# The City of Atlantic City v. Drummon

> United States Bankruptcy Court, S.D. New York · November 30, 2023

URL: https://www.frixlaw.com/law-library/cases/10461107

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** November 30, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------x
:
In re: : Chapter 7
:
W. Wesley Drummon, : Case No. 19-10670 (JLG)
:
Debtor. :
---------------------------------------------------------------x
:
The City of Atlantic City, :
:
Plaintiff, : Adv. Pro. No. 19-01211 (JLG)
:
v. :
:
W. Wesley Drummon, :
:
Defendant. :
---------------------------------------------------------------x
MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT’S MOTION
FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF’S CROSS-MOTION FOR
SUMMARY JUDGMENT AND MOTION FOR AN ADVERSE INFERENCE
APPEARANCES:
TRENK ISABEL SIDDIQI & SHAHDANIAN P.C.
Counsel to Plaintiff City of Atlantic City
290 W. Mt. Pleasant Ave, Suite 2350
Livingston, New Jersey 07039
-and-
80 Pine Street, 10th Floor
New York, New York 10005
By: Richard D. Trenk (pro hac vice)
Sydney J. Darling
Stephen Gengaro
LILES PARKER
Counsel to Defendant Wesley Drummon
2305 Calvert Street NW
Washington, District of Columbia 20008
By: John P. Pierce (pro hac vice)
HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE

Introduction1
W. Wesley Drummon (“Drummon”) is a debtor in this Court under chapter 7 of the
Bankruptcy Code.2 In this adversary proceeding, the City of Atlantic City (the “City”) seeks to
exclude the discharge of debts that Drummon allegedly owes to the City (the “Alleged Drummon
Debt”) from Drummon’s bankruptcy, alleging Drummon defrauded the City. On the Petition Date,
the City’s claims for fraud against Drummon were pending in the District Court Action in the
United States District Court for the District of New Jersey (the “District Court”). The District
Court denied the City’s summary judgment motion against Drummon in that action.3

The City’s claims against Drummon relate to two agreements from the summer of 2013
between the City and Zemurray Street Capital LLC (“Zemurray”), a company for which Drummon
served as Managing Partner. The agreements relate to providing lending services to eligible
applicants from the City: an MOU dated May 31, 2013, and an Escrow Agreement dated July 25,
2013. The City alleges that Drummon defrauded it with respect to these two agreements. In its
five-count Complaint4 in support of this adversary proceeding, the City asserts that the Alleged
Drummon Debt is not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6)

1 Capitalized terms not defined in the Introduction shall have the meanings ascribed to them herein.
2 In re W. Wesley Drummon, No. 19-10670 (Bankr. S.D.N.Y. filed March 1, 2019).
3 City of Atl. City v. Zemurray St. Cap., LLC, Civil No. 14-5169, 2017 WL 6638203 (D.N.J. Dec. 29, 2017)
(“District Court Decision”).
4 See Adversary Complaint Objecting to Discharge Pursuant to 11 U.S.C. §727 and Dichargability [sic] of Debts
Pursuant to 11 U.S.C. §523 (“Complaint”), ECF No. 1. Unless otherwise indicated, citations to “ECF No. _” refer to
documents filed on the electronic docket of this adversary proceeding, City of Atlantic City v. Drummon,
No. 19-01211.
(Counts One, Two, and Three, respectively) and that Drummon should be denied a bankruptcy
discharge pursuant to 11 U.S.C. § 727(a)(4)(A) and (a)(4)(B) (Counts Four and Five, respectively).

The discovery in the adversary proceeding is closed. In the District Court Action, on the
advice of counsel, Drummon invoked his Fifth Amendment right against self-incrimination in
response to certain of the City’s discovery requests. Drummon invoked his Fifth Amendment
rights in this case and has not been deposed by the City.
There are two matters before the Court. The first are competing summary-judgment
motions. Drummon filed a motion for summary judgment seeking to dismiss Counts One, Two,
and Three of the Complaint (the “Drummon SJ Motion”)5 and the City filed a cross-motion for

summary judgment for a determination that the Alleged Drummon Debt is excepted from
discharge under sections 523(a)(2)(A), (a)(4), and/or (a)(6) of the Bankruptcy Code (the “City SJ
Motion,”6 and together with the Drummon SJ Motion, the “Summary Judgment Motions”).
Drummon and the City oppose one another’s motions. The second is the City’s motion for an
adverse inference (the “Adverse Inference Motion,” and together with the Summary Judgment
Motions, the “Motions”),7 based on Drummon’s reliance on his Fifth Amendment right against
self-incrimination in this adversary proceeding. Drummon opposes the motion.

5 Defendant Drummon’s Memorandum of Points and Authorities in Support of His Motion for Summary Judgment,
ECF No. 101; see Defendant Drummon’s Motion for Summary Judgment, ECF No. 100.
6 The City of Atlantic City’s Memorandum of Law in Opposition to Defendant Drummon’s Motion for Summary
Judgment and in Support of the City’s Cross-Motion for Summary Judgment and for an Adverse Inference, ECF
No. 104; see Notice of Cross-Motion of the City of Atlantic City for Summary Judgment Pursuant to FRCP 56,
Incorporated into the Federal Rules of Bankruptcy Procedure by FRBP 7056, and Local Civil Rule 7056, ECF
No. 105.
7 Memorandum of Law in Support of Plaintiff City of Atlantic City’s Motion for an Adverse Inference Against
Defendant W. Wesley Drummon, ECF No. 89. This document is substantively identical to the City’s first motion for
an adverse inference in this Court. Memorandum of Law in Support of Plaintiff City of Atlantic City’s Motion for an
Adverse Inference Against Defendant W. Wesley Drummon, ECF No. 37.
For the reasons stated herein, the Court grants the Drummon SJ Motion and denies the City
SJ Motion. The Court denies the Adverse Inference Motion.

Jurisdiction
This Court has jurisdiction over the Motions pursuant to 28 U.S.C. §§ 1334(b) and 157(a)
and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States
District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska,
C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and (J).
Facts8

A. Deliberations Leading Up to the MOU
Zemurray Street Capital, LLC is a Delaware limited liability company.9 City Fact
Statement ¶ 2.10 Drummon is a member of an entity called Taipan Holdings, LLC, which is, in
turn, a member of Zemurray. Id. ¶ 3. In July 2012, representatives of Zemurray and the City

8 The facts are gathered from the parties’ statement of facts submitted pursuant to Local Bankruptcy Rule 7056-1,
affidavits and other sworn statements submitted in connection with the Motions, and exhibits appended to those
affidavits and statements. See Defendant Drummon’s Statement of Facts in Support of His Motion for Summary
Judgment (“Drummon Fact Statement”), ECF No. 102; City of Atlantic City’s Response to Defendant W. Wesley
Drummon’s Statement of Undisputed Material Facts (“City Fact Statement”), ECF No. 104-1; Defendant Drummon’s
Response to City of Atlantic City Statement of Facts in Support of its Cross Motion for Summary Judgment, ECF No.
107; Affidavit of John P. Pierce (“Pierce Affidavit”), ECF No. 102-1; Affidavit of Diana Romero (“Romero
Affidavit”), ECF No. 102-6; Affidavit of Lyle C. Holden (“Holden Affidavit”), ECF No. 102-7; Certification of
Richard D. Trenk (“Trenk Certification”), ECF No. 104-2; Certification of Sydney J. Darling (“Darling
Certification”), ECF No. 104-29; Supplemental Affidavit of John P. Pierce (“Supplemental Pierce Affidavit”), ECF
No. 108-1. The Darling Certification, in turn, attached the following sworn statements previously submitted in the
District Court Action (defined below): (i) Certification of Jim Thigpen in Support of Plaintiff Atlantic City’s Motion
for Summary Judgment (“Thigpen Certification”), attached as Exhibit A to the Darling Certification; (ii) Certification
of Deputy Solicitor Michael J. Perugini, Esq. in Support of Plaintiff Atlantic City’s Motion for Summary Judgment
(“Perugini Certification”), attached as Exhibit B to the Darling Certification; and (iii) Certification of Director of
Revenue & Finance/Chief Financial Officer Michael P. Stinson in Support of Plaintiff Atlantic City’s Motion for
Summary Judgment (“Stinson Certification”), attached as Exhibit C to the Darling Certification.
9 In various documents submitted to the Court, Zemurray is referenced as “Zemurray Street Capital Corporation”
rather than “Zemurray Street Capital, LLC.” In the District Court Action (defined below), Drummon clarified that
the references to Zemurray Street Capital Corporation in documents were in error. District Court Decision, 2017 WL
6638203, at *8 n. 2.
10 The Court will cite to facts in the Drummon Fact Statement or the City Fact Statement only to the extent the other
side has indicated in its response that such fact is undisputed.
began discussions regarding the creation of a lending program to benefit the residents of the City.
Pierce Affidavit, Ex. B at 10–13 of 52,11 Trenk Certification, Ex. B. On December 3, 2012,
Drummon sent a proposal to the City (“First Proposal”). Pierce Affidavit, Ex. C at 40–41.12 The
First Proposal contemplated that the City would provide $3 million to Zemurray to, among other
things, (i) acquire an entity called TN Business and Industrial Development Company (“TN

BIDCO”), and (ii) obtain a $25 million credit facility that was being negotiated between Zemurray
and Amalgamated Bank to originate Government-backed loans such as Fair Housing
Administration (“FHA”) and Small Business Administration (“SBA”) loans. Id. The First
Proposal described TN BIDCO as a business and industrial development company regulated by
the Tennessee Department of Financial Institutions having all the powers of a Tennessee chartered
commercial bank (except the ability to accept deposits). Id. It also mentioned that TN BIDCO
was designated a “preferred lender” by the SBA. Id. With the acquisition of TN BIDCO,
Zemurray could underwrite mortgages and SBA loans, and Zemurray would underwrite and fund
$40 million in SBA and mortgage loans in the City. Id. The City’s $3 million investment would

be protected because the loans made under the program would be guaranteed by the Government,
and based on projected income, Zemurray would be able to return the $3 million within six months
of funding. Id.

11 Exhibits B, C, and D to the Pierce Affidavit each contain numerous correspondence, drafts of agreements,
transcripts, and other documents. The documents also contain differing bates-stamp identifiers. For simplicity, the
Court will cite to the page number on the top of the page imprinted by the Court’s electronic-filing system when
referencing documents within these exhibits.
12 The City also asserts that Drummon sent an earlier proposal on August 28, 2012, although it does not appear in
the record (the “August 28 Proposal”). City Fact Statement ¶ 2; see City SJ Motion at 6; Drummon SJ Reply at 6
(“But the City has neither produced in discovery nor presented as evidence as part of its motion a copy of the alleged
August 28, 2012 Proposal”); Trenk Certification, Ex. B (containing a printout or an email sent from Drummon to
Weber and Eddie Lax on August 28, 2012, which contained an unspecified document attachment).
On December 13, 2012, Drummon sent a revised proposal to the City (“Second Proposal”)
in advance of a meeting scheduled to occur the following day. Trenk Certification, Ex. C. In this
version, the $3 million payment from the City would be invested with the $25 million credit facility
from Amalgamated Bank for the purpose of originating FHA, SBA and other Government-backed
loans. Id. Rather than acquire TN BIDCO as was contemplated in the prior iteration, the Second

Proposal stated that Zemurray would “[c]ontract with” TN BIDCO to provide the loans. Id. The
document stated that Zemurray would “underwrite and fund” mortgage and SBA loans as well.
Id.
On December 18, 2012, Drummon sent another revised proposal (“Third Proposal”), which
was styled as a more detailed “term sheet” for the lending program. Pierce Affidavit, Ex. B at 2,
16–18. The Third Proposal stated that the purpose of the program was to “[e]stablish the Atlantic

City Community Lending Program to assist residents and small businesses with financing in
conjunction with the Mayor’s Office.” Id. at 16. Specifically, the objectives set forth in the Third
Proposal were, among other things, to (i) establish a pilot program to work with a limited group of
the City’s residents who are eligible to borrow under Government-insured financing programs, (ii)
confirm TN BIDCO’s participation in the lending program, and (iii) confirm the City’s
commitment to provide an initial investment of $4 million (up from $3 million in the prior
proposals). Id. This version identified Zemurray as the “administrator” of the program that was
entitled to an “arrangement fee” of $200,000 for administering the lending program. Id. It also
contemplated that TN BIDCO would relocate to New Jersey, open an office in the City, and
register with the New Jersey Housing and Mortgage Finance Agency. Id. at 16–17.
On February 15, 2013, Drummon’s colleague sent the next iteration of the proposal
(“Fourth Proposal”)13 to City representatives. Drummon Fact Statement ¶ 12. According to the
transmittal email, this version narrowed the focus of the term sheet to the relationship between the
City and Zemurray and how they would work together to deploy funds to qualifying loans in the
City. Pierce Affidavit, Ex. B at 4.

On February 27, 2013, Drummon sent a document titled “Indicative Summary of Terms
and Conditions” to City representatives. Pierce Affidavit, Ex. B at 6, Ex. C at 51–55. The
document described how Zemurray intended to buy and sell loans in the secondary market to
leverage a contribution from the City of $6 to $7 million into $40 million of loans. Pierce
Affidavit, Ex. C at 51–52. The document referenced certain categories of SBA and FHA loans
that would be part of the program. Id. An attorney representing the City requested more detail on

the FHA portion of the program. On March 1, 2013, Drummon sent an updated draft. Drummon
Fact Statement ¶¶ 14–15.14
B. The MOU and the Escrow Agreement
In March 2013, the City retained an outside law firm to negotiate and document the lending
program with a memorandum of understanding (“MOU”) to be followed by a formal contract.
Drummon Fact Statement ¶ 18. On March 28, 2013, the initial draft of the MOU was submitted
to Drummon. Id. ¶ 19. Throughout April and May of 2013, representatives of the City and
Zemurray exchanged numerous drafts of the MOU with comments and proposed modifications.

See, e.g., Pierce Affidavit, Ex. C at 2–6, 19–24, 47–48; Ex. D at 8–26. The final version of the

13 A copy of the Fourth Proposal was not submitted by the parties.
14 There appears to have been other versions and iterations of proposal-type documents, see Drummon Fact
Statement ¶¶ 17–18, but it is unclear whether those drafts were submitted to the Court.
MOU was dated as of May 31, 2013, and signed by Drummon on behalf of Zemurray and then-
Mayor Lorenzo Langford on behalf of the City. Pierce Affidavit, Ex. B at 32–34. A subsequent
formal contract never materialized.

The MOU stated the purpose of the lending program was to
establish a loan fund (the “Loan Fund”) in which monies will be used to assist: (a)
small business owners in obtaining financing that will promote business growth and
job creation in the City, (b) individuals in obtaining affordable mortgages and/or
refinancing or modifying their existing mortgages on properties located in the City,
and (c) individuals with the rehabilitation and development of other housing stock
in the City.
MOU at 1. The Loan Fund was to be funded by an initial payment of between $3 and $5 million
from the City, which would be held in an escrow account and released only pursuant to the terms
of an escrow agreement to be executed by Zemurray and the City. Id. at 1–2. Under the MOU, if
the City paid the full $5 million into the Loan Fund within six months, then an aggregate amount
of up to $40 million would be made available to lend. Id. at 2. If the City paid less than $5 million
into the Loan Fund, then Zemurray would reduce the estimated aggregate lending amount
accordingly. Id. The term of the Loan Fund would be five years starting from the date of the
MOU. Id. at 1. Zemurray was obligated to provide quarterly reports to the City regarding the use
of funds in the Loan Fund within forty-five days of the end of each quarter. Id. Zemurray was
obligated to return the funds paid by the City to create the Loan Fund within thirty days of the
conclusion of the five-year term. Id.
As contemplated throughout the deliberations, the MOU provided that the lending program
would fund Government-backed loans for residents of the City. Id. Although Zemurray was
tasked with “oversee[ing] the implementation of the Loan Fund,” the MOU specified that
Zemurray would “use” TN BIDCO “to lend the monies in the Loan Fund.” Id. The MOU also
specified that it was governed by New Jersey law and that its terms superseded “any and all prior
agreements, written communications or understanding between the parties.” MOU at 2.

Zemurray, the City, and City National Bank of New Jersey, as escrow agent (“City National
Bank”) entered into an escrow agreement dated as of July 19, 2013, (“Escrow Agreement”)
governing disbursements of the Loan Fund. Pierce Affidavit, Ex. B at 23–31. As pertinent to the
Motions, the Escrow Agreement created an escrow account (“Escrow Account”) and authorized
Drummon to instruct the escrow agent to disburse funds in the account:
Except as expressly provided herein or as otherwise agreed to in writing by both an
authorized signatory of City . . . and of Zemurray, no one other than the authorized
signatories of Zemurray shall have the authority to give City National Bank
instructions with respect to the Escrow Fund.
City National Bank shall disburse all of the funds from the Escrow Fund within
three (3) Business Days of City National Bank’s receipt of written instructions from
the [sic] Zemurray.
Escrow Agreement ¶¶ 4–5. 15
On August 8, 2013, the City deposited $3 million into the Escrow Account. Drummon
Fact Statement ¶ 40.
C. Negotiations to Purchase TN BIDCO
In June 2012 (i.e., one month prior to the commencement of deliberations with the City),
Drummon commenced negotiations to have Zemurray purchase all of the outstanding stock in TN
BIDCO. Trenk Certification, Ex. H. In January 2013, Zemurray submitted a change-of-control
application to the Tennessee Department of Financial Institutions (the “Department”) seeking
regulatory approval of Zemurray’s purchase of TN BIDCO. Trenk Certification, Ex. I.

15 Under the Escrow Agreement, Drummon was the sole authorized signatory for Zemurray. See Escrow
Agreement, Schedule A.
By letter dated February 28, 2013, the Department sought clarification from Zemurray on
several items including the following:

According to the new business plan, [TN BIDCO] intends to originate real estate
loans and consumer loans. . . . This does not appear to be a permissible activity for
a Tennessee BIDCO. Please clarify or amend the Business Plan for consistency
with the activities that are permissible for those of a Tennessee BIDCO.
. . .
What is the source of funds for the purchase price of [TN BIDCO]?
Trenk Certification, Ex. J. By letter dated April 5, 2013, Zemurray responded to the inquiries.
Trenk Certification, Ex. K. With respect to the two items identified above, Zemurray answered
that it had amended the business plan to “remove any reference to residential mortgage and
consumer loan origination,” and that the funds to purchase TN BIDCO will come from “[e]quity
capital from the members of [Zemurray].” Id.
On April 18, 2013, the Department sent a second letter to Zemurray seeking additional
information. Trenk Certification, Ex. L. Among other things, the Department again sought an
explanation of the source of funds to pay TN BIDCO’s “current shareholders and for the proposed
capital injection.” Id. It reiterated that TN BIDCO is “prohibited from engaging in any residential
mortgage origination activity.” The letter also sought Zemurray’s financial information and the
names of Zemurray’s officers and directors. Id. By letter dated April 24, 2013, Drummon
responded that the “[t]he source of capital used by Zemurray for the payment to existing
shareholders is the proceeds from preferred units issued to members of [Zemurray].” Trenk
Certification, Ex. M. Further, Drummon replied that “TN BIDCO has no present plans to service
residential mortgages where any direct contact with the consumer is anticipated. We will remove
any servicing language in the business plan.” Id. In June and July 2013, Zemurray provided its
financial statements and list of members to the Department. Trenk Certification, Ex. N.
On August 2, 2013, Zemurray advised the Department that its capital injection into TN
BIDCO upon the change of control would be reduced from $5 million to $3 million. Trenk
Certification, Ex. O. By letter dated August 6, 2013, the Department responded that the reduced
amount was acceptable. Id.

D. Zemurray’s Purchase of TN BIDCO
An August 12, 2013 email from Jim Thigpen (then-President of TN BIDCO) memorialized
a conversation he had with Drummon about Zemurray’s purchase of TN BIDCO. Trenk
Certification, Ex. R. Thigpen stated that Zemurray would wire $5 million to TN BIDCO, and then
funds would flow to TN BIDCO stockholders. Id. On August 23, 2013, Drummon wired the $3
million in the Escrow Account to TN BIDCO’s account held at First Bank in Lexington,
Kentucky.16 City Fact Statement ¶ 36; Trenk Certification, Ex. R. The $3 million was disbursed
from TN BIDCO’s First Bank account as follows:

 $2,232,686.77 was transferred to TN BIDCO’s law firm (Trenk Certification, Exs. T and
U) and subsequently distributed as follows:

o $1,535,323 was transferred to TN BIDCO shareholders (Trenk Certification,
Ex. T);

o $692,363.77 was transferred to Citizens Tri-County Bank to pay off a line of credit
(id.);

o $5,000 was retained by the law firm for attorneys’ fees for work on the transaction
(id.);

 $20,000 was wired to Drummon (Trenk Certification, Ex. U);
 $600,000 was withdrawn from the First Bank account and deposited into an account held
by TN BIDCO with Farmers & Merchants Bank (id.); and

16 Other than its correlation to the City’s $3 million deposit into the Escrow Account, the record does not address
the discrepancy between the $5 million payment contemplated by Thigpen and Drummon and the $3 million that was
actually paid.
 $147,313.23 was unaccounted for.

See District Court Decision, 2017 WL 6638203, at *4.
On May 29, 2014, the Department wrote to Drummon, approving Zemurray’s acquisition
of TN BIDCO. Trenk Certification, Ex. W. However, TN BIDCO was not authorized to operate
because Zemurray failed to inject $3 million of new capital into the business:
Because of the increased risk inherent in the expanded markets and product
offerings of the proposed business plan, Zemurray was required to inject three
million dollars ($3.0 million) capital into TN BIDCO as a condition of approval of
the acquisition of control. Zemurray transferred three million dollars ($3.0 million)
in August 2013, part of which was used to buyout the existing TN BIDCO
shareholders. As such, Zemurray failed to inject the full amount of unimpaired
capital required to implement the proposed business plan.
Due to the failure of Zemurray to inject the required capital, the proposed business
plan (as submitted with the June 28, 2013 application and any subsequent revision)
has not been approved by the Department for use or implementation by TN
BIDCO. TN BIDCO is not authorized to conduct any new activity or expansion
of products and services as outlined in the proposed business plan . . . .
Id.
E. Zemurray’s Performance Under the MOU
Zemurray was required to provide quarterly reports under the MOU but only provided a
single report on March 24, 2014 (“Status Report”). Perugini Certification, Ex. H. The Status
Report provided as follows:
 Zemurray purchased the domain “www.acloanprogram.com” in early August 2013 and
created a website for the program. The website included a contact form and toll-free
number for potential clients. The website received a total of 199,564 hits.

 Zemurray had fielded 239 phone calls and received 268 forms on the program.
 Zemurray had met with sixty residents, twelve were prequalified for an SBA loan, and
three of the twelve were completing loan applications.17

Id.
The City asked Zemurray on several occasions to provide documentation to substantiate
the Status Report, but Zemurray failed to do so. Perugini Certification ¶ 39. The Status Report
did not include information about the status of the money in the Loan Fund. From the date of the
MOU until October 27, 2014, TN BIDCO did not make any loans under the lending program or
provide any financial or loan assistance to residents or business owners in the City. Thigpen
Certification ¶ 18.
F. The City Demands Return of the $3 Million and Terminates the MOU
At the end of the third quarter of 2013, a representative of the City contacted City National
Bank to obtain a bank statement for the Escrow Account. City Fact Statement ¶ 65. City National
Bank responded that the $3 million was no longer in the account. Stinson Certification ¶ 10. Once
the City learned that the $3 million was gone, it attempted to locate the funds but could not do so.
Id. ¶ 12.

Between March and May 2014, Michael Perugini (then-Deputy Solicitor for the City)
contacted Drummon on numerous occasions to try to secure the funds:
 March 19: Perugini spoke to Drummon and sent an email memorializing their conversation.
Perugini requested an immediate accounting and that the funds “remain intact and frozen
until” the City is satisfied that the funds are secure and being used for purposes set forth in
the MOU. Drummon confirmed receipt the following day and advised that he would meet
with others at Zemurray on the matter. (Perugini Certification, Ex. F);

 March 20: Perugini sent a formal letter to Drummon seeking the same information as in
his email the day before. (Perugini Certification, Ex. G);

17 Of these three applications, two contained pages which were completely inscrutable and the third was
uncompleted. District Court Decision, 2017 WL 6638203, at *5.
 March 26: Drummon sent an email to Perugini stating that he had requested that the “bank
and brokerage firm send funds in accounts.” (Perugini Certification, Ex. I);

 April 3: Drummon sent an email to Perugini stating that Zemurray will “take action to
restructure its balance sheet to return the Atlantic City Funds as expeditiously as possible.”
Perugini and Drummon exchanged further emails later the same day stating that the parties
will take steps to “disband” the program, place the City’s funds in a separate account, and
return the funds to the City. Drummon added that “[w]e will fully work with you so we
both can avoid the cost of litigation.” (Perugini Certification, Ex. L);

 April 7: Perugini sent an email and letter to Drummon stating, among other things, that
Drummon had not provided proof that the funds were secure or in a separate account.
(Perugini Certification, Exs. M and N); and

 April 7–May 28: Perugini left a series of voice messages for Drummon but never received
a response.

On May 7, 2014, the City adopted a resolution authorizing the cancellation of the MOU.
Perugini Certification, Ex. O. On May 21, 2014, Perugini sent a letter to Drummon attaching the
City’s resolution and advising that the City will commence legal action against Zemurray. Perugini
Certification, Ex. P.
G. District Court Action
On July 15, 2014, the City filed a lawsuit against Zemurray, Drummon and others in the
Superior Court of New Jersey. In it, the City asserted claims against Zemurray, Drummon, and
other defendants for breach of contract, breach of the implied covenant of good faith and fair
dealing, fraud, conversion, fraudulent transfer, and fraudulent concealment.18 On August 19, 2014,
that action was removed to the District Court. See City of Atl. City v. Zemurray St. Cap., LLC,
Civil No. 14-5169 (D.N.J. filed Aug. 19, 2014) (the “District Court Action”). On April 7, 2016,
Drummon was deposed in the District Court Action. Trenk Certification, Ex. Z. After answering
questions about his ownership interest in Zemurray, the commencement of negotiations to acquire

18 The City also sought, as a remedy, to impose liability on the defendants under a veil-piercing theory.
TN BIDCO, and using a portion of the $3 million payment by the City to purchase TN BIDCO,
Drummon invoked his Fifth Amendment right against self-incrimination for the remainder of his
deposition. See generally id.; City Fact Statement ¶¶ 96–100. Drummon similarly invoked his
Fifth Amendment right in the vast majority of his responses to requests for admissions served by
the City. Trenk Certification, Ex. AA; City Fact Statement ¶ 101.

In the District Court Action, the City moved for summary judgment on its claims.19 The
District Court granted the motion in part and denied it in part. The District Court granted the City
summary judgment on the breach of contract count with respect only to Zemurray, but it denied
the motion with respect to Drummon, and it denied the City’s motion on all other counts against
both Drummon and Zemurray. It also declined to make an adverse inference based on Drummon’s
invocation of his Fifth Amendment rights.

The District Court’s rulings on the City’s breach of contract, breach of the implied covenant
of good faith and fair dealing, and fraud claims are relevant to the matters herein and are described
below.
1. Breach of Contract

The City alleged three separate theories in support of its breach of contract claim against
Zemurray: (i) failure to take action in furtherance of the MOU, (ii) unauthorized transfer of $3
million from the Escrow Account, and (iii) failure to comply with quarterly reporting obligations.
District Court Decision, 2017 WL 6638203, at *10. The Court denied summary judgment on the
argument that Zemurray failed to act in accordance with the MOU. It reasoned that, although little

19 Zemurray and Drummon moved for summary judgment but neglected to file a Local Civil Rule 56.1(a) statement,
and so the District Court denied that motion and a subsequent cross-motion for summary judgment on procedural
grounds. and it also sought an adverse inference based on Drummon’s invocation of his Fifth Amendment rights.
occurred, “[i]t may well be that nothing ever happened because the situation on the ground was
amenable to nothing ever happening.” Id. at *12. The Status Report supported this inference.
Despite 199,564 website hits and hundreds of calls received and forms submitted, only three loan
applications were ever submitted. Id. “If only three applications were ever completed, the fact
that no loans were ever made or even processed is unremarkable.” Id. The Court also denied

summary judgment on the City’s theory that the purchase of TN BIDCO itself constituted a breach
of the MOU. Id. at *13. The MOU stated that Zemurray would “use” TN BIDCO to lend money
in the Loan Fund. At first blush, the Court saw no inconsistency between the MOU’s language
and the purchase of TN BIDCO because the term “use” could imply that an item must first be
obtained or purchased before it is used. Id. The Court also noted that the MOU contained an
integration clause stating that its terms superseded all prior understandings among the parties. Id.
Nonetheless, the Court held that New Jersey law does not strictly apply the parol evidence rule,
and the term “use” is broad enough to encompass either purchasing an entity or contracting with
such entity. Id. at *14. Thus, the definition of “use” is ambiguous, and its meaning should be

resolved by a jury. Id.
The Court likewise denied summary judgment on the City’s argument that Zemurray’s
$3 million disbursement from the Escrow Account violated the MOU and Escrow Agreement. Id.
at *15. District Judge Kugler explained that Zemurray’s actions were permitted under those
agreements:

There is nothing in the [MOU] or the Escrow Agreement that indicates transfer of
the $3 million out of the contract is in and of itself breach of the [MOU]. Indeed,
the [MOU] envisioned a scenario in which Zemurray would contract with TN
BIDCO to administer the Lending Program. If Zemurray could use TN BIDCO
under the [MOU], then it follows that Zemurray could transfer funds out of the
Loan Fund to TN BIDCO, for there would otherwise be no other way for TN
BIDCO to administer the funds. So the argument, repeated over and over again
throughout this litigation, that Zemurray could not transfer anything out of the
[Loan Fund] under the [MOU], is flatly contradicted by a straightforward
application of the [MOU’s] terms. We therefore do not agree that Zemurray
breached the [MOU] simply by transferring the money out of the escrow account.
Id.
The Court did, however, grant summary judgment against Zemurray for failure to provide
quarterly reports. Id. The MOU required Zemurray to provide such reports to track funds in the
Loan Fund, Zemurray failed to provide timely reports, and the sole Status Report provided to the
City did not include information about disbursements from the Loan Fund. Id.20 However, it
denied summary judgment against Drummon and the other co-defendants because they were not
parties to the contract. Id.
2. Implied Covenant of Good Faith and Fair Dealing
Under New Jersey law, a party violates the implied covenant of good faith and fair dealing
where he has “engaged in some conduct that denied the benefit of the bargain originally intended
by the parties.” Id. at *16 (quoting Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr.
Assocs., 864 A.2d 387, 396 (N.J. 2005)). Initially, the Court noted that Zemurray’s failure to
disclose to the City its contemporaneous negotiations to acquire TN BIDCO was not indicative of
bad faith. A business generally has no affirmative duty of disclosure to another business absent a
fiduciary duty or special relationship. Id. (citing Harvey v. Nissan N. Am., Inc., No. C-12016-04,
2005 WL 1252341, at *4 (N.J. Sup. Ct. Ch. Div. Apr. 29, 2005)). Prior to assuming control of the

City’s $3 million, Zemurray was not a fiduciary. Id.

20 The Court also found that Zemurray failed to provide a reduced estimate for aggregate lending as required by the
MOU. District Court Decision, 2017 WL 6638203, at *15.
The Court explained that Zemurray’s actions did not rise to the level of bad faith needed
to establish a breach of the implied covenant and denied the City’s motion on this count:

Ultimately, the record does not establish that Drummon, acting on behalf of
Zemurray, had acted with “ill motives and without any legitimate purpose.”
Brunswick, 864 A.2d at 396. Much of what can be explained by malice is equally
explained by ignorance, mistake, or confusion. This deal was inked on a contract
less sophisticated than a pizza parlor job application. That the parties subsequently
had difficulties on the follow-through is unsurprising. It is eminently plausible to
this Court that Zemurray thought it could get clearance to use TN BIDCO for the
Lending Program, or simply had no idea what it was doing. Whatever the case, the
City has not met its burden in proving Zemurray acted in bad faith in performing
its loosely-defined obligations under the [MOU]. There are other explanations,
many of them unflattering, but still sufficient for this Court to deny the City’s
motion for summary judgment as to this claim against Zemurray.
Id. at *17 (footnote omitted). The District Court also denied the City’s motion as to Drummon on
the separate ground that he was not a party to the contract.
3. Fraud
The elements of a fraud claim under New Jersey law are “(1) a material misrepresentation
of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an
intention that the other person rely on it; (4) reasonable reliance thereon by the other person;
(5) resulting damages.” Id. at *18 (quoting Dewey v. Volkswagen AG, 558 F. Supp. 2d 505, 525
(D.N.J. 2008)). Initially, the Court observed that the City had alleged two types of fraud: (1) fraud
in the inducement, i.e., the City was induced to select Drummon, Zemurray, and TN BIDCO rather
than another company, and (2) fraud in the performance, i.e., Zemurray failed to report and account
for the funds and to refund the money to the City. Id. The Court rejected the latter argument
because “[f]raud in the performance is fraud arising from a contractual relationship[.]” Id. (citing
Unifoil Corp. v. Cheque Printers & Encoders Ltd., 622 F. Supp. 268, 271 (D.N.J. 1985)).
The Court noted that Zemurray had made two misrepresentations. First, Zemurray told the
City that it would “contract with” TN BIDCO but subsequently acquired TN BIDCO. The Court
observed that it was unclear “that the Defendants planned to purchase TN BIDCO in knowing
violation of the [MOU] with the intent of inducing the City into the [MOU].” Id. The Court was
not convinced by the City’s theory and observed that, “[o]f the explanations available for what

happened here, human error is at least as compelling an explanation as fraudulent intent.” Id.
Second, Zemurray misrepresented TN BIDCO’s ability to originate residential loans. Id.
The record was clear that TN BIDCO could not originate residential loans, but Drummon went
forward with the MOU despite knowing about this limitation. Id. Nonetheless, the Court again
found that “mistake can easily explain the conduct of Defendants. The fact that the Lending
Program envisioned by the parties fell apart spectacularly does not prove Defendants intended that

to happen. On summary judgment, the Court will not infer subjective intentions from objective
consequences.” Id. The District Court denied the motion on this count with respect to Zemurray
and Drummon.
The Court also declined to make an adverse inference from Drummon’s invocation of his
Fifth Amendment right. Id. (“Drummon’s decision to take the Fifth Amendment is neither
irregular nor indicative of his involvement in the scheme alleged by the City. We decline to make
such an adverse inference in the absence of other evidence that is strongly suggestive of his intent

to defraud the City.”).
H. Initiation of the Bankruptcy Case and Adversary Proceeding,
On March 1, 2019, Drummon filed a chapter 7 bankruptcy case in this Court. See In re
Drummon, Case No. 19-10670 (Bankr. S.D.N.Y.). By operation of the automatic stay, 11 U.S.C.
§ 362(a), the District Court Action has been stayed as to Drummon. On June 3, 2019, the City
commenced this adversary proceeding. The Complaint contains five counts for relief. In Counts
One, Two and Three, the City seeks judgments against Drummon determining that all debts owed
by him to the City are non-dischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6),
respectively. Complaint ¶¶ 110–22. In Counts Four and Five, the City seeks judgments denying
Drummon a discharge in bankruptcy under 11 U.S.C. § 727(a)(4)(A) and (B), respectively. Id.

¶¶ 123–27.
The Motions

The Summary Judgment Motions
Background
On July 7, 2022, Drummon filed a motion to dismiss the adversary proceeding pursuant to
Rule 12(c) of the Federal Rules of Civil Procedure,21 and to supplement his opposition to the
pending Adverse Inference Motion.22 On August 30, 2022, Drummon amended the motion (the
“Amended Rule 12(c) Motion”).23 In support of that motion, and in substance, Drummon asserted
that the Court should dismiss the Complaint pursuant to Rules 9(b)24 and 12(c) because the City
has demonstrated in its discovery production and in its prior court filings that it can never satisfy
the elements of a fraud claim. Amended Rule 12(c) Motion at 2. He said that is so because:

the City has no evidence to present from any one of the many City representatives
(mostly attorneys), who interacted with Drummon over the course of months of
negotiations, that any one of those representatives relied on any statement by

21 Rule 12(c) is made applicable herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”).
22 Defendant Drummon’s Motion to Dismiss Pursuant to Rule 12(c) and/or His Supplemental Response in
Opposition to the City’s Motion for an Adverse Inference, ECF No. 87.
23 Defendant Drummon’s Amended Motion to Dismiss Pursuant to Rule 12(c), ECF No. 92.
24 Rule 9(b) is made applicable herein by Bankruptcy Rule 7009.
Drummon to take an act or make a decision about the agreements that led to a
detrimental result for the City.
Id. In short, he contended that the City had failed to produce evidence identifying the “who, what,
when, where and how” of Drummon’s alleged fraudulent conduct because there “is no indication
of a person or persons who allegedly received false information from Drummon upon which that
person or persons relied to enter into either agreement on behalf of the City, and what that
information was and when and where it was received.” Id. at 3. Drummon maintained that,
because of that lack of evidence, the City could not prove fraud against him. Id. at 4–8. He also
asserted that many of the City’s allegations in the Complaint are superfluous and do not support
the underlying allegations of fraud. Id. at 8–12.

On September 13, 2022, the City filed its opposition to the Amended Rule 12(c) Motion
(the “Rule 12(c) Opposition”).25 The City argued that the motion was procedurally improper
because Drummon had failed in earlier attempts to attack the sufficiency of the Complaint. Rule
12(c) Opposition at 4–6. It also asserted that the Complaint stated claims for relief under sections
523(a)(2)(A), 523(a)(4), and 523(a)(6). Id. at 7–10. As support for that argument, the City relied
on Husky Intern. Elecs., Inc. v. Ritz, 578 U.S. 355 (2016). Id.

On September 21, 2022, Drummon replied to the City’s Rule 12(c) Opposition (the
“Rule 12(c) Reply”).26 He denied that the motion was procedurally improper. Rule 12(c) Reply
at 2–3. He also asserted that the City misplaced its reliance on Husky. Briefly, in Husky, the
Supreme Court held that for purposes of section 523(a)(2)(A), “actual fraud” is not limited to false

25 Plaintiff’s Memorandum of Law in Opposition to Defendant Drummon’s Amended Motion to Dismiss Pursuant
to Rule 12(c), ECF No. 93.
26 Defendant Drummon’s Reply to Plaintiff’s Opposition to His Motion to Dismiss Pursuant to Rule 12(c), ECF No.
97.
statements on which the creditor relies, but instead can include a fraudulent conveyance of property
to evade payment to creditors without a false statement to such creditors. See Husky, 578 U.S. at
366 (“Because we must give the phrase ‘actual fraud’ in §523(a)(2)(A) the meaning it has long
held, we interpret ‘actual fraud’ to encompass fraudulent conveyance schemes, even when those
schemes do not involve a false representation.”). Drummon asserted that, on the face of the

pleadings, it is factually impossible for Drummon to have “fraudulently conveyed” the City’s
funds to evade an obligation owed to the City, because no such obligation existed at the time of
the transfer. Rule 12(c) Reply at 6–7. He argued that the “four corners of the Adversary Complaint
are devoid of facts to support an alleged ‘actual fraud’ by way of a fraudulent conveyance made
without a statement on which the creditor relied.” Id. at 7. He also asserted that the Court should
dismiss the Complaint because:

(i) Whether Count 1 of the Complaint is analyzed under section 523(a)(2)(A) for
allegations of “false pretenses” or “false representations,” which require allegations
of reliance, or “actual fraud,” which includes fraudulent conveyances without
reliance on false statements, the Complaint does not include allegations of fact that
satisfy the elements of fraud and must be dismissed for failure to satisfy Rule 9(b).
(ii) Count 2 of the Complaint fails to allege a violation of section 523(a)(4) because
it does not allege fraud based on false representations with sufficient particularity,
and the alternative under Husky of a fraudulent conveyance is a factual
impossibility under the allegations of the Complaint. Moreover, the Complaint does
not allege that Drummon was a fiduciary of the City, and the facts alleged do not
support any inference that Drummon was a fiduciary.
(iii) In Husky, the Supreme Court noted that debtors who commit fraudulent
conveyances and the debtors who make false representations under § 523(a)(2)(A)
could likewise also inflict ‘willful and malicious injury’ under § 523(a)(6).” Husky,
578 U.S. at 363. Drummon asserts that the City’s claim under section 523(a)(6)
fails on the face of the Complaint because the City did not sufficiently articulate
facts to support claims for false representations (and reliance thereon) and a
fraudulent conveyance is a factual impossibility.
See id. at 7–8.
By order dated October 5, 2022, the Court converted the Amended Motion to Dismiss into
a Motion for Summary Judgment.27 On November 9, 2022, Drummon filed the Drummon SJ
Motion, the Local Bankruptcy Rule 7056-1 affidavit, and other sworn statements in support of the
Drummon SJ Motion.28 On November 23, 2022, the City filed the City SJ Motion, the Local
Bankruptcy Rule 7056-1 affidavit, and other sworn statements in support of the motion.29 On

December 5, 2022, Drummon filed his opposition to the City SJ Motion (the “Drummon
Opposition”),30 and on December 8, 2022, he filed his reply to the City’s opposition to his motion
for summary judgment (the “Drummon SJ Reply”).31 Also on December 8, 2022, the City filed
its reply to Drummon’s opposition to its cross-motion for summary judgment (the “City SJ
Reply”).32
In support of the Drummon SJ Motion, Drummon essentially contends that he is entitled

to summary judgment dismissing Counts One, Two and Three of the Complaint because the City’s
theory of fraud is not substantiated by the representatives of the City who were involved with the
negotiation and execution of the MOU and Escrow Agreement. He asserts that the City cannot

27 Minute Order, ECF No. 98.
28 Defendant Drummon’s Motion for Summary Judgment, ECF No. 100; Defendant Drummon’s Memorandum of
Points and Authorities in Support of His Motion for Summary Judgment, ECF No. 101; Defendant Drummon’s
Statement of Facts in Support of His Motion for Summary Judgment, ECF No. 102; see supra n.8.
29 Cross-Motion of the City of Atlantic City for Summary Judgment Pursuant to FRCP 56, Incorporated into the
Federal Rules of Bankruptcy Procedure by FRBP 7056, and Local Civil Rule 7056-1, ECF No. 105; The City of
Atlantic City’s Memorandum of Law in Opposition to Defendant Drummon’s Motion for Summary Judgment and in
Support of the City’s Cross-Motion for Summary Judgment and for an Adverse Inference, ECF No. 104; The City of
Atlantic City’s Statement of Additional Undisputed Material Facts in Support of Its Opposition to Defendant
Drummon’s Motion for Summary Judgment and the City’s Cross-Motion for Summary Judgment, ECF No. 104-1; see
supra n.8.
30 Defendant Drummon’s Opposition to the City of Atlantic City’s Cross-Motion for Summary Judgment, ECF
No. 106.
31 Defendant Drummon’s Reply to the City of Atlantic City’s Opposition to His Motion for Summary Judgment, ECF
No. 108.
32 Reply in Further Support of City of Atlantic City’s Cross Motion for Summary Judgment, ECF No. 109.
meet its burden of demonstrating fraud because it cannot put forth evidence from a percipient
witness in support of the fraud claim. He argues that the lengthy detailed arms-length negotiation
between the City and Zemurray, through their respective agents, do not support the fraud claim,
and that the City has not produced evidence identifying particular people who, in entering into the
MOU or Escrow Agreement, relied on false statements made by Drummon. Drummon SJ Motion

at 7. Drummon maintains that the record is devoid of any evidence inculpating him with respect
to defrauding the City—instead, the record reflects that there were “months of exhaustive, rigorous
and extremely complex negotiations . . . which ultimately led to the MOU and Escrow
Agreement.” Id. at 8. He asserts that he participated in negotiations alongside two other
individuals, and that the City had a total of eight negotiators—six of these were attorneys, and the
other two were Mayor Langford and Eddie Lax. Id. at 8–9. Drummon stresses that “there is never
any indication that any percipient witness received a representation (or alleged misrepresentation)
on which the witness relied to compel the City to enter into the MOU and/or the Escrow
Agreement.” Id. at 9. Drummon also makes the point that any communications he made after the

MOU and Escrow Agreement were entered into were irrelevant because those communications
could not have induced the City to enter into already-extant agreements. Id. at 12–13. This is
because there is no cause of action for fraud in the performance of a contract, and “the City has
neither alleged sufficient facts of fraud in the inducement in the Adversary Complaint, nor
produced evidence of fraud in discovery or in court filings.” Id. Accordingly, Drummon contends
that because there is no evidence of a misrepresentation by him that induced reliance, he is entitled
to summary judgment dismissing Counts One, Two, and Three of the Complaint.

The City contends that it is entitled to summary judgment on Counts One, Two and Three
of the Complaint. Citing Husky, the City argues that “the Supreme Court has recognized that
certain instances of fraud, ‘like fraudulent conveyance schemes . . . can be effected without a false
representation.’” City SJ Motion at 5 (quoting Husky, 578 U.S. at 359). The City says that the
undisputed facts establish a “fraudulent scheme” sufficient to rise to the level of fraud under the
Bankruptcy Code. Id. at 6 (citing Husky, 578 U.S. at 366 ((holding that 11 U.S.C. §523(a)(2)(A)
is sufficiently alleged where the party alleges a fraudulent scheme and where “[t]he debtors who

commit fraudulent conveyances and the debtors who make fraudulent representations under
§ 523(a)(2)(a) could likewise also inflict ‘willful and malicious injury’ under § 523(a)(6).”).
The City asserts that, at a minimum, Drummon has not met his burden of establishing that
no reliance occurred. Id. As support, it contends that the August 28 Proposal and the Second
Proposal constitute false statements upon which City representatives relied. Id. It also says that
the “undisputed facts show a litany of misrepresentations made by Zemurray, through Drummon

in order to induce the City to enter into the [MOU] . . . .” Id. In the Complaint, the City cites to
the following alleged misrepresentations upon which it relied in entering into the MOU and
Escrow Agreement:
 Drummon represented to the City that he had the requisite experience and expertise to
implement and oversee administration of the loan program.
 Drummon represented to the City that TN BIDCO would be a SBA-Certified lender for the
loan program, even though he knew that TN BIDCO was not approved to make residential
loans.
 Drummon represented to the City that loan origination functions under the MOU would be
completed by TN BIDCO.
 Drummon represented to the City that the Escrow Fund would not be distributed without the
express authorization of the City.
 Represented to the City that the loan funds would be returned shortly, were liquid and set aside
for the City.
 Represented to the City that the money for the loan program would be accounted for in
quarterly reports.
Complaint ¶ 111. Relying on Husky, the City also points to actions taken by Zemurray and
Drummon after Zemurray and the City executed the MOU and Escrow Agreement, as evidence of
an “elaborate scheme intended to defraud the City” that “is exactly what was found [in Husky] to
constitute actual fraud via a fraudulent conveyance scheme pursuant to 11 U.S.C.§523(a)(2)(A).”
City SJ Motion at 7–8.

Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure governs motions for summary judgment.
It is made applicable herein by Bankruptcy Rule 7056. Summary judgment is proper “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); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). Thus, in adjudicating a motion for summary judgment, a court does not resolve disputed
issues of fact. Rather, it only considers whether there is a genuine issue to be tried. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986) (observing that “at the summary judgment stage the
judge’s function is not himself to weigh the evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial”). In making that determination, the court must

resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587; Reeves v. Sanderson Plumbing
Prods., Inc., 530 U.S. 133, 151 (2000) (“Thus, although the court should review the record as a
whole, it must disregard all evidence favorable to the moving party that the jury is not required to
believe.”). The Court must view the evidence in the light most favorable to the non-moving party.
Liberty Lobby, 477 U.S. at 255.
A dispute regarding a material fact is genuine “if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.” Id. at 248. Courts find that there is no
genuine dispute as to any material fact where “(1) the parties agree on all facts (that is, there are
no disputed facts); (2) the parties disagree on some or all facts, but a reasonable fact-finder could
never accept the nonmoving party’s version of the facts (that is, there are no genuinely disputed

facts); or (3) the parties disagree on some or all facts, but even on the nonmoving party’s version
of the facts, the moving party would win as a matter of law (that is, none of the factual disputes
are material).” City of New York v. Tavern on the Green Int’l LLC, 351 F. Supp. 3d 680, 687
(S.D.N.Y. 2018) (citations omitted).
The moving party bears the initial burden of showing that the undisputed facts entitle it to
judgment as a matter of law. Rodriguez v. City of New York, 72 F.3d 1051, 1060–61 (2d Cir.

1995). If the moving party carries the initial burden, “the nonmoving party must come forward
with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid
summary judgment.” Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008); see Hicks
v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (“[A] party may not rely on mere speculation or
conjecture as to the true nature of the facts to overcome a motion for summary judgment.”
(alteration in original) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)). The
non-moving party must establish a genuine issue of fact by “citing to particular parts of materials
in the record.” Fed. R. Civ. P. 56(c)(1)(A). In that way, “summary judgment is essentially ‘put
up or shut up’ time for the non-moving party: the non-moving party must rebut the motion with
facts in the record and cannot rest solely on assertions made in the pleadings, legal memoranda, or

oral argument.” Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir. 2006) (citing
Jersey Cent. Power & Light Co. v. Lacey Twp., 772 F.2d 1103, 1109–10 (3d Cir. 1985)). “After
the non-moving party to the summary judgment motion has been afforded a sufficient time for
discovery, summary judgment must be entered against it where it fails to make a showing sufficient
to establish the existence of an element essential to its case and on which it has the burden of proof
at trial.” In re Worldcom, Inc., 374 B.R. 94, 105 (Bankr. S.D.N.Y. 2007) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986)).

Where, as here, there are competing motions for summary judgment, “each moving party
‘has the burden of presenting evidence to support its motion that would allow the district court, if
appropriate, to direct a verdict in its favor.’” McDonnell v. First Unum Life Ins. Co., No. 10-cv-
8140, 2013 WL 3975941, at *13 (S.D.N.Y. Aug. 5, 2013) (quoting Barhold v. Rodriguez, 863 F.2d
233, 236 (2d Cir. 1988)). The moving party’s burden does not shift when cross-motions for
summary judgment are before the Court. Larsen v. Prudential Ins. Co. of Am., 151 F. Supp. 2d

167, 171 (D. Conn. 2001). Each side must demonstrate the absence of disputed issues of material
fact. Each party’s motion “must be examined on its own merits, and in each case all reasonable
inferences must be drawn against the party whose motion is under consideration.” Morales v.
Quintel Entm’t, Inc., 249 F.3d 115, 121 (2d Cir. 2001). Thus, the non-moving party must still
come forward with “specific facts showing that there is a genuine issue for trial” in order to defeat
a properly supported summary judgment motion. Liberty Lobby, 477 U.S. at 256. Accordingly, a
court need not enter judgment for either party. Roberts v. Genting New York LLC, 68 F.4th 81, 88
(2d Cir. 2023); see Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3rd Cir. 1968) (“Cross
motions are no more than a claim by each side that it alone is entitled to summary judgment, and
the making of such inherently contradictory claims does not constitute an agreement that if one is

rejected the other is necessarily justified . . . .”).
Analysis
Complaint Count One
In support of Count One of the Complaint, the City alleges that “the Debtor engaged in a broad,
multi-faceted scheme to defraud the City” through the following material acts:
 Represented to the City that he had the requisite experience and expertise to implement
and oversee administration of the Loan Program.

 Represented to the City that TNBIDCO would be an SBA-certified lender for the Loan
Program, despite knowing that TN BIDCO was not approved to make residential loans.

 Represented to the City that loan origination functions under the MOU would be completed
by TN BIDCO.

 Represented to the City that Escrow Fund would not be distributed without express
authorization of the City which was violated.

 Represented to the City several times in writing that the loan funds would be returned
shortly, were liquid and set aside for the City.

 Represented to the City that the money for the Loan Program would be accounted for in
quarterly reports.

Complaint ¶ 111. It maintains that “[b]y virtue of these acts, the Debtor obtained money, from the
City by false pretenses, false representations and/or actual fraud, or by use of a statement in writing
that is materially false, and that Debtor caused to be made or published with intent to deceive.”
Id. ¶ 112. Accordingly, the City asserts that the debts owed by Drummon to the City are
nondischargeable under section 523(a)(2)(A). Id. ¶ 113.
Section 523 excepts certain debts from discharge in exceptional cases; “exceptions to
discharge are to be narrowly construed and genuine doubts should be resolved in favor of the
debtor.” Denton v. Hyman (In re Hyman), 502 F.3d 61, 66 (2d Cir. 2007). In considering claims
under section 523(a)(2)(A), the Court applies federal law. Grogan v. Garner, 498 U.S. 279, 284
(1991). Nondischargeability claims must be proven by a preponderance of the evidence. Id. at
286 n.87.

