In re Whelan
| Decision Date | 30 June 1999 |
| Docket Number | 98-6659.,98-73836. Adversary No. 98-6655,Bankruptcy No. 98-73772 |
| Parties | In re Michael W.J. WHELAN, Debtor. Sterling Factors, Inc., Plaintiff, v. Michael W.J. Whelan, Defendant. Edward T. Schaner, Debtor. Sterling Factors, Inc., Plaintiff, v. Edward T. Schaner, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
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J. Bertram Levy, Weinstock & Scavo, PC, Atlanta, GA, for plaintiff.
John R.M. Whelan, Decatur, GA, for defendant.
These two adversary proceedings are before the Court on plaintiff's motions for summary judgment. Plaintiff Sterling Factors, Inc. ("Sterling Factors") filed adversary proceedings against Michael Whelan and Edward Schaner, asking the Court to determine that a default judgment obtained by Sterling Factors in the Superior Court of DeKalb County is non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(2), (a)(4) and (a)(6). These matters are core proceedings under 28 U.S.C. § 157(b)(2)(I).
The question presented is whether the doctrine of collateral estoppel, or issue preclusion, applies and entitles plaintiff to a summary judgment on any of the dischargeability claims. The judgment obtained by Sterling Factors is in the amount of $748,244.31, and resulted from a failure by defendants Whelan and Schaner to respond to some interrogatories and document requests. Plaintiff argues that the doctrine of collateral estoppel applies and these judgments should be declared nondischargeable as a matter of law. Defendants filed briefs in opposition to the motions for summary judgment, which briefs raised a number of questions about the facts leading up to the entry of the default judgment. The Court held a hearing on April 28, 1999, and gave the parties an opportunity to file supplemental briefs on the issues addressed at the hearing. After carefully considering the parties' briefs, the record, argument of counsel, and the applicable law, the Court concludes that these summary judgment motions should be DENIED.1
The facts relating to the entry of the default judgment by the Superior Court of DeKalb County, Georgia are as follows. On January 19, 1996, Sterling Factors filed a five-count complaint in the Superior Court of DeKalb County against nine defendants, including Edward Schaner and Michael Whelan (the "DeKalb County Litigation"). The other seven defendants were CraftMasters, Inc., Equity Recovery Services, Inc., Remedial Labor Solutions, Inc., R.A. Scott General Contractors, Inc., Randall Scott, Jeffrey Teague, and T.L. Moore. Defendants Whelan, Schaner, Equity Recovery Services, Inc., and Remedial Labor Solutions, Inc., filed an Answer on February 21, 1996, through counsel, John R.M. Whelan. Attorney John R.M. Whelan is defendant Michael Whelan's father. The litigation grew out of the financing of a construction project.
A year later, on March 27, 1997, Sterling Factors filed an amended complaint adding two more counts to the complaint. The amended complaint thus contained seven counts. Count I asserted a claim for specific performance against defendant Equity Recovery Services, Inc. Count II requested a restraining order, an injunction, an accounting and a receivership of some of the defendant corporations. Count III asserted a claim for money received against defendant CraftMasters. Count IV asserted that all the defendants made fraudulent submissions of contract advances or purchase orders, resulting in plaintiff funding money "in an amount to be proven at trial." Count V asserted a breach of contract claim against defendant Remedial Labor Solutions, Inc. and Equity Recovery Services, Inc. and asserted that damages would be "proven at trial." Counts VI and VII requested that the Court pierce the corporate veils of defendants Equity Recovery Services, Inc. and Remedial Labor Solutions, Inc., to allow Sterling Factors to recover any amounts owed by these two corporations from Messrs. Whelan and Schaner. The first five counts were included in the original complaint.
