Cocoletzi et al v. Orly

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------x
In re: 	:
:
Amir Orly, 	: 	Case No. 15-11650 (JLG)
: 	Chapter 7
Debtor. 	:
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Alfredo Moreno Cocoletzi, Edgar Monteroso, 	:
Gilberto Dairo Ramirez Ramos, German Torres 	:
Romero, and Christian Fredy Villar Medina, 	:
on behalf of themselves and others similarly 	:
situated, 	:
:
Plaintiffs, 	: 	Adv. P. No. 16-01020 (JLG)
:
v. 	:
:
Amir Orly, 	:
:
Defendant 	:
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MEMORANDUM DECISION ON DEFENDANT’S MOTION TO DISMISS
A P P E A R A N C E S :
MICHAEL FAILLACE & ASSOCIATES, P.C.
Attorneys for Plaintiffs Alfredo Moreno Cocoletzi,
Edgar Monteroso, Gilberto Dario Ramirez Ramos,
German Torres Romero, and Cristian Fredy
Villar Medina
60 East 42nd Street, Suite 2540
New York, New York 10165
By: 	Joshua S. Androphy, Esq.
GARVEY, TIRELLI & CUSHNER, LTD.
Attorneys for Defendant Amir Orly
50 Main Street, Suite 390
White Plains, New York 10606
By: 	Linda M. Tirelli, Esq.
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JAMES L. GARRITY, JR.
UNITED STATES BANKRUPTCY JUDGE
Amir Orly (the “Debtor”) owns, operates or controls two pizzerias in New York City.
Prepetition, Alfredo Moreno Cocoletzi (“Moreno”), Edgar Monteroso (“Monteroso”), Gilberto
Dario Ramirez Ramos (“Ramirez”, and collectively with Moreno and Monteroso, the “Original
Plaintiffs”), German Torres Romero (“Torres”), and Cristian Fredy Villar Medina (“Medina,”
and collectively with Torres and the Original Plaintiffs, the “Plaintiffs”), each formerly
employed by the Debtor at the pizzerias, sued the Debtor and others in the United States District
Court for the Southern District of New York (the “District Court Action”) for damages
occasioned by their alleged violations of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.
(the “FLSA”), New York Labor Law, §§ 190 et seq. and 650 et seq. (“NYLL”), and the New
York Commissioner of Labor codified at N.Y. Comp. Codes R. & Regs., Tit. 12, § 142-2.4(a)
(2009).1 That action is pending and is still at the discovery stage.
The Plaintiffs commenced this adversary proceeding by filing a complaint (the
“Complaint”) seeking a judgment pursuant to § 727(a)(4) of the Bankruptcy Code (the “§ 727
Claim”) denying the Debtor his discharge in bankruptcy or, alternatively, a judgment pursuant to
§ 523(a)(6) of the Bankruptcy Code (the “§ 523 Claim”) determining that any damages awarded
to them in the District Court Action are non-dischargeable debts in this bankruptcy case.2 The
matter before the Court is the Debtor’s motion pursuant to Federal Rule of Civil Procedure
12(b)(6), made applicable herein by Bankruptcy Rule 7012, to dismiss the Complaint for failing
1 See Complaint Collective Action under 29 U.S.C. § 216(b) [DC ECF Doc. No. 1]. References to “DC ECF Doc.
No. __” refer to the docket entries in the action pending against the Debtor in the United States District Court for the
Southern District of New York, Case No. 1:15−cv−02696−CM−DCF, “ECF Doc No. __” refer to docket entries in
the Debtor’s main case, 15-11650 (JLG), and “AP ECF Doc. No. __” refer to docket entries in this adversary
proceeding, 16-01020 (JLG).
2 See Complaint Objecting to Dischargeability of Debt and Discharge of Debtor [AP ECF Doc. No. 1].
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to state a claim upon which relief can be granted (the “Motion”).3 The Plaintiffs oppose the
Motion.4
The Plaintiffs’ § 727 Claim was predicated on the Debtor’s alleged failure to disclose in
his Statement of Financial Affairs that he owned more than 5% of the voting securities of the
entities that owned the pizzerias. In their objection to the Motion, the Plaintiffs concede that the
claim should be dismissed because the Debtor has amended his Statement of Financial Affairs to
include the information not reflected on the Statement of Financial Affairs, as filed. Obj. at 1.
At the argument on the Motion, the Plaintiffs’ counsel advised the Court that they will promptly
take the steps necessary to withdraw that count of the Complaint. Accordingly, the Court will
address the Motion only as it relates to the § 523 Claim.
