Bavelis v. Doukas

• Decision Date: 21 January 2021
• Docket Number: Case No. 2:17-CV-00327
• Citation: Bavelis v. Doukas, 625 B.R. 55 (S.D. Ohio 2021)
• Parties: George BAVELIS, et al., Plaintiffs, v. Ted DOUKAS, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

625 B.R. 55

George BAVELIS, et al., Plaintiffs,

v.Ted DOUKAS, et al., Defendants.

Case No. 2:17-CV-00327

United States District Court, S.D. Ohio, Eastern Division.

Signed January 21, 2021

Marion H. Little, Christopher J. Hogan, Zeiger Tigges & Little LLP, W. Mark Jump, Jump Legal Group, Columbus, OH, for Plaintiffs.

Franklin C. Davis, Colbert Davis LLP, Foothill Ranch, CA, Mark E. Brown, Pro Hac Vice, Menefee & Brown, P.C., Knoxville, TN, for Defendants.

OPINION & ORDER

ALGENON L. MARBLEY, CHIEF UNITED STATES DISTRICT JUDGE

This matter is before the Court following the Sixth Circuit's limited remand on the issue of punitive damages. (ECF No. 20). Parties submitted briefing to this Court (ECF Nos. 26–29) and oral argument was held on December 21, 2020. For the reasons set forth below, the Court ADOPTS the Bankruptcy Court's Proposed Findings of Fact as to the issue of punitive damages, MODIFIES the Bankruptcy Court's Conclusions of Law as to the issue of punitive damages, and ADOPTS the Bankruptcy Court's recommended punitive damages award of $1 million following a de novo review.

I. BACKGROUND

This case arose out of an underlying Chapter 11 bankruptcy proceeding, No. 10-58583. On April 18, 2017, the Bankruptcy Court's Proposed Findings of Fact and Confusions of Law on Remaining Counts of the Second Amended Complaint came before this Court for resolution. (ECF No. 1-1). The Bankruptcy Court recommended that all of the assignments from George Bavelis to Ted Doukas be rescinded and that Mr. Bavelis be awarded compensatory and punitive damages. (Id. ). Defendants objected to the Proposed Findings of Fact and Conclusions of Law. (ECF No. 1-2). The Plaintiffs filed a Memorandum in Opposition to the Objections (ECF No. 1-3).

A. District Court Proceedings

George Bavelis entered bankruptcy proceedings in 2010. He also brought an adversary proceeding against Ted Doukas and entities owned by Mr. Doukas ("Doukas Defendants") in October 2010, seeking to rescind several assignments that Mr. Bavelis had made to Mr. Doukas that he contends were fraudulently induced. In the 2000s, Mr. Bavelis began working with a Mr. Qureshi to invest in gas stations, office buildings, and mixed-use real estate developments. The ventures between Mr. Bavelis and Mr. Qureshi were approximately $21 million in debt by the time Mr. Bavelis met Mr. Doukas in Fall 2008. Mr. Doukas became involved in the business venture between Mr. Bavelis and Mr. Qureshi, purportedly to attempt to resolve business issues favorably to Mr. Bavelis. As part of Mr. Doukas's efforts to negotiate with Mr. Qureshi, Mr. Doukas insisted that he needed stakes in the various LLCs owned by Mr. Qureshi and Mr. Bavelis. Mr. Bavelis made those assignments, on the understanding that Mr. Doukas would reconvey the interests back to him after the negotiations. Over time, Mr. Doukas requested further assignments, and these assignments became an issue when Mr. Bavelis's attorney suggested that Mr. Bavelis file to dissolve some of his companies. Despite repeated requests, Mr. Doukas did not return the LLC interests to Mr. Bavelis.

The Bankruptcy Court held two trials on the claims in the adversary proceeding. The first trial concerned legal theories that the various assignments to Mr. Doukas were void. The second trial involved claims against the Doukas Defendants and Mr. Doukas's former attorney. Eventually, the Bankruptcy Court recommended that this Court find for Mr. Bavelis on several counts and award compensatory damages in the amount of $116,600 and punitive damages in the amount of $1 million. On January 4, 2019, this Court adopted in part the Bankruptcy Court's Proposed Findings of Fact and Conclusions of Law, sustaining in part and overruling in part the Defendants' Objections thereto. This Court found that the Doukas Defendants had waived their right to a jury trial, that Mr. Bavelis had stated a claim for fraudulent inducement under Florida law, that $116,000 was an appropriate amount of damages under the Court's equity jurisdiction, and that, because Mr. Bavelis was not awarded compensatory damages, punitive damages were prohibited under Florida law.

B. Sixth Circuit Appeal and Remand

On January 16, 2019, Mr. Bavelis filed an appeal of this Court's order, asserting that this Court exceeded the scope of review under 28 U.S.C. § 157(c)(1) in disallowing the punitive damages based on an argument not raised by Doukas and that dismissal of punitive damages was incorrect under Florida law. On January 17, 2019, the Doukas Defendants filed a notice of cross-appeal, arguing that this Court did not have jurisdiction on any of the Florida claims and re-asserting that their Seventh Amendment jury trial rights were denied. On March 4, 2019, the Doukas Defendants filed a motion to stay this Court's judgment pending the resolution of the appeal. On October 21, 2019, this Court issued an order denying the motion to stay. On October 19, 2020, the Sixth Circuit Court of Appeals issued its decision vacating this Court's judgment as to damages, affirming in all other aspects,¹ and remanding for further proceedings.

On the issue of damages, the Sixth Circuit held that this Court erred in finding that Florida law prohibits punitive damages absent a corresponding award of compensatory damages. (ECF No. 20 at 3). The court relied on Ault v. Lohr , 538 So.2d 454 (Fla. 1989), in which the Florida Supreme Court announced that "a finding of liability alone will support an award of punitive damages ‘even in the absence of financial loss for which compensatory damages would be appropriate.’ " 538 So.2d at 456 (quoting Lassitter v. Int'l Union of Operating Eng'rs , 349 So.2d 622, 626 (Fla. 1976) ). While it found that punitive damages were not precluded, the Sixth Circuit opined that "questions remain regarding whether a punitive damages award is proper (and if so, how much)," and determined that it would vacate and remand for further proceedings. (ECF No. 20 at 20). On appeal, the Doukas Defendants had raised new arguments that punitive damages are unavailable because the Plaintiff "elected the equitable remedy of rescission, and punitive damages are never awardable in claims sounding in equity." (Id. ). Because this Court had not considered this argument in the first instance, the Sixth Circuit determined it was appropriate to remand.

II. STANDARD OF REVIEW

A bankruptcy court's jurisdiction is governed by statutory law and Article III of the Constitution. When adjudicating non-core claims, a bankruptcy court has authority to issue only proposed findings of fact and conclusions of law. 28 U.S.C. § 157(c)(1) ; Stern v. Marshall , 564 U.S. 462, 471, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Parties may then file objections, and it is the role of the district court to "make a de novo review upon the record or, after additional evidence, of any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made." Fed. R. Bankr. P. 9033(d). This Court reviews de novo "those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c) ; see also Fed. R. Bankr. P. 9033(d) ("The district judge shall make a de novo review upon the record or, after additional evidence, of any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made in accordance with this rule."). Because a specific objection was made to the availability of punitive damages, this Court will proceed with de novo review of this portion of the bankruptcy judge's determination, consistent with Section 157(c) and Bankruptcy Rule 9033(d).

III. LAW & ANALYSIS

A. The Sixth Circuit's Remand and the Applicability of the Mandate Rule

On remand, this Court must consider whether punitive damages are available in this case as a matter of Florida law. In its opinion, the Sixth Circuit found that this Court "erred in holding that Florida law prohibits any award of punitive damages absent compensatory damages," but remanded the matter as questions remained as to whether an award of punitive damages would be proper (and if so, how much). (ECF No. 20 at 19–20). The Sixth Circuit relied on two cases in reaching this conclusion: Ault v. Lohr , 538 So.2d 454 (Fla. 1989), and Engle v. Liggett Group, Inc. , 945 S.2d 1246 (Fla. 2006). In Ault , the Florida Supreme Court held that compensatory damages are not necessary for a court to award punitive damages. 538 So.2d at 455. Instead, the Florida Supreme Court explained that "a finding of liability alone will support an award of punitive damages ‘even in the absence of financial loss for which compensatory damages would be appropriate.’ " Id. at 456 (quoting Lassitter v. Int'l Union of Operating Eng'rs , 349 So.2d 622, 626 (Fla. 1976) ). In Engle , the Florida Supreme Court found it was impermissible to award punitive damages without first resolving all elements of liability. 945 So.2d at 1263–64.

Importantly, the Sixth Circuit included a footnote following its discussion of Ault and Engle that addressed contrary decisions in the Florida intermediate appellate courts following these two decisions. (ECF No. 20 at 19 n.5). The Sixth Circuit discussed the decision in Morgan Stanley & Co. v. Coleman (Parent) Holdings, Inc. , 955 So.2d 1124 (Fla. Dist. Ct. App. 2007), where the court vacated an award of punitive damages because no actual damages were found. 955 So.2d at 1131–32. The Morgan Stanley court distinguished both Ault and Engle , finding that Ault involved assault, not a fraud case, and finding that Engle "address[ed] the order of proof in determining entitlement to punitive damages." 955 So.2d at 1133. The Sixth Circuit found the Morgan Stanley decision "hard to reconcile ... with the relevant Florida Supreme Court precedents." (ECF No. 20 at 19 n.5). The Sixth Circuit impliedly adopted the position of the Morgan Stanley dissent, which explained that it is unreasonable to read Ault "to mean...