Eletech, Inc. v. Jones (In re Jones)

• Decision Date: 07 December 2022
• Docket Number: CASE NO. BK 21-80876-TLS,ADV. NO. A21-8024-TLS
• Citation: 648 B.R. 371
• Parties: In the MATTER OF: Jonathan M. JONES and Valerie A. Jones, Debtor(s). Eletech, Inc., Plaintiff(s) v. Jonathan Jones, Defendants(s).
• Court: U.S. Bankruptcy Court — District of Nebraska

648 B.R. 371

In the MATTER OF: Jonathan M. JONES and Valerie A. Jones, Debtor(s).Eletech, Inc., Plaintiff(s)

v.Jonathan Jones, Defendants(s).

CASE NO. BK 21-80876-TLS

ADV. NO. A21-8024-TLS

United States Bankruptcy Court, D. Nebraska.

Signed December 7, 2022

Michael T. Eversden, McGrath, North, Mullin & Kratz, P.C., Omaha, NE, for Plaintiff.

John A. Lentz, Lentz Law, PC, LLO, Lincoln, NE, for Defendant.

ORDER

Thomas L. Saladino, Chief Judge

This matter is before the court on the plaintiff's motion for summary judgment (Fil. No. 15) and the defendant's objection thereto (Fil. No. 22). Evidence and briefs were received, and the matter is now ready for decision. Michael T. Eversden represents the plaintiff, and John A. Lentz represents the debtor-defendant.

For the reasons stated below, the motion is granted.

The plaintiff, Eletech, Inc., provides elevator installation, consulting, and maintenance services throughout the states of Nebraska and Iowa. In 2012, Eletech hired the defendant, Jonathan Jones, as a vice president. In 2016, Eletech filed a lawsuit in Nebraska state court alleging Jones breached the duty of loyalty and fiduciary duty, usurped corporate opportunities and self-dealt, tortiously interfered with business and contractual relationships, was unjustly enriched, engaged in deceptive trade practices, and committed theft by deception. The lawsuit was based on Jones’ alleged operation of two side businesses while he was employed by Eletech. Jones and his co-defendants filed an answer denying the substantive allegations of the complaint and asserting the affirmative defenses of failure to state a claim upon which relief can be granted, estoppel, the doctrine of unclean hands, and failure to mitigate damages. Jones also counterclaimed for the salary and sales commissions allegedly due him when Eletech terminated his employment, under the Nebraska Wage Payment and Collection Act and the theories of breach of contract, unjust enrichment, and quantum meruit.

Because Jones failed to comply with the state district court's discovery order, that court granted sanctions in favor of Eletech in July 2019 by awarding Eletech judgment of more than $400,000 on its claims against Jones, and dismissing Jones’ counterclaim with prejudice. Jones appealed the order, which the Nebraska Supreme Court upheld in March 2021. Jones then filed the underlying Chapter 7 case in September 2021.

Eletech filed this adversary proceeding to have the judgment debt excepted from discharge. Eletech bases its non-dischargeability arguments on 11 U.S.C. § 523(a)(2)(A) for money or property obtained by false pretenses, a false representation, or actual fraud; 11 U.S.C. § 523(a)(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny; and 11 U.S.C. § 523(a)(6) for willful and malicious injury to Eletech or its property.

Eletech now moves for summary judgment in its favor, asserting there is no genuine issue of material fact as to the non-dischargeability of the judgment debt. It relies on the preclusive effect of the state-court judgment to establish the factual predicate necessary to except the debt from discharge.

SUMMARY JUDGMENT STANDARD

Summary judgment is proper if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (made applicable to adversary proceedings in bankruptcy by Fed. R. Bankr. P. 7056 ); see, e.g. , Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The movant bears the initial responsibility of informing the court of the basis for the motion, and must identify those portions of the record which the movant believes demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant does so, the non-movant must respond by submitting evidentiary materials that set out specific facts showing the existence of a genuine issue of material fact. Id. The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts," and must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In order to show that disputed facts are material, the party opposing summary judgment must cite to the relevant substantive law in identifying facts that might affect the outcome of the suit. Quinn v. St. Louis County , 653 F.3d 745, 751 (8th Cir. 2011).

On a motion for summary judgment, "facts must be viewed in the light most favorable to the nonmoving party only if there is a ‘genuine’ dispute as to those facts." Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009) (quoting Scott v. Harris , 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) ). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. (quoting Matsushita Elec. Industrial Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the evidence are the province of the fact-finder at trial and not of the judge at the summary judgment stage. Anderson v. Liberty Lobby, Inc. , 477 U.S. at 250, 255, 106 S.Ct. 2505.

FACTS

The following facts are undisputed or established by the record:

1. Eletech, Inc., is a Nebraska corporation with its principal place of business in Omaha, Nebraska.

2. Jonathan Jones is a debtor in the above-captioned bankruptcy case and at all times relevant hereto was a resident of Omaha, Nebraska.

3. On or about May 8, 2012, Eletech hired Jones as a vice president. In that capacity, Jones had many management responsibilities, including managing day-to-day operations, the sales staff, service, construction, repairs, and modernization sales.

4. While employed by Eletech, Jones was an owner in another company, Conveyance Consulting Group ("CCG"), that was formed to serve as the exclusive sales representative for an interior elevator cab manufacturer located in Canada, a supplier of Eletech. Jones never informed Eletech of his ownership in or relationship with this other company.

5. During his employment with Eletech, Jones formed, in whole or in part, an entity known as Jones Consulting, a Nebraska corporation. Jones informed Eletech that he had formed Jones Consulting to collect commissions owed by Eletech to Jones. Unbeknown to Eletech, Jones Consulting would routinely invoice customers of Eletech for elevator consulting services. The type of work billed by Jones Consulting to Eletech customers was for the type of services being provided by Eletech. At no point did Jones/Jones Consulting disclose this activity to Eletech.

6. During Jones’ employment with Eletech, Jones, Jones Consulting, and CCG contacted various parties with whom Eletech had business relationships and attempted to, and at times did, enter into contracts with those parties on behalf of CCG and Jones Consulting.

7. During Jones’ employment with Eletech, Jones would misappropriate company funds for his own purposes and/or to the benefit of Jones Consulting and/or CCG. Specifically, Jones would routinely bill Eletech for travel, products and gifts that he was using for his personal gain and/or for the benefit of Jones Consulting or CCG. In addition, Jones would submit false purchase orders on behalf of Eletech for work that was done by CCG or Jones Consulting.

8. Jones also arranged for Eletech to retain a company owned by Jones's friend to develop a custom elevator dispatching and accounting software program. Eletech paid a substantial sum of money for this program, but the program was never delivered.

9. In the course of the state-court lawsuit, Eletech sought sanctions for the repeated failure of Jones and the other defendants in the case to comply with the district court's discovery order. The district court granted Eletech sanctions, awarding Eletech judgment on its claims against Jones in the amount of $407,187.46, among other things, plus costs and interest. The judgment amount was established by the affidavit of a former owner of Eletech who reviewed the company's books and records related to Jones and computed the "damages to total at least $407,187.46 as a result of the improper actions taken by the defendants as set forth in the Complaint." He further stated that "this amount represents improper charges and expenses incurred by Eletech together with various corporate opportunities lost by Eletech due to Defendants’ wrongful conduct." Finally, he attributed the entire damage amount to the actions of Jones.

10. Jones appealed the district court's judgment but then filed a Chapter 13 bankruptcy case (Case No. BK19-81464) while the appeal was pending. The Chapter 13 trustee sought dismissal of that case because Jones was not eligible for Chapter 13 and was unemployed. This court granted the motion on April 27, 2020.

11. The appeal in the state-court lawsuit then resumed, and ultimately the Nebraska Supreme Court upheld the district court's judgment on March 26, 2021.

12. Jones then filed this Chapter 7 case on September 15, 2021.

PRECLUSIVE EFFECT OF THE STATE COURT JUDGMENT

A state court action to establish a debt is separate from a determination of the dischargeability of that debt in bankruptcy. Tatge v. Tatge (In re Tatge) , 212 B.R. 604, 609 (B.A.P. 8th Cir. 1997) (citing Brown v. Felsen , 442 U.S. 127, 134-35, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) ). The bankruptcy court has exclusive jurisdiction to determine whether debts for a debtor's fiduciary or non-fiduciary fraud, embezzlement, larceny, or willful and malicious injury are...