Salba Corp. v. Propster (In re Propster)

In re: MITCHELL ALLEN PROPSTER, Debtor.

SALBA CORP., N.A., a Canadian corporation,SALBA SMART NATURALS PRODUCTS,LLC a Colorado limited liability company,WILLIAM A. RALSTON, and RICHARD L. RALSTON Plaintiffs, v. MITCHELL ALLEN PROPSTER Defendant.

Case No.: 6:11-bk-15434-CCJ

Adv. No.: 6:16-ap-00089-CCJ

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION

Filed: September 21, 2018

September 20, 2018

Chapter 7

ORDER GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

This adversary proceeding came before the Court on the Motion for Partial Summary Judgment, as supplemented (Doc. Nos. 7 and 20; collectively the "Motion"), filed by Plaintiffs, SALBA Corp., N.A., SALBA Smart Naturals Products, LLC, William A. Ralston, and Richard L. Ralston (collectively the "Plaintiffs"), and the Response to the Motion, as supplemented and amended (Doc. Nos. 11, 21, 32 and 34; collectively the "Response") filed by the Defendant, Mitchell Allen Propster (the "Debtor"). The Plaintiffs request summary judgment on Count II of the complaint, which seeks a determination that the amounts owed by the Debtor under a number of final district court orders are nondischargeable under Section 523(a)(6) of the Bankruptcy Code. Having considered the Motion and Response, along with argument of counsel and the Debtor--who appeared pro se at some hearings and with counsel at others--the Court grants the Motion for the reasons stated below.

Findings of Fact

On October 11, 2011, the Debtor filed for relief under Chapter 13 of the Bankruptcy Code. The Debtor later converted his case to Chapter 7. During the pendency of his bankruptcy (which was filed without notice to the Plaintiffs), the Plaintiffs commenced an action against the Debtor and others in the United States District Court for the District of Colorado, Civil Action No. 12-cv-01306-REB-KLM (the "District Court Action"). By the District Court Action, the Plaintiffs alleged that the Debtor and its affiliated entities infringed on the Plaintiffs' exclusive right to use the SALBA name and related marks in their sale of "counterfeit" chia seeds and other products. The Plaintiffs and the Debtor resolved the issues early on in the District Court Action and entered into a settlement agreement.

Later, the Plaintiffs alleged that the Debtor violated the settlement agreement and filed an amended complaint in the District Court Action to include a breach of settlement claim. By the amended complaint, the Plaintiffs sought to hold the Debtor liable for various claims, including cybersquatting, trademark infringement, and copyright infringement. The Debtor filed an answerto the amended complaint and asserted various counterclaims. The parties engaged in extensive litigation regarding their claims for the next year.¹ During this time, the District Court entered a Third Trial Preparation Conference Order which set a final pretrial conference and a jury trial. About five months prior to the scheduled trial, Debtor's counsel in the District Court Action requested that he be allowed to withdraw as counsel and the District Court granted counsel's request. The Debtor failed to retain new counsel.

Three days prior to the final pretrial conference, the Debtor filed a motion to continue the trial. The District Court entered an Order to Show Cause, directing the Debtor to show cause why a default should not be entered against him for failing to defend the Plaintiffs' claims and failing to comply with the District Court's rules and orders in preparing for trial. The Order to Show Cause also directed the Debtor to show cause why his counterclaims against the Plaintiffs should not be dismissed as a sanction for failing to comply with the District Court's orders and rules. The Debtor appeared pro se at the final pretrial conference and filed a response to the Order to Show Cause.

The District Court subsequently entered an Order Making Order to Show Cause Absolute and for Entry of Default and Dismissal of Counterclaims against the Debtor (the "Default Order"). By the Default Order, the District Court entered a default against the Debtor on all of the Plaintiffs' claims and dismissed the Debtor's counterclaims with prejudice. The District Court made twelve pages of factual findings and legal conclusions to support entry of a default against the Debtor. Those findings included the following:

In recent months, the plaintiffs repeatedly and assiduously sought the cooperation of Mr. Propster in preparing this case for trial. Notwithstanding, Mr. Propster has, at best, responded to the requests of the plaintiffs with inexplicit and unfulfilled promises of future action. Concerning any form of trial preparation, Mr.Propster is missing in action. Mr. Propster replied to precious few of the many e-mails from counsel for the plaintiffs, but tellingly, he never engaged in any of the trial preparations required in the Third Trial Preparation Conference Order [#142].²

***

At the [final pretrial conference], Mr. Propster said he intends to seek counsel to represent him. However, he did not specify at the hearing and does not specify in his papers any efforts he has made to obtain counsel and does not identify any future plans to obtain counsel. At the [final pretrial conference] he reported also that he does not have the financial resources to fly to Denver for the trial of this case....Mr. Propster did not specify at the hearing and does not specify in his papers any specific, realistic plans to obtain the funding essential to his retention of counsel or to his appearance at trial.³

***

In his response [#188] to the Order To Show Cause [#182], Mr. Propster asserts that he needs time to get up to speed and reiterates his request, also asserted in a motion to continue [#181], for a continuance of the trial. Mr. Propster says he will "enthusiastically" prepare for trial if he is granted a 90 day continuance. Response [#188], p. 4. In addition, he says he intends to continue to seek counsel. Id. He notes also that the court "has made clear the implications for failures on Defendants part to comply with the Court's Orders." Id. Neither in his motion to continue [#181] nor in his response [#188] to the Order To Show Cause does Mr. Propster explain credibly and cogently why he has failed to engage in any substantive trial preparation since his counsel withdrew five and one-half months ago. He provides no details about his purported plan to prepare for trial in the next 90 days. He does not explain how an additional 90 days - as opposed to some shorter or longer period of time - will be adequate for his trial preparation when the past five and one-half months have, for reasons unstated, been inadequate.⁴

Three months after entry of the Default Order, the District Court entered an Order Granting Motions for Default Judgment and a Final Judgment in favor of the Plaintiffs and against the Debtor and others, jointly and severally, for cybersquatting, willful trademark infringement, and willful copyright infringement (collectively the "Default Judgment"). By theDefault Judgment, the District Court determined that as a result of the Debtor's failures to comply with Court orders, that the Debtor has admitted all of the factual allegations asserted in the amended complaint. And, based upon these admitted findings, the Court concluded that the allegations of the amended complaint were sufficient to establish claims for cybersquatting, willful trademark infringement and willful copyright infringement. The District Court also awarded the Plaintiffs statutory damages for the cybersquatting claim and enhanced statutory damages for willful trademark infringement and willful copyright infringement, all totaling $7.75 million.

After entry of the Default Judgment, the Plaintiffs requested and the Court granted an award of their attorney fees and costs incurred in the District Court Action with respect to the willful trademark and willful copyright infringement claims. In awarding fees, the District Court stated that "[p]articularly in light of the willful nature of the trademark and copyright infringement at issue in this case, and the need to promote and protect considerations of compensation and deterrence, the operative facts of this case warrant an award of attorney fees..."⁵ After deducting attorney fees for work done on other claims, the District Court awarded the Plaintiffs attorney fees of $684,163.66 and costs of $18,940.30 (the "Attorney Fee Order").

In 2016, the Plaintiffs recorded the Default Judgment in Florida and commenced discovery in aid of execution. In an effort to avoid compliance with that discovery, the Debtor filed a motion to reopen his bankruptcy case to add the Plaintiffs as creditors and to discharge their claims. This Court granted the motion to reopen the Debtor's bankruptcy case. In response, the Plaintiffs filed this adversary proceeding asserting that their debt is not dischargeable under Section 523(a)(6) of the Bankruptcy Code as a willful and malicious injury.⁶The Debtor, pro se, filed an answer asserting that the debt is dischargeable. The Plaintiffs now seek summary judgment, arguing that collateral estoppel bars the Debtor from relitigating whether he willfully and maliciously injured the Plaintiffs. The Debtor, who is now represented by counsel, responds that collateral estoppel does not apply because (i) the District Court Action was not actually litigated (it was a default judgment) and, (ii) even if actually litigated, the District Court's finding of willful copyright infringement could be based on a finding of recklessness as opposed to willful misconduct, and that any finding of willfulness by the District Court was in error.

Conclusions of Law

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law".⁷ Here, the parties do not dispute the fact that the District Court entered the Default...