For the reasons stated below, the Motion is GRANTED as to Messrs. Torres and Medina
with leave to seek to replead, with any such motion seeking such relief to be filed no later than
thirty (30) days after entry of this Order, and is DENIED as to Messrs. Moreno, Monteroso, and
Ramirez.
Jurisdiction
The Court has subject matter jurisdiction over this proceeding pursuant to 28 U.S.C. §§
1334, 157(a) and 157(b)(1) and the Amended Standing Order of Reference M-431 (Preska, C.J.).
This is a core proceeding. See 28 U.S.C. § 157(b)(2)(I) and (J).
Legal Standard and Scope of the Record
Rule 12(b)(6) provides that a complaint may be dismissed “for failure to state a claim
upon which relief can be granted [.]” FED. R. CIV. P. 12(b)(6). The purpose of a motion to
3 See Defendant Amir Orly’s Memorandum of Law in Support of Motion to Dismiss Complaint [AP ECF Doc No.
8], as supported by Defendant’s Reply to Plaintiff’s Opposition [AP ECF Doc. No. 13] (the “Reply”).
4 See Plaintiffs’ Memorandum of Law in Opposition to Defendant Amir Orly’s Motion to Dismiss Complaint [AP
ECF Doc. No. 12] (the “Objection”).
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dismiss is “merely to assess the legal feasibility of the complaint, not to assay the weight of the
evidence which might be offered in support thereof.” Geisler v. Petrocelli, 616 F.2d 636, 639
(2d Cir. 1980); see also Halebian v. Berv, 644 F.3d 122, 130 (2d Cir. 2011) (describing purpose
of Rule 12(b)(6) motion “is to test, in a streamlined fashion, the formal sufficiency of the
plaintiff's statement of a claim for relief without resolving a contest regarding its substantive
merits.”). Thus, when considering a motion to dismiss, the court must liberally construe the
complaint, accept the factual allegations set forth in the complaint as true, and draw all
reasonable inferences in favor of the plaintiff. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570 (2007). However, “[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). See
also Papasan v. Allain, 478 U.S. 265, 286 (1986) (noting that on a motion to dismiss, courts “are
not bound to accept as true a legal conclusion couched as a factual allegation.”). That is because
to defeat a Rule 12(b)(6) motion, a plaintiff must plead sufficient factual allegations “to state a
claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. A claim is facially
plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556). A claim will be dismissed if the plaintiff does not nudge its claims
“across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. 	“The plausibility
standard is not akin to a ‘probability requirement,’ but it [requires the plaintiff to plead] more
than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678.
On a motion to dismiss, “a complaint is deemed to include any written instrument
attached to [the complaint] as an exhibit, materials incorporated in it by reference, and
documents that, although not incorporated by reference, are ‘integral’ to the complaint.” Sira v.
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Morton, 380 F.3d 57, 67 (2d Cir. 2004) (citations omitted); Chambers v. Time Warner, Inc., 282
F.3d 147, 152-53 (2d Cir. 2002) (same). For incorporation by reference, a complaint “must
make a clear, definite and substantial reference to the document.” Helprin v. Harcourt, 277 F.
Supp. 2d 327, 330-31 (S.D.N.Y. 2003). The Plaintiffs attached a copy of the District Court
Complaint to their complaint and specifically incorporated by reference the allegations in that
complaint. See Compl. ¶ 4. Thus, the Court will consider the facts alleged in both complaints in
assessing the merits of the Motion.
Background5
On June 24, 2015, the Debtor filed a voluntary petition under chapter 13 of the
Bankruptcy Code. By a Notice of Voluntary Conversion filed on October 23, 2015, the Debtor
converted his chapter 13 case to one under chapter 7. [ECF Doc. No. 17]. The Debtor owns,
operates, or controls two pizzerias located in New York, New York (collectively, the
“Pizzerias”) (see District Court Compl. ¶¶ 2, 21, 25) 6 operating under the name “Fat Sal’s
Pizza.” The Plaintiffs worked for the Debtor at various respective times between 2008 and
March 2015. Id. ¶¶ 37, 57, 76.
On April 7, 2015, the Original Plaintiffs, individually, and on behalf of others similarly
situated, commenced the District Court Action. Torres and Medina were later joined as plaintiffs
in that action.7 As discussed below, in support of the action, the Plaintiffs allege that the Debtor
5 With certain irrelevant exceptions, Bankruptcy Rule 7052 makes Fed. R. Civ. P. 52 applicable in adversary
proceedings. Pursuant to Rule 52(a)(3), in resolving this Motion, the Court is not required to state findings of fact
or conclusions of law. Accordingly, the facts recited herein are those alleged and incorporated in the Complaint.
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
6 The District Court Complaint utilizes the defined term “Defendants” when pleading many of the allegations
therein, with the definition of that word including the Debtor. The Court will refer to the Debtor throughout this
decision when presenting the factual allegations pled in the District Court Complaint that include “Defendants.”
7 See Consent to Become Party Plaintiff under the F.L.S.A. for Christian Villar, and Consent to Become Party
Plaintiff under the F.L.S.A. for German Torres [DC ECF Doc. Nos. 6 and 9, respectively].
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knowingly, intentionally and willfully injured them by (i) failing to pay them minimum and
overtime wages as mandated by §§ 206 and 207 of the FLSA (Counts One and Two); (ii) failing
to pay minimum, overtime and “spread of hour “wages as mandated by §§ 652 and 653 of the
NYLL (Counts Three, Four and Five); (iii) violating notice and recording and wage statement
requirements under NYLL (Counts Six and Seven); and (iv) requiring the Plaintiffs to pay,
without reimbursement, the costs and expenses of purchasing and maintaining equipment and
“tools of the trade” in violation of § 206 of the FLSA and §§ 193 and 198 of the NYLL (Count
Eight).
By Order dated January 13, 2016, this Court granted the Plaintiffs’ unopposed motion
pursuant to section § 362(d) of the Bankruptcy Code to modify the automatic stay to permit the
Plaintiffs to prosecute the District Court Action to judgment, but with the stay remaining in
effect as to the enforcement of any judgment obtained.8 The Plaintiffs timely commenced this
action on February 6, 2016, and on April 11, 2016, the Debtor filed the Motion. As noted, in
resolving the Motion, the Court will consider only whether the Plaintiffs have adequately pled
their claim for relief under § 523(a)(6).
Discussion
Section 523(a)(6) bars the discharge of any debt that is the product of “willful and
malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. §
523(a)(6).9 The three elements that a creditor must establish to prevail on a claim under that
section are “first, that the debtor acted willfully, second, that the debtor acted maliciously, and
8 See Order Pursuant to 11 U.S.C. § 362(d) Modifying the Automatic Stay Imposed by 11 U.S.C. § 362(a) [ECF
Doc. No. 25].
9 The Bankruptcy Code defines “entity” as including a “person” (11 U.S.C. § 101(15)), and further defines “person”
as including an “individual.” 11 U.S.C. § 101(41).
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third, that the debtor’s willful and malicious actions caused injury to the creditor or its property.”
In re Salim, 2015 WL 1240000, at *22 (Bankr. E.D.N.Y. Mar. 16, 2015). The terms “willful”
and “malicious” are separate elements with distinct meanings and both must be satisfied by a
preponderance of the evidence. Rescuecom Corp. v. Khafaga (In re Khafaga), 419 B.R. 539,
548 (Bankr. E.D.N.Y. 2009); Rupert v. Krautheimer (In re Krautheimer), 241 B.R. 330, 340-41
(Bankr. S.D.N.Y. 1999). See also Barclays American/Business Credit, Inc. v. Long (In re Long),
774 F.2d 875, 881 (8th Cir. 1985) (The terms ‘willful’ and ‘malicious’ “should not be lumped
together to create an amorphous standard to prevent discharge from any conduct that may be
judicially considered to be deplorable.”). To promote the “fresh start” policy of the Bankruptcy
Code, courts narrowly construe the exceptions to dischargeability enumerated in §523(a)(6). In
re Bonnanzio, 91 F.3d 296, 300 (2d Cir. 1996); Orr v. Marcella (In re Marcella), 463 B.R. 212,
219 (Bankr. D. Conn. 2011).
Before assessing the merits of the Motion, the Court considers the Debtor’s assertion that
even assuming arguendo the truth of the Complaint’s allegations, the Plaintiffs cannot state a
claim for relief under § 523(a)(6), because the term “willful,” as used in that section, has a
different meaning than that used in the FLSA and NYLL. See Motion at 5. 10 	Although the
Debtor is correct that the use and purpose of the term “willful” is different under each of the
10 In relevant part, the Motion provides as follow:
[T]he Plaintiffs’ Complaint incorporates the allegations made in the Plaintiffs’ District Court
Action and the causes of action asserted by the Plaintiffs’ under the FLSA and NYLL. (See Pg. 2,
¶4 of the Complaint). The Plaintiffs’ allegations in the Complaint rely upon the definition of
“willful” under the FLSA and NYLL, not the definition of “willful” under 11 U.S.C. § 523(a)(6).
