Knight v. Knight

• Decision Date: 24 August 2017
• Docket Number: ADVERSARY PROCEEDING NO. 15–1042–WHD,CASE NUMBER 15–11059–WHD
• Citation: 574 B.R. 800
• Parties: In the MATTER OF: Alton Wayne KNIGHT, Barbara Cook, Administrator for the Estate of Paul H. Cook, Deceased, Plaintiff, v. Alton Wayne Knight, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

574 B.R. 800

In the MATTER OF: Alton Wayne KNIGHT,Barbara Cook, Administrator for the Estate of Paul H. Cook, Deceased, Plaintiff,

v.Alton Wayne Knight, Defendant.

CASE NUMBER 15–11059–WHD

ADVERSARY PROCEEDING NO. 15–1042–WHD

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

Signed August 24, 2017

William G. Johnston, III, Johnston, Owen & Bullard, LLP, Griffin, GA, for Plaintiff.

G. Frank Nason, IV, Lamberth, Cifelli, Ellis & Nason, P.A., Atlanta, GA, for Defendant.

ORDER

W. Homer Drake, U.S. Bankruptcy Court Judge

The Debtor in the above-styled bankruptcy case filed his Chapter 7 petition on May 18, 2015. On August 24, 2015, Barbara Cook (hereinafter the "Plaintiff"), acting in her capacity as administrator of the estate of her late husband, Paul H. Cook, filed the complaint initiating the instant adversary proceeding. The Plaintiff's complaint contains four counts: (I) the debt the Debtor owes to the Plaintiff should be declared nondischargeable pursuant to § 523(a)(4); (II) the debt should be declared nondischargeable pursuant to § 523(a)(6); (III) the Debtor should be denied a discharge pursuant to § 727; and (IV) the Plaintiff is entitled to attorney's fees pursuant to O.C.G.A. § 13–6–11.

On April 18, 2017, the Plaintiff filed a motion for summary judgment, seeking judgment on all counts of her complaint. Three days later, the Debtor filed his own motion for summary judgment, seeking judgment as to Count III of the Plaintiff's complaint. These cross motions for summary judgment are currently before the Court. As this proceeding concerns dischargeability and entitlement to discharge, it is a core proceeding, see 28 U.S.C. § 157(b)(2)(I), (J), over which this Court has subject matter jurisdiction, see 11 U.S.C. §§ 157(a), 1334.

Summary Judgment Standard

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Fed. R. Bankr. P. 7056. In supporting its motion, "[t]he movant must point to the pleadings, discovery responses or supporting affidavits which tend to show the absence of a genuine issue of material fact." First Nat'l Bank of Griffin v. Wyatt–Frizzell (In re Frizzell) , No. 02-6443, 2006 WL 6589889, at *2 (Bankr. N.D. Ga. Aug. 8, 2006) (Drake, J.). Once that burden is met, the burden shifts to the non-movant "to demonstrate that there is indeed a material issue of fact that precludes summary judgment." Clark v. Coats & Clark, Inc. , 929 F.2d 604, 608 (11th Cir. 1991).

A fact is material if its truth or falsity will affect the outcome of the case. Anderson v. Liberty Lobby , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). This means that "[f]actual disputes that are irrelevant or unnecessary" to coming to a decision under the controlling substantive law "will not be counted." Id. ; accord Philadelphia Indem. Ins. Co. v. Manitou Constr., Inc. , 115 F.Supp.3d 1378, 1382 (N.D. Ga. 2015). Consequently, summary judgment is appropriate where there is "a complete failure of proof concerning an essential element of the nonmovant party's case" because such failure "necessarily renders all other facts immaterial." Celotex Corp. v. Catrett , 477 U.S. 317, 317–18, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

As a final note, a court must view all of the evidence in the light most favorable to the non-movant. U.S. v. One Piece of Real Property Located at 5800 SW 74th Ave., Miami, Fla. , 363 F.3d 1099, 1101 (11th Cir. 2004) ; Bank of N. Ga. v. McDowell (In re McDowell) , 497 B.R. 363, 368 (Bankr. N.D. Ga. 2013) (Drake, J.). With these guiding principles in mind, the Court turns to the motions at hand.

Background

Paul H. Cook (hereinafter "Cook"), the Plaintiff's late husband, was a certified public accountant practicing in Griffin, Georgia. Cook and the Debtor were co-members of a Georgia limited liability company, AWKPHC, LLC (hereinafter the "LLC"), which did business as "Knight and Cook CPAs." Cook died on July 28, 2013, and the Plaintiff became administrator of his estate. At some point, a disagreement arose between the Debtor and the Plaintiff concerning the ownership and disposition of Cook's client list and interest in the LLC. Per the LLC's operating agreement, the parties submitted their dispute to arbitration.

The arbitrator held his hearing on February 15, 2015. The hearing appears to have contained all of the trappings of a normal court proceeding: the parties had legal counsel, the arbitrator heard opening statements and closing arguments, the parties presented evidence, the parties had the opportunity to cross-examine witnesses, and the parties were permitted to submit post-hearing briefs.

