FTE Networks, Inc. v. Ivie (In re Ivie), Case No. 16-00374-TLM

• Citation: 587 B.R. 729
• Decision Date: 02 July 2018
• Docket Number: Adv. No. 16-06020-TLM,Case No. 16-00374-TLM
• Parties: IN RE Ronald A. IVIE, Jr., Debtor. FTE Networks, Inc. and Jus-Com, Inc., Plaintiffs, v. Ronald A. Ivie, Jr., Defendant.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Idaho

587 B.R. 729

IN RE Ronald A. IVIE, Jr., Debtor.FTE Networks, Inc. and Jus-Com, Inc., Plaintiffs,

v.Ronald A. Ivie, Jr., Defendant.

Case No. 16-00374-TLM

Adv. No. 16-06020-TLM

United States Bankruptcy Court, D. Idaho.

Signed July 2, 2018

Tyler J. Anderson, Andrea J. Rosholt, Hawley Troxell Ennis & Hawley LLP, Boise, ID, for Plaintiffs.

Jeffrey Philip Kaufman, Law Office of D. Blair Clark, PC, Boise, ID, for Defendant.

MEMORANDUM OF DECISION

TERRY L. MYERS, CHIEF U. S. BANKRUPTCY JUDGE

Plaintiffs FTE Networks, Inc. and its wholly owned subsidiary Jus-Com, Inc. (referred to collectively as "FTE") brought this adversary proceeding seeking to except a debt from the discharge of defendant, chapter 7 debtor Ronald Ivie, Jr. ("Ivie"), under § 523(a)(6).¹ The matter was tried on October 18 and 19, 2017.² After the parties submitted written closing arguments, the matter was taken under advisement on February 12, 2018. This decision constitutes the Court's findings of fact and conclusions of law.³

FACTS

A. The Contractual Relationships

FTE is a contractor in the business of constructing telecommunications networks. Ericsson Inc. ("Ericsson") is a project manager that oversees construction projects for telecommunication service providers, such as CenturyLink. FTE and Ericsson entered into a "Master Service Agreement" in July 2014, which provided the terms of the relationship between Ericsson and FTE as its subcontractor on any future "task orders." Ex. 2017 ("MSA"). The MSA provides that any task orders accepted by FTE are subject to and become "a part of" the MSA. Id. at 2–3. The MSA included a three-year term, which automatically renewed for additional one-year terms until either party provided appropriate notice and terminated the MSA. Id. at 3.

Under the MSA, FTE performed construction of an expansion of CenturyLink's fiber optic network in Seattle, referred to by the parties as the "pilot project." In July 2014, Ivie, as president and manager of ID Consulting Solutions, LLC ("IDCS"), signed a contract with FTE to perform engineering and design work on the pilot project. Ex. 2039 at 12. IDCS was a business at least partially owned by Ivie.⁴

Ericsson later issued an additional task order awarding FTE the task of further expanding the fiber optic network for CenturyLink in Seattle and also a task order to expand CenturyLink's network in Las Vegas.⁵

In October 2014, FTE contracted with IM Services, LLC ("IMS") to provide engineering and design services related to the expansion of CenturyLink's fiber optic networks in Seattle and Las Vegas. Ex. 1000. IMS was a company created by Ivie and Alex McLarty ("McLarty"). According to McLarty, it was formed for the purpose of locating projects and obtaining funding for the projects. TR 2 at 7. After entering into its agreement with FTE, IMS then subcontracted with IDCS to perform the required engineering and design services. Once the services were rendered, IDCS invoiced IMS, who in turn invoiced FTE for payment.⁶

On January 5, 2015, Ivie, as the president of IDCS, contacted FTE requesting payment of outstanding invoices. Ivie explained that more than $360,000 was owed and that IDCS was unable to continue performing work under the contract for FTE without payment. Ex. 1030. FTE responded that a "closing" was scheduled for the following week, suggesting that payment would be available then. Id.⁷

On January 16, 2015, Ivie again contacted FTE by email and explained that "I cannot continue spending $150K a month with $20K revenue," and "I have to have at least $15K a week to get caught up, if not, I will not make it." Ex. 1031. FTE responded by explaining that "[w]e are moving as fast as we can to get the docs in order" to complete "closing." Id.

On January 26, 2015, Ivie again contacted FTE, explaining "I'm running low on funds and cannot make payroll.... At this point, if we do not get paid up in a week, I will be forced ... to submit a lien on the Seattle and LV project. I have no choice.... This is coming to a point now, I have tried to hang on as long as possible, I have nowhere to go." Doc. No. 1032. FTE responded that it was finalizing a "refi" and that it would pay the outstanding invoices when it was complete. Further, FTE warned that filing liens would "be extremely bad for both of us" and would "get you no closer to being paid but will push it out much further." Id.

