Maljamar Fuel Stop, LLC v. Sherman (In re Sherman)

In re: JOHN P. SHERMAN, Debtor.

MALJAMAR FUEL STOP, LLC, Plaintiff, v. JOHN P. SHERMAN, Defendant.

No. 17-10241-J7

Adversary No. 17-1039 J

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

July 26, 2018

MEMORANDUM OPINION

THIS MATTER is before the Court on Plaintiff's Motion for Summary Judgment ("Motion"). See Docket No. 22.¹ Plaintiff Maljamar Fuel Stop, LLC ("MFS") requests summary judgment on its non-dischargeability claims asserted under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6)² against Defendant John P. Sherman. Defendant John Sherman did not file a response to the Motion. MFS's claims stem from a contract for the construction of a fuel stop in Maljamar, New Mexico. Based on the facts not subject to material dispute, including the deemed admissions,³ the Court finds and concludes that MFS is entitled to summary judgment determining that the debt at issue is non-dischargeable. However, claim preclusion limits thenon-dischargeable damages to the amount of the default judgment awarded in favor of MFS in the pre-petition state court action premised on the same transaction that forms the basis of MFS's non-dischargeability claims asserted in this adversary proceeding.

SUMMARY JUDGMENT STANDARDS

Summary judgment can streamline litigation and avoid the unnecessary expense of proceeding to trial. See Farnell v. Albuquerque Publ'g Co., 589 F.2d 497, 502 (10th Cir. 1978) ("[S]ummary judgment is a useful tool which may avoid needless trials.") (citation omitted); Mitchell v. Zia Park, LLC, 842 F. Supp.2d 1316, 1321 (D.N.M. 2012) ("Principal purposes of summary judgment include streamlining litigation and saving needless time and expense by isolating and disposing of purely legal issues and factually unsupported claims and defenses.") (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S. Ct. 2548, 91 L. Ed.2d 265 (1986) (remaining citation omitted)). The Court will grant summary judgment when the movant demonstrates that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a), made applicable to adversary proceedings by Fed.R.Bankr.P. 7056.

"[A] party seeking summary judgment always bears the initial responsibility of informing the . . . court of the basis for its motion, and . . . [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323. Even if an opposing party fails to respond to a request for summary judgment, the Court must satisfy itself that the requesting party is entitled to judgment as a matter of law based on the facts not subject to genuine dispute. See Reed v. Bennett, 312 F.3d 1190, 1194-95 (10th Cir. 2002) ("If the nonmoving party fails to respond, the district court may not grant the motion without first examining the moving party's submission to determine if it has met its initial burden of demonstrating that no material issues offact remain for trial and the moving party is entitled to judgment as a matter of law."). Only if the properly supported material facts entitle the requesting party to judgment as a matter of law is it appropriate for the Court to grant summary judgment. Id. at 1195. However, by failing to respond, "the nonmoving party waives the right to respond or to controvert the facts asserted in the summary judgment motion." Id.

FACTS NOT SUBJECT TO GENUINE DISPUTE

1. John Sherman filed a voluntary petition under Chapter 7 of the Bankruptcy Code on February 3, 2017. See Complaint, ¶ 3; Answer, ¶ 1.

2. MFS filed its Verified Complaint for Determination Excepting Debt from Dischargeability (the "Complaint") on May 12, 2017. See Docket No. 1.

3. Mr. Sherman filed an answer to the Complaint on July 14, 2017. See Docket No. 9.

4. On December 6, 2013, MFS and Mr. Sherman entered into a contract for the construction of a fuel station in Maljamar, New Mexico (the "Construction Contract"). Complaint, ¶ 12; Answer ¶ 1.

5. Mr. Sherman did not complete his obligations under the Construction Contract. See Request for Admission ("RFA") No. 1.

6. Pre-petition, MFS filed a complaint against Johnny Johns Construction, LLC, John Sherman, and Johnny Sherman in the Fifth Judicial District Court, County of Lea, State of New Mexico, as Case No. D-5-6-CV-2014-00925 (the "State Court Action"). See Complaint, ¶ 10; Answer, ¶ 1.

7. In the State Court Action, MFS asserted claims for debt and money due on open account, piercing the corporate veil, and conversion. See Complaint, ¶¶ 11 and 18; Answer, ¶ 1.

8. All claims asserted in the State Court Action arose in connection with the ConstructionContract. See Second Amended Complaint on Contract Against Johnny Johns Construction, L.L.C., and for an Award for Individual Damages Against John Sherman and Johnny Sherman, Members of Defendant Johnny John's Construction, L.L.C. for Conversion and to Pierce the Corporate Veil, attached to Plaintiff's Notice of Filing ("State Court Complaint") - Docket No. 29.⁴

9. On November 9, 2016, MFS obtained a default judgment in the State Court Action against Johnny Johns Construction, LLC, John Sherman, and Johnny Sherman on all three claims. See Default Judgment on Second Amended Complaint on Contract ("Default Judgment") - Exhibit 4 to Motion; Complaint, ¶ 18; Answer, ¶ 1.