On March 13, 2015, the arbitrator rendered his decision. The arbitrator found that the Plaintiff had met with the Debtor in August of 2013. At that meeting, the parties "agreed that [the Debtor] would collect [Cook's] outstanding receivables, bill for his unbilled services, and would attempt to find a CPA-purchaser for both [Cook's] clients and those of [the Debtor]." However, when the Plaintiff asked "for financial information on [Cook's] practice and that of the LLC, and for a copy of [Cook's] client list," the Debtor, "for whatever reason,...‘stonewalled’ [the Plaintiff], refused to deliver [Cook's] client list and financial information, paid out only about $2,800 of funds to [the Plaintiff] from the LLC,...and refused any accounting." Additionally, the arbitrator found that the Debtor "had decided not to sell his client base, was not attempting to sell [Cook's] client base to a third party CPA, and claimed that the LLC owned [Cook's] client base." The arbitrator found that the Debtor had "refused to account for sums belonging to [Cook's] estate from the LLC" and that the Debtor "has refused to liquidate the LLC, although that is specifically required by the Operating Agreement upon the death of one of the two Members."

These findings led the arbitrator to conclude as follows:

[T]he Debtor has violated his duties under the LLC Operating Agreement and under Georgia law, has not dealt in good faith with the widow and estate administratrix of his deceased colleague and fellow LLC Member, that he has converted for his own benefit the client base of the decedent, and has not paid to [the Plaintiff] amounts due her from the LLC.

The arbitrator awarded the Plaintiff the following sums: $150,000 for Cook's client base; $45,000 "representing [Cook's] capital and other interests in the cash accounts of the LLC"; $17,000 in partial attorney's fees; and $11,006.25 as the Plaintiff's share of the costs of arbitration. The award totals $223,006.25.

On April 17, 2015, the Plaintiff filed an action to confirm the award in the Superior Court of Spalding County. However, that action was stayed when the Debtor filed his bankruptcy petition on May 18, 2015.

Discussion

In the Plaintiff's motion for summary judgment, she asserts that the Court should give preclusive effect to the arbitrator's award and conclude that the debt owed pursuant to that award is excepted from discharge according to either § 523(a)(4) of the Bankruptcy Code¹ or § 523(a)(6). Additionally, the Plaintiff contends that the Debtor should not receive a discharge at all according to either § 727(a)(2) or (a)(4)² because the Debtor made pre-petition transfers to himself from the LLC's accounts and failed to list certain assets in his schedules.

For his part, the Debtor seeks summary judgment only as to the § 727 claims. The Debtor contends that the transfers from the LLC's accounts are not transfers of his assets, and, concerning his failure to schedule assets, that either he did schedule the assets, had no interest in the assets, or failed to schedule them inadvertently.

A. Is the Debt Excepted from Discharge Pursuant to § 523 ?

The Court will first address the Plaintiff's motion for summary judgment as to the counts of the complaint brought under § 523. Because the Plaintiff relies on the preclusive effect of the arbitrator's award, the Court will begin its analysis there.

1. Preclusive Effect of the Arbitration Award

"Collateral estoppel precludes the relitigation of an issue that has been previously decided in a judicial proceeding if the party against whom the prior decision is asserted had a ‘full and fair opportunity to litigate that issue in an earlier proceeding.’ " Foran v. Lutz (In re Lutz) , 169 B.R. 473, 476 (Bankr. S.D. Ga. 1994) (quoting St. Laurent v. Ambrose (In re St. Laurent) , 991 F.2d 672, 675 (11th Cir. 1993) ). In the context of dischargeability proceedings, "bankruptcy courts have exclusive jurisdiction to determine dischargeability of debts." Laski v. Gawrys (In re Gawrys) , No. 14-5006, 2015 WL 2198050, at *2 (Bankr. N.D. Ga. May 8, 2015) (Hagenau, J). However, a bankruptcy court may give preclusive effect to the factual findings of another tribunal and consider those facts in reaching its own conclusion concerning dischargeability. See Halpern v. First Ga. Bank (In re Halpern) , 810 F.2d 1061, 1063–64 (11th Cir. 1987) ; Hebbard v. Camacho (In re Camacho) , 411 B.R. 496, 501 (Bankr. S.D. Ga. 2009).

Ordinarily, when this Court is tasked with deciding whether to apply collateral estoppel, the Court is dealing with a judgment of another court, usually a state court. See, e.g. , CC Fin., LLC v. Harvey (In re Harvey) , No. 16-1034, 2017 WL 432788 (Bankr. N.D. Ga. Jan. 31, 2017). Here, the Court is tasked with determining whether to apply collateral estoppel to an arbitration award. At least one court of this District has given preclusive effect to an arbitration award. See Tower Oak, Inc. v. Selmonosky (In re Selmonosky) , 204 B.R. 820, 824–27 (Bankr. N.D. Ga. 1996) (Brizendine, J.). Indeed, as the Bankruptcy Court for the Middle District of Florida stated over twenty years ago, "The United States Supreme Court and the United States Court of Appeals for the Eleventh Circuit..., as well as the Restatem...