Custom Recycling Servs., Inc. v. Blake (In re Blake)
| Decision Date | 25 August 2014 |
| Docket Number | Adversary No. 10–01206–JDW.,Bankruptcy No. 08–13780–JDW. |
| Citation | 516 B.R. 352 |
| Parties | In re Charles Nathan BLAKE, Debtor. Custom Recycling Services, Inc., Plaintiff, v. Charles Nathan Blake, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Mississippi |
Gary Street Goodwin, Columbus, MS, for Plaintiff.
T.K. Moffett, Moffett Law Firm, Tupelo, MS, for Defendant.
This adversary proceeding comes before the Court for consideration of the Adversary Complaint to Determine Dischargeability of Debt (the “Complaint”) (A.P. Dkt. # 1) filed by Custom Recycling Systems, Inc. (the “Plaintiff”) against debtor Charles Nathan Blake (the “Defendant”). Phase one of a bifurcated trial on the adversary proceeding was held on August 7, 2014, at which time a representative of the Plaintiff, Daniel Skinner, counsel for the Plaintiff, Gary Street Goodwin, the Defendant, and counsel for the Defendant, T.K. Moffett, all appeared. Arguments were heard and certain documents were received into evidence by stipulation of the parties. The Court also heard testimony from several witnesses. This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order Of Reference Dated August 6, 1984. This is a core proceeding as set forth in 28 U.S.C. § 157(b)(2)(I) and (J).
The Plaintiff seeks a determination that debts owed to the Plaintiff by the Defendant are nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and/or (a)(6). As a threshold matter, Plaintiff asserts that collateral estoppel applies and precludes further litigation on the issue of nondischargeability.1 The Plaintiff's claim arises from a default judgment (the “District Court Judgment”) entered by the United States District Court for the Northern District of Mississippi (the “District Court”) against the Defendant in the amount of $149,446.35, plus interest thereon. (District Court Case No. 1:07–CV–306). If collateral estoppel applies, further hearing on the merits is unnecessary as the debts would be nondischargeable under § 523(a)(6). Hence, the trial was bifurcated to first allow presentation of evidence related to the collateral estoppel issue, and the Court restricted the parties' initial presentation of evidence to that issue.2 For the reasons set forth below, the Court finds that collateral estoppel does apply, and the Plaintiff is entitled to a judgment of nondischargeability under 11 U.S.C. § 523(a)(6).
Prior to the litigation, the parties had a business relationship where Defendant performed repairs and service on several pieces of machinery and equipment owned by the Plaintiff. Sometime prior to or around 2007, the business relationship between the parties deteriorated and was eventually terminated. The Plaintiff contends that near the end of the business relationship, Defendant converted five items of equipment belonging to the Plaintiff.4 The Defendant denies the Plaintiff's allegations and asserts that to the extent he retained any of Plaintiff's property, it was essentially a setoff due to Plaintiff's wrongful refusal to pay him for services rendered.
On November 29, 2007, Plaintiff filed suit against Defendant and Blake Equipment Sales, LLC (“BES”) in the District Court alleging conversion of Plaintiff's property (the “District Court Case”). Defendant retained counsel who remained as counsel of record for the duration of the District Court Case.
Defendant filed a Rule 12(b) Motion to Dismiss (the “Motion to Dismiss”) (Ex. P–1C) on February 28, 2008, alleging that the District Court lacked subject matter jurisdiction to hear the suit.5 Defendant also filed a brief in support of the Motion to Dismiss. (Ex. P–1D). Plaintiff filed a Response to Defendants' Rule 12(b) Motion to Dismiss
(Ex. P–1H) on April 9, 2008. The District Court entered an order denying the Motion to Dismiss on June 7, 2008. (Ex. P–1I). Thereafter, on July 22, 2008, Defendant filed Motion for Time to Respond to Complaint (Ex. P–1J), which was granted by the District Court on July 25, 2008 (Ex. P–1K). Pursuant to that order, the Defendant was given until August 14, 2008 to respond to the Plaintiff's Complaint (the “District Court Complaint”). The Defendant filed no further response to the Complaint.
On September 18, 2008, during the pendency of the District Court Case, the Defendant filed a voluntary petition for relief pursuant to Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”) in this Court. (Bankr. Dkt. # 1).6 On September 22, 2008, the Defendant filed a Motion to Stay Proceedings in the District Court Case (Ex. P–1L), asserting that pursuant to § 362, any further proceedings in the District Court Case were stayed pending the outcome of the Defendant's bankruptcy case. The Motion to Stay Proceedings was granted by order of the District Court on September 26, 2008 (Ex. P–1Q).
Around that same time, on September 23, 2008, counsel for the Defendant filed a Motion to Withdraw as Counsel for BES (but not Defendant). (Ex. P–1M). On September 25, 2008, the District Court entered an order denying the Motion to Withdraw as Counsel. The District Court made explicitly clear in its order that it would only allow counsel to withdraw in three circumstances: (1) when the rules of professional responsibility make it untenable for the attorney to continue; (2) when substitute counsel has been obtained by a party; and (3) when a party make clear an unequivocal and intelligent decision to proceed pro se. The Court found that none of the three circumstances applied, and that accordingly the Motion to Withdraw was not well-taken, and counsel was not excused from representing BES. (Ex. P–1P).
In March 2009, Plaintiff filed a Motion to Lift Automatic Stay (the “Motion to Lift Stay”) (Bankr. Dkt. # 42) and a Motion for Extension of Deadline for Filing of Complaint to Determine Dischargeability (the “Motion for Extension”) (Bankr. Dkt. # 47) in the Defendant's bankruptcy case. The Motion to Lift Stay asserted that the result in the District Court Case could resolve the dischargeability issue in this Court. Accordingly, Plaintiff requested that the automatic stay be lifted for the purpose of proceeding with the District Court Case to reduce that action to judgment. (Bankr. Dkt. # 42). Similarly, the Motion for Extension requested that if the Motion to Lift were granted, that the Plaintiff also be given until thirty days after any District Court judgment became non-appealable to file a complaint to determine dischargeability of certain debts in this Court. (Bankr. Dkt. # 47).7 Both the Motion to Lift Stay and the Motion for Extension were granted by order of this Court on June 18, 2009 (Bankr. Dkt. # 114).
The automatic stay having been lifted by this Court, the parties proceeded with the District Court Case. (Ex. P–1S). Defendant failed to file an answer to the District Court Complaint. Evidence submitted to this Court without objection establishes that the Defendant, at all times, received proper service and notice of all motions filed and orders entered in the District Court Case. (Ex. P–1Z). Again, Defendant also had counsel of record throughout the District Court Case.
On April 5, 2010, Plaintiff filed an Application to Clerk for Entry of Default and Supporting Affidavit (Ex. P–1T) in the District Court Case, requesting that, in accordance with Rule 55(a) of the Federal Rules of Civil Procedure, an entry of default be entered against the Defendant for his failure to answer or otherwise defend the District Court Complaint. A clerk's default was thereafter entered. (Ex. P–1U). On April 6, 2010, Plaintiff also filed an Application to Court for Default Judgment and for Hearing (Ex. P–1V), requesting a default judgment against the Defendant. The Plaintiff requested that the District Court conduct an evidentiary hearing to determine damages and any other matter that the District Court may need to determine. The District Court granted the Application, but ordered the Plaintiff to file affidavits and other supporting evidence in lieu of a hearing. (Ex. P–1W). The District Court indicated that it would hold a hearing if there were substantial issues remaining following its review of the evidentiary submission. (Id.)
On August 27, 2010, the Plaintiff filed a Motion for Determination of Damages and for Entry of Default Judgment Awarding Damages (the “Motion for Default”) (Ex. P–1X), which included the affidavit of Daniel Skinner, president of the Plaintiff (Ex. P–1X, “A”), a copy of the Defendant's deposition taken April 13, 2010 (Ex. P–1X, “B”), various documents relating to the purchase and sale of the equipment in question (Ex. P–1X, “Collective C”), the attorney's fee affidavit of Mr. Goodwin (Ex. P–1X, “D”), and a deposition transcript of Justin Hastings, vice president of the Plaintiff (Ex. P–1X, “E”).
On September 24, 2010, the District Court entered the District Court Judgment. (Ex. P–1Y). In the District Court Judgment, the court specifically stated that its decision was made after consideration of the affidavits and documentary exhibits. The Court explained that its findings were based on evidence showing that the Defendant had wrongfully come into possession of, or wrongfully detained, equipment belonging to the Plaintiff. Although one of the five items of equipment in question was returned to the Plaintiff during the pendency of the litigation, the District Court found that the remaining four items “were converted by the defendants in a malicious and willful manner, due to the defendant's own financial condition.” (Ex. P–1Y) (emphasis added). The District Court further found that the Defendant had converted $26,000.00 in equipment sale proceeds belonging to the Plaintiff. Accordingly, the District Court ordered that Plaintiff recover judgment from Defendant in the total amount of $149,446.35. Of that amount, the District Court...
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