Babin v. Stepanian (In re Stepanian)

545 B.R. 424
CourtUnited States Bankruptcy Court, D. Massachusetts
DecidedDecember 31, 2015
DocketCase No. 15-10780-FJB; Adversary Proceeding No. 15-1139
StatusPublished
Cited by1 cases

This text of 545 B.R. 424 (Babin v. Stepanian (In re Stepanian)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Babin v. Stepanian (In re Stepanian), 545 B.R. 424 (Mass. 2015).

Opinion

ORDER AND MEMORANDUM OF DECISION

Frank J. Bailey, United States Bankruptcy Judge

I. Overview

In this adversary proceeding, Wilbur J. Babin, Trustee in Bankruptcy (the “Trustee”) of George Porter, Jr. (“Porter”), Brian H. Stoltz (“Stoltz”), David Russell Batiste, Jr. (“Batiste”) (Porter, Stoltz and Batiste may be referred to collectively as the “Band Members”), Porter-Batiste-Stoltz, LLC (the “Band”), Ronnie Glynn Penton (“Penton”), The Penton Law Firm (“Penton Firm”), John 0. Pieksen, Jr. (“Pi-eksen”) and John Pieksen & Associates, LLC (“Pieksen Firm”) (Penton, Pieksen, Penton Firm and Pieksen Firm may be referred to collectively as the “Lawyers”), as plaintiffs, seek the denial of debtor Philip I. Stepanian’s (“Stepanian” or the “Debtor”) discharge under 11 U.S.C. section 727. Plaintiffs also seek a determination that certain debts of the Debtor owed to them are excepted from discharge under 11 U.S.C. section 523. By this motion, the Debtor seeks dismissal of the adversary proceeding principally on the following grounds, which theories are more narrowly tailored to fit each of the counts: (a) that the complaint, which alleges fraud, fails to meet the special pleading requirements of Fed.R.Civ.P. 9(b), as made applicable by Fed. R. Bankr.P. 7009, insofar as it fails to allege fraud with particularity, (b) that none of the counts in the complaint state a claim upon which relief can be granted and should be dismissed under Fed.R.Civ.P. 12(b)(6), as made applicable by Fed. R. Bankr.P. 7012, (c) that the allegations in the complaint are conelusory and lacking in specific facts as required by Fed.R.Civ.P. 8, as made applicable by Fed. R. Bankr.P. 7008, and, finally, (d) that all Plaintiffs other than the Trustee and the Lawyers lack standing. Based on the following memorandum, the motion is denied in part and the Plaintiffs are granted thirty days from the date of the entry of this memorandum to file an amended complaint, failing which the motion to dismiss will be partially allowed.

II. Background

According to the complaint, which I accept as true and from which I draw all reasonable inferences in the Debtor’s favor, the Debtor, through an entity known as Highsteppin Productions, LLC (“High-steppin”), and the Band Members entered a written agreement (the “Agreement”) whereby the Debtor was to provide certain management services to the Band and Band Members, who were a musical act that performed at various locations around the country. Highsteppin was to receive commissions on the gross earnings of the Band. The Debtor claims that the Band Members breached their obligations under the Agreement and committed certain business torts in his dealings with them. Highsteppin filed suit against the Band and the Band Members in the United State District Court for the District of Massachusetts (the “Massachusetts Litigation”). The Band and Band Members filed counterclaims against Highsteppin and filed a third-party complaint against the Debtor, which included counts under the Massachusetts Consumer Protection Act, G.L. Chapter 93A (“Chapter 93A”). The Band Members then filed chapter 7 bankruptcy petitions in the Eastern District of Louisiana (the “Louisiana Bankruptcy Court”) and removed the Massachusetts Litigation to the Louisiana Bankruptcy Court (the “Louisiana Litigation”). The [428]*428Trustee was appointed chapter 7 trustee for each of the Band Members.

The complaint states that the Debtor, through Highsteppin, was a fiduciary of the Band and the Band Members and, as a result, he owed the Band and the Band Members a duty to provide full disclosure of the business operations covered by the Agreement, to provide a full accounting of all receipts and disbursements, to avoid commingling of the Band Members’ funds, and to avoid conflicts of interest in dealing with the Band Members’ business activities. In the Louisiana Litigation, the Band Members alleged (and apparently proved) that the Debtor maintained a separate set of financial records that included “false, inaccurate, and misleading” financial information. The deliberately faulty accounting records made it impossible to tell what assets in Highsteppin’s hands belonged to the Band Members and the commingling of the Band Members’ funds made it possible for Highsteppin and the Debtor to “use” funds belonging to the Band Members. The complaint also alleges that the Debtor misrepresented his experience when the Agreement was entered and that he did so to ensure his retention as manager. It also alleges that the Debt- or used Highsteppin as his alter ego and, through commingling, diverted assets that were property of the Band Members. The Louisiana Bankruptcy Court held a trial on the claims, counterclaims, and third-party complaint, and rendered comprehensive findings of fact and conclusions of law.

The Plaintiffs allege that the Louisiana Bankruptcy Court found that Highsteppin willfully violated Chapter 93A, breached the Agreement, and breached fiduciary duties owed to the Band Members and the Band. The acts in breach of the fiduciary duties included a failure to account for the receipts and expenses of the Band, a failure to fully disclose financial information, and commingling of funds received for the Band’s performances. For his part, the Debtor, through Highsteppin, challenged the Band Members’ discharge and alleged that the Band Members breached the Agreement and owed Highsteppin damages in the hundreds of thousands of dollars. After trial, the Louisiana Bankruptcy Court found and ordered, among other things, that (a) neither Highsteppin nor the Band Members were owed sums under the Agreement because any losses were offset; (b) Highsteppin was to provide various disclosures and notifications to vendors and others that did business with the Band Members and Highsteppin, and to turnover certain personal property to the Band Members; and (c) directed the Trustee to submit evidence of the attorney’s fees and costs expended by the estate in connection with the Louisiana Litigation. Later, after finding the Debtor and High-steppin violated Chapter 93A, the court entered judgment against Highsteppin in the amount of $1,828,587.81 in legal fees incurred by the Trustee and Lawyers and entered judgment against Highsteppin on its claims against the Band Members.

III. Jurisdiction

The matters before the court are a proceeding under 11 U.S.C. § 523(a) to determine the dischargeability of a debt and another under 11 U.S.C. § 727(a) to object to discharge. The matters arise under the Bankruptcy Code and in a bankruptcy case and therefore fall within the jurisdiction given the district court in 28 U.S.C.

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Cite This Page — Counsel Stack

Bluebook (online)
545 B.R. 424, Counsel Stack Legal Research, https://law.counselstack.com/opinion/babin-v-stepanian-in-re-stepanian-mab-2015.