Consol. Brokers Corp. v. Buchanan (In re Buchanan)
| Decision Date | 02 March 2015 |
| Docket Number | Case No. 13-80378-JMC-7,Adversary Proceeding No. 13-58016 |
| Court | U.S. Bankruptcy Court — Southern District of Indiana |
| Parties | IN RE: BRADLEY K. BUCHANAN, Debtor. CONSOLIDATED BROKERS CORPORATION, LLC, Plaintiff, v. BRADLEY K. BUCHANAN, Defendant. |
THIS MATTER came before the Court for a bench trial on July 16-18, 2014. Plaintiff Consolidated Brokers Corporation, LLC ("CBC") appeared by counsel Jeremy L. Fetty and Angela L. Gidley. Defendant Bradley K. Buchanan ("Debtor") appeared by counsel Kelvin L.Roots. At the conclusion of the trial, the Court took the matter under advisement with the parties invited to submit proposed findings of fact and conclusions of law.
The Court, having reviewed the evidence presented at the trial, Defendants' [sic] Trial Brief filed by Debtor on July 11, 2014 (Docket No. 28) ("Debtor's Trial Brief"), Plaintiff's Trial Brief filed by CBC on July 11, 2014 (Docket No. 29) ("CBC's Trial Brief"), the proposed findings of fact and conclusions of law submitted by each of CBC and Debtor on August 18, 2014 (each, "Proposed Findings/Conclusions"), and the other matters of record in this adversary proceeding; having heard the presentations of counsel at the trial; and being otherwise duly advised, now enters the following findings of fact and conclusions of law as required by Fed. R. Civ. P. 52, made applicable to this adversary proceeding by Fed. R. Bankr. P. 7052, and memorializes its ruling from the bench on Plaintiff's Motion For Judicial Notice Of Findings Of Fact And Conclusions Of Law And For Exclusion Of Evidence Contradictory Thereto filed by CBC on July 15, 2014 (Docket No. 30) (the "Judicial Notice Motion").
On July 21, 2006, CBC filed a complaint against Debtor and others in the Hendricks Superior Court (the "State Court"), Cause No. 32D02-0607-CT-21 (the "State Court Case"). A default was entered against Debtor as a discovery sanction, and a damages hearing (at which Debtor appeared in person and by counsel) was held with respect to damages not specifically set forth in the complaint. The State Court subsequently entered a money judgment in the amount of $509,229.18 (the "Judgment Debt"), consisting of (1) $45,893.22 on CBC's claim under the Crime Victims Relief Act; (2) $365,432.60 on CBC's claim for breach of fiduciary duty; (3) $0 on CBC's claims for tortious interference with CBC's contract with Bright & Williamson Insurance Agencies, Inc. and CBC's contract with its insureds and insurers, and for bad faith, asthe damages are the same; and (4) $97,903.36, joint and severally with Bright & Williamson Insurance Services II, Inc. d/b/a Buck Insurance Services, for attorney fees and costs.
At the beginning of the trial, the Court addressed the arguments raised in the Judicial Notice Motion, CBC's Trial Brief and Debtor's Trial Brief regarding the asserted preclusive effect of the State Court Case and the judgment entered therein.
"The preclusive effect of a state court judgment in a subsequent federal lawsuit is determined by the full faith and credit statute, which requires federal courts to refer to the preclusion law of the State in which judgment was rendered." Communitywide Fed. Credit Union v. Laughlin (In re Laughlin), 2014 WL 789127, at *5 (N.D. Ind. 2014) (citations omitted). Indiana uses a two-prong test1 for the offensive use of collateral estoppel2 adopted by the Indiana Supreme Court in Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1038 (Ind. 1993), which is: (1) "whether the party in the prior action had a full and fair opportunity to litigate the issue"; and (2) "whether it is otherwise unfair to apply collateral estoppel given the facts of the particular case." Id.
The Court concluded and announced at the beginning of the trial that the Tofany test has not been met, particularly with respect to whether Debtor had a full and fair opportunity to litigate in the State Court Case, because: (a) Debtor's liability was established in the State Court Case by default entered as a discovery sanction;3 and (b) the State Court affirmatively disallowedas improper Debtor's attempts to interject any substantive issue during a damages hearing because of the prior entry of default. In addition, all factors required to be proven for a determination of nondischargeability under 11 U.S.C. §§ 523(a)(4) and/or (a)(6) were not litigated or established by default in the State Court Case. For example, a "breach of fiduciary duty" is not necessarily the same thing as "fraud or defalcation while acting in a fiduciary capacity," and the "knowing or intentional" component of conversion under Indiana law is not necessarily the same thing as "willful and malicious" injury.4 Thus, the Court will not give preclusive effect to the judgment entered in the State Court Case as to the issue of liability (or the nondischargeability of various claims) but will instead analyze whether the facts proven at trial, particularly with respect to scienter, support a conclusion of nondischargeability.
The Court further concluded and announced at the trial that CBC's claims against Debtor had been liquidated in the State Court Case (with Debtor's and his counsel's participation in a damages hearing) and that the Court will give preclusive effect to the amount of the Judgment Debt. However, the Court also noted that CBC would have to prove what parts of the Judgment Debt fall under 11 U.S.C. §§ 523(a)(4) and/or (a)(6).
For these reasons, the Judicial Notice Motion is GRANTED as to the amount of the Judgment Debt and DENIED as to the issue of liability (or the nondischargeability of various claims).
At the conclusion of the trial, the Court announced from the bench that it had serious questions with regard to the credibility of many of the witnesses because the inconsistencies in their descriptions of relevant events were such that all of the testimony could not be truthful. The Court found that portions of the testimony of all of the principal witnesses lacked credibility. The Court invited counsel for each party to submit proposed findings of fact and conclusions of law that focused on corroboration of those parts of the inconsistent testimony that they believe support their client's position.
The Court has taken a great deal of time to independently and closely review the witness testimony in other parts of the record and look for indicia of credibility in his/her prior testimony, documents admitted into evidence at the trial, and/or the testimony of other witnesses. The Court has attempted to reconcile the contradictory evidence admitted at the trial, but that was not possible for a number of material facts because the Court found no witness credible on certain material points and there was either no supporting evidence or incomplete supporting evidence to make one version more credible than another. The Court will note some of such cases in the following findings of fact.
1. On April 3, 2013, Debtor filed a voluntary petition under chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"),5 in the United States Bankruptcy Court for the Southern District of Indiana, Terre Haute Division.
2. On December 19, 2013, Debtor received his general discharge.
3. On June 10, 2013, CBC timely filed a Complaint To Determine Nondischargeability Of Debt (Docket No. 1) to initiate this adversary proceeding, wherein CBCalleges that the Judgment Debt owed to CBC is nondischargeable under §§ 523(a)(4) and/or (a)(6).6
4. On August 21, 2013, Debtor filed his Answer To Plaintiff's Complaint To Determine Dischargeability (Docket No. 13), in which he denied all material allegations.
5. CBC is an Indiana limited liability company formed in 1999, and its sole member is John Scott ("Scott").
6. Debtor met Scott in 2000 while both worked for Consolidated Insurance in Indianapolis, Indiana. Debtor left Consolidated Insurance in early 2004, and Scott left in late 2004.
7. After leaving Consolidated Insurance, Debtor began "writing" or issuing policies for his cousin, Robert A. Gredy ("Gredy"), who had an insurance agency in Nashville, Indiana with a corporate name of Bright & Williamson Insurance Agencies, Inc. ("Nashville").
8. At some point during 2004, Debtor and Scott began taking steps to work together in the insurance business. On or about April 7, 2004, pursuant to a Toler-Keller Partnership Lease, CBC leased office space at 7121 East US Highway 36, Avon, Indiana (the "CBC Office"). Scott and Debtor both signed the lease as "lessee."
9. Debtor introduced Scott to Gredy. On or about May 19, 2004, Nashville and CBC entered into a Bright & Williamson, LLP Limited Liability Partnership Agreement (the "Partnership Agreement"). Scott signed the Partnership Agreement on behalf of CBC, and Debtor signed underneath Scott. CBC entered into the Partnership Agreement because Scott was looking to expand into more markets.
10. Pursuant to § 6 of the Partnership Agreement, members of CBC were allowed "to qualify and serve as agents representing each insurance provider" with which Nashville had a brokerage contract, including Grange, Pekin, Acuity, Safeco, General Casualty, Progressive, Allstate and Standard Mutual (collectively, "Nashville's Companies"), "subject to the term, conditions and restrictions of [Nashville's Companies]." Similarly, shareholders and officers of Nashville were allowed "to qualify and serve as agents representing each insurance provider" with which CBC had a brokerage contract, including Philadelphia, Bituminous, and Pennsylvania Lumbermen (collectively, "CBC's Companies"), "subject to the term, conditions and restrictions of [CBC's Companies]." Pursuant to § 12 of the Partnership Agreement, CBC and Nashville were each to be paid "the commission generated by premiums for insurance products paid by its clients." In addition, Nashville was to be paid a fee...
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