Case of the Day: Munoz v. Boyard
Posted on October 12, 2015
In 2010, the partnership ceased doing business. Boyard started a new business, Avendale Technology, LLC, to develop the battery charger. Boyard owned 50% of the business and Munoz owned 49%. The operating agreement included an agreement to mediate disputes, and if mediation failed, to arbitrate.
A dispute arose. Munoz unsuccessfully attempted to mediate, and when that failed, he demanded arbitration. According to Munoz, Boyard requested a specific date for the hearing, but when the date arrived, Boyard did not appear: Boyard claimed “that he traveled to New York to attend the Hearing, but was unable to find the location of the Hearing and eventually went home.” The hearing proceeded without him. The arbitrator found by clear and convincing evidence that Boyard had fraudulently induced Munoz to transfer his IP to the partnership by promising him Innov-Nature stock, which “proved worthless,” and that Boyard had converted $36,000 in Avendale funds to his own use. The arbitrator held that the agreement was void, ordered the IP to be transferred back to Munoz, and awarded $190,000 in damages.
Munoz sought confirmation of the award in the Orange County, Florida circuit court. That court confirmed the award in 2013. Boyard then filed a bankruptcy petition. Munoz filed a claim in the bankruptcy proceeding and brought an adversary proceeding, asserting that his claim was non-dischargeable.
The main issue in the case was collateral estoppel. To make a long story short, the Bankruptcy Court, applying the Florida law of preclusion, held that Munoz was entitled to summary judgment of non-dischargeability, given the conclusive effect of the Florida judgment. The interesting twist was that the arbitral award had been confirmed in Florida, and the New York bankruptcy court was required to give the Florida judgment full faith and credit. I haven’t seen this issue before, and I wonder whether Munoz was required to obtain confirmation in another court and then assert the collateral estoppel effect of the judgment in the bankruptcy court, or whether on the other hand Munoz could have sought confirmation of the award in the bankruptcy court in the first instance. In other words, is this a potential judgment arbitrage situation? There is some authority for the view that a bankruptcy court can exercise jurisdiction over a petition to confirm an award if confirmation could have an effect on the bankruptcy estate. In re Montague Pipeline Techs. Corp., 209 B.R. 295, 299 (Bankr. E.D.N.Y. 1997), but I don’t know if this is a universally accepted rule.