Luebbert v. Global Control Sys., Inc. (In re Luebbert)

• Decision Date: 09 February 2021
• Docket Number: No. 19-2751,19-2751
• Citation: 987 F.3d 771
• Parties: IN RE: Derek Francis LUEBBERT, Debtor Derek Francis Luebbert, Appellant v. Global Control Systems, Inc., Appellee
• Court: U.S. Court of Appeals — Eighth Circuit

987 F.3d 771

IN RE: Derek Francis LUEBBERT, DebtorDerek Francis Luebbert, Appellant

v.Global Control Systems, Inc., Appellee

No. 19-2751

United States Court of Appeals, Eighth Circuit.

Submitted: September 23, 2020

Filed: February 9, 2021

Counsel who presented argument on behalf of the appellant and appeared on the brief was Michael J. Wambolt, of Kansas City, MO. The following attorney(s) also appeared on the appellant brief; Neil Steven Sader, of Kansas City, MO.

Counsel who presented argument on behalf of the appellee and appeared on the brief was Jonathan Theodore Sternberg, of Kansas City, MO.

Before SMITH, Chief Judge, BENTON and KOBES, Circuit Judges.

KOBES, Circuit Judge.

Derek Luebbert sought to discharge hundreds of thousands of dollars in judgment debt in bankruptcy after a breach of contract lawsuit indebted him to his former employer. He appeals the bankruptcy court's¹ determination that the debt resulted from his infliction of a willful and malicious injury on his former employer and so was non-dischargeable under 11 U.S.C. § 523(a)(6). We conclude the facts underlying Luebbert's breach of contract judgment show that he caused a willful and malicious injury and affirm.

I.

Global Control Systems hired Luebbert as an engineer in 2006. Luebbert signed an employment contract which said if he was fired or resigned he would not solicit business from GCS's customers or compete with GCS within 100 miles for three years. Luebbert's principal responsibility was to develop software for GCS's client, Alliant Techsystems. Luebbert eventually became so essential to one of Alliant's projects that he worked exclusively with Alliant, was named to Alliant's project management team, and spent most of his time working at Alliant's physical location.

Luebbert grew frustrated with his pay. He decided to create his own company, Atlas Industrial Solutions, and bid on Alliant's projects while still working for GCS. Luebbert did not tell GCS about his new business or his Alliant bids. Using information he acquired through his ongoing employment with GCS—and using GCS's own bidding form—Luebbert bid on and won a contract for one of Alliant's projects, PO D95.

The day Luebbert got word that Alliant accepted his PO D95 bid, he sent a letter to his GCS supervisor explaining that he was resigning because he "decided to pursue alternate career opportunities." App. 637. Luebbert did not tell GCS why he was resigning or about his continuing work for Alliant. But GCS got wise to the situation and threatened legal action. After Luebbert did more to harm GCS—including stealing information and wiping computer hard drives—GCS and Luebbert settled.

The settlement agreement allowed Luebbert to continue work on Alliant's essential PO D95 project but required him to give GCS most of the proceeds. This arrangement was designed to compensate the parties as if Luebbert still worked for GCS. Luebbert and GCS then coordinated with Alliant to arrange payment: Alliant would issue two-party checks payable to both GCS and Atlas. The checks would be sent first to Luebbert, who would endorse them on his company's behalf, and then he would send them to GCS to be cashed. GCS would then send Luebbert his share.

The PO D95 project was originally expected to last six months. It was later expanded and would ultimately take much longer, so GCS and Luebbert amended their settlement agreement. The amended settlement (1) suspended Luebbert's noncompete for the remainder of the PO D95 project, permitting him to work on Alliant projects only while the PO D95 project was ongoing; (2) provided that the parties would evenly split all payments for any work Luebbert did for Alliant until the PO D95 project was completed; and (3) provided that Alliant would continue to issue two-party checks payable to both GCS and Atlas. The amended settlement also required Luebbert to keep GCS in the loop about additional purchase orders, work requests, invoices, or any other accounting.

This arrangement worked for over a year. But trouble brewed again when Luebbert decided the arrangement was unfair and schemed to keep more money than his settlement with GCS allowed. Luebbert changed his company's invoicing address on file with Alliant to a P.O. Box over 100 miles away from his old address without informing GCS.² He started receiving purchase orders from Alliant for new projects and working on them without notifying GCS. Luebbert kept GCS from learning about his new work by directing Alliant to send invoices solely to him at his new address and to issue those invoices in his company's name only. When Alliant complied but kept GCS's name on checks made out for the new projects, Luebbert instructed Alliant to remove any reference to GCS because of what he said was a "name change."³ App. 645. He then directed Alliant to void the two-party checks for the new projects and reissue them in Atlas's name. Luebbert did not tell GCS about any of this, nor did he share any of the proceeds from the new projects or the reissued checks.

