Sterling Auto. Grp. v. Reyes (In re Reyes)
| Decision Date | 22 March 2022 |
| Docket Number | 21-50277,Adv. Proc. 21-5008 |
| Parties | In re: Edgardo C. Ramayo Reyes Debtor v. Edgardo C. Ramayo Reyes Defendant Sterling Automotive Group, Inc. and Arthur C. LeBlanc, Jr. Plaintiffs |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Louisiana |
RULING ON MOTIONS FOR SUMMARY JUDGMENT (ECF ## 17 20, AND 25)
Before the Court are: (i) a Motion for Summary Judgment (ECF #17) filed by Plaintiff Arthur C. LeBlanc, Jr. ("Mr LeBlanc") seeking a determination that a prepetition judgment entered in his favor awarding defamation damages and litigation costs and attorney's fees against the Debtor Edgardo C. Ramayo Reyes, is nondischargeable under § 1328(a)(4) of the Bankruptcy Code; (ii) a Cross-Motion for Summary Judgment (ECF #20) filed by the Debtor opposing Mr LeBlanc's Motion and claiming that the defamation damages and the award of costs and fees are fully dischargeable because they represent an award of business damages, not personal injury damages; and (iii) a Motion for Partial Summary Judgment (ECF #25) filed by both Plaintiffs, Mr. LeBlanc and Sterling Automotive Group, Inc. ("Sterling"), seeking a determination that the injunctive relief awarded in the prepetition litigation between the parties is nondischargeable. For the reasons set out below, the Court concludes that Mr. LeBlanc's Motion and the Debtor's Cross-Motion should be granted in part and denied in part, and that the Plaintiffs' Motion for Partial Summary Judgment on the injunctive relief should be granted.
On June 25, 2020, Mr. LeBlanc and Sterling filed a Complaint in the United States District Court for the Western District of Louisiana, Docket No. 6:20-cv-00809 (the "District Court Action"), against the Debtor. The Complaint asserted a number of actions the Debtor took to harm the reputation and business of both Plaintiffs, asserting causes of action for violation of the Anti-Cybersquatting Consumer Protection Act ("ACPA"), 15 U.S.C. § 1125(d); violation of the Lanham Act, 15 U.S.C. § 1125(a); dilution of the trade name "Sterling Premium Select" in violation of the Louisiana Anti-Dilution Act, La. R.S. § 51:223.1, defamation under Louisiana state law, violation of the Louisiana Unfair Trade Practices and Consumer Protection Law, La. R.S. § 51:1401 et seq., and breach of the non-disparagement provision in a Release and Compromise Agreement between the parties dated January 16, 2020. The Plaintiffs also requested certain injunctive relief.
The Debtor did not respond to the Complaint, and the Plaintiffs moved for a default judgment. Following an evidentiary hearing, the District Court ruled for the Plaintiffs, entering a Memorandum Ruling and Judgment on December 18, 2020.[1]The District Court found that the "well-pleaded allegations in the complaint as well as the evidence submitted in connection with the December 7th evidentiary hearing provide an independent basis in fact for all of the essential elements of the claims asserted by the Plaintiffs."[2] The following facts come from the District Court's detailed Findings of Fact.[3]
Sterling owns and operates car dealerships and engages in business at the dealerships, online, and through an affiliated auction company. Sterling's registered tradename, "Sterling Premium Select," is used at multiple Sterling dealerships and on websites run by Sterling. Sterling employed the Debtor, Edgardo Ramayo (also known as Edgardo Ramayo Reyes), but ultimately terminated him for misconduct.
The Debtor made a claim for unpaid wages and penalties and engaged in a campaign of posting disparaging comments about Sterling on social media. On January 16, 2020, Sterling and the Debtor entered into a Release and Compromise Agreement pursuant to which Sterling paid the Debtor $48, 500, in exchange for which the Debtor both compromised his claims and agreed to a non-disparagement provision which prohibited him from making disparaging remarks against Sterling.
Notwithstanding the non-disparagement provision, the Debtor soon registered the domain name "www.sterlingpremiumselect.com" and listed it for sale for a purchase price of $99, 999.00. The Debtor also linked the domain name to Sterling's active website, "www.sterlingpremiumusedcars.com, " configuring the redirect so that anyone using it would see in the title tag on the website (i.e., the text that appears in the title bar of a web browser).
The Plaintiffs also presented the testimony of an expert to establish damages. Based on that testimony, which the District Court found to be credible, thorough, and persuasive, the court found that Sterling was damaged in the amount of $136, 546.84 as a result of lost customers, and that the confusion created by the Debtor's social media posts and the website redirect's title tag caused irreparable damage to Sterling's reputation and weakened Sterling's brand positioning. Furthermore, the expert found that the cost to reverse the damage to Sterling and Mr. LeBlanc's reputation would total $22, 000. In addition, the District Court accepted the testimony and evidence of the Plaintiffs' attorneys establishing legal fees in the amount of $28, 954.25, costs of $811.33, and expert witness fees of $4, 539.05.
The corresponding final Judgment entered by the District Court[4] includes permanent injunctive relief, barring the Debtor from the creation, employment, registration or use in any manner of Sterling's name, and all variations thereof, and from publishing any defamatory, slanderous, and/or libelous statements or writings concerning Mr. LeBlanc and/or Sterling. The Judgment also orders the Debtor to transfer the domain name "www.sterlingpremiumselect.com" to Sterling, along with other provisions relating to the same. As to damages, the Judgment provides:
The Debtor did not appeal the District Court Judgment.
On July 8, 2021, shortly after the Debtor filed for bankruptcy protection under chapter 13, Mr. LeBlanc and Sterling commenced this Adversary Proceeding. The original Complaint (ECF #1) sought a determination that the debts in the District Court Judgment are nondischargeable as to both Plaintiffs under 11 U.S.C. § 523(a)(6). The Debtor filed a Motion to Dismiss and/or Motion for Summary Judgment (ECF #11) on August 18, 2021, arguing that the judgment in favor of Sterling should not be excepted from discharge under 11 U.S.C. § 1328(a)(4) because Sterling is not an individual. He also asserted that the Judgment in favor of Mr. LeBlanc for breach of contract is fully dischargeable under 11 U.S.C. § 1328(a)(4) because breach of contract is not a "personal injury."
Some background is in order. Sterling and Mr. LeBlanc's original Complaint sought a declaration of nondischargeability under § 523(a)(6), which renders nondischargeable debts "for willful and malicious injury by the debtor to another entity or to the property of another entity" (emphasis added). However, the Debtor's bankruptcy case is under chapter 13, which is subject to special nondischargeability rules. Notably, § 1328(a) renders most debts dischargeable except for certain debts listed in the statute. Specifically, section 1328(a)(2) renders nondischargeable debts "of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a)," which does not include § 523(a)(6). Thus, Sterling and Mr. LeBlanc cannot rely on § 523(a)(6) in this chapter 13 case and instead must proceed under § 1328(a)(4), which renders nondischargeable debts for damages "awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual" (emphasis added).
The problem for Sterling is that it is a legal entity, and both the statute and case law are clear that only debts to "individuals" are nondischargeable under § 1328(a)(4).[6] Thus, the Court concluded that Sterling's claims must be dismissed and it granted the Debtor's Motion to Dismiss in part on that basis. The Court also agreed with the Debtor's contention that, under the facts of this case, the damages granted by the District Court for breach of contract do not constitute "personal injury" damages under § 1328(a)(4).[7] Thus, the Court also granted summary judgment in part with respect to the damages rendered for the breach of contract claim. However, the Court held that the remainder of the Complaint, relating to the Judgment in favor of Mr. LeBlanc for defamation, could proceed. The Court entered a Judgment to that effect on October 7, 2021 (ECF #14).
Although the Court dismissed Sterling's claims, the Plaintiffs filed a Second Amended and Restated Complaint Objecting to the Dischargeability of Debt (ECF #16), which added Sterling back to this action as a Plaintiff to assert a claim for nondischargeability of the District Court's award of...
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