Therefore, the Plaintiffs’ Complaint fails to plead facts which tend to show that Defendant’s
nonpayment was a willful and malicious action intended to cause injury to the Plaintiffs; thus, the
count of willful and malicious action intended to cause injury should be dismissed.
Mot. 5.
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respective statutes,11 the argument fails and, in making it, the Debtor has misplaced his reliance
on United States v. Makozy (In re Makozy), Bankr. No. 13-25231, Adv. No. 13-2440, 2013 WL
9663062 (Bankr. W.D. Pa. Sept. 9, 2014). See Reply 4, Mot. 5. 	In Makozy, the government
obtained a judgment prepetition against the debtor with the district court finding, in part, that he
“willfully” violated the FLSA. Makozy, 2013 WL 9663062, at *2. After the debtor filed
bankruptcy, the government sued under §523(a)(6) to except the judgment from his discharge
and moved for summary judgment on the complaint. Id. at *1-2. The debtor opposed the motion
and, in doing so, cross moved for summary judgment dismissing the case, arguing that the
factual determinations made by the district court did not support a finding of nondischargeability
under § 523(a)(6). Id. at *3. The bankruptcy court denied both motions, finding that because the
elements of willfulness under the FLSA and § 523(a)(6) differ, the district court’s determination
that the debtor’s violation of the FLSA was “willful,” in and of itself, was not dispositive of
whether the same actions support a finding of willfulness under § 523(a)(6). Id. Rather, the
court found that it must analyze the district court’s findings to determine whether the debtor’s
actions rose to the level of willful conduct under § 523(a)(6). Id. See also Petralia v. Jercich (In
re Jercich), 238 F.3d 1202, 1208-09 (9th Cir. 2001) (affirming judgment by applying § 523(a)(6)
11 Under § 523(a)(6), the term “willful” refers to “injury,” meaning that a nondischargeable debt is one that stems
from an intentional injury. See Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). In contrast, under the FLSA,
“willful” does not refer to injury at all. It refers to the actions of the employer and specifically, whether the
employer either knew that its conduct was prohibited by the act, or showed a reckless disregard for the matter.
McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988). Under the NYLL, prior to November 29, 2009, a
plaintiff was required to establish a “willful” violation of the NYLL to be awarded liquidated damages for violations
of that law. See Inclan v. New York Hospitality Group, Inc., 95 F. Supp. 3d 490, 504 (S.D.N.Y. 2015). For those
purposes, the term “willful” did not “appreciably differ from the FLSA’s willfulness standard.” Kueble v. Black &
Decker, Inc., 643 F.3d 352, 366 (2d Cir. 2011) (internal quotations omitted) (citations omitted). Thereafter, the
NYLL was amended to remove the “willful” requirement and replace it with a presumption of entitlement to
liquidated damages unless the defendant established that the violation was done in good faith, a standard that closely
matches the FLSA test for liquidated damages. Inclan, 95 F.Supp.3d, at 505. The Court mentions the foregoing
because Moreno complains of non-payment for a period of time that falls within the NYLL’s pre-amendment period
where “willfulness” under the NYLL might still be implicated. See District Court Compl. ¶¶ 43, 48.
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“willful” standard “to the state court’s factual findings demonstrate[d] that the injury to [the
creditor] was willful.”); Bundy Am. Corp. v. Blankfort (In re Blankfort), 217 B.R. 138, 144
(Bankr. S.D.N.Y. 1998) (granting summary judgment based on collateral estoppel by
concluding, in part, that the facts underlying the Magistrate Judge’s finding of “blatant and
willful” violations of court orders were sufficient to establish “malicious” injury under section
523(a)(6)).
The Court rejects the Debtor’s contention and will not limit its analysis of the merits of
the Motion to the differences in the meaning of “willful” under the FLSA and NYLL and
§523(a)(6). Instead, it adopts the approach taken by Makozy and other courts and, as set forth
below, will test the allegations in support of the Complaint to determine whether they state a
“plausible” claim for relief under §523(a)(6). Twombly, 550 U.S. at 570.
I. 	Whether the Complaint Pleads That the Debtor Acted “Willfully”
Under §523(a)(6), “[t]he word ‘willful’ . . . modifies the word ‘injury,’ indicating that
nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional
act the leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61-62 (1998) (emphasis in original).
See also Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006) (same) (quoting Geiger).