During the year between the filing of the original complaint and the amended complaint, the defendants had produced documents and attended depositions. By the time the amended complaint was filed, discovery had apparently closed, but Sterling Factors had moved to reopen discovery, which motion was granted on July 3, 1997. On July 8, 1997, Sterling Factors served Michael Whelan and Edward Schaner with Plaintiff's Second Interrogatories and Plaintiff's Second Request for Production of Documents. Pursuant to O.C.G.A. §§ 9-11-33(a)(2) and 9-11-34(b)(2), the defendants had thirty (30) days to respond. John Whelan, as counsel for Michael Whelan and Edward Schaner, and J. Bertram Levy, as counsel for Sterling Factors, submitted a Consent Order extending discovery until October 30, 1997. Mr. Whelan had requested the extension, and the Consent Order provided, in pertinent part, as follows:
The parties state that discovery has been commenced and pursued diligently, but the parties are in need of additional time to complete their responses and to pursue additional discovery. Defendants further show that their counsel has been tending to a spouse with a chronic illness that may be nearing its terminal stages and for that reason has been unable to complete discovery within the discovery period. All parties have agreed to extend discovery for an additional sixty (60) days in which to complete outstanding discovery. (Emphasis added)
Plaintiff has submitted a letter dated October 8, 1997, in which plaintiff's counsel wrote attorney Whelan that although the parties agreed to extend discovery, Michael Whelan and Edward Schaner were "long overdue" in their responses and that if Sterling Factors did not receive the responses in the following three days, Sterling Factors would "file the appropriate Motions to Strike your client's sic Answer, as well as for sanctions and/or to compel production of the requested information and documents." This letter dated October 8, 1997, was written twenty-two (22) days before the October 30, 1997 deadline in the Consent Order extending discovery. On October 22, 1997, Sterling Factors filed a motion in the Superior Court of DeKalb County to strike the answer of defendants Whelan and Schaner, or in the alternative, a motion for sanctions and to compel answers.2
In the brief Sterling Factors filed in support of its motion to strike defendants' answers and enter a default, Sterling Factors asked the Superior Court of DeKalb County to hold a hearing on the motion. Sterling Factors' brief argued that the Court was authorized to strike the answers of a party who fails to respond to discovery where it finds a conscious or intentional failure to act, but the brief states: "All that is required is a motion, notice and hearing," citing Stolle v. State Farm Mut. Auto. Ins. Co., 206 Ga.App. 235, 424 S.E.2d 807 (1992) and Cook v. Lassiter, 159 Ga. App. 24, 282 S.E.2d 680 (1981). In the next paragraph, Sterling Factors states "Plaintiff requests this Court to provide the Defendants opportunity for a hearing and then to grant Plaintiff's Motion to Strike Defendants' Answers." (emphasis added). Finally, in the conclusion, Sterling Factors' first request is that the Court "hold a hearing." Notwithstanding these requests, there was never a hearing in DeKalb County on Sterling Factors' motion to strike. Instead, plaintiff's counsel submitted an order which stated that defendants had not filed a brief in opposition to the motion to strike, and provided that "the Court grants Plaintiff's Motion to Strike the Answers of Defendant sic Ed Schaner and Michael Whelan and default shall be entered against these Defendants in amounts to be determined by affidavit submitted by Plaintiff." The Honorable Clarence Seeliger signed this Order on December 11, 1997.
In a supplemental brief filed in bankruptcy court, counsel for Sterling Factors submitted an affidavit to explain how the order granting the motion to strike and entering a default was prepared by Sterling Factors' counsel and entered by Judge Seeliger, without the hearing that plaintiff had requested. The affidavit is by Judge Seeliger's law clerk, Carol Willingham. Ms. Willingham states in her affidavit that Sterling Factors' counsel contacted her sometime in November, 1997, to ask whether the "request for oral argument" had been granted. She determined from the docket that counsel for defendants Schaner and Whelan had not filed a written response to the motion to strike. She called attorney Whelan and left a message "indicating that she was calling . . . for Judge Seeliger about the instant case and motion." When she received no response to the telephone call, she called Sterling Factors' counsel and requested that he forward an order striking the answers of defendants Schaner and Whelan and granting the default. She presented Sterling Factors' counsel's proposed order to Judge Seeliger who signed the order on December 11, 1997.
Mr. Whelan stated that he expected a hearing to be scheduled, and he expected to respond to the motion to strike at that time. Mr. Whelan filed an affidavit on June 15, 1999, regarding the telephone message from Judge Seeliger's office. In his affidavit, he states that on or about December 10, 1997, a telephone message was recorded on his office recorder, but he was not in the office that day. The message was from a lady who stated that she was employed in Judge Seeliger's office, that the Judge would handle the Motion for Sanctions or Striking Pleadings the next day, and that if he intended to do something about it, he had better do it immediately. As previously stated, Judge Seeliger signed the order presented by plaintiff's counsel on December 11, 1997. Mr. Whelan states in his affidavit that he heard the telephone message for the first time a day or two after the message was given and that he also found a copy...
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