In re Standard, Bankruptcy No. 89-08196
| Decision Date | 04 January 1991 |
| Docket Number | Bankruptcy No. 89-08196,Adv. No. 90-0101A. |
| Citation | 123 BR 444 |
| Parties | In re James W. STANDARD, Debtor. William P. BLASHKE; William E. Cherry; Dr. Carl Dann, III; K. Bruce Jones; Charles W. Leizear; James M. Lyster; Phillip H. Searcy; and Michael A. Stern, Plaintiffs, v. James W. STANDARD, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
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Myles E. Eastwood, Jones, Brown & Brennan, Atlanta, Ga., for plaintiffs.
Robert W. Scholz, Dietrick, Evans, Scholz & Williams, Atlanta, Ga., for defendant.
This adversary proceeding is before the Court on cross motions for summary judgment. The plaintiffs are eight individuals who seek a determination that judgments entered in their favor against defendant-debtor James W. Standard ("Standard" or "debtor") are not dischargeable in bankruptcy under 11 U.S.C. § 523(a)(4) or 11 U.S.C. § 523(a)(6). This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I).
The key issues are whether debtor, as a general partner in a Georgia limited partnership, was a "fiduciary" to the plaintiff limited partners within the meaning of § 523(a)(4) of the Bankruptcy Code and whether the doctrine of collateral estoppel requires a summary judgment on plaintiffs' § 523(a)(6) claims. The debts in question arise out of judgments totalling $328,100.00 plus interest entered by the United States District Court on September 6, 1989, against James W. Standard. The judgments were based on special verdicts which will be discussed herein.
The following facts giving rise to the claims are not in dispute. On July 26, 1982, Mr. Standard formed a Georgia limited partnership called Georgia Christmas Trees 1982, Ltd. ("the Partnership"). The general partners of the Partnership were Mr. Standard and his wholly owned corporation. The objective of the Partnership was to grow pine trees to sell as Christmas trees. Each of the plaintiffs received a private placement memorandum prepared by Mr. Standard and decided to invest in the Partnership. Each plaintiff contributed $20,000.00 and executed a $20,000.00 letter of credit.
The Partnership business was to be conducted by Thomas H. Perdue and his company. In a report dated October 6, 1983, Mr. Standard advised plaintiffs that business was not proceeding as expected. On or about January 31, 1985, Mr. Standard advised plaintiffs, among other things, that the Partnership had inadequate funds to continue operations, and in January or February of 1985, he requested additional funds for the operation of the business through the sale of supplemental units. One of the plaintiffs, Charles W. Leizear, invested an additional $8,000.00 in April, 1985, and purchased a supplemental unit. On November 5, 1985, Mr. Standard informed plaintiffs that Mr. Perdue had failed to carry out his responsibilities. The Partnership business failed during late 1985 and early 1986. Mr. Standard informed plaintiffs by letter dated February 18, 1986, that the Partnership had no funds to operate the firm or to pay expenses including a bank loan guaranteed by the letters of credit executed by plaintiffs.
Plaintiffs filed a complaint in the District Court on June 9, 1986, alleging violations of the federal and state securities laws, common law fraud, breach of fiduciary duty and breach of contract. The action was styled "William P. Blashke; William E. Cherry; Dr. Carl Dann, III; K. Bruce Jones; Charles W. Leizear; James M. Lyster; Phillip E. Searcy and Michael A. Stern, v. James W. Standard, 1:86-CV-1294-JOF United States District Court, Northern District of Georgia, Atlanta Division" ("the Civil Action").
On July 31, 1989, immediately prior to the scheduled trial of the Civil Action, Mr. Standard filed a petition seeking relief under Chapter 13 of the Bankruptcy Code. The Bankruptcy Court entered an Order lifting the automatic stay to permit plaintiffs to prosecute and try the Civil Action. The stay remained in effect to prevent any recovery or collection on any judgment obtained against debtor.
