In re Clark

• Decision Date: 16 January 2009
• Docket Number: No. 6:06-bk-01227-ABB.,No. 6:06-ap-00136-ABB.,6:06-bk-01227-ABB.,6:06-ap-00136-ABB.
• Citation: 400 B.R. 321
• Parties: In re Pamela W. CLARK, Debtor. Mark D. Shapiro and Goguys, Inc., Plaintiff, v. Pamela W. Clark, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

400 B.R. 321

In re Pamela W. CLARK, Debtor Mark D. Shapiro and Goguys, Inc., Plaintiff, v. Pamela W. Clark, Defendant.

Bankruptcy No. 6:06-bk-01227-ABB.

Adversary No. 6:06-ap-00136-ABB.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

January 16, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Roy S. Kobert, Orlando, FL, for Plaintiff.

David R. McFarlin, Wolff, Hill, McFarlin & Herron, P.A., Orlando, FL, for Defendant.

MEMORANDUM OPINION GRANTING SUMMARY JUDGMENT DETERMINING DEBT NONDICHARGEABLE

ARTHUR B. BRISKMAN, Bankruptcy Judge.

This matter came before the Court on the Complaint to Determine Dischargeability of Debt pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6), against Pamela W. Clark, the Debtor herein ("Clark"). Plaintiffs, Mark D. Shapiro and Goguys, Inc., ("Shapiro"), allege a debt owed pursuant to a Final Statement of Decision and Default Judgment of the Santa Clara County Superior Court ("Complaint," Doc. No. 1). A hearing was held on November 13, 2008 on Shapiro's Motion for Summary Judgment (Doc. No.5), at which counsel for Shapiro and counsel for Clark appeared. The Parties were granted leave to submit additional evidence for the consideration of the Court. The Court makes the following Findings of Fact and Conclusions of Law after reviewing the pleadings and other documents filed herein, the arguments of counsel, the evidence presented, and being otherwise fully advised in the premises.

FINDINGS OF FACT

Relationship of the Parties

Clark's husband, Barry W. Clark and his company, Tax Advantage, Inc. ("B.W. Clark" and/or "TAI"), provided tax and financial services to Shapiro, including tax and retirement planning, and mortgage and investment broker services. From approximately February 2002 to May 2003, Shapiro loaned TAI $250,000 to provide a guaranteed ten-percent return and an equity interest in a TAI real estate project. TAI breached the agreement with Shapiro.¹

The First California Fraud Lawsuit

Shapiro filed an action, Shapiro v. Barry W. Clark, Andrew T. Cook and Tax Advantage, Inc., in the California Superior Court, County of Santa Clara on February 8, 2004, Case No. 1-04-CV-035281, alleging causes of action for (i) alter ego, (ii) fraud, (iii) conversion, (iv) breach of fiduciary duty, (v) breach of contract, and (vi) an accounting. A default judgment of $1,851,551.26 in favor of Shapiro was entered against B.W. Clark and TAI, as alter egos, which became final in April 2005 (the "Barry Clark Judgment").

The Second California Fraud Lawsuit

On August 3, 2005, Shapiro filed a second lawsuit in the Santa Clara Superior Court against Clark, B.W. Clark and TAI alleging fraudulent transfer, fraud, deceit, constructive fraud, constructive trust, conversion, conspiracy and an accounting.² The Defendants failed to answer. On October 17, 2005, the California Court entered its "Statement of Decision and Default Final Judgment by Court" (the "California Default") against Clark and the other defendants. In rendering judgment for Shapiro, the Superior Court in the California Default concluded:

Clark received and accepted fraudulently transferred funds of $298,558.37 from her husband, B.W. Clark and his adjudicated alter ego TAI, for improvements on her Tavares Property.

Clark failed to reveal, and suppressed, the fact the transfers were to be, and had been made, for her and her husband's benefit.

Clark acted intentionally, with fraud, malice, oppression, and demonstrated a subjective motive to inflict injury or believed that that injury was substantially certain to occur to Shapiro as a result of her conduct, all without just cause or excuse.

Clark, by means of her fraudulent conduct, misappropriated and converted to her personal use and possession, without Shapiro's knowledge or consent, Shapiro's money.

Clark transferred $298,558.37 or more to contractor, W. Lee Humphrey Builders who, for consideration of such transfers, made improvements on the Tavares Property of which both the Clark and B.W. Clark were later co-owners, and the Clarks personally benefited from the transfer.

Clark wrongfully converted Shapiro's funds. The prolonged taking was without consent or permission, express or implied, of Shapiro, and although Shapiro made demands on Clark, she failed to return or deliver Shapiro's money, as a proximate result of which caused Shapiro's damage.

