Patriot Fire Prot., Inc. v. Fuller (In re Fuller)

• Decision Date: 02 August 2016
• Docket Number: BANKRUPTCY CASE NO. 14–11888–WHD,ADVERSARY PROCEEDING No. 14–1063–WHD
• Citation: 560 B.R. 881
• Parties: In the Matter of: Freemon E. Fuller, Debtor. Patriot Fire Protection, Inc., Plaintiff, v. Freemon E. Fuller, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

560 B.R. 881

In the Matter of: Freemon E. Fuller, Debtor.

Patriot Fire Protection, Inc., Plaintiff,

v.Freemon E. Fuller, Defendant.

BANKRUPTCY CASE NO. 14–11888–WHD

ADVERSARY PROCEEDING No. 14–1063–WHD

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

Signed August 2, 2016

Grant E. McBride, Megan M. Pearson, Orion Webb, Smith Welch Webb & White, LLC, McDonough, GA, for Plaintiff.

James R. Marshall, Atlanta, GA, for Defendant.

IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE

ORDER

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

In this adversary proceeding, Patriot Fire Protection, Inc. (hereinafter "Patriot") contests the dischargeability of a debt owed to it by Freemon E. Fuller (hereinafter the "Debtor") and objects to the Debtor's receipt of a discharge. These matters constitute core proceedings, see 28 U.S.C. § 157(b)(2)(I), (J), over which this Court has subject matter jurisdiction, see 28 U.S.C. §§ 157(a), 1334. This proceeding came on for trial on June 28, 2016.

The Debtor's Request to Withdraw Admissions

Before delving into the findings of fact and conclusions of law regarding the substantive issues of this proceeding, the Court must address an oral Motion to Withdraw Admissions made at the beginning of the trial.

At the outset of the presentation of its case, Patriot moved to introduce thirty-three exhibits it had prepared for use at the trial. The Debtor made no opposition to the tender of these exhibits, so they were accepted without objection. Once the exhibits had been tendered, Patriot directed the Court's attention to Trial Exhibit 27, Creditor's First Request for Admissions to Debtor. The request asked for very condemnatory admissions from the Debtor, including "8. Admit that you purposefully and maliciously directly competed with Patriot Fire, and solicited Patriot Fire's clients to benefit yourself at the expense of Patriot Fire," and "9. Admit that you transferred property to your wife with intent to hinder, delay, or defraud creditors." (Req. for Admissions, Trial Exh. 27, at 5). According to the certificate of service, Patriot had served this request for admissions on the Debtor on April 20, 2015. (Id. at 7). At trial, Patriot asserted that it had never received a response to these requests.¹ Patriot argued that the Debtor's failure to respond to the discovery request constituted admissions of the statements contained in it. Relying on these admissions, Patriot moved for judgment as a matter of law. In response, the Debtor, who appeared to have been unaware that any requests for admission had been served, asked that the Court allow him to withdraw the admissions. The Court took the matter under advisement, and the trial proceeded. Having now had the opportunity to review the law and consider the parties' arguments, the Court concludes as follows concerning the Debtor's request to withdraw his admissions.²

Federal Rule of Civil Procedure 36, incorporated into adversary proceedings in Bankruptcy by Federal Rule of Bankruptcy Procedure 7036, provides that "[a] matter [in a request for admission] is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney." FED. R. CIV. P. 36(a)(3) ; see also FED. R. BANKR. P. 7036. However, the Rule also provides that a court may allow a party to withdraw or amend its admissions. See FED. R. CIV. P. 36(b). A court may permit the withdrawal or amendment of admissions if two conditions are satisfied: (1) withdrawal or amendment will "promote the presentation of the merits of the action"; and (2) "the court is not persuaded that it would prejudice the requesting party in maintaining or defending on the merits." Id. A court should limit its analysis to these two conditions only. See Perez v. Miami–Dade Cnty. , 297 F.3d 1255, 1265 (11th Cir. 2002) ; accord Jones v. Tauber & Balser, P.C. , 503 B.R. 162, 175 (N.D. Ga. 2013).

The first condition "is satisfied when upholding the admissions would practically eliminate any presentation of the merits of the case." Perez , 297 F.3d at 1266 (internal quotation marks omitted) (quoting Hadley v. United States , 45 F.3d 1345, 1348 (9th Cir. 1995) ). Its purpose is "to encourage resolution of disputes over material facts on the merits, rather than by default." Whitaker v. Annamalai (In re Hindu Temple and Cmty. Ctr. of Ga.) , 2012 WL 10739278, at *3 (Bankr. N.D. Ga. Jan. 6, 2012) (Massey, J.).