Thus, debts arising from injuries caused by negligent or reckless conduct are outside the scope of
§523(a)(6). Geiger, 523 U.S. at 62. See also In re Jercich, 238 F.3d at 1208 (stating that the
Geiger court “clarified that it is insufficient under §523(a)(6) to show that the debtor acted
willfully and that the injury was negligently or recklessly inflicted; instead, it must be shown not
only that the debtor acted willfully, but also that the debtor inflicted injury willfully and
maliciously rather than recklessly or negligently.”) (emphasis in original); Wright v. Bujnowski
(In re Wright), 209 B.R. 276, 280 (E.D.N.Y. 1997) (“[I]n applying the [willfulness] standard,
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courts properly should look to tort law to distinguish the ‘willful and malicious’ from the merely
‘reckless’ act.”) 	To establish that a debtor caused “willful injury” under §523(a)(6), the plaintiff
must prove either that the debtor deliberately intended to cause the injury or that based on the
debtor’s conduct, there was a subjective substantial certainty that the injury would occur.
Margulies v. Hough (In re Margulies), 517 B.R. 441, 452 (S.D.N.Y. 2014). See also In re
Thoms, 505 Fed. Appx. 603, 605 (8th Cir. 2013) (summary order) (holding that “[i]f the debtor
knows that the consequences are certain, or substantially certain, to result from his conduct, the
debtor is treated as if he had, in fact, desired to produce those consequences” (quoting In re
Patch, 526 F.3d 1176, 1180 (8th Cir. 2008))).
The Plaintiffs allege that the Debtor violated the FLSA and NYLL by (i) failing to pay
minimum, overtime and “spread of hours” wages (Compl. ¶¶ 3, 11, 12, 13; District Court Compl.
¶¶ 5, 6, 7, 9, 97, 98, 125, 129, 134, 138, 143); (ii) violating notice and recording and other
reporting requirements (Compl. ¶ 3; District Court Compl. ¶¶ 108, 113 – 115, 147, 150); and (iii)
requiring the Plaintiffs to pay for their tools of the trade and other expenses without reimbursing
them (Compl. ¶ 3; District Court Compl. ¶¶ 56, 75, 94, 153). They contend that the Debtor’s
unlawful conduct, albeit in furtherance of economic gain through “minimizing labor costs”
(District Court Compl. ¶ 111), was intentional, willful, wrongful and in bad faith (Compl. ¶¶ 14,
15; District Court Compl. ¶¶ 110 - 112); and that the Debtor committed those unlawful acts to
injure the Plaintiffs by, among other things, failing to pay them wages and benefits rightfully due
and owing to them, and in doing so, inflicted significant injuries on them. Compl. ¶ 14, 15;
District Court Compl. ¶¶ 110, 112. Thus, contrary to the Debtor’s assertion (see Mot. 4-5), the
Complaint pleads specific facts demonstrating that the Debtor acted with the requisite intent to
injure the Plaintiffs. The Plaintiffs have met their burden under §523(a)(6) of pleading
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“willfulness” since they have alleged that the Debtor deliberately acted with the specific intent to
cause them to suffer economic injury. See, e.g., Citik Ka Wah Bank Ltd. New York Branch v.
Wong (In re Wong), 291 B.R. 266, 281-82 (Bankr. S.D.N.Y. 2003) (holding that “[a]n act is
willful when the debtor intends to inflict the injury or knew that the injury was substantially
certain to result” in denying motion to dismiss); Pagones v. Mason (In re Mason), Nos. 95 B
41537 JLG 95/1653A, 1999 WL 58579, at *4 (Bankr. S.D.N.Y. Jan. 28, 1999) (granting
summary judgment and finding willfulness of injury, in part, based on creditor having
established in state court that debtor “acted with . . . , significantly, a subjective intent to injure
[creditor’s] reputation.”).
Nor is there merit to the Debtor’s assertion that the Complaint fails to allege that he acted
“willfully” because the Plaintiffs have not alleged specific facts that he “actually had the means
to pay Plaintiffs and that he simply refused to do so.” See Reply 6; see also id. at 4 (stating that
neither of the complaints “contains any facts or allegations that Defendant had the ability to pay
Plaintiff and willfully chose not to.”). 	The plain language of the Complaint proves otherwise.
The Plaintiffs allege that the Debtor “had the clear ability to pay the Plaintiffs the proper wages
in accordance with federal law, but simply chose not to.” Compl. ¶ 14. In support of that
contention, they allege that the Pizzerias had “a gross annual volume of sales not less than
$500,000 (exclusive of excise taxes at the retail level that are separately stated)” for “each year
from 2009 to the present.” District Court Compl. ¶ 33. In that light, contrary to the Debtor’s
assertion, the case of In re Marcella, 463 B.R. 212, does not support the Motion. In that case,
the plaintiff sued the debtor under § 523(a)(6) to exclude indebtedness arising out of the debtor’s
failure to pay her prepetition wages from his discharge in bankruptcy. After an evidentiary
hearing, the court entered judgment in favor of the debtor. In part, the court held that the
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plaintiff failed to prove that the debtor acted “maliciously” in failing to pay the wages, since the
evidence showed that the plaintiff lacked the financial resources to pay the plaintiff’s salary.
