Compass Chem. Int'l, LLC v. Failon (In re Failon)
| Decision Date | 29 March 2016 |
| Docket Number | Adv. Pro. No. 11-03229-KLP,Case No. 11-33877-KLP |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re: Brian K. Failon, Debtor Compass Chemical International, LLC, Plaintiff v. Brian K. Failon, Defendant |
This matter is before the Court on the motion by Plaintiff Compass Chemical International, LLC, ("Compass") for summary judgment (the "Summary Judgment Motion") against Debtor Brian K. Failon. For the reasons set forth below, the Court finds that summary judgment is appropriate in this instance and therefore will grant the Summary Judgment Motion.
Debtor filed this chapter 7 case on June 12, 2011. Lynn L. Tavenner was appointed as trustee. At the time the Debtor's chapter 7 case was filed, Compass and the Debtor were engaged in a lawsuit in the United States District Court for the Northern District of Georgia (the "Georgia District Court"), Civil Action No. 1:09-cv-3491-RLV-WEJ (the "Georgia Litigation"),1 in which Compass sought an award of damages against the Debtor, TrueNorth Products, LLC, ("True North") and Source 1 Specialty Chemicals, Inc. ("Source 1")2 arising from the Debtor's prior employment by Compass. The Georgia Litigation was stayed by the filing of the Debtor's chapter 7 case in this Court.
On September 14, 2011, Compass filed a complaint (the "Complaint") initiating the instant adversary proceeding. In Count I of the Complaint, Compass objected to the discharge of the alleged unliquidated debt that was the subject of the Georgia Litigation, based upon 1) 11 U.S.C. § 523(a)(4), which prohibits the discharge of debts arising from fraud, conversion and larceny, and 2) 11 U.S.C. § 523(a)(6), which prohibits the discharge of debts that arise as a result of willful and malicious injury. In Count II of the Complaint, Compass requested that the Court find an order in the Georgia Litigation awarding damages for spoliation of evidence in favor of Compass and against the Debtor to be nondischargeable under 11 U.S.C. § 523(a), and in particular § 523(a)(6).3
In the Complaint, Compass also stated that it intended to file a motion to transfer venue to enable the Georgia Litigation and this dischargeability action to be heard simultaneously, either in this Court or in the Georgia District Court. Relative thereto, on March 8, 2012, Compass filed motions forrelief from the automatic stay to enable it to proceed with the Georgia Litigation in the Georgia District Court. After a hearing held on April 4, 2012, this Court granted the motion for stay relief in the cases of the Debtor, True North, and Source 1.4 The orders provided that the automatic stay of § 362 of the Bankruptcy Code remained in effect with respect to collection of any amounts awarded in the Georgia Litigation. The orders further provided that "[t]he issues of dischargeability raised by Compass in the Adversary Complaint shall remain under the jurisdiction of this Court and shall be held in abeyance pending completion of a trial and entry of a Final Order in the Georgia Action."
During the subsequent course of the Georgia Litigation, the parties regularly advised this Court as to its progress, either at a hearing or by filing a joint statement. At a status hearing held on May 20, 2015, which was attended by the Debtor pro se and by Compass through counsel, Compass advised this Court that the Georgia Litigation had been completed by the Georgia District Court's March 27, 2015, entry of a final judgment on spoliation damages and by Compass's voluntary dismissal of the remaining issues in the Georgia Litigation. At the status hearing, Compass, by counsel, advised the Court of its intent to file a motion for summary judgment in this adversary proceeding, seeking a determination of the dischargeability of the Georgia District Court's award of spoliation damages. The Court issued ascheduling order relative thereto on May 28, 2015, and on June 26, 2015, Compass filed the Summary Judgment Motion, seeking partial summary judgment as to the dischargeability of the spoliation damages pled in Count II of the Complaint. A hearing on the Summary Judgment Motion was held on October 1, 2015, at which the Court took the matter under advisement. After the October hearing, each party submitted proposed findings of fact and conclusions of law.
History of the litigation.5 The Georgia Litigation was commenced on November 11, 2009, when Compass filed a complaint (the "Georgia Complaint") against the Debtor and True North in the Superior Court of Cobb County, Georgia. The Georgia Complaint centered on the termination of the Debtor's employment with Compass and his formation of Source 1 and True North. In December 2009, the Georgia Complaint was removed to the United States District Court for the Northern District of Georgia. Source 1 was added as party defendant thereafter.
