Cody Farms, Inc. v. Deerman (In re Deerman)

• Decision Date: 24 October 2012
• Docket Number: Bankruptcy No. 11–09–15348 J.,Adversary No. 10–1019 J.
• Parties: In re Willard L. DEERMAN and Charlotte Deerman, Debtors. Cody Farms, Inc., individually and Derivatively as a member of and on behalf of Falcon Farms, L.L.C.; Robert L. Fletcher and Mary K. Fletcher, husband and wife, Plaintiffs, v. Willard L. Deerman and Charlotte S. Deerman, Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico

482 B.R. 344

In re Willard L. DEERMAN and Charlotte Deerman, Debtors.

Cody Farms, Inc., individually and Derivatively as a member of and on behalf of Falcon Farms, L.L.C.; Robert L. Fletcher and Mary K. Fletcher, husband and wife, Plaintiffs,

v.Willard L. Deerman and Charlotte S. Deerman, Defendants.

Bankruptcy No. 11–09–15348 J.

Adversary No. 10–1019 J.

United States Bankruptcy Court,

D. New Mexico.

Oct. 24, 2012.

Brian Imbornoni, Jennings, Strouss & Salmon, P.L.C., Phoenix, AZ, for Plaintiffs.

Christopher M. Gatton, Denise J. Trujillo, Law Office of George Dave Giddens, PC, Albuquerque, NM, for Defendants.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, Bankruptcy Judge.

THIS MATTER is before the Court on the Motion for Partial Summary Judgment (sometimes called the “Motion”) and supporting memorandum filed by Plaintiffs, Cody Farms, Inc. (“Cody Farms”), individually and derivatively as a member of and on behalf of Falcon Farms, L.L.C. (“Falcon Farms”), Robert L. Fletcher, and Mary K. Fletcher, husband and wife (the Fletchers), by and through their attorneys of record, Jennings, Strouss, & Salmon, P.L.C. (Brian Imbornoni). See Docket Nos. 28 and 29. Defendants Willard L. Deerman and Charlotte S. Deerman (together, the Deermans), by and through their attorneys of record, Law Office of George “Dave” Giddens, P.C. (Dean Cross), filed a response in opposition to the Motion and Plaintiffs filed a reply. See Docket Nos. 32 and 33. Plaintiffs and Defendants previously entered into a Stipulated Order to Stay Adversary Proceeding and to Compel Arbitration pursuant to which the parties proceeded with an arbitration case captioned Cody Farms, Inc., et al. v. Willard L. Deerman, et ux., American Arbitration Association No. 76 180 & 00397 08 (the “Arbitration Case”). See Docket No. 25. The arbitrator in the Arbitration Case (the “Arbitrator”) has since entered his Findings of Fact, Conclusions of Law and Interim Award and has entered a Final Arbitration Award (“Arbitration Award”) in the Arbitration Case.

Plaintiffs assert that the Court should apply collateral estoppel to the findings made by the Arbitrator and determine that a portion of the award issued by the Arbitrator constitutes a non-dischargeable debt as to the Deermans under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6). The Deermans raise essentially two issues in opposition to the Motion: 1) by filing and prosecuting the Motion, the Plaintiffs have violated both the automatic stay and a stay order entered in this adversary proceeding; and 2) because the Deermans still have the right to contest the arbitration award, the award has no preclusive effect and the Motion is pre-mature. For the reasons set forth below, the Court concludes that the filing and prosecution of the Motion violates neither the automatic stay nor the stay order entered in this adversary proceeding, that the Deermans are barred from contesting the Arbitration Award, and that the Arbitrator's findings have collateral estoppel effect. The Court will grant Plaintiff's Motion, provided that the Arbitrator's findings of fact establish all elements necessary to a finding of nondischargeability of the debt at issue in this adversary proceeding.

BACKGROUND AND PROCEDURAL HISTORY

The Deermans filed a voluntary petition under Chapter 11 of the Bankruptcy Code on November 20, 2009 as Case No. 11–09–15348 JA. Pre-petition, Cody Farms filed its arbitration claim against the Deermans. The Deermans filed a response to the arbitration claims on January 12, 2009, including a counterclaim against Cody Farms and a third-party claim against Robert L. Fletcher. Plaintiffs initiated this adversary proceeding by filing a Complaint to Determine Non–Dischargeability of Debt (“Complaint”) on February 16, 2010. The Complaint includes individual claims and derivative claims asserted by Cody Farms as a member of Falcon Farms. Plaintiffs did not, however, pursue any derivative claims as part of the Arbitration Case. See Memorandum in Support of Motion for Partial Summary Judgment (“Plaintiffs' Supporting Memorandum”), p. 11, n. 2—Docket No. 29, even though the caption in the Arbitration Case reflects Cody Farms both individually and derivatively as a member of and on behalf of Falcon Farms.