Marcella, 463 B.R. at 222. Here, the case is at the pleading stage. As such, the Court is not
asked to determine whether the $500,000 in gross annual sales yielded sufficient funds to satisfy
the Plaintiffs’ claims for unpaid wages and benefits. See Festa v. Local 3 Int’l Bhd. of Elec.
Workers, 905 F.2d 35, 37 (2d Cir. 1990) (“The court’s function on a Rule 12(b)(6) motion is not
to weigh the evidence that might be presented at trial but merely to determine whether the
complaint itself is legally sufficient.”). Rather, the Court is asked simply to assess the
sufficiency of the pleadings and, in particular, whether the Plaintiffs have stated a claim for relief
under § 523(a)(6) that is “plausible” on its face. 	See Twombly, 550 U.S. at 556. For the reasons
previously discussed, the Court finds that the Plaintiffs have done so.
Based on the foregoing, the Court finds that the Plaintiffs have sufficiently pled that the
Debtor acted “willfully” for purposes of section 523(a)(6).
II. 	Whether The Complaint Pleads That the Debtor Acted Maliciously
A specific intent to injure or harm is not a prerequisite to finding that a debtor acted
maliciously for purposes of §523(a)(6). Metromedia Co. v. Fugazy (In re Fugazy), 157 B.R.
761, 765 (Bankr. S.D.N.Y. 1993). The term malice includes both actual and constructive malice
and means “wrongful and without just cause or excuse, even in the absence of personal hatred,
spite, or ill-will.” Navistar Financial 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.” Nesler v. Thomason (In re Thomason), 288 B.R. 812,
815 (Bankr. S.D. Ill. 2002). See also In re Bremmer, 131 F.3d 788, 791 (9th Cir. 1992) (A
“malicious” injury involves “(1) a wrongful act, (2) done intentionally, (3) which necessarily
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caused injury, and (4) is done without just cause or excuse.”) (quotation omitted). It includes
“inherently malicious” acts like assault, or malicious prosecution where malice may be an
essential element of the cause of action. See, e.g., Novartis Corp. v. Luppino (In re Luppino),
221 B.R. 693, 700 (Bankr. S.D.N.Y. 1998). Constructive malice is implied “by the acts and
conduct of the debtor in the context of [the] surrounding circumstances.” In re Stelluti, 94 F.3d at
88. Accordingly, “[m]alice is implied 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 Mitchell, 227 B.R. 45, 51 (Bankr. S.D.N.Y. 1998) (citations
omitted) (internal quotation marks omitted). Malice may be inferred from conduct that has no
potential for financial benefit to the debtor such that the debtor’s only conceivable motive was
“to inflict harm upon the creditor.” Luppino, 221 B.R. at 700.
Here, malice is not an element any of the counts asserted in the District Court Action and
the Plaintiffs do not allege that the Debtor’s breaches of the FLSA and NYLL were inherently
malicious. Moreover, the Plaintiffs do not allege that the Debtor’s only conceivable motive for
breaching those statutes was to injure them. Instead, they allege that the Debtor, motivated by
the prospect of increased profits or other economic gain, intentionally breached his duties to
them under the FLSA and NYLL and harmed them in doing so. As a general rule, an intentional
breach of statutory duties by a debtor, whose conduct is clearly motivated by the prospect of
financial gain, is not sufficient alone to imply malice. Luppino, 221 B.R. at 700. The Plaintiffs
must also allege that there was “some aggravating circumstances evidencing conduct [by the
Debtor] so reprehensible as to warrant denial of the ‘fresh start’ to which the ‘honest but
unfortunate’ debtor would normally be entitled under the Bankruptcy Code.” Blankfort, 217
B.R. at 144; Luppino, 221 B.R. at 700 (same). As discussed below, the Plaintiffs have done so.
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The Plaintiffs assert that the Debtor “knowingly violate[ed] the FLSA and NYLL” by
implementing an unlawful “corporate policy of minimizing labor costs” through a scheme that
benefited the Debtor and others financially by denying the Plaintiffs and other similarly situated
employees compensation and benefits that the Debtor knew they were entitled to receive.
