IN RE ROBUSTELLI

• Decision Date: 06 April 2010
• Docket Number: Bankruptcy No. 08-71343-PWB.,Adversary No. 08-06513.
• Parties: In re James Robert ROBUSTELLI, Debtor. Lou Robustelli Marketing Services, Inc., Plaintiff, v. James Robert Robustelli, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

430 B.R. 709

In re James Robert ROBUSTELLI, Debtor.

Lou Robustelli Marketing Services, Inc., Plaintiff, v. James Robert Robustelli, Defendant.

Bankruptcy No. 08-71343-PWB. Adversary No. 08-06513.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

April 6, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Stephen T. LaBriola, Steven M. Kushner, Fellows LaBriola LLP, Atlanta, GA, for Plaintiff.

Chris D. Phillips, G. Frank Nason, IV, Lamberth, Cifelli, Stokes, Ellis & Nason, Atlanta, GA, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

PAUL W. BONAPFEL, Bankruptcy Judge.

I. Nature of the Proceeding and Procedural Background

A. Introduction

This adversary proceeding concerns the dischargeability of claims asserted by the Plaintiff, Lou Robustelli Marketing Services, Inc. ("LRMS"), whose shareholders are Lucian Robustelli ("Lou") and his wife, Helen, against their son, the Debtor and Defendant, James Robustelli ("Jim"). LRMS's business involved the solicitation of corporate clients to use sporting events, including the Super Bowl, the U.S. Open Tennis Tournament, college football games, and the Masters Tournament in Augusta, Georgia, as marketing tools for their businesses. Its main program and largest source of revenue was marketing corporate events and promotions around the Masters Tournament.¹

The claims arise out of Jim's management of the corporation and operation of its sports event marketing business as its president prior to his resignation on October 24, 1997 and his formation of a new company, Robustelli Sports & Events Marketing, Inc. ("RSEM"), to engage in the same type of business. Jim's resignation followed unsuccessful negotiations between father and son regarding the sale of the business to Jim, who had no ownership interest.² Jim's wife, Sandra Robustelli, who had provided bookkeeping and clerical services for LRMS, became a shareholder, officer, and director of RSEM.

At the time of his resignation, Jim was (and had been for several years) responsible for LRMS's day to day operations, including the solicitation of clients, preparation of contracts with clients, arranging events, programs, and housing accommodations, and securing tickets for the sports events. Jim's new company eventually did business with many of the clients of LRMS, which did not conduct business operations following Jim's resignation.

In June 2001, LRMS filed a complaint in the State Court of Fulton County against Jim, Sandra, and RSEM asserting a number of claims against them. After a four day jury trial in January 2006, the jury returned a verdict³ in favor of LRMS against Jim and Sandra for $31,653 for breach of fiduciary duty, $12,650.30 for conversion,⁴ and $92,000 in attorney's fees and expenses of litigation. The jury found that RSEM was liable for tortious interference with business relations⁵ and that Jim was liable for misappropriation of trade secrets⁶ but awarded zero damages on both claims. The jury declined to award punitive damages.⁷

On appeal,⁸ the Court of Appeals of Georgia affirmed the verdict against Jim and Sandra on the conversion claim and ruled that the award of zero damages on the claims for tortious interference with business relations and misappropriation of trade secrets was a judgment for the defendants.⁹ The Court of Appeals also affirmed the jury verdict with regard to Jim's liability on the breach of fiduciary duty claim but reversed as to Sandra's liability, concluding that she could not be held liable for breach of fiduciary duty because she was not an officer, director, or agent of LRMS.¹⁰ The Court of Appeals vacated the awards of damages for breach of fiduciary duty and attorney's fees because it could not determine "whether these portions of the jury's award were based on the proper claim for Jim's breach of fiduciary duty or the improper one against Sandra."¹¹ The court remanded "for a new trial limited to the question of damages arising from Jim's breach of fiduciary duty, including fees and punitive damages."¹²

Jim filed his Chapter 7 bankruptcy petition on June 17, 2008,¹³ and LRMS timely filed its complaint initiating this adversary proceeding in which it seeks a determination that certain claims against Jim are excepted from discharge under paragraphs (2), (4), and (6) of 11 U.S.C. § 523(a).

B. Allegations of the Complaint in this Proceeding

Count One of the complaint in this adversary proceeding alleges, "By virtue of Jim's misrepresentations and conversion of funds belonging to LRMS, LRMS has suffered damages in an amount not less than $202,000, plus interest."¹⁴ In this claim, LRMS asserts that Jim failed to account for a profit of $202,000 that LRMS made on the 1997 Masters Tournament prior to Jim's resignation.¹⁵ LRMS asserts that Jim's conduct in this regard constituted fraud or defalcation while acting in a fiduciary duty, such that the claim is excepted from discharge under § 523(a)(4), or actual fraud, such that it is excepted under § 523(a)(2)(A). Count Three of the complaint alleges that the claim is also excepted from discharge under § 523(a)(6) as willful and malicious injury to LRMS's property.

In Count Two, the complaint asserts that Jim's "tortious and fraudulent conduct" constituted a "breach of his fiduciary duties of good faith and loyalty to LRMS" as a result of which he received "money rightly belonging to LRMS, which caused LRMS to suffer damages."¹⁶ Jim breached his fiduciary duties, the complaint continues, "by, among other things, usurping corporate opportunities of LRMS, both prior to and subsequent to his resignation from LRMS."¹⁷ This claim centers on the allegations that, prior to and after Jim's resignation, he "began competing against LRMS for the very clients he recently solicited for LRMS," including contacting all of LRMS's customers on behalf of Jim's competing company, RSEM; that Jim copied and used LRMS's address book, customer lists, other records, and all of LRMS's confidential information; that he took and used LRMS's telephone and facsimile numbers and did not forward calls to LRMS; that he created and used letterhead for his new business that was "deceptively similar" to LRMS's letterhead; and that he withheld information from LRMS, including information regarding solicitation of LRMS's clients for the next year's (1998) Masters Tournament and other Masters-related information such as badge and sources for rental homes.¹⁸

Count Two alleges that, after his resignation, Jim continued to solicit clients for the 1998 Masters program on behalf of his new company that he had solicited on behalf of LRMS while managing LRMS.¹⁹ Although it is not clear from the complaint, it appears that Count Two asserts claims for breach of fiduciary duty through usurpation of corporate opportunities of LRMS that caused damages in the amount of profits that Jim's new company made on the Masters program for 1998 and subsequent years. The complaint seeks exception from discharge of these claims because they constitute fraud or defalcation under § 523(a)(4) or actual fraud under § 523(a)(2)(A). Count Three asserts that these claims are also excepted from discharge under § 523(a)(6) because they are for willful and malicious injury to LRMS's property.

C. The Motions for Summary Judgment and Stipulation for Trial on Stipulated Record

Each party filed a motion for summary judgment and briefs in support of the motion and in opposition to the adversary's. The Court granted partial summary judgment in favor of Jim that LRMS's claims are not excepted from discharge under § 523(a)(4),²⁰ concluding that the general fiduciary duty that Georgia law imposes on a corporate officer does not establish the type of technical trust that is necessary to except a debt from discharge based on fraud or defalcation in a fiduciary capacity under § 523(a)(4).²¹

The record before the Court in connection with the motions for summary judgment did not include the charge to the jury or the jury verdict. The Court concluded that, in the absence of this information, it could not determine whether LRMS's claims were excepted from discharge under § 523(a)(6) or § 523(a)(2).

In the course of ruling on the motions for summary judgment, the Court observed:²²

The Court has struggled to match the claims asserted by the Plaintiff in this proceeding to the claims that were actually tried in the State Court litigation and to the single claim that remains open on remand for determination of damages in accordance with the decision of the Court of Appeals. Although it is quite clear that Jim is liable as a matter of law for breach of fiduciary duty, the Court cannot tell what damages LRMS is entitled to recover under that claim....

For purposes of ruling on the pending motions, the Court will address what appear to be the two principal claims that LRMS asserts are excepted from discharge. One is for the profits from the Masters programs for 1998 and subsequent years, which the Court will refer to as "Future Masters Profits." The second is for the profit of $202,000 from the 1997 Masters program, which the court will refer to as the "1997 Masters Profit."

After setting forth its ruling on the motions for summary judgment, the Court outlined its assessment of the remaining issues to be resolved in this proceeding and scheduled a status and scheduling conference to consider further proceedings.²³ Among other things, the Court solicited the views of the parties as to (1) whether the Court could resolve remaining issues through additional motions for summary judgment based on stipulated facts or a record that included the jury charge, jury verdict, and transcript of proceedings in the State Court litigation; and (2) whether this Court should first determine dischargeability before any further proceedings in the State Court or, alternatively, whether the automatic stay should be lifted to permit litigation in the State Court to determine some or all of the issues...