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declining to apply collateral estoppel where statutory violations found by state court did not include elements of actual fraud under § 523 and thus the state's consideration of those elements could not be inferred
Summary of this case from Bashlow Realty Co., Inc. v. ZakaiOpinion
Case No.: 06-21154 (DHS), Adv. No.: 07-1195 (DHS).
November 7, 2007
Peterpaul, Clark Corcoran, P.C., Robert Corcoran, Esq., Springfield, New Jersey Counsel for Debtor/Defendant Roger Drossel .
Dolan Dolan, P.A., Nancy Heslin Reading, Esq., Newton, New Jersey, Counsel for Plaintiffs Vincent Catherine DiPietro .
OPINION
Before the Court are dueling motions for summary judgment. On February 9, 2007, Vincent and Catherine DiPietro (collectively "Plaintiffs") filed a two-count adversary complaint against Roger Drossel (hereinafter "Debtor" or "Defendant") seeking: (i) the non-dischargeability of a debt owed to them by the Defendant pursuant to Section 523(a)(2)(A) of the Bankruptcy Code and (ii) attorneys' fees and court costs pursuant to Federal Rule of Bankruptcy Procedure 7008(b).
On September 25, 2007, Debtor moved for summary judgment seeking a determination that: (i) the pre-petition New Jersey Superior Court, Sussex County, judgment that included attorneys' fees and costs is dischargeable; (ii) the complaint be dismissed; and (iii) the Plaintiffs are collaterally estopped from relitigating the issue of actual fraud, which provides a basis for non-dischargeability.
On October 25, 2007, Plaintiffs filed opposition to Defendant's motion and a cross-motion for summary judgment alleging that: (i) the elements of actual fraud have been met, and thus, the debt is non-dischargeable and (ii) the entirety of the state court judgment is non-dischargeable under Section 523(a)(2)(A), including treble damages, attorneys' fees, and court costs. On November 1, 2007, the Defendant filed a one-page certification opposing the cross-motion referencing his original moving papers.
For any and all reasons stated hereafter, this Court denies both Defendant's motion for summary judgment and Plaintiffs' cross-motion for summary judgment. The Court has jurisdiction over the instant matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. The motions for summary judgment are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
Statements of Fact and Procedural History
A. Defendant's Statement of Facts
On or about July 19, 2002, the Defendant and Joseph Marrocco filed a Certificate of Trade Name for their partnership, `To The Last Detail Renovations," a business providing residential alteration, additions, and improvements. Certification of Robert E. Corcoran, Esq. In Support of Motion for Summary Judgment Against Plaintiffs (hereinafter "Corcoran Cert."), Exhibit A. On or about September 25, 2003, Plaintiffs and Defendant entered into a written contract for home improvements and an addition. Corcoran Cert., Exhibit B. Plaintiffs eventually hired another contractor to complete the project and terminated their contract with the Defendant. Id.
On December 8, 2004 Plaintiffs filed a complaint against Defendant for monetary damages in New Jersey Superior Court, Sussex County, alleging violations of the New Jersey Consumer Fraud Act, breach of contract, and negligence. Id. The Honorable James A. Farber, J.S.C. conducted a bench trial on January 3-4, 2006. Corcoran Cert., Exhibit C. On January 11, 2006, Judge Farber concluded the following: (i) the parties had, in fact, entered into a contract; (ii) the contract failed to include the name and address of the home improvement company; (iii) the contract also failed to include a beginning and end date; and (iv) the contract lacked specificity as to the work to be done and the materials to be used. Id. Judge Farber found these to be "technical violations" of the New Jersey Consumer Fraud Act and awarded damages totaling $87,521.69, which included $13,048.41 in treble damages for violating the Consumer Fraud Act and $78,822.75 for breach of contract. Id. Additionally, on February 22, 2006, Judge Farber awarded $20,716.54 in attorneys' fees pursuant to the New Jersey Consumer Fraud Act. Id.; Corcoran Cert., Exhibit B.
The state court judgments were docketed on March 3, 2006. Corcoran Cert., Exhibit B. After the parties' several failed attempts to settle or enforce the judgment, on November 10, 2006, Defendant filed a voluntary chapter 7 petition and on February 9, 2007, Plaintiffs filed the instant adversary complaint seeking to except their state court judgment from discharge. Id.