District Court Compl. ¶ 111. They allege that as part of the scheme, the Debtor “disguise[ed]
Plaintiffs’ actual duties in payroll records by designating them as delivery workers instead of
non-tipped employees,” which permitted the Debtor “to avoid paying Plaintiffs at the minimum
wage rate and enabled them to pay Plaintiffs a lower tip-credited rate” which he still failed to
pay. Id. at ¶ 11. They maintain that to further the unlawful corporate policy, the Debtor engaged
in the “practice of requiring Plaintiffs and other employees to work in excess of forty (40) hours
per week without providing the minimum wage and overtime compensation required by federal
and state law and regulations.” Id. at 13. Moreover, the Debtor “willfully disguise[d] the actual
number of hours Plaintiffs (and similarly situated individuals) worked” (id. at 110) by: (i) failing
“to inform Plaintiffs that their tips would be credited toward the payment of the minimum wage;
(ii) failing “to maintain a record of tips earned by Plaintiffs for the deliveries they made to
customers;” and (iii) paying the Plaintiffs in cash. Id. at 107, 108, 109, respectively. They allege
that to conceal the scheme, and in further violation of the FLSA and NYLL, the Debtor did not
provide the Plaintiffs with “wage statements” that would have given them information regarding
their compensation including, their gross wages; deductions; allowances, if any, claimed as part
of the minimum wage; net wages; . . . the number of regular hours worked; and the number of
overtime hours worked.” Id. at ¶ 114. Finally, the Plaintiffs allege that in furtherance of the
unlawful corporate policy, the Debtor did not merely deny the Plaintiffs their lawful
compensation, but also he required them to “pay, without reimbursement, the costs and expenses
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for purchasing and maintaining equipment and “tools of the trade” required to perform their
jobs” which “further reduced their wages in violation of the FLSA and NYLL.” Id. at ¶ 153.
Such violations of federal and state law and regulations were done knowingly and intentionally.
Id. at 111-12.
“The public policy of the State of New York and the federal government is that the
interest in enforcing wages and hours laws on behalf of all workers is paramount.” Pineda v.
Kel-Tech Const., Inc., 15 Mis.3d 176, 185 (Sup. Ct., NY County 2007) (citation omitted).
Indeed, “[t]he prime purpose of the [FLSA] was to aid the unprotected, unorganized and lowest
paid of the nation’s working population, that is, those employees who lacked sufficient
bargaining power to secure for themselves a minimum substance wage.” Zavala v. Wal-Mart
Stores, Inc., 393 F. Supp. 2d 295, 320 (quoting Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707
n.18 (1945)). Thus, the Plaintiffs have plead much more than “an ordinary tort or breach of . . .
statutory duty.” Blankfort, 217 B.R. at 144. Rather, they have alleged that the Debtor
knowingly, intentionally and willfully advanced a corporate employment policy calculated to
undermine that important public policy by running roughshod over the protections afforded
employees under the FLSA and NYLL. 	In this regard, Murray v. Altendorf (In re Altendorf),
Bankr. No. 14-30652, Adv. No. 15-07003, 2015 WL 4575219 (Bankr. D. N.D. July 29, 2015), is
instructive. There, in support of their claim for relief under §523(a)(6), the plaintiffs alleged that
the debtor’s scheme “was malicious because it was certain or almost certain to cause harm to [the
creditors].” Id. at 7. They alleged that the debtor there did so by “intentionally establish[ing] a
scheme [to violate the FLSA] by which Debtor deliberately obtained labor through threats of
financial harm and failed to pay Plaintiffs wages to which Debtor knew Plaintiffs’ were entitled.”
Id. Notwithstanding a profit motive being present, that court held that “conduct which is certain
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or almost certain to cause financial harm to the creditor in addition to the debtor’s knowledge
that he or she is violating the creditors legal rights, when taken together, is sufficient to establish
a claim under section 523(a)(6).” Id. (alterations and quotation marks omitted) (quoting Johnson
v. Logue (In re Logue), 294 B.R. at 63 (B.A.P. 8th Cir. 2003). In denying a Rule 12(b))(6)
motion, the court in Altendorf found that the plaintiffs pleaded a “plausible claim for relief under
section 523(a)(6).” Id. So too have the Plaintiffs here. They have alleged facts that, taken as
true, establish aggravating circumstances evidencing conduct by the Debtor so reprehensible as
to warrant relief under §523(a)(6). See Jercich, 238 F.3d at 1207, 1209 (stating “[f]ew, if any,
areas of the law are more important than an employer’s obligation to pay his employee’s wages,
and finding that failure to pay wages involved “despicable conduct that subjects a person to cruel
and unjust hardship in conscious disregard of that person’s rights” (quoting Cal. Civ. Code §
3294)). The complained of conduct was also clearly certain to cause financial harm to the
Plaintiffs. Logue, 294 B.R. at 63.
