Long v. Piercy (In re Piercy)

In re LESTER DAN PIERCY, JR. Case No. 3:18-bk-32261-SHB

DOLORES J. PIERCY Case No. 3:18-bk-32260-SHB

JOSEPH SHANE PIERCY Case No. 3:18-bk-32262-SHB DebtorsM. DUSTIN LONG Plaintiff v. LESTER DAN PIERCY, JR., et al. Defendants

CONSOLIDATED CASE Adv. Proc. No. 3:18-ap-3043-SHB

CONSOLIDATED CASE Adv. Proc. No. 3:18-ap-3044-SHB

CONSOLIDATED CASE Adv. Proc. No. 3:18-ap-3046-SHB

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TENNESSEE

August 20, 2019

MEMORANDUM

APPEARANCES:

SWANSON & COWAN, LLP

Mark A. Cowan, Esq.

717 West Main Street

Suite 100

Morristown, Tennessee 37814

Attorneys for Plaintiff

QUIST, FITZPATRICK & JARRARD, PLLC

Ryan E. Jarrard, Esq.

2121 First Tennessee Plaza

800 South Gay Street

Knoxville, Tennessee 37929

Attorneys for Defendants

SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE

Because Plaintiff raised before the state court a claim based in fraud and the state court's decision did not include a factual finding of fraudulent conduct, the Court finds that Plaintiff is bound by issue preclusion so that summary judgment in favor of Defendants is proper.

I. PROCEDURAL POSTURE

Plaintiff filed a Complaint in each of the foregoing adversary proceedings on October 22, 2018, asking the Court to determine that a state-court judgment in the amount of $151,670.87 entered against Defendants jointly and severally is nondischargeable pursuant to 11 U.S.C. § 523(a)(4). Defendants each filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure¹ on November 21, 2018, arguing that Plaintiff's claim is barred by the doctrine of judicial estoppel; however, because Defendants offered documents outside the pleadings in support of the motions to dismiss, pursuant to Rule 12(d), the Court directed that the motions would be treated as if for summary judgment under Federal Rule of Civil Procedure 56,² and the parties were directed to supplement their arguments and provide statements of undisputed material facts as required by Rule 56(c). [Docs. 6, 7, 10.³]

Defendants filed their statement of undisputed material facts on March 5, 2019 [Doc. 13], supported by a certified copy of the Complaint that was filed by Plaintiff against Defendants in Grainger County Chancery Court on February 7, 2012 ("State Court Complaint") and the Amendment to Complaint filed on August 30, 2013 ("Amended State Court Complaint") [Doc. 13-1]; the transcript of the chancellor's opinion delivered on September 19, 2013 ("State CourtOpinion") [Doc. 13-2]; the Affidavits of Lester Dan Piercy and Joseph Shane Piercy [Docs. 13-3, 13-4]; and a supplemental brief in support of their collective argument that the relief sought by Plaintiff is barred by the doctrine of judicial estoppel, which incorporated arguments raised in Defendants' briefs in support of the motions to dismiss [Doc. 14; see also Doc. 7]. In response, in addition to his original responses in opposition to the motions to dismiss [Doc. 8], Plaintiff timely filed a supplemental response and brief [Doc. 15], a response to the statement of undisputed material facts [Doc. 16], and his affidavit [Doc. 16-1].

Following an analysis of the summary judgment materials filed by both parties, the Court entered its Memorandum and Order on Motion for Summary Judgment on June 12, 2019 ("Memorandum & Order") [Doc. 17], advising that it was inclined to determine that res judicata applies in this case to preclude Plaintiff from raising any claim that was or should have been raised in the state court and directing the parties, pursuant to Rule 56(f), to file briefs setting forth their respective arguments, if any, against application of the doctrine of res judicata to the Complaint and entry of summary judgment in favor of Defendants. Plaintiff filed his brief on July 5, 2019 [Doc. 19], and Defendants filed their collective brief on July 15, 2019 [Doc. 20]. This is a core proceeding. 28 U.S.C. § 157(b)(2)(I).

The resulting procedural posture, thus, is that the converted motions for summary judgment are ripe, with the record including the parties' arguments concerning res judicata, all pleadings of record in the adversary proceedings, and all attachments thereto. See Fed. R. Evid. 201(a) (applicable in bankruptcy cases and adversary proceedings pursuant to Fed. R. Evid. 1101(a), (b) and Fed. R. Bankr. P. 9017). Even though the Court thoroughly recited the facts of this case as well as the standard for summary judgment and the elements of § 523(a)(4) in theMemorandum & Order entered on June 12, 2019, they are restated and expanded herein to maintain an organized record.

