Comfort Innovations, LLC v. Haarlander

• Decision Date: 28 October 2022
• Docket Number: 3:21-cv-00516
• Parties: COMFORT INNOVATIONS, LLC, Plaintiff/Appellant/Cross-Appellee, v. THOMAS MICHAEL HAARLANDER, Defendant/Appellee/Cross-Appellant.
• Court: U.S. District Court — Middle District of Tennessee

COMFORT INNOVATIONS, LLC, Plaintiff/Appellant/Cross-Appellee, v. THOMAS MICHAEL HAARLANDER, Defendant/Appellee/Cross-Appellant.

No. 3:21-cv-00516

United States District Court, M.D. Tennessee, Nashville Division

October 28, 2022

On appeal from the United States Bankruptcy Court for the Middle District of Tennessee, Case No. 19-04033 Adversary Proc 19-90178

MEMORANDUM OPINION AND ORDER

ELI RICHARDSON, UNITED STATES DISTRICT JUDGE.

The instant matter, as it arises in the captioned district court case, is an appeal and a corresponding cross-appeal from a judgment in a bankruptcy adversary proceeding. Specifically these cross-appeals are from the Bankruptcy Court's “Order Granting Defendant-Appellee's Motion for Summary Judgment and Denying the Plaintiff-Appellant's Motion for Summary Judgment and Dismissing Adversary Proceeding” (Doc. No. 7 at 164-65, “Final Order of Bankruptcy Court”),^[1] entered by the Bankruptcy Court on June 4, 2021.

Comfort Innovations, LLC (“Comfort Innovations”) is the Plaintiff/Appellant/Cross-Appellee herein (i.e. with respect to the instant appeal and the underlying adversary proceeding to which it relates), and Thomas Haarlander (“Debtor”), is the debtor in the underlying bankruptcy case and the Defendant/Appellee/Cross-Appellant herein. Comfort Innovations appeals the Final Order's grant of summary judgment to Debtor on Comfort Innovations's claim in this adversary proceeding, and Debtor cross-appeals, in effect on a conditional basis, the Bankruptcy Court's “Order Denying Defendant's Motion for Summary Judgment on the Limited Issue of Validity of Service” (Doc. No. 8 at 108-109).

For the reasons set forth below, the Court rejects the appeal, dismisses the cross-appeal as moot, and affirms the judgment of the Bankruptcy Court (i.e., the Final Order of the Bankruptcy Court).

PROCEDURAL BACKGROUND

The Court accepts Comfort Innovation's below-referenced (commendably concise) summary of various procedural events, which, in the Court's view, is adequately supported by the items of record cited by Comfort Innovations:

On or about October 12, 2018, Comfort Innovations filed its Verified Complaint against the Debtor, Thomas Haarlander and Archiplex, LLC in the State Court and asserted causes of action for (1) breach of contract; (2) fraudulent misrepresentation; (3) fraud; (4) declaratory judgment - intellectual property; (5) declaratory judgment - bassinet mold; and (6) injunctive relief. Comfort Innovations's Verified Complaint was personally used upon the Debtor on October 25, 2018.

On January 11, 2019, a default was entered against the Debtor, Michael Haarlander and Archiplex, LLC leaving the determination of damages. On January 28, 2019, Michael Haarlander and Archiplex, LLC filed notice of filing bankruptcy proceedings and Comfort Innovations proceeded only against Thomas Haarlander. On February 6, 2019, the State Court conducted a hearing as to the Debtor only and, on February 22, 2019, the State Court entered the Order Granting Judgment in Favor of Plaintiff (the “State Court Judgment”).

On July 24, 2019, Mr. Haarlander filed for relief under the Chapter 7 of the United States Bankruptcy Code in the Middle District of Tennessee.

On September 19, 2019, Comfort Innovations initiated an adversary proceeding by filing its Complaint for the Determination of Dischargeability of Debt seeking a judicial determination that its claim based upon the awards granted in the State Court Judgment were nondischargeable in accordance with 11 U.S.C. §523 (a) (4) and (6) based upon the preclusive effect of the doctrines collateral estoppel and res judicata.

After seeking leave, Comfort Innovations filed its Amended Complaint on June 30, 2020, wherein it sought additional relief asserting its claim was further non-dischargeable under 11 U.S.C. §523 (a) (2).^[2]

On August 21, 2020, the Debtor filed his Answer to the Amended Complaint.

On December 29, 2020, the Debtor filed his Motion for Summary Judgment arguing that the doctrines of res judicata and collateral estoppel were not satisfied in the present action and that the adversary should be dismissed. Adv. Docket Entry No. 64 - 66.

