611 B.R. 685 (Bkrtcy.M.D.Ala. 2020), 17-30684-BPC, In re Jones

Docket Nº:17-30684-BPC
Citation:611 B.R. 685
Opinion Judge:Bess M. Parrish, Creswell United States Bankruptcy Judge
Party Name:IN RE Robert Laslie JONES, III, Debtor. v. Robert Laslie Jones, III, Defendant. Wheeler Bros., Inc, Plaintiff, In re Lavenia A. Jones, Debtor. Wheeler Bros., Inc, Plaintiff, v. Lavenia A. Jones, Defendant. Adv. Proc. Nos. 17-03128-BPC, 17-31726-BPC, 17-03129-BPC
Attorney:Leonard N. Math, Chambless & Math, Montgomery, AL, for Wheeler Bros., Inc. Charles N. Parnell, III, Parnell & Parnell, P.A., Montgomery, AL, for River Bank & Trust. William C. Poole, Friedman, Poole & Friedman, PC, Mobile, AL, for Wells Fargo, N.A. dba Wells Fargo Dealer Services. David Weston, T...
Case Date:January 24, 2020
Court:United States Bankruptcy Courts, Eleventh Circuit

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611 B.R. 685 (Bkrtcy.M.D.Ala. 2020)

IN RE Robert Laslie JONES, III, Debtor.

Wheeler Bros., Inc, Plaintiff,

v.

Robert Laslie Jones, III, Defendant.

In re Lavenia A. Jones, Debtor.

Wheeler Bros., Inc, Plaintiff,

v.

Lavenia A. Jones, Defendant.

No. 17-30684-BPC

Adv. Proc. Nos. 17-03128-BPC, 17-31726-BPC, 17-03129-BPC

United States Bankruptcy Court, M.D. Alabama

January 24, 2020

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Leonard N. Math, Chambless & Math, Montgomery, AL, for Wheeler Bros., Inc.

Charles N. Parnell, III, Parnell & Parnell, P.A., Montgomery, AL, for River Bank & Trust.

William C. Poole, Friedman, Poole & Friedman, PC, Mobile, AL, for Wells Fargo, N.A. dba Wells Fargo Dealer Services.

David Weston, T. David Weston, LLC., Montgomery, AL, for Robert Laslie Jones, III

MEMORANDUM OPINION

Bess M. Parrish, Creswell United States Bankruptcy Judge

On November 10, 2017, Wheeler Bros., Inc. ("Wheeler") filed adversary proceedings against Robert Laslie Jones, III ("Laslie") (AP-17-03128) and Lavenia Ann Jones (hereinafter "Ann", and collectively with Laslie, "Defendants") (AP-17-31726). Wheeler’s Complaints object to the discharge of each Defendant and to the dischargeability of debts owed to Wheeler by Defendants pursuant to § § 523(a)(2)(A); 523(a)(6); 727(a)(3); and 727(a)(5) of the Bankruptcy Code. The debts owed to Wheeler by Defendants arise from a judgment and contempt orders entered in a case filed by Wheeler against Defendants and other defendants in the United States District Court of the Middle District of Alabama, Case 2:14-cv-01258 (the "District Court Litigation").1 The District Court found that Defendants and others "willfully, maliciously, and intentionally" defrauded Wheeler and entered judgment (the "District Court Judgment") in favor of Wheeler in accordance with those findings on May 15, 2017. (Plaintiff’s Exhibit A-13). Prior to that District Court Judgment, the District Court entered two Sanctions Orders

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against Defendants and other defendants for various discovery issues, including an award to Wheeler for attorneys’ fees and costs.

Before this Court now are Motions for Summary Judgment (the "Motions") filed by Wheeler in these adversary proceedings. Although Wheeler initiated the proceedings with multi-count Complaints, Wheeler limits its request for relief in the Motions to § 523(a)(2)(A) of the Bankruptcy Code. Specifically, the issues before the Court are whether the debts owed as a result of the District Court Judgment and the debts owed as a result of the Sanctions Orders should be excepted from discharge under § 523(a)(2)(A) as a matter of law through the application of collateral estoppel. The Court holds that the doctrine of collateral estoppel applies as to the District Court Judgment and the Motions are due to be granted in part and denied in part. The debts owed by Defendants to Wheeler as a result of the District Court Judgment are excepted from discharge. However, the Court holds that the doctrine of collateral estoppel does not apply to the Sanctions Orders, and there remains a genuine issue of fact for trial as to the dischargeability of the debts owed by Defendants to Wheeler pursuant to the Sanctions Orders under § 523(a)(2)(A).

I. JURISDICTION

This Court has jurisdiction to hear these matters pursuant to 28 U.S.C. § 1334(b). These are core proceedings within the meaning of 28 U.S.C. § 157(b)(2)(I) and (J). This is a final order.

II. FACTS

A. District Court Litigation

The dispute between these parties has been ongoing for years. In 2014, Wheeler brought an action consisting of 45-counts against Defendants and other Jones family members and related business entities in the District Court. The complaint set forth grounds for diversity jurisdiction and alleged both state fraudulent transfer claims under the Alabama Uniform Fraudulent Transfer Act ("AUFTA") and veil-piercing claims as to Defendants.

