 B.R. at 331 (certain conduct, even if motivated by a
desperate economic desire, is unjustifiable).
disputed fact that were material to whether his conduct was willful
and malicious under Section 523(a)(6).
(ECF No. 5, Appellant Br.
Judge Stong concluded that appellant acted willfully by
deliberately and intentionally causing injury to VCI, by causing
Big Apple to repay his mother over VCI, despite appellant’s
personal guaranty of Big Apple’s contractual obligation to pay VCI
from the proceeds of vehicle sales, and in sending Big Apple’s
funds outside of the United States to pursue a business venture in
In re Salim, 2015 WL 1240000, at *26.
Judge Stong found
that the record reflected that appellant’s actions, in failing to
substantially certain to cause injury to VCI, as appellant was
aware of his contractual obligations and entered into transactions
that were inconsistent with those obligations.
Apple was in breach of its contractual obligations to VCI, Salim
transferred funds to his mother and brother out of VCI’s reach,
contrary to his personal guaranty.
The transfers by Salim to his
family members occurred at or about the same time that VCI’s audit
team sought access to Big Apple’s premises, books and records to
investigate the sale out of trust.
Judge Stong also found that
appellant’s assertion that he believed his mother held a first
lien on Big Apple’s assets was contradicted by the plain terms of
the loan agreements.
Appellant argues that he did not subjectively believe
the consequences were substantially certain to result from his
(Id. at 18.)
He argues that that the following facts,
raised in his affidavit in opposition to VCI’s motion for summary
judgment before the Bankruptcy Court, raise genuine disputes as to
whether appellant believed his conduct was substantially certain
to injure VCI: (1) he was in the business of buying and selling
cars all over the world; (2) he had done other business deals with
Osman, an individual in Syria, in the past; (3) he believed that
he was buying cars in the ordinary course of business, and had
provided the court with the agreement with Osman; (4) Big Apple
owed appellant’s mother a loan of approximately $300,000; (5) the
appellant believed that the deal in Syria would have been extremely
lucrative; (7) shortly after the funds were transferred to Syria,
war broke out, resulting in the loss of the funds; (8) appellant
travelled to Syria and spent over two months attempting to retrieve
the funds; (9) appellant attempted to negotiate a settlement with
VCI; and (10) appellant never intended to hide money from VCI and
never expected to lose his business.
(Id. at 21.)
The court finds that appellant failed to raise a genuine
issue of disputed fact as to whether he willfully caused injury to
The record shows that Big Apple breached the Wholesale Loan
Agreement by selling 78 vehicles from its inventory but not
remitting payment to VCI, and that appellant had guaranteed Big
Apple’s performance to VCI under the loan agreements.
I, 2012 WL 919386, at *1.
Appellant testified that he was aware
that VCI had a secured interest in Big Apple’s assets when he
signed the guaranty.
(Adv. Proc. No. 23, Little Decl. Ex. 18,
Julian Salim Dep. at 28-29, 32.)
Despite this knowledge, however,
appellant caused Big Apple to transfer sums to his mother and to
Osman while Big Apple was in breach of the loan agreements.
Although the facts set forth by appellant may indicate that he
believed he was entering into a sound business transaction, they
are not relevant to the issue of willfulness.
None of the facts
set forth by appellant dispute the fact that he was substantially
certain that his actions would harm VCI by depriving VCI of funds
to which it was entitled and for which the appellant guaranteed
willfulness is therefore affirmed.
Next, appellant argues that summary judgment should have
been denied because the Bankruptcy Court did not consider that his
investments in Syria and repayment of the loan to his mother were
driven by potential benefits for Big Apple, and therefore were not
appellant argues that he did not intend to harm VCI.
appellant caused Big Apple to breach its contractual obligations
to VCI under the loan agreements by intentionally failing to remit,
and instead diverting, the proceeds of its vehicle sales, and that
appellant personally guaranteed Big Apple’s obligations to VCI.
The record showed that appellant caused Big Apple to transfer its
funds to his mother and brother rather than comply with his
obligations to VCI.
Judge Stong also found that appellant’s
assertions that his understanding of the seniority of Big Apple’s
debt to his mother was contradicted by the plain terms of the loan
agreement and inconsistent with his guaranty.
WL 1240000, at *27.
In re Salim, 2015
Judge Stong concluded that, moreover, the
record did not show that Big Apple benefitted when appellant caused
Big Apple to make payments to his mother and to his brother in
connection with a business venture to purchase vehicles in Syria.