10. The Default Judgment awarded MFS judgment against Mr. Sherman in the amount of $155,693.26 plus interest at the rate of 15% per annum and attorneys' fees in the amount of $9,786.56 and costs in the amount of $646.90, for a total of $166,126.72. Default Judgment; Complaint, ¶ 17; Answer, ¶1.

11. From December 6, 2013 through January 24, 2014, Mr. Sherman received and negotiated the following checks from MFS made payable to Johnny Johns, Construction, LLC pursuant to the Construction Contract:

Check dated December 6, 2013 in the amount of $127,176.00

Check dated December 23, 2013 in the amount of $54,000.00; and

Check dated January 23, 2014 in the amount of $69,480.00

See RFA Nos. 2, 3, 4, 5, 6, 7, 8, 9, and 10.

12. Johnny Johns Construction, LLC is a trade name used by Mr. Sherman for doing business and is not a separate legal entity from Mr. Sherman. See RFA Nos. 19 and 20; DefaultJudgment on Second Amended Complaint, attached to the Motion as Exhibit 4 (entering judgment in favor of MFS on its claim to pierce the corporate veil and allow personal judgment against Mr. Sherman).

13. Mr. Sherman used the following subcontractors to assist with the work under the Construction Contract: Cline Pump Co. ("Cline Pump"); Ken Phillips, D & R Electric ("D & R"), and Wallach Concrete, Inc. ("Wallach Concrete"). See RFA Nos. 24, 29, 36, and 53.

14. All or a portion of the funds Mr. Sherman received from MFS was intended for repayment of subcontractors who assisted Mr. Sherman in performing the Construction Contract. See RFA Nos. 12 and 13.

15. Mr. Sherman did not pay in full the subcontractors who assisted Mr. Sherman in performing the Construction Contract. See RFA No. 14.

16. Mr. Sherman diverted funds he received from MFS and used the funds for purposes other than to complete the Construction Contract, including payment of Mr. Sherman's personal debts unrelated to the Construction Contract. See RFA Nos. 21, 22, and 23.

17. Because Mr. Sherman failed to pay Cline Pump in full for work Cline Pump performed in connection with the Construction Contract, MFS was forced to pay Cline Pump $85,945.00. See RFA Nos. 25, 26, 27, 28.

18. Because Mr. Sherman failed to pay Ken Phillips in full for work Mr. Phillips performed in connection with the Construction Contract, MFS was forced to pay Mr. Phillips $14,770.00. See RFA Nos. 30, 31, 32, 33, 34, 35.

19. Because Mr. Sherman failed to pay D & R in full for work D & R performed in connection with the Construction Contract, MFS was forced to pay D & R $20,023.10. See RFA Nos. 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52.

20. Because Mr. Sherman failed to pay Wallach Concrete in full for work Wallach Concrete performed in connection with the Construction Contract, MFS was forced to pay Wallach Concrete $25,595.95. See RFA Nos. 54, 55, 56, 57, 58, 59.

21. Mr. Sherman's conduct in not using money paid to him by MFS to pay subcontractors was without just cause or excuse. See RFA No. 75.

22. Mr. Sherman knew that not using money MFS paid to him to pay subcontractors was not the right thing to do. See RFA No. 74.

23. Mr. Sherman knew that not using the money MFS paid to him to pay subcontractors would harm MFS. See RFA No. 74. (The Requests for Admission contain two requests for admission numbered 74).

24. Mr. Sherman held himself out to be a licensed construction contractor under the New Mexico Construction Industries Licensing Act, N.M.S.A. 1978 §§ 60-13-1, et seq., with sufficient permitting to complete the Construction Contract. See RFA No. 67.

25. At the time of the Construction Contract, Mr. Sherman did not have a valid unexpired construction contractor's license. See RFA No. 60.

26. Before entering into the Construction Contract, Mr. Sherman never told MFS that Mr. Sherman was not a licensed construction contractor. See RFA No. 64.

27. At the time of the Construction Contract, Mr. Sherman was aware that MFS was under the impression that Mr. Sherman was a licensed construction contractor. See RFA No. 62.

28. Mr. Sherman intended to create a false impression on MFS's part that Mr. Sherman had the appropriate licensure to complete the Construction Contract. See RFA No. 67.

29. Mr. Sherman intended MFS to rely on Mr. Sherman's representations as to his licensing status in making its decision to enter into the Construction Contract. See RFA No. 65. 30. Mr. Sherman was aware at the time of the Construction Contract that MFS would not have entered into the Construction Contract if it knew that Mr. Sherman was not a licensed construction contractor. See RFA No. 63.

31. Whether Mr. Sherman was a licensed construction contract was material to MFS's decision to enter into the...