BANK NATIONAL ASSOCIATION, OPINION

Plaintiff,

V.

DAVID SADEK, ETTY SADEK, Ct al.,

Defendants.

KEVIN MCNULTY, U.S.D.J.:

Before me are cross-motions for summary’ judgment by plaintiff First

American Title Insurance Company (“First American”) and defendant David

Sadek, who has filed in bankruptcy. This action arises from a nearly seven year

dispute over the sale of a house in Teaneck, New Jersey in 2006 and the use of

the proceeds thereafter. First American, standing as assignee of all the rights,

interests, and claims held by PNC Bank National Association (“PNC”), sues

David Sadek and Etty Sadek for those proceeds, as well as interest, costs, and

other relief. First American moves for summary judgment on its claims for

fraud (Count II) and conversion (Count V), as well as a determination barring

the discharge in bankruptcy of such a judgment against the Sadeks. David

Sadek moves for summary judgment on the same two counts. For the reasons

set forth in this opinion, I will deny both sides’ motions for summary judgment

on Count II (Fraud) and dischargeability, but will grant First American’s motion

for summary judgment as to Count V (Conversion).

1
2AC 

p

(

)

P1. Br. (First American’s) Memorandum of Law in Support of

Motion for Summary Judgment Against Defendant David

Sadek and Etty Sadek (ECF no. 199)

P1. R. 56.1 Stmt. Plaintiffs Rule 56.1 statement (ECF no. 199)

Del Opp./Br. Memorandum of Law in Response to Plaintiff, First

American Title Insurance Company’s Motion for Summary

Judgment and in Support of Cross-Motion for Summary

Judgment Against Plaintiff First American Title Insurance

Company (ECF no. 207)

P1. Reply/Opp. Reply Memorandum of Law in Further Support of Motion

for Summary Judgment Against Defendants David

Sadek and Etty Sadek and in Opposition to David Sadek’s

Cross-Motion for Summary Judgment (ECF no. 210)

Def. Reply Memorandum of Law in Response to Plaintiff, First

American Title Insurance Company’s Motion for Summary

Judgment and Reply in Further Support of Defendant

David Sadek’s Cross-Motion for Summary Judgment

Against Plaintiff First American Title Insurance Company

(ECF no. 213)

Del 1?. 56.1 Stint. Defendant’s Rule 56.1 Statement, submitted with Def.

Reply (ECFno. 213)

Def. R. 56.1 Defendant’s Rule 56.1 Responsive Statement of Counter

Counterstmt. Material Facts (ECF no. 213)

Initially, Mr. Sadek did not file a response to First American’s Local Rule 56.1

Statement or a Statement of Material Facts on his own behalf. First American argues

that all the facts in its statement should be deemed undisputed. (P1. Reply! opp. at 7—

8.) In his most recent submission, Mr. Sadek filed both documents. (See Def. Reply.)

While adherence to the local rules is important in promoting fairness in cases before

the Court, cases generally should be decided on the merits and not on technicalities.

Cf Becker u. Smith & Nephew, Inc., No. 15-2538, 2015 WL 4647982 (D.N.J. Aug. 5,

2015) (stating that the Third Circuit liberally permits pleading to ensure that claims

are “decided on the merits rather than on technicalities”). What is disputed between

the parties was clearly manifested in the briefmg, and I do not perceive any prejudice

to First American. I will exercise my discretion to allow the late submission of the

Local Rule 56.1 Statements.

2
Mr. Sadek received a share of revenue from its New York counterpart, Winthrop

Abstract, LLC (“Winthrop Abstract”). (Id. ¶J 16, 18—19.) In addition, Mr. Sadek

controlled FFE and, in 2005, he used FFE to extend and fund more than 30

loans to himself, approximately $15 million in total. (Id. ¶‘J 9, 10.) He admitted

that if he wanted a personal loan from FFE, he was able to obtain it. (Id. ¶ 11.)

In October 2005, the Sadeks owned a single family home, where they

resided, at 374 Winthrop Road in Teaneck, New Jersey. (Id. ¶ 21, 23.) At that

time, there were two recorded mortgages encumbering the property, one held

by Summit Bank and one held by Chevy Chase Bank, FSB. (Id. ¶{ 24—26). Mr.

Sadek applied for another loan in the amount of $792,000 from FFE in order to

refinance the loans on that property. (Id. ¶1J 28, 32.) The title search for the

refinance was performed by Winthrop Abstract. (Id. ¶ 29.) Mr. Sadek signed the

promissory note on October 31 and does not dispute that mortgage was

“[p]repared by [him].” (Id, ¶3 33—34.) That loan was then sold by FFE to

National City Bank (“National City”); however, the mortgage held by National

City went unrecorded. (Id. ¶ 37, 40.)