The second condition is satisfied when the party who obtained the admission is able to demonstrate that allowing the withdrawal will prejudice its ability to make or defend its case. See Eckell v. Borbidge , 114 B.R. 63, 66 (E.D. Penn. 1990). For example, a party can show prejudice where the withdrawal of the admissions would result in "the sudden need to obtain evidence with respect to the questions previously answered by the admissions." Jones , 503 B.R. at 175 (quoting Smith v. First Nat'l Bank of Atlanta , 837 F.2d 1575, 1578 (11th Cir. 1988) ). In the same vein, "a court is more likely to find prejudice when a party seeks to withdraw its admissions once trial has already begun." See Perez , 297 F.3d at 1266–67.

In the instant case, Patriot served the request for admissions on the Debtor on April 20, 2015. In order to avoid admitting the statements by default, the Debtor was required to respond by May 20, 2015, which he did not do. Therefore, the statements are admitted. What the Court must now decide is whether allowing the Debtor to withdraw his admissions will promote presentation of the case on the merits, and whether allowing withdrawal will prejudice Patriot.

The Court finds that allowing withdrawal of the admissions would promote the presentation of the case on the merits. The statements the Debtor is deemed to have admitted strongly support the conclusion that the debt he owes to Patriot is nondischargeable and that he is not entitled to a discharge. Thus, it would encourage a fuller presentation of the evidence if the Debtor were allowed to withdraw his admissions.

Nevertheless, to allow such a withdrawal at this stage would be highly prejudicial to Patriot. Any response to Patriot's request was due well over a year before the trial began. Patriot had planned its trial strategy around these admissions, and had included them, albeit with little indication of their importance, in its list of exhibits attached to the Consolidated Pre–Trial Order. (See Doc. No. 31, Exh. 2, at 3). The beginning of trial is simply far too late in the proceeding to request that admissions such as these be withdrawn.³ Therefore, because withdrawing the admissions would be highly prejudicial to Patriot, the Debtor's oral Motion to Withdraw Admissions is hereby DENIED .

Nevertheless, the Court notes that it will not treat as established the statements to which the Debtor admitted so far as they constitute conclusions of law or are contrary to the uncontested evidence in the record. See Le v. Krepps (In re Krepps) , 476 B.R. 646, 649 (Bankr. S.D. Ga. 2012) ("[T]he matters set forth in the Request for Admission which are not conclusions of law are hereby deemed admitted."); cf. F.D.I.C. v. Prusia , 18 F.3d 637, 641 (8th Cir. 1994) (allowing amendment of " ‘admitted’ facts contrary to the actual facts"). The Court particularly notes Statement 3 of the Request for Admissions, which states, "Admit that [Patriot] was granted a motion for summary judgment for tortious interference in October, 2013, in which the Superior Court of Henry County...determined that you had caused willful and malicious injury to [Patriot]." (Trial Exh. 27, at 4). This was plainly not the holding of the Superior Court, as evidenced by that court's Final Order and Judgment (see Trial Exh. 33) and this Court's interpretation of that order (see Order Denying Mot. for Summary Judgment, Doc. No. 19, at 10 ("As to the [Debtor], therefore, the Superior Court found that the [Debtor] breached the agreement and that the breach resulted in damages, but made no finding as to whether the [Debtor's] breach of the Agreement was also ‘willful and malicious.’ ")). Accordingly, Statement 3 will not be deemed established. However, the rest of the statements admitted shall be deemed established, and the facts contained in those statements shall serve as a supplement to the Court's Findings of Fact. (See Req. for Admission, Trial Exh. 27, at 3–6).

Findings of Fact

Having concluded that the Debtor cannot withdraw his admissions, and having heard the evidence presented at the trial, the Court finds as set forth below.

The Debtor was an employee of Patriot from October 1, 1999 to August 31, 2009. The Debtor was a technician whose job entailed installing and maintaining fire-safety systems. Because Patriot was a small company, the Debtor was also tasked with soliciting new clients.

During his time with Patriot, the Debtor began performing "side jobs," in which he would perform the services Patriot provided, but did so without Patriot's knowledge. Upon learning about these side jobs, Patriot had the Debtor sign a confidentiality and non-compete agreement (hereinafter the "Agreement") as a condition of continued employment. The Agreement prohibited the Debtor from soliciting business from Patriot's clients or otherwise competing with Patriot within a fifty-mile radius of Locust Grove, Georgia.

The quality of the Debtor's work declined after he was made to sign the agreement, so in August of 2009 Patriot terminated the Debtor. Shortly thereafter, the Debtor began working for Atlanta Area Extinguisher Services (hereinafter "AAES"). While working for AAES, the Debtor solicited business and performed tasks for clients he had serviced while working for Patriot, activity that was in violation of the non-compete agreement. James Johnson, the President and Owner of Patriot, estimated that approximately three former clients were contacted by the Debtor every...