Fox v. Crowgey (In re Crowgey)

517 B.R. 639

In re Stanley Joseph CROWGEY, Debtor.

Don Fox, Plaintiff

v.Stanley Joseph Crowgey, Defendant.

Bankruptcy No. 13–62278.

Adversary No. 14–06002.

United States Bankruptcy Court, W.D. Virginia, Lynchburg Division.

Signed Sept. 24, 2014.

Entered Sept. 25, 2014.

Richard L. Greenberg, Greenberg & Associates, Roanoke, VA, for Plaintiff.

George A. McLean, Richard Daniel Scott, Law Office of Richard D. Scott, Roanoke, VA, for Defendant.

MEMORANDUM OPINION

PAUL M. BLACK, Bankruptcy Judge.

The matters before the Court are the Motion for Summary Judgment (“Motion”) filed by Don Fox, individually, and d/b/a Big Giant Warehouse (collectively “Plaintiff”), by counsel, and the Response thereto filed by Stanley Joseph Crowgey (“Defendant” or “Debtor”), by counsel. A hearing was held on September 9, 2014. On that same date, the matter was taken under advisement. For the reasons stated herein, the Plaintiff's Motion for Summary Judgment is granted.

FINDINGS OF FACT

Don Fox, the Plaintiff, filed this adversary proceeding by complaint on January 23, 2014, seeking to except from discharge his prepetition state court judgment against the Debtor, Stanley Joseph Crowgey, in the amount of $634,395.73 under 11 U.S.C. § 523¹ of the Bankruptcy Code. The Plaintiff, by counsel, filed the Motion on August 8, 2014 and the Memorandum in Support of the Plaintiff's Motion on August 29, 2014. On August 22, 2014, the parties filed a Stipulation of Facts,² attaching as exhibits a copy of the Plaintiff's State Court Petition in the District Court of Oklahoma County, Oklahoma (“Oklahoma State Court”); the Debtor's Answer, Counterclaim and Third Party Petition; an Order regarding the withdrawal of the Defendants' counsel in that case; and the Journal Entry of Judgment, which awards the Plaintiff $634,395.73 in compensatory and punitive damages. The Debtor, by counsel, filed a Response to the Motion on August 25, 2014. A hearing on the Motion and the Response thereto was held on September 9, 2014, where the Debtor and counsel for both parties appeared.

Prior to Debtor's bankruptcy filing, the Plaintiff's limited liability company, Big Giant Warehouse, L.L.C.,³ sued the Debtor and two corporate entities with which the Debtor was formally associated, known as K.I.N.E. Ministries, Inc. and K.I.N.E. Services, L.L.C. (collectively “Defendants”), alleging, among other things, fraud, common-law fraud, and misrepresentation in Oklahoma State Court. Stip. ¶ 1. The Complaint alleges that over a twenty-year period, Debtor was employed by Plaintiff a cumulative of seven years and that during this time, Debtor was trained as a product locator of wholesale goods and was therefore entrusted with trade secrets, confidential and proprietary information, including a customer list that the Plaintiff spent over forty-seven years compiling. Compl. ¶¶ 2, 3, 11, 12. The Complaint further alleges that in July 2000, while still employed with Plaintiff, Debtor formed non-profit charitable organizations, K.I.N.E. Ministries, Inc. and K.I.N.E. Services, L.L.C., which Debtor used to compete against Plaintiff by misappropriating confidential and proprietary data obtained through his employment with Plaintiff.

Id. ¶ 13. The Complaint also alleges that Defendants misrepresented the intentions of the non-profit charitable organizations, and fraudulently induced Plaintiff to permit the Defendants to use a warehouse and various machinery and equipment free of charge. Id. ¶¶ 4, 5, 17. The Complaint further alleges that Debtor breached his fiduciary responsibility to Plaintiff and fraudulently concealed his activities by soliciting donated goods and merchandise under the guise of non-profit charitable organizations, and selling the donated items at a profit to Plaintiff's customers, and that Defendants have interfered with Plaintiff's business relations by obtaining donated goods and merchandise ordinarily distributed by Plaintiff, and selling them to Plaintiff's customers by using confidential customer lists, credit reputation, and commercial relationships. Id. ¶¶ 24, 28.

The Defendants, by counsel, responded to the Complaint with an Answer, Counterclaim and Third Party Petition, filed with the Oklahoma State Court on October 25, 2006. Stip. Ex. B. The Defendants denied the allegations in the Complaint, pled affirmative defenses, and listed various allegations against Plaintiff in the Counterclaim and Third Party Petition.Id. In its Counterclaim and Third Party Petition, Defendants alleged, among other things, that Plaintiff tortiously interfered with Defendants' business relations by contacting various entities with whom Defendants conduct business and falsely represented the nature of Defendants' business practices. Id. ¶ 25. In addition, Defendants alleged that Plaintiff committed libel and/or slander by maliciously misrepresenting the true purpose and intent of Defendants' business to third parties. Id. ¶ 26. The Counterclaim and Third Party Petition further alleges that Plaintiff also breached its agreement to voluntarily give equipment to Defendants for its use by seeking to recover money for those items that Plaintiff voluntarily donated or gave to Defendants at no charge. Id. ¶ 30.

