In Re: Roberto Felice Donna

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
In re
Roberto Felice Donna,
Debtor.
JESUS VENTURA, et al.,
Plaintiffs-A ppellants,
v.
ROBERTO DONNA,
Debtor-Appellee.
Bankr. Case No. 16-00091
Adversary Proceeding No. 16-10026
Bankr. Appeal No. 17-2217 (TFH)
MEMORANDUM OPINION
Appellants initiated an adversary proceeding against Roberto Donna in the United States
Bankruptcy Court for the District of Columbia in September 2017. The Bankruptcy Court
granted summary judgment Mr. Donna on all of Appellants’ claims, and awarded him attorney’s
fees for his response to Appellants’ motion for a protective order. Appellants have appealed the
Bankruptcy Court’s rulings.
I. BACKGROUND
Roberto Donna is a chef of Italian cuisine who has long worked in the Washington, D.C.
area. AA at 716. He was a majority owner of the Italian restaurant Galileo from 1984 until it
closed in 2006. AA at 717-18 [ECF No. 5-1]. In 2006, he opened the restaurant Bebo Trattoria
(“Bebo Trattoria” or “Bebo”) in Arlington, Virginia. AA at 718. Bebo lost its lease and closed in
April 2009. AA at 720.
Appellants Jesus Ventura, Mohammed Douah, Arturo Ramos, Bisera Romic, Carlos
Sosaya, Dorde Milojevic, Teor Vuckovic, Marijana Bosnjak, Tulga Dorjgotov and Elizabeth
Scott (“the Employees”) were employees of Bebo Trattoria. They worked at the restaurant for
lengths of time varying from 5 to 23 months, spanning January 2007 to December 2008. AA at
1287; 1293; 1295; 1298; 1300; 1302; 1305; 1310; 1312.
In 2008, a group of former Bebo Trattoria employees, including most of the Employees
here, sued Roberto Donna, Bebo Foods, Inc. and RD Trattoria, Inc. for failing to pay minimum
and overtime wages in violation of the Fair Labor Standards Act (“FLSA”) and the D.C. Wage
Payment and Collection Law (“DCWPCL”) when they were employed at Bebo Trattoria and
Galileo. In 2010, the district court granted summary judgment to the former employees, finding
that Mr. Donna violated the FLSA and the DCWPCL by failing to pay his employees wages and
overtime. Ventura v. Bebo Foods, Inc., 738 F. Supp. 2d 1, 5 (D.D.C. 2010) (Ventura J). After
holding two hearings on damages, the court awarded the plaintiffs $526,893.16, including
liquidated damages. Ventura v. Bebo Foods, Inc., 738 F. Supp. 2d 8, 12 (D.D.C. 2010) (Ventura
I). Mr. Donna was pro se during both the summary judgment briefing andthe damages hearings.
Mr. Donna filed for Chapter Seven bankruptcy on March 2, 2016. In response, the
Employees filed an adversary proceeding in the United States Bankruptcy Court for the District
of Columbia seeking relief from the discharge of Mr. Donna’s debts as it relates to their damages
award in Ventura II. They sought relief pursuant to 11 U.S.C. § 526(a)(6), which excludes from
discharge debts “for willful and malicious injury by the debtor to another entity,” and pursuant to
11 U.S.C. § 523(a)(2)(A), which excludes from discharge debts “obtained by . . . false pretenses,
false representation, or actual fraud.”
_ The Bankruptcy Court granted summary judgment for Mr. Donna, finding that “the
plaintiffs have not provided evidence to support their claims that the debtor intended to defraud,
or knew any statements he made to the plaintiffs were false, or that the debtor caused a willful
and malicious injury to the plaintiffs.” Ventura v. Donna (In re Donna), Bankr. No. 16-00091,
Adv. No. 16-10026, 2017 WL 4457407, at *1 (Bankr. D.D.C. Sept. 27, 2017). The Employees
seek review of that ruling on the grounds there are genuine disputes of material fact over whether
Mr. Donna willfully and maliciously injured his employees under 11 U.S.C. § 523(a)(6) when he
failed to pay them wages, tips, and overtime, and whether Mr. Donna’s promises to pay his
employees’ wages, tips, and overtime constituted “false representations” under 11 U.S.C. §
523(a)(2)(A). They also seek review of the Bankruptcy Court’s order granting attorney’s fees to
Mr. Donna for his response to their motion for a protective order in the adversary proceeding.
AA at 1552-1556.
I. STANDARD OF REVIEW
A. Summary Judgment
Summary judgment decisions of the bankruptcy court are reviewed de novo, United
States v. Spicer, 57 F.3d 1152, 1159 (D.C. Cir. 1995), and that review extends to both questions
of law and fact, In re Capitol Hill Group, 447 B.R. 387, 393 (D.D.C. 2011). “Summary
judgment in bankruptcy is governed by Bankruptcy Rule 7056, which incorporates the standard
of Rule 56 of the Federal Rules of Civil Procedure: summary judgment may be granted only if
there is no genuine issue of material fact and the moving party is entitled to judgment as a matter
of law.” Jd.; see also Fed. R. Bankr. P. 7056 (“Rule 56 F.R.Civ.P. applies in adversary
proceedings”); Local Bankr. R. 7056-1 (adopting major parts of LCvR 7(h)(1)).
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The movant “bears the initial responsibility of informing the district court of the basis for
its motion, and identifying those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986) (internal quotation marks omitted). In response, the nonmoving party must “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 (internal quotation marks omitted).
At the summary judgment stage, “the judge’s function is not. . . to weigh the evidence
and determine the truth of the matter but to determine whether there is a genuine issue for trial.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Although “[t]he evidence is to be
viewed in the light most favorable to the nonmoving party and the court must draw all reasonable
inferences in favor of the nonmoving party,” Talavera v. Shah, 638 F.3d 303, 308 (D.C. Cir.
2011), “[i]f the evidence is merely colorable . . . or is not significantly probative . . . summary
judgment may be granted,” Anderson, 477 U.S. at 249-50.
B. Discovery Sanctions
Under Rule 37 of the Federal Rules of Civil Procedure, “the district court has broad
discretion to impose sanctions for discovery violations.” Bonds v. District of Columbia, 93 F.3d
801, 808 (D.C. Cir. 1996); see also Fed. R. Bankr. P. 7037 (“Rule 37 F.R.Civ.P. applies in
adversary proceedings.”’). “[D]iscovery-related orders” are reviewed for “abuse of discretion, a
‘narrowly circumscribed’ scope of review.” Parsi v. Daioleslam, 778 F.3d 116, 125 (D.C. Cir.
2015) (quoting Lee v. Dep’t of Justice, 413 F.3d 53, 59 (D.C. Cir. 2005)). In reviewing discovery
sanctions, the Court may reverse the Bankruptcy Court “only if... its actions were clearly
unreasonable, arbitrary or fanciful.” Bonds, 93 F.3d at 807 (internal quotation marks omitted).
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HI. THE FACTS IN THE RECORD
A. The Bankruptcy Court Did Not Have an Obligation to Review the Entire District
Court Record.
As a preliminary matter, the Employees contend that the Bankruptcy Court should have
reviewed the entire record that was before the district court in Ventura J and Ventura IT (the
“District Court”) when ruling on Appellee’s motion for summary judgment. Appellant Br. at 12
[ECF No. 5]. They note that the District Court conducted three evidentiary hearings and heard
testimony from Mr. Donna, restaurant managers, and five of his employees, but contend that the
Bankruptcy Court “failed to consider any of the facts from the District Court record which
contravened Mr. Donna’s self-serving declaration.” Jd. If the Bankruptcy Court had reviewed
those facts, the Employees claim that it would have found that “Mr. Donna had not suffered from
poor business decision-making, but had willfully and intentionally engaged in a pattern of wage
theft, and then deliberately misrepresented to his employees that he would pay them... .” Jd.
To support their argument, the Employees rely on Jn re Makozy, which similarly involved
an adversary proceeding to block the discharge of debts stemming from an FLSA judgment. The
In re Makozy court “look[ed] at the findings supporting the [d]istrict [c]ourt’s conclusion that the
actions were ‘willful’ under the FLSA” to determine whether the actions were willful under 11
U.S.C. § 523(a)(6). Appellant Br. at 12; United States v. Makozy (In re Makozy), Bankr. No. 13—
25231, Adv. No. 13-2440, 2013 WL 9663062, *3 (Bankr. W.D. Pa. Sept. 9, 2014). In re Makozy
differed from this case because there was no record before the Jn re Makozy court. The summary *
judgment filings did not include record citations or an appendix; instead, they referred entirely to
the FLSA court’s findings. See Makozy Br. in Supp. Mot. Summ. J. [ECF No. 37] & United
States Br. in Supp. Mot. Summ. J. [ECF No. 39], In re Makozy, Adv. No. 13—2440-CMB. In
contrast, in this case, there was a record before the Bankruptcy Court containing evidence
developed in both the adversarial proceeding and the FLSA case. See, e.g., AA at 1062-1312.
The Bankruptcy Court did not have an obligation to depart from ordinary-summary
judgment procedures and review the parts of the District Court record that the parties did not cite
in their summary judgment motions. See Jackson v. Finnegan, Henderson, Farabow, Garrett &
Dunner, 101 F.3d 145, 154; 151 (D.C. Cir. 1996) (stating in reference to Local Civil Rule 7h,
which the Local Bankruptcy Rules have adopted, that the Court is “under no obligation to sift
through the record” on summary judgment, and that the burden is “on the parties and their
counsel, who are most familiar with the litigation and the record, to crystallize for the district
court the material facts and relevant portions of the record.”). In their opposition to Mr. Donna’s
motion for summary judgment, the Employees had the responsibility to present all the evidence
demonstrating a genuine dispute of material facts to the Bankruptcy Court. See Celotex, 477 U.S.
at 324 (finding that Federal Rule of Civil Procedure 56(e) requires “the nonmoving party to “go
beyond the pleadings and by [their] 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.”) (internal quotations omitted).
Although the Bankruptcy Court did not include specific citations to the record in its
opinion, contrary to the Employees’ assertions, it based its decision on facts in the record derived
from the FLSA proceedings, including those unfavorable to Mr. Donna. See, e.g., In re Donna,
2017 WL 2017 4457407, at *2 (noting that “the debtor did not pay the plaintiffs all their wages,
and often the plaintiffs would receive unsigned checks, checks that were postdated, or checks
that would bounce .... When plaintiffs would ask the debtor to pay them, he would tell them
that the company was having financial difficulty, but it was his intent to pay them in full.
Additionally, when employees threatened to leave, the debtor would ask them to stay promising
to pay them when the restaurant had the money.”).
As Mr. Donna argues, the Employees challenge the difference between the District and
Bankruptcy Courts’ characterizations of the evidence. They claim that the District Court found
that “Mr. Donna deliberately disregarded his legal obligations to pay his employees and instead
engag[ed] in a widespread illegal pay practice,” Appellant Br. at 21, while the Bankruptcy Court
disputed that finding and instead concluded that Mr. Donna’s “repeated and flagrant violations”
of D.C. and federal law were “simply a failing business man unable to pay his debts.” Jd;
compare Ventura IJ, 738 F. Supp. 2d at 12, 31 (describing defendants’ practice of “issuing
checks without signatures, issuing post-dated checks, and issuing checks despite insufficient
funds” as “persistent and widespread,” and finding, in relation to determining money owed to
Jesus Ventura from his time at Galileo, that “[p]laintiffs . . . have submitted ample evidence
showing that defendants deliberately disregarded their legal obligations to pay their employees.”)
(emphasis added) with In re Donna, 2017 WL 2017 4457407, at *7 (concluding that “[t]he
plaintiffs do not show a widespread illegal payment scheme.”) (emphasis added). But they have
not demonstrated why the Bankruptcy Court should be bound by the District Court’s
conclusions, especially given that the two courts were considering different causes of action—
violations of wage laws versus exceptions to discharge under bankruptcy law. The District
Court’s conclusion that Mr. Donna “took a willful act to not pay the plaintiffs” does not equate to
“proof that the debtor caused a willful injury.” Jn re Donna, 2017 WL 2017 4457407, at *6; see
also Faria v. Silva (In re Silva), Bankr. No. 12-17413, Adv. No. 12-1274, 2014 WL 217889, at
*10 (D. Mass. Jan. 21, 2014) (“[B]reach of an employment contract through failure to pay
wages, by itself, is not enough to constitute a willful injury.”). Furthermore, Mr. Donna, who is
now represented by counsel, has adduced support for his case, such as his inability to pay his
employees, that may not have been relevant to the District Court litigation. For these reasons, the
Bankruptcy Court did not err by relying only on the record before it in the adversary
proceedings.
B. ‘Material Facts to Which There is No Genuine Dispute
Bebo Trattoria paid its employees irregularly, and distributed checks that were deficient
in various ways—sometimes they were postdated, unsigned, made for zero dollars, or did not
reflect the hours that employees worked. E.g., AA at 1077-79 (Ventura Test.) (testifying that
sometimes employees received paychecks every three weeks instead of every two weeks, that
checks were not signed, and that he was not paid in total for about six weeks of work); AA at
1287 (Ventura Aff.) (paystubs did not reflect actual hours; check amounts were zero, checks
were often post-dated); AA at 1298 (Romic Aff.) (paystubs did not reflect hours); AA at 1300
(Sosaya Aff.) (same); AA at 1293 (Douah Aff.) (paystubs did not reflect hours, check amounts
were zero, checks were postdated); AA at 1453 (Dorjgotov Dep.); AA at 1295 (Ramos Aff.).
Employees were often unable to cash their paychecks due to insufficient funds in Bebo’s bank
account. F.g., AA at 1124 (Scott Test.) (“We would all go to the bank and stand in line and be
told that our checks couldn’t be cashed.”); AA at 1380 (Sosaya Dep.) (testifying that employees
had to “wait in line” and “whoever cash[ed] the check[s] first g[o]t the money. The rest of the
people has[sic] to wait for probably one week, two weeks . . . Basically this happens most of the
time, all the time.”); AA at 1097 (Vuckovic Test.); AA at 1287 (Ventura Aff.); AA at 1293
(Douah Aff.); AA at 1453-54 (Dorjgotov Dep.). Employees did not receive some overtime
payments, and some of their tip wages. E.g., AA at 1300 (Sosaya Aff.); AA at 1302 (Milojevic
Aff).
When employees asked about their missing wages, Mr. Donna promised to pay them
their full wages, but did not do so. E.g., AA at 1296 (Ramos Aff. [ff 14-15) (“During one
conversation we had, Roberto Donna told me he was going to apply for a loan to pay everyone
he owed unpaid wages. I don’t know if he applied for or received the loan. Roberto Donna would
promise to pay me my wages in 5-7 days or in a couple of weeks; sometimes he would pay me
part of my wages but never the entire amount.”); AA at 1298 (Romic Aff.) (‘Roberto Donna said
he had to pay Bebo’s bills and was behind with payments; he promised to pay us in a few weeks
but he never did’); AA at 1300 (Sosaya Aff. identical); AA at 1302 (Milojevic Aff. identical);
AA at 706 (Ramos Test.) (agreeing that Mr. Donna explained to Mr. Ramos that business was
bad and there was not enough money to pay the employees). Mr. Donna also stated that when
“employees complained to me about the delay in payment or difficulty cashing certain checks, I
acknowledged that Bebo had cash flow difficulties, that [Bebo] needed to pay the operating
expenses of the restaurant, and that it was my intention that they receive their payments when
funds became available.” AA at 720 (Donna Decl.)