Although the Debtor did not specifically address the element of “maliciousness,” he
contends that the Plaintiffs’ failure to plead “tortious conduct” on his part dooms the Complaint.
As support, the Debtor cites to Jercich. Reply 3. However, the “tortious conduct” element as
discussed in Jercich is inapplicable here. 	That case involved a breach of an employment
contract where the court held that “to be excepted from discharge under § 523(a)(6), a breach of
contract must be accompanied by some form of ‘tortious conduct’ that gives rise to ‘willful and
malicious injury.’” Jercich, 238 F.3d at 1206. Here, the Plaintiffs do not contend that the
Debtor breached a contract. Rather, they allege that the Debtor willfully and maliciously violated
wage and hour statutes. Thus, the Debtor’s contention concerning lack of “tortious conduct,” as
found central to the Jercich decision, is unavailing in this context. In fact, to the extent the
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Debtor is arguing that specific tortious conduct must be established in addition to the willful and
malicious elements, the Jercich court rejected that contention. Id. (“We reject BAP’s imposition
of a requirement that the conduct at issue be tortious even if a contract between the parties did
not exist.”). This Court likewise rejects the Debtor’s argument on this point.
Therefore, based on the foregoing, the Plaintiffs have sufficiently pled the existence of
malicious injury as required under the second prong of section 523(a)(6).
III. 	Whether The Complaint Pleads That Plaintiffs Suffered Injury
In considering whether a debtor’s action caused injury to the plaintiff or its property
under §523(a)(6), “[t]he conduct complained of must be intended to or necessarily cause injury
in order for the debt to be determined nondischargeable.” Yash Raj Films (USA) v. Ahmed (In re
Ahmed), 359 B.R. 34, 41 (Bankr. E.D.N.Y. 2005). 	The Debtor argues that the Complaint lacks
specific facts establishing that the “Plaintiffs are entitled to payment of wages” (see Reply 5)
which the Court interprets as a challenge to whether the Plaintiffs have sufficiently pled “injury”
regardless of the Debtor’s intent. However, the Complaint contains detailed factual allegations
regarding the Original Plaintiffs’ entitlement to unpaid wages. See District Court Compl. ¶¶ 43-
49, 64-67, 83-86 (describing in detail the hours worked by each of the Original Plaintiffs in
excess of a 40 hour work week for wages of $4.00 - $5.00 per hour). See also Compl. ¶¶ 10-13
(stating that all of the Plaintiffs were employed by the Debtor as delivery workers at the
Pizzerias, and none of the Original Plaintiffs were paid the statutorily required minimum wage,
overtime wages, or spread of hours wages.). Thus, the existence of injury caused by the Debtor’s
intentional and unlawful acts has been well pled by the Original Plaintiffs. With respect to them,
the Complaint “state[s] a claim to relief [under §523(a)(6)] that is plausible on its face,”
Twombly, 550 U.S. at 570, because the Complaint pleads facts that, if proved at trial, will be
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sufficient to establish willful and malicious injury under §523(a)(6). See Jendusa-Nicolai v.
Larsen, 677 F.3d 320, 324 (7th Cir. 2012) (summarizing “willful and malicious injury” as “one
that the injurer inflicted knowing he had no legal justification and either desiring to inflict the
injury or knowing it was highly likely to result from his act.”).
However, the Complaint fails as to Torres and Medina because there are no allegations
specific to the injuries they have allegedly suffered by reason of the Debtor’s intentional and
unlawful acts. The Complaint is silent with regard to their work hours, denial of their specific
wage and hour information, whether either of them was required to purchase tools of the trade in
connection with their employment, or similar information relevant to the issue of damages.
Thus, even accepting the factual allegations in the Complaint as true and drawing all inferences
in their favor, Torres and Medina have failed to state a claim for relief under §523(a)(6) that is
plausible on its face because they have not alleged any facts in support of their contention that
they have been injured by the Debtor’s unlawful and allege damages in support of their claim.
Conclusion
Based on the foregoing, the Motion is GRANTED as to Messrs. Torres and Median with
leave to seek to replead, with any such motion seeking such relief to be filed no later than thirty
(30) days after entry of this Order, but is DENIED as to Messrs. Moreno, Monteroso, and
Ramirez.
The Debtor is directed to settle an order.
Dated: New York, New York
August 10, 2016 	/s/James L. Garrity, Jr.
_____________________________
Hon. James L. Garrity, Jr.
United States Bankruptcy Judge
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