By Order filed on August 30, 2010, the Oklahoma State Court granted Defendants' counsel's Motion to Withdraw. Stip. Ex. C. The Order also directed that the Defendant Stan Crowgey obtain new counsel within thirty days or he will be deemed to represent himself pro se and directed that the Defendants K.I.N.E. Ministries, Inc. and K.I.N.E. Services, L.L.C. obtain new counsel within thirty days as required by Oklahoma statute. Further, the Order stated that “[f]ailure by Defendants to defend the case may result in a dismissal of the case without prejudice or default judgment entered against the Defendants.” Id. The Order also provided that “notice and service of future filings” may be served on Defendants at an address in Roanoke, Virginia. Id. The parties stipulate that the Defendants did not obtain new counsel at any time following the Order. Stip. ¶ 4.

The Oklahoma State Court entered a Journal Entry of Judgment on April 15, 2013 stating that the court “granted default judgment against the Defendants” based on Plaintiff's Motion for Default Judgment, and held an evidentiary hearing on damages on April 11, 2013. Stip. Ex. C. The Journal Entry of Judgment also states that “notice was given of the evidentiary hearing date” but “Defendants did not appear and no responsive brief was filed by or on behalf of Defendants.” The Oklahoma State Court found that Plaintiff is entitled to $334,395.73 in compensatory damages after “review[ing] the brief and having received supporting evidence.” Id. Further, the Oklahoma State Court concluded, “evidence is sufficient to support a finding for punitive damages as the Defendants acted intentionally, with malice and in reckless disregard to the rights of others.

Defendants received the money and property at issue in this litigation by false representations and by fraud.” Id. Accordingly, the Oklahoma State Court also awarded the Plaintiff punitive damages in the amount of $300,000.00. Id.

The parties stipulate that the Oklahoma State Court judgment was not appealed and is a final judgment. Stip. ¶ 7. Further, the parties stipulate that the Oklahoma State Court judgment was recorded in Bedford County, Virginia Circuit Court on August 28, 2013 (“Virginia Judgment”), pursuant to the Uniform Enforcement of Foreign Judgments Act. The Defendants did not take any of the actions set forth in Virginia Code § 8.01–465.4 to challenge the Virginia Judgment, and the Virginia Judgment is final and enforceable. Id. ¶¶ 8–9. Execution of the Virginia Judgment was commenced by garnishment on October 29, 2013. On November 5, 2013, the Debtor filed for relief in this Court under Chapter 7 of the Bankruptcy Code. Id. ¶ 11.

The parties also stipulate that in addition to the Oklahoma State Court proceeding, Plaintiff also filed a companion case against Fox Wholesale, L.L.C., Fox Wholesale, and Tim Fox, who participated in the sale and brokering of goods with Defendants' enterprise in Oklahoma. This case was tried before a jury in the District Court of Oklahoma County and the jury found in favor of the Plaintiff, but did not award any damages against the defendants in that case. Id. ¶ 12.

In its Memorandum in Support of its Motion, the Plaintiff correctly asserts that Oklahoma preclusion law applies, and argues that the issues underlying its complaint on nondischargeability were actually litigated, as this is not a true default situation. In addition, the Plaintiff contends that the Oklahoma State Court's Journal Entry of Judgment establishes that the issue was actually litigated because the Oklahoma State Court took and considered evidence and the Debtor was actively involved inasmuch as he hired an attorney, answered the suit, and sought affirmative relief by filing a counterclaim in the Oklahoma State Court proceeding.

However, the Debtor, in its Opposition to Plaintiff's Motion, asserts that the record does not establish that the parties actually litigated the issues relating to the Plaintiff's nondischargeability complaint in the Oklahoma State Court proceeding. Rather, the Debtor, citing to Virginia case law and not mentioning any Oklahoma cases, argues that collateral estoppel does not apply in this case because neither the default judgment nor the record before this Court establishes that the issues were actually litigated. Further, the Debtor argues that even if he is collaterally estopped from litigating the issues underlying the Plaintiff's nondischargeability complaint, the punitive damages award of $300,000.00 should not be nondischargeable because it falls under 11 U.S.C. § 523(a)(6) rather than Section 523(a)(2), and the Plaintiff agreed to only proceed under Section 523(a)(2).

CONCLUSIONS OF LAW

This Court has jurisdiction of this matter by virtue of the provisions of 28 U.S.C. §§ 1334(a...