As the old saying goes, in this world nothing can be said to be certain, except death and taxes. They’re things in life that simply cannot be avoided. If you own or operate a black car company, another thing in life that you can’t (and shouldn’t) attempt to avoid are obligations owed to the New York Black Car Operators’ Injury Compensation Fund (the “BCF”).
The BCF as we all know provides member bases and their drivers with workers’ compensation coverage, death benefits, driver training, and a host of other important services. These services cost money, and it’s important that everyone who receives them pays their fair share. For those who don’t, there are consequences.
More specifically, under the BCF’s plan of operations not only are member bases liable to the BCF for any workers’ compensation surcharges they fail to remit, the “responsible persons” who run the company are personally liable to the BCF for those unpaid surcharges as well. While there are some people who think they can simply file for bankruptcy and avoid paying what is owed, as Vladislav Bondarsky (“Bondarsky”), the former owner of Crosstown Limousine Service Inc. d/b/a City Ride (“City Ride”) recently learned, that’s not necessarily true. A bankruptcy judge can (and in this case did) refuse to discharge a judgment the BCF obtained against Bondarsky citing wrongdoing on Bondarsky’s part.
The court’s ruling comes on the heels of nearly nine full years of litigation that has played out in both the state and federal courts. In brief, back in 2010 the BCF and its counsel, Wayne Baden of the law firm of Schlam Stone & Dolan LLP, obtained a judgment in New York State Supreme Court against City Ride and Bondarsky for unpaid contributions owed to the BCF. This action was taken after a routine audit revealed that City Ride had failed to remit most of the surcharges it had been collecting, and after City Ride entered into two agreements with the BCF to repay the monies, both of which City Ride breached. The second breach resulted in City Ride being non-renewed by the BCF, and City Ride’s drivers losing their workers’ compensation coverage (which Bondarsky never told them about).
After the judgment was entered, Bondarsky closed City Ride’s bank accounts and his personal accounts and destroyed the bank records and the company’s operating records. He ultimately filed for bankruptcy in an attempt to avoid his debts, inclusive of the BCF’s judgment. In response, the BCF commenced an “adversary proceeding” in the bankruptcy court challenging the dischargeability of the judgment. It should be noted that certain debts owed to a creditor (in this case the BCF), that might be dischargeable, can be rendered non-dischargeable if the creditor can demonstrate that the debtor acted willfully and maliciously, and that the willful and malicious conduct caused the creditor injury. In this case, the bankruptcy court initially concluded after a trial that while the BCF had demonstrated Bondarsky acted willfully, it had failed to meet its burden of proof in showing that he acted with malice.
The BCF appealed the determination, and on appeal the finding that willfulness had not been shown was vacated, and the matter sent back to the bankruptcy court for further consideration. On May 9, 2019, after reconsidering the matter, the bankruptcy judge concluded that the BCF had met its burden of showing malice. Specifically, the Court found Bondarsky acted with malice by destroying records, allowing drivers to work without workers’ compensation coverage, and failing to notify them that they were uninsured.
The court’s decision states in pertinent part as follows: Because the surcharges were earmarked funds, they were never available for use by the Debtor or by City Ride. The use of those funds for personal use, therefore, as noted by the District Court, was akin to a breach of fiduciary duty. The Debtor knew that the surcharges needed [to] be remitted, and that the fund made a demand for payment. However, not only were the surcharge funds not remitted by City Ride or the Debtor, but they were spent on both corporate expenses, and to some exten[t] on personal expenses. As a responsible person under the New York executive law, the Debtor was held to a higher legal standard that placed the obligation to remit the surcharges in a different category than standard obligations.
As this case underscores, the myth that filing bankruptcy is a quick and easy way out of any debt is just that – a myth – and that’s particularly so if you’ve engaged in wrongdoing. In Bondarsky’s case, the judge found he had engaged in malicious conduct by, among other things, collecting and pocketing workers’ compensation surcharges, destroying business records, and not informing drivers that their coverage has been lost.
In conclusion, while filing bankruptcy can be a viable option for people saddled with excessive debt who are simply in over their heads, those who have engaged in wrongdoing and are seeking to use the process as a “get out of jail free” card should think twice. In Bondarsky’s case, he and his company collected and then kept surcharges earmarked to pay for the workers’ compensation coverage the BCF provided to City Ride’s drivers. After the BCF obtained a judgment against him personally, Bondarsky engaged in outlandish conduct designed to thwart the BCF’s collection efforts, and then looked to the bankruptcy court in a misguided attempt to get rid of his problems.
There is a doctrine in the law known as the “clean hands” doctrine. It holds that when one comes before a court and asks for equitable relief through a lawsuit or motion, the person requesting such relief should be innocent of unfair conduct or wrongdoing relating to the underlying subject matter. Bondarsky appears not to have understood or been aware of that doctrine. He also evidently misunderstood the BCF’s relentless resolve, and that of its attorneys, in seeing to it that those BCF members who receive workers’ compensation coverage through the BCF pay for what they have received. If BCF members were to be permitted to skirt their financial obligations, and if “responsible persons” such as Bondarsky were not held personally accountable for those obligations, the BCF would soon find itself without the funds necessary to continue the important work it does day in and day out on behalf of New York’s for-hire drivers. Congratulations to the BCF and its legal team at Schlam Stone & Dolan on this well-fought and important victory!