According to Arturo Ramos, who worked in a variety of positions at the restaurant, when
he tried to work fewer shifts so that he could obtain employment elsewhere, one of the
restaurant’s managers, Corrado Bonino, told him that the restaurant would “pay only to the
people who work full time here, not who works[sic] part time.” AA at 1405; 1407-08 (Ramos
Dep.). Ms. Scott, Bebo’s director of marketing who also served as Mr. Donna’s personal
assistant, testified that Mr. Donna would threaten to “ruin [the] careers” of individuals who left
the restaurant, and that he threatened to “pull [employees’] green cards or call immigration if
they quit on him.” AA at 1437-38 (Scott Dep.).
In order to finance Bebo, RD Trattoria, an entity Mr. Donna formed to operate the
restaurant, obtained “hi-cost financing for working capital in the form of cash advances on future
credit card sales.” AA at 718 (Donna Decl.). The restaurant took out a “lump sum loan for
working capital” from a financing company that managed the restaurant’s credit card processing
systems. Jd. The financing company typically deducted 20% off the top of all credit card sales as
payment towards the loan. Jd. Within a few months after Bebo opened, Mr. Donna and his wife
stopped receiving salaries from the restaurant. Jd. at 719. He and his wife supported themselves
by teaching cooking classes, cashed out their life insurance policies, and drew down their
savings. Jd. In the summer of 2007, Mr. Donna “obtained additional borrowed funds to help pay
Bebo’s debts by pledging [his] residence as collateral for an additional loan to RD Trattoria.” Jd.
at 720 (Donna Dec.). Despite his “efforts to make Bebo a financial success, in April 2009, Bebo
lost its lease and closed. By the time Bebo closed, its business had declined approximately 40%
from its peak. Many of the business’s records were lost when the landlord seized the premises.”
Id. By 2010, Mr. Donna had “lost [his] home and [his] Dupont Circle apartment based upon [his]
personal guaranty of Bebo’s business debts. [His] automobile had been repos[essed].” Mr.
Donna and his wife moved in with his in-laws. Jd.
In November of 2010, the State of Virginia filed a complaint against Mr. Donna, alleging
that from November 2006 to approximately April 2009, Mr. Donna “withheld taxes from his
employees and charged and collected the sales tax and held the money in trust for the
Commonwealth of Virginia but used the money for his own purposes.” AA at 1317-18. He pled
guilty to the charge, and was ordered to pay restitution to the Commonwealth of Virginia
Department of Taxation of $375,439.56, plus interest at 8% per year. AA at 1319-1322.
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IV. ANALYSIS
A. There is a Genuine Dispute of Material Fact over Whether Mr. Donna Willfully and
Maliciously Injured His Employees.
The Bankruptcy Court found that the Employees did “not provid[e] evidence to support
their claims . . . that the debtor caused a willful and malicious injury” to them, and that they did
not show that those injuries were attributable to Mr. Donna. Jn re Donna, 2017 WL 4457407, at
*1, The Employees challenge the Bankruptcy Court’s conclusions, and argue that there is a
genuine dispute of material fact as to whether Mr. Donna willfully and maliciously injured the
Employees under § 523(a)(6) when he failed to pay them minimum wages, tip wages and
overtime wages. Appellant Br. at 3.
1. 11 U.S.C. § Section 523(a)(6)
A fundamental purpose of bankruptcy law is to “relieve the honest debtor from the
weight of oppressive indebtedness, and permit him to start afresh free from the obligations and
responsibilities consequent upon business misfortunes.” Local Loan Co. v. Hunt, 292 U.S. 234,
244 (1934) (internal quotation marks omitted). “[E]xceptions to discharge are strictly and
narrowly interpreted so as to promote the Bankruptcy Code’s purpose of providing a fresh start
to debtors.” Orr v. Marcella (In re Marcella), 463 B.R. 212, 219 (Bankr. D. Conn. 2011). One
such exception to the discharge of debts falls under § 523(a)(6), which “does not discharge an
individual debtor from any debt . . . for willful and malicious injury by the debtor to another
entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). The plaintiff must prove by
a preponderance of the evidence that the debtor’s actions were willful and malicious. Hamilton v.
Nolan (In re Nolan), 220 B.R. 727, 729-30 (Bankr. D.D.C. 1998). The “willful” and “malicious”
requirements must both be present.
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2. There is a Genuine Dispute of Material Fact as to Whether the Debtor
Willfully Injured the Employees.
The Employees first assert that there is a genuine dispute of material fact as to whether
Mr. Donna “willfully” injured them. The Supreme Court has held that the “word ‘willful’ in [§
523](a)(6) modifie[s] the word ‘injury,’ indicating that nondischargeability takes a deliberate or
intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau vy.
Geiger, 523 U.S. 57, 61 (1998). The “‘willful injury requirement is met only when the debtor has
a subjective motive to inflict injury or when the debtor believes that injury is substantially certain
to result from his own conduct.’” Jones v. Holland (In Re Holland), Bankr. No. 12-00496, Adv.
No. 12-10040, 2013 WL 2190164, at *4 (Bankr. D.D.C. May 21, 2013) (quoting Carrillo v. Su
(In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002)). Failure to pay wages, even knowing the
consequences of that failure, does not alone rise to a “willful” injury. Jn re Marcella, 463 B.R. at
220.
The Bankruptcy Court concluded that the Employees did not demonstrate that Mr. Donna
caused a willful injury under § 523(a)(6) because they did not “provide any proof the debtor
intended to injure” the Employees, and because “[a]ll the facts indicated that the debtor wanted
to pay [the Employees], but could not.” In re Donna, 2017 WL 4457407, at *6. According to the
Bankruptcy Court, “[t]he debtor provided [the Employees] checks in payment of wages and tips;
he just did not have the money in the bank to honor those checks,” and Mr. Donna’s payment of
business expenses before the Employees “does not indicate an illegal payment scheme.” Jd. at
*7. The Bankruptcy Court also found that there were no aggravating circumstances to support a
willfulness finding because there was “no evidence” that Mr. Donna had the money to pay his
employees but failed to do so. Jd. at *9.
12
The Employees argue that Mr. Donna’s “repeated failures to pay his employees in
compliance with District of Columbia and federal law are sufficient to show an intent to injure or
knowledge of substantial likelihood of injury.” Appellant Br. at 21. They contend that “[b]oth the
Ninth Circuit and Bankruptcy Court for the District of Massachusetts have found that employer
wage theft is sufficiently willful and malicious that the resulting debt to employees be excepted
from discharge.” Jd. 14-17 (citing Petralia v. Jercich (In re Jercich), 238 F.3d 1202 (9th Cir.
2001) and Oliveira v. Ruhland (In re Ruhland), Bankr. No. 11-19510, Adv. No. 11-1322, 2013
WL 1088737 (Bankr. D. Mass. Mar. 13, 2013)). They argue that the Court should hold that “Mr.
