Skycasters, LLC v. Kister (In re Kister)

In Re: Michael Patrick Kister Debtor.

Skycasters, LLC, et al. Plaintiffs, v. Michael Patrick Kister Defendant.

Case No. 17-52838

Adv. Pro. No. 18-5017

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

September 27, 2019

The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.

Chapter 7

JUDGE MARY ANN WHIPPLE

MEMORANDUM OF DECISION AND ORDER REGARDING MOTION FOR SUMMARY JUDGMENT

This adversary proceeding is before the court on Defendant's Motion for Summary Judgment [Doc. # 31], Plaintiffs' Opposition [Doc. # 36], and Defendant's Reply [Doc. # 37]. Defendant's Motion, Plaintiff's Opposition, and Defendant's Reply, along with supporting documents, were filed under seal as permitted by the court's order of February 21, 2019. [Doc. # 29]. As directed by an order of the court entered on July 2, 2019, and as discussed below, Plaintiffs supplemented their Opposition to the Motion [Doc. # 43] and filed additional documents in support of their Opposition [Doc. # 42], to which Defendant also responded [Doc. # 45].

Defendant is a debtor in the underlying Chapter 7 case. In their complaint, Plaintiffs allege business losses attributable to Defendant's conduct during and following his employment with Skycasters, LLC. Plaintiffs contend that Defendant owes them a debt that is non-dischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6). Defendant seeks summary judgment on all three claims.

The district court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) as a civil proceeding arising under Title 11. The proceeding has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to determine dischargeability are core proceedings that the court may hear and determine. 28 U.S.C. § 157(b)(1) and (b)(2)(I). For the reasons that follow, the court will grant in part and deny in part Defendant's motion for summary judgment.

EVIDENTIARY ISSUES

In support of their opposition to Defendant's Motion for Summary Judgment, Plaintiffs submitted the affidavit of Don Jacobs. On July 2, 2019, the court requested supplemental briefing to address evidentiary issues raised by the Jacobs affidavit. [Doc. # 40]. The court expressed concern with portions of the affidavit, specifically, the basis for his claimed personal knowledge, whether his averments were free of inadmissible hearsay, and otherwise constituted admissible evidence. Plaintiffs filed a timely response to the court's order [Doc. # 42] as did the Defendant [Doc. # 43]. Plaintiffs' response includes and incorporates by reference a Supplemental Affidavit by Jacobs dated July 26, 2019. [Doc. # 43].

As summarized by another bankruptcy court in determining the propriety of an affidavit to be considered in a summary judgment motion :

Civil Rule 56 (c)(4), made applicable by Rule 7056, provides: "An affidavit or declaration used to support or oppose a [summary judgment] motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on matters stated." Hearsay is generally inadmissible as evidence. Fed. R. Evid. 802. Federal Rule of Evidence 801 (c) explains that hearsay is a statement that "(1) the declarant does not make while testifying at the current trial or hearing; and (2) a party offers in evidence to prove the truth of the matter asserted in the statement." Statements of opposing parties offered in their individual capacities are not hearsay. Fed. R. Evid 801(d)(2)(a). When referring to documents, litigants must supply "an original writing to prove its content unless [the Federal Rules of Evidence] or a federal statute provide otherwise." Fed. R. Evid. 1002.

Herrera v. Scott (In re Scott), 588 B.R. 122, 129 (D. Idaho 2018). See also Alexander v. CareSource, 576 F.3d 551, 558 (6th Cir. 2009). Once an objection is raised as to admissibility, "[t]he burden is on theproponent to show that the material is admissible as presented or to explain the admissible form that is anticipated." Fed. R. Civ. P. 56(c) advisory committee's note to 2010 amendment.

Plaintiffs' response to the court's inquiry is based on information contained in the following categories: (1) The Joint Stipulation; (2) Jacobs' Supplemental Affidavit; (3) Jacobs' personal knowledge based on his presence at depositions; (4) Jacobs' personal knowledge as Plaintiffs' corporate officer; (5) Jacobs' personal knowledge based on his acquisition of AS assets; and (6) Jacobs' personal knowledge based upon his email correspondence with Don Smith. The court now turns to the specific paragraphs in question.

A. Paragraph 23 "During the course of discovery in the State Litigation, it was learned that - unbeknownst to Plaintiffs - the Consultants were providing services to AS/Kister/McKinney at the same time that said Consultants were providing services to Plaintiffs."

Plaintiffs cite to Paragraph 14 of the Joint Stipulation for supporting undisputed facts contained in paragraph 23. Plaintiffs also reference Jacobs' Supplemental Affidavit, which states at paragraph 9: "The statements set forth in Paragraph 23 of the First Affidavit are supported by the following facts, all of which are within my personal knowledge: a) The sworn deposition testimony of Kister, relevant portions of which are cited in Plaintiffs' Supplement," in support. They contend the referenced deposition transcripts constitute proper evidence under Fed. R. Civ. 56(c)(1)(A).

"The purpose of an affidavit is to ensure that the affiant, under penalty of perjury, has performed the due diligence necessary to attest to the accuracy of his or her statements." In re Granda, 396 B.R. 226, 228 (Bankr. S.D. Fl. 2008). Where the best source of the information is contained in the record, referencing the primary source may assuage questions as to admissibility, which will arise in the absence of such references or conclusory assertions as to personal knowledge. This is the exact situation which was presented in Paragraph 23 of the First Affidavit when Jacobs averred to matters "learned" "[d]uring the course of discovery," as well as the other statements in question. There was no reference to the Joint Stipulation, filed with the court in January 2019 [Doc. # 20] or the Kister deposition, which was an exhibit to Plaintiffs' brief in opposition. [Doc. # 36, Ex. 3]. Through the Supplemental Affidavit and additional briefing, Plaintiffs have established the admissibility of the statement in accordance with Fed. R. Civ. P. 56(c)(4).

B. Paragraph 24 "During the course of discovery in the State Litigation, it was learned that, notwithstanding the fact that they were providing services to AS, certