In re Hovis

• Decision Date: 18 April 2007
• Docket Number: Adversary No. 98-80220-JW.,Bankruptcy No. 97-01929-JW.,C.A. No. 2:06-2483-PMD.
• Citation: 396 B.R. 895
• Court: U.S. District Court — District of South Carolina
• Parties: In re W. Ryan HOVIS, Trustee for Marine Energy Systems Corporation, Debtor. W. Ryan Hovis, Trustee for Marine Energy Systems Corporation, Plaintiff-Appellant, v. General Dynamics Corporation, Electric Boat Corporation, Seimens Westinghouse Power Corp., and Viacom, Inc., Appellees-Defendants.

396 B.R. 895

In re W. Ryan HOVIS, Trustee for Marine Energy Systems Corporation, Debtor W. Ryan Hovis, Trustee for Marine Energy Systems Corporation, Plaintiff-Appellant, v. General Dynamics Corporation, Electric Boat Corporation, Seimens Westinghouse Power Corp., and Viacom, Inc., Appellees-Defendants.

C.A. No. 2:06-2483-PMD.

Bankruptcy No. 97-01929-JW.

Adversary No. 98-80220-JW.

United States District Court, D. South Carolina.

April 18, 2007.

COPYRIGHT MATERIAL OMITTED

Stephen Elliott Gonzales, North Charleston, SC, Steven Angstreich, Levy, Angstreich, Finney, Thomas S. Harty, Philadelphia, PA, for Debtor/Plaintiff-Appellant.

Paul N. Bonavita, Levy Angstreich, Philadelphia, PA, W. Ryan Hovis, Rock Hill, SC, for Plaintiff-Appellant.

George Barry Cauthen, Jody A. Bedenbaugh, Nelson, Mullins, Riley and Scarborough, Columbia, SC, Lawrence S. Schaner, Richard T. Franch, Susan C. Levy, Jenner & Block, LLC, Chicago, IL, Charles Pelot Summerall, IV, Buist, Moore, Smythe & McGee, PA, Charleston, SC, for Appellees-Defendants.

ORDER

PATRICK MICHAEL DUFFY, District Judge.

This matter is before the court upon Plaintiff's ("Plaintiff or "Appellant") appeal of the final Orders entered by the United States Bankruptcy Court for the District of South Carolina on July 31, 2006 and August 7, 2006, and the interlocutory Order of the Bankruptcy Court dated April 22, 2005 rendered final by the other two orders. Appellees General Dynamics Corporation and Electric Boat Corporation have timely responded to this Appeal.¹

BACKGROUND

In 1994, Defendants entered into an asset purchase agreement ("APA") with New Charleston Capital, Inc., for the sale of certain assets to New Charleston. After the agreement was executed, New Charleston Capital assigned its rights to Marine Energy Systems Corporation ("MESC"). Under the agreement, MESC contracted to acquire the assets necessary to run General Dynamics' liquefied natural gas ("LNG") and barge mounted power plant businesses ("BMPP").

In March 1997, MESC filed for bankruptcy. MESC filed a plan of reorganization, and the Bankruptcy Court confirmed the plan on July 2, 1998. The plan failed, and on November 19, 1998, the bankruptcy was converted into a Chapter 7 case. W. Ryan Hovis, Plaintiff, is serving as trustee.

On October 15, 1998, prior to the conversion, Plaintiff filed an adversary proceeding against General Dynamics. This complaint sought to compel General Dynamics to turn over all intellectual property purchased under the APA as well as a reformation of the APA based on General Dynamics' alleged fraud, accident, or mistake in omitting certain language concerning intellectual property from the APA. Plaintiff filed an Amended Complaint on January 28, 2000, in which he raised additional claims including breach of contract, breach of the implied covenant of good faith, and fraud. In June of 2003, the Bankruptcy Court again allowed Plaintiff to amend his complaint. In this amendment, Plaintiff joined Westinghouse and Viacom as Defendants.² Plaintiff also added claims against General Dynamics for negligence, negligent misrepresentation, detrimental reliance, and conspiracy. Furthermore, the Amended Complaint expanded the allegations in MESC's existing breach of contract and fraud claims.

On October 13, 2004, the parties filed cross-motions for summary judgment. The court heard oral argument on the motions in February of 2005, the Honorable William Thurmond Bishop presiding. Judge Bishop entered an order dated April 22, 2005, in which the court denied Plaintiff's motion in its entirety but granted General Dynamics' motion with respect to the following claims: breach of contract, breach of the implied covenant of good faith, specific performance, constructive fraud, negligence, detrimental reliance, and conspiracy. The court denied General Dynamics' motion with respect to MESC's claims for fraud and negligent misrepresentation.