Donna’s deliberate practice of not paying his employees renders the judgment obtained by the
the Employees excepted from discharge.” Jd. at 13. In response, Mr. Donna asserts that Jercich
and Ruhland “do not hold that debts due to wage violations are by themselves willful injuries,”
but rather emphasize that a breach of an employment contract must be accompanied by
intentional tortious conduct, such as diversion of company funds to personal use. Appellee Br. at
24-25.
The Court agrees with Mr. Donna that the willfulness inquiry involves an examination of
the entire circumstances surrounding the non-payment of wages, not just the non-payment of
wages itself. In In re Jercich, the Ninth Circuit found that a debtor who did not pay its employee
as required by an employment agreement satisfied § 523(a)(6)’s willfulness standard where the
debtor “knew he owed the wages to [the debtee] and that injury to [the debtee] was substantially
certain to occur if the wages were not paid; and. . . had the clear ability to pay [the debtee] his
wages, yet chose not to pay and instead used the money for his own personal benefit,” including
for a horse ranch. In re Jercich, 238 F.3d at 1208-1209. In doing so, the Ninth Circuit looked not
only at the debtor’s failure to pay, but also at other factors including the debtor’s ability to pay
13
and his use of the money for personal benefit. Similarly, when faced with a debtor who owned a
painting business and failed to pay his employee on multiple occasions, the court in Jn re
Ruhland considered a number of factors when determining that the debtor willfully caused
injury. See In re Ruhland, 2013 WL 1088737, at *11 (finding the debtor “willfully” injured his
employee where he “did not maintain a checking account because of his history of insufficient
funds checks; he admitted that he could not produce pay stubs or other contemporaneous records
of what he owed the Plaintiff and other employees. His promises were made to induce the
Plaintiff to continue working for him,” and he received money from customers).
In order to determine willfulness, then, the Court will assess the aggravating factors
surrounding the non-payment of wages, including whether the debtor had the ability to pay
employees, whether the debtor did pay the employees, and whether the debtor used business
income for personal purposes. See also, e.g., In re Marcella, 463 B.R. at 220-222 (finding no
willful injury by examining factors such as a decline in business, checks returned for insufficient
funds, the inability of the company to pay its creditors, and no diversion of company funds for
personal expenditures).
a) The Bankruptcy Court Did Not Address Certain Aggravating
Factors Raised by the Employees.
The Employees have raised aggravating factors that speak to willfulness that the
Bankruptcy Court did not address. First, the Bankruptcy Court did not address the parties’
dispute over whether Mr. Donna shared accurate wage information with his employees. Mr.
Donna argues that “systematic measures” were taken to keep track of amounts owed to
employees in unpaid tips and wages, citing a spreadsheet tracking accrued credit card tips to
14
employees and amounts owed.! Appellee Br. at 39 [ECF No. 7]. Some employees testified that
they could keep track of the amounts Bebo owned them when they were not able to cash checks.
AA at 688 (Ventura Dep.); AA at 679-80 (Douah Dep.) (Q: So you would know at the end of
your shift how much you were entitled to receive based on the credit cards and the tips on the
credit cards by printing out a record of the work that you had done and payments you had been
credited that shift. Correct? A: Yes.”)).
In contrast, Elizabeth Scott, Bebo’s former director of marketing and Mr. Donna’s
personal assistant, stated that she believed that restaurant managers would, “with Mr. Donna’s
approval, intentionally avoid[] providing employees receipts in order to confuse them about their
unpaid wages so they would not know exactly how much money they were owed.”” AA at 1306
(Scott. Aff.). She also testified that “[i]t was pretty clear” that Mr. Donna and Bebo’s managers
“were confusing the matter” of employee wages because “employees would keep very accurate
records, as did I, of the moneys owed. Every day you clock in and clock out, you get a chit that
shows exactly what you’re owed on your credit card receipts. . . . [b]ut the document that
Corrado and Riccardo? and Roberto would work off of was an Excel spreadsheet that oftentimes
showed far less monies owned than what the MICRO chits would say were owed to employees .
...” AA at 1540; see also id. at 1541 (“[Mr. Donna] would keep their money and make it
difficult for all of us to attempt to explain the amount of monies we were owed”). Similarly, Mr.
Remos testified that he would “keep record of everything, my work time in, my tips, every single
thing, even cents,” and that biweekly sheets reflecting “the time that [he] work{ed] in the
' This spreadsheet is not included in the record before the Court but was iri the record in the
District Court proceedings. Ventura I, 738 F. Supp. 2d at 17.
* It is not apparent from the record whether Ms. Scott made this statement based on personal
knowledge or hearsay. That will be a question for the Bankruptcy Court to decide when determining
whether to admit her testimony on this issue.
3 Corrado and Ricardo Bonino were both managers at Bebo.
15
restaurant ... would only put like 70 hours” even though he was working “60 hours a week.”
AA at 1110. When he complained, “they would say they would fix it, but it did not—it didn’t
work because always they would send me to somebody else.” Jd. Furthermore, Mr. Phillip
Proulx, Bebo’s former accountant, testified that he received bi-weekly reports of tip wages
earned, but did not receive reports of the wages that were paid to employees. AA at 1168 (Proulx
Test.). This contradictory evidence demonstrates a genuine dispute over whether Mr. Donna
shared accurate wage information with his employees and attempted to confuse them by
concealing the amount of wages that Bebo owed them.
Second, although the failure to pay wages alone does not amount to willfulness, the Court
cannot ignore the different methods Bebo used to avoid paying its employees. Bebo did not just
issue checks without sufficient funds for them to be cashed, as might be expected from a
company struggling to pay wages. Paystubs did not reflect hours worked, and checks were
sometimes postdated, unsigned, or made for zero dollars. E.g., AA at 1287 (Ventura Aff.); AA at
1298 (Romic Aff.); AA at 1300 (Sosaya Aff.); AA at 1293 (Douah Aff). AA at 1077-79
(Ventura Test.); AA at 1453 (Dorjgotov Dep). There is no explanation in the record why
employee paychecks were marred by these irregularities.
Third, there is unrefuted evidence that Mr. Donna threatened employees to keep them on
staff. Ms. Scott testified that Mr. Donna “threatened to blackball us in the industry” if employees
stopped working, and that “[h]e put it in writing to me.” AA at 1437 (Scott Dep.). She claims
that Mr. Donna would threaten to “ruin [the] careers” of individuals who left the restaurant, and
that he threatened to “pull [employees’] Green Cards or call immigration if they quit on him.” Jd.
at 1437-38.4 Mr. Donna not only knew that his failure to pay his employees would injure them—
4 Ms. Scott gave this testimony during the bankruptcy proceedings where Mr. Donna was
represented by counsel. The Court does not see evidence in the record challenging whether Ms. Scott had
16
something every individual who fails to pay employees will know—but he also threatened their
livelihood in order to force them to continue working for him.
b) The Bankruptcy Court Properly Concluded that There Was No
Evidence that Mr. Donna Spent Business Income on Personal
Expenses.
The Bankruptcy Court found that the Employees “offered no evidence that the debtor
used [their] money for personal use.” Jn re Donna, 2017 WL 4457407, at *7. The Bankruptcy
Court noted the “closest” the Employees came to providing evidence Mr. Donna used “wages or
tip earnings on personal expenses” was Elizabeth Scott’s testimony “that the debtor took lavish
trips, bought a new computer, had a nice car and an expensive home.” Jd. The Bankruptcy Court
concluded that “Scott’s testimony is purely speculative, likely based on hearsay, and without a
single shred of evidence of truth.” Jd.
In her role as personal assistant to Mr. Donna, Elisabeth Scott booked Mr. Donna’s
airfare, hotel, transportation and dinners. AA at 1434 (Scott Dep.). She described Mr. Donna as
taking “very expensive” and “lavish trips to Italy and New York and around the world cooking.”