The day after Alliant promised Luebbert that it would issue all future checks only to Atlas, Luebbert told GCS that he would no longer abide by the settlement agreement. Rather than comply with the renewed force of his noncompete, Luebbert continued working on Alliant projects. Alliant then issued another check to Luebbert including GCS's name. Luebbert struck out GCS himself, deposited the check, and demanded further assurances from Alliant that his company would be the only recipient of any payment moving forward. During this time, GCS tried to communicate with Luebbert about complying with the settlement and tried to ask him about missing accounting, but it was unable to make contact with him—in part because he had changed his mailing address to the P.O. Box.

GCS sued Luebbert for breach of contract in Missouri state court. While the lawsuit was pending, Luebbert told Alliant that he was working for a friend's company and directed Alliant to send all checks to that company instead. The friend's company remitted those checks to Luebbert, allowing him to retain their full value rather than splitting them with GCS. Luebbert removed the breach of contract case to federal court by invoking diversity jurisdiction. The case went to trial and resulted in a jury verdict against Luebbert for $302,631.31 in damages, the money he withheld from GCS. After interest and attorney's fees, the final judgment debt due to GCS totaled over $650,000.00.

Luebbert then filed for Chapter 7 bankruptcy, seeking to discharge the judgment debt. GCS filed an adversary proceeding in bankruptcy court demanding that Luebbert's judgment debt be declared non-dischargeable under § 523(a)(6), which exempts from discharge any debt for "willful and malicious injury by the debtor to another entity or to the property of another entity."

The bankruptcy court held a trial and ruled in GCS's favor, concluding Luebbert's debt was non-dischargeable. The bankruptcy court first applied collateral estoppel to the question of whether Luebbert injured GCS. The bankruptcy court determined that Luebbert could not contest whether GCS was injured because "[w]hen the District Court entered judgment ... it necessarily found that [GCS] had suffered an injury." App. 652. The bankruptcy court then explained that GCS's injury was willful under our precedents because Luebbert was substantially certain he would cause GCS harm. It reasoned that Luebbert's certainty could be inferred because Luebbert "knew that he was violating the settlements" and "he intended to conceal his actions." App. 655. The bankruptcy court also found Luebbert's conduct to be malicious in light of the totality of the circumstances because Luebbert "knew about the noncompete" but still "took calculated and clandestine steps to do business with [Alliant] in violation of his obligations." App. 656–57. Pointing to Missouri law on conversion and breach of fiduciary duty, the bankruptcy court found that Luebbert's conduct "echoes of conversion or some other tort." App. 654. Luebbert appealed to the district court, which affirmed the bankruptcy court. He now appeals once more.

II.

When a bankruptcy court's decision is appealed to the district court and then appealed again, we review only the underlying bankruptcy court decision. Caldwell v. DeWoskin , 831 F.3d 1005, 1008 (8th Cir. 2016). We review a bankruptcy court's legal conclusions de novo and its factual determinations for clear error. In re Porter , 539 F.3d 889, 893 (8th Cir. 2008).

A nondischargeability action under § 523(a)(6) has three elements: (1) the debtor caused an injury to the creditor; (2) the injury must have been willfully inflicted—that is, the debtor must have desired the injury or must have been substantially certain that his conduct would result in the injury; and (3) the debtor's actions must have been malicious. See In re Patch , 526 F.3d 1176, 1180–81 (8th Cir. 2008). The party seeking to prevent discharge bears the burden of showing each element by a preponderance of the evidence. Id. at 1180. "Whether a debtor acted willfully and maliciously involves a finding of intent—a question of fact." In re Thoms , 505 F. App'x 603, 605 (8th Cir. 2013) (citing In re Waugh , 95 F.3d 706, 711 (8th Cir. 1996) ).

Luebbert makes two arguments: (1) the bankruptcy court erred when it applied collateral estoppel to the issue of whether he injured GCS; and (2) the bankruptcy court erred when it failed to narrowly construe the Bankruptcy Code's exceptions to discharge and found that he inflicted a willful and malicious injury.

III.

The purpose of the collateral estoppel doctrine is to "protect[ ] litigants from the burden of relitigating an identical issue with the same party ... and [to] promot[e] judicial economy by preventing needless litigation." Parklane Hosiery Co. v. Shore , 439 U.S. 322, 326, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). Judgment creditors who file adversary actions in bankruptcy court to...