B. Plaintiff's Disputed and Additional Facts
When hiring Defendant and his partner, Plaintiffs believed that "To The Last Detail Renovations" was a legally formed business entity. They subsequently discovered that only a trade name registration had been filed, which provided them no legal protection. (Superior Court Trial Transcript, January 3, 2006, (hereinafter "T1"), 156:1-24). Vincent DiPietro testified at trial that had he known that the partnership was not a legally formed business, he would not have hired the Defendant for the home improvement. ( T1 14:25-15:3). Moreover, Defendant's business card clearly stated that Defendant was "Fully Insured." Plaintiff's Appendix in Support of Plaintiff's Cross-Motion for Summary Judgment (hereinafter "Pls. App."), Exhibit P-1.
As the parties began to disagree on the construction's progress, the materials used and the workmanship, the inadequacies of the written contract surfaced. Plaintiffs sought an accounting of their payments and Defendant was unable to provide any records. ( Superior Court Trial Transcript, January 4, 2006, (hereinafter "T2"), 78:12-79:7). The parties had agreed that the addition was to be completed by December 2003. However, this date was not previously included in the contract, leaving Plaintiffs with no means to enforce Defendant's representation. ( T1 14:8-11; 17:11-13). The contract also did not specify the materials to be used.
Defendant also failed to comply with local regulations in the course of construction. Specifically, the framing was not in compliance with the Hardyston Construction Code and Defendant relied upon a friend's advice rather than consulting the construction code when questions arose. ( T1 97:2-108:13; T2 87:10-20). Furthermore, Defendant alleges that he was unaware that entering into such contract obligated his compliance with the New Jersey Consumer Fraud Act. ( T1 161:14-16).
In August 2004, Plaintiffs' concerns about Defendant's workmanship increased and led Plaintiffs to seek out another contractor to complete the project. To facilitate this, Plaintiffs requested documentation of their payments, which Defendant failed to provide. ( T1 68:1-23). At the same time, the Hardyston Building Inspector's report on the addition's lack of safety caused concern leading Plaintiffs to contemplate initiating a lawsuit against the Defendant. ( T1 67:2-69:13; 70:2-5). The second contractor hired by Plaintiffs, R.J. Falcone Builders, charged a total of $103,000.00. ( T1 72:1-5; Pls. App. at P-19).
After filing the instant adversary proceeding, Plaintiffs objected to the Defendant's property valuations and also objected to the Trustee's proposed abandonment of the property. Id. This Court determined that the property was held in a joint tenancy with right of survivorship and, therefore, proceeds from the sale would be split between the joint tenants, leaving the Defendant's portion inadequate to satisfy the outstanding judgments.
Discussion
A. Summary Judgment Standard
A court may grant summary judgment under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. At the summary judgment stage, the role of the court "is not to weigh evidence, but to determine whether there is a genuine issue for trial." Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The court must construe facts and inferences in a light most favorable to the non-moving party. See Am. Marine Rail NJ, LLC v. City of Bayonne, 289 F. Supp. 2d 569, 578 (D.N.J. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). "Only evidence admissible at trial may be used to test a summary judgment motion. Thus, evidence whose foundation is deficient must be excluded from consideration." Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989) (citations omitted).
The moving party must make an initial showing that there is no genuine issue of material fact. See Knauss, 289 F. Supp. 2d at 549 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The burden then shifts to the non-moving party to "`make a showing sufficient to establish the existence of [every] element essential to the party's case, and on which that party will bear the burden of proof at trial.'" Cardenas v. Massey, 269 F.3d 251, 254-55 (3d Cir. 2001) (questioned on other grounds) (quoting Celotex Corp., 477 U.S. at 322). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). An issue of fact is "genuine" if a reasonable juror could return a verdict for the non-moving party. See id. at 248. Furthermore, a material fact is determined by the substantive law at issue. See Crane v. Yurick, 287 F. Supp. 2d 553, 556 (D.N.J. 2003) (citing Anderson, 477 U.S. at 248). A fact is "material" if it might affect the outcome of the suit under governing law. Id. Disputes over irrelevant or unnecessary facts are insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 248 (citation omitted).
