J&V Developers, Inc. v. Malloy (In re Malloy), CIVIL ACTION NO. 15-5046
| Decision Date | 11 May 2016 |
| Docket Number | ADVERSARY NO. 14-687,BANKRUPTCY NO. 14-17727,CIVIL ACTION NO. 15-5046 |
| Parties | IN RE: DEBORAH R. MALLOY, Debtor. J & V DEVELOPERS, INC., Appellee, v. DEBORAH R. MALLOY, Appellant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Presently before the Court are a Certificate of Appeal from an August 10, 2015 Order entered by the Honorable Eric L. Frank, United States Bankruptcy Judge for the Eastern District of Pennsylvania (Doc. 1), Appellant's Brief (Doc. 5), Appellee's Brief (Doc. 6), and Appellant's Reply Brief (Doc. 7). Upon consideration of the parties' submissions and exhibits, this Court AFFIRMS the decision of the Bankruptcy Court.
Appellee J & V Developers, Inc. ("J & V") is a developer of a planned community, the Spring Valley Estates in Aston Township, Pennsylvania. J & V Developers, Inc. v. Hargy, No. 08-51847, 2012 WL 11866877, at *2 (Pa. C.P. Ct. Aug. 13, 2012). On March 15, 2007, Appellant Deborah R. Malloy ("Debtor"), acting through a broker, Mr. Dominic Bucci, entered into a Non-Exclusive Buyer Listing Agreement with Century 21- Crest Real Estate in anticipation of the purchase of a home in the Spring Valley Estates. Id. at *3. Mr. Bucci acted on behalf of the buyer and the seller in this transaction. Id. at *2. On March 22, 2007, Debtor entered into a formal Agreement of Sale (the "AOS") with J & V for the home and placed $10,000.00 in escrow. Id. at *3. Settlement was scheduled to take place on or before June 30, 2007. Id.
The AOS provided that "Settlement would take place on ten days notice if the property was not ready for occupancy at the end of June, 2007." Id. Section Four of the AOS "specifically required [Debtor] to apply for a mortgage loan for the purchase of the subject property . . . within ten days from March 22, 2007" and to notify J & V when that application was complete. Id. at *4. The AOS also provided that any breach of Section Four constituted a default by Debtor. Id. at *4, 6.
The final settlement date was pushed back to August 1, 2007 and a pre-settlement inspection of the property took place on July 27, 2007. Id. at *3. Debtor attended the inspection but did not attend settlement. Id. In addition, Debtor did not fully complete a mortgage application and did not provide notice to J & V of any application. Id. at *4-5. After failing to close on the property, there was an ongoing exchange between the parties attempting to reach an agreement regarding the $10,000.00 held in escrow. Id. at *6. After the parties were unable to reach an agreement, J & V sent a letter to Debtor notifying her of her breach of the AOS and, ultimately, J & V filed a breach of contract action. Id.
The trial judge presiding over the matter, the Honorable Chad F. Kenney, described the litigation as being "'almost like Alice in Wonderland.'" Id. at *1 n.1 (quoting 7/21/10 N.T. 104). Litigation lasted approximately three years, with J & V's complaint filed on May 8, 2008 and the final verdict entered on March 15, 2011. Id. After a six-day trial spanning an eight-monthperiod to allow Debtor's counsel and husband, Mr. Malloy,1 to prepare, J & V ultimately prevailed on its claim and received a verdict in its favor. Id. at *10, 1 n.1. Debtor failed to file timely post-trial motions and, therefore, a direct appeal was foreclosed and any appellate issues waived. Id. at *1 n.1.
After receiving a verdict in its favor, J & V petitioned for attorneys fees against Debtor pursuant to 42 Pa. Cons. Stat. § 2503(7) for demonstrating dilatory, obdurate, or vexatious conduct during the prolonged litigation. Id. at *1. Throughout the underlying breach of contract litigation and the attorneys fees litigation, Debtor and her counsel argued that J & V's "counsel should be hauled before the Pennsylvania Attorney Disciplinary Board for daring to submit legal argument in opposition to their case authorities and position." Id. at *9. Further, Debtor defended the Fee Award action by claiming the fee petition was moot "because it was filed by a liar." Id. The Honorable Charles B. Burr found these arguments unpersuasive and on July 13, 2013, J & V obtained a judgment in the Delaware County Court of Common Pleas (the "C.P. Court") against Debtor for attorney's fees and costs in the amount of $63,486.05 (the "FeeAward")2. Id. at *1. The C.P. Court awarded the amount as a sanction pursuant to 42 Pa. Cons. Stat. § 2503(7) against Debtor, jointly and severally with her counsel. Id.