Section 523(a)(2)(A) states that a discharge under relevant provisions of the Bankruptcy
Code does not discharge an individual debtor from any debt “for money, property, services, or an
extension, renewal, or refinancing of credit,” to the extent it was obtained by “false pretenses, a
false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s
financial condition.” 11 U.S.C. § 523(a)(2)(A). This subsection contains three independent bases
for nondischargeability. To establish that a money debt was incurred under “false pretenses,” the
plaintiff must show “(1) an implied misrepresentation or conduct by the defendant; (2) promoted
knowingly and willingly by the defendant; (3) creating a contrived and misleading understanding
of the transaction on the part of the plaintiff; (4) which wrongfully induced the plaintiff to advance

money, property, or credit to the defendant.” Lubit v. Chase (In re Chase), 372 B.R. 125, 128
(Bankr. S.D.N.Y. 2007). To prove “false representation,” the plaintiff must present proof of “a
false or misleading statement made with intent to defraud and justifiable reliance by a creditor.”
Hochstadt v. Lew (In re Lew), No. 11-02404, 2011 WL 5836481, at *3 (Bankr. S.D.N.Y. Nov. 21,
2011) (citing Chase, 372 B.R. at 129). Omissions of fact may qualify as a false representation
“where the circumstances are such that disclosure is necessary to correct what would otherwise be
a false impression.” Parklex Assocs. v. Deutsch (In re Deutsch), 575 B.R. 590, 599 (Bankr.
S.D.N.Y. 2017) (quoting Signature Bank v. Banayan (In re Banayan), 468 B.R. 542, 574–75
(Bankr. N.D.N.Y. 2012)). To show “actual fraud,” the plaintiff must generally establish the “five
fingers of fraud,” that is “proof that the debtor (1) made a false representation (2) while knowing

it was false (3) with the intent to deceive the creditor; plus the creditor (4) justifiably relied on the
misrepresentation; and (5) suffered pecuniary damages as a result.” Lew, 2011 WL 5836481, at
*3 (citing Field v. Mans, 516 U.S. 59, 70-71 (1995)); accord Evans v. Ottimo, 469 F.3d 278, 283
(2d Cir. 2006) (“The elements of actual fraud under [the] Bankruptcy Code incorporate the general
common law of torts and likewise include a false representation, scienter, reliance, and harm.”).
In Husky, the Supreme Court ruled that “actual fraud” can encompass other forms of fraud “that
can be effected without a false representation” including “fraudulent conveyance schemes”

designed to hinder collection of debt. Husky, 578 U.S. at 359.
“Justifiable reliance” is an “intermediate level of reliance; less than reasonable but more
than mere reliance in fact.” Citik Ka Wah Bank Ltd. v. Wong (In re Wong), 291 B.R. 266, 275
(Bankr. S.D.N.Y. 2003). The Supreme Court has explained that, while a plaintiff’s reliance on a
misrepresentation must be justifiable, “this does not mean that his conduct must conform to the
standard of the reasonable man.” Field, 516 U.S. at 70–71 (quoting Restatement (Second) of Torts

§ 545A, cmt. b (Am. L. Inst. 1976)). However, there are limits on justifiability, and a person is
“required to use his senses, and cannot recover if he blindly relies upon a misrepresentation the
falsity of which would be patent to him if he had utilized his opportunity to make a cursory
examination or investigation.” Id. (quoting Restatement (Second) of Torts § 541, cmt. a (Am. L.
Inst. 1976)).
The Court first considers the City’s motion for an order granting it summary judgment on
Count One. The City contends that the Alleged Drummon Debt is excepted from discharge under

section 523(a)(2)(A) because Drummon intentionally defrauded the City by (i) making actual
misrepresentations to City representatives that they relied upon in transferring $3 million to the
Escrow Account, and (ii) engaging in a scheme to defraud the City of $3 million. See City SJ
Motion at 4–8. The Court considers whether the City has met its burden of showing undisputed
facts demonstrating that it is entitled to a judgment as a matter of law denying the discharge of the
Alleged Drummon Debt under section 523(a)(2)(A). As is explained below, the Court finds that
each purported misrepresentation alleged in the Complaint is either unsupported by the factual
record, or is only a legal argument that is couched as fact.

Actual Misrepresentation
As noted, the City asserts that Drummon made a series of misrepresentations to City
representatives. As support for this motion, the City relies on the alleged misrepresentations listed
in ¶ 111 of the Complaint. The Court considers them below.
The City contends that Drummon misrepresented his qualifications to the City. City SJ
Motion at 2. However, the City does not identify any particular fact in the record that demonstrates
that Drummon misled the City about his qualifications, and the Court could not locate anything in

the City Fact Statement that supports this assertion. In fact, the early communications included in
the record suggest that the City was affirmatively seeking Drummon to run the program. Pierce
Affidavit, Ex. B at 10 (July 11, 2012 email between City representatives seeking to arrange a
meeting with Drummon); id. at 11–13 (July 26 to August 1, 2012 email chain among City
representatives and Drummon to arrange a meeting with Drummon).
Second, the City asserts that Drummon misrepresented that TN BIDCO would be an
SBA-certified lender for the Loan Program, despite knowing that TN BIDCO was not approved to

make residential loans. City SJ Motion at 2. It contends that Drummon knew from his
correspondence with the Department that TN BIDCO could not originate residential loans but
nonetheless entered into the MOU with the City. Id. However, the record does not support that
assertion.
TN BIDCO’s role in the program was a moving target. In the First Proposal, Zemurray
was going perform the lending upon its acquisition of TN BIDCO. Pierce Affidavit, Ex. C at 40.
In the Second Proposal, Zemurray was going to provide loans itself and also “[c]ontract with” TN
BIDCO to provide loans. Trenk Certification, Ex. C. After many more permutations,33 the signed
MOU ambiguously stated that Zemurray would “use” TN BIDCO to make loans, MOU at 1, and
added that its terms superseded any prior understanding between the parties. Id. at 2.34

The parties agree that the MOU “expressly stated that TN BIDCO had the lending expertise
to carry out the purposes of the Contract and that it was designated as a preferred lender by the
Small Business Administration.” City Fact Statement ¶ 32. The MOU also states that the monies
in the Loan Fund would be “used to assist: (a) small business owners in obtaining financing that
will promote business growth and job creation in the City, (b) individuals in obtaining affordable
mortgages and/or refinancing or modifying their existing mortgages on properties located in the
City, and (c) individuals with rehabilitation and development of other housing stock in the City.”

Id. ¶ 25. Drummon argues that “the City conflates commercial loans, to which the SBA
certification applies, and residential loans.” Drummon Opposition at 4. The parties agree that, on
April 24, 2013, Drummon informed the Tennessee Department of Financial Institutions that TN
BIDCO would not originate residential mortgages and “has no present plans to service residential
mortgage loans where any direct contact with the consumer is anticipated.” City Fact Statement
¶ 22. As the District Court observed, the problem here arises from a failure to draft contract terms
carefully—the MOU specifies only that monies in the Loan Fund would be “used to assist”
individuals in “obtaining,” “refinancing,” and “modifying” mortgages. Id. ¶ 25; see District Court

33 One version of the MOU apparently contemplated that the City would play a role in approving or denying loans
to residents. See Pierce Affidavit, Ex. B. at 21 of 52 (email from City representative stating that the MOU must be
revised to omit the City’s involvement in approving or denying loans).
34 To the extent the City purports to rely on the August 28 Proposal, that reliance is unfounded because that proposal
is not in the record. In any event, an investment proposal submitted before the First Proposal and Second Proposal
could not negate the fact that the terms of the MOU were heavily negotiated following the investment-proposal stage.
Decision, 2017 WL 6638203, at *3. The MOU does not say that the Loan Fund would be used to
originate mortgages—it instead says that the Loan Fund will be used to obtain mortgages, without
defining the term “obtaining.” Id. The parties mutually failed to define that term. Tellingly, the
City does not point to an instance prior to the MOU where this purported misrepresentation was
made. Even if “obtaining” were defined to be identical to “originate,” it would not be a

misrepresentation, since acquisition of TN BIDCO could have furthered several of the other goals
expressed in the MOU aside from mortgage origination. In short, a vague contractual provision
alone is insufficient to establish that a misrepresentation was made.35 See Chase, 372 B.R. at 129.
Further, the record in support of the Motions contains evidence about Zemurray’s planned
workaround to make residential loans through TN BIDCO. Zemurray’s former CFO stated that
TN BIDCO would fund third-party mortgage lenders who would, in turn, lend to qualifying City

residents:
With respect to the Residential Lending Program as it is referenced in the MOU,
Zemurray’s business model was structured to meet its obligation under that section
of the MOU by having TN BIDCO fund third-party mortgage companies, which
would issue loans to applicants from the City who qualified for Community
Reinvestment Act (CRA) loans and through the use of favorable federal residential
lending programs through entities such as Freddie Mac, Fannie Mae, the VA, and
the FHA.

35 Additionally, the MOU was not a representation between Drummon and the City, but between Zemurray and the
City. Thus, any representation made in the MOU would not be a representation by the debtor, since Drummon is
distinct from Zemurray.
Holden Affidavit ¶ 5.36 The undisputed facts and record evidence do not support the City’s
contention that Drummon intentionally misstated TN BIDCO’s role in the program to deceive the
City.

Third, the City claims that, under the MOU, TN BIDCO would perform loan origination
functions. As discussed above, the MOU does not make that representation.
Fourth, the City asserts that Drummon misrepresented to the City that the “Escrow Fund
would not be distributed without express authorization of the City[,] which was violated.” City SJ
Motion at 3. However, the undisputed facts do not support that assertion because it contradicts the

plain language of the MOU and Escrow Agreement. The MOU provides only that monies held in
the escrow account “will be used to establish the Loan Fund and shall be released from escrow
only pursuant to the terms of the escrow agreement.” City Fact Statement ¶ 29. In turn, the Escrow
Agreement did not require authorization from the City. It states that “no one other than the
authorized signatories of Zemurray shall have the authority to give City National Bank instructions
with respect to the Escrow Fund.” Escrow Agreement ¶ 4. The Escrow Agreement further states
that “City National Bank shall disburse all of the funds from the Escrow Fund within three (3)
Business Days of City National Bank’s receipt of written instructions from the [sic] Zemurray.”
Id. ¶ 5. The Escrow Agreement “includes a notation from the escrow bank in the margin next to
paragraph 5: ‘8/21/13. As discussed with Eddie Lax on 8/21/13, Zemurray is authorized to

withdraw funds with the signature of the authorized individual for the company + only one
signature is required [initials].” Drummon Fact Statement ¶ 40. Further, the parties agree that

36 The City notes that Mr. Holden did not become employed by Zemurray until after the events relevant to this
action. City Fact Statement at 6–7. However, that consideration goes to the weight of the testimony, not its
admissibility.
there was “no language in the Executed Agreement limiting Zemurray’s authority over the account
or requiring permission from the City for Zemurray to take actions on the account.” Drummon
Fact Statement ¶ 38. On August 23, 2013, fifteen (15) days after the City wired the $3 million into
the Escrow Account, Drummon, on behalf of Zemurray, wired the entire $3 million from the
Escrow Account to TN BIDCO’s account at First Bank. City Fact Statement ¶ 36.

The District Court held that these provisions of the Escrow Agreement do not confer
“unfettered” discretion to Zemurray “to instruct the Bank on the use of the fund.” District Court
Decision, 2017 WL 6638203, at *12. However, it found that, because the MOU contemplated
contracting with TN BIDCO to administer the Loan Program, Zemurray was not per se prohibited
from transferring funds out of the Loan Fund to TN BIDCO. Id. at *15. Thus, “the argument,
repeated over and over again throughout this litigation, that Zemurray could not transfer anything

out of the fund under the [MOU] is flatly contradicted by a straightforward application of the
[MOU]’s terms.” Id. As the District Court held, the terms of the MOU did not prohibit Zemurray’s
unilateral transfer of escrow funds per se. Id. To the extent that the City argues that this contractual
term was a representation that the “Escrow Fund would not be distributed without express
authorization of the City[,] which was violated,” this Court agrees with the District Court’s
assessment that the MOU allowed for Zemurray’s unilateral disbursement of funds from the
escrow account, e.g., for the purposes of contracting with TN BIDCO. City SJ Motion at 3; see
District Court Decision, 2017 WL 6638203, at *15. Thus, this term of the contract did not
represent that the City’s authorization was required for disbursements from the Escrow Fund. The
City offers no other evidence of a pre-MOU statement Drummon made about the Escrow

Agreement.
Fifth, the City claims that Drummon represented “to the City several times in writing that
the loan funds would be returned shortly, were liquid and set aside for the City.” City SJ Motion
at 3. This argument stems from a series of interactions between Drummon and Michael J. Perugini,
(“Perugini”) Deputy Solicitor for the City, that took place in 2014.37 These communications could
not form the basis of a claim under section 523(a)(2)(A) because the statute excepts from discharge

debts “obtained by” false pretenses, false representations, or actual fraud. See 11 U.S.C.
§ 523(a)(2)(A). In other words, the misrepresentation or other fraudulent conduct must be the
catalyst that induced the plaintiff to provide money, property, or services to the defendants. The
City could not have relied upon alleged misstatements after the fact in transferring the $3 million
into the Loan Fund. See, e.g., Daily v. Garrett (In re Garrett), BAP No. EC-16-1265-HKuB, 2018

37 On March 19, 2014, Perugini called Drummon and requested information and back up regarding the Loan Fund.
City Fact Statement ¶ 69. On March 19, 2014, Perugini e-mailed Drummon memorializing his conversation with
Drummon regarding the City’s concerns surrounding the $3 million and demanded an accounting of the funds and
requested that the funds “remain intact and frozen until which time the City is satisfied that the funds are secure and
being used for the purposes set forth in the MOU.” Id. ¶ 70. On March 20, 2014, Drummon confirmed receipt of
Perugini’s March 19, 2014 e-mail and stated that he would speak to Zemurray about the City’s concerns. Id. ¶ 71.
On March 20, 2014, Perugini also sent a certified letter to Drummon again requesting information about the City’s
funds and requested proof that the funds were secured. Id. ¶ 72. On March 26, 2014, Drummon e-mailed Perugini
stating that Drummon had requested that the bank send the City its funds. Id. ¶ 74. On March 27, 2014, Perugini e-
mailed Drummon requesting that he call him to discuss the status of the funds. Id. ¶ 75. On March 28, 2014, Perugini
e-mailed Drummon and advised him that the City would not tolerate his inability to return phone calls or answer
letters. Id. ¶ 76. On the same day, Perugini spoke with Drummon who stated that he would allow the City to opt out
of the program and that he would begin to process the return of the City’s funds. Id. ¶ 77. On April 2, 2014, Perugini
had a phone conference with Drummon regarding his failure to return the City’s funds. Id. ¶ 78. On April 3, 2014,
Perugini received an e-mail from Drummon indicating that Zemurray was restructuring its balance sheet to return the
City’s funds as “expeditiously as possible.” Id. ¶ 79. On the same day, Perugini e-mailed Drummon confirming his
representation that “Zemurray will immediately take whatever steps necessary to place the City’s total fund amount
of $3,000,000 into a separate account for the return to the City and for the cancellation of the loan program.” Id.¶ 80.
The e-mail further confirmed that the City and Zemurray would execute an agreement memorializing the parties’
intentions to disband the program and for Zemurray to return the funds. Id. Lastly, the e-mail confirmed that
Drummon would send the City a bank statement evidencing the placement of the City funds into a separate account.
Id. Later that day, Perugini received an e-mail from Drummon confirming that Zemurray will execute an agreement
with the City to disband the program and for Zemurray to return the City’s funds. Id. ¶ 81. On April 7, 2014, Perugini
sent an e-mail and certified letter to Drummon advising him that he has not taken any action to return the City’s money
and demanding confirmation that the City’s funds were placed in a separate account. Id. ¶ 82. Thereafter, from April
7, 2014 through May 28, 2014, Perugini left a series of voice messages for Drummon at his office and on his cell
phone and never received a response. Id. ¶ 83.
WL 4057228, at *3 (B.A.P. 9th Cir. Aug. 24, 2018) (affirming bankruptcy court ruling that alleged
misrepresentation that occurred after the fact could not have induced the plaintiff); accord Parker
v. Ferland (In re Ferland), No. 09-5101, 2010 WL 2600588, at *4 (Bankr. M.D. Ga. June 21,
2010) (debtor’s after-the-fact attempt to avoid a payment “may demonstrate some moral failing or
self-deception by Debtor, but it does not prove fraud” under section 523(a)(2)(A)).

Sixth, the City asserts that Drummon misrepresented “that the money for the Loan Program
would be accounted for in quarterly reports.” City SJ Motion at 3. The MOU required that during
the five-year period of the Loan Fund, Zemurray would provide the Mayor’s office “within forty-
five (45) calendar days after the end of each calendar quarter with a report setting for [sic] the use
of the monies in the Loan Fund for the lending purposes set forth in this MOU.” City Fact
Statement ¶ 27. On March 24, 2014, the City received the first and only status report from

Zemurray regarding the Loan Fund. Id. ¶ 73. Between the execution of the MOU on May 31,
2013 and March 24, 2014, Zemurray did not provide any quarterly status reports to the City. Id.
¶ 86. Zemurray plainly failed to provide the requisite number of quarterly reports, and in the sole
Status Report, Zemurray failed to include the status of the Loan Fund. Indeed, District Judge
Kugler granted summary judgment in favor of the City for Zemurray’s breach of the MOU’s
reporting obligation. District Court Decision, 2017 WL 6638203, at *15. However, these
undisputed facts do not support the City’s claim for relief under the Complaint because “[d]ebts
and liabilities based solely upon breach of contract are not excepted from discharge under Section
523(a).” Dobrayel, 287 B.R. at 12; accord Miner v. Mines (In re Mines), 630 B.R. 107, (Bankr.
E.D.N.Y. 2021), aff’d, 21-cv-03365, 2022 WL 2657514 (E.D.N.Y. 2022); cf. District Court

Decision, 2017 WL 6638203, at *18 (dismissing the City’s fraud claim to the extent it was based
on Zemurray’s failure to report and account for the funds because “[f]raud in the performance is
fraud arising from a contractual relationship”). Thus, as a matter of law, the City’s claim arising
from Drummon’s breach of contract for failure to provide quarterly reports is not excepted from
discharge by section 523(a)(2)(A).

In its reply brief, the City asserts two new bases for its contention that Drummon made
misrepresentations to the City, both of which rely on the District Court’s opinion. First, “the Court
found, ‘Zemurray misrepresented that it would “contract with” TN BIDCO but subsequently went
forward to purchase it. We agree that Zemurray planned to purchase TN BIDCO; Drummon has
admitted as much.’” City MSJ Reply at 4 (quoting District Court Decision, 2017 WL 6638203,
at *18). Second, the City quotes the District Court as saying that “The record is clear that TN
BIDCO could not originate residential loans; that Drummon knew, because he was told, that it
could not originate residential loans; and that Zemurray went ahead and contracted with the City

despite this.” Id. (quoting District Court Decision, 2017 WL 6638203, at *18). However, these
undisputed facts do not support the City SJ Motion. The first relies on representations made by
Zemurray, not Drummon. The second reflects only that Drummon knew about TN BIDCO’s
inability to originate residential loans—it does not show that Drummon personally made a
representation to the contrary.
Fraudulent Scheme
The City also argues that, in any event, it does not need to point to a specific
misrepresentation by Drummon. City SJ Motion at 7. It principally contends that the Supreme
Court has found section 523(a)(2)(A) does not require an overt misrepresentation where the

creditor alleges a fraudulent-conveyance scheme, and that the Court should read that exception
broadly to encompass other types of “fraudulent scheme.” Id. at 6 (citing Husky, 578 U.S. at 366).
The City says that the “undisputed facts establish a fraudulent scheme” sufficient to establish a
claim under section 523(a)(2)(A), pointing to: (i) the First Proposal and Second Proposal; (ii) the
transfers of approximately $3 million out of the Escrow Account, which it says were unauthorized;
and (iii) the timeline of Drummon’s conduct, and specifically, the withdrawal of $3 million and
purchase of TN BIDCO only fifteen days after the City wired the money to the Escrow Account.
Id. at 7–8. The City argues that this conduct constitutes an “elaborate scheme” that “is exactly

what was found to constitute actual fraud via a fraudulent conveyance scheme pursuant to” section
523(a)(2)(A). Id. at 7. It contends that the Supreme Court has found section 523(a)(2)(A) does
not require an overt misrepresentation where the creditor alleges a fraudulent-conveyance scheme,
and that that exception should be read broadly to encompass other types of “fraudulent scheme”
like the one in which Drummon allegedly participated. Id. at 6. However, the City does not define
a “fraudulent scheme,” nor does it explicitly assert that Drummon participated in a
fraudulent-conveyance scheme of the type considered in Husky. Id. at 6–7.

Drummon argues that the Supreme Court has obviated the misrepresentation requirement
of actual fraud under section 523(a)(2)(A) only where the claim is premised on a fraudulent
conveyance. He says that Zemurray’s transfer of funds from the Escrow Account was not a
fraudulent conveyance because it was not done to evade a debt. Rather, the transfer was made
pursuant to the terms of the Escrow Agreement, and the repayment obligation would not have
existed for another five years after the transfer. Drummon MSJ Reply at 8. Likewise, the
subsequent distributions of funds from TN BIDCO were not made to evade a debt, and they were
therefore not fraudulent conveyances, and in any event Drummon was not involved in those
actions. Id. at 9. Drummon asserts that, because there was no fraudulent conveyance, the City is

still required to show that Drummon made a misrepresentation. Id. at 8–9. He argues that, since
the evidence shows the City cannot prove Drummon made a misrepresentation, Drummon is
entitled to summary judgment on the section 523(a)(2) claim.

Much of the City’s argument relies on the Supreme Court’s interpretation in Husky of the
meaning of “actual fraud” in section 523. In Husky, the Supreme Court examined the scope of
section 523 at length. See Husky, 578 U.S. at 362–66. The Supreme Court held that the term
“actual fraud” in section 523(a)(2)(A) should be read to encompass fraudulent conveyances, even
though a broad reading of “actual fraud” might include “some of the same conduct” that is also
covered by subsections 523(a)(4) and 523(a)(6). Id. at 363. That is, “a fiduciary who engages in
a fraudulent conveyance may find his debt exempted from discharge under either § 523(a)(2)(A)
or § 523(a)(4).” Id. Moreover, “debtors who commit fraudulent conveyances and . . . debtors who
make false representations under § 523(a)(2)(A) could likewise also inflict ‘willful and malicious

injury’ under § 523(a)(6).” Id. Importantly, the Supreme Court noted that section 523(a)(4)
“covers only debts for fraud while acting as a fiduciary, whereas § 523(a)(2)(A) has no similar
limitation.” Id. Further, “§ 523(a)(6) covers debts ‘for willful and malicious injury,’ whether or
not that injury is the result of fraud, whereas § 523(a)(2)(A) covers only fraudulent acts.” Id.
(quoting Kawaauhua v. Geiger, 523 U.S. 57 (1998)).38
The Supreme Court parsed the “obtained by” language in section 523(a)(2)(A), noting that
the statute is applicable where the recipient of a fraudulent transfer obtains assets “‘by’ his or her

participation in the fraud” and later files for bankruptcy, all debts traceable to the fraudulent
conveyance will be nondischargeable under section 523(a)(2)(A). Id. at 365. These situations

38 Further, the Court explained that section 727(a)(2) “is broader than § 523(a)(2)(A) in scope—preventing an
offending debtor from discharging all debt in bankruptcy,” while at the same time “it is narrower than § 523(a)(2)(A)
in timing—applying only if the debtor fraudulently conveys assets in the year preceding the bankruptcy filing.” See
Husky, 578 U.S. at 364.
“may be rare because a person who receives fraudulently conveyed assets is not necessarily (or
even likely to be) a debtor on the verge of bankruptcy.” Id. There is a reliance requirement for
“fraud perpetrated through a misrepresentation to a creditor.” Id. (citing Field, 516 U.S. at 61).
However, that requirement does not apply to “frauds that are not premised on such a
misrepresentation.” Id. at 366. Thus, actual fraud encompasses “fraudulent conveyance schemes,

even when those schemes do not involve a false representation.” Id.
The parties dispute whether the exception established in Husky should be limited to
fraudulent transfer schemes or applies more broadly to other types of fraud. Compare City SJ
Motion at 5 with Drummon MSJ Reply at 8. Assuming that the exception applies more broadly,
the Court is not persuaded that the evidence presented here establishes fraud. The deliberations
leading to the MOU were at arms-length with numerous professionals representing the City’s

interests. The MOU was far from a model of clarity, required Zemurray to “use” TN BIDCO to
make loans, and its terms superseded any prior understanding between the parties. MOU at 1–2.
The Escrow Agreement permitted Zemurray to disburse funds in the Escrow Account without the
City’s prior authorization, Escrow Agreement ¶¶ 4–5, and Zemurray spent the funds to acquire TN
BIDCO, a bank with “preferred lender” status with the SBA. MOU at 1. Although the Department
rejected TN BIDCO’s business plan for failure to inject adequate capital, see Trenk Certification,
Ex. W, Zemurray’s plan was apparently to have TN BIDCO directly fund SBA loans and indirectly
fund residential loans through third-party mortgage lenders. Holden Affidavit ¶¶ 4–5. Ultimately,
no actual loans were made, but Zemurray did create a website which received 199,564 hits, fielded
239 phone calls, received 268 forms, met with sixty City residents, prequalified twelve applicants,

and received three loan applications. See Status Report.
The City made an analogous argument in the District Court Action seeking summary
judgment on its claim that Zemurray breached the implied covenant of good faith and fair dealing.
There, the District Court could not conclude on the record before it that Drummon acted with ill
motives and without any legitimate purpose. District Court Decision, 2017 WL 6638203, *17
(quoting Brunswick, 864 A.2d at 396). The District Court noted that the MOU lacked

sophistication, and Zemurray’s obligations thereunder were “loosely-defined.” Id. Consequently,
it was “unsurprising” that the parties had “difficulties on follow-through.” Id. The District Court
concluded that “[i]t is eminently plausible to this Court that Zemurray thought it could get
clearance to use TN BIDCO for the Lending Program and did not, or squandered the money after
setting up rudiments of an apparently-failed Lending Program, or simply had no idea what it was
doing.” Id.

The Court agrees with the rationale of the District Court. The record here shows that the
parties entered into a poorly planned arrangement with an imprecisely worded contract followed
by a bungling execution in which Zemurray spent all of the funds to purchase TN BIDCO but had
no money left to properly capitalize the bank to the satisfaction of the Department. The record
does not support the conclusion that Drummon masterminded a fraudulent scheme to cause the
City to fund Zemurray’s acquisition of TN BIDCO. Construed in the light most favorable to
Drummon, the undisputed facts do not support the City’s motion for summary judgment. The
Court therefore denies the City’s motion on Count One.

Even construed in the light most favorable to the City, there are no facts in the record
“sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.”
Jaramillo, 536 F.3d at 145. The City has not pointed to any facts in the record evidencing
fraudulent conduct by Drummon that induced it into contracting with Zemurray. See Berckeley,
455 F.3d at 201. There has been more than a sufficient time for discovery, yet the City has failed
to meet its burden to put forth evidence of Drummon’s fraudulent conduct in response to the
Drummon SJ Motion. See Worldcom, 374 B.R. at 105. Accordingly, the Court grants Drummon’s
motion for summary judgment dismissing Count One of the Complaint.

Complaint Count Two
In Count Two of the Complaint, the City asserts that Drummon’s debts to the City are
nondischargeable under 11 U.S.C. § 523(a)(4). Complaint ¶ 117. As support for that Count, the
City alleges that Drummon “engaged in a broad multi-faceted scheme to defraud the City,” and
that “[b]y virtue of these acts, [he] obtained money, from the City, by fraud or defalcation while
acting in a fiduciary capacity, embezzlement or larceny.” Complaint ¶¶ 115–16. In support of its
City SJ Motion, the City asserts that, based on the same alleged misconduct that it cited in seeking

judgment dismissing Count One, it seeks a judgment of nondischargeability under section
523(a)(4). City SJ Motion at 3.
Section 523(a)(4) of the Bankruptcy Code excepts from discharge a debt “for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C.
§ 523(a)(4).39 To sustain a claim for fraud or defalcation, “a plaintiff must first show that the
defendant was acting in a fiduciary capacity ‘with respect to the particular conduct giving rise to
the liability which is claimed to be non-dischargeable.’” Schlosser v. Heinemann (In re

39 Under section 523(a)(4), the term embezzlement means, “(1) entrustment to the debtor of (2) property (3) of
another (4) which the debtor appropriates for his or her own use (5) with intent to defraud.” In re Garland, 501 B.R.
195, 201–02 (Bankr. S.D.N.Y. 2013) (quoting Yankowitz Law Firm, P.C. v. Tashlitsky (In re Tashlitsky), 492 B.R.
640, 647 (Bankr. E.D.N.Y. 2013)). The term “larceny” means “(1) wrongful taking of property (3) of another
(4) without the owner’s consent (5) with intent to convert the property,” and requires proof that the debtor fraudulently
intended to take the property. Mills v. Caisse (In re Caisse), 568 B.R. 6, 15 (Bankr. S.D.N.Y. 2017) (quoting Race
Place of Danbury, Inc. v. Scheller (In re Scheller), 265 B.R. 39, 53 (Bankr. S.D.N.Y. 2017)). “To constitute
embezzlement, the original taking of the property must be lawful,” whereas larceny requires that “the unlawful intent
must exist at the time of the original taking.” Scheller, 265 B.R. at 54. The Complaint does not allege facts in support
of a claim for embezzlement or larceny. The facts alleged by the City do not support any such claim.
Heinemann), No. 19-9028, 2022 WL 17408094, at *2 (Bankr. S.D.N.Y. Dec. 2, 2022) (quoting In
re Deutsch, 575 B.R. 590, 600 (Bankr. S.D.N.Y. 2017)). The definition of “fiduciary capacity” is
a matter of federal law and “is more restricted that under the more general common law or state
law definition.” Sandak v. Dobrayel (In re Dobrayel), 287 B.R. 3, 14 (Bankr. S.D.N.Y. 2002)
(collecting authorities); accord Deutsch, 575 B.R. at 600. As it is used in this context, the term

“fiduciary capacity” applies only to express or technical trusts. Zohlman v. Zoldan, 226 B.R. 767,
772 (Bankr. S.D.N.Y. 1998). “Constructive or implied trusts, or any trust where the existence of
the trust is created merely on the basis of wrongful conduct (a trust ex maleficio) do not create a
fiduciary relationship.” Id. Bankruptcy courts “may look to state law to determine whether a trust
exists.” Chitester v. Watterson (In re Watterson ), 524 B.R. 445, 451 (Bankr. E.D.N.Y. 2015).
The elements of a fraud claim under section 523(a)(4) are the same as under section 523(a)(2)(A).
Sharmat v. Gallen (In re Gallen), 559 B.R. 349, 357 (Bankr. S.D.N.Y. 2016).

The City only summarily states that Drummon acted in a fiduciary capacity. City SJ
Motion at 1, 3. It advances no argument that Drummon acted in a fiduciary capacity as that term
is used in dischargeability analyses, i.e., the City does not assert that Drummon was the fiduciary
of a formal trust. Moreover, the Complaint mentions only one trust that was involved in the
allegedly fraudulent activities, Lantana Family Trust. Complaint ¶¶ 23, 57, 96–97. The City
alleges that Lax was the trustee of that trust—not Drummon. Id. ¶ 23. Likewise, the City points
to no evidence advanced in this Court that would show Drummon acted in a fiduciary capacity.
While the City SJ Reply chides Drummon for conflating state and federal standards, it wholly
ignores the clear federal requirement for prevailing on a section 523(a)(4) claim. Although he

does not point to authority, Drummon correctly addressed the section 523(a)(4) requirement that
the plaintiff establish the debtor acted in a fiduciary capacity. See Rule 12(c) Reply at 7–8
(“Nowhere in the complaint is Drummon alleged to be a fiduciary of the City, and the facts alleged
do not support any inference that Drummon was a fiduciary.”). Thus, because the undisputed facts
show that Drummon was not a fiduciary, the City cannot prevail on summary judgment as to this
claim. See In re Heinemann, 2022 WL 17408094, at *2. Accordingly, the Court denies the City’s
motion for summary judgment on Count Two of the Complaint.

Likewise, even construed in the light most favorable to the City, the record evidence clearly
demonstrates that Drummon did not occupy a fiduciary position. Accordingly, as a matter of law,
Drummon is entitled to summary judgment on Count Two, and the Court grants summary
judgment dismissing Count Two of the Complaint.

Complaint Count Three
Section 523(a)(6) states that a discharge under relevant provisions of the Bankruptcy Code
does not discharge an individual debtor from any debt “for willful and malicious injury by the
debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). “The terms
‘willful’ and ‘malicious’ are separate and distinct elements of a claim under the statute that ‘should
not be joined together into one amorphous standard.’” In re Heng Li Zhu, 2022 WL 3364579, at
*20 (quoting In re Bressler, 387 B.R. 446, 454 (Bankr. S.D.N.Y. 2008)). As used in section
523(a)(6), willful “means deliberate or intentional.” Navistar Fin. Corp. v. Stelluti (In re Stelluti),
94 F.3d 84, 87 (2d Cir. 1996) (quoting In re Stanley, 66 F.3d 664, 667 (4th Cir. 1995)). Malicious

means “wrongful and without just cause or excuse, even in the absence of personal hatred, spite,
or ill-will.” Id. at 87–88. “To state a claim for relief under section 523(a)(6), a plaintiff must
allege facts demonstrating ‘first, that the debtor acted willfully, second, that the debtor acted
maliciously, and third, that the debtor’s willful and malicious actions caused injury to the creditor
or its property.’” In re Heng Li Zhu, 2022 WL 3364579, at *21 (quoting In re Salim, No. 13-42974,
2015 WL 1240000, at *22 (Bankr. E.D.N.Y. Mar. 16, 2015)).

The City does not point to facts in the record that demonstrate any of these three elements.
Rather, it points to Husky for the proposition that “[t]he debtors who commit fraudulent
conveyances and the debtors who make fraudulent representations under § 523(a)(2)(a) could
likewise also inflict willful and malicious injury under § 523(a)(6).” City SJ Motion at 6 (quoting
Husky, 578 U.S. at 366). But this proposition is irrelevant because the City has not demonstrated
facts to prove its section 523(a)(6) claim. As noted above, in this context, Husky stands only for
the principle that section 523(a)(2)(A) could regulate conduct that is also covered by
section 523(a)(6). Otherwise, the City makes no section 523(a)(6) argument. Accordingly, the
City has not met its burden on summary judgment with respect to Count Three.

Along these lines, even construing the facts in the light most favorable to the City, there is
no evidence in the record to support its contention that Drummon acted maliciously. See In re
Stelluti, 94 F.3d at 87; Worldcom, 374 B.R. at 105; Berckeley, 455 F.3d at 201. The overwhelming
evidence demonstrates that Drummon and Zemurray negotiated the MOU and Escrow Agreement
in pursuit of Zemurray’s economic interests, not out of any malice toward the City. Accordingly,
the Court grants Drummon’s motion for summary judgment dismissing Count Three.

The Adverse Inference Motion
Background
On October 27, 2020, the City filed the Adverse Inference Motion, seeking generally, to
make an adverse inference with respect to unspecified misconduct committed by Drummon.40 On

40 Motion for an Adverse Inference Against Defendant W. Wesley Drummon, ECF No. 37.
January 15, 2021, Drummon opposed the motion (the “First AI Opposition”).41 On January 24,
2021, the City filed its reply brief in further support of the motion.42 By order dated March 29,
2021, the Court denied the motion, without prejudice to later consideration.43 On August 9, 2022,
the City refiled the motion.44 On August 30, 2022, Drummon supplemented his opposition to the
motion (the “Supp. AI Opposition”).45 On September 20, 2022, the City filed a reply to

Drummon’s opposition to the Adverse Inference Motion (the “AI Reply”).46
Broadly, the City contends that, because Drummon invoked his Fifth Amendment rights in
a deposition and at other points in the District Court Action and has invoked his Fifth Amendment
rights in this action, the City is entitled to “an adverse inference relating to Drummon’s conduct
and actions relating to the Memorandum of Understanding . . . with Atlantic City and the City’s
$3 million that were [sic] loaned to Zemurray based upon Drummon’s actions, representations and

conduct.” Adverse Inference Motion at 6. The City does not further specify the type of relief it
seeks, e.g., whether it asks the Court to draw an adverse inference with respect to any particular
fact. The City stresses that the adverse inference is particularly important because Drummon is
the only party to this litigation “that has any information relating to what happened to the City’s

41 Opposition to Motion for Adverse Inference, ECF No. 59.
42 Plaintiff City of Atlantic City’s Reply Brief in Further Support of Its Motion for an Adverse Inference Against
Defendant W. Wesley Drummon, ECF No. 66.
43 Order Resolving Various Motions and Scheduling Discovery, ECF No. 69.
44 Memorandum of Law in Support of Plaintiff City of Atlantic City’s Motion for an Adverse Inference Against
Defendant W. Wesley Drummon, ECF No. 89. This document is substantively identical to the City’s first motion for
an adverse inference in this Court. Memorandum of Law in Support of Plaintiff City of Atlantic City’s Motion for an
Adverse Inference Against Defendant W. Wesley Drummon, ECF No. 37.
45 Defendant Drummon’s Memorandum of Points and Authorities in Support of His Supplemental Opposition to the
City’s Motion for an Adverse Inference, ECF No. 91.
46 Reply to Motion for Adverse Inference, ECF No. 95
money,” and “due to Drummon asserting his Fifth Amendment rights, the Court will never hear
any of this testimony.” Id.

Drummon principally contends that an adverse-inference motion must be corroborated by
independent evidence, and that there is no independent evidence suggesting that Drummon made
a false statement on which the City relied or otherwise engaged in fraudulent conduct. Supp. AI
Opposition at 12. Absent any corroborative evidence, the City is not entitled to an adverse
inference. Ultimately, the dispute over this motion centers on (i) whether there is independent
evidence in the record to justify an adverse inference, and (ii) whether the City has identified the
facts it would like the Court to infer.

Legal Standard
The Fifth Amendment provides that “[n]o person . . . shall be compelled in any criminal
case to be a witness against himself . . . .” U.S. Const. amend. V. A party may invoke the privilege
in both criminal as well as civil matters and during the discovery process as well as during trial.
United States v. Inc. Village of Island Park, 888 F. Supp. 419, 431 (E.D.N.Y.1995); see Lefkowitz
v. Turley, 414 U.S. 70, 77 (1973). The Second Circuit has made clear that reliance on the Fifth
Amendment in a civil matter, though permitted, may give rise to an adverse inference against the
party claiming its benefits. LiButti v. United States, 107 F.3d 110, 121 (2d Cir. 1997) (“Shortly
after the enactment of Fed. R. Evid. 501, the Supreme Court made it clear in Baxter v. Palmigiano,

425 U.S. 308, 96 S. Ct. 1551, 47 L.Ed.2d 810 (1976), that while the Fifth Amendment precludes
drawing adverse inferences against defendants in criminal cases, it ‘does not forbid adverse
inferences against parties to civil actions when they refuse to testify in response to probative
evidence offered against them.’”). “[R]efusal to answer questions upon asserting the Fifth
Amendment privilege is relevant evidence from which the trier of fact in a civil action may draw
whatever inference is reasonable under the circumstances.” Brink’s Inc. v. City of New York, 717
F.2d 700, 710 (2d Cir. 1983); see also Inc. Vill. of Island Park, 888 F. Supp. at 432 (holding a
litigant may rely on a party’s assertion of their Fifth Amendment privilege to confirm matter
supported by other independent evidence). The admission of Fifth Amendment invocations is
generally subject to Federal Rule of Evidence 403, which weighs probative value against unfair

prejudice, and so “‘the mere fact that a Fifth Amendment invocation is “damning” to a party’s
position does not preclude its introduction,’ but ‘invocations that cross the line to “inflammatory”
are more likely to fail under Rule 403.’” Mirlis v. Greer, 952 F.3d 36, 46 (2d Cir. 2020) (quoting
Brink’s, Inc., 717 F.2d at 710).
“The privilege must be invoked on a ‘question-by-question’ basis, and an adverse inference
can only be drawn as to questions that are actually asked.” Picard v. Estate of Mendelow (In re