However, even if material facts remain disputed, summary judgment may be proper if, after all inferences are drawn in the non-moving party's favor, the moving party is entitled to judgment as a matter of law. Id. at 248-50. Such a judgment is appropriate "as a matter of law" when the non-moving party has failed to make an adequate showing on an essential element of his or her case, as to which he or she has the burden of proof. See Celotex Corp., 477 U.S. at 322-23. When one party moves the court for summary judgment, Federal Rules of Civil Procedure 54(c) and 56, taken together, permit the court to enter summary judgment on behalf of the non-movant, even if the non-movant has not filed a cross-motion for summary judgment. See Peiffer v. Lebanon School Dist., 673 F. Supp. 147, 151-*52 (M.D. Pa. 1987) (citation omitted). On the other hand, acourt must deny a motion for summary judgment when a genuine issue of material fact remains to be tried, or where the moving party is not entitled to a judgment as a matter of law.
Local Civil Rule 56.1 requires each side to "furnish a statement which sets forth material facts as to which there exists or does not exist a genuine issue." L. CIV. R. 56.1 (Gann Publishing 2008). Failure to file this statement constitutes grounds for denial alone. See In re Mercedes-Benz Antitrust Litig., 364 F. Supp. 2d 468, 471-75 (D.N.J. 2005); Comose v. N.J. Transit Rail Operations, Inc., 2000 U.S. Dist. LEXIS 20790, at *4 (D.N.J. Oct. 6, 2000). However, if there is no evidence of bad faith, then it is within the court's discretion to overlook such failure and to decide the motion on the merits. See Rosenberg v. JCA Assocs., 2007 U.S. Dist. LEXIS 23570, at *31-32 (D.N.J. Mar. 30, 2007). Although both parties to the instant motions failed to comply with Local Civil Rule 56.1, they did provide orderly recitations of the facts at hand. Therefore, this Court will exercise its discretion and will decide the motion. See Kee v. Camden County, 2007 U.S. Dist. LEXIS 23637, at * 16 (D.N.J. March 30, 2007) ("[T]he Court, having found no evidence of bad faith, concludes that both parties were equally lax in their compliance with the Local Civil Rules, . . . and the Court [finds] it in the best interest of the parties and justice to adjudicate Defendant's motion. . . .").
B. Actions under the New Jersey Consumer Fraud Act
The New Jersey Consumer Fraud Act (hereinafter "Act") "aims to prevent deception, fraud or falsity whether by acts of commission or omission in connection with sale and advertisement of merchandise and real estate." N.J. STAT. ANN. 56:8-1 et. seq.; De La Cruz v. Cohen (In re Cohen), 185 B.R. 180, 185 (Bankr. D.N.J. 1995) (citing Fenwick v. Kay American Jeep, Inc., 72 N.J. 372, 376-377 (1977)), aff'd, 191 B.R. 599 (D.N.J. 1996), aff'd, 106 F.3d 52 (3d Cir. 1997); cert. granted, 521 U.S. 1152, 138 L. Ed. 2d 1060, 118 S. Ct. 30 (1997), aff'd 523 U.S. 213, 140 L. Ed. 2d 341, 118 S. Ct. 1212 (1998). The Act is liberally construed and, therefore, prohibits "any unconscionable commercial practice," not only deceitful and fraudulent conduct. Id. (citation omitted). New Jersey Administrative Code Section 13:45A-16.1 implements the Act by "providing procedures for the regulation and content of home improvement contracts and establishing standards. . . ." N.J. ADMIN. CODE tit. 13, § 13:45A-16.1 (2007).
Violations of the New Jersey Consumer Fraud Act occur through affirmative acts, knowing omissions, and regulatory violations. See In re Cohen, 185 B.R. at 185 (citing Cox v. Sears Roebuck Co., 138 N.J. 2, 17-18 (1994)). The requirement of proving intent differs based on the type of offense. Specifically, affirmative acts do not require proof of intent while knowledge and intent are essential when fraud is based on an omission. Id. (citing Cox, 138 N.J. at 17-18). In contrast, regulatory violations impose strict liability, thus, intent is not an element. See Corestar Int'l Pte. Ltd. v. LPB Communications, Inc., 2007 U.S. Dist. LEXIS 34438, at *50-51 (D.N.J. May 10, 2007).
