Dynamic Int'l, Inc. v. Rouette (In re Rouette), CASE NO. 13-20250 (ASD)

• Decision Date: 12 June 2014
• Docket Number: RE: ADV. ECF NO. 36,CASE NO. 13-20250 (ASD),ADV. PRO. NO. 13-02014
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: IN RE: NELSON ROUETTE and SANDRA CALVO-ROUETTE, DEBTORS. DYNAMIC INTERNATIONAL, INC., PLAINTIFF, v. NELSON R. ROUETTE and SANDRA CALVO-ROUETTE, DEFENDANTS.

IN RE: NELSON ROUETTE and SANDRA CALVO-ROUETTE, DEBTORS.DYNAMIC INTERNATIONAL, INC., PLAINTIFF, v. NELSON R. ROUETTE and SANDRA CALVO-ROUETTE, DEFENDANTS.

CASE NO. 13-20250 (ASD)

ADV. PRO. NO. 13-02014

RE: ADV. ECF NO. 36

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT

Dated: June 13, 2014

Dated: June 12, 2014

CHAPTER 7

APPEARANCES:

Mark H. Dean, Esq.

Mark H. Dean, P.C.

Attorney for Plaintiff,

Dynamic International, Inc.

Richard S. Conti, Esq.

Diana Conti & Tunila, LLP

Attorney for Debtors/Defendants,

Nelson R. Rouette and

Sandra Calvo-Rouette

MEMORANDUM OF DECISION ON PLAINTIFF'S

MOTION FOR PARTIAL SUMMARY JUDGMENT

ALBERT S. DABROWSKI, Chief United States Bankruptcy Judge

I. INTRODUCTION

In the above captioned adversary proceeding, the Plaintiff, Dynamic International, Inc. (hereinafter, "Dynamic" or "Plaintiff"), has filed Plaintiff's Motion for Partial Summary Judgment (hereinafter, the "Motion"), Adv. ECF No. 36, requesting the Court to find its claim against the Defendants, Nelson R. Rouette (hereinafter, "Rouette") and Sandra Calvo-Rouette (hereinafter, "Calvo-Rouette" or together with Rouette, the "Defendants") nondischargeable under Bankruptcy Code §523(a)(6). In support of its request, Dynamic relies on the alleged preclusive effect of a prior partial summary judgment it obtained by default in a Connecticut state court action¹ (hereinafter, "State Court Action" or "State Court") against the Defendants' closely-held corporation, Quality Machine Solutions, Inc. (hereinafter, "QMS") and Rouette for conversion and civil theft, and to pierce the corporate veil between Rouette and QMS. For the reasons discussed hereinafter, the Court finds that a summary judgment may not enter in this adversary proceeding because the partial summary judgment entered in the State Court Action is not entitled to preclusive effect in this Court. Accordingly, the Motion shall be denied.

II. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over the instant adversary proceeding by virtue of 28 U.S.C. § 1334(b), and this Court derives its authority to hear and determine this proceeding on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1) and the District Court's General Order of Referencedated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. §157(b)(2)(I).

III. BACKGROUND

A. Stipulation of Facts

The Plaintiff and the Defendants have agreed upon a Stipulation of Facts and supporting documentary evidence, Adv. P. ECF No. 35, Part 1 (Stipulation), Parts 2-8 (Attachments), and have asked that the Court consider them as true and established for the purposes of determining the Motion. As determined relevant to this decision by the Court, the following facts, set forth in the Stipulation of Facts, are adopted as follows:

1. Dynamic is a Wisconsin corporation with a principal place of business at N25 W23287 Paul Road, Pewaukee, Wisconsin.

2. At all relevant times, Rouette was a shareholder, director and the president of QMS.

3. At all relevant times, Calvo-Rouette was a shareholder, director and the Vice-president of QMS.

4. By three sales contracts, each dated May 20, 2008 (the "First Second and Third Contracts," respectively) between Dynamic and QMS, QMS agreed to purchase three computerized milling machines referred to as VP600s and certain accessories and services identified in the contracts for the sum of $177,453.70 each, to be paid "10% down, net 60 after install."

5. Paragraph eight of the Terms and Conditions section of the First, Second and Third Contracts provide as follows:

Security Interest. PURCHASERS hereby grants to DYNAMIC and DYNAMIC hereby retains a purchase money security interest in all of thegoods sold by DYNAMIC and held by PURCHASER hereunder and all replacements therefor, additions thereto, and goods made therefrom (the "Collateral") to the fullest extent provided under the Uniform Commercial Code. The PURCHASER specifically authorizes the filing by DYNAMIC of an initial Financing Statement; an amendment that adds Collateral or that adds a debtor covering the Collateral. PURCHASER shall keep the Collateral free from any adverse lien, security interest or encumbrance and will not waste or destroy the collateral or any part thereof or use or store the collateral in violation of any statute or ordinance. Adv. ECF No. 35-1.

6. The VP600s sold pursuant to the First, Second and Third Contracts were delivered to TurboCare, a third-party customer of QMS and installed by QMS.