In October 2010, Compass filed a motion for spoliation sanctions (the "Spoliation Motion"), and the presiding judge in the case (the "District CourtJudge")6 referred the motion to a magistrate judge ( the "Magistrate"). The Magistrate addressed the Spoliation Motion in two separate reports and recommendations, first considering whether sanctionable spoliation had occurred and then addressing the issue of damages.
In determining whether spoliation of evidence had occurred, the Magistrate held a three-day evidentiary hearing, at which both parties were represented, before and after which the parties submitted briefs. In February 2011, the Magistrate issued an 86-page final report and recommendation (the "Spoliation Report"), which made detailed findings of fact and conclusions of law. The Magistrate concluded that the Debtor had engaged in spoliation of evidence and recommended that sanctions be awarded against the Debtor and in favor of Compass.7 On March 21, 2011, the District Court Judge approved the Spoliation Report over the objection of the Debtor, Source 1 and True North, stating that "none of the defendants' arguments have merits," and adopted the Spoliation Report as the opinion and order of the Georgia District Court.8 The findings of the Spoliation Report will be discussed below.
After approving the Spoliation Report, the District Court Judge referred the matter of damages to the Magistrate. After further briefing, the Magistrate filed a second report and recommendation (the "Damages Report"), recommending that the Debtor, True North and Source 1 pay damages to Compass in the amount of $123,835.95 (the "Spoliation Damages").9 The District Court Judge approved the Damages Report on May 31, 2011, adopting the report as the opinion and order of the Georgia District Court and ordering that the Debtor pay $123,835.95 to Compass within ten days.10 That order was stayed by the June 2011 bankruptcy filings of the Debtor, Source 1 and True North in this Court. The findings of the Damages Report will also be discussed below.
No trial was ever held on the substantive portions of the Georgia Complaint. Rather, Compass moved for entry of final judgment, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 54(b), on the Spoliation Damages. The Georgia District Court granted the motion as to the Debtor on March 27, 2015, and the clerk of that court entered judgment in the amount of $123,835.95 the same day.11
The Spoliation and Damages Reports. The Magistrate's lengthy Spoliation Report, adopted by the District Court Judge, sets forth in greatdetail the facts surrounding the Spoliation Motion as well as the standard of law employed in ruling on that motion. Because both the facts and the law employed by the Magistrate and adopted by the District Court Judge are germane to this Court's decision as to dischargeability, they are summarized and set forth below.
Findings of fact in the Spoliation Report. Compass manufactures and sells specialty chemicals. The Debtor joined Compass in October 1999. Initially, he was an account manager and eventually rose to become, in 2001, Vice President and Technical Director. In 2006, he was named Vice President and Sales Manager, and in July 2007, he was named Vice President of Business Development and Technology, with a primary duty of developing new products as well as markets and applications for Compass's products. In that position, he became quite knowledgeable about Compass's products and pricing structure.
Because the Debtor did not work in the Atlanta headquarters of Compass but instead maintained a home office in Richmond, Virginia, Compass gave him a laptop computer (the "Laptop") and a desktop computer (the "Desktop") for his professional use. He used the Laptop extensively for email and to access Compass's databases. He used the Laptop when he traveled and also to access contact information for Compass's customers.
The Debtor's July 13, 2007, employment agreement with Compass, in effect when his employment with Compass ended, contained a confidentialityclause. The Debtor knew that he could not share confidential information he obtained while employed by Compass, keep confidential information he obtained while employed by Compass, or share with Compass's competitors any confidential information he obtained while employed by Compass. Among other things, Compass considered its customer lists, price structure, profit margins, product formulations, future development plans, and distribution structure to be confidential information.
Much of the information that Compass considered to be confidential was contained on two computer databases. The Debtor had access to each of those databases. The information on each database could be viewed, printed, saved to the computer's hard drive, saved to an external drive, or communicated via email. The Debtor accessed the information on the databases from time to time, but he testified at the evidentiary hearing before the Magistrate that he could not recall downloading any...
To continue reading
Request your trial