Bernard L. Madoff Invs. Secs. LLC), 560 B.R. 208, 226 (Bankr. S.D.N.Y. 2016) (quoting Doe ex
rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1265–66 (9th Cir. 2000)); see U.S. v. $62,552.00 in
U.S. Currency, No. 03-10153, 2015 WL 251242, at *8 (D. Mass. Jan. 20, 2015) (“The way the
adverse inference works is that if a witness refuses to answer a question by invoking the Fifth
Amendment, the Court can draw an inference that the answer to that question would be adverse to
the claimant.”).
An adverse inference precludes a defendant in a civil action from using his silence to create

issues of fact on summary judgment. See, e.g., In re Inflight Newspapers, Inc., 423 B.R. 6, 14
(Bankr. E.D.N.Y. 2010) (“Because of the potential for abuse of the privilege by defendants who
use it to obstruct discovery only to waive it and subject the plaintiff to surprise testimony at trial,
the courts recognize the appropriateness of imposing sanctions for a civil defendant’s assertion of
the privilege during discovery. Thus, a decision to assert the privilege during pre-trial depositions
may be valid grounds for . . . striking affidavits opposing summary judgment motions”); Bourgal
v. Robco Contracting Enters., 969 F.Supp. 854, 862 (E.D.N.Y. 1997) (barring defendants, who
had obstructed discovery and invoked the Fifth Amendment, from creating issues of fact by
submitting affidavits in opposition to the plaintiff's motion for summary judgment); Vill. of Island
Park, 888 F. Supp. at 431 (court refused to consider affidavits offered in opposition to a motion

for summary judgment by affiants who had previously invoked the Fifth Amendment privilege).
However, the testimonial assertion of the Fifth Amendment is not a substitute for relevant
and persuasive evidence. As the Supreme Court has explained:

[W]hile the assertion of the Fifth Amendment privilege against compulsory self-
incrimination may be a valid ground upon which a witness . . . declines to answer
questions, it has never been thought to be in itself a substitute for evidence that
would assist in meeting a burden of production.
United States v. Rylander, 460 U.S. 752, 758 (1983).
In the context of summary judgment, “the adverse inference drawn from a party invoking
the Fifth Amendment may not be the sole basis for a finding of liability.” In re Jacobs, 394 B.R.
646, 663 (Bankr. E.D.N.Y. 2008); see also Fidelity Funding of Cal., Inc. v. Reinhold, 79 F. Supp.
2d 110, 116 (E.D.N.Y. 1997) (“[T]he evidence produced by a nonmoving party’s silence is not
sufficiently weighty to carry a moving party’s burden in a motion for summary judgment.”). That
is to say that a “plaintiff still must meet its burden of proof, and [d]efendants’ silence, alone, does
not automatically give rise to their liability.” SEC v. Global Telecom Servs., L.L.C., 325
F.Supp. 2d 94, 109 (D. Conn. 2004). Courts are clear that “a motion for summary judgment cannot
be granted on an adverse inference alone; rather, the inference must be weighed with other
evidence in the matter in determining whether genuine issues of fact exist.” S.E.C. v. Suman, 684
F. Supp. 2d 378, 386 (S.D.N.Y. 2010), aff’d, 421 F. App’x 86 (2d Cir. 2011) (summary order);
accord United States v. Nagelberg, 772 F. Supp. 120, 123 (E.D.N.Y. 1991) (It is well established
that “an adverse inference drawn from a defendant’s invocation of the Fifth Amendment may not
be the sole basis for a finding of liability. Independent, corroborative evidence or wrong-doing
must be shown.” (citing United States v. Local 560 of Int’l Bhd. of Teamsters, 780 F.2d 267, 292–
93 n.32 (3d Cir. 1985))).

Analysis
The City attaches several exhibits in support of its Adverse Inference Motion, including
Drummon’s deposition and several other filings from the District Court Action.47 The exhibits
substantiate the City’s assertion that Drummon has invoked his Fifth Amendment rights
throughout the prosecution of this case and the District Court Action. The City principally argues
that Drummon is the only party with information about the $3 million that the City loaned to
Zemurray, the steps taken to establish the loan program, the “intent of the parties when entering

47 These exhibits are as follows:
 As Exhibit A, the April 27, 2016 deposition of Drummon.
 As Exhibit B, the City’s April 2017 summary-judgment motion in the district-court case, along with its
numerous exhibits (and, in turn, those exhibits’ exhibits).
 As Exhibit C, the 2017 district-court decision denying the City’s motion for summary judgment on the
fraud claims.
 As Exhibit D, the January 2019 district-court order (i) requiring any defendant “who has asserted Fifth
Amendment protections in discovery and who wishes to testify at trial on those issues” to submit to a
deposition, and (ii) requiring Defendants’ counsel to provide Plaintiff’s counsel with the names of those
defendants, if any. This order contained a 14-day deadline for the compliance of the defendants in that
case.
 As Exhibit E, a February 2019 letter from the City to the District of New Jersey, claiming that a defendant
in the district-court case had failed to comply with a January 2019 discovery order (distinct from the
order attached as Exhibit D).
 As Exhibit F, the March 2019 Consent Judgment.
 As Exhibit G, the September 2019 Notice to Take Deposition (bearing the caption and case number for
this adversary proceeding).
 As Exhibit H, the July 2020 letter from Drummon’s attorney.
into the MOU,” and whether contractual duties were fulfilled. Id. at 6. It complains that “due to
Drummon asserting his Fifth Amendment rights, the Court will never hear any of this testimony,
and Drummon will bever be cross-examined by the City.” Id. On this basis, the City maintains
that “the court should impose an adverse inference relating to Drummon’s conduct and actions
relating to the [MOU] with Atlantic City and the City’s $3 million that were loaned to Zemurray

based upon Drummon’s actions, representations, and conduct.” Id.
In opposing the motion, Drummon contends that the City seeks inappropriate relief. First
AI Opposition at 8–9. The Court cannot convert “the exclusion of testimony to the creation of
unfounded testimony.” Id. at 8–9. While Drummon’s refusal to sit for a pretrial deposition may
appropriately preclude him from later testifying at trial, his refusal to be deposed alone does not
give rise to an adverse inference. Id.

Next, Drummon argues that “the evidence on which an adverse inference is being sought
cannot be presented without independent proof of the evidence sought.” Supp. AI Opposition at
12 (citing Mirlis, 952 F.3d at 46). Because the City has no proof of the elements of its case,
Drummon would be unfairly prejudiced if the Court were to draw an adverse inference from his
invocation of the Fifth Amendment. Id. at 12–13. Accordingly, the City is not entitled to an
adverse inference absent corroborative evidence of the facts for which it seeks an adverse
inference. First AI Opposition at 5–6. “The only appropriate time to consider the adverse

inference is when the record independently reflects evidence of fraud.” Id. at 9.
Finally, Drummon highlights the District of New Jersey’s decision not to draw an adverse
inference in its summary-judgment opinion, and he contends that the City has not offered anything
additional in support of the Adverse Inference Motion further to justify this Court’s arrival at a
different result. Id. at 2–5. Specifically, the City has not offered any new corroborative evidence
in support of the elements of fraud, and it has not adequately responded to discovery requests for
such evidence. Id. Thus, Judge Kugler considered an analogous motion for an adverse inference
in the district court, he found that it should be denied because there was no independent
corroborative evidence, and that same reasoning should hold true here. Supp. AI Opposition at 10–
11.

The City has filed a Reply to the Supp. AI Opposition.48 Most of the AI Reply is devoted
to an explanation of the Mirlis case, to which Drummon cites. AI Reply at 1–3. As relevant, the
City asserts that Mirlis is inapposite because there was a jury in that case, and the Second Circuit
held only that there was no prejudice from an instruction that the jury could infer that answers to
questions on which the declarant invoked the Fifth Amendment might be prejudicial. Id. at 3.
There is no risk of prejudice to Drummon here, because there is no jury. Id.49 The City contends

that the District Court refused to grant an adverse inference at summary judgment only “based on
the forum and posture of the case at that time,” and this Court should grant an adverse inference
“in favor of the City” and “against Drummon” because the case is now in a bankruptcy forum,
where there is “no potential jury trial.” Id. at 4.
The City Seeks Unspecified Relief
As an initial matter, it is unclear from the motion on which facts, elements of fraud, or
other issues the City seeks an adverse inference. It is clear that, in the context of an individual’s

48 Letter Dated September 20, 2022, ECF No. 95 (the “AI Reply”).
49 The City made the same argument, that it was not required to corroborate its adverse-inference motion with
independent evidence, in its initial reply prior to the conversion. Plaintiff City of Atlantic City’s Reply Brief in Further
Support of Its Motion for an Adverse Inference Against Defendant Wesley W. Drummon, ECF No. 66 (the “First AI
Reply”). As relevant, that document asserts that “the Fifth Amendment does not forbid adverse inferences against
parties to civil actions when they refuse to testify in response to probative evidence offered against them.” First AI
Reply at 4 (quoting Baxter v. Palmigiano, 425 U.S. 308 (1976)). The City does not explain why it believes this precept
from Baxter, which explicitly mentions probative evidence, supports its view that independent evidence is not required
to support an adverse inference. Id.
appearance at a deposition, when a motion for an adverse inference is asserted in response to an
individual’s Fifth Amendment non-response to a question, another party may seek an adverse
inference as to that question. In re Bernard L. Madoff Invs. Secs. LLC, 560 B.R. at 226; see Doe
ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d at 1265–66; $62,552.00 in U.S. Currency, 2015 WL
251242, at *8. Here, the City only generally asks for an adverse inference “relating to Drummon’s

conduct and actions relating to the Memorandum of Understanding . . . with Atlantic City and the
City’s $3 million that were [sic] loaned to Zemurray based upon Drummon’s actions,
representations and conduct.” Adverse Inference Motion at 6. This is too broad a request—the
Court cannot draw an amorphous adverse inference about the general circumstances of the case.
Simply put, an adverse-inference motion must identify what the movant wishes the court to infer.
The City’s failure to identify the facts on which it wants the Court to draw an adverse inference is
an independent basis for denial of the Adverse Inference Motion.

Incidentally, it is also worth noting that, in addition to Drummon’s deposition, the City
attaches to the Adverse Inference Motion a July 2020 letter from Drummon’s former attorney, in
which she stated that Drummon “will assert his Fifth Amendment Rights [sic] at any deposition in
this matter.” Adverse Inference Motion, Ex. H at 1. The City also states that, in connection with
the District Court Action, “Drummon also invoked his Fifth Amendment privilege in his responses
to the Requests for Admissions served by the City.” Adverse Inference Motion at 2. It is not clear
from the face of the motion whether the City requests the Court to draw an adverse inference from
all three of these asserted invocations of rights, or some combination of them. Clearly, the July
2020 letter is merely an attorney’s representation that her client intends to take the Fifth

Amendment with respect to any prospective deposition. This alone is not an invocation of the
Fifth Amendment, and the Court could not draw any adverse inference from this document on the
basis of its innocuous reference to the Fifth Amendment. As for Drummon’s responses to the
Requests for Admissions, the City mentions these documents once in passing, and it is unclear
whether they have attached them all to the Adverse Inference Motion. Id. at 2. The Adverse
Inference Motion does not explain the contents of the Requests for Admissions nor Drummon’s
responses thereto, and so the Court has no basis to draw an adverse inference from these

documents, wherever they may be.
The City Advances No Corroborative Evidence
As a separate basis for denying the Adverse Inference Motion, the City has not introduced
evidence independently corroborating the matter on which it seeks an adverse inference. The City
asserts that “independent proof” is not “a requirement for an adverse inference to be drawn.” AI
Reply. It does not cite any authority for this proposition—instead, the City contends only that,
while Mirlis held that the Fifth Amendment does not forbid adverse inferences when a civil party
refuses to testify in response to probative evidence against them, that is “not the same as

independent proof being a requirement for an adverse inference to be drawn.” Id. Notably, the
City concedes that, in Mirlis, “there was ‘substantial independent evidence to corroborate the
inference,’” as well as other circumstances that mitigated any prejudice caused by an adverse
inference. Id. (quoting Mirlis, 952 F.3d at 47).
The Court disagrees with the City. There is substantial case law that reveals an adverse
inference must be supported by independent corroborative evidence. Case law is clear that a fact
on which a party seeks an adverse inference must have some evidentiary corroboration.50 In re

50 The requirement for independent corroboration of the facts on which an adverse inference is sought also
necessitates that the movant has identified particular facts on which it would like the court to draw an adverse
inference. Plainly, as a matter of logical necessity, it is impossible for a court to assess whether a fact has been
corroborated if a movant has not first identified the fact at the heart of that inquiry.
Jacobs, 394 B.R. at 663; Fidelity Funding of Cal., Inc., 79 F. Supp. 2d at 116; Glob. Telecom
Servs., L.L.C., 325 F. Supp. 2d at 109. Without this requirement, a party invoking his Fifth
Amendment rights in a deposition could be deemed to accede to all manner of misdeeds, limited
only by his interrogator’s imagination, since an adverse inference could be drawn as to any factual
matter about which opposing counsel asked him. See Mirlis, 952 F.3d at 46 (A principal concern

voiced by an earlier adverse-inference case’s dissent was “that a party would ask fact-specific,
leading questions ‘designed to suggest to the jury that but for the privilege the answer in each case
would have been “yes”’ and ‘inevitably invite[] jurors to give evidentiary weight to questions
rather than answers.’” (alteration in original) (quoting Brink’s, 717 F.2d at 716 (Winter, J.,
dissenting)). In short, the case law is abundantly clear that a party’s invocation of his Fifth
Amendment privilege against self-incrimination in the civil context does not give rise to an adverse
inference absent independent corroborative evidence.

Along these lines, the Court must reject the City’s argument that this Court should arrive
at a different result than the District Court with respect to an adverse inference because there will
be no jury trial here. See City SJ Reply at 3–4. Tellingly, the City cites no authority for that
argument. Id. Like the District Court in the District Court Decision, this Court considers the
Adverse Inference Motion at the summary-judgment stage, and the City has likewise failed to
advance corroborative evide

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10461107. Public record. Not legal advice.