FTE failed to pay the outstanding invoices and the parties entered into negotiations regarding potential resolutions.⁸ One such solution involved FTE purchasing IDCS. FTE and Ivie, on behalf of IDCS, entered into an "Interest Purchase Agreement" ("IPA"), under which FTE would purchase a one-hundred percent interest in IDCS. Ex. 1027. However, another individual, Randy Dinger, claimed an interest in IDCS and would not agree to the transaction, and the IPA was eventually rescinded by FTE. Ex. 1035. Despite this attempt by IDCS and FTE to resolve their issues, and the commencement of an arbitration proceeding, no final resolution was reached.

B. IDCS's Chapter 11 Case

On July 10, 2015, Ivie caused IDCS to file a petition under chapter 11. Case No. 15-00918-TLM (the "IDCS Chapter 11"). IDCS, under Ivie's control, wanted to collect the FTE receivable. The schedules in the IDCS Chapter 11 case asserted FTE owed $729,285.01. Ex. 1045. The approach taken to collect this receivable is at the heart of this action.

Though IDCS was represented by counsel, Ivie consulted only with IDCS's bookkeeper and controller, Sabitha Kelsey ("Kelsey"), and McLarty. Kelsey, who had some prior experience filing liens for a residential construction company in Nevada, suggested that mechanics liens might be a means by which IDCS could secure and collect the amounts due. Kelsey testified she was on the "forefront" of the effort to determine whether mechanics liens could be used to secure what IDCS was owed. McLarty, who had no prior experience with filing mechanics liens, assisted Kelsey in researching whether using mechanics liens was a viable option. To that end, McLarty contacted an attorney in the Seattle area and, as a result, he and Kelsey thought it was appropriate to file mechanics liens against real properties in the area that would be serviced by the fiber optic networks for which IDCS provided engineering and design work. Ivie decided the liens should be threatened, then filed, and directed Kelsey to prepare the necessary documents to send to the property owners. Over the course of several days, Kelsey identified hundreds of property owners in Seattle and Las Vegas and prepared notices to be sent to each property owner.

On July 21, 2015, IDCS, under Ivie's direction, issued fifteen-day notices of intent to lien, with attached letters signed by Ivie as president of IDCS (the"Lien Letters"). The Lien Letters were sent to hundreds of home and other real property owners in Seattle and Las Vegas. See, e.g. , Exs. 2002, 2006. The Lien Letters generally outlined the relationships between CenturyLink, Ericsson, FTE, and IDCS, and explained that IDCS had provided engineering and design services necessary for expansion of CenturyLink's fiber optic network. The Lien Letters further explained that FTE had failed to pay IDCS for its services and, despite contacting Ericsson and CenturyLink, IDCS remained unpaid. The Lien Letters asserted that FTE's nonpayment created a "financial crisis" and that IDCS was forced to file liens in order to secure payment. Finally, the Lien Letters stated "[w]e regret having to process liens and for filing for protection; however, the company had no other option and will continue to leverage CenturyLink, the City Permit offices, County Engineering offices, Public Works, and the media for financial relief." Id. The Lien Letters included telephone numbers for individuals with FTE, Ericsson, and CenturyLink, and the property owners were told that liens would be filed on their property fifteen days from the date of notice if payment was not made to IDCS. Ex. 2002.

One week later, FTE initiated an adversary proceeding and filed therein a motion for an injunction preventing IDCS from filing liens in Seattle and Las Vegas as threatened in the Lien Letters. Adv. No. 15-6051-TLM. On August 3, 2015, the Court granted FTE's motion for a temporary restraining order.

On October 2, 2015, this Court entered a decision finding the Lien Letters were "asserted and sent without credible legal basis or support" and that they included contact information for CenturyLink, Ericsson, and FTE "to encourage predictably outraged property owners to contact these other parties, thus creating pressure and leverage on those parties."⁹ The Court further found that issuance of the Lien Letters "caused the creation of significant claims against the [Chapter 11] estate by FTE and potentially others," and that IDCS's bankruptcy filing "appear[ed] designed to cause injury and gain tactical leverage, and it certainly had that practical effect."¹⁰ Holding that "egregious behavior and other indicia of bad faith"—including issuance of the Lien Letters—implicated "manipulation and inequitable use of the bankruptcy process," the IDCS Chapter 11 case was dismissed.¹¹

C. Ivie's Chapter 7 Case

Ivie filed his personal chapter 7 petition on March 25, 2016. FTE filed the complaint initiating this adversary proceeding on June 17, 2016, alleging that, under Idaho law, sending the Lien Letters constituted tortious interference with a contract and intentional interference with FTE's economic advantage. FTE seeks damages in the amount of "not less than $750,000." Adv. Doc. No. 1 at 8. FTE further alleges that Ivie acted willfully and maliciously when he caused the Lien Letters to be sent and, thus, his liability to FTE should be excepted from discharge pursuant to § 523(a)(6).

DISCUSSION AND DISPOSITION

There are two distinct issues that the Court evaluates in considering nondischargeability of a debt under § 523(a)(6). The first is the establishment of a debt itself, and the

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