On September 7, 2005, Plaintiff amended his answers to General Dynamics' interrogatories in which Plaintiff identified thirty-seven alleged misrepresentations. Plaintiff states these "answers further specified the representations made by General Dynamics that Plaintiff considered to be false as revealed by the discovery." (Pl.'s Br. at 7.) General Dynamics states Plaintiff previously asserted nineteen of these misrepresentations but that eighteen were "brand new." (Defs.' Br. at 4.) General Dynamics sought to bar MESC from presenting evidence at trial on these "new" fraud allegations, but Judge Bishop denied this request and allowed General Dynamics to conduct limited discovery on these allegations.

On February 28, 2006, the case was reassigned to Judge John E. Waites following the retirement of Judge Bishop. General Dynamics moved for summary judgment on MESC's new fraud allegations on June 16, 2006. In an Order dated July 31, 2006, Judge Waites granted General Dynamics' Motion for Summary Judgment and dismissed Plaintiff's new fraud allegations. Based on the July 31 Order, Plaintiff acknowledged his remaining fraud claims were barred by the court's decision.³ By Stipulation of Dismissal dated August 7, 2006, Plaintiff's remaining fraud and negligent misrepresentation claims against General Dynamics were dismissed. On August 9, MESC filed a notice of appeal in which it sought review of the following orders: April 22, 2005; July 31, 2006; and August 7, 2006.

STANDARD OF REVIEW

A. Standard of Review of The Bankruptcy Court's Orders

Under 28 U.S.C. § 158(a), United States District Courts have jurisdiction to hear appeals of final judgments, orders, and decrees of Bankruptcy Courts. On appeal from the Bankruptcy Court, the district court acts as an appellate court and reviews the Bankruptcy Court's findings of fact for clear error, while it reviews the conclusions of law de novo. Devan v. Phoenix Am. Life Ins. Co. (In re Merry-Go-Round Enters., Inc.), 400 F.3d 219, 224 (4th Cir.2005); Kielisch v. Educ. Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001). The Bankruptcy Court's grant of summary judgment is reviewed de novo under Rule 56 of the Federal Rules of Civil Procedure. Tidewater Fin. Co. v. Williams, 341 B.R. 530, 533 (D.Md.2006) (citing Century Indem. Co. v. Nat'l Gypsum Co. Settlement Trust (In re Nat'l Gypsum Co.), 208 F.3d 498, 504 (5th Cir.2000)). The district court may affirm, modify, or reverse a Bankruptcy Judge's order, or remand with instructions for further proceedings. See Fed. R. Bankr.P. 8013. The court has reviewed the file and determines that oral argument is not necessary. See Fed. R. Bankr.P. 8012 ("Oral argument shall be allowed in all cases unless the district judge ... determined] after examination of the briefs and record, or appendix to the brief, that oral argument is not needed.").

B. Legal Standard for Summary Judgment

To grant a motion for summary judgment, the court must find that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c).⁴ The judge is not to weigh the evidence but rather must determine if there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All evidence should be viewed in the light most favorable to the nonmoving party. Perini Corp. v. Perini Constr., Inc., 915 F.2d 121, 123-24 (4th Cir.1990). "[W]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, disposition by summary judgment is appropriate." Teamsters Joint Council No. 83 v. Centra, Inc., 947 F.2d 115, 119 (4th Cir.1991). "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The "obligation of the nonmoving party `is particularly strong when the nonmoving party bears the burden of proof.'" Hughes v. Bedsole, 48 F.3d 1376, 1381 (4th Cir.1995) (quoting Pachaly v. City of Lynchburg, 897 F.2d 723, 725 (4th Cir.1990)). Summary judgment is not "a disfavored procedural shortcut," but an important mechanism for weeding out "claims and defenses [that] have no factual basis." Celotex, 477 U.S. at 327, 106 S.Ct. 2548.

ANALYSIS

Plaintiff appeals three of the Bankruptcy Court's orders. Before addressing Plaintiff's arguments, a review of the relevant portions of those orders is necessary.

A. Order Dated April 22, 2005

In his Order dated April 22, 2005, Judge Bishop denied Plaintiff's Motion for Summary Judgment in its entirety but granted General Dynamics' Motion for Summary Judgment with respect to the following claims: breach of contract, breach of the implied covenant of good faith, specific performance, constructive fraud, negligence, detrimental reliance, and conspiracy. The court denied General Dynamics' Motion for Summary Judgment with respect to MESC's claims for fraud and negligent misrepresentation. At issue on appeal is the Bankruptcy Court's grant of summary judgment with respect to Plaintiff's breach of contract claims.

The Bankruptcy Court first found MESC's claim for breach of contract was barred by judicial estoppel. The court noted the following rule: "under the doctrine of judicial estoppel, a Chapter 11 debtor's failure to disclose a claim in its Schedules or Disclosure Statement bars the debtor from litigating that claim after confirmation of a plan of reorganization." (See Apr. 22, 2005 Order at 9.) As MESC did not disclose its claim until after the plan had been confirmed, the court held MESC's claim for breach of contract was barred. The court noted that while MESC alleged it did not learn of its purported claims until after confirmation, Saul Gliserman's...