In the case at bar, the underlying state court judgment established the Debtor's violations of the regulations imposed upon home improvement contractors pursuant to the Act. The state court opinion did not affirmatively articulate, that the Debtor's violations were the result of his intentional conduct or that they amounted to actual fraud. Furthermore, Judge Farber concluded that the Debtor's defense that he was unaware of his required compliance with the Act lacked merit. See Corcoran Cert., Exhibit C.
As evidenced by the Cohen cases, the Third Circuit clearly recognizes a cause of action for violation of the New Jersey Consumer Fraud Act when actual fraud has already been established in the Bankruptcy Court rendering the debt non-dischargeable. In the instant matter, the Defendant argues the contrapositive. Although found to have violated the Act, Defendant moves for summary judgment seeking to dismiss the adversary complaint on the grounds that actual fraud was not proven in the underlying state action and, therefore, the Plaintiff is collaterally estopped from relitigating that issue as a basis for non-dischargeability in the adversary proceeding. The "[e]xception to discharge based upon 11 U.S.C. § 523(a)(2)(A) requires a showing of actual fraud, not merely fraud that would be implied in law." Shaw v. Santos (In re Santos), 304 B.R. 639, 651 (Bankr. D.N.J. 2004) (emphasis in original).
In this case, Defendant's collateral estoppel argument as to actual fraud fails. Collateral estoppel bars subsequent litigation of an issue when:
(1) the particular issue to be precluded is identical to the issue decided in the previous proceeding; (2) the issue was actually litigated in the prior action, i.e., there was a full and fair opportunity to litigate the issue in the prior action; (3) a final judgment on the merits was issued in the prior proceeding; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom preclusion is asserted was a party to or in privity with a party to the earlier proceeding.
Neuner v. Horizon Blue Cross Blue Shield of N.J. (In re LymeCare, Inc.), 301 B.R. 662, 679 (Bankr. D.N.J. 2003) (citations omitted). Here, the underlying state court opinion did not address the crucial elements of actual fraud such as intent, knowledge, and reliance but instead found regulatory violations for which knowledge and intent are not elements. Even though a regulatory violation of the Act has already been determined, whether the Defendant committed actual fraud when entering into the home improvement contract with the Plaintiffs is still an open issue for which Plaintiff must be afforded a "full and fair opportunity" to litigate. See Mungo v. Casale, 1997 U.S. Dist. LEXIS 3867, at *6 (E.D. Pa. March 27, 1997) (noting that a bankruptcy court allowed plaintiff to litigate dischargeability of a debt where the state court did not find actual fraud); Howkins v. Butler (In re Butler), 86 B.R. 829, 831 (Bankr. E.D. Pa. 1988) (applying collateral estoppel only when "the court . . . has clearly and unmistakably made legal conclusions or factual findings which coincide precisely with . . . [section] 523(a). . . ."). Therefore, Defendant's motion for summary judgment must be denied because Plaintiff is not collaterally estopped from raising its actual fraud claim in the bankruptcy court, since that claim was not ruled upon in the state court action.
C. Non-Dischargeability
"The overriding purpose of the Bankruptcy Code is to relieve debtors from the weight of oppressive indebtedness and provide them with a fresh start. Exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors." Ins. Co. of N. Am. v. Cohn (In re Cohn), 54 F.3d 1108, 1113 (3d Cir. 1995) (citing U.S. v. Stelweck, 108 B.R. 488, 495 (E.D. Pa. 1989)). Section 523(a)(2)(A) of the Bankruptcy Code provides that debts for money, property, services, or credit obtained by "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition" are non-dischargeable. 11 U.S.C. § 523(a)(2)(A) (2007). Plaintiffs alleged actual fraud as a basis for excepting their state court judgment from discharge in the instant adversary proceeding and here cross-move for summary judgment on the same grounds.
