Sheet Metal Workers' National Pension Fund et v. Rusi

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF NEW YORK

In re

Chapter 7

David Rusi,

Case No. 23-40150-jmm

Debtor.

Sheet Metal Workers’ National Pension

Fund, International Training Institute for

The Sheet Metal And Air Conditioning

Industry, Sheet Metal Occupational Health

Institute Trust, National Energy Management Adv. Proc. No. 1-23-01088-jmm

Institute Committee, and

the National Stabilization Agreement of the

Sheet Metal Industry Trust Fund,

Plaintiffs,

v.

David Rusi, an individual,

Defendant.

MEMORANDUM DECISION GRANTING PLAINTIFFS’

MOTION FOR SUMMARY JUDGMENT IN PART

Heather Mooneyham, Esq. John J. Macron, Esq.

3180 Fairview Park Drive 491 Bard Avenue

Suite 400 Staten Island, NY 10310

Falls Church, Virginia 22042

J. Logan Rappaport, Esq.

Hinshaw & Culbertson LLP

800 Third Avenue

Ste 13th Fl.

New York, NY 10022

Attorneys for Plaintiffs Attorney for David Rusi

INTRODUCTION

The Defendant is an individual that owned and operated Fahrenheit Mechanical LLC

(“Fahrenheit Mechanical”), a contractor or subcontractor providing heating, air conditioning, and

ventilation systems. The Plaintiffs are the Boards of Trustees of (i) the Sheet Metal Workers'

National Pension Fund (“NPF”), (ii) the International Training Institute for the Sheet Metal And

Air Conditioning Industry, (iii) the Sheet Metal Occupational Health Institute Trust, (iv) the

National Energy Management Institute Committee, and (v) the National Stabilization Agreement

of the Sheet Metal Industry Fund.

The Plaintiffs allege the Defendant diverted funds that were held in trust to pay

contributions to employee benefit funds and seek judgment declaring their claims against

Defendant to be nondishargeable under 11 U.S.C. § 523(a)(4). The Plaintiffs also allege

Defendant’s diversion of funds was willful and malicious and therefore Plaintiffs’ claims should

be deemed nondischargeable under 11 U.S.C. § 523(a)(6). Additionally, Plaintiffs claim the

Defendant’s discharge should be denied under 11 U.S.C. § 727(a)(3) because the Defendant

failed to disclose assets and income on his Schedules and Statement of Financial Affairs. Lastly,

Plaintiffs claim the Defendant’s discharge should be denied under 11 U.S.C. § 727(a)(4) because

the Defendant failed to maintain books and records related to his financial condition.

For the reasons set forth below, the Court will enter judgment that Plaintiffs’ claims are

nondischargeable under 11 U.S.C. § 523(a)(4) and that Defendant’s discharge is denied under 11

U.S.C. § 727(a)(3). However, there are disputes as to material facts respecting Plaintiffs’ claim

to deny Defendant’s discharge under 11 U.S.C. § 727(a)(4). Accordingly, Plaintiffs’ motion for

summary judgement is denied on that cause of action. Lastly, the Court will dismiss Plaintiffs’

objection to dischargeability of their claim under 11 U.S.C. § 523(a)(6) because Plaintiffs have

failed to satisfy their burden of proof on that cause of action.

JURISDICTION

The Court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157(a) and

1334(b) and the Eastern District of New York Standing Order of Reference dated August 28,

1986, as amended by Order dated December 5, 2012. The Court may hear and determine this

adversary proceeding as it is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(I) and (J).

This decision constitutes the Court’s findings of fact and conclusions of law, to the extent

required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

PROCEDURAL BACKGROUND

On October 9, 2023, Plaintiffs filed a Complaint commencing this adversary proceeding.

Adv. Proc. ECF No. 1.1 The Complaint asserts three Causes of Action. The First Cause of

Action seeks judgment denying the Defendant a discharge under 11 U.S.C. § 727(a)(3). The

Second Cause of Action seeks judgment denying the Defendant a discharge under 11 U.S.C. §

727(a)(4). The Third Cause of Action seeks judgment that Plaintiffs’ claims are

nondischargeable under 11 U.S.C. §§ 523(a)(4) and (a)(6). Defendant timely answered the

Complaint. Adv. Proc. ECF No. 5.

On January 21, 2025, Plaintiffs moved for summary judgment. See Mot. Summ. J., Adv.

Proc. ECF No. 21; Am. Decl. Heather Mooneyham, Adv. Proc. ECF No. 22; Mem. Law Supp.

Pl. Mot. Seeking Summ. J. (“Pl. MOL”), Adv. Proc. ECF No. 23; Am. Statement Undisputed

1 Citations to “Adv. Proc. ECF No. __” are references to documents filed on the docket of the above-captioned

adversary proceeding.

Material Facts, Adv. Proc. ECF No. 30 (“Am. Statement of Facts”); Second Am. Decl. Heather

Mooneyham (“Mooneyham Decl.”)2, Adv. Proc. ECF Nos. 35 and 36.

On February 12, 2025, Defendant filed opposition to Plaintiffs’ motion for summary

judgment. Aff. Def. Opp. Summ. J., Adv. Proc. ECF No. 31; Mem. Law Opp. Mot. Summ. J.,

Adv. Proc. ECF No. 32; Def. Counter-Statement Material Facts Resp. Am. Statement

Undisputed Material Facts, Adv. Proc. ECF No. 33 (“Def. Counter-Statement”). The Court

heard oral arguments on March 11, 2025.

FINDINGS OF FACT

Fahrenheit Mechanical, LLC

Fahrenheit Mechanical is a construction and HVAC (i.e., heating, ventilation, and air

conditioning) subcontractor that operated in New York state. Am. Statement of Facts ¶ 4.

Fahrenheit Mechanical operated from 2018 through 2020. Aff. Def. Opp. Summ. J. ¶ 22.

Between April 2018 and the date Fahrenheit Mechanical ceased operations, Fahrenheit

received payments for specific HVAC projects. Def. Dep., 140:5–9, July 2, 2024, Adv. Proc.

ECF No. 21-5 (“Def. Dep.”); Am. Statement of Facts ¶ 134. Fahrenheit Mechanical had “job

income” of $2,166,684.18 for April 2019 through June 2019 and $1,126,429.04 for April 2020

through June 2020. Am. Statement of Facts ¶ 134. Fahrenheit Mechanical employed between

18 and 21 employees. Am. Statement of Facts ¶¶ 143–145. From April 2018 through October

2020, Fahrenheit Mechanical paid at least $3.4 million in payroll to employees via its payroll

processors. Am. Statement of Facts ¶ 148.

Defendant owned at least 70% of the ownership interests in Fahrenheit Mechanical. Am.

Statement of Facts ¶¶ 115116. Defendant was Fahrenheit Mechanical’s managing member and

CEO. Am. Statement of Facts ¶ 2. Defendant was Fahrenheit Mechanical’s principal decision

2 Exhibits to Mooneyham Decl. are found at Adv. Proc. ECF Nos. 21–26.

maker and responsible for determining when and how much creditors would be paid. Def. Dep.

36:17–23, 61:2–18; Am. Statement of Facts ¶ 117.

Towards the end of 2020, Defendant became ill. Aff. Def. Opp. Summ. J. ¶¶ 23–25. He

spent seven days in a psychiatric ward and then checked into a rehabilitation program. Aff. Def.

Opp. Summ. J. ¶ 26. For approximately two months, Defendant was unable to manage

Fahrenheit Mechanical. Aff. Def. Opp. Summ. J. ¶¶ 27, 34. Fahrenheit Mechanical closed while

the Defendant was incapacitated. Aff. Def. Opp. Summ. J. ¶ 35.

After Fahrenheit Mechanical ceased operating, someone moved Fahrenheit Mechanical’s

books and records to a warehouse owned by Defendant’s father. Def. Dep. 52:20–53:3. The

books and records were moved after Defendant was admitted to a psychiatric ward and before

Defendant resumed his business activities. Aff. Def. Opp. Mot. Summ. J. ¶ 35. Defendant

claims he “diligently searched” for Fahrenheit Mechanical’s books and records at the warehouse

but could not locate any documents. Aff. Def. Opp. Mot. Summ. J. ¶ 38.

Defendant has not produced to Plaintiffs the following records respecting Fahrenheit

Mechanical’s operations and finances:

• “[A]ccounts receivable and payable, general ledger, profit and loss statements, job

lists, job accountings, contracts, estimates, invoices, progress payment ledgers, or

other routinely kept business records [to] Plaintiffs. . . .” Am. Statement of Facts

¶ 86.

• The names, job duties, or titles of employees, a “list of general contractors and

property owners at Fahrenheit Mechanical’s construction projects,” a “list of

subcontractors employed by Fahrenheit Mechanical,” or “an accounting of fringe

benefit contributions remitted on employees behalf.” Am. Statement of Facts ¶

87.

• Business overhead expense records. Am. Statement of Facts ¶ 88.

• Records memorializing loans to Fahrenheit from its members or Defendant’s

family. Am. Statement of Facts ¶ 89.

Fahrenheit Mechanical maintained a bank account at Alma Bank with an account number

ending in 3466 (the “Alma Account”), JPMorgan Chase Bank with an account number ending in

0757 (the “JPMorgan Account”), and TD Bank with an account number ending in 0184 (the “TD

Account”). Am. Statement of Facts ¶¶ 42, 118. Defendant was the sole authorized signatory for

the Alma Account. Am. Statement of Facts ¶ 118. Defendant signed checks for Fahrenheit

Mechanical and controlled the debit cards for Fahrenheit Mechanical’s Alma Account and

JPMorgan Account. Am. Statement of Facts ¶¶ 123–127.

Defendant has not identified anyone, other than himself, that was authorized to, or, in fact

did, write checks on, transfer funds from, or withdraw funds from, the Alma Account or

JPMorgan Account. See Def. Counter-Statement ¶¶ 118, 125–127; Def. Dep. 301: 10–14.

Defendant has not identified anyone, other than himself, that controlled the debit cards for the

Alma Account or JPMorgan Account. See Def. Counter-Statement ¶¶ 118, 125–127; Def. Dep.

301: 10–14.3

Defendant’s Prior Business Experience

Defendant had experience in the construction industry prior to opening Fahrenheit

Mechanical. Def. Dep. 17:5–7; Am. Statement of Facts ¶ 95. During his childhood he worked

for his father’s roofing business. Def. Dep. 17:8–12; Am. Statement of Facts ¶ 95. Defendant

worked as an engineer’s helper during his high school and college summers. Def. Dep. 17:12–

14; Am. Statement of Facts ¶ 96. Defendant operated a small contracting company named

S.D.B. Contracting, LLC. Def. Dep. 290:15–21; Am. Statement of Facts ¶ 100. After,

Defendant opened the Phoenix Network LLC, a general contracting company. Def. Dep. 19:5–8;

3 Plaintiffs’ and Defendant’s statements of facts are silent respecting whether the Defendant solely controlled the TD

Account.

Am. Statement of Facts ¶ 98. He was CEO and, at some point, the owner of Phoenix Network,

LLC. Def. Dep. 18:5–20:4; Am. Statement of Facts ¶ 98.

The CBA and Trust Agreement

The Sheet Metal & Air Conditioning Contractors Association of New York City, Inc., as

employer, SMACNA of Long Island, Inc., as employee, and the International Association of

Sheet Metal, Air, Rail, and Transportation, as the union, are parties to a Collective Bargaining

Agreement (as amended, the “CBA”). Mooneyham Decl., Ex. E, Adv. Proc. ECF No. 24-1;

Mooneyham Decl., Ex. F, Adv. Proc. ECF No. 21-7.

The CBA incorporates by reference the Agreement and Declaration of Trust (the “Trust

Agreement”) establishing the NFP. CBA, Article XII, Section 21.C. The CBA provides that the

employer has adopted the Trust Agreement. CBA, Article XII, Sections 21.C., 24.A.

According to the Memorandum of Understanding, dated April 18, 2018 (the “MOU”)

between Sheet Metal, Air, Rail and Transportation Workers’ Local Union 28 (the “Union”) and

Fahrenheit Mechanical, the parties agreed that the CBA shall constitute the collective bargaining

agreement between the Union and Fahrenheit Mechanical from April 18, 2018, through July 31,

2020. Mooneyham Decl., Ex. F, Adv. Proc. ECF No. 21-7, at 3. David Rusi signed the MOU on

behalf of Fahrenheit Mechanical as its President. Id.

Amounts Owed to the Funds

On April 16, 2021, the United States District Court for the Eastern District of New York

entered a $644,244.40 default judgment against Fahrenheit Mechanical, inclusive of $144,386.37

of delinquent contributions and $348,051.19 of exit contributions. Mooneyham Decl., Ex. L,

Adv. Proc. ECF No. 21-13; Am. Statement of Facts ¶¶ 22–23.

On January 26, 2024, the NPF filed a Proof of Claim, identified as Claim Number 9-1

asserting a $776,358.21 claim based on delinquent contributions owed to a multiemployer

pension fund. In re David Rusi, 23-40150-jmm, Claims Register (Bankr. E.D.N.Y. 2024). The

Defendant has not objected to the proof of claim or otherwise disputed the amounts claimed to be

owed to the Plaintiffs.

The Bankruptcy Case

The Defendant filed a petition for relief under chapter 7, title 11, of the United States

Code (the “Bankruptcy Code”) on January 18, 2023 (the “Petition Date”). In re David Rusi, 23-

40150-jmm, Bankr. ECF No. 1 (Bankr. E.D.N.Y. 2024)4.

The Defendant’s Schedules

The Defendant filed his Schedules of Assets and Liabilities and Statement of Financial

Affairs on the Petition Date. Bankr. ECF No. 1. The Defendant filed Amended Schedules of

Assets and Liabilities and an Amended Statement of Financial Affairs on May 9, 2023. Bankr.

ECF No. 31. The Defendant filed Second Amended Schedules and a Second Amended

Statement of Financial Affairs on July 7, 2023. Bankr. ECF No. 36. The Defendant signed the

original, First Amended, and Second Amended Schedules of Assets and Liabilities and

Statements of Financial Affairs under penalty of perjury. Decl. About Individual Debtor’s

Schedules, Bankr. ECF No. 1; Decl. About Individual Debtor’s Schedules, Bankr. ECF No. 31;

Decl. About Individual Debtor’s Schedules, Bankr. ECF No. 36; Statement Fin. Affs., Bankr.

ECF No. 1; Am. Statement Fin. Affs., Bankr. ECF No. 31; Second Am. Statement Fin. Affs.,

Bankr. ECF No. 36.

4 Citations to “Bankr. ECF No. __” are references to the docket of the bankruptcy case captioned In re Rusi, Case

No. 23-40150-jmm.

The Defendant represented in his original Statement of Financial Affairs, Amended

Statement of Financial Affairs, and Second Amended Statement of Financial Affairs that:

• within the two years prior to the Petition Date, he had not given any person any

gifts with a total value of more than $600. Statement Fin. Affs., Bankr. ECF No.

1, Part 5; Am. Statement Fin. Affs., Bankr. ECF No. 31, Part 5; Second Am.

Statement Fin. Affs., Bankr. ECF No. 36, Part 5.

• he had no income from employment or from operating a business from January

18, 2020, through the Petition Date. Statement Fin. Affs., Bankr. ECF No. 1,

Part 2; Am. Statement Fin. Affs., Bankr. ECF No. 31, Part 2; Second Am.

Statement Fin. Affs., Bankr. ECF No. 36, Part 2.

• he received no income from gambling from January 18, 2020, through the

Petition Date. Statement Fin. Affs., Bankr. ECF No. 1, Part 2; Am. Statement

Fin. Affs., Bankr. ECF No. 31, Part 2; Second Am. Statement Fin. Affs., Bankr.

ECF No. 36, Part 2.

The Defendant represented in his original and First Amended Schedule A/B that, as of

the Petition Date, he:

• did not own or have any legal or equitable interests in any non-publicly traded

stock or interests in any LLCs. Schedule A/B, Bankr. ECF No. 1, Part 4; Am.

Schedule A/B, Bankr. ECF No. 31, Part 4.

• had no money on deposit in any checking, savings, or other financial accounts.

Schedule A/B, Bankr. ECF No. 1, Part 4; Am. Schedule A/B, Bankr. ECF No.

31, Part 4.

The Defendant represented in his original Schedule A/B that he owned four motorcycles.

Schedule A/B, Bankr. ECF No. 1, Part 2. The Defendant represented in his First Amended

Schedule A/B that he did not own any vehicles. Amended Schedule A/B, Bankr. ECF No. 31,

Part 2.

DISCUSSION

Standards for Summary Judgment

Summary judgment is appropriate when “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). A dispute is “genuine” if “the evidence is such that a reasonable jury could

return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). Mere existence of an alleged factual dispute is insufficient to defeat a properly supported

motion for summary judgment. Id. at 247–48. The substantive law determines which facts are

“material,” which includes facts that may affect the outcome of the suit, but not facts that are

“irrelevant or unnecessary. . . .” Id. at 248. The party opposing a motion for summary judgment

bears the burden of setting forth specific facts showing there exists a genuine issue sufficient for

trial. Id.

“In ruling upon a summary judgment motion, the court's job is not to resolve disputed

issues of fact, but to determine whether a genuine issue of fact exists.” Bethpage Fed. Credit

Union v. Freidman (In re Kabbalah Taxi Inc.), Adv. Pro. No. 18-1016-cec, 2018 Bankr. LEXIS

2226, at *5 (Bankr. E.D.N.Y. 2018) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986)).

“When viewing the evidence, the court must ‘assess the record in the light most favorable to the

non-movant and . . . draw all reasonable inferences in [the non-movant's] favor.’” Weinstock v.

Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) (quoting Delaware & H. R. Co. v. Conrail, 902

F.2d 174, 177 (2d Cir. 1990)).

A movant has the initial burden of establishing the absence of any genuine issue of

material fact, which burden may be discharged by pointing out the absence of evidence

supporting the non-moving party's case. Celotex, 477 U.S. at 323–25. Rule 56 “requires the

nonmoving party to go beyond the pleadings and by her own affidavits, or by the ‘depositions,

answers to interrogatories, and admissions on file,’ designate ‘specific facts showing that there is

a genuine issue for trial.’” Id. at 324. “The nonmoving party must show that there is more than

a metaphysical doubt regarding a material fact and may not rely solely on self-serving

conclusory statements.” Rosenman & Colin LLP v. Jarrell (In re Jarrell), 251 B.R. 448, 450–51

(Bankr. S.D.N.Y. 2000) (internal citations omitted). No genuine issue exists “unless there is

sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.”

Anderson, 477 U.S. at 249–50. “If the evidence is merely colorable, or is not significantly

probative, summary judgment may be granted.” Id. (internal citations omitted).

Objection to the Discharageability of Plaintiffs’ Claims under Bankruptcy Code section

523(a)(4) due to Defendant’s Fraud and Defalcation While Acting in a Fiduciary Capacity

Under Bankruptcy Code section 523, “[a] discharge under 727 . . . does not discharge any

individual from any debt . . . for fraud or defalcation while acting in a fiduciary capacity. . . .” 11

U.S.C. §523(a)(4). A claim may be deemed non-dischargeable under section 523(a)(4) if: (1) an

express or technical trust existed; (2) the debtor acted in a fiduciary capacity with respect to the

trust; and (3) the debt arose from a defalcation committed by the debtor. See Sheet Metal

Workers Nat’l Pension Fund v. Kern (In re Kern), 542 B.R. 87, 95 (Bankr. E.D.N.Y. 2015);

Palisades Tickets, Inc. v. Daffner (In re Daffner), 612 B.R. 630, 651 (Bankr. E.D.N.Y. 2020);

Chao v. Duncan (In re Duncan), 331 B.R. 70, 77 (Bankr. E.D.N.Y. 2005); Chitester v. Watterson

(In re Watterson), 524 B.R. 445, 451 (Bankr. E.D.N.Y. 2015); Michaels Electrical Supply Corp.

v. Castagnola (In re Castagnola), Adv. Proc. No. 15-8163-las, 2017 WL 1337176, at * 3 (Bankr.

E.D.N.Y. Apr. 11, 2017). The plaintiff also must prove the debtor acted with a culpable state of

mind “involving knowledge of, or gross recklessness in respect to, the improper nature of the

relevant fiduciary behavior.” Bullock v. BankChampaign, N.A., 569 U.S. 267, 269 (2013).

Express or Technical Trusts

Plaintiffs allege their claims arose in connection with express or technical trusts created

under New York’s lien law, the CBA, the Trust Agreement, and the Employee Retirement

Income Security Act of 1974, as amended (“ERISA”).

Section 70, Article 3-A of New York’s lien law provides that “funds . . . received by a

contractor . . . or . . . subcontractor under or in connection with a subcontract made with the

contractor for such improvement of real property including a home improvement contract or

public improvement or made with any subcontractor under any such contract . . . shall constitute

assets of a trust.” N.Y. Lien Law § 70(1) (McKinney 2025). The trust created under section 70,

Article 3-A of New York’s lien law (the “Article 3-A Trust”) arises immediately upon the

contractor’s or subcontractor’s receipt of funds. N.Y. Lien Law § 70(3); see also Burt Bldg.

Material Corp. v. Silba (In re Silba), 170 B.R. 195, 200 (Bankr. E.D.N.Y. 1994) (Article 3-A

Trust was created once the debtor received funds). The assets of the Article 3-A Trust must be

held and used solely for the purposes stated in N.Y. Lien Law § 71, which includes the “payment

of any benefits or wage supplements, or the amounts necessary to provide such benefits or

furnish such supplements, to the extent that the trustee, as employer, is obligated to pay or

provide such benefits or furnish such supplements by any agreement to which he is a party.”

N.Y. Lien Law § 71(d) (McKinney 2025).

An Article 3-A Trust is a trust for purposes of Bankruptcy Code section 523(a)(4). See In

re Castagnola, No. 14-75123-LAS, 2017 WL 1337176, at *4 (citing New York v. Suarez (In re

Suarez), 367 B.R. 332, 351–52 (Bankr. E.D.N.Y. 2007)) (recognizing that the New York Lien

Law creates a valid trust for purposes [section] 523(a)(4)); Sandak v. Dobrayel (In re Dobrayel),

287 B.R. 3, 15 (Bankr. S.D.N.Y. 2002) (“Article 3–A [of New York’s lien law] clearly creates an

express trust within the meaning of [s]ection 523(a)(4)”); Scheidelman v. Henderson (In re

Henderson), 423 B.R. 598, 623 (Bankr. N.D.N.Y. 2010) (same); G.W. White & Son v. Tripp (In

re Tripp), 189 B.R. 29, 35 (Bankr. N.D.N.Y. 1995) (same).

Fahrenheit Mechanical is a subcontractor that received funds in connection with one or

more contracts or subcontracts to improve real property. Am. Statement of Facts ¶¶ 4, 134. As a

result, a trust arose under the New York Lien Law. Pursuant to N.Y. Lien Law § 71, the

Plaintiffs are beneficiaries of that trust.

ERISA-covered employee benefit plans are statutory trusts for purposes of 11 U.S.C. §

523(a)(4). Trs. of the Sheet Metal Workers’ National Pension Fund v. Kakareko (In re

Kakareko), 575 B.R. 12, 21 (Bankr. E.D.N.Y. 2017); see also Firestone Tire and Rubber Co. v.

Bruch, 489 U.S. 101, 110 (1989) (noting ERISA “abounds with the language and terminology of

trust law.”). The Trust Agreement states that its purpose is to hold assets to pay benefits, and the

[NFP] is “intended to be a tax-qualified, multiemployer defined benefit pension plan and . . . is

intended to be operated in accordance with the funding rules that apply to multiemployer pension

plans under ERISA and the [Internal Revenue] Code [of 1986, as amended.]” Trust Agreement,

Article II, Section 2, Adv. Proc. ECF No. 21-8. Defendant admits the “Plaintiffs are employee

benefit plans/trust funds within the meaning of [ERISA], or joint labor-management

organizations established and maintained for the purpose of providing benefits to certain

collectively bargained sheet metal workers.” Am. Statement of Facts ¶ 1.

The CBA states, respecting employer contributions to both the local union and national

benefit funds, that the “[e]mployer contributions are considered assets of the respective [f]unds

and title to all monies paid into/or due and owing said [f]unds shall be vested in and remain

exclusively in the [t]rustees of the respective funds. The [e]mployer shall have no legal or

equitable right, title, or interest in or to any sum paid by or due from the [e]mployer.” CBA,

CBA, Article XII, Section 19(B), Section 24(B).

Based on the foregoing, express and statutory trusts arose under ERISA, the Trust

Agreement, and the CBA, and the Plaintiffs are beneficiaries of those trusts.

Fiduciary Capacity

The second element of a claim under section 523(a)(4) is whether the debtor acted in a

fiduciary capacity with respect to the trust. See In re Duncan, 331 B.R. at 80. An officer or

director of a corporate contractor is not a statutory trustee under an Article 3-A Trust; rather, the

real property owner, contractor, or subcontractor is the trustee. See Bruce Supply Corp. v. Kofsky

(In re Kofsky), 351 B.R. 123, 128 (Bankr. S.D.N.Y. 2006) (“New York law does not make an

officer or director of a corporate contractor a ‘trustee’ under the Lien Law . . . .”).

However, a corporate contractor’s or subcontractor’s officer may be deemed a fiduciary

of the Article 3-A Trust if the officer had direct control over the application of trust funds or

knowingly participated in a breach of a trust created under the New York Lien Law. Atlas Bldg.

Sys., Inc. v. Rende, 236 A.D.2d 494, 495 (1997) (“the officers and directors of a corporate trustee

are under a duty to the beneficiaries of a trust administered by the corporation not to cause the

corporation to misappropriate trust property and will be personally liable for participation in a

breach of trust.”).

Under section 1002(21)(A) of ERISA, “a person is a fiduciary with respect to a plan to the

extent (i) he exercises any discretionary authority or discretionary control respecting

management of such plan or exercises any authority or control respecting management or

disposition of its assets.” 29 U.S.C. § 1002(21)(A).

Defendant had direct control over the funds in the ERISA trust and the Article 3-A Trust.

Defendant was the only authorized signatory for Fahrenheit Mechanical’s bank accounts and

controlled Fahrenheit Mechanical’s use of funds. Defendant was Fahrenheit Mechanical’s

majority member and its managing member. Defendant was Fahrenheit Mechanical’s principal

decision maker and responsible for determining when and how much creditors would be paid.

Therefore, Defendant was a fiduciary of the Article 3-A Trust and the ERISA trust.

The Court finds that Plaintiffs have failed to prove that Defendant is a fiduciary by virtue

of the CBA. Plaintiffs, citing to paragraphs 92 and 136 of the Mooneyham Declaration, claim

that Defendant “does not dispute that he was a fiduciary pursuant to the CBA.” Pl. MOL at 15.

The Mooneyham Declaration, in turn, cites to Defendant’s admissions of allegations 20 and 50

of the Complaint. Mooneyham Decl. ¶¶ 92, 136. Allegation 20 states in relevant part that

contributions to the trust are trust assets. Adv. Proc. ECF No. 1 ¶ 20. Allegation 20 does not

allege the Defendant is a fiduciary of any trust. Id. Allegation 50 states Defendant is a statutory

trustee of the construction proceeds received by him. Adv. Proc. ECF No. 1 ¶ 50. Complaint

allegation 50 only references statutory trustee and does not allege that Defendant is a trustee

under the CBA. Therefore, Defendant’s admission that he is a statutory trustee is not an

admission that he is a trustee under the CBA.

Plaintiffs also argue Defendant is a trustee under the CBA because he admitted he signed

the CBA and exercised control of Fahrenheit Mechanical and its bank account. Pl. MOL at 15.

Plaintiffs do not provide the Court with legal support for its contention. Therefore, the Court

makes no finding that Defendant is a fiduciary of the trust created under the CBA.

Although the Court finds the Defendant is a fiduciary for purposes of Article 3-A and

ERISA, the Court must determine whether the Defendant is a fiduciary under Bankruptcy Code

section 523(a)(4). Courts in the Second Circuit hold that a debtor that is a fiduciary of an Article

3-A trust is a fiduciary for purposes of Bankruptcy Code section 523(a)(4). Havens v. Salman

(In re Salman), No. 14-22017 (RDD), 2016 WL 11728990, at *6 (Bankr. S.D.N.Y. Nov. 7, 2016)

(noting Article 3-A creates an express statutory trust giving rise to the fiduciary relationship

under Bankruptcy Code section 523(a)(4)). Courts in in the Second Circuit hold that an ERISA

fiduciary per se satisfies the fiduciary requirement of 523(a)(4). In re Kakareko, 575 B.R. at 26

(collecting cases). This Court holds that a debtor that is a fiduciary under ERISA or Article 3-A

is a fiduciary for purposes of 523(a)(4).5

Defalcation

A fiduciary’s failure to account for or turn over trust property can be defalcation for

purposes of section 523(a)(4). Chitester v. Watterson (In re Watterson), 524 B.R. 445, 453

(Bankr. E.D.N.Y. 2015). However, defalcation requires proof that the debtor acted with a

culpable state of mind. Bullock v. BankChampaign, N.A., 569 U.S. at 269. As stated by the

United States Supreme Court:

Where actual knowledge of wrongdoing is lacking, we consider conduct as

equivalent if the fiduciary consciously disregards (or is willfully blind to) a

substantial and unjustifiable risk that his conduct will turn out to violate a fiduciary

duty. That risk must be of such a nature and degree that, considering the nature and

purpose of the actor's conduct and the circumstances known to him, its disregard

involves a gross deviation from the standard of conduct that a law-abiding person

would observe in the actor's situation.

Id. at 273744 (citations and quotations omitted).

5 Courts disagree whether a debtor that is a fiduciary for purposes of section 1002(21) is a fiduciary per se for

purposes of Bankruptcy Code section 523(a)(4). Compare Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186,

1190 (9th Cir. 2001) (“ERISA satisfies the traditional requirements for a statutory fiduciary to qualify as a

fiduciary under [section] 523(a)(4).”), and Russo v. Fahey (In re Fahey), 482 B.R. 678, 692 (1st Cir. BAP L.R.

2012) (holding that debtor that satisfied definition of fiduciary under ERISA was fiduciary for purposes of

Bankruptcy Code section 523(a)(4)), with Bd. of Trs. of the Ohio Carpenters’ Pension Fund v. Bucci (In re

Bucci), 493 F.3d 635, 641–42 (6th Cir. 2007) (“being an ERISA fiduciary is not itself sufficient to satisfy the

fiduciary capacity” and courts should “examine the substance of the alleged fiduciary relationship to determine if

the requirements for a defalcation are satisfied.”), and Hunter v. Philpott, 373 F.3d 873, 875 (8th Cir. 2004)

(finding a “simple determination” that an individual is an ERISA fiduciary is insufficient and a court should “look

specifically at the property that is alleged to have been defalcated to determine whether [the individual] was

legally obligated to hold that specific property for the benefit of the [f]unds.”).

Plaintiffs argue their claim arises from Defendant’s intentional diversion of trust assets

from the express and technical trusts created under Article 3-A, ERISA, the Trust Agreement,

and the CBA. Specifically, Plaintiffs claim the Defendant diverted trust funds:

(i) to pay salary or draws of Fahrenheit Mechanical’s officers, including (a)

$443,465.70 from the Alma Account, including $159,183.00 to Defendant, and (b)

$961,582.96 from the JPMorgan Account, including $103,767.00 to Defendant;

(ii) by paying Defendant’s family members (a) $220,000.00 from the Alma Account, and

(b) $648,800.00 from the JPMorgan Account;

(iii) by withdrawing $109,008.60 from the JPMorgan Account for gambling;

(iv) by using $43,030.00 from the JPMorgan Account to buy jewelry and other gifts for

Defendant’s then-girlfriend; and

(v) by using $79,612.50 from the Alma Account and $73,808.38 from the JPMorgan

Account for Defendant’s personal expenses such as entertainment, shopping, and

meals.

Mooneyham Decl. ¶¶ 107–118;Mooneyham Decl., Ex. AN, Adv. Proc. ECF No. 25-15–18;

Mooneyham Decl., Ex. AQ, Adv. Proc. ECF No. 26-4–26-5; Mooneyham Decl., Ex. BA, Adv.

Proc. ECF No. 26-7; Mooneyham Decl., Ex. N, Adv. Proc. ECF No. 24-2–24-3; Mooneyham

Decl., Ex. C, Adv. Proc. ECF No. 21-5; Mooneyham Decl., Ex. AF, Adv. Proc. ECF No. 25-7;

Mooneyham Decl., Ex. Z, Adv. Proc. ECF No. 25-2; Mooneyham Decl., Ex. BB, Adv. Proc.

ECF No. 26-7; Mooneyham Decl., Ex. BC, Adv. Proc. ECF No. 26-7. Plaintiffs provide other

instances of diversion. The Court, however, cannot determine whether those additional

examples of diversion are in addition to, or are included in, the instances provided above.

Defendant responds to Plaintiffs’ claims of diversion by stating:

(i) “I never consented to any ‘diversion’ of funds.” Aff. Def. Opp. Summ. J. ¶ 16.

(ii) “I never advocated ‘not paying’ vendors or other corporate obligations, rather it

was a question of which expenses needed to be paid to keep the jobs running

smoothly enabling us to collect receivables.” Aff. Def. Opp. Summ. J. ¶ 20.

(iii) “Any funds that were received by Fahrenheit were paid to Fahrenheit. Those

funds received by me were either a draw, a loan or repayment, and would be

reflected as such.” Aff. Def. Opp. Summ. J. ¶ 51.

Defendant does not argue that Fahrenheit Mechanical’s funds were not trust assets.

Defendant does not deny he used Fahrenheit Mechanical’s funds to pay his family, his girlfriend,

Fahrenheit Mechanical’s officers, and his personal expenses and salary. Defendant does not

explain why he transferred trust assets to his girlfriend, his family, Fahrenheit Mechanical’s

officers, or himself. Lastly, Defendant does not argue he was authorized to use trust assets for

those purposes. Therefore, the Court finds the Defendant diverted trust fund assets.

The Court also finds the Defendant acted with the requisite intent. Defendant has

significant experience in the construction industry, having operated other construction companies

prior to operating Fahrenheit Mechanical. See supra at 5–6. Defendant knew or should have

known that Fahrenheit Mechanical’s funds were trust funds that had to be used only in accordance

with New York lien law, ERISA, the Trust Agreement, and the CBA. As set forth above,

Plaintiffs claim Defendant diverted $2,579,308.14. To put this in context, Fahrenheit Mechanical

operated from 2018 to 2020 and “job income from April 2019 through June 2020 was

$3,293,113.22.” See supra at 3. Defendant’s experience in the construction industry and the

magnitude of the amounts diverted evidence that Defendant acted recklessly, and his conduct was

a gross deviation from the standard of conduct that a law-abiding person would observe in the

Defendant’s circumstances.

Objection to the Discharageability of Plaintiffs’ Claims under Bankruptcy Code section

523(a)(6) because Defendant’s Willful and Malicious Conduct Injured the Plaintiffs

“A discharge . . . 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). To prevail on a claim under Bankruptcy Code section 523(a)(6), a plaintiff must prove

by a preponderance of evidence that (1) the debtor acted willfully, (2) the debtor acted maliciously,

and (3) the debtor's willful and malicious actions caused injury to the plaintiff or the plaintiff's

property. Wu v. Lin (In re Qiao Lin), 576 B.R. 32, 41 (Bankr. E.D.N.Y. 2017); Guggenheim Cap.,

LLC v. Birnbaum (In re Birnbaum), 513 B.R. 788, 802–03 (Bankr. E.D.N.Y. 2014).

The Bankruptcy Code does not define the term “willful.” The Supreme Court has defined

“willful” to mean “deliberate or intentional.” In re Birnbaum, 513 B.R. at 803 (citing Kawaauhau

v. Geiger, 523 U.S. 57, 61 n.3 (1998)). A showing of willfulness for purposes of Bankruptcy Code

section 523(a)(6) requires a showing that “the actor intend[ed] ‘the consequences of an act,’ not

simply ‘the act itself.’” Id.; see also In re Qiao Lin, 576 B.R. at 54 (willfulness under section

523(a)(6) requires proof of “a deliberate or intentional injury, not merely a deliberate or intentional

act that leads to injury.”) (emphasis in original); Curtis v. Ferrandina (In re Ferrandina), 533 B.R.

11, 26 (Bankr. E.D.N.Y. 2015) (“Courts within the Second Circuit have found that if a debtor

believes that an injury is substantially certain to result from his conduct, the debtor will be found

to have possessed the requisite intent to injure . . . .”) (collecting cases). Reckless or negligent

conduct is not sufficient to satisfy section 523(a)(6)’s “willful” requirement. In re Ferrandina,

533 B.R. at 26.

The Bankruptcy Code does not define “malicious.” The Second Circuit has defined

“malicious” to mean “wrongful and without just cause or excuse, even in the absence of personal

hatred, spite, or ill-will.” Id. at 26 (citing Navistar Fin. Corp. v. Stelluti (In re Stelluti), 94 F.3d

84, 87 (2d Cir. 1996)). “Actual malice is present where there is ‘a wrongful act done consciously

and knowingly in the absence of just cause or excuse.’” Moreno v. Orly, No. 15-11650(JLG),

Adv. Proc. No. 16-01020(JLG), 2016 WL 4376947, at *6 (Bankr. S.D.N.Y. Aug. 10, 2016)

(quoting Nesler v. Thomason (In re Thomason), 288 B.R. 812, 815 (Bankr. S.D. Ill. 2002)).

“Malice may be constructive or implied.” In re Stelluti, 94 F.3d at 87 (citations omitted). Malice

may be implied by the acts and conduct of the accused or “when anyone of reasonable intelligence

knows that the act in question is contrary to commonly accepted duties in the ordinary relationships

among people, and injurious to another.” In re Ferrandina, 533 B.R. at 26 (citations omitted).

When determining whether there is malice, bankruptcy courts look to the totality of the

circumstances. Rescuecom Corp. v. Khafaga (In re Khafaga), 419 B.R. 539, 550 (Bankr. E.D.N.Y.

2009).

Plaintiffs have proven by a preponderance that Defendant acted with malice. Actual

malice is present here because Defendant’s diversion of funds from the trust was a wrongful act

that was done consciously and knowingly. See infra at 20. Meaning, Defendant knew Fahrenheit

Mechanical’s funds were trust funds that should have been used to make contributions in

accordance with the CBA, Trust Agreement, New York Lien Law, and ERISA. Defendant did

not have just cause to use the trust funds for other purposes. Further, malice may be implied

because diverting trust funds (including using funds for one’s personal expenses, paying family

members, and buying gifts) is contrary to commonly accepted duties in relationships between an

employer and employee.

Plaintiffs have not proven by a preponderance of the evidence that Defendant acted

willfully. Although Plaintiffs proved Defendant acted recklessly and his actions constituted a

gross deviation from the norm, Plaintiffs have not proven, by a preponderance of the evidence,

that Defendant intended to injure Plaintiffs or that Defendant was substantially certain an injury

would result from his diversion of funds. Therefore, this cause of action is dismissed.

Objection to Defendant’s Discharge under Bankruptcy Code Section 727(a)(3) Due to

Defendant’s Failure to Preserve Books and Records

Under Bankruptcy Code section 727(a)(3), “[t]he court shall grant the debtor a discharge,

unless . . . the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve

any recorded information, including books, documents, records, and papers, from which the

debtor’s financial condition or business transactions might be ascertained, unless such act or

failure to act was justified under all of the circumstances of the case. ” 11 U.S.C. § 727(a)(3).

“The policy underlying [s]ection 727(a)(3) is to insure that the trustee and the creditors

receive sufficient information to effectively enable them to trace the debtor's financial history, to

ascertain the debtor's financial condition, and to reconstruct the debtor's business transactions.”

Barristers Abstract Corp. v. Caulfield (In re Caulfield), 192 B.R. 808, 822 (Bankr. E.D.N.Y.

1996) (internal quotations and citations omitted); see In re Underhill, 82 F.2d 258, 260 (2d Cir.

1936), cert. denied, 299 U.S. 546 (1936) (“it is intended that there be available written evidence

made and preserved from which the present financial condition of the bankrupt, and his business

transactions for a reasonable period in the past may be ascertained.”). Adequate record-keeping

is a predicate for a debtor’s discharge. Ng v. Adler (In re Adler), 494 B.R. 43, 67 (Bankr.

E.D.N.Y. 2013); see Mendelsohn v. Kumar (In re Kumar), Adv. Proc. No. 20-8141-las, 2023

Bankr. LEXIS 1639, at *14 (Bankr. E.D.N.Y. June 26, 2023).

Courts use a two-prong test to determine whether to deny discharge under Bankruptcy

Code section 727(a)(3). In re Adler, 494 B.R. at 67; In re Kumar, 2023 Bankr. LEXIS 1639, at

*14. First, the party objecting to discharge under Bankruptcy Code section 727(a)(3) has the

burden to show that “the debtor failed to keep and preserve any books or records from which the

debtor's financial condition or business transactions might be ascertained.” Id. at *15 (internal

citations omitted). “[T]he adequacy” of a debtor's record-keeping is evaluated in light of eight,

non-exclusive factors: “(1) whether the debtor was engaged in business, and if so, the complexity

and volume of the business; (2) the dollar amount of the debtor's obligations; (3) whether the

debtor's failure to keep or preserve books and records was due to the debtor's fault; (4) the

debtor's education, business experience, and sophistication; (5) the customary business practices,

for record keeping in the debtor's type of business; (6) the degree of accuracy disclosed by the

debtor's existing books and records; (7) the extent of any egregious conduct on the debtor's part;

and (8) the debtor's courtroom demeanor.” Agai v. Antoniou (In re Antoniou), 527 B.R. 71, 78–

79 (Bankr. E.D.N.Y. 2015) (quoting State Bank of India v. Sethi (In re Sethi), 250 B.R. 831, 838

(Bankr. E.D.N.Y. 2000)). A party objecting to discharge under Bankruptcy Code section

727(a)(3) need not prove fraudulent intent. Jacobowitz v. The Cadle Co. (In re Jacobowitz), 309

B.R. 429, 440 (S.D.N.Y. 2004); In re Adler, 494 B.R. at 67.

If the objecting party succeeds on the first prong, then the burden shifts to the debtor to

show that his failure to produce was justified. In re Kumar, 2023 Bankr. LEXIS 1639, at *15–16

(citing D.A.N. Joint Venture v. Cacioli (In re Cacioli), 463 F.3d 229, 235 (2d Cir. 2006)). The

Bankruptcy Code does not define what constitutes “justification” for failing to maintain adequate

records. Meridian Bank v. Alten, 958 F.2d 1226, 1231 (3d Cir. 1992). “Justification” is a

question of reasonableness in the particular circumstances, in which courts consider multiple

factors, including: (1) the debtor’s education, experience, and sophistication; (2) the volume of

the debtor's business; (3) the complexity of the debtor's business; (4) the amount of credit

extended to debtor in his business; and (5) any other circumstances that should be considered in

the interest of justice. Id.; see In re Sethi, 250 B.R. at 839 (Bankr. E.D.N.Y. 2000) (A debtor’s

“explanation of [the] loss [of books and records] must be more than just vague and general oral

assertions that assets or records are no longer available.”).

Plaintiffs assert the Defendant failed to keep and preserve books or records from which

his financial condition or business transactions might be ascertained, based on his failure to

produce signed income tax returns and Fahrenheit Mechanical’s books and records, including

QuickBooks files, ledgers, profit-loss statements, balance sheets, or bank statements for the

Alma Accounts. Mooneyham Decl., ¶¶ 57–59, 64, 65.

Fahrenheit Mechanical’s business records are necessary to ascertain the Defendant’s

financial condition because, among other things, Fahrenheit Mechanical was majority owned by

the Defendant, Fahrenheit Mechanical transferred significant funds from its bank accounts to

Defendant’s bank accounts and claims against the Defendant aggregating in excess of $3 million

relate to Fahrenheit Mechanical. Am. Statement of Facts ¶¶ 115, 116, 152; Proofs of Claim Nos.

4-1, 6-1, 8-4, 9-1.

Defendant does not have Fahrenheit Mechanical’s ledgers, profit and loss statements,

balance sheets, or complete banking records. Am. Statement of Facts ¶¶ 86, 91. Defendant is

experienced in the construction industry and was Fahrenheit Mechanical’s principal decision

maker. Am. Statement of Facts ¶¶ 95, 96, 98, 100, 117. Fahrenheit Mechanical was a business

with at least eighteen employees, annual income over $2 million, and $3.4 million in payroll.

Am. Statement of Facts ¶¶ 134, 143–145, 148. As such, the Defendant should have maintained

and preserved financial records such as profit and loss statements, balance sheets, and complete

bank records for Fahrenheit Mechanical. Accordingly, Plaintiffs have satisfied their burden of

proving by a preponderance of the evidence that Defendant failed to keep or preserve books and

records from which the Defendant’s financial condition might be ascertained.

Plaintiffs contend that Christopher Travis, Esq., Defendant’s personal attorney, collected

Fahrenheit Mechanical’s physical and digital files. Am. Statement of Facts ¶ 189. Ultimately,

Fahrenheit Mechanical’s filing cabinets of physical books and records were stored at a

warehouse owned by the Defendant’s family. Am. Statement of Facts ¶ 195. Plaintiffs argue

that the Defendant has offered no explanation as to why Fahrenheit Mechanical’s file cabinets

were found at the warehouse but the books and records were not, why Fahrenheit Mechanical’s

server and computers are gone, or why Defendant’s attorney no longer has the books and records

he allegedly collected. Pl. MOL at 27.

Defendant claims that toward the end of 2020, he was admitted into a psychiatric ward

and then confined to a rehabilitation program for two months. Aff. Def. Opp. Summ. J. ¶¶ 26,

27. Defendant claims when he was able to “continue,” Fahrenheit had closed. Aff. Def. Opp.

Summ. J. ¶ 35. Defendant testified that he does not recall having any conversations concerning

storage of Fahrenheit’s books and records. Def. Dep. 45:19–24. Nonetheless, he admits the

books and records were sent to his father’s warehouse. Def. Dep. 52:20–53:3. Defendant claims

he searched the warehouse where he believed the items were stored and questioned employees at

the location. Aff. Def. Opp. Summ. J. ¶ 38; Def. Dep. 48:14–22. Defendant provides no

explanation for his failure to produce his signed tax returns. However, the Court has no evidence

either way that the tax returns produced by the Defendant were not accurate copies of the filed

returns.

The Court finds there are disputed questions as to material facts concerning whether

Defendant was justified in not producing Fahrenheit Mechanical’s books and records.

Defendant’s failure to produce books and records would be justified if Fahrenheit Mechanical’s

books and records were lost or destroyed without Defendant’s knowledge while he was

institutionalized. Accordingly, Plaintiffs’ motion for summary judgment on this claim for relief

is denied.

Objection to Defendant’s Discharge under Bankruptcy Code Section 727(a)(4) Due to

Defendant’s Alleged False Oaths

Under Bankruptcy Code section 727(a)(4)(A), a court may not discharge a debtor if he or

she “knowingly and fraudulently, in or in connection with the case, made a false oath or

account.” 11 U.S.C. § 727(a)(4)(A). The discharge may be denied if plaintiff proves, by a

preponderance of the evidence, that: “(1) the debtor made a statement under oath; (2) the

statement was false; (3) the statement related materially to the bankruptcy case; (4) the debtor

knew the statement was false; and (5) the debtor made the statement with fraudulent intent.” In

re Adler, 494 B.R. at 74 (quoting Dubrowsky v. Estate of Perlbinder (In re Dubrowsky), 244

B.R. 560, 572 (E.D.N.Y. 2000)).

Plaintiffs allege that Defendant’s Second Amended Statement of Financial Affairs is false

because the Defendant represented that he had no income in the two years prior to the Petition

Date. Am. Statement of Facts ¶ 208. Plaintiffs allege that Defendant failed to disclose in his

Second Amended Statement of Financial Affairs that he received pre-Petition Date wages of

$27,600.00 from Fahrenheit Mechanical. Am. Statement of Facts ¶ 208(a). Plaintiffs support

the allegation with a chart identified as Plaintiffs’ Exhibit V and copies of Fahrenheit

Mechanical’s and Defendant’s bank statements. Am. Statement of Facts ¶ 208(a); Mooneyham

Decl., Ex. AP, Adv. Proc. ECF No. 26-3; Mooneyham Decl., Ex. T, Adv. Proc. ECF Nos. 24-9–

24-12; Mooneyham Decl., Ex. U, Adv. Proc. ECF No. 24-13; Mooneyham Decl., Ex. V, Adv.

Proc. ECF No. 24-14.

Plaintiffs represent that Exhibit V is a true and correct copy of Fahrenheit Mechanical’s

accounting of its 2021 PPP loan disbursements. Mooneyham Decl. ¶ 39(d). However,

Plaintiffs have neither identified the person who created the chart nor explained how the chart

was generated. Additionally, the bank statements provided by Plaintiffs do not reflect the

transfers from Fahrenheit Mechanical to Defendant that are set forth in Exhibit V. For example,

Plaintiff’s Exhibit V references a $13,000 transfer on April 30, 2021, and a $3,100 transfer on

May 28, 2021, from Fahrenheit Mechanical to Defendant for wages. Mooneyham Decl., Ex. V,

Adv. Proc. ECF No. 24-14. Fahrenheit Mechanical’s April and May 2021 TD Bank statements

do not reference any transfers to Defendant. Mooneyham Decl., Ex. U, Adv. Proc. ECF No. 24-

13, pp. 3–8. To the contrary, the April and May 2021 TD Bank statements reference two credits

to the accounts from Christopher Travis, Defendant’s attorney - a $13,000 wire transfer made

on April 30, 2021 and a $3,100 wire transfer made on May 28, 2021. Id. None of the other

alleged transfers from Fahrenheit Mechanical to Defendant referenced in Plaintiffs’ Exhibit V

appear in the TD Bank statements.

Plaintiffs claim Defendant received a $20,000 transfer from Fahrenheit Mechanical on

April 15, 2021. Mooneyham Decl. ¶ 157(a)(i). Defendant’s Chase Bank statements for the

period March 25, 2021, to April 26, 2021 reflect an incoming $20,000 wire, but that was from

Christopher Travis, not Fahrenheit Mechanical. Mooneyham Decl., Ex. AP, Adv. Proc. ECF

No. 26-3. Similarly, the $3,100 transfer on May 28, 2021, and the $2,500 transfer on August

23, 2021, that Plaintiffs allege are from Fahrenheit Mechanical to Defendant appear to be

transfers from Christopher Travis. Mooneyham Decl., Ex. T, Adv. Proc. ECF No. 24-9.

Therefore, the Court finds that Plaintiffs have failed to prove that Defendant received

$27,600.00 in wages from Fahrenheit Mechanical.

Plaintiffs correctly note that Fahrenheit Mechanical transferred $1,000 to Defendant on

June 16, 2021 and June 18, 2021. Mooneyham Decl., Ex. U, Adv. Proc. ECF No. 24-13;

Mooneyham Decl., Ex. T, Adv. Proc. ECF No. 24-9. The Court cannot determine whether

those two transfers were for wages.

Plaintiffs allege Defendant received the benefit of an additional $22,592.50 of Fahrenheit

Mechanical’s 2021 PPP loan. Am. Statement of Facts ¶ 208(b). In support of that allegation,

Plaintiffs again rely on Exhibit V. Mooneyham Decl., Ex. V, Adv. Proc. ECF No. 24-14. As

set forth above, Exhibit V is unreliable. Plaintiffs also rely on the bank statements identified as

Exhibit U. Mooneyham Decl., Ex. U, Adv. Proc. ECF No. 24-13. Plaintiffs, however, do not

identify which transfers on the bank statements in Exhibit U benefitted Defendant.

Plaintiffs claim Defendant also failed to disclose $66,967.78 of deposits into Defendant’s

personal bank account. Am. Statement of Facts ¶ 208(c). Plaintiffs may be correct that the

funds were deposited into Defendant’s account; however, Plaintiffs have not established the

transfers are the Defendant’s income from employment or from operating a business, as

opposed to support from friends and family. See Def. Dep. 66:24–67:16, 68:5–13, 71:7–20

(Defendant’s testimony that he received financial support from family). The Statement of

Financial Affairs only asks debtors to disclose “income from employment or from operating a

business.” Accordingly, Plaintiffs failed to prove that the Defendant earned income from wages

or the operation of a business that is not disclosed on the Defendant’s Statement of Financial

Affairs or Amended Statement of Financial Affairs.

Plaintiffs claim Defendant’s Schedules are false because Defendant’s original Schedules

disclosed ownership interests in four motorcycles and Defendant’s amended Schedules omitted

those four motorcycles. Mooneyham Decl. ¶ 161. Defendant testified he omitted the

motorcycles in his amended Schedules because after he filed his original Schedules, he was told

that Fahrenheit Mechanical, not the Defendant, was on the title to the vehicles. Def. Dep.

155:8–13. Plaintiffs have not provided evidence that Defendant held title to the motorcycles or

had an equitable interest in the motorcycles.

However, Plaintiffs have proven that the Defendant failed to disclose in his Schedules

that: (i) he had interests in an investment account and certain limited liability companies; (ii) he

received income from gambling; and (iii) he made significant gifts to his girlfriend. Specifically,

Plaintiffs have proven:

• Defendant failed to disclose his interest in a Robinhood investment brokerage account.

Am. Statement of Facts ¶ 207(a). Defendant admitted he did not list the Robinhood

investment brokerage account in his Schedules. Def. Counter-Statement ¶ 207.

• Defendant failed to disclose that he holds a legal or equitable interest in The Phoenix

Network LLC, S.D.B. Contracting LLC, SR3 Electric LLC, and Chron NY Productions

LLC. Mooneyham Decl. ¶ 155. Plaintiffs’ proof that Defendant has an interest in the

limited liability companies is the Defendant’s unsigned tax returns for 2018 through

2022, inclusive. Mooneyham Decl., Ex. AF, Adv. Proc. ECF No. 25-7; Mooneyham

Decl., Ex. AG, Adv. Proc. ECF No. 25-8. In those returns, Defendant reported he owned

interests in those companies. Mooneyham Decl., Ex. AF, Adv. Proc. ECF No. 25-7.

Defendant denied Plaintiffs’ allegation that Defendant failed to disclose his interest in

those limited liability companies. Def. Counter-Statement ¶ 206. Defendant, however,

provides no explanation why the companies are referenced in his tax returns but not in his

bankruptcy Schedules. Defendant’s only explanation is Phoenix Network LLC, S.D.B.

Contracting LLC, and SR3 Electric LLC no longer operate. See Def. Dep. 18:7-24;

291:9-11.

• Defendant failed to disclose $8,755.00 in gambling winnings. Am. Statement of Facts ¶

210. Defendant admitted he received gambling winnings and did not disclose the

winnings on his schedules. Def. Counter-Statement ¶ 210.

• Defendant failed to disclose gifts he made to his girlfriend in the two years prior to

bankruptcy. Mooneyham Decl. ¶ 158. Plaintiffs provided bank statements reflecting 19

payments totaling $16,850.00 from Defendant’s JPMorgan Account and 14 payments

totaling $11,710 from Defendant’s TD Bank Account to Defendant’s girlfriend.

Mooneyham Decl., Ex. T, Adv. Proc. ECF No. 24-9–24-12; Mooneyham Decl. Ex., AP,

Adv. Proc. ECF No. 26-3. Additionally, Defendant’s bank statements and Fahrenheit

Mechanical’s bank statements reflect payments that are likely gifts to Defendant’s

girlfriend. Mooneyham Decl. ¶¶ 158, 163; Mooneyham Decl., Ex. T, Adv. Proc. ECF

No. 24-9–24-12; Mooneyham Decl., Ex. U, Adv. Proc. ECF No. 24-13; Mooneyham

Decl. Ex., AP, Adv. Proc. ECF No. 26-3; Mooneyham Decl. Ex., BB, Adv. Proc. ECF

No. 26-7. Defendant denies that he failed to disclose gifts on his Statement of Financial

Affairs. Def. Counter-Statement ¶ 209. Defendant, however, does not deny the transfers

from himself and Fahrenheit Mechanical were to, or for the benefit of, his girlfriend.

Respecting materiality, “a ‘material matter’ is ‘one bearing a relationship to the debtor's

business transactions or estate or which would lead to the discovery of assets, business dealings

or existence or disposition of property.’” Carlucci & Legum v. Murray (In re Murray), 249

B.R. 223, 230 (E.D.N.Y. 2000). A debtor’s failure to disclose exempt or worthless assets can

be material. Id. at 231–32. The Defendant’s failure to disclose his interests in the three limited

liability companies and the Robinhood account is material because the companies and the

account are property of the bankruptcy estate. The Defendant’s failure to disclose the gifts and

gambling winnings are material because the disclosures relate to the Defendant’s disposition of

property.

Regarding the fifth element, “[f]raudulent intent must be shown by actual, not

constructive fraud. The party objecting to the discharge must show that the information was

omitted for the specific purpose of perpetrating a fraud and not simply because the debtor was

careless or failed to fully understand his attorney's instructions.” In re Dubrowsky, 244 B.R. at

571–72 (internal citations omitted). However, a debtor’s reckless indifference to the truth may

be sufficient to establish the requisite fraudulent intent. Diorio v. Kreisler-Borg Constr. Co. (In

re Diorio), 407 F.2d 1330, 1331 (2d Cir. 1969); Thaler v. Davis (In re Davis), No. 23-71984-

REG, 2025 WL 1448570, at *4 (Bankr. E.D.N.Y. May 20, 2025). “[O]nce the objecting

creditor has produced persuasive evidence of a false statement, the burden shifts to the debtor to

come forward with evidence to prove that it was not an intentional misrepresentation.” Pereira

v. Gardner (In re Gardner), 384 B.R. 654, 662 (Bankr. S.D.N.Y. 2008) (citations omitted).

The Defendant denied that he knew of the misstatements and omissions in his Schedules

and Statements of Financial Affairs, stating he “never knowingly filed a false statement, and

[his] [S]chedules and papers were true to the best of [his] knowledge at the time of them being

filed.” Aff. Def. Opp. Summ. J. ¶ 47. The Defendant, however, failed to provide any

explanation (much less a credible explanation) for the omissions in his Schedules and

Statements of Financial Affairs. He does not claim that he did not understand the importance of

full disclosure in his Schedules or Statement of Financial Affairs. He does not claim he acted

with care and diligence in completing his Schedules or Statements of Financial Affairs. To the

contrary, the Defendant amended his Schedules twice and failed to include his Robinhood

account, gambling winnings, interests in his companies, or his gifts. The Court finds that the

Defendant failed to satisfy his burden of coming forward with evidence that the false statements

in his Schedules and Statements of Financial Affairs were made without knowledge or

fraudulent intent.

The Plaintiffs have satisfied their burden of proof and the Defendant’s discharge is

denied under Bankruptcy Code section 727(a)(4).

CONCLUSION

The Court will enter an order and judgment that:

1. Plaintiffs’ claims are nondischargeable under 11 U.S.C. § 523(a)(4).

2. Defendant’s discharge is denied under 11 U.S.C. § 727(a)(4).

3. Plaintiff’s motion for summary judgment to deny Defendant’s discharge under 11

U.S.C. § 727(a)(3) is denied.

4. Plaintiffs’ Third Cause of Action is dismissed solely to the extent Plaintiffs seek a

declaration the Plaintiffs’ claims are nondischargeable under 11 U.S.C. §

523(a)(6).

Plaintiffs are directed to submit an order consistent with this memorandum within

fourteen (14) days of its entry.

SoZ, _

G y € ‘ fe, Facet

Dated: August 19, 2025 □ ue i CD

Brooklyn, New York a aN Jil Mazer-Marino

ats United States Bankruptcy Judge

30