The Civil Action was tried before a jury in August of 1989,1 and on September 6, 1989, the District Court entered judgments against debtor in favor of the following plaintiffs in the amounts listed plus interest at 7.75% per annum:
The Civil Action was submitted to the jury on special verdicts with numbered questions on the claims for Georgia common law fraud, the federal and state securities law claims, and the claims for breach of fiduciary duty relating to the initial offering. The jury answered "no" to the following statement on verdict forms with respect to all eight plaintiffs: "Plaintiff could not have discovered any alleged defects in the private placement memorandum prior to June 9, 1984, exercising reasonable diligence." As a result of that finding, plaintiffs did not prevail on their claims that debtor violated federal or state securities law in the initial offering, as those claims were barred by applicable statutes of limitation.
With respect to plaintiffs' claims of Georgia common law fraud in the initial offering, the jury found that debtor made the following material misrepresentations:
The jury found that debtor had not made the following alleged material misrepresentations:
However, after finding that debtor made three of the six alleged misrepresentations, the jury found that debtor did not make the misrepresentations with knowledge of their falsity or with reckless indifference to their truth. As a result of that finding, plaintiffs did not prevail against debtor on their claims for Georgia common law fraud.
With respect to plaintiffs' state law claim for "breach of fiduciary duty," the jury found that debtor did breach his fiduciary duty by "(a) obtaining fees not due him;" "(b) not exercising the care and skill of an ordinarily prudent person in managing the Partnership;" and "(c) not revealing material facts to the Partnership in a timely fashion." Although the jury received instructions from the Court regarding damages for the claim of breach of fiduciary duty, the special verdict form did not contain a question regarding actual damages. Judgments were entered for the full amount of plaintiffs' investments.
The jury also found that debtor acted in bad faith so as to permit a court award of attorney's fees and expenses. The judgments entered provide that they are for costs, "plus attorneys fees and expenses to be determined by the Court." However, the record before this Court is silent as to any such determination, and counsel have indicated that the District Court has the matter under submission.
Finally, a number of additional questions were submitted to the jury regarding plaintiff Leizear's claims for Georgia common law fraud and violations of federal and state securities laws arising out of his purchase of a supplemental unit. The jury answered all these questions in favor of plaintiff Leizear, except that the jury found plaintiff Leizear was not entitled to punitive damages.
This bankruptcy case was converted from a case under Chapter 13 to a case under Chapter 7 on November 21, 1989. Plaintiffs then filed this adversary proceeding, alleging that their judgment claims should be declared nondischargeable under 11 U.S.C. § 523(a)(4) and § 523(a)(6). Section 523(a)(4) excepts from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny," and § 523(a)(6) excepts from discharge any debt for "willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(4) and (6) (1982).
Debtor has filed a motion to dismiss the adversary proceeding or, in the alternative, a motion for summary judgment, arguing that debtor was not a "fiduciary" within the meaning of 11 U.S.C. § 523(a)(4) and that plaintiffs' allegations do not amount to fraud or defalcation required under § 523(a)(4) or willfulness or malice required under § 523(a)(6). Plaintiffs filed a response to debtor's motion and their own motion for summary judgment. In plaintiffs' motion, they argue that the doctrine of collateral estoppel requires a summary judgment in their favor and a determination that the judgment debts are not dischargeable under both § 523(a)(4) and § 523(a)(6).
Section 523(a)(6) of the Bankruptcy Code renders any debt "for willful and malicious injury by the debtor" nondischargeable. 11 U.S.C. § 523(a)(6). The term "willful" means intentional and deliberate and cannot be established merely by applying a recklessness standard, and "malicious" means wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill will. Lee v. Ikner (In re Ikner), 883 F.2d 986 (11th Cir.1989); Chrysler Credit Corporation v. Rebhan (In re Rebhan), 842 F.2d 1257, 1263 (11th Cir.1988); Sunco Sales, Inc. v. Latch (...
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