II. UNDISPUTED FACTS

The parties do not dispute the following facts, which are established by the record, including the unopposed documentation provided. On February 7, 2012, Plaintiff commenced Long v. Goins Hollow Quarry, LLC, et al., No. 2012-CH-12, in the Grainger County Chancery Court ("State Court Action"), which was brought in connection with a Contract executed by Plaintiff and Defendants on April 27, 2011. The Contract provides:

This agreement provides compensation from the sale of DGA and shot rock which will be crushed and screened from the location of Grainger/Claiborne line along Highway 25E. This material is being purchased for $2.67 per ton from Hinkle Contracting Company, LLC, by Assignment and Assumption and Transfer Agreement [("Assignment Agreement")⁴], which agreement has been signed by the parties, Dustin Long and Dan Piercy, Jr.

The following percentages will apply to the profit from the sale of aforesaid DGA and shot rock:

Twenty-five percent (25%) for Dustin Long

Twenty-five percent (25%) for Dolores Piercy

Twenty-five percent (25%) for Shane Piercy

Twenty-five percent (25%) for Dan Piercy, Jr.

All parties agree to these percentages for the profit made from the sale of these products[.]

[Doc. 13-1 at 11.]

In the State Court Complaint, Plaintiff makes the following averments relevant to the instant motions:

4. In April 2011, Dustin Long and Goins Hollow Quarry, LLC, entered into a contract with Hinkle Contracting Company, LLC, in which Hinkle assigned its rights in a stockpile of rock to Long and Goins Hollow in exchange for $2.67 for each ton of rock removed.

5. On April 27, 2011, Long and Goins Hollow Quarry, LLC, entered into a partnership agreement with each other, setting out how the profit from the rock would be divided after Hinkle Contracting was paid its $2.67 a ton.

6. The partnership agreement provides that Long is to be paid 25%, and the three Goins Hollow (Piercy) defendants are to be paid a total of 75%.

7. Even though Long was the one who secured the deal with Hinkle Contracting, Long agreed to give Goins Hollow defendants 75% of the profits because they agreed to provide and run all the equipment to weigh, crush, and process the rock as well as maintain the business records. Moreover, Long was to haul all the rock, for which he could bill the customer directly to supplement his share of the profit.

8. Long and Goins Hollow agreed to sell the processed rock for at least $9.75 a ton (some grades of rock were higher), meaning that Long was to receive at least $1.77 for each ton sold.

9. According to the records supplied by Goins Hollow, the partnership sold 3,034.76 tons of rock in July 2011. But Goins Hollow issued Long a royalty check for only $1,483.53.

10. At a minimum, the division of profit should have [been $5,371.53 to Long and $16,114.58 to Goins Hollow]. Instead, Goins Hollow reimbursed itself for all its expenses, making the final payout [$1,483.53 to Long and $4,450.59 profit and $10,614.91 expenses to Goins Hollow.]

11. Long also received a check for $1,015.78 for August 2011. He has received nothing for September, October, November, December 2011, or January 2012.

12. In addition to the defendants' diversion of funds from Long, they have refused to provide him an accounting or access to any business records. With over 278,000 tons of visible rock at the site, Long has over $492,060 at stake in this venture - possibly[] much more, depending on the tonnage of available rock underground.

13. Moreover, the defendants have refused to give Long access to the partnership scales to weigh rock that he has sold. This lack of access to the scales has caused Hinkle Contracting to allege a breach of its underlying contract with the parties, because the rock sold by Long had to be weighed offsite in violation of Hinkle's contract.

14. Long wants to protect the parties' relationship and contract with Hinkle Contracting, but it [sic] impossible to do so without the defendants' good-faithcooperation.

[Doc. 13-1 at 1-3 (State Court Compl., ¶¶ 4-14) (footnotes and graphs omitted).]

In the initial State Court Complaint, Plaintiff sought the following, "[b]ased on the defendants' misconduct": (1) "a judgment against [D]efendants, jointly and severally, in the amount of $492,060, less any amounts paid before trial, with prejudgment interest at 10%"; (2) a sworn accounting; (3) an injunction against Defendants' interference with Plaintiff's right to use the partnership equipment and to have full access to business records; (4) court costs and discretionary costs to be taxed against Defendants; (5) an attorney's fee award; and (6) any other appropriate relief. [Id. at 3-4.] Plaintiff amended the State Court Complaint to seek an accounting and judicial supervision of dissolution and winding up of the partnership pursuant to Tennessee Code Annotated §§ 61-1-405(b) and 61-1-801(5) because

the economic purpose of the partnership is likely to be unreasonably frustrated. The other partners have engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with them. And it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement.

[Id. at 14-15 (Am. State Court Compl. ¶¶ 15-17).]

Following trial before Chancellor Telford E. Forgety, Jr., he delivered a bench opinion (the "Bench Decision")...