Prior to trial, several discovery hurdles (including, but not limited to: improper conduct and the withholding or destruction of documents) resulted in Wheeler being awarded sanctions against all the defendants after a two-day hearing. The Sanctions Orders (i) barred Defendants (and other defendants not a party to these proceedings) from introducing any evidence at trial of any consideration or reason given for any transfers directly or indirectly received by any of them from Robert L. Jones, Jr. or Advanced Fleet Services, LLC; (ii) provided an adverse jury instruction for destruction or spoliation of evidence by Laslie (and other defendants not a party to this proceeding); and (iii) required Defendants (and other defendants not a party to this proceeding) to pay Wheeler’s costs, including attorneys’ fees, costs, and expenses, which were expended by Wheeler in the total amount of $58,074.31. (Plaintiff’s Exhibits A-9, A-10).

On March 8, 2017, days before trial in the District Court Litigation was scheduled to begin, Laslie filed a chapter 13 bankruptcy petition with this Court. Wheeler filed an Emergency Motion for Relief from Stay in the bankruptcy case, which was granted on a limited basis in order to allow the District Court Litigation to proceed.

A bench trial took place on March 13, 2017. Anthony Bush, counsel of record for Defendants throughout the District Court Litigation, appeared at the trial. At that time, Mr. Bush requested to withdraw as

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counsel. Specifically, Mr. Bush stated on record: Your Honor, these defendants have asked that I stand down and not defend this case ....

And to the extent I would have the authority to represent these defendants anyway, in light of the bankruptcies and in light of the fact that I haven’t been employed by the bankruptcy estates, they’ve asked that Bailey Jackson and I not defend. They’ve asked that we not appear. Of course, Your Honor ordered that we do so and we’re certainly going to be here for Your Honor.

I understand that none of these defendants will be appearing. I understand that none of these defendants will be defending the case ....

Bailey and I have had each of our clients sign written statements acknowledging that their failure to defend may very well result in default. They’ve understood that. They acknowledged they understand that.

(Plaintiff’s Exhibit A-11, pages 6-7). The Honorable Paul G. Byron denied Mr. Bush’s request to withdraw and simultaneously clarified that trial would proceed as scheduled in lieu of default judgment. Specifically, Judge Byron expressed concerns about default being improper based on the defendants’ prior defenses and involvement throughout the case. Id. at 7-8 ("default typically requires no defense by the party against whom the default is being entered. So in this case, there’s been defense for quite a period of time .... And entering a default would seem to me to be unjust in light of the prior defense."). Accordingly, Defendants were permitted to present evidence (subject to the terms of the Sanctions Orders), lodge objections, question witnesses, and present a defense during trial through their counsel.

In a detailed Memorandum of Decision (the "Decision") that entered May 15, 2017, the District Court combed through each count of the Complaint; identified transferor, transferee, and amounts transferred; and made its findings in favor of Wheeler. The transfers by and/or to Defendants (or business entities on their behalf) were extensive. Particularly relevant to these proceedings, for all of the counts regarding actual fraud pursuant to § 8-9A-4(a) of the AUFTA, the District Court found: Wheeler has met its burden of proving that the transfers alleged in ... the Complaint are fraudulent transfers of assets ... pursuant to Ala Code § 8-9A-4(b).... These fraudulent transfers were willfully, intentionally, and maliciously effectuated by the transferor and willfully, intentionally, and maliciously accepted by the transferee. These transfers were made with the willful, malicious, and actual intent to injure, delay, or defraud Wheeler and other creditors. Accordingly, these fraudulent transfers will be voided.

(Plaintiff’s Exhibit A-12).2

Specifically, the following paragraphs of the Decision attribute actual fraud to Ann, in her individual capacity or as the alter ego of entities controlled by Ann: 107-109; 112-115; 117; 123; 128; and 132-140. The District Court avoided transfers to and from Ann finding that the "transfers were willfully, intentionally, and maliciously effectuated by the transferor and willfully, intentionally, and maliciously accepted by the transferee", with the "willful, malicious, and actual intent to injure, delay, or defraud Wheeler." (Plaintiff’s Exhibit A-12).

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Similarly, the following paragraphs of the Decision attributed actual fraud to Laslie, in his individual capacity and as the alter ego of entities controlled by Laslie: 110; 112; 119; 121-125; 129; 134; 137; and 140. The District Court avoided transfers to and from Laslie finding that the "transfers were willfully, intentionally, and maliciously effectuated by the transferor and willfully, intentionally, and maliciously accepted by the transferee", with the "willful, malicious, and actual intent to injure, delay, or defraud Wheeler." (Plaintiff’s Exhibit A-12).

In the accompanying Final Judgment entered the same day, the District Court stated: 2. Judgment is entered in favor of Plaintiff, WHEELER BROS., INC., and against Defendants, ROBERT L. JONES, JR., VIRGINIA JONES, ADVANCED FLEET SERVICES, LLC, ROBERT L. JONES, III, PIRATES TOW, LLC, LAVENIA A. JONES, ROBERT L. JONES, SR., A&B DEVELOPMENTS, LLC, A&B PROPERTIES, LLC, BEST BUY AUTOMOTIVE &...

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