V2R, LLC et al v. Schneider

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INFORMATION

Case 06-01090 Doc 20 Filed 05/23/06 Entered 05/23/06 11:41:13

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UNITED STATES
FC
DISTRICT OF

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In re
DANIEL SCHNEIDER,
Debtor

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V2R, LLC, and SPECIAL SITUATIONS
FUND, IV, LLC,
Plaintiff

Vv.

DANIEL SCHNEIDER,
Defendant

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BANKRUPTCY COURT
MR THE
MASSACHUSETTS

oda dade da

Chapter 7
Case No. 05-2382-JNF

PY et

Adv. P. No. 06-01090

RDER

Upon consideration of 1) the threetcount Complaint filed in the above-referenced

proceeding;' 2)the Debtor's “Motion to Dig

miss complaint For failure to State a claim upon

' The counts include Count I: Fraud; Count II: Breach of Fiduciary Duties; and
Count III: Embezzlement or Larceny. See 11 U.S.C. § 523(a)(2)(A) and (4). In their

Complaint, the Plaintiffs allege that on M

ay 6, 2005 they commenced an action in

Seminole County, Florida, alleging, among other things, fraud, breach of fiduciary

duties, and breach of contract against the

July 18, 2005, the Plaintiffs and the Debtot
was approved by the state court on Augu

Debtor. Approximately six weeks later, on
entered into a Settlement Agreement, which
bt 2, 2005. The Plaintiffs stated in their

AUTHENTICATED
U.S. GOVERNMENT
GPO

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which relief can be granted;” 3) the “Creditors, V2R, LLC, and Special Situations Fund IV,

LLC’s Opposition in Response to the Dé

btor’s Motion to Dismiss” and accompanying

Memorandum; 3) the representations and arguments made at the April 24, 2006 hearing

on the Debtor’s Motion to Dismiss; 4) the

Debtors [sic] Memorandum of Law in Support

of Motion to Dismiss; 5) the Creditors, V2R, LLC, and Special Situations Fund IV, LLC’s

Supplemental Memorandum of Law in Re

sponse to Debtor’s Memorandum of Law; 6) the

decisions of the United States Supreme Court in Archer v. Warner, 538 U.S. 314 (2003), and

Brown v. Felsen, 442 U.S. 127 (1979);? 7 ) the decision in In re Jacobs, 243 B.R. 836, 847 n.5

Complaint the following: “Mr. Schneider

failed to comply with the terms of the

Settlement Agreement and otherwise defaulted pursuant to the Settlement Agreement.

As such, on or about September 12, 2005,
in the amount of $1,418,511.00.”

a Final Judgment was entered against Debtor

*In Archer v. Warner, the Supreme Court stated in pertinent part the following:

[T]he Court's basic reasoning in Brown applies here. The Court pointed

out that the Bankruptcy Code’s no
originally covered “only ‘judgmen
99 S.Ct. 2205. Congress later chang
such “liabilities.” Ibid. This chang

ndischargeability provision had

ts’ sounding in fraud.” 442 U.S., at 138,
ed the language so that it covered all

e indicated that “Congress intended

the fullest possible inquiry” to ensure that “all debts arising out of” fraud

are “excepted from discharge,” no
U.S.C. § 523(a) (current “any debt”

matter what their form. Ibid.; see also 11
language). Congress also intended to

allow the relevant determination (whether a debt arises out of fraud) to
take place in bankruptcy court, not to force it to occur earlier in state court
at a time when nondischargeability concerns “are not directly in issue and

neither party has a full incentive td

litigate them.” Brown, 442 U.S., at 134,

99 S.Ct. 2205. The only difference we can find between Brown and the
present case consists of the fact that the relevant debt here is embodied in
a settlement, not in a stipulation and consent judgment. But we do not see
how that difference could prove determinative. The dischargeability

provision applies to all debts that ‘
2205; see also Cohen v. de la Cruz, 3
L.Ed.2d 341 (1998). A debt embodi

aris[e] out of” fraud. Id., at 138, 99 S.Ct.
23 U.S. 213, 215, 118 S.Ct. 1212, 140
ed in the settlement of a fraud case

Case 06-01090 Doc20 Filed 05/23/06 Entered 05/23/06 11:41:13 Desc Main

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(Bankr. M.D. Fla. 2000)(Florida’s econom!

the essence of the complaint involves bread
conversion; not breach of contract.”); and

Court in Conley v. Gibson, 355 U.S. 41, 45

complaint we follow, of course, the accepte
for failure to state a claim unless it appeat
set of facts in support of his claim which 1
denies the Debtor’s Motion to Dismiss.

The Court finds that the Debtor’:
misplaced. The facts alleged by the Plainti

Court's decisions in Archer v. Warner and

Page 3 of 4

ic loss rule does not bar this proceeding because
th of fiduciary duty, larceny, embezzlement and
1 8) the decision of the United States Supreme
-46 (1957)(“In appraising the sufficiency of the
-d rule that a complaint should not be dismissed
ts beyond doubt that the plaintiff can prove no

would entitle him to relief.”), the Court hereby

§ attempt to distinguish Archer v. Warner is

ffs fit squarely within the ambit of the Supreme

rownv. Felsen. Similarly, the Debtor’s reliance

on res judicata and Florida’s economic |

establish that there was a judgment on th

“arises” no less “out of” the underl
stipulation and consent decree. Pol
disputes, like those that favor “rep
at issue here than in Brown. See 441
Brown, the doctrine of res judicata
underlying claim of fraud, just as t
1469. See supra, at 1465-1466. Despil

. what has not been established
meant to resolve the issue of fraud

for purposes of a later claim of nor
word, we can find no significant di

now before us.

538 U.S. at 321-22.

oss rule are unavailing. The Debtor failed to

e merits as a result of the Florida Court’s order

ying fraud than a debt embodied ina
icies that favor the settlement of

ose,” are neither any more nor any less
P U.S., at 133-135, 99 S.Ct. 2205. In

itself ensured “a blanket release” of the
he contractual releases did here, post, at
te the dissent’s protests to the contrary,
here, as in Brown, is that the parties

or, more narrowly, to resolve that issue
dischargeability in bankruptcy. Ina
fference between Brown and the case

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approving the settlement so as to implicalte the doctrine of res judicata, and the Florida
economic loss rule has no application in the context of a nondischargeability complaint
under 11 U.S.C. § 523(a)(2) and (a)(4). Jacdbs, 243 B.R. at 847 n.4.

°y the Court,

- lee how ? [. Fi & —— ~
Joan N. Feeney a
x United States Bankruptcy J cee

Dated: May ‘~ ; 2006
cc: Theodore W. Connolly, Esq., Daniel Schneider