7. QMS received payment from TurboCare on or before January 12, 2009 for the three VP600s that QMS purchased from Dynamic and re-sold them to TurboCare for sums in excess of the amounts due from QMS to Dynamic on the First, Second and Third Contracts.

8. Dynamic claimed that upon receipt of payment(s) from Turbo Care, QMS did not remit payment to Dynamic on the balance of purchase price due under the First, Second and Third Contracts. QMC, Rouette and Calvo-Rouette disputed the debt claimed by Dynamic.

9. On or about December 31, 2008, Dynamic commenced the State Court Action against QMS, seeking to recover sums owed from QMS to Dynamic on account and for breach of the First, Second, and Third Contracts. Later, additional causes of action against QMS for conversion, civil theft, unjust enrichment, and violation of the Connecticut Unfair Trade Practices Act ("CUTPA") Conn. Gen. Stat. §42-110a et seq., were added in the State Court Action.

10. On or about July 22, 2009, Rouette was joined as a defendant in the State Court Action and causes of action were asserted against him for conversion, civil theft, unjust enrichment, violation of CUTPA, and to hold him liable for the debts of QMS to Dynamic based on the piercing of the corporate veil of QMS. The conversion and civil theft claims against Rouette were based on a claim that he misappropriated Dynamic's secured proceeds.

11. On or about August 18, 2010, a Second Amended Complaint was filed and Calvo-Rouette was joined as a defendant in the State Court Action and a claim was asserted against her to hold her liable for QMS debts to Dynamic based on the piercing of the corporate veil of QMS.

12. On or about August 26, 2010, Rouette's prior attorneys, Updike, Kelly and Spellacy, filed a Motion to Strike and a Memorandum in Support of Motion to Strike in the State Court Action. This motion was never acted upon in the State Court Action due to the defaults entered against Rouette for discovery noncompliance and failure to plead as set forth below.

13. Thereafter, the State Court granted Updike, Kelly and Spellacy's Motion to Withdraw Appearance by order dated September 13, 2010, and on October 12, 2010, QMS was defaulted for failure to appear after the withdrawal of counsel.

14. Rouette and Calvo-Rouette filed pro se appearances in the State Court Action on or about October 18, 2010.

15. On or about July 25, 2011, a default judgment for $458,117.87 was entered against QMS in the State Court Action on Dynamic's claim for sums due.

16. Dynamic filed a Motion for Discovery Sanctions and/or Order of Compliance dated November 9, 2010 against Rouette in the State Court Action. An order dated November 22, 2010, was entered by the State Court ordering his compliance.

17. Thereafter, Dynamic filed a Motion for Default for Failure to Plead, dated November 23, 2010 against Calvo-Rouette, and on December 1, 2010, a default was entered against her for failure to plead.

18. On January 19, 2011, Dynamic filed a Motion for Default for Failure to Comply With Discover Order against Rouette. Dynamic also filed on January 19, 2011, a Motion for Discovery Sanctions and/or Order of Compliance against Calvo-Rouette.

19. In an order entered by the State Court dated February 24, 2011, Calvo-Rouette was ordered to comply with discovery by March 7, 2011 or be defaulted. Calvo-Rouette did not comply with the discovery served on her by March 7, 2011 and was defaulted for discovery noncompliance.

20. On June 7, 2011, the State Court entered an order of default due to discovery noncompliance against Rouette.

21. Dynamic filed a Motion for Summary Judgment against QMS, Rouette and Calvo-Rouette, dated July 19, 2011. It sought summary judgment on Dynamic's conversion, civil theft, CUTPA and corporate veil counts contained in the Second Amended Complaint (Counts Five, Six, Eight and Nine, respectively).

22. Rouette filed a motion dated November 21, 2011 seeking a continuance ofa scheduled December 5, 2011 hearing on Dynamic's Motion for Summary Judgment which motion was granted, and the State Court continued the hearing on Dynamic's Motion for Summary Judgment to December 19, 2011. Neither Rouette nor Calvo-Rouette filed an opposition to the Motion for Summary Judgment and it was granted in a Memorandum of Decision dated March 30, 2012.

23. On April 12, 2012, new counsel appeared for Rouette and Calvo-Rouette in the State Court Action and filed a Motion to Open Judgment Upon Default and a Motion to Alter Terms of Judgment. Dynamic objected to both motions.

24. On May 9, 2012, Rouette and Calvo-Rouette filed an appeal from the granting of summary judgment which was thereafter withdrawn on June 15, 2012, because there was no final appealable judgment against Rouette.

25. A Corrected Memorandum of Decision Motion for Summary Judgment (hereinafter, the "Corrected Decision"), Adv. ECF No.35, Part 8, Exh. HH, was issued on May 14, 2012 and summary judgment as to liability was entered as to Rouette only. Dynamic was ordered to claim the matter for a hearing in damages.

26. Thereafter, Rouette filed an Amended Motion to Open Judgment Upon Default, dated June 14, 2012, in response to which Dynamic filed an Objection to Amended Motion to Open Judgment Upon Default, dated June 19, 2012. An order dated July 10, 2012 was entered by the State Court denying the motion to open the judgment.

B. The Corrected Memorandum of Decision Motion for Summary Judgment

In the Corrected Decision, the State Court held...