Finally, Judge Stong considered the fact that appellant made
the transfers around the time of VCI’s investigation and audit of
Big Apple’s sale out of trust.
Bankruptcy Court’s conclusion that there is no genuine dispute in
the record as to a material fact that appellant’s conduct was
malicious or without just cause or excuse.
$335,000.00 to his mother clearly was in breach of his personal
guaranty, and was wrongful and without just cause or excuse.
Appellant does not dispute that VCI had a superior position to the
proceeds of Big Apple’s vehicle sales under the loan agreements.
(Adv. Proc. No. 37, Tr. of Aug. 19, 2014 hrg. at 31 (“[Appellant]
is not questioning [VCI’s] right to priority.”).
appellant has testified that he was aware that VCI had a senior
secured interest in Big Apple’s assets when he signed the guaranty.
(Adv. Proc. No. 23, Little Decl. Ex. 18, Julian Salim Dep. at 2829, 32.)
Even construing the evidence in favor of the nonmoving
party, the court notes that the record does not provide any
justification or excuse for the transfer of funds to appellant’s
There is no evidence that transferring $335,000.00 away
from a senior lender, VCI, to pay off a debt owed to a junior
See Northeast Remarketing Servs., Inc. v.
Guthier (In re Guthier), No. 09-50008, 2010 WL 1443989, at *4-5
(Bankr. N.D.N.Y. Apr. 9, 2010) (finding malice where defendant
intentionally contravened her duty to remit funds due on the sale
of a vehicle without justification or excuse).
The court also concludes that appellant’s transfer of
funds to his brother in Syria was not justified or excused.
Appellant states that “[h]e was in the business of buying and
selling cars all over the world,” “[h]e had done other business
deals with Rami Osman in the past,” “[h]e believed he was buying
cars in the ordinary course of business.
Salim entered into an
agreement with Rami Osman,” and “Salim believed that the deal in
Syria would have ‘been extremely lucrative and resulted [sic] in
a multi-million dollar transaction.’”
(ECF No. 5, Appellant Br.
supported by any evidence in the record. See Bellsouth Telecomms.,
Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir. 1996) (it is
insufficient for a party opposing summary judgment “merely to
assert a conclusion without supplying supporting arguments or
The only supporting evidence regarding the transaction
with Osman is the purported agreement, attached to appellant’s
affidavit in opposition before Judge Stong.
Salim Aff. Ex. A.)
(Adv. Proc. No. 31,
The agreement, which states that Osman had
received $485,000 from appellant and $500,000 from appellant’s
brother in exchange for “used cars” of unspecified make and year,
quantity, or quality, and at an unspecified rate, is dated January
15, 2011, approximately two months before the disputed transfers.
Therefore, the agreement between appellant and Osman fails to
support appellant’s contentions that the transfers in March 2011
were transactions motivated by anticipated profits for Big Apple.
Additionally, appellant has failed to raise material
facts which dispute the other indicia of malice: that he was aware
that the loan from VCI required Big Apple to remit funds upon sale
of vehicles, that Big Apple refused to permit VCI to audit Big
Apple’s inventory, and that the funds were transferred at or about
the same time that VCI auditors were denied entry to Big Apple.
In re Alessi, 405 B.R. at 68 (deliberate and intentional refusal
to pay sale proceeds despite a contractual provision requiring it
inapposite. (ECF No. 5, Appellant Br. at 22.) In In re Gaullaudet,
the debtor sold only eleven vehicles out of trust, and failed to
make payment for them.
The court found no evidence of an intent
to deceive Ford Credit, or an intent to hide the funds.
Moreover, the court found that debtor had used the proceeds
of the sales in the operation of the auto-dealership.
contrast, Big Apple sold seventy-eight vehicles out of trust, and
did so while its guarantor, the appellant, transferred funds to
family members and attempted to thwart and evade VCI auditors.
Moreover, there is no evidence that the funds were used to operate
or benefit Big Apple; rather, the funds were used to pay off a
lower-priority loan or were transferred out of the country and
away from VCI’s reach.
Bankruptcy Court is AFFIRMED in its entirety and the appeal is
The Clerk of Court is respectfully directed to enter
judgment and close the case.
KIYO A. MATSUMOTO
United States District Judge
Eastern District of New York
September 29, 2017
Brooklyn, New York
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