Clear Sky Props., LLC v. Roussel (In re Roussel), Bankruptcy No. 4:11–bk–14470.

• Decision Date: 03 December 2012
• Docket Number: Adversary No. 4:11–ap–01266.,Bankruptcy No. 4:11–bk–14470.
• Citation: 483 B.R. 915
• Parties: In re Blake Roussel and Amanda ROUSSEL, Debtors. Clear Sky Properties, LLC and Luanne Deere, Plaintiffs v. Blake Roussel, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

483 B.R. 915

In re Blake Roussel and Amanda ROUSSEL, Debtors.Clear Sky Properties, LLC and Luanne Deere, Plaintiffs

v.Blake Roussel, Defendant.

Bankruptcy No. 4:11–bk–14470.

Adversary No. 4:11–ap–01266.

United States Bankruptcy Court,

E.D. Arkansas,

Little Rock Division.

Dec. 3, 2012.

Daniel L. Herrington, H. Wayne Young, Friday, Eldredge & Clark, Little Rock, AR, for Plaintiffs.

Amanda R. Roussel, pro se.

Kevin P. Keech, Keech Law Firm, PA, N. Little Rock, AR, Stephen W. Jones, Jack Nelson Jones & Bryant, P.A., Little Rock, AR, for Defendants.

MEMORANDUM OPINION

JAMES G. MIXON, Bankruptcy Judge.

Blake Roussel (Roussel) and his wife Amanda Roussel filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code on July 11, 2011. Clear Sky Properties, LLC, an Arkansas limited liability company (Clear Sky), and Luanne Deere (Deere) initiated this adversary proceeding to determine the dischargeability of Roussel's debt to Clear Sky and Deere that was evidenced by a judgment against Roussel out of Faulkner County.

On March 20, 2012, Clear Sky and Deere (Plaintiffs) filed a motion for summary judgment and brief in support with this Court. Roussel filed a response and cross motion for partial summary judgment and brief in support. A hearing was held on June 15, 2012. An order was entered denying the motion for summary judgment and the cross motion for summary judgment and the matter was set for trial. A two-day trial was held on July 17 and 18, 2012. The matter was taken under advisement. Both parties filed subsequent briefs in the matter.

The matter is a core proceeding and the court has jurisdiction pursuant to 28 U.S.C. § 1334 and § 157(b)(2)(I). The Court may enter a final judgment in the case. The following shall constitute the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

I. BACKGROUND

Clear Sky was created in August of 2006 by Deere and Roussel in order to open an Exit Realty real estate franchise in Faulkner County. On August 31, 2006, Deere and Roussel, as individuals, entered into a Franchise Agreement with Real Estate Opportunities, Inc. d/b/a Exit Realty Arkansas, an Arkansas corporation. ¹ Clear Sky, doing business as Exit First Choice Realty, was opened in Conway in early September of 2006. Deere and Roussel were the only members of Clear Sky, each owning fifty percent.

In June of 2007, Deere and Roussel entered into an operating agreement for Clear Sky, which they both signed as managing members. This agreement established, among other things, procedures for how members of Clear Sky could sell their interest in the company and provided that existing members would have a right of first refusal to buy a member's interest.

Roussel started expressing an interest in selling his half of Clear Sky in early 2007. Roussel proposed to sell his interest to Rhonda Bletsh (Bletsh) and Nathan Hutchins (Hutchins) who were licensed real estate agents that worked at Clear Sky. On June 24, 2008, Roussel informed Deere that his negotiation with Bletsh and Hutchins to sell his interest was unsuccessful and he offered to sell his entire half interest to Deere for $115,000.00. Deere declined the offer.

Sometime in July of 2008, the office was moved to a new building that Deere purchased with her own money and leased back to Clear Sky. On July 31, 2008, Roussel presented a document to Deere that evidenced an agreement to sell one-third of his fifty percent interest to Bletsh and another one-third to Hutchins. Deere exercised her right of first refusal and purchased two-thirds of Roussel's fifty percent interest for $52,000.00 on August 28, 2008. This made her an eighty-four percent owner of Clear Sky. Roussel became a sixteen percent owner. Unbeknownst to Deere, Roussel was making plans to open another real estate office in Conway with Bletsh and Hutchins, under the Exit brand. Deere testified that, had she known Roussel was going to open another office she would never have exercised her option.

On September 12, 2008, Roussel, Bletsh, and Hutchins filed articles of organization for Select Group Investments, LLC with the Arkansas Secretary of State. On October 8, 2008, Roussel notified Deere via text message that he was opening another office with Bletsh and Hutchins. Deere testified that when she arrived at the Clear Sky office everything was erased off the company computer and files, and monitors, signs, and lock boxes were missing.

