In Re: Gregory Ladieu

• Decision Date: 24 February 2011
• Docket Number: Adversary Proceeding # 08-1010,Chapter 7 Case # 07-10868
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re: Gregory Ladieu, Debtor Rentrak Corporation, Plaintiff, v. Gregory Ladieu, Defendant.

In re: Gregory Ladieu, DebtorRentrak Corporation, Plaintiff,

v.Gregory Ladieu, Defendant.

Chapter 7 Case # 07-10868

Adversary Proceeding # 08-1010

UNITED STATES BANKRUPTCY COURT DISTRICT OF VERMONT

Date: February 24, 2011

Appearances: W. Scott Fewell, Esq.

Burlington,

Attorney for Plaintiff

David W. Lynch, Esq.

Colchester,

Attorney for Defendant

MEMORANDUM OF DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGEMENT

On June 2, 2008, Plaintiff, Rentrak Corporation ("Rentrak") filed a two-count complaint against the Defendant-Debtor, Gregory Ladieu ("Ladieu") seeking a declaration that the amounts Ladieu owes to Rentrak under the agreement between Rentrak and Ladieu's company, Galadieu Enterprises LLC ("Galadieu"), are non-dischargeable under §§ 523(a)(4) and (a)(6) of the Bankruptcy Code (the "Code").¹ Ladieu filed an answer (doc. # 5), which contained affirmative defenses (unclean hands and failure to state a claim) and a counterclaim for attorney's fees and costs.

In its motion for summary judgment (doc. # 35), Rentrak seeks a judgment on its claims that Ladieu's obligations to Rentrak are nondischargeable under §§ 523(a)(4) and 523(a)(6). Ladieu has filed opposition to the motion for summary judgment and a cross-motion for summary judgment (doc. # 36). Ladieu's opposition requests that the Court deny Rentrak's motion because Ladieu did not owe Rentrak a fiduciary duty, and there are disputes regarding material facts determinative of whether Ladieu willfully or maliciously converted Rentrak's property. At a hearing on January 5, 2010, the Court granted Ladieu's motion to reopen summary judgment pleadings (doc. # 50) to allow Ladieu to brief new legal issues in light of the Court's ruling in Nanak Resorts, Inc. v. Haskins Gas Service, Inc. (In re Rome Family Corp.), 407 B.R. 65 (Bankr. D. Vt. 2009) (hereafter the "Rome decision"). Bothparties filed briefs, (docs. ## 57, 58, 60, 62). In his brief, Ladieu asserts as another point of opposition to the Rentrak's motion that the agreement entered into between the parties is not a lease, but rather is a disguised security agreement (doc. #57).

Ladieu's cross-motion for summary judgment (doc. # 36) seeks a ruling that in the event the Court grants Rentrak summary judgment on the issue of liability, no damages are due because the damages Rentrak seeks, in the amount of $46,547.28, are unreasonable and unenforceable. His rationale for this position is: (1) the damages are not conclusively established by Rentrak's judgment from Oregon state court (the "Oregon Judgment") against Galadieu; (2) the damages are not properly set by the damages provision relied upon by Rentrak, ¶ 8.2.3 of their agreement; and (3) a portion of the fees Rentrak seeks are clearly outside the scope of § 523 as they arise from an ordinary breach of contract claim.

For the reasons set forth below, the Court finds there are material facts in dispute and therefore denies Rentrak's summary judgment motion seeking judgment as a matter of law against Ladieu under §§ 523(a)(4) and 523(a)(6), and the Court denies summary judgment on Ladieu's motion for a determination that the amount of damages Rentrak seeks is unreasonable and unenforceable.

ISSUES PRESENTED

These cross-motions for summary judgment present four issues: First, is it Oregon or Vermont law that determines the outcome of the legal issues before the Court? Second, is the parties' agreement a disguised security agreement or a true lease? Third, does Ladieu owe a fiduciary duty to Rentrak? Fourth, does the parties' agreement include a valid liquidation damages provision that establishes Rentrak's right to the damages it asserts?

JURISDICTION

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B) and (I).

UNDISPUTED MATERIAL FACTS

Under local rule 7056-1(3), "[a]ll material facts in the movant's statement of undisputed facts are deemed admitted except to the extent controverted by a statement of disputed material facts filed by the opposing party." Vt. LBR 7056-1(3). The Court finds the following facts to be material as to the issues raised in the parties' cross-motions for summary judgment and to be undisputed based upon the record:

1. Ladieu formed Galadieu and was its sole member. Plaintiffs Statement of Undisputed Material Facts (hereafter "PSUMF") ¶ 1 (doc. # 35-2).

2. Galadieu purchased a Showtime Video and Big Scoop Ice Cream Shop ("Showtime Video") in May of 2005; that business was located in Swanton, Vermont. PSUMF ¶ 2. 3. Galadieu was formed solely for the purpose of acquiring Showtime Video. PSUMF ¶ 3.

4. Showtime Video, among other things, was in the business of renting and/or selling pre-recorded video cassettes and digital video discs. PSUMF ¶ 4.

5. On May 31, 2005, Rentrak and Galadieu d/b/a Showtime Video entered into a general pay-per-transaction agreement (the "PPT Agreement"). PSUMF ¶ 5; Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

6. Rentrak and Galadieu also entered into studio addenda with Lions Gate (5/31/05), Fox (5/31/05), Sony (11/17/05), and Paramount (9/2005) (the "Studio Addenda") (collectively the PPT Agreement and the Studio Addenda are referred to as the "Agreement"). PSUMF ¶ 5; Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3) (consisting of the PPT Agreement and each Studio Addenda).

7. Ladieu signed the PPT Agreement on behalf of Galadieu. PSUMF ¶ 5; Exhibit B in the Appendix of Exhibits to Rentrak's Mot. (doc. # 35-3); Ex. B in the App. of Exs. to Rentrak's motion (doc. # 35-3).

8. Ladieu also executed a personal guarantee of Galadieu's obligations under the PPT Agreement. PSUMF ¶ 6; Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

9. Pursuant to the Agreement, Rentrak leased pre-recorded video cassettes and digital video discs ("Cassettes") to Galadieu based on a revenue sharing arrangement for Galadieu's retail customers to rent and/or purchase. PSUMF ¶ 7.

10. The PPT Agreement contained general terms and obligations, and the Studio Addenda contained additional lease terms, with the revenue sharing percentages for Cassettes established on a title-by-title basis by the reproducing studio(s). PSUMF ¶¶ 5 and 7; Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

11. The Agreement required Galadieu to remit monies/fees to Rentrak generated by Galadieu's rental and sale of Cassettes. Galadieu's remittal obligations included, but were not limited to, a minimum monthly fee, a minimum transaction fee and/or a percentage of the revenue obtained from rental of the Cassettes, a percentage of collected late fees; and a fee for the purchase of Cassettes or a percentage of revenue received from the sale of Cassettes. PSUMF ¶ 9; Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

12. Under the terms of the PPT Agreement, Galadieu was required to do, or be subject to, the following:

a. utilize a compatible point-of-sale ("POS") computer system to record all video rental and sale transactions, at the time of the rental or sale transaction occurred, and toelectronically report accurate and complete information of the rental or the sale to Rentrak (1.1.1 & 1.1.5);

b. enter all Cassettes into the POS computer upon receipt and make them available for rental within one day of receipt (1.1.6);

c. prohibit the removal of Cassettes from Galadieu's rental inventory and prohibit the purchase of rental inventory prior to the end of the title's lease term (2.2);

d. make available at least one copy for rental during each title's lease term (2.4);

e. prohibit the sale of any Cassettes prior to the published sale date (2.3);

f. return all Cassettes not sold as permitted under the Agreement or already returned to [Rentrak], or, if permitted to, kept, and to return all returned Cassettes in good condition, normal wear and tear accepted, and in their original packaging (2.4);

g. be responsible for general lease terms including "Order Processing Fee," "Transaction Fee," "Sell-Through Fee," and "Buy-Out Fee" all of which were set by the Studio Addenda, and monthly "Access/User Fee" and "Processing Fee" set by the PPT Agreement (5.1-5.2);

h. fulfill its fiduciary duty, i.e., hold in trust, and remit to Rentrak, Rentrak's portion of the rental and sale proceeds, and report to Rentrak in accordance with the Agreement (9.6); and

i. as to termination

i. the PPT Agreement would terminate "after (i) all Galadieu's obligations under the PPT Agreement were satisfied, and (ii) ninety (90) days after the last day of the last lease term of any Cassettes ordered under the Studio Addenda" (7.1);

ii. Galadieu was required to deliver to Rentrak, within fifteen (15) days after the lease's termination, all Cassettes not validly purchased or otherwise properly disposed as provided by the Agreement, and return the Cassettes in good condition (normal wear and tear excepted) and to ship them in their original packaging, with all shipping and postage prepaid (7.2).

Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

13. The Studio Addenda all set forth general terms regarding ordering obligations, articulated the fee schedules applicable to Cassettes ordered from each specific studio covering the above-referenced fees, and provided that in the event of termination of any individual studio addenda all of Galadieu's obligations under the PPT Agreement remained in full effect. Ex. B in the App. of Exs. to Rentrak's Mot. (doc. # 35-3).

14. In early October 2007, Rentrak became aware that Ladieu was having financial difficulties. PSUMF ¶ 15.

15. Sometime in November 2007, Ladieu decided to close the store and notified Rentrak of his decision. PSUMF ¶ 17; Affidavit of Gregory Ladieu ¶ 1 (Ex. A to Ladieu's Opp'n. to Rentrak's Mot. and Cross-Mot. For Summ. J. (doc # 36-1)).

16. On November 1, 2007, Rentrak sent a letter to Ladieu advising him that the Galadieu account was delinquent. PSUMF ¶ 16.

17. As of November 7, 2007, Rentrak's records showed that Galadieu had 899 Rentrak Cassettes...