On March 2, 2006, the Sadeks sold their home to Daniel and Tsipora

Gurell, a little over four months after the refinance on the property had closed.

( 41, 43.) Mr. Sadek did not disclose to PNC or National City the sale of the

property. (‘ 49.) The proceeds of the sale, totaling $588,806.22, were deposited

into the Sadeks’ bank account, instead of being used to pay off the outstanding

loan with National City. (Jj 53, 56.) Mr. Sadek does not dispute that these

amounts were due and owing. He entered into a Consent Judgment with PNC

for the amount of the loan plus interest that had accrued, which resolved

3
refinancing loan with National City. (Def. R. 56.1 Stmt. ¶ 36.) Second, Mr.

Sadek disputes that he knowingly failed to disclose the existence of the loan or

the mortgage to the Gurells. (Id. ¶ 44.) Third, Mr. Sadek disputes his

attendance at and personal knowledge of the closing, his awareness that there

were outstanding loans or unrecorded mortgages on the property, his

knowledge that the funds should have been paid out to National City, and the

allegation that he continued (or had FFE continue) to pay the loan for another

two and a half years following the closing of the sale of the property. (Id. ¶3) 51—

53, 60.)

H. Legal Argument

a. Standard of Review

Federal Rule of Civil Procedure 56(a) provides that the court should grant

summary judgment “if the movant shows that there is no genuine dispute as to

any material fact and that the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.s.

242, 248 (1986); Kreschollek v. S Stevedodng Co., 223 F.3d 202, 204 (3d Cir.

2000). In deciding a motion for summary judgment, a court must construe all

facts and inferences in the light most favorable to the nonmoving party. See

Hayes v. Harvey, 874 F.3d 98, 103 (3d Cir. 2017). The moving party bears the

burden of establishing that no genuine issue of material fact remains. See

Celotex Coip. v. Catrett, 477 U.S. 317, 322—23 (1986). “[W]ith respect to an

issue on which the nonmoving party bears the burden of proof. . . the burden

on the moving party may be discharged by ‘showing’—that is, pointing out to

the district court—that there is an absence of evidence supporting the nonmoving party’s case.” Celotex, 477 U.S. at 325.

4
at 248; see also Fed. R. Civ. P. 56(c) (setting forth types of evidence on which

nonmoving party must rely to support its assertion that genuine issues of

material fact exist). “[U}nsupported allegations. . . and pleadings are

insufficient to repel summary judgment.” Schoch zc First Fid. Bancorporation,

912 F.2d 654, 657 (3d Cir. 1990); see also Gleason u. Nonvest Mortg., Inc., 243

F.3d 130, 138 (3d Cir. 2001) (“A nonmoving party has created a genuine issue

of material fact if it has provided sufficient evidence to allow a jury to find in its

favor at trial.”). If the nonmoving party has failed “to make a showing sufficient

to establish the existence of an element essential to that party’s cases, and on

which that party will bear the burden of proof at trial, . . . there can be ‘no

genuine issue of material fact,’ since a complete failure of proof concerning an

essential element of the nonmoving party’s case necessarily renders all other

facts immaterial.” Katz u. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992)

(quoting Celotex, 477 U.S. at 322—23).

In deciding a motion for summary judgment, the court’s role is not to

evaluate the evidence and decide the truth of the matter but to determine

whether there is a genuine issue for trial. Anderson, 477 U.S. at 249.

Credibility determinations are the province of the fact finder. Big Apple BMW,

Inc. a BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992). Additionally,

when parties file cross-motions for summary judgment, the governing standard

“does not change.” Clevenger u. First Option Health Plan of N.J., 208 F. Supp.

2d 463, 468—69 (D.N.J. 2002) (citing Weissman v. U.S.P.S., 19 F. Supp. 2d 254

(D.N.J. 1998)). The court must consider the motions independently, in

accordance with the principles outlined above. Goldwell of N.J., Inc. ii. KPSS,

Inc., 622 F. Supp. 2d 168, 184 (D.N.J. 2009); Williams v. Philadelphia Housing

b
because 

these tasks are left for the fact-finder.

Pithier v. UNITE, 542 F.3d

380, 386 (3d Cir. 2008) (internal quotation and citations omitted).

Furthermore, if a party fails to address the other party’s properly

supported assertion of fact, the court may consider “grant[ing] summary

judgment if the motion and supporting materials—including the facts

considered undisputed—show that the movant is entitled to it . . . .“ Fed. R.

Civ. P. 56(e). Local Civil Rule 56.1(a) deems a movant’s statement of material

facts undisputed where a party does not respond or file a counterstatement. L.

Civ. R. 56(a). A failure to dispute a party’s statement of material facts, however,

“is not alone a sufficient basis for an entry of a summary judgment.” See

Anchorage Assocs. v. Virgin Islands Bd. of Tax Review, 922 F.2d 168, 175 (3d

Cir. 1990).

b. Count II (Fraud)

First American’s second count is a claim of fraud against David Sadek.

(2AC ¶f 43—53.) First American seeks summary judgment in the amount of

$995,048.21 (plus interest) on this count against Mr. Sadek, as well as a

judgment in their favor that this debt is not subject to be discharged under the

Bankruptcy Code, 11 U.S.C. § 523(a)(6). (P1. Br. 9, 10.) Mr. Sadek responds

that there are no facts to support a common law fraud claim and moves for

summary judgment in his favor. (Def. Opp./Br. 5.)

A common law fraud action under New Jersey law has five essential

elements: (1) a material representation by the defendant of a presently existing

fact or past fact; (2) knowledge or belief by the defendant of its falsity; (3) anintent that the plaintiff rely on the statement; (4) reasonable reliance by the

plaintiff; and (5) resulting damages to the plaintiff. Avaya Inc., RP v. Telecom

6
Servs. v. IS., 202 N.J. 145, 168 (2010)).

In this case, neither side has met its burden to demonstrate the lack of a

genuine, material issue of fact for purposes of summary judgment. There is a

genuine factual dispute between the parties as to the second element of

common law fraud: whether Mr. Sadek had knowledge of or a belief as to the

falsity of the representations he made to PNC or National City. Avaya, 838 F.3d

at 358. Mr. Sadek adamantly maintains that he “was a busy businessman”

responsible for over 3,000 loans in one year and that he personally held

somewhere from 40 to 60 notes with an estimated total liability of $15 million.

(Def. Opp. / Br. 11.) First American, noting that direct proof of intent (that is,

the debtor’s state of mind) is “nearly impossible to obtain,” argues that it is

allowed to “present evidence of the surrounding circumstances from which

intent may be inferred.” (P1. Br. at 18 (quoting Matter of Van Home, 823 F.2d

1285, 1287 (8th Cir. 1987).) It further points out that when such

circumstantial evidence of the debtor’s intent to deceive is produced the debtor

cannot overcome that inference with an unsupported assertion of honest

intent. (Id.) The focus, it says, is 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.” (Id. 8—9 (quoting In re Reynolds, 193 B.R. 195,

200—01 (Bankr. D.N.J. 1996)).)

Considered in relation to proof at trial, First American’s contentions have

merit. There is no doubt that First American has put forward circumstantial

evidence that Mr. Sadek committed common law fraud. For example, Mr.

Sadek does not dispute that there was a close relationship between FFE and

Winthrop-NJ, where members of his family worked (P1. 56.1 Stmt., Def. R. 56.1

7
Br., Haupel Deci., Ex. N.), counters this evidence with his own evidence that

FFE was a large concern that dealt in a large number of loans and mortgages

(DeL R 56.1 Counterstmt. ¶17 1—7); that he was not a member or involved in

the day-to-day operations with Winthrop-NJ (Def. 1?. 56.1 Stmt., at 11 ¶ 17);

that he was not aware that the loan had not been paid (Id. at 11 ¶ 56); and that

he never personally advised his employee at FFE to continue paying the loan

(or even knew that FFE continued to pay it) for two and a half years (Id. at 11 ¶

60). First American states that this is all self-serving and implausible, and a

jury would be entitled to be skeptical of the kind of inadvertence that results in

a substantial financial gain. But to weigh the evidence and conclude that Mr.

Sadek did or did not knowingly perpetrate a fraud would exceed the bounds of

the summary judgment standard.

My role here is not to evaluate the credibility of the evidence but to

determine whether there is a genuine issue of fact for trial. Anderson, 477 U.s.

at 248, 249. As to the second element of common law fraud, there is. Both

sides’ motions for summary judgment on Count II are denied.

c. Count V (Conversion)

First American’s fifth count is a claim of conversion against David and

Etty Sadek. (2AC ¶17 69—74.) First American seeks summary judgment in the

amount of $995,048.21 (plus interest). (See P1. Br. 9.) Mr. Sadek cross-moves

for summary judgment, arguing that there are “no material facts to support a

claim of conversion.” (Def. Opp./Br. at 7.)

Conversion under New Jersey law is essentially “the wrongful exercise of

dominion and control over the property of another in a manner inconsistent

with the other person’s rights in that property.” Peicro u. United States, 488

8
Ameñnox Processing, Inc., 492 B.R. 707, 753 (D.N.J. 2013) (citing 78th Infantry

Div., World War II Living History Ass’n a Oprendek, No. 11-165, 2011 U.S. Dist.

LEXIS 1400014, at *15_16 (D.N.J. Aug. 4, 2011)). Conversion is an “intentional

tort” in that “the defendant must have intended to exercise a dominion or

control over the goods which is in fact inconsistent with plaintiffs rights.” The

intent requirement, however, is lower than that for fraud; the defendant need

not “knowingly or intentionally act wrongfully for a conversion to occur.”

Chicago Title Ins. a Ellis, 409 N.J. Super. 444, 454 (App. Div. 2009) (quoting

LaPlace u. Briere, 404 N.J. Super. 585, 595, certif denied, 199 N.J. 133, 200

N.J. 506 (2009). The defendant need not intend to harm the proper owner of

the property or even know that the property belonged to that other person. Id.

at 456.

The tort of conversion has evolved to apply to money and other financial

instruments, so long as the plaintiff possessed an actual interest in the

property and it is capable of being misused in a way that would deprive the

plaintiff of its benefit. Bondi a Citigroup, Inc., 423 N.J. Super. 377, 432 (App.

Div. 2011); see also Chicago Title Ins., 409 N.J. Super. at 456 (discussing

conversion in the context of money fraudulently obtained in connection with

mortgages). It is essential that any money said to be converted have belonged

to the injured party; an action for conversion will not lie for a mere debt. Bondi,

423 N.J. Super. at 432 (quoting Advanced Enters. Recycling, Inc. v. Bercase,

376 N.J. Super. 153, 161 (App. Div. 2005)). Where there is no presentobligation to return the money, but only a debtor-creditor relationship, a claim

of conversion will not lie. Id. Additionally, the converted funds must be

9
over the property of another in exclusion or denial of his rights or inconsistent

therewith.” (Def. Reply at 11 .)2

New Jersey case law allows for money (in the form of proceeds from a

mortgage sale) to form the basis of a conversion claim, and the relationshipbetween the Sadeks and First American (standing in the shoes of the original

lender) was not merely the relationship of a debtor and a creditor. See Bondi,

423 N.J. Super. at 432. The funds here are identifiable: they represent the

discrete proceeds from the sale of a specific property. (P1. Br. (56.1 Statement),

Def. Reply (56.1 Statement) fl 53, 56.) Mr. Sadek did not incur a mere debt,

but an immediate obligation to pay them over to PNC. By depositing the funds

in his own bank account, Mr. Sadek exercised dominion over these identifiable

funds and thereby repudiated the superior rights of PNC (now assigned to First

American). (Id.) It is clear from the Promissory Note that should the Sadeks

have sold or transferred their interest in the property without prior consent

from the lender, the lender could have demanded immediate payment of the

balance of the loan. (P1. Br., Haupel Decl., Ex. B at 11.) This establishes PNC’s

interest in those funds and leaves no question that it could have requested the

proceeds of the sale if it had received notice of the sale.

All three elements of the claim of conversion are established by the

undisputed facts. I thus award summary judgment in favor of First American

and against Mr. Sadek.

2 This may well be a strategic concession, made in the hope of confining the

judgment to one that is dischargeable in bankruptcy. Such considerations do not sway

the Court’s summary judgment decision one way or another. Sadek also states that

“he did mistakenly commit the tort of conversion.” (Def. Reply 11)1 take “mistakenly”

to be consistent with the mental state requirement for conversion, but again, it is the

evidence, not the word chosen by Mr. Sadek in his brief, that controls.

10
that the motion could be treated as unopposed, but I will nevertheless analyze

the record to determine whether there is a genuine, material issue of fact. See

Anchorage Assocs. v. Virgin Islands Ed. of Tax Review, 922 F.2d 168, 175 (3d

Cir. 1990) (holding that even where a local rule deeming unopposed motions to

be conceded, the court was still required to analyze the movant’s summary

judgment motion under the standard prescribed by Fed. I?. Civ. P. 56(e));

Muskett v. Certegy Check Servs., Inc., Civ. No. 08-3975, 2010 WL 2710555

(D.N.J. June 6, 2010) (“In order to grant Defendant’s unopposed motion for

summary judgment, where, as here, ‘the moving party does not have the

burden of proof on the relevant issues, . . . the [Court] must determine that the

deficiencies in [Plaintiffs] evidence designated in or in connection with themotion entitle [Defendant’s} to judgment as a matter of law.” (quotingAnchorage Assocs., 922 F.2d at 175)).

As in the case of Mr. Sadek, First American has proffered enough

evidence against Ms. Etty Sadek to warrant a grant of summary judgment for

conversion in their favor. There is evidence that Ms. Sadek, along with her

husband, executed the mortgage that refinanced the house. (P1. 56.1 Stmt.

34.) Mr. and Ms. Sadek, as joint owners, sold the property with the unrecordedmortgage to the Gurells. (fl 4 1—42.) There is evidence that Ms. Sadek knew of

the existence of the mortgage and the loan, which were not disclosed to theGurells. (j 46—47.) Finally, the proceeds of the sale were deposited into a bank

account held by both Mr. and Ms. Sadek. They were not used to repay theoutstanding balance of the loan, the existence of which Ms. Sadek had

knowledge; rather, they were used to pay off an equity line of credit extended to

Mr. Sadek. (fl[ 52—59.) PNC rightfully expected to receive the proceeds from any

sale of the property, and its rights were defeated by these actions. ( 57.)

11
against both David and Etty Sadek.

d. Dischargeability

First American moves pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4), and

(a)(6) to bar the discharge of this debt in bankruptcy.

Section 523(a) of the Bankruptcy Code enumerates several exceptions to

the dischargeability of a debt. Quintessentially, a non-dischargeable judgmentis one for fraud. Section 532(a) prevents the discharge of money obtained by

“false pretenses, a false representation, or actual fraud,” “for fraud or

defalcation while acting in a fiduciary capacity, embezzlement, or larceny,” and

“for willful and malicious injury by the debtor to another entity or to the

property of another entity.” 11 U.S.C. § 523(a)(2), (4), (6). Allowing discharge inthese instances would run counter to the Bankruptcy Code’s goal of offering a

broad discharge to provide a fresh start to the “honest but unfortunate debtor.”0-44 pt. 1 Collier on Bankruptcy (16th ed. 2017). Those exceptions to

dischargeability are to be construed narrowly, however, and the creditor bears

the burden of proving each element of the exception by a preponderance of the

evidence. Id.

I have already found that Count II (fraud) presents issues of fact that

must be tried. The issue of dischargeability, which depends on fraudulent

intent, likewise must be tried.

Conversion falls short of fraud. Although conversion is an intentional

tort, conversion is not automatically defined as a “willful and malicious injury”under § 523(a)(6). In re Webb, 525 3.1?. 226, 233 (Bankr. M.D. Pa. 2015); see

also Jersey Cent. Power & Light v. Breslow, No. 12-5425, 2013 WL 632124, at

*2 (D.N.J. Feb. 20, 2013) (“Injury is ‘willful and malicious’ within the meaning

12
consideration must be given to the circumstances of the conversion. The court

must examine the debtor’s state of mind at the time the debtor took the action

that produced the injury. Webb, 525 B.R. at 233 (finding that the creditor failed

to meet its burden of proof that debtor’s actions were willful and malicious

when the debtor claimed the proceeds of a life insurance policy after he

executed a disclaimer that by reference included the proceeds); see also In re

DeCastro, No. 14-15597/1581, 2015 WL9777729, at*1O(Bankr. D.N.J. Nov.

25, 2015) (allowing discharge where creditor knowingly and willingly lent

money and debtor did not acquire the funds without permission).

Under New Jersey law, conversion, though an intentional tort, does not

(or at least does not necessarily) involve such wrongful or malicious intent. See

supra Section II.c. What was undisputed as to Count V was that Mr. Sadek

converted the proceeds of a sale of his house, proceeds that should have gone

to PNC. Id. What was not decided was the nonessential issue of whether he

accomplished that conversion knowingly, with the intent to harm or injure

PNC. With respect to Count II, I found that the evidence conflicted as to Mr.

Sadek’s knowledge and state of mind, presenting an issue for trial. See

generally In re Glenn, 470 B.R. 731, 739 (Bankr. M.D. Pa. 2012) (denying

summary judgment for discharge where there was not “indisputable evidence

that Debtors intended to injure [Creditorj or that they must have known that

the injury was substantially certain to occur”). For the same reasons, I cannot

find on summary judgment that the conversion was done with the heightened

intent that would compel a finding of non-dischargeability.

13
Sadek’s motions for summary judgment as to Count II of the Second Amended

Complaint and the dischargeability of these debts in the bankruptcy

proceedings. I will grant First American’s motion for summary judgment as to

Count V (conversion) against both David and Etty Sadek.

The matter will be referred to the Magistrate Judge so that it can be

postured for trial. An appropriate order follows.

Dated; December 29, 2017

i2 /1

V

Kevin McNulty 0 United States District Judge

14