The creditor, here the Plaintiffs, bears the burden of proving non-dischargeability by a preponderance of the evidence. See generally Grogan v. Garner, 498 U.S. 279, 290 (1991). To satisfy non-dischargeability based on "actual fraud," the Third Circuit has repeatedly relied upon the Poskanser test, which requires that:
(1) the Debtor obtained money, property or services through a material misrepresentation; (2) the Debtor, at the time of the transaction, had knowledge of the falsity of the misrepresentation or reckless disregard or gross recklessness as to its truth; (3) the Debtor made the misrepresentation with intent to deceive; and (4) the Plaintiffs reasonably relied on the representation; and (5) the Plaintiffs suffered loss, which was proximately caused by the Debtor's conduct.
De La Cruz v. Cohen (In re Cohen), 185 B.R. 180, 186 (Bankr. D.N.J. 1995) (citing Trump Plaza Assocs. v. Poskanzer (In re Poskanzer), 143 B.R. 991, 999 (Bankr. D.N.J. 1992)), aff'd, 191 B.R. 599 (D.N.J. 1996), aff'd, 106 F.3d 52 (3d Cir. 1997); cert. granted, 521 U.S. 1152, 138 L. Ed. 2d 1060, 118 S. Ct. 30 (1997), aff'd 523 U.S. 213, 140 L. Ed. 2d 341, 118 S. Ct. 1212 (1998). In the construction context, failure to complete work in a timely fashion or in accordance with the agreed upon terms typically is considered a breach of contract rather than fraud or misrepresentation under Section 523(a)(2)(A). See Stevens v. Antonious (In re Antonious), 358 B.R. 172, 182 (Bankr. E.D. Pa. 2006). Therefore, Plaintiffs must prove, inter alia, that Defendant had an intent of never complying with the terms of the contract or that he failed to disclose a material fact. See id. at 182.
As to the first element of actual fraud pursuant to Section 523(a)(2)(A), a material misrepresentation may include words (written or oral), conduct, or omissions. See Shaw v. Santos (In re Santos), 304 B.R. 639, 661 (Bankr. D.N.J. 2004). Such misrepresentation must be materially false, defined as "an important or substantial untruth." Id. at 662 (citing Ins. Co. ofN. Amer. v. Cohn (In re Cohn), 54 F.3d 1108, 1114 (3d Cir. 1995)). Furthermore, creditors have the right to know the facts "touching upon the essence of the transaction." Id. (citation and quotations omitted).
Non-dischargeability under Section 523(a)(2)(A) requires a showing of "justifiable, but not reasonable, reliance." Field v. Mans, 516 U.S. 59, 73-75 (1995) (citing see City Bank Trust Co. v. Vann (In re Vann), 67 F.3d 277 (11th Cir. 1995); Eugene Parks Law Corp. Defined Benefit Pension Plan v. Kirsh (In re Kirsh), 973 F.2d 1454 (9th Cir. 1992)). In order to constitute justifiable reliance:
"[T]he plaintiff's conduct must not be so utterly unreasonable, in the light of the information apparent to him, that the law may properly say that his loss is his own responsibility." This conclusion, however, does not mean that the reliance must be objectively reasonable. "Although the plaintiff's reliance on the misrepresentation must be justifiable, . . . this does not mean that his conduct must conform to the standard of the reasonable man." Justifiable reliance is gauged by "an individual stand[ard] of the plaintiff's own capacity and the knowledge which he has, or which may fairly be charged against him from the facts within his observation in the light of his individual case." Additionally, "it is only where, under the circumstances, the facts should be apparent to one of [plaintiff's] knowledge and intelligence from a cursory glance, or he has discovered something which should serve as a warning that he is being deceived, that he is required to make an investigation of his own."
In re Reynolds, 193 B.R. at 202 (quoting In re Vann, 67 F.3d at 283 (internal citations omitted)).
