FNA Grp., Inc. v. Arvanitis (In re Arvanitis)

• Decision Date: 08 January 2015
• Docket Number: Bankruptcy No. 14–bk–15420.,Adversary No. 14–ap–514.
• Citation: 523 B.R. 633
• Parties: In re Demetrios ARVANITIS, Debtor. FNA Group, Inc., Plaintiff v. Demetrios Arvanitis, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

523 B.R. 633

In re Demetrios ARVANITIS, Debtor.FNA Group, Inc., Plaintiff

v.Demetrios Arvanitis, Defendant.

Bankruptcy No. 14–bk–15420.

Adversary No. 14–ap–514.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed Jan. 8, 2015.

Richard A. Bixter, Holland & Knight LLP, Chicago, IL, for Plaintiff.

Jeffrey S. Harris, Maywood, IL, for Defendant.

MEMORANDUM OPINION ON FNA'S MOTION FOR SUMMARY JUDGMENT

JACK B. SCHMETTERER, Bankruptcy Judge.

This adversary proceeding was brought by FNA Group, Inc. (“FNA”) against Debtor Demetrios Arvanitis (“Arvanitis”). It relates to the Debtor's Chapter 7 case, and seeks to except a debt from discharge under 11 U.S.C. §§ 523(a)(4) and 523(a)(6). After an Answer was filed, FNA Group moved for summary judgment based on asserted issue preclusion arising from a state court order imposing a temporary restraining order (“TRO”) and an order finding civil contempt.

Arvanitis formerly worked at FNA from 1996 through 2012, rising to the title of Director of Operation and Logistics. During his employment at FNA Group, it is alleged that Arvanitis secretly recorded confidential conversations between FNA Group employees and clients, and gathered other proprietary and confidential information. After he left employment at FNA Group, Arvanitis allegedly blackmailed FNA Group by threatening to reveal the confidential information to the public. FNA Group sued in state court, seeking an injunction and damages. Arvanitis then filed his petition for relief under Chapter 7 of the Bankruptcy Code. This adversary proceeding and the motion for summary judgment followed. For the following reasons, summary judgment will be denied.

UNCONTESTED FACTS

The following background facts are drawn from the Plaintiff's Statement of Uncontested Facts, which was filed as required by Local Bankruptcy Rule 7056–1, and the Defendant's response as required by Local Bankruptcy 7056–2. The statements of uncontested facts are nearly all verbatim copies of the allegations contained in the complaint. “The facts are viewed in the light most favorable to the non-moving party and all reasonable inferences are drawn in [his] favor.” Ault v. Speicher, 634 F.3d 942, 945 (7th Cir.2011).

FNA alleges that: FNA is an Illinois corporation which manufactures and sells pressure washers. (Complaint ¶ 5; 7056–1 ¶ 1.) Arvanitis admits this fact. (7056–2 ¶ 1.) Arvanitis was an employee of FNA for 16 years from September, 1996 to August 2012. (Answer ¶ 6; 7056 ¶ 2.) On the date of his departure, Arvanitis held the title of Direct of Operations and Logistics, and his job responsibilities included supervising FNA facilities and the operation and security of FNA's buildings. (Answer ¶ 6; 7056–2 ¶ 3.)

FNA alleges that Arvanitis signed a “Trade Secret/Non–Disclosure Agreement” and received an “Employee Handbook,” which included a “Confidentiality Agreement” and signed an acknowledgement form relating to the Employee Handbook during his employment. (Complaint ¶¶ 7, 10, 12; 7056–1 ¶¶ 5, 8, 9.) Arvanitis denies that he ever executed any of those documents (7056–2 ¶¶ 5, 8, 9.), but does not contest the contents of the documents (7056–2 ¶ 6–7, 10.). Strangely enough, even though Arvanitis denies ever signing those documents, he admits as an uncontested fact that he was “at all times bound by the terms of the Trade–Secret/Non–Disclosure Agreement, the Employee Handbook and the Confidentiality Agreement.” (7056–2 ¶ 1.)

FNA alleges, and Arvanitis denies, that Arvanitis collected proprietary and confidential information from FNA, including using secret audio-visual recording devices. (Complaint ¶¶ 15–18; 7056–1 ¶¶ 12–15.) After his employment ended, Arvanitis allegedly refused to return the confidential materials to FNA, and threatened to reveal the confidential and proprietary information, and even revealed some to third parties. (Complaint ¶ 9;7056–1 ¶¶ 7, 19.) Arvanitis denies these facts.

FNA sued in state court, seeking damages and an injunction for the alleged theft of proprietary and confidential information, under various theories, including breach of contract, breach of fiduciary duty, conversion, and intrusion upon seclusion. (Complaint ¶ 21;7065–1 ¶ 20.) The following history of the litigation in state court is uncontested by Arvanitis. That is, he admits that the events in state court took place, even as he contests the substance of what was alleged in the state court proceeding. (7052–2 ¶¶ 21–49.) FNA moved for a temporary restraining order and preliminary injunction. (Complaint ¶ 31;7056–1 ¶ 28.) After a hearing, the state court judge entered the TRO, which required Arvanitis to return immediately any materials from his employment at FNA including any materials containing confidential or proprietary information. (Complaint ¶ 32;7056–1 ¶ 29.) The state court's order only refers to consideration of the verified complaint and motions by counsel. (Dkt. 25 Exh. D.) FNA contends that the TRO was entered based on a preponderance of the evidence, which is not contested by Arvanitis. (7056–2 ¶ 29.) When Arvanitis failed to comply with the order to FNA's satisfaction, FNA filed an Emergency Motion for Indirect Civil Contempt. (Complaint ¶ 34;7056–1 ¶ 33.) In its motion, FNA alleged that Arvanitis was in possession of documents including a value at risk analysis and inventory accounting, an appraisal of FNA's business net worth, process and shipping diagrams and matrixes, customer pricing charts, customer client codes, prospective client lists, lists of supplies, letters, photographs, emails and voice recordings. (Complaint ¶¶ 34–35;7056–1 ¶¶ 3435.) Following an evidentiary hearing, that motion was granted. (Complaint ¶ 37; 70561 ¶ 37.)

The state court then found that, “Mr. Arvanitis has possession of documents, materials, hardware or software as set forth in the TRO which he has failed to turn over as ordered. Therefore, Mr. Arvanitis is in indirect civil contempt of court.” (Dkt. 25 Exh. F at 7–8.) Accordingly, the court ordered “Arvanitis is adjudicated in indirect civil contempt for not complying with the TRO entered October 2, 2013.” and Arvanitis was ordered to pay a fine of $2500 per day to the court until he complied with the TRO. (Id. at 8.) Arvanitis moved for reconsideration of the contempt order, and the state court judge entered an order halting the accumulation of fines in excess of $32,500 until a further evidentiary hearing. (Complaint ¶¶ 40–41; 7056–1 ¶¶ 40–41.)

After the second evidentiary hearing on Arvanitis's motion for reconsideration was set, but before the hearing itself, Arvanitis filed for relief under Chapter 7 in the above captioned bankruptcy case. (Complaint ¶ 43; 7056–1 ¶ 43.) FNA sought and was granted relief from the automatic stay in order to pursue its contempt proceeding in state court. (Bankruptcy Dkts. 11, 44.) In state court, the contempt order was reinstated, and Arvanitis did not appeal. (Complaint ¶¶ 45–46;7056–1 ¶¶ 45–46.) FNA sought in this court further relief from the automatic stay in order to pursue its case in state court to final judgment and to seek incarceration of the debtor for contempt, and that relief was granted, except that FNA was not authorized to attempt collection of any monetary judgment. (Bankruptcy Dks. 26.) In state court, FNA moved to incarcerate Arvanitis for civil contempt. (7056–1 ¶ 49.) Arvanitis was incarcerated for two weeks, then released, although nothing is said about how Arvanitis secured his release. (Id. ) The state court case has not reached final judgment.

FNA also filed this adversary proceeding to determine the dischargeability of the debt owed by Arvanitis as a result of Arvanitis's acts complained of in the state court case. After an Answer was filed, FNA moved for summary judgment.

In its adversary complaint for nondischargeability, FNA alleges that Arvanitis recorded private conversations between FNA officers and employees with customers, (¶ 17.), and also took copies of customer lists (¶ 19.), and other proprietary information. Further, the complaint seeks relief for threatening to disclose and actually disclosing confidential information to third parties. (¶ 22.) While the conduct FNA complains of includes taking proprietary information that Arvanitis no the right to access after leaving his employment with FNA, the Complaint reaches much farther than what was covered in the contempt orders. For example the complaint in this proceeding alleges that “Debtor's breaches of his fiduciary duty caused loss and damages to FNA in excess of $800,000, in that Debtor caused freight carriers, brokers and forwarders to charge excessive, above-market fees and costs to FNA.” (¶ 26) Further, the complaint alleges that “Debtor has threatened and continues to threaten to disclose and release such unauthorized recordings to third parties in violation of the rights of FNA and its employees.” (¶ 30.)

In his response to the motion for summary judgment, Arvanitis attached an “affidavit” that had a space for a notary's signature, but was never notarized, and was undated.¹ (Dkt. 31–3.) In the affidavit, Arvanitis declared that he did not sign any Trade Secret/Non–Disclosure Agreement, an Employee Handbook Acknowledgement, or a Confidentiality Agreement. (¶¶ 2–4.) He further stated that never installed any recording devices in FNA offices, but rather that Mr. Alexander (FNA's CEO) directed them to be installed. (¶ 6.) Arvanitis also stated that he never collected any recording from the devices. (¶ 7.) He also stated that he did not refuse to return any recordings or materials, and that he has not threatened to disclose any proprietary and confidential information. He also stated that any such material was deleted, and that he has none in his possession.

Upon FNA's motion for summary judgment, a briefing schedule was established. To its reply brief, FNA attached, as Exhibit A, a three or four-inch stack of transcripts from the state court proceeding. Exhibit A was not accompanied by an...