In re Rosendahl
| Decision Date | 18 February 2004 |
| Docket Number | Adversary No. 03-3234-RLD.,Bankruptcy No. 303-30791-RLD7. |
| Parties | In re Jay W. ROSENDAHL, Debtor. Vans Inc., Plaintiff, v. Jay W. Rosendahl, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Oregon |
Gregory A. Nylen, Santa Monica, CA, Stephen P. McCarthy, for Plaintiff.
Richard J. Parker, for Defendant.
This adversary proceeding was heard (the "Hearing") on December 17, 2003, on the parties' cross-motions for summary judgment. This is a core proceeding over which this court has jurisdiction pursuant to 28 U.S.C. §§ 157(b)(2)(I) and 1334 and United States District Court of Oregon Local Rule 2100-1. Plaintiff Vans, Inc. ("Vans") has moved for summary judgment to except its claim from debtor Jay W. Rosendahl's ("Rosendahl") discharge under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6).1 Rosendahl denies that Vans is entitled to summary judgment and has moved for summary judgment or partial summary judgment in his favor, based on various defenses.
Following the Hearing, I have reviewed the pleadings and the parties' evidentiary submissions, as well as applicable legal authorities. The ultimate issues to be determined are whether the findings in arbitration between the parties are entitled to issue preclusion effect and whether issue preclusion applies to support summary judgment in favor of Vans on some or all of the causes of action stated by Vans in its adversary proceeding Complaint (the "Complaint").
On or about May 20, 2002, Vans filed a lawsuit (the "Civil Lawsuit") against Rosendahl and Scott Brabson ("Brabson"), a former Vice President of Vans, alleging, among other things, claims for fraud, conversion, breach of fiduciary duty and constructive trust, in the California state Superior Court for Los Angeles County (the "Superior Court"). Pursuant to the arbitration provisions of the consulting agreement (the "Consulting Agreement") between them, Vans and Rosendahl moved to compel arbitration of the disputes raised in the Civil Lawsuit, and the Superior Court sent the matter to arbitration (the "Arbitration").
The Arbitration was conducted by Justice William A. Masterson (Ret.) (the "Arbitrator"), a retired justice of the California Court of Appeals. The Arbitration took place over eight days, starting December 2 and ending December 9, 2002. After considering the sworn testimony of eleven witnesses, thousands of pages of admitted documentary exhibits and post-hearing briefs, the Arbitrator issued an Interim Award in favor of Vans and jointly and severally against Rosendahl and Brabson on or about January 13, 2003.
Rosendahl sought protection under chapter 7 of the Bankruptcy Code in the District of Oregon on January 27, 2003. On April 1, 2003, this court granted Vans' motion for relief from stay to allow the Arbitrator "to complete a final arbitration award against" Rosendahl in the Arbitration. The Arbitrator issued his Final Award as Against Respondent Rosendahl (the "Final Award") on April 14, 2003. This adversary proceeding was filed on April 24, 2003.
Following is a summary of the factual findings and legal conclusions of the Arbitrator, as set forth in the Final Award:
Vans is a designer, distributor and retailer of certain apparel items, including footwear and snowboard boots. Vans does not make the products it sells. They are manufactured offshore.
For a number of years, Vans' products were manufactured in the Republic of Korea. During the mid-1990's, Vans began considering opportunities to have its products manufactured in China, in order to take advantage of potentially lower costs. To obtain assistance in this effort, in October 1997, Vans hired Brabson, who was experienced both in the shoe business and with overseas manufacturing. Brabson's title was "Vice President-Sourcing," and he entered into a written employment contract with Vans that incorporated by reference Vans'"Code of Ethics" for all employees (the "Code of Ethics"). Final Award, p. 7.
Brabson and Rosendahl were "good friends," who had known one another since 1980, when they started out together in the shoe business at Nike. Rosendahl had extensive experience with respect to shoe design and overseas manufacturing, and Brabson recommended Rosendahl to Vans. On or about August 17, 1999, Rosendahl entered into the Consulting Agreement with Vans, which continued until October 2000. Rosendahl's Consulting Agreement did not incorporate the Code of Ethics. Under the Consulting Agreement, Rosendahl received compensation in the "high five figures." Final Award, pp. 7-8.
Initially, when the move of Vans' manufacturing "sourcing" from the Republic of Korea to China was being considered and implemented, Vans did not have substantial personnel in Asia. The factories with which Vans dealt used an Asian company, CISA or Xi Sha ("CISA"), to assist them with product development for Vans. CISA was owned by a Taiwanese national, whose anglicized name is Kenny Bair ("Bair"). CISA received a 5% commission from the factories doing business with Vans, computed based upon the value of Vans products shipped by the factories. Vans did not participate in paying such commissions to CISA. Final Award, p. 8.
Apparently, Brabson had a business relationship with Bair prior to Brabson's employment by Vans. In May 1997, Bair and Brabson formed a Macao company, Asia League International Limited ("ALI Limited"). Ostensibly, ALI Limited offered consulting services for businesses interested in sourcing their manufacturing in Asia, but Bair testified at the Arbitration that ALI Limited "mostly only collected commissions." Bair further testified that it was agreed between him and Brabson that Rosendahl would be an owner of ALI Limited and share its commission income. Final Award, pp. 8-9.
In addition, Bair testified that the share of ALI Limited's income allocated to Brabson and Rosendahl was deposited to an account designated "Streamflow Holdings" (the "Streamflow Account") at the Bank of East Asia Ltd. in Hong Kong. The Streamflow Account had been opened in May 1995 by Brabson, with his father-in-law, Dragos Kokic, having sole signature authority. Between September 25, 1998, and July 16, 1999, Bair sent a total of $366,817.15 to the Streamflow Account. Final Award, p. 9.
Brabson completed the transfer of manufacturing contracts from the Republic of Korea to China in late 1998-early 1999, at which point he notified Bair and CISA that their services no longer were needed with respect to Vans. It is at this point that Vans claimed Brabson and Rosendahl set up a direct kickback arrangement with the Chinese factories that were doing manufacturing work for Vans. Vans contended that the owner representatives of the factories were told that they should pay 3% of the value of the products they manufactured for Vans into the Streamflow Account. The evidence presented at the Arbitration was that two factories manufacturing products for Vans (Johnson Footwear and Shyang Way) were given these instructions by Rosendahl, and one factory (Lucky Handsome) was so instructed by Brabson. Johnson Footwear, Shyang Way and Lucky Handsome deposited a total of $2,062,053.26 into the Streamflow Account between October 2, 1999, and February 8, 2001. Final Award, pp. 9-11.
From 1999 through early 2001, additional Chinese factories manufacturing products for Vans made the following deposits to the Streamflow Account:
SkyStar/Talent Jumbo $ 492,977.20
Soon Victory/Well Frank 474,099.89
S.S. Ventures 264,795.96
Yu Yueh Chiang/Shing Tak/Quan Tak 1,042,115.60
Pegasus/Wuco Corp. 103,600.00
_____________
TOTAL $2,377,588.65
The Arbitrator found the total of such payments to the Streamflow Account, including the $366,817.15 paid by Bair into the account, to be $4,806,459.06. Final Award, pp. 11-12.
Brabson resigned from his employment with Vans in late 2000 in a departure that Vans' witnesses characterized as abrupt. The Arbitrator found from the evidence that Brabson's leaving was related to changes in corporate reporting and the management structure at Vans. Vans' Consulting Agreement with Rosendahl was not renewed at the end of its term in October 2000. Final Award, pp. 12- 13.
The first Vans heard about any purported kickback arrangements was in a discussion with Bair, the former business associate of Brabson who had been cut out of the commission deal with Brabson and Rosendahl. Final Award, p. 14. As Vans investigated the situation, details about the 3% "commission" arrangement came to light through discovery from the various Chinese factories manufacturing products for Vans. Vans' case at the Arbitration was presented through witness testimony and authenticated documentary evidence, "vigorously resisted by counsel for respondents." Final Award, p. 15.
Brabson did not testify at the Arbitration. Rosendahl did testify as an adverse witness called by Vans. Rosendahl denied any wrongdoing, did not acknowledge any close working relationship with Brabson and "constructed a tissue of prevarication that could not withstand even cursory review." Final Award, p. 15. Obviously, the Arbitrator did not find Rosendahl to be a credible witness.
By way of examples: Rosendahl testified that he did not solicit commissions from any of the factories manufacturing products for Vans. He asserted that the payments into the Streamflow Account deposited by Johnson Footwear and Shyang Way were legitimate compensation for consulting services with respect to products for Vans and other companies. Yet when...
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