United States District Court, E.D. Pennsylvania
LAWRENCE E. FELDMAN, Appellant
AMERICAN ASSET FINANCE, LLC, Appellee
For AMERICAN ASSET FINANCE, LLC, Plaintiff: ROSS BEGELMAN, LEAD ATTORNEY, BEGELMAN & ORLOW, PC, CHERRY HILL, NJ.
For LAWRENCE F. FELDMAN, Appellant: ALLEN B. DUBROFF, LEAD ATTORNEY, PHILADELPHIA, PA.
For LAWRENCE F. FELDMAN, Defendant: ALLEN B. DUBROFF, LEAD ATTORNEY, PHILADELPHIA, PA.
For LAWRENCE E. FELDMAN, Debtor-in-Possess: ALAN D. BUDMAN, LEAD ATTORNEY, ABINGTON, PA; LAWRENCE E. FELDMAN, LEAD ATTORNEY, LAWRENCE E. FELDMAN & ASSOCIATES, ELKINS PARK, PA.
ROBERT H. HOLBER, Trustee, Pro se, MEDIA, PA.
C. Darnell Jones, II, J.
On appeal is a decision of the Bankruptcy Court for the Eastern District of Pennsylvania granting summary judgment in favor of Appellee American Asset Finance and holding that, pursuant to 11 U.S.C. § 523(a)(6), Appellant's debt is not dischargeable in bankruptcy. Appellant also challenges the Bankruptcy Court's decision to grant leave to file an amended complaint. After reviewing the record and the parties' briefing, the Court will VACATE the judgment below and REMAND for further proceedings consistent with the Court's opinion.
The Bankruptcy Court had jurisdiction over this matter pursuant to 28 U.S.C. § 157. Lawrence Feldman seeks appellate review of several decisions of the Bankruptcy Court, specifically an order granting leave to file an amended complaint and the entry of summary judgment on Appellee's nondischargeability claim. Therefore, the Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158.
The Court writes primarily for the benefit of the parties and thus recounts only the essential facts and procedural history. The predominance of this dispute arises out of a New Jersey default judgment for conversion and defalcation and the effect of that judgment on the dischargeability of Appellant's debt in federal bankruptcy proceedings.
American Asset Finance, LLC (" AAF" ) filed a lawsuit against Lawrence F. Feldman and his law firm, Lawrence E. Feldman & Associates, on June 27, 2011, in the Superior Court of New Jersey, alleging breach of contract, breach of fiduciary duty and conversion. For reasons that are impertinent to this appeal, the New Jersey Court entered a default judgment against both parties for conversion and defalcation in the amount of $407,433.76. On February 14, 2013, Mr. Feldman filed a voluntary Chapter 7 bankruptcy petition. AAF responded by filing an adversary complaint on May 16, 2013, objecting to discharge of its loan under 11 U.S.C. § 523. Mr. Feldman filed a motion to dismiss, which the Bankruptcy Judge granted, dismissing the complaint without prejudice and with leave to refile.
On November 26, 2013, AAF filed an amended adversary complaint, objecting to discharge under 11 U.S.C. § 523(a)(2)(A) (false pretenses, fraud) and 11 U.S.C. § 523(a)(6) (willful and malicious injury). On May 7, 2014, AAF filed a motion for summary judgment, which the Bankruptcy Court granted. It found that collateral estoppel precluded further litigation regarding the New Jersey judgment. Having so concluded, it determined that the New Jersey judgment, specifically the conversion count, constituted willful and malicious injury, thereby triggering 11 U.S.C. § 523(a)(6) and preventing dischargeability. Mr. Feldman appealed. Because the parties have completed their briefing, this matter is ripe for disposition.
STANDARD OF REVIEW
An appeal of a final judgment of a bankruptcy court is reviewed under traditional appellate standards of review. Stern v. Marshall, 131 S.Ct. 2594, 2603-04, 180 L.Ed.2d 475 (2011). The District Court reviews a Bankruptcy Court's findings of fact for clear error and its legal conclusions de novo. In re Blatstein, 260 B.R. 698, 705 (E.D. Pa. 2001).
Appellant Feldman argues that the Bankruptcy Court violated Article III of the Constitution, as interpreted in Stern v. Marshall, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), by ruling on " twenty-five state-law affirmative defenses or set-offs in his answer to the adversary complaint." (Br. of Appellant, at 21.) Appellee AAF disagrees, arguing that the Stern holding is limited to discrete legal claims, not defenses. For the reasons set forth below, the Court has concluded that the Bankruptcy Court's disposition of Appellant's defenses did not contravene Stern and violate Article III.
On April 15, 2014, Appellant filed an answer admitting in part and denying in part the allegations of the amended adversary complaint. The answer set forth 19 affirmative defenses or, as Appellant refers to them, set-offs:
127. Plaintiff's Claims are barred by the doctrines [sic] of laches[.]
128. Plaintiff's Claims are barred by the doctrines of estoppel, equitable estoppel, and unclean hands.
129. Plaintiff's Claims are barred by the doctrines of partnership estoppel and privity between CFS and AAF[.]
130. Plaintiff's Claims are barred by the doctrine of accord and satisfaction.
131. Plaintiff's Claims are barred by the doctrine of exclusion of Parol [E]vidence.
132. Plaintiff's claims re barred by a failure of consideration, and/or Plaintiff's own breaches of contract.
133. Plaintiff's claims are barred by the Plaintiff's own failure to mitigate damages, and defendants [sic] duty to mitigate his own damages, and impossibility of performance.
134. Plaintiff's claims are barred, in whole or in part, by the doctrines of set -- off, fraud, fraudulent inducement, breach of fiduciary duty and confidential relationship, mistake, illegality, lack of capacity, duress, payment, and waiver, ratification, and acquiescence.
135. Plaintiff's claimed interest entitlements are barred by usury.
136. Plaintiff's claims are barred by the terms of Plaintiff's own contract.
137. Plaintiff's claims are barred by the doctrine of unreasonable and unfair contract penalty under N.J. and Pa law, and unconscionability[.]
138. Plaintiff's claims are barred by AAF's Breach of fiduciary duty and confidential relationship[; ] Plaintiff's claims are barred by AAF's Fraudulent inducement to contract.
139. Plaintiff's claims are barred by of [sic] Pennsylvania and Federal anti-Racketeering law.
140. Plaintiff's claims are barred by unclean hands and unjust enrichment.
141. Plaintiff's claims are barred by the doctrine of fraud upon the courts.
142. Plaintiff's fraudulently and unethically obtained judgment against defendant is unenforceable and not entitled to full faith and credit.
143. Plaintiff and its principals have continually defamed and damaged plaintiff in an amount that is presently undetermined and continuing, with malice, so that defendant is entitled to compensatory and punitive damages.
(Answer at 17-19.)
The Bankruptcy Judge had no occasion to rule on Appellant's affirmative defenses at the pleading stage. At summary judgment, Appellant appears to have raised two of these defenses: laches and unclean hands.
In Stern v. Marshall, Vickie Lynn Marshall, a.k.a. Anna Nicole Smith, filed a bankruptcy petition in the United States Bankruptcy Court for the Central District of California. 131 S.Ct. at 2601. Pierce Marshall, the youngest son of J. Howard Marshall II, filed an adversary complaint claiming defamation and seeking a declaration that the defamation claim was nondischargeable in bankruptcy. Id. In turn, Vickie Marshall filed a counterclaim for tortious interference. Id. Finding that the counterclaim was a core proceeding under § 157(b)(2)(C) and was therefore within its jurisdiction, the Bankruptcy Court issued judgment on Vicki Marshall's tortious interference claim. The United States Court of ...