Motion to set aside the California Default Judgment

Clark filed a belated motion to set aside the California Default, arguing in her motion and declarations she was diligent in her efforts to respond to Shapiro's complaint, but circumstances beyond her control prevented it. She raised the defense that she was not involved in B.W. Clark's and TAI's relationship with Shapiro's investment/loan with them. During one of the several hearings held on the motion to set aside the California Default, Shapiro asserted the Clarks' would complete the construction of the Florida house; be able to claim a Florida unlimited homestead exemption; and shield themselves from Shapiro's collection efforts on both the Barry Clark Judgment and the judgment sought against Clark in the second suit. Shapiro requested any order setting aside the default be conditioned on Clark posting a bond in the full amount prayed. The Trial Court expressed its concern, according to the Appellate Court, that:

I can conclude based on this set of facts one of two things. She's a part [and] parcel of it or she's completely innocent. Based on all that I have reviewed, I am hard put to conclude that she [Clark] has no clue to what is going on. So, for the sake of what is happening here and I believe that the potential for a huge [injustice] would occur, I am going to grant the relief that he [Shapiro] is asking for. I will grant the motion to set aside the default, but it's going to be conditioned on posting of a bond as requested by the plaintiff or the other parties regarding transferring, conveying, whatever.³

The Trial Court conditionally granted Clark's Motion to set aside the default on February 8, 2006, with a proviso that Clark post a continuous bond of $1,800,000.00; pay Shapiro's attorney's fees and costs of $14,500, no later than February 14, 2006; and prohibited homestead, transfer or encumbrance of the Tavares Property, until the conditions were satisfied (the "Relief from Default").⁴

Clark did not satisfy the conditions precedent to the order setting aside the California Default and she appealed the California Default.

Appeal of the California Default Judgment

Clark appealed the California Default to the Court of Appeal, Sixth District, California, Shapiro v. Clark, 164 Cal.App.4th 1128, 80 Cal.Rptr.3d 398.

Clark argued both the underlying excuse for her original default in answering the Complaint as the death of her son, travel and other difficulties with her lawyers. She also asserted "she denies involvement in any of the fraud and deceit practiced on [Shapiro]."⁵ Shapiro countered with declarations asserting Clark was not an innocent spouse, but was personally involved in B.W. Clark's business and sham development projects.⁶

The Court of Appeal recited the comments of the Trial Court that he:

[W]as concerned about the risk that vacating the judgment would permit appellant and Clark to avoid collection: `[O]ther than all the red flags that are flying all over this thing, the likelihood is I would grant her relief. There is a bunch of stuff that went on. The death of her son. Being in Florida.... [T]here is some interruption in communication and all of that stuff.' Yet the court was concerned that `if I grant the relief you're seeking, I'm doing a huge disservice to the plaintiff because I think the plaintiff is going to be hung out to dry....' The [trial] court later commented on the apparent magnificence of the house appellant and Clark were constructing in Florida, and then observed that based on respondent Shapiro's declaration, he `got screwed.'⁷

The Court of Appeal held that (1) Clark's appeal was not timely; (2) the trial court properly granted relief from the California Default; (3) the trial court properly ordered security for the potential award of compensatory damages; (4) the security in the Relief From Default was excessive, since it included punitive damages. The Court of Appeal then adverted to the further delays that a remand would bring and stated "In the interest of judicial economy, we will set the amount of security at $400,000. ..." plus the attorney's fees set forth in the Relief from Default.⁸ The appeal from the California Default was dismissed.

Clark had a second opportunity to present her case in the Superior Court. She did not post the reduced bond, and the Court of Appeals decision became final during the pendency of this bankruptcy case. There was no excusable neglect in her untimely motion for reconsideration in the trial court or her untimely appeal from the California Default even if there may have been in Clark's default on her answer. Nor was there an excuse for failing to post the bond first required by the Trial Court and then modified by the Court of Appeal. The California trial and appellate courts gave Clark the opportunity to litigate her defenses. Clark should not be afforded the right to litigate those decided issues in her bankruptcy case.

Proceedings in Bankruptcy

Clark filed this Chapter 7 case on May 26, 2006 ("Petition Date"), which stayed her appeal pending in the Court of Appeal. Shapiro was granted relief from stay for all aspects to finalize the appeal.⁹ Shapiro filed the final order of the California Court of Appeal on October 2, 2008 and Clark was provided an opportunity to respond to Shapiro's Motion for Summary Judgment.¹⁰

Nondischargeability and Summary Judgment Elements

Shapiro requests the California Default Judgment be deemed nondischargeable pursuant to Sections 523(a)(2)(A), 523(a)(4) and 523(a)(6) of the Bankruptcy Code.

Shapiro established each of the...