On February 5, 2021, Comfort Innovations filed its Motion for Summary Judgment arguing that all requirements for collateral estoppel and res judicata were satisfied and the preclusive effect of each requires that Comfort Innovations claim was nondischargeable under 11 U.S.C. §523 (a) (2), (4) and (6).

Both parties responded to the respective motions filed by the other on March 1, 2021....

On April 16, 2021, the parties argued their respective motions for summary judgment and on May 26, 2021, the Bankruptcy Court made an oral ruling granting the Debtor's Motion for Summary Judgment with respect to non-dischargeability in accordance with 11 U.S.C. §523 (a) (2) (4) and (6) and Denying Comfort Innovations'[s] Motion for Summary Judgment with respect to 11 U.S.C. §523 (a) (2).

On June 16, 2021, Comfort Innovations timely filed its Notice of Appeal. Adv. Docket Entry No. 91.

On June 29, 2021, the Debtor filed his Statement of Election to Proceed in District Court.

(Doc. No. 12 at 11-13) (citations omitted) (footnote added).^[3]

On May 26, 201, the Bankruptcy Court made oral findings of fact and conclusions of law on Comfort Innovations's motion for summary judgment. In pertinent part, the Bankruptcy Judge stated:

The state court considered the allegations of fraud and intentional misrepresentation in the plaintiff's verified complaint and determined after a hearing for damages at which evidence and testimony was produced that punitive damages against the defendant were appropriate. However, just because the state court order refers to fraud and intentional misrepresentation does not mean that the judgment estops or precludes the defendant from challenging the nondischargeability asserted by the plaintiff.

(Doc. No. 7 at 169-70).

Then, after reciting the below-discussed five elements of collateral estoppel under Tennessee law, as well as the elements of res judicata (which, as discussed below, actually would be of no help to Comfort Innovations here even if its elements could be established), the Bankruptcy Judge stated:

For these preclusive doctrines to hold true, preventing a dischargeability action to proceed, the state court judgment must include a determination of elements such that the question of dischargeability before the bankruptcy court is answered. Citing Grogan v. Gardner (sic).

Here, the state court complaint and the default judgment do not meet the required standards. First, no specific allegations or findings were made against the defendant debtor. Second, the evidence provided at the damages hearing illustrates the losses suffered by plaintiff but does not contain support for findings under the strict standard required by 523(a)(2), (4) or (6). Moreover, the state court order is insufficient to establish any of the elements of any of the asserted counts against the debtor.

Plaintiff's amended complaint relies solely on the preclusive effect of the state court order and does not contain independent allegations or allege conduct of the defendant.^[4]

Since there are no genuine issues of material fact, because the entire record from the state court case and the related bankruptcy proceeding are before this Court, the Court finds that the defendant is entitled to summary judgment as a matter of law on the issues of res judicata and collateral estoppel with a specific finding that these doctrines are not satisfied in the present case. Therefore, the plaintiff's motion is denied, and the defendant's request for summary judgment on all counts is granted, and the adversary proceeding is dismissed with prejudice. The defendant is to submit the order granting its motion, and the Court will enter the order denying the plaintiff's motion. And that is the Court's ruling.

(Id. at 171-72) (footnote added). In a subsequent order, which incorporated by reference its prior oral findings of fact and conclusions of law, the Bankruptcy Court issued an order memorializing the grant of summary judgment to Debtor and the corresponding denial of summary judgment to Comfort Innovations, and declaring discharged Comfort Innovations's claims against Debtor described in the Amended Complaint. (Doc. No. 7 at 164-65).

ANALYSIS

In the Amended Complaint, Comfort Innovations claims that the debt owed to it by the Debtor under the State Court Judgment is non-dischargeable under 11 U.S.C. §523 (a)(2)(A), (4) and (6). (Doc. No. 7 at 7). Under 11 U.S.C. § 523(a)(2)(A), a discharge under 11 U.S.C. § 727 does not discharge a debtor from any debt “for money, property services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition....” Under 11 U.S.C. § 523(a)(4), such discharge does not discharge a debtor from any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny ....” And under 11 U.S.C. § 523(a)(6), such discharge does not discharge a debtor from any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity ....”

As indicated above, neither in the Amended Complaint nor at the summary judgment stage did Comfort Innovations endeavor to establish non-dischargeability under any of these three exceptions to dischargeability, other than by asserting the applicability of res judicata and collateral estoppel. Rather, as Comfort Innovations puts it, it sought in its Complaint (and in its Amended Complaint, which merely asserted an additional ground for non-dischargeability namely 11...