Beard Research, Inc. v. Kates (In re Kates)
| Decision Date | 18 December 2012 |
| Docket Number | Adversary No. 11–0789 ELF.,Bankruptcy No. 11–15325 ELF. |
| Citation | 485 B.R. 86 |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
| Parties | In re Michael KATES, Debtor. Beard Research, Inc., CB Research & Development, Inc., Plaintiffs, v. Michael Kates, Defendant. |
OPINION TEXT STARTS HERE
James S. Green, R. Karl Hill, Seitz Van Ogtrop & Green, P.A., Wilmington, DE, for Plaintiffs.
Paul S. Peters, III, Paul S. Peters III, P.C., Philadelphia, PA, for Defendant.
Plaintiffs Beard Research, Inc. and CB Research & Development, Inc. hold a pre-petition judgment against Debtor Michael Kates (“the Debtor” or “Kates”) in the amount of $6,784,872.53. The judgment, entered in the Delaware Court of Chancery (“the Chancery Court”), after a trial on the merits of various business tort claims asserted by the Plaintiffs, is comprised of:
(a) a sanctions award of $76,906.80 for the Debtor's spoliation of evidence during the pre-trial phase of the case (“the Sanctions Award”); and
(b) compensatory damages of $4,338,463.00, plus additional sums for pre-judgment and post-judgment interest (“the Compensatory Damages”).
In this adversary proceeding, the Plaintiffs seek a determination that the Sanctions Award is nondischargeable under 11 U.S.C. § 523(a)(6) and the Compensatory Damages are nondischargeable under 11 U.S.C. §§ 523(a)(4) and (a)(6).
The Plaintiffs have filed a Motion for Summary Judgment (“the Motion”), relying exclusively on the findings of fact and conclusions of law set forth in two (2) opinions issued by the Chancery Court in support of the judgment it entered. The Chancery Court issued the first opinion, Beard Research, Inc. v. Kates, 981 A.2d 1175 (Del.Ch.2009) (“Kates I ”) in connection with the Sanctions Award and the second opinion, Beard Research, Inc. v. Kates, 8 A.3d 573 (Del.Ch.2010) (“Kates II ”), in connection with the award of Compensatory Damages.
The Plaintiffs assert that the factual findings and legal conclusions in the two (2) opinions preclude the Debtor from contesting the nondischargeability of the State Court Judgment. The Debtor concedes that issue preclusion applies, 1 but disputes that the Plaintiffs have carried their burden entitling them to prevail at this stage of the proceeding. In fact, the Debtor argues that the Chancery Court's findings mandate the entry of judgment in his favor. Resolution of the parties' competing contentions requires a precise analysis of the Chancery Court's opinions and a careful application of the elements of the doctrine of issue preclusion.
As set forth below, I conclude that the Plaintiffs have established all of the elements for a determination of nondischargeability under 11 U.S.C. § 523(a)(6) with respect to both the Sanctions Award and the Compensatory Damages.2 Accordingly, the Motion will be granted and an order will be entered determining that the debt liquidated in the Chancery Court judgment (hereafter, “the Chancery Court Judgment”) is nondischargeable.
CB Research & Development, Inc. (“CB”) is a chemistry-based research organization (“CRO”) formed in 1991 by Charles Beard (“Beard”). A CRO is a chemistry outsourcing service that provides chemical compounds to end users, such as pharmaceutical companies. CB focused its business on “one-off work” 3 and offered a catalog of compounds 4 that were ready-made and available for immediate delivery to customers. Kates II, 8 A.3d at 583.
In 1999, Beard started a separate company, Beard Research, Inc. (“BR”) to provide fulltime equivalent chemists (“FTE”) to CRO's (such as CB). FTE's were chemists who were employed and compensated by BR to provide services to its CRO clients. In return, the clients paid BR annual fees.
CB hired the Debtor in 1998. He later became its Executive Vice President and Director of Marketing. Subsequently, the Debtor received a one-third ownership interest in BR and was appointed as one of its officers and directors. Id. at 581–82.
In December 2002, Pfizer, Inc. (“Pfizer”) and CB entered into a nonexclusive contract pursuant to which Pfizer would provide funding for at least sixteen (16) FTE chemists (at $226,000.00 per year) and a minimum amount of one-off work ($950,000.00 per quarter) for three (3) years (“the Pfizer/CB Contract”). The Pfizer/CB Contract also contained a “key man clause” which permitted Pfizer to terminate the contract in the event that either Beard or Kates...
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