Voss v. Pujdak (In re Pujdak)

• Decision Date: 30 June 2011
• Docket Number: Bankruptcy No. 10–05650–HB.,Adversary No. 10–80136–HB.
• Citation: 462 B.R. 560
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Kenneth Joseph PUJDAK and Jo Ellen Sands Pujdak, Debtor(s).Janet Voss, Plaintiff(s), v. Kenneth Joseph Pujdak, Jo Ellen Sands Pujdak, Defendant(s).

462 B.R. 560

In re Kenneth Joseph PUJDAK and Jo Ellen Sands Pujdak, Debtor(s).Janet Voss, Plaintiff(s),

v.Kenneth Joseph Pujdak, Jo Ellen Sands Pujdak, Defendant(s).

Bankruptcy No. 10–05650–HB.

Adversary No. 10–80136–HB.

United States Bankruptcy Court, D. South Carolina.

June 30, 2011.

Christopher M. Edward, Moss & Associates, Greenville, SC, for Debtor(s).

David C. Alford, Spartanburg, SC, for Plaintiff(s).

George L. Clauer, III, Clauer Law Firm LLC, Salem, SC, for Debtor(s).

ORDER

HELEN E. BURRIS, Bankruptcy Judge.

THIS MATTER comes before the Court on the Motion for Judgment on the Pleadings and to Strike Certain Defenses (“Motion”) (Doc. No. 21), filed by Janet Voss (“Plaintiff”) in response to the Answer and Defenses (“Answer”) (Doc. No. 20) filed by Kenneth Joseph Pujdak and Jo Ellen Sands Pujdak (“Defendants”), in this action to except certain debts from discharge pursuant to 11 U.S.C. § 523(a). Plaintiff seeks relief from the Court under Federal Rules of Civil Procedure 12(c) and (f), made applicable to this adversary proceeding by Federal Bankruptcy Rule 7012. A Response and Opposition by Defendants to Motion to Strike and Motion for Judgment on the Pleadings (“Response”) (Doc. No. 22) was filed by Defendants. Plaintiff filed a supplemental Memorandum in Support of Plaintiff's Motion for Judgment on the Pleadings (“Memorandum”) (Doc. No. 25) on April 27, 2011. A hearing on this matter was held on April 21, 2011.

The Court has jurisdiction under 28 U.S.C. §§ 157 and 1334 and Local Civil Rule 83.XI.01, DSC. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I) and venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.

Undisputed Facts and Procedural History

The State Court Action

Plaintiff previously filed an action in the Court of Common Pleas for Greenville County, South Carolina against Defendants and their businesses. Voss v. Pujdak, et al., C/A No. 07–CP–23–0180 (2007). In the state court action, Plaintiff alleged that, inter alia, by inducing Plaintiff to invest in certain companies, Defendants and those companies violated various provisions of the South Carolina Securities Act of 2005 (“SC Securities Act”), S.C.Code Ann. § 35–1–101 et seq. (1976) ¹, rendering them liable under S.C.Code Ann. § 35–1–509. Plaintiff's state court complaint alleged that an investment in one of Defendants' companies was a security as defined by the SC Securities Act,² and that it “is not registered with the State or with the federal Securities Exchange Commission.” (Doc. No. 12, Ex. 1 at 4). In addition, Plaintiff's complaint stated that, by inducing Plaintiff to invest in the business, Defendants made a “sale” ³ of a “security” as defined by the SC Securities Act. Id. at 5. Furthermore, Plaintiff specifically alleged that the sale violated the securities registration requirement ⁴ because the security was not registered and neither the security nor the sale was exempted from registration. In addition, Plaintiff claimed that Defendants made false and misleading claims to her. Id. Plaintiff's state court complaint also asserted that Defendants committed fraud, constructive fraud and violated the South Carolina Unfair Trade Practices Act (“SCUTPA”), S.C.Code Ann. § 39–5–10 et seq. , and included factual allegations in support. See Doc. No. 12.

Defendants appeared in that action through an attorney and filed an Answer. However, after the state court found that Defendants failed to comply with discovery orders, the court struck Defendants' answer and found them in default. The court then referred the matter to the Master in Equity for a determination of damages. A damages hearing was conducted where the Plaintiff testified to her damages as well as “to the scheme and publication of various promises by Defendants as investment potentials.” Id., Ex. 3 at 2. Defendants' counsel was present at the damages hearing; however, Defendants did not attend. On March 31, 2008, a judgment was entered in favor of Plaintiff against Defendants and their businesses. The state court, entering judgment, specifically held that:

The Court finds that ... Defendants caused [Plaintiff] damage in the amount of $41,541.96 ... and $1,288.72 ....

....

Defendants, being in default, are liable for violation of the SC Securities Act, SC Code 35–1–509; common law negligence, fraud and constructive fraud, quantum meruit, and SC Unfair Trade Practices Act. Accordingly, under these theories of liability, this Court finds Plaintiff is damaged under each theory and Defendants are liable in the actual amount of $42,830.68.

However, in terms of recovery, Plaintiff can only recover under one theory of damages. Plaintiff elects recovery under SCUTPA.

Under the SCUTPA claim, specifically SC Code 39–5–140, Plaintiff is entitled to a trebling of damages, and costs and attorney fees. Damages are awarded in the amount of $128,492.04. By separate affidavit, counsel for Plaintiff has submitted fees and costs in the amount of $7,132.50.

Id., Ex. 3 at 2–4.

The Adversary Proceeding Pursuant to 11 U.S.C. § 523

Defendants filed a voluntary chapter 7 petition for relief on August 6, 2010. Plaintiff initiated this adversary proceeding on September 7, 2010, by filing a Complaint seeking to have the debt established in the state court judgment excepted from Defendants' discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(19).⁵

Defendants filed a Motion to Dismiss claiming that by electing the SCUTPA remedy in state court, Plaintiff lost her right to pursue this action in bankruptcy court alleging any other theory of recovery. On February 9, 2011, this Court entered an Order Denying Motion to Dismiss and granting Plaintiff leave to amend the Complaint. (Doc. No. 19). The relevant portions of that order are incorporated herein by reference. The Amended Complaint attached and incorporated a copy of the state court complaint, answer and judgment (Doc. No. 12). Thereafter, Defendants filed an Answer (Doc. No. 20) reasserting those challenges set forth in their Motion to Dismiss (Doc. Nos. 4 & 5). In addition, Defendants raised defenses in response to allegations asserted in the Amended Complaint for this adversary proceeding and set out in the state court complaint. See Doc. No. 20 at 3–10.

In response to Defendants' Answer, Plaintiff filed a Motion and Memorandum claiming that the defenses raised in the Answer should be stricken because res judicata precludes Defendants from relitigating claims. (Doc. No. 21 at 1–2). Plaintiff also argues that she is entitled to a judgment on the pleadings based on the admissions stated therein. Id. at 2. Defendants oppose the requested relief.

Discussion and Conclusions of Law

Pursuant to the Federal Rules, “[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). “When presented with a motion to strike, ‘the court must view the pleading under attack in a light most favorable to the pleader.’ ” Monster Daddy LLC v. Monster Cable Products, Inc., C/A No. 6:10–1170–HMH, 2010 WL 4853661, slip op. at *6 (D.S.C. Nov. 23, 2010) (quoting Clark v. Milam, 152 F.R.D. 66, 71 (S.D.W.Va.1993)). Federal courts generally disfavor motions to strike, and such motions “are only granted when the challenged allegations have no possible relation or logical connection to the subject matter of the controversy or cause some form of significant prejudice to one or more of the parties to the action.” Moore v. Novo Nordisk, Inc., C/A No. 1:10–2182–MBS–JRM, 2011 WL 1085650, slip op. at *8 (D.S.C. Feb. 10, 2011) (internal quotation marks and citations omitted). Under Rule 12(f), “[t]he Court may strike from a pleading ... any redundant, immaterial, impertinent, or scandalous matter.... This includes matter that a party is prevented from relitigating under the doctrine of res judicata.” Setzler v. City and Cnty. of San Francisco, No. C 07–05792 SI, 2008 WL 2264481, slip op. at *8 (N.D. Cal. June 2, 2008) (emphasis added) (internal quotation marks and citations omitted).

Plaintiff asserts that portions of Defendants' Answer revisit issues already decided in the Court's Order Denying Motion to Dismiss (Doc. No. 19). The Court agrees and therefore strikes Defendants' defenses which claim that by electing the SCUTPA remedy in state court, Plaintiff lost her right to pursue this action in bankruptcy court alleging any other theory of recovery.

Further, Plaintiff asserts that Defendants are attempting to relitigate matters already decided in the state court in violation of the preclusion doctrine; therefore, Rule 12(f) requires the Court to strike the remainder of Defendants' Answer. If the Court agrees, then Plaintiff asserts that a judgment on the pleadings is warranted under Rule 12(c) because no disputed facts would remain. See Doc. Nos. 21 & 25.

The Preclusion Doctrine

“The doctrine of res judicata bars subsequent suits involving claims that have already been reduced to judgments ... [and] represents ‘society's interest in the finality of judgments.’ ” In re Rodgers, Adv. Pro. No. 10–00171–8–JRL, 2010 WL 5014340, slip op. at *4 (Bankr.E.D.N.C. Dec. 3, 2010) (quoting Gullette v. Barrow (In re Barrow), 87 B.R. 879, 883 (Bankr.E.D.Va.1988)). It is designed to prevent a litigant “from raising any issues which were adjudicated in the former suit and any issues which might have been raised in the former suit.” Id. (citations omitted). “However, res judicata does not bar claims that did not exist at the time of the prior litigation.” Meekins v. United Transp. Union, 946 F.2d 1054, 1057 (4th Cir.1991) (citing Harnett v. Billman, 800 F.2d 1308 1313 (4th Cir.1986)).

The “preclusion doctrine encompasses two strands: res judicata and collateral estoppel.” Sartin v. Macik, 535 F.3d 284, 287 (4th Cir.2008).

Res judicata, or claim preclusion, bars relitigation of claims that were or could have been raised in a prior proceeding between the same par...