Cody Farms and the Fletchers filed a motion for relief from stay in the Deermans' bankruptcy case requesting relief from the automatic stay to allow the movants and the Deermans to proceed with the Arbitration Case. On October 4, 2010, a Stipulated Order to Stay Adversary Proceeding and to Compel Arbitration (“Stipulated Order”) was entered in this adversary proceeding. See Docket No. 25. The Stipulated Order recited that its purpose is to stay the adversary proceeding to permit the parties to liquidate their claims against each other in the Arbitration Case, and that the Plaintiffs had filed a motion for relief from stay in the Deermans' bankruptcy case to permit the Arbitration Case to proceed. Id. The Stipulated Order included the following provisions: 1) this adversary proceeding is stayed pending further order of this Court; 2) the Deermans agree to proceed with arbitration, provided they are given a reasonable opportunity to cure any previous failure to respond to discovery or to otherwise participate in the Arbitration Case; 3) the factual determinations of liability and the amount of debt, if any, owed by either party to the other will be determined in the Arbitration Case; 4) this Court retains exclusive jurisdiction to determine whether any award in the Arbitration Case is non-dischargeable; and 5) either party may request the Court to vacate the Stipulated Order so that the parties may resume proceedings in this adversary case in the event that the motion for relief from stay in the Deerman's bankruptcy case is denied. See Docket No. 25.

On October 26, 2010, the Court entered an Order Granting Motion for Relief from Stay (“Stay Relief Order”) in the Deermans' bankruptcy case. See Case No. 09–15348— Docket No. 132. The Stay Relief Order modified the automatic stay provisions of 11 U.S.C. § 362 so that the Plaintiffs and the Deermans could proceed with the Arbitration Case, provided that the Plaintiffs would not attempt to enforce any award entered in the Arbitration Case against the Deermans without further leave of this Court, and provided further that this Court retains exclusive jurisdiction over the dischargeability of any award. Id.

The Arbitration Case was conducted in Arizona. The Arbitrator entered Findings of Fact and Conclusions of Law and an Interim Award in the Arbitration Case on February 2, 2012. On March 19, 2012, the Arbitrator entered a Final Arbitration Award (defined above as the “Arbitration Award”) in the Arbitration Case. The Arbitration Award has not been confirmed.

In their bankruptcy case, the Deermans filed Debtors' Motion to Extend Time to File Amended Plan and Disclosure Statement (“Motion to Extend”). See Bankruptcy Case No. 11–09–15348 J— Docket No. 237. The Motion to Extend includes arguments that echo the Deermans' arguments in opposition to the pending Motion filed in this adversary proceeding: namely, that the Plaintiffs cannot obtain a non-dischargeable judgment without first confirming the Arbitration Award and that the Deermans can challenge the Arbitration Award as part of a proceeding to confirm the Arbitration Award. See Motion to Extend—¶ ¶ 4, 5, 6—Case No. 11–09–15348 JA— Docket No. 237. At a preliminary hearing on the Motion to Extend, the parties agreed that the Deermans will have thirty days following the Court's ruling on the instant Motion within which to file an amended plan and disclosure statement.

SUMMARY JUDGMENT STANDARDS

Summary Judgment, governed by Rule 56, Fed.R.Civ.P., made applicable to adversary proceedings by Rule 7056, Fed.R.Bankr.P., will be granted when the movant demonstrates that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Rule 56(a), Fed.R.Civ.P. In order to defeat a motion for summary judgment, the opposing party must “go beyond the pleadings and by [his] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal citations omitted). When evaluating a motion for summary judgment, the Court must view the facts in the light most favorable to the party opposing summary judgment. Harris v. Beneficial Oklahoma, Inc., (In re Harris), 209 B.R. 990, 995 (10th Cir. BAP 1997) (“When applying this standard, we are instructed to ‘examine the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment.’ ”) (quoting Wolf v. Prudential Ins. Co. of America, 50 F.3d 793, 796 (10th Cir.1995)) (quoting Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990) (additional internal quotation marks omitted)).

Plaintiffs' statement of facts not in genuine dispute is based on the Findings of Fact and Conclusions of Law, the Interim Award, and the Arbitration Award entered in the Arbitration Case. The Deermans do not dispute that the Arbitrator made such findings and conclusions as part of the Arbitration Case, ¹ but nevertheless take issue with several of the Plaintiffs' undisputed facts.² As determined below, the Deermans are precluded from contesting the Arbitrator's factual findings made in the Arbitration Case. Consequently, in reviewing Plaintiffs' request for partial summary judgment, the Court will treat the Arbitrator's findings of fact as not subject to genuine dispute and will consider whether those facts entitle Plaintiffs to judgment as a matter of law.

DISCUSSION

A. Whether the Motion violates the automatic stay or the Stipulated Order entered in this adversary proceeding

The Deermans assert...