In re Maresh
| Decision Date | 19 September 2001 |
| Docket Number | No. 00-3204.,00-3204. |
| Citation | 277 B.R. 339 |
| Parties | In re Robert William MARESH, Debtor. Norma Jean Ronk, Plaintiff, v. Robert William Maresh, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
William Paul Bringman, Fredericktown, OH, for plaintiff.
David B. Shillman, Cleveland, OH, for defendant.
This cause comes before the Court upon the Plaintiff's Motion for Summary Judgment, Memorandum in Support, and Response to the Defendant's Motion for Summary Judgment; and the Defendant's Motion for Summary Judgment, Memorandum in Support, Reply, and Brief Opposing the Plaintiff's Motion for Summary Judgment. This Court has now had the opportunity to review the arguments of Counsel, the exhibits, as well as the entire record of the case. Based upon that review, and for the following reasons, the Court finds that the Plaintiff's Motion for Summary Judgment should be Denied; and that the Defendant's Motion for Summary Judgment should be partially Granted.
The origins of this adversary proceeding stem from the involvement of the Defendant/Debtor, Robert William Maresh (hereinafter referred to as the "Debtor"), in the now defunct Ohio corporation (and its satellite subsidiaries) know as Family Resorts of America, Inc. This corporation was originally formed in 1983 by a number of people, including the Debtor and a person by the name of Baird Ronk, for the purpose of buying and operating a campground. The Debtor's role in this corporation was threefold: shareholder; member of the board of directors; and corporate secretary. While serving in these capacities, the Debtor contends that although he performed his statutorily prescribed duties, his actual involvement in the corporation was, comparatively speaking, limited.
In support thereof, the Debtor averred, in an affidavit submitted to the Court, the following:
His participation in the FRA was a part-time occupation;
He and other directors of FRA reasonably relied on a business manager — a one David Monea — to manage the business affairs of FRA and its related companies;
In conjuncture with other members of the board of directors, he actively and regularly exercised general supervisory control over the conduct of company business by participating in regular monthly meetings and by controlling the issuance of certain corporate checks;
He has no formal education in the area of business administration or law. In deciding that FRA would do business using multiple satellite companies, and in participating in the business of those companies, he reasonably relied on the advice of corporate counsel that the company was proceeding lawfully.
.
The Plaintiff, although not altogether disagreeing with the above facts, argues that the Debtor's role in FRA was actually more involved. In making this assertion, the Plaintiff compared the Debtor's role in the corporation to that of FRA's corporate secretary, Baird Ronk, who like the Debtor was both a shareholder and director of the corporation. As will be more fully explained later, the reason for the Plaintiff making this assertion is that Baird Ronk was later found liable for breaching his fiduciary duties as a director of FRA. On this matter, however, the Debtor asserts that his role in FRA was sufficiently distinguishable from that of Baird Ronk's so as to negate the effectiveness of any comparison between the two Parties. For example, the Debtor points out that unlike himself, Baird Ronk was a participant in two boards — a President's Board and an Executive Board — whose members made high-level policy decision for FRA. In addition, the Debtor brought to this Court's attention the fact that Baird Ronk personally managed one of the resort facilities operated by FRA.
On October 13, 1988, FRA filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code; the Honorable James H. Williams from the Bankruptcy Court in Canton, Ohio served as Bankruptcy Judge. Thereafter, on July 20, 1989, the Trustee appointed to administer the assets of FRA filed in the bankruptcy court a complaint against the former directors, officers and shareholders of the corporation, including the Debtor and Baird Ronk, to recover damages allegedly sustained by the corporation as a result of the wrongful acts of the defendants. On this cause of action, a default judgment was eventually entered against the Debtor and some of the other defendants in this action for Five Million dollars ($5,000,000.00). The pertinent facts surrounding the entry of this judgment, as it pertains to the Debtor, are as follows:
On March 7, 1990, Judge Williams granted the Debtor's legal counsel leave to withdraw as counsel. From that time forward the Debtor was not represented by legal counsel.
On March 12, 1990, Judge Williams ordered the Debtor to respond to the Trustee's discovery requests. In doing so, the Court noted that "Failure to compile [sic] may result in further sanctions as permitted by rule."