The second and third elements of actual fraud require knowledge of falsity and an intent to deceive. See In re Cohen, 185 B.R. at 177. In the alternative, proving reckless indifference to the truth will satisfy these elements. Id. Using direct evidence to prove knowledge and intent is rarely possible since that analysis delves into the subjective state of mind of the defendant. See In re Cohen, 191 B.R. 599, 604 (D.N.J. 1996). Therefore, the Third Circuit allows for intent and knowledge to be inferred based on the "totality of the circumstances." See id. (citing In re Cohn, 54 F.3d at 1118-19); In re Shaw, 304 B.R. at 666 (focusing on "whether the debtor's actions `appear so inconsistent with [his] self-serving statement of intent that the proof leads the court to disbelieve the debtor.'") (citations omitted).
Although the parties here have presented evidence in the state court resulting in Defendant's regulatory violations of the New Jersey Consumer Fraud Act, the relevant issues of intent and knowledge were neither fully tried nor decided in that forum. As noted, the Plaintiffs are not collaterally estopped from raising actual fraud in this Court and, therefore, they are entitled to their day in court to a full and fair opportunity to litigate whether these crucial elements are present in this otherwise breach of contract claim.
Both parties to the instant matter rely heavily upon the Cohen cases where actual fraud was established. As in Cohen, Plaintiffs' allegations of actual fraud are rooted in the Defendant's alleged reckless disregard of the truth to satisfy the knowledge of falsity and intent to deceive elements. However, in In re Cohen, the Bankruptcy Court found actual fraud after a one-day trial with live testimony. Here, Plaintiffs rely upon facts used by the state court in finding regulatory violations under the New Jersey Consumer Fraud Act. Regulatory violations result in strict liability for which intent is not a necessary condition. Even if the Plaintiffs intend to argue reckless disregard to satisfy knowledge and intent based on the "totality of the circumstances," the factual basis must be litigated in this Court.
The last element of actual fraud requires the Plaintiff to suffer a loss and that such loss was proximately caused by Defendant's conduct. See In re Shaw, 304 B.R. at 669. The state court trial established that Plaintiffs suffered a loss of $87,521.69, which included breach of contract and treble damages under the Consumer Fraud Act, and $20,716.54 in attorneys' fees.
$13,048.41 represents the trebled damage amount under the Consumer Fraud Act. Plaintiffs argue that the full amount of damages awarded by the state court should be excepted from discharge because actual fraud occurred. In making this argument, Plaintiffs rely upon the Cohen cases where the Bankruptcy Court for the District of New Jersey conducted a bifurcated trial first on the issue of actual fraud and then to determine damages. The Court found that actual fraud falls within an "unconscionable practice" under the New Jersey Consumer Fraud Act. See In re Cohen, 185 B.R. 171 (Bankr. D.N.J. 1994); In re Cohen, 185 B.R. 180 (Bankr. D.N.J. 1995). After subsequent affirmation by the District Court, the Third Circuit and the United States Supreme Court both affirmed these decisions and clearly articulated that compensatory and punitive damages as a result of actual fraud are to be excepted from discharge. In re Cohen, 523 U.S. 213, 223 (1998) ("`[A]ny debt . . . obtained by'" fraud encompasses any liability arising from money, property, etc., that is fraudulently obtained, including treble damages, attorneys' fees, and other relief. . . ."); In re Cohen, 106 F.3d 52, 55 (3d Cir. 1997) ("Federal courts interpreted [section 523(a)(2)(A)] to include punitive as well as compensatory damages within the exception to discharge").
Here, although Plaintiffs have a state court judgment in their favor, that judgment is not premised upon a finding of actual fraud, it is based on regulatory violations of the New Jersey Consumer Fraud Act. Therefore, if a finding of actual fraud is made, then Plaintiffs' entire judgment can be excepted from discharge in accordance with the law of the Third Circuit. However, a finding of actual fraud is a heavy burden Plaintiff has not yet met. Here, the factual basis for the knowledge and intent elements has not yet been litigated and genuine issues of material fact remain. Therefore, Plaintiffs' cross-motion for summary judgment is denied.
Conclusion
For the reasons stated above, Defendant's motion for summary judgment is denied and Plaintiff's cross-motion for summary judgment is also denied. A trial in this adversary proceeding on the issues raised in the Plaintiffs' complaint is scheduled for January 24, 2008, at 10:00 am.
An Order in conformance with this Opinion has been entered by the Court and a copy is attached hereto.