AA at 1433 (Scott Dep.); AA at 1126 (Scott test.). In an interrogatory response, Mr. Donna
confirmed that between January 2005 and December 2010, he traveled to Thailand, Iceland, Italy
and St. Barts. AA at 1360. According to Ms. Scott, some of the trips were paid for by others, but
Mr. Donna paid for some on his credit card. AA at 1434, 685 (Scott Dep.). She could not recall
how Mr. Donna paid for the trips he put on his credit card. AA at 685 (Scott Dep.). Ms. Scott
also testified that Mr. Donna bought a computer for personal use. AA at 1439 (Scott Dep.).
personal knowledge that other employees were threatened when she gave this testimony. Whether her
statements are based on personal knowledge or hearsay will be a question for the Bankruptcy Court to
consider.
17
Ms. Scott’s testimony as to Mr. Donna’s home and car was speculative—she did not
appear to have any knowledge about his assets and how he acquired them. Although she testified
that she booked his travel arrangements in her role as personal assistant, she did not recall how
he paid for the trips charged to his credit card. There is no other evidence supporting the
Employees’ assertion that Mr. Donna spent company funds on personal travel, such as credit
card receipts showing the purchases or bank records demonstrating how Mr. Donna paid for
them. Ms. Scott does not even specify whether he made the purchases on a corporate or personal
credit card. As a result, is not reasonable to infer from Ms. Scott’s statement that Mr. Donna paid
for personal expenditures with income from his restaurant. Ms. Scott’s testimony alone does not
create a triable issue of fact.
There is no other evidence that Mr. Donna paid for personal expenditures with income
from Bebo. The Court is not convinced that Mr. Donna’s plea to embezzlement demonstrates
that he used money withheld from his employees for personal use. The complaint in Virginia
alleged that Mr. Donna “withheld taxes from his employees and charged and collected the sales
tax and held the money in trust for the Commonwealth of Virginia but used the money for his
own purposes.” AA at 1318 (emphasis added). The Court infers that Mr. Donna was not paying
his taxes or his employees. The plea alone is not enough evidence to support the inference, as the
Employees assert, that Mr. Donna used the money for his own personal use rather than for
business purposes.
c) The Bankruptcy Court Properly Concluded that Mr. Donna Did
Not Pay the Employees Because Bebo Struggled Financially.
The Court finds that it was proper for the Bankruptcy Court to infer that Mr. Donna
struggled to pay his employees because Bebo lacked the funds to do so. Mr. Donna obtained
high-cost financing for his restaurant that deducted 20% off all credit card sales, he stopped
18
withdrawing a salary within months after the restaurant opened, and he borrowed additional
funds to finance the restaurant using his home as collateral for his debts. AA at 718-20 (Donna
Decl.). Mr. Donna lost his home, an apartment, and his vehicle due to his personal guarantee of
Bebo’s debts. /d. at 20.
The Employees contend that “[n]owhere in the record is there a declaration from Mr.
Donna that he was actually unable to pay his employees... . Mr. Donna instead just described
‘cash flow difficulties,” that business declined, and that he ended up closing his restaurant.”
Appellant Br. at 36. In response, Mr. Donna argues that the “hallmark for aggravating
circumstances in a wage case has consistently been recognized as a failure to pay despite a
company’s financial ability to do so while at the same time the debtor diverted the funds for
personal use.” Appellee Br. at 26. He asserts that employees could not support their assertions
that the restaurant could pay them, and “admitted they had [no] information regarding the actual
finances of the restaurant. . . .” Id.
Although the Employees criticize Mr. Donna’s failure to support his statement that “his
restaurant was doing poorly or that he intended to pay his employees” aside from his “self-
serving” declaration, that criticism is misplaced. Appellant Br. at 35; 11. The fact that Mr.
Donna’s affidavit serves his case is not in and of itself disqualifying—“evidence a party proffers
in support of its cause will usually, in some sense, be ‘self-serving.’” Johnson v. Perez, 823 F.3d
701, 710 (D.C. Cir. 2016). Rather, the Employees have the burden of contradicting Mr. Donna’s
assertions with “[their] own affidavits, or by the depositions, answers to interrogatories, and
admissions on file.” Celotex, 477 U.S. at 324 (internal quotation marks omitted). The Employees
have not provided any evidence contradicting Mr. Donna’s account of the restaurant’s financial
situation. They have not provided any evidence disputing Mr. Donna’s efforts to make Bebo
19
Trattoria viable. They have not provided any evidence that Bebo, or Mr. Donna, had money to
pay employees but did not do so. Employees who were queried did not know why they were not
able to cash their checks and could not support their assertions that Mr. Donna had money that he
was not paying them. See, e.g., AA at 712 (Sosaya Dep.); AA at 1367 (Douah Dep.); AA at 678;
681 (Douah Dep.) (Q: But what I want to know is if you have any evidence to support your
feeling that he has money somewhere. A: Just, I need my money from him. Q: That’s all? A:
That’s all.”); AA at 701 (Bosnijak Dep.) (Q: Miss Bosnjak, do you have any knowledge of why
there wasn’t enough money in the checking account to cover the checks you received? ... A:
Why? No.”). Although two employees testified that the restaurant was busy, the Court agrees
with the Bankruptcy Court’s conclusion that a busy restaurant is not necessary equivalent to its
economic well-being. Jn re Donna, 2017 WL 4457407, at *4; see, e.g., AA at 1390 (Sosaya
Deposition); AA at 1367 (Douah Aff.). It was reasonable for the Bankruptcy Court to infer from
the evidence that Mr. Donna did not have adequate funds to pay his employees.
What to make of this evidence? The Bankruptcy Court concluded that “the debtor
provided [the Employees] checks in payment of wages and tips; he just did not have the money
in the bank to honor those checks,” and that the facts did not demonstrate a “widespread illegal
payment scheme.” Jn re Donna, 2017 WL 4457407, at *7-8. However, there is unrefuted
evidence that Mr. Donna threatened employees when they tried to leave, and there is a dispute
over whether he tried to confuse employees about the amount of wages Bebo owed them. The
Bankruptcy Court should have considered these aggravating factors in its decision, as they
undermine its conclusions that “[a]ll the facts indicated that the debtor wanted to pay [the
Employees], but could not,” and that “[t]here is no indication that he wanted [the Employees] to
be harmed.” /d. at *6. Ultimately, these factors may not outweigh the undisputed evidence of Mr.
20
Donna’s efforts to ensure his restaurant’s financial success, and the lack of evidence that he
made personal expenditures with income from the business. But they do raise legitimate, factual
questions over whether Mr. Donna willfully injured his employees. Viewing the evidence “in the
light most favorable to the nonmoving party” and “draw[ing] all reasonable inferences” in their
favor, the Court finds that there is a genuine dispute of material fact over whether Mr. Donna
willfully injured the Employees. Talavera, 638 F.3d at 308.
ci There is a Genuine Dispute of Material Fact over Whether the Debtor
Maliciously Injured the Employees.
The Employees next argue that there is a genuine dispute of material fact as to whether
Mr. Donna “maliciously” injured them. ““A malicious injury involves (1) a wrongful act, (2)
done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or
excuse.”” In re Holland, 2013 WL 2190164, at *4 (quoting In re Jercich, 238 F.3d at 1209). An
injury is malicious if it “was wrongful and without just cause or excuse, even in the absence of
personal hatred, spite or ill-will.” 4 Collier on Bankruptcy § 523.12 (15th ed. 1996). “Malice,
moreover, 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 Nolan, 220 B.R. at 730 (internal quotation marks omitted).