On April 30, 1990, Judge Williams ordered the Debtor to appear to show cause why sanctions, including a default judgment, should not be imposed for failure to respond to discovery.
On May, 15, 1990, Judge Williams granted the Debtor until May 21, 1990, to respond to discovery requests. The order provides that failure to comply will result in a default judgment being entered.
On June 8, 1990, the Trustee filed a Motion for Entry of Default Judgment against the Debtor. In support thereof, the Trustee, in an attached affidavit, stated that the Debtor had provided a document entitled "Answers to Interrogatories" but that said answers were not in conformity with the Rules of Bankruptcy Procedure as the answers were unsigned and unsworn.
On July 5, 1990, Judge Williams granted the Trustee's Motion.
The decision to grant the Trustee's Motion for a Default Judgment against the Debtor was later upheld on appeal.
Sometime following the entry of a default judgment against the Debtor, the bankruptcy court granted a motion to reconsider damages. An evidentiary hearing was then held to determine the damages to be assessed against the defendants named in the Trustee's complaint. Contemporaneous with this hearing, a Trial was also conducted to determine whether the other defendants, including Baird Ronk, were actually liable to the Trustee for the damages to be ascertained at this hearing.
On August 16, 1994, the bankruptcy court issued its Memorandum of Decision. In this Decision, the bankruptcy court initially found that Baird Ronk was, in fact, liable to the Trustee for damages. In making this ruling, the bankruptcy court found that Baird Ronk had breached his fiduciary duty in two ways: First, Baird Ronk, by abdicating his director's position in FRA to an Executive Board (of which he was a member), had not complied with Ohio corporate law which requires that a corporate director execute his duties in good faith, for the best interest of the corporation and with due care. Second, the bankruptcy court found that Baird Ronk did not reasonably rely on the advice of a consulting expert — a one David Monea — because, in violation of O.R.C. §§ 1333.91 & 1333.92, FRA was involved in a pyramid scheme. On this latter finding, the bankruptcy court observed that a reasonable investigation would have revealed that the transactions of FRA failed to meet the requirements of Ohio law. Philip Zimmerman, Trustee v. Baird Ronk, et al. (In re Family Resorts of America, Inc.), Ch. 7 Case No. 688-01483, Adv. No. 689-0122, at pgs. 18-19, (Bankr.N.D.Ohio 1994) (Judge Williams). With respect to damages, the bankruptcy court held that the Trustee, on behalf of FPA, was entitled to Seven Million Two Hundred Eight Thousand Four Hundred Thirty-seven dollars ($7,208,437.00) in damages. In fixing damages at this amount the bankruptcy court stated:
The Trustee presented evidence of $7,208,437.00 in damages at the evidentiary hearing. The defendants did not controvert the accuracy of the evidence regarding the investments shown to have been made. It was contended that the calculation of the amount of interest which had accrued on the notes and was included in the damage analysis was improper. The court finds that the damage analysis provided was a proper measure of damages and that the defendants must be held jointly and severally liable in the amount $7,208,437.00.
Id. at 21. A portion of this judgment, in the amount of Two Hundred Thousand dollars ($200,000.00), was later assigned to the Plaintiff, Norma Jean Ronk (hereinafter referred to as the "Plaintiff"), by the Trustee.
On May 25, 2000, the Debtor petitioned this Court for relief under Chapter 7 of the United States Bankruptcy Code. The Plaintiff then, on August 30, 2000, commenced the instant adversary complaint seeking to have her claim against the Debtor found nondischargeable. The statutory grounds upon the Plaintiff relies for her cause of action is 11 U.S.C. § 523(a)(4) which, in part, excludes from the scope of a bankruptcy discharge those debts incurred by a debtor who, while acting in a fiduciary capacity, commits the act of defalcation. On the issue of the Plaintiff's compliance with the requirements of § 523(a)(4), both Parties filed a Motion for Summary Judgment.
Section 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt —
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]
Proceedings brought to determine the dischargeability of a particular debt are core proceedings pursuant to 28 U.S.C. § 157(b)(2). Thus, this case is a core proceeding.
The instant case has been brought before the Court upon the Parties' Cross Motions for Summary Judgment....
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