Section 2503(7) requires "dilatory, obdurate, or vexatious" conduct in order to sanction a party for conduct during litigation. 42 Pa. Cons. Stat. § 2503(7). The C.P. Court did not specifically distinguish the conduct it deemed "dilatory" from conduct it deemed "obdurate" and/or "vexatious." Instead, on several occasions the C.P. Court referenced Debtor's conduct as dilatory, obdurate and vexatious.3 Hargy, 2012 WL 11866877, at *1, 11, 16, 19-22. The C.P. Court awarded the Fee Award as a result of the costs and fees associated debtor's dilatory, obdurate, and vexatious conduct including:
(1) Debtor's service of burdensome interrogatories;
(2) Debtor's counsel's request for repeat appearances and questioning of trial witnesses;
(3) Debtor's counsel's empty threat to "to require [J & V's] trial-counsel to testify as a witness" in the breach of contract action which led to J & V incurring costs associated with securing substitute trial counsel;
(4) Debtor and her counsel's filing of a "Motion to Appoint substitute trial counsel pro hac vice, later withdrawn when [Debtor] and Mr. Malloy were advised by the Court that current rules previously unknown to them now required payment of a fee in order to do so";
(5) Debtor's persistent presentation of "legal theories and evidence that were irrelevant to establish a defense . . . that her trial counsel knew or should have known had no chance of succeeding"; and (6) Debtor's filing of an interlocutory appeal without permission from the court. Id. at *17. The C.P. Court ultimately found that it was "fundamentally clear in this record that this was not an ambiguously worded AOS, nor did it radically alter any well known [sic] precepts and patterns of practice in real estate law." Id. at *22. Nonetheless, Debtor and her counsel "employed pretzel logic, falsehood and the filing of endless rounds of continuing motions, coupled with obdurate and dilatory tactics, to slow this litigation to a snail's pace rather than admit her own failure to adhere to the express terms of the AOS." Id.
Debtor appealed the Fee Award to the Pennsylvania Superior Court. J & V Developers, Inc. v. Hargy, No. 2323 EDA 2012, 2013 WL 11253520 (Pa. Super. Ct. Oct. 24, 2013). On October 24, 2013 the Pennsylvania Superior Court affirmed the C.P. Court's opinion, finding that Judge Burr did not abuse his discretion in awarding attorney's fees. Id. at *17. Debtor attempted to Petition for Allowance of Appeal to the Pennsylvania Supreme Court, but her Petition was denied. See J & V Developers, Inc. v. Hargy, 94 A.3d 1010 (Pa. 2014).
On September 25, 2014, Debtor filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code. Bankruptcy No. 14-17727, Doc. 1. On December 19, 2014, J & V filed an adversarial complaint against Debtor seeking to classify the Fee Award as nondischargeable. App'x at A1-A59. On March 23, 2015, Debtor filed an initial motion for partial summary judgment on a factual issue relating to the underlying state court action. Id. at A297-A306. J & V responded by filing a cross-motion for summary judgment. Id. at A309-A316. J & V's motion argued that the findings made in the C.P. Court's opinion were preclusive on issues relating to nondischargeability under 11 U.S.C. § 523(a)(6) of the Bankruptcy Code. Id. at A314-A315.
In an Order and Opinion dated August 10, 2015, Judge Frank granted J & V's cross-motion and denied debtor's motion, thus deeming the Fee Award nondischargeable under 11 U.S.C. § 523(a)(6). In re Malloy, 535 B.R. 81, 97 (Bankr. E.D. Pa. 2015). In particular, Judge Frank concluded that the C.P. Court's findings in the Fee Award under 42 Pa. Cons. Stat. 2503(7) precluded any other finding than that Debtor's conduct leading to the Fee Award satisfied 11 U.S.C. § 523(a)(6) for nondischargeability purposes. Id. On September 9, 2018, Debtor filed the instant appeal.
This Court has jurisdiction to review final orders from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). In re Heritage Highgate, Inc., 679 F.3d 132, 139 (3d Cir. 2012). On appeal, the district court "review[s] questions of law de novo, findings of fact for clear error, and exercises of discretion for abuse thereof." In re Jevic Holding Corp., 787 F.3d 173, 179 (3d Cir. 2015). When dealing with issues of mixed law and fact, the court must "accept the [Bankruptcy Court's] finding of historical or narrative facts unless clearly erroneous, but exercise 'plenary review of the [Bankruptcy Court's] choice and interpretation of legal precepts and its application of those precepts to the historical facts.'" Mellon Bank, N.A. v. Metro Commc'ns, Inc., 945 F.2d 635, 642 (3d Cir. 1991) (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir. 1981)).
In reviewing the Bankruptcy Court's decision for legal errors de novo, this Court must also apply the appropriate legal standard for bankruptcy summary judgment motions. Federal Rule of Bankruptcy Procedure 7056 incorporates the traditional Federal Rules of Civil Procedure for summary judgment motions, stating that "Rule 56 [] applies in adversary proceedings." Under Federal Rule of Civil Procedure 56, courts shall grant summary judgmentin favor of the moving party "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to...
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