The Bankruptcy Court concluded that there was “not a material dispute as to
maliciousness” because “the debtor did not have sufficient funds to pay [the Employees],” and
because the Employees offered no “admissible evidence to show that the debtor had the money
to pay them, and chose to use that money on personal expenses or entertainment.” Jn re Donna,
2017 WL 4457407, at *9. The Bankruptcy Court found that the facts showed that the “debtor
tried to retain the services of his employees to improve everyone’s situation.” Jd.
21
Based on the inferences the Court must make in favor of the non-movants on summary
judgment, this case does not simply involve a debtor who was overly optimistic about the ability
to pay his debts. There is a genuine dispute of material fact over whether the debtor intentionally
harmed his employees, demonstrated by the disputed evidence that he tried to confused them
about their wages, and the undisputed evidence that he threatened his employees when they
sought to quit. For the same reasons that the Court found a genuine dispute of material fact as to
willfulness, the Court also finds that there is.a genuine dispute of material fact as to
maliciousness.
4, There is a Genuine Dispute of Material Fact as to Whether the “Debtor”
Caused the Willful and Malicious Injury.
Section 526(a)(6) requires that the willful or malicious injury be committed “by the
debtor.” 11 U.S.C. § 526(a)(6). It is “generally acknowledged that this statutory prerequisite
means that a debtor cannot be held liable for the acts of third parties notwithstanding that
nonbankruptcy law would impute liability to the debtor.” Jn re Frick, 427 B.R. 627, 635 (N.D.
Ohio 2010); see also Palmour v. Budd (In re Budd), Bankr. No. 16-429, Adv. No. 16-10039,
2018 WL 312246, at *6 (Bankr. D.D.C. Jan. 3, 2018) (noting that liability “cannot be imputed to
another person for purposes of nondischargeability of a debt under 11 U.S.C. § 523(a)(6)”). “At
the same time, there is no requirement in § 523(a)(6) that a debtor actually be the one who
physically occasions damage to a creditor or to a creditor’s property.” In re Frick, 427 B.R. at
635. “[L]iability for a ‘willful’ and ‘malicious’ injury may be imposed under § 523(a)(6) when
the debtor directs or actively encourages another person to commit a wrongful act.” Jd.
The Bankruptcy Court found that the Employees failed to show that “the actions of the
malicious injury deriv[ed] from the actions of the debtor, not his subordinates.” Jn re Donna,
2017 WL 4457407, at *9. The Employees challenge this conclusion and argue that Mr. Donna’s
22
own conduct injured his employees, pointing to the District Court’s determination that Mr.
Donna was personally liable for the wage violations. Appellant Br. at 25-26. In response, Mr.
Donna argues that the Employees “conflate” the District Court findings that Mr. Donna could be
personally liable for the actions of Bebo and its management under the wage statutes with
liability under § 523(a)(6). Appellee Br. at 33. He argues that the Employees have provided no
evidence that Bebo’s failure to pay employees was “due to Mr. Donna encouraging or directing
another to commit a willful and malicious act.” Jd. at 35.
The District Court found that Mr. Donna was personally liable for violations of the FLSA
and DCWPCL because he qualified as an “employer” under both of those statutes. Ventura J,
738 F. Supp. 2d at 5. The District Court concluded that he was “‘an executive with significant
ownership interest in the corporate defendants . . .[and] had the power to hire and fire, control
work schedules and supervise employees, determine pay rates, and maintain employment
records.” /d. It also found that he “approved wage payments to plaintiffs, including the issuance
of post-dated or unsigned checks, the payment of partial wages, and the withholding of any
payment.” Jd. When employees complained about nonpayment of wages, “he informed them that
he withheld wage payments . . . in order to pay Bebo Trattoria’s past debts... .” Id.
The Employees provide no support for their assertion that this Court should be bound by
the District Court’s conclusions. They do not argue that collateral estoppel should apply to this
issue.> Because the Court can see no other reason why it would be bound by the District Court’s
findings, the Court looks instead to the record before the Bankruptcy Court. On the one hand,
> Before relying on collateral estoppel “to estop a party from relitigating an identical issue
previously decided,” a party must demonstrate that the issue was “actually litigated,” was “actually and
necessarily determined by a court of competent jurisdiction,” and that it would “not work an unfairness”
on the bound party. Mexichem Fluor, Inc. v. Envtl. Prot. Agency, 760 F. App’x 6, 9 (D.C. Cir. 2019)
(internal quotation marks omitted).
23
Mr. Donna has submitted evidence demonstrating that Bebo’s managers, Corrado and Ricardo
Bonino, handled Bebo’s finances as it related to employees. They have demonstrated that
managers handled the hiring and payment of employees. See Appellee Br. at 35 (citing AA at
1119) (Scott Test.) (stating that “Corrado handled the money,” would “hand the cash” to
employees and that “[h]e and Ricardo .. . oversaw payment of the bills or were supposed to
when they were getting paid.”)); AA at 1004 (Dorjgotov Dep.) (stating that she interviewed with
a manager, not Mr. Donna). In his declaration, Mr. Donna also asserted that he “focused on
Bebo’s cuisine and delegated most financial matters to managers,” and that managers “oversaw
the accounts and determine[d] what payments to make and when based on the cash available to
the business, including issuing checks utilizing a stamp for [his] signature.” AA at 719 (Donna
Decl.).
On the other hand, the Employees have presented evidence that Mr. Donna was involved
with financial payments to employees. Jesus Ventura, one of Mr. Donna’s long-serving
employees, stated that he knew that Mr. Donna gave Bebo’s managers instructions about issuing
checks, and that Mr. Donna would determine when to issue paychecks.° AA at 1078 (Ventura
Dep.). Furthermore, Ms. Scott testified that when she and other employees would ask Mr. Donna
about unpaid wages, “he would communicate to us in person that he would . . . discuss it with
Corrado and make sure that we got paid.” AA at 1539 (Scott Dep.). Other testimony indicates
that Mr. Donna was involved in the payment of wages. AA at 1306 (Scott Aff.) (““Mr. Donna
approved payments of wages to staff but either Corrado Bonino or Ricardo Bonino would
provide staff with checks.”); AA at 1310 (Vuckovic Aff.) (stating that Mr. Donna would explain
6 It is unclear from the record whether Mr. Ventura made this statement based on personal
knowledge. This will be another question for the Bankruptcy Court when considering whether to admit
this testimony as to this issue.
24
to employees that he was unable to pay their salaries because “it was the first of the month and
he had to pay off past debts or pay the restaurant’s utilities.”); AA at 1296 (Ramos Aff.) (“If I
was not at the restaurant on a pay day I would not be issued a pay check because Roberto Donna
and Corrado Boninio would split up the money they had amongst the employees in the restaurant
that day.”); AA at 1295 (“We were told by Roberto Donna and Corrado Bonino, the accountant,
the balance [of checks] was zero to account for taxes being paid.”); AA at 1114 (Ramos Test.)
(“I will go to Corrado and Corrado [would] say I cannot give you checks because Roberto Donna
is not here... you have to speak to him.”’). The Employees also presented evidence that Mr.
Donna was involved in decision-making on payments to vendors, which contradicts his assertion
that he delegated financial matters to managers. AA at 1120-21 (Scott. Test.) (‘Roberto had full
knowledge of all vendors that were owed money and helped—played a part in deciding—on the
occasions where I was witness to that, he was the deciding factor on who got paid when.”).
Finally, Ms. Scott also testified that Mr. Donna himself “threatened to blackball us in the
industry” if employees stopped working, that he “threatened to ruin our careers,” and that “[h]e
put it in writing to me.” AA at 1541 (Scott Dep.). She also testified that he “threatened to pull”
employee Green Cards “or call immigration if they quit on him,” and that the “threats were real.”
Id. at 1542.
These contrasting narratives demonstrate that there is a genuine ‘timate of material fact
over whether Mr. Donna managed Bebo’s finances, was personally involved in confusing
employees about their wages, and threatened employees. As such, the Court concludes that there
is a genuine dispute of material facts as to whether Mr. Donna himself willfully and maliciously
injured the Employees.
25
B. ‘There is No Genuine Dispute of Material Fact Over Whether Mr. Donna Made False
Representations to the Employees.
1. 11 U.S.C. § 523(a)(2)(A)
Section 523(a)(2)(A) of the Bankruptcy Code “does not discharge an individual debtor
from any debt for money, property, [or] services .. . to the extent obtained by . . . false pretenses,
a false representation, or actual fraud, other than a statement respecting the debtor’s or
an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). “The burden of proof is on a plaintiff
to establish by a preponderance of the evidence the elements of nondischargeability under §
523(a)(2)(A).” Osoyande v. Momoh (In re Momoh), Bankr. No. 14-00291, Adv. No. 14-10034,
2016 WL 270155, *1 (Bankr. D.D.C. Jan. 20, 2016). In order to establish nondischargeability
under § 523(a)(2)(A), the Employees must establish the following:
(1) misrepresentation, fraudulent omission or deceptive conduct by the debtor;
(2) knowledge of the falsity or deceptiveness of his statement or conduct; (3)
an intent to deceive; (4) justifiable reliance by the creditor on the debtor's
statement or conduct; and (5) damage to the creditor proximately caused by its
reliance on the debtor's statement or conduct.
In re Holland, 2013 WL 2190164, at *3. (citation omitted). “A promissory representation, or a
representation as to future events asserted in a common law fraud action, should only be
considered a misrepresentation of fact where the evidence shows that the promise was made
without the intent to perform, or that the promisor had knowledge that the events would not
occur.” In re Momoh, 2016 WL 270155, at *1 (citations omitted). “The mere breach of a promise
is never enough in itself to establish fraudulent intent. It may, however, be inferred from the
circumstances, such as the defendant’s insolvency or other reason to know he cannot pay . . . or
26
his failure to even attempt performance, or his continued assurances after it is clear that he will
not do so.” 7 Id.
The Bankruptcy Court found that the evidence did not show that “the debtor had the
intent to defraud or knowledge that his representations that he would pay [the Employees] were
false.” In re Donna, 2017 WL 4457407, at *3. Rather, it found that Mr. Donna “was undergoing
economic difficulty due to a perfect storm of bad circumstances,” including loosing “a prime
location, due to the building housing his restaurant, Galileo, undergoing renovation,” and due to
his failed attempts to “create financial stability for Bebo,” including taking out a loan to “pay the
financial needs of Bebo, laying his house down as collateral.” Jd. It found that “[h]e and his wife
stopped taking a salary from Bebo,” and that he “tried to keep his employees, so the restaurant
could continue to provide service to the clientele it had.” Jd. The Bankruptcy Court concluded
that “[t]hese actions are not actions of a man trying to defraud his employees, but are the actions
| of a man trying to rebuild his business so he and his employees could all benefit economically.”
Id.
The Employees argue that Mr. Donna’s and his managers’ repeated promises to pay
employee wages, tip minimum wage, and overtime were “false representations” because “they
were aware that it was unlikely the [e]mployees would be paid.” Appellant Br. at 27. According
to the Employees, Mr. Donna did not intend to fulfill his promises because he knew Bebo was
insolvent, citing an admission he made in litigation in the Eastern District of Virginia that he
“became aware that the restaurant’s expenses exceeded its income.” AA at 1330, 1341. The
7 The Employees rely on Jn re Flakker to assert that promises to pay owed wages or debts are
misrepresentations under the statute. Appellant Br. at 27. However, as Mr. Donna correctly notes, Jn re
Flakker actually states that the conduct falls within § 523(a)(2)(A) “when a debtor misrepresents his
intent to repay a debt.” Flakker v. Flakker (In re Flakker), Bankr. No. 14-00340, Adv. No. 14-10037,
2015 WL 4624545, at *3 (Bankr. D.D.C. Aug. 3, 2015) (citations omitted).
27
Employees also argue that the question of Mr. Donna’s intent should not have been resolved on
summary judgment, and that instead of holding a hearing to judge his credibility, the Bankruptcy
Court “took it upon [it]self to determine, despite the existence of a dispute of fact, that Mr.
Donna’s repeated promises were not deceptive because he did not supposedly know that he could
not pay his employees.” Appellant Br. at 28.
The Court agrees with the Bankruptcy Court’s conclusion that “the evidence does not
show the debtor had the intent to defraud or knowledge that his representations that he would pay
[the Employees] were false.” In re Donna, 2017 WL 4457407, at *3. There is no evidence that
Mr. Donna did not intend to pay employees when he made promises to them. The Employees do
not identify which of Mr. Donna’s statements were false, when exactly he made them, and how
the timing of those statements relates to his knowledge about the health of the business. See In re
Silva, 2014 WL 217889 at *8 (finding that a debtor misrepresented his intent to repay a loan
where “at the time he promised to repay” the loan, his “personal and business finances were on
the verge of collapse.””). When employees asked Mr. Donna about their wage payments, he
indicated that the restaurant was struggling, and that he would make efforts to pay them. See,
e.g., AA at 1295 (Ramos Aff.).
The Employees have not provided any evidence related to either Bebo’s or Mr. Donna’s
finances, and they have not contradicted Mr. Donna’s evidence regarding Bebo’s financial
failings and the efforts Mr. Donna took to ensure its survival. As Mr. Donna argues, the Court
cannot consider Mr. Donna’s admission that he knew Bebo’s expenses exceeded its income
because he made it pursuant to Federal Rule of Civil Procedure 36, which provides that “an
admission under this rule is not an admission for any other purpose and cannot be used against
the party in any other proceeding.” Fed. R. Civ. P. 36(b); Appellee Br. at 42, n.19. Even if it
28
could, the Court is not persuaded that Mr. Donna’s admission meant that he misrepresented that
he would pay his employees—there is no evidence indicating when Mr. Donna knew the
restaurant’s expenses exceeded its income. Moreover, as the Bankruptcy Court discussed, there
is undisputed evidence that Mr. Donna took steps to ensure Bebo’s success, including securing a
loan with his home as collateral. AA at 720 (Donna Dec.). There is also undisputed evidence that
Bebo’s business declined 40% from its peak business by the time it closed. Jd.
Although the Employees argue that Bebo did not keep track of hours worked or compare
Bebo’s wage payments with minimum wage requirements, the record does not support this
assertion. Appellant Br. at 30. Evidence that employee paystubs did not accurately reflect hours
worked does not equate to evidence that the restaurant did not track hours. Meanwhile, Mr.
Donna has cited evidence that Bebo did track employee tip wages owed and paid, indicating that
Mr. Donna intended to pay his employees. Appellee Br. at 39.
As the Bankruptcy Court acknowledged, ““[b]ecause the question of intent is inherently
fact-based, it is an issue more appropriately resolved by the finder of fact.’” In re Donna, 2017
WL 4457407 at *3 (quoting Jn re Flakker, 2015 WL 4624545, at *3). But the “‘summary
judgment rule would be rendered sterile . . . if the mere incantation of intent or state of mind
293
would operate as a talisman to defeat an otherwise valid motion’” for summary judgment. United
States v. Project on Gov't Oversight, 839 F. Supp. 2d 330, 346-47 (D.D.C. 2012) (quoting Meiri
v. Dacon, 759 F.2d 989, 998 (2nd Cir. 1985)). The Employees had the opportunity to depose Mr.
Donna in this litigation and to test the veracity of his assertions about both his and Bebo’s
finances, but did not appear to do so. They also did not present any other evidence related to
either his or Bebo’s finances, which could have provided circumstantial evidence of his intent.
See, e.g., Inre Silva, 2014 WL 217889 at *8 (considering a debtor’s negative bank account
29
balances, checks returned for insufficient funds and his low income reflected in his tax returns
when concluding that he misrepresented his intent). As a result, they failed to “‘shake’ the
defendant’s version of the facts or to raise significant issues of credibility... .” Corrugated
Paper Prods., Inc. v. Longview Fibre Co., 868 F.2d 908, 914 (7th Cir. 1989). Without evidence
666 999
of Bebo’s finances, they did not “‘put credibility in issue so as to preclude summary judgment.
Desia v. GE Life & Annuity, No. 05-1395, 2008 WL 4724080, *7 (D. Conn. Oct. 24, 2008)
(quoting 10A Wright & Miller, Fed. Practice and Procedure § 2726 (4th ed. 1998)).
The Employees also argue that Mr. Donna’s promises to pay hourly employees tip
minimum wage and overtime were misrepresentations because he recklessly disregarded his
obligations to pay his employees under the law. Appellant Br. at 29-30. There is evidence that
Bebo never paid some employees overtime wages. AA at 1287 (Ventura Aff.); AA at 1305
(Scott Aff.); AA at 1310 (Vuckovic Aff); AA at 1295 (Ramos Aff.). However, to prove a
misrepresentation, the Employees must demonstrate that Mr. Donna made a promise without
intending to perform it, or with knowledge that the events would not occur—not that the he
recklessly disregarded wage obligations. See In re Chang Sup Han, 13-cv-1524, 2013 WL
3404321, at *3 (C.D. Cal. July 8, 2013) (describing § 523(a)(2)(A) as requiring that a plaintiff
establish “by a preponderance of the evidence that a false representation has been made without
belief in its truth or recklessly, careless of whether it is true or false.”) (internal quotation marks
omitted). The Employees have not demonstrated that Mr. Donna did not intend to pay his
employees overtime.
The Employees have not shown a genuine dispute of material fact as to whether Mr.
Donna made false representations. The Bankruptcy Court appropriately granted summary
judgment on this claim.
30
C. The Bankruptcy Court Did Not Abuse Its Discretion When It Awarded Attorney’s
Fees to Mr. Donna.
During discovery in the bankruptcy proceedings, Mr. Donna served interrogatory and
document requests seeking information related to the Employees’ employment with Mr. Donna’s
restaurants such as employment agreements, job duties, title, wages and hours worked. AA at
126-393. The Employees moved for a protective order on the grounds that the discovery requests
were beyond the scope of the case and sought information Mr. Donna could have obtained in the
District Court litigation. AA at 118-127. They responded to the document requests but refused to
respond to any interrogatories until the Bankruptcy Court ruled on their motion for a protective
order. AA at 417.
The Bankruptcy Court denied the motion for a protective order on the grounds that the
interrogatory requests focused on issues at the “heart” of the adversary proceeding, that the
District Court had not adjudicated the issues, and that collateral estoppel did not apply. AA at
422. After the Bankruptcy Court denied the motion, Mr. Donna moved for attorney’s fees under
Federal Rule of Civil Procedure 26(c)(3). AA at 431-448. The Bankruptcy Court granted in part
Mr. Donna’s motion on the grounds that the Employees’ motion for a protective order as to the
interrogatories was not substantially justified, and awarded Mr. Donna 62.5% of the fees he
sought. AA at 1552-1556. The Bankruptcy Court found that the Employees “improperly refused
to provide responses to [Mr. Donna’s] discovery requests that were not in dispute.” AA at 1552.
It further found that there was “no need” for the Employees to file a motion for a protective order
because they could have raised their contentions “that discovery as to generic employment
information (a miniscule part of the discovery requests) sought information already produced” in
the District Court litigation “in their responses to the discovery requests.” AA at 1553.
31
Federal Rule of Civil Procedure 26(c)(3) “incorporates [Federal Rule of Civil Procedure]
37(a)(5) and states that if the court denies a motion for a protective order, the court ‘must, after
giving an opportunity to be heard, require the movant . . . to pay’ the opposing party’s expenses
and attorney’s fees.” Jones v. Dufek, 830 F.3d 523, 528 (D.C. Cir. 2016) (quoting Fed. R. Civ. P.
37(a)(5)(B).* However, ““ the court must not order this payment if the motion was substantially
justified ...”” Id. A party meets the “substantially justified” standard if there “is a ‘genuine
dispute’ or if ‘reasonable people could differ’ as to the appropriateness of the motion.”
Alexander v. FBI, 186 F.R.D. 144, 147 (D.D.C. 1999) (quoting Pierce v. Underwood, 487 U.S.
552, 565 (1988)).
The Employees argue that the Bankruptcy Court “missed the point” of the Employees’
motion, which was to “limit the scope of discovery to the specific issues that were subject to the
adversary proceeding.” Appellant Br. at 39. They argue that just because the Bankruptcy Court
took a different view on the scope of discovery does not mean that the Employees were not
substantially justified in filing their motion. Appellant Br. at 39.
Although a majority of Mr. Donna’s interrogatories related to the Employees’ allegations
of willfulness and misrepresentations, the Employees filed a motion for a protective order over a
small amount of generic employment information and refused to respond to the rest of the
relevant interrogatories. The Bankruptcy Court found that the motion was not substantially
justified because the Employees could have raised their objections to the discovery in their
responses to the interrogatory requests instead of refusing to respond to them and filing the
motion. AA at 1553. Although the “substantially justified” standard allows room for reasonable
differences of opinion, the Bankruptcy Court’s decision was not “clearly unreasonable, arbitrary,
® Federal Rule of Civil Procedure 26 applies in adversary proceedings. Fed. R. Bankr. P. 7026.
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or fanciful.” Bonds, 93 F.3d at 807 (internal quotation marks omitted). This is especially true in
light of Rule 26(c)(3)’s goal to “prevent needless litigation and wasteful discovery disputes.”
Jones, 830 F.3d at 529.
Furthermore, the Bankruptcy Court did not base its decision on incorrect facts, as the
Employees claim. Reply at 21 [ECF No. 8]. It found that the Employees refused to respond to the
discovery requests that “were not in dispute.” AA at 1552. The Employees did not respond to
any interrogatory requests, even those expressly focused on willfulness and misrepresentations.
The Bankruptcy Court did not abuse its discretion when it awarded partial attorney’s fees to Mr.
Donna for his response to the Employees’ motion for a protective order.
V. CONCLUSION
For the foregoing reasons, the Bankruptcy Court’s ruling as to whether Mr. Donna
willfully and maliciously injured his employees under 11 U.S.C. § 523(a)(6) will be REVERSED
AND REMANDED for further proceedings before the Bankruptcy: Court. The Bankruptcy
Court’s ruling that Mr. Donna’s promises to pay his employees did not constitute
misrepresentations under 11 U.S.C. § 523(a)(2)(A), and its award of attorney’s fees to Mr.
Donna, will be AFFIRMED. An order accompanies this memorandum opinion.
October ZA & w/ We J. Mra au
Thomas F. Hoga
SENIOR UNITED STATES DISTRICT JUDGE
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