In re Sparrow, Bankruptcy No. 02-53511-S.

Citation306 B.R. 812
Decision Date03 November 2003
Docket NumberBankruptcy No. 02-53511-S.,Adversary No. 03-5060.
CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
PartiesIn re Robert Edward SPARROW and Linda Spinks Sparrow, Debtors. E.L. Hamm & Associates, Inc., Plaintiff, v. Robert Edward Sparrow, Jr. and Linda Spinks Sparrow, Defendants.

Olaf F. Gebhart, Jr., Newport News, VA, for Debtors.

Michael P. Cotter, Vandeventer Black LLP, Norfolk, VA, for Plaintiff.

Jonathan L. Hauser, Troutman Sanders LLP, Virginia Beach, VA, for Defendants.

STEPHEN C. ST. JOHN, Bankruptcy Judge.

Memorandum Opinion and Order

This matter came on for hearing on September 5, 2003 upon the cross-motions for summary judgment pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure filed respectively by the plaintiff, E.L. Hamm & Associates, Inc., ("Hamm") and the debtor defendants, Robert Edward Sparrow, Jr. ("Robert Sparrow") and Linda Spinks Sparrow ("Linda Sparrow") (sometimes collectively "the Sparrows"). Upon consideration of the motions for summary judgment and the arguments of counsel, the Court makes the following conclusions of law.

I Undisputed Facts

This adversary proceeding was initiated by the filing on March 14, 2002 by Hamm of a Complaint to Determine Dischargeability of Debt ("Complaint") against the Sparrows. The Sparrows initiated a petition pursuant to Chapter 7 of the United States Bankruptcy Code in this Court on December 4, 2002. The Complaint alleged that Robert Sparrow was indebted to Hamm in the amount of $14,500.00 and Linda Sparrow was indebted to Hamm in the amount of $1,500.00, which indebtedness arose as a result of fraud or defalcation while acting in a fiduciary capacity. Compl. ¶ 5. The Complaint further alleged that Hamm had been performing warehouse services for the United States Army at Ft. Eustis for nearly seventeen (17) years. ("Ft. Eustis Contract") Compl. ¶ 5(a). Linda Sparrow was employed by Hamm from October 1, 1985 to March 13, 2000, at which time she resigned. Compl. ¶ 5(b). The Complaint continues that Linda Sparrow served as the project manager for Hamm for the Ft. Eustis work, which position involved a high degree of trust. Compl. ¶ 5(c). Robert Sparrow was employed with Hamm from October 6, 1986 to December 11, 1998, when he resigned. Comp. ¶ 5(d). For approximately three and one-half years prior to his resignation, Robert Sparrow worked as the warehouse leader for the Ft. Eustis Contract performed by Hamm. Id. Hamm contends that in his position as warehouse leader, Robert Sparrow had significant contact with the Army and occupied a position of high trust. Compl. ¶ 5(e). Robert Sparrow was further alleged to have entered into a certain Professional Agreement dated October 6, 1998, which protected Hamm's legitimate business interests and its confidential and proprietary information. ("Professional Agreement") Compl. ¶ 5(f).

Hamm states that it became aware in March 1998 that the Army would solicit proposals for the Ft. Eustis warehousing work and Hamm decided to submit a proposal therefor and advised the Sparrows of its intentions. Compl. ¶ 5(g). The Sparrows signed an agreement with Hamm on March 20, 1998, wherein each agreed not to disclose any information to firms which might compete for the Ft. Eustis Contract. Compl. ¶ 5(h). Hamm alleged it learned of a number of actions taken by the Sparrows in breach of their fiduciary duties to Hamm. Compl. ¶ 5(i). These actions included assisting competitors of Hamm while in Hamm's employ, forming a corporation to compete with Hamm for the Ft. Eustis Contract, and agreeing with a competitor to join it in connection with obtaining the Ft. Eustis Contract. Id. Hamm filed a suit against the Sparrows and others, which suit asserted various causes of actions founded on breach of contract fraud and breaches of fiduciary duties ("State Court Action"). Compl. ¶¶ 6, 7. The State Court Action was tried by the Circuit Court of the City of Norfolk, Virginia, resulting in a Final Decree and a Supplemental Final Decree. Compl. ¶¶ 8, 9. Hamm finally alleged that the actions of the Sparrows constitute fraud or defalcation while acting in a fiduciary capacity within the meaning of 11 U.S.C. § 523(a)(4) and a willful and malicious injury to Hamm and its property pursuant to 11 U.S.C. § 523(a)(6). Compl. ¶ 10. Hamm prays that this Court declare the indebtedness of Robert Sparrow to it in the amount of $14,500.00 and the indebtedness to it of Linda Sparrow in the amount of $1,500.00 not discharged.

The Sparrows originally answered the Complaint on a pro se basis by a letter to this Court, disputing that Robert Sparrow was employed by Hamm beyond August 31, 1998, but otherwise not responding specifically to any of the other allegations of the Complaint. At the initial pretrial conference in this adversary proceeding conducted on May 9, 2003, counsel for the Sparrows appeared and advised of his recent retention by the Sparrows.1 Counsel for the Sparrows requested and was granted leave to file an amended answer on their behalf, which amended pleading was filed with this Court on May 19, 2003.

The Amended Answer admitted the allegations of paragraphs 1, 2, 3, 4, 6, and 8 of the Complaint, while denying the principal allegations of Hamm of its entitlement that its judgment against the Sparrows respectively be found to be nondischargeable.

Both Hamm and the Sparrows have now moved for the entry of summary judgment pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure.