Twelve other Clear Sky agents and the office administrator followed Roussel to his new Exit franchise in Conway, known as Exit Realty Select (Exit Select). Roussel remained a member of both offices. At one point there were discussions of Deere buying Roussel out of his sixteen percent ownership interest but an agreement between the parties could not be reached.

Deere and Clear Sky filed a complaint on February 13, 2009, in Faulkner County. The Plaintiffs alleged breach of fiduciary duty, breach of a duty of loyalty, fraud, breach of contract, and violation of the Arkansas Franchise Practice Act. According to the complaint, Roussel owed a fiduciary duty as a managing member to act in the best interest of Clear Sky and he violated this duty of loyalty when he opened up a competing office. The Plaintiffs also alleged that Roussel damaged Clear Sky's computers the night before he left and recruited agents to leave.

The fraud count was dismissed before the case went to trial. The jury was presented with Deere's loan history to Clear Sky from December 2008 through December 2010, which amounted to $58,800.00. On the issue of punitive damages, the jury instructions provided that:

In order to recover punitive damage from Blake Roussel, Plaintiffs have the burden of proving either first, Blake Roussel knew or ought to have known in the light of the surrounding circumstances, his conduct would naturally and probably result in damages, and that he continued such conduct with reckless disregard to the consequences from which malice may be inferred; or second, that Blake Roussel intentionally pursued a course of conduct for the purpose of causing damage or both.

The Faulkner County jury found that Roussel had a fiduciary duty to Clear Sky and to Deere, not to compete against his own business and he breached that duty, which caused the damages to Clear Sky and Deere. The state court jury trial verdict was reduced to a money judgment. A total of $300,000.00 was awarded to Clear Sky; specifically $111,280.60 for past lost revenue; $73,403.00 for future lost revenue, $1,480.00 for damage to property, and $113,836.40 for punitive damages. On Deere's claim for breach of fiduciary duty as a co-member of Clear Sky, the amount of damages was set at $58,800.00 and she was awarded $40,000.00 for breach of contract.² Roussel was ordered to pay attorneys' fees in the amount of $82,611.25 and expenses and costs in the amount of $4,912.00.

In the trial before this Court, Bletsh testified that there was never any intent to harm Clear Sky when Bletsh, Hutchins, and Roussel opened up Exit Select. Bletsh and Hutchins testified that they believed there were benefits to having two Exit offices owned in Conway because it could strengthen the Exit brand. Bletsh explained that under the Exit system, Deere would continue to receive any residual due her as a result of any agent she initially sponsored, regardless of which Exit office the agent operated from. Roussel testified that Deere received ten percent of the commission in residuals on all of Bletsh and Hutchins' sales.

Bletsh and Roussel testified that there were ongoing discussions regarding trying not to harm Clear Sky because the public perceives both Exit offices as one entity. Hutchins testified that he had no recollection of any such discussions.

Scott Jones (Jones) was initially an associate broker at Clear Sky. Bletsh asked Jones to be the principal broker for Exit Select until she could get her license. Jones testified that he initially was concerned about there being two Exit offices in Conway but his concerns were assuaged when he discovered that Exit initially designated Conway to add two franchises to the town. Jones also testified that Exit Select would be better off if Clear Sky did well because the public links the two offices as one.

There was a list of items presented to the jury in state court that Deere alleges were taken when the new office was opened. (Pl. Ex. 17.) Bletsh, Hutchins, Roussel and Jones all testified that items on the list that were taken were taken by mistake and returned to Deere.

Deere testified that the mass defection of her agents to Exit Select was financially devastating. Bletsh, Hutchins, Roussel and Jones all testified that no agents were solicited to leave Clear Sky, rather they all came on their own accord.

II. ARGUMENT

The Plaintiffs argue the debt that was reduced to a judgment debt in Faulkner County, along with the attorneys' fees award, should be declared nondischargeable pursuant to 11 U.S.C. § 523(a)(4) and § 523(a)(6). Furthermore, the Plaintiffs argue that the Court is collaterally estopped from retrying the facts; rather, the Court is only to look at the complaints, the judgment and the jury instructions out of Faulkner County.

Roussel argues these debts are dischargeable because the state court finding of breach of fiduciary duty is not based the same standard that 11 U.S.C. § 523(a)(4) requires for a debt to be declared nondischargeable. Furthermore, if there is no breach that rises to the level of nondischargeability required for § 523(a)(4), then the punitive damages are dischargeable as well because there is nothing for them to attach to.

Roussel also argues that he engaged in ordinary competition, but none that arises to anything that was willful and malicious as required by 11 U.S.C. § 523(a)(6). Roussel argues that the issues actually litigated in state court cannot meet the standard for collateral estoppel...