II The Summary Judgment Motions

The Sparrows' Motion for Summary Judgment ("Sparrow Motion") relies entirely upon the findings of the State Court Action, arguing that Hamm is collaterally estopped from rearguing facts already decided there. Specifically, the Sparrows assert that "Hamm has already litigated in state court all the facts that could possibly give rise to any judgment that [the] debtors committed fraud, defalcation, or willful and malicious injury." Sparrow Mot., at 4. Believing that all the necessary elements required for the application of collateral estoppel are satisfied here, the Sparrows argue that there was no finding in the State Court Action that the Sparrows had a fiduciary relationship with Hamm for the purposes of § 523(a)(4) of the Bankruptcy Code. Furthermore, the Sparrows contend there was no finding of fraud or defalcation, as the debt resulting from the State Court Action was not founded on fraud or intentional deceit.

The Sparrows similarly believe the collateral estoppel effect of the State Court Action precludes a finding here that the debtors inflicted a willful and malicious injury pursuant to § 523(a)(6) of the Bankruptcy Code. While admitting the state court concluded they acted wrongfully, the Sparrows urge that nowhere in the judgment was it found the Sparrows intended to maliciously harm Hamm. Instead, the Sparrows believe the finding of the state court that they acted "with conscious disregard" is a "characterization which links the [Sparrows] to a level of culpability lesser than that of an intentional tort." Sparrows' Mot., at 11.

The Sparrows also specifically contest whether an element of the judgment entered against them in the State Court Action may be found to be non- dischargeable. They argue that the attorney fees portion of the state court judgment was awarded pursuant to the Professional Agreement entered into between Hamm and Robert Sparrow. This contractual nature of the attorney fees award therefore, according to the Sparrows, precludes a finding of non- dischargeability.

The motion for summary judgment of Hamm ("Hamm Motion") also relies upon the record of the State Court Action, but additionally directs this Court to deposition testimony of Robert Sparrow as supporting their right to entry of summary judgment here. First, Hamm argues that the Sparrows held "high-level supervisory positions and were entrusted with information and confidences not made available to other Hamm employees, including highly confidential and proprietary information regarding the Ft. Eustis Contract." Hamm Br., at 4. For these reasons, Hamm believes that, for the purposes of § 523(a)(4) of the Bankruptcy Code, the Sparrows were fiduciaries.

Hamm also argues that its debt should not be discharged under § 523(a)(6) of the Bankruptcy Code, citing to deposition testimony of Robert Sparrow wherein he admitted his lack of intention of adhering to the provisions of the "Loyalty Agreement" of March 20, 1998 and his transmittal of a Hamm document to a competitor. All of this, Hamm contends, proves the Sparrows' misconduct was undertaken with the knowledge that their actions would cause harm to Hamm.

In their respective responses to the motions for summary judgment, the Sparrows and Hamm each contest the others entitlement to an entry of summary judgment here. The Sparrows disparage the reliance by Hamm upon certain excerpts of the deposition of Robert Sparrow, contending that many of the facts suggested to be undisputed by Hamm are in material dispute by the Sparrows. Furthermore, the Sparrows assert the deposition excerpts relied upon by Hamm fail to support a conclusion that the Sparrows occupied a fiduciary relationship with Hamm or set forth facts constituting willful and malicious conduct on the Sparrows' part. The Sparrows additionally assert that the Hamm Motion is ambiguous as to whether it relies upon facts embodied in its underlying claims as attempted to be proven by the use of the depositions of the Sparrows or by the facts found in the State Court Action, or both.

Hamm protests that the Sparrows seek to limit this Court's inquiry merely to the four corners of the final decree issued in the State Court Action. Instead, Hamm contends the state court was not charged with the responsibility of making a determination of dischargeability. Theref...

To continue reading

Request your trial
33 cases
  • In re Owens
    • United States
    • U.S. Bankruptcy Court — Eastern District of Virginia
    • 17 Marzo 2011
    ...Finally, the factual issue litigated actually must have been litigated in the prior action.E.L. Hamm & Assocs., Inc. v. Sparrow ( In re Sparrow ), 306 B.R. 812, 825 (Bankr.E.D.Va.2003) (citing TransDulles, 252 Va. at 20–23, 472 S.E.2d 274) (internal citations omitted). In TransDulles, the S......
  • In re Janssens
    • United States
    • U.S. Bankruptcy Court — District of Maryland
    • 15 Junio 2010
    ...Under § 523(a), the plaintiff must prove nondischargeability by a preponderance of the evidence.” E.L. Hamm & Assocs., Inc. v. Sparrow (In re Sparrow), 306 B.R. 812, 823–24 (Bankr.E.D.Va.2003), citing Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Farouki v. Emi......
  • MT Tech. Enters., LLC v. Nolte (In re Nolte)
    • United States
    • U.S. Bankruptcy Court — Eastern District of Virginia
    • 25 Noviembre 2015
    ...in the prior action.Reed v. Owens (In re Owens), 449 B.R. 239, 249–50 (Bankr.E.D.Va.2011) (citing E.L. Hamm & Assocs., Inc. v. Sparrow (In re Sparrow), 306 B.R. 812, 825 (Bankr.E.D.Va.2003) ). The Fourth Circuit has admonished that "the determination that an issue was actually litigated and......
  • Hilgartner v. Yagi
    • United States
    • U.S. District Court — Eastern District of Virginia
    • 30 Junio 2022
    ...without just cause or excuse." In re Ngo , No. 20-12224-BFK, 2021 WL 2787601, at *7 (Bankr. E.D. Va. July 2, 2021) (citing In re Sparrow , 306 B.R. 812, 838 (Bankr. E.D. Va. 2003) ; In re Powers , 227 B.R. 73, 76 (Bankr. E.D. Va. 1998) ). Here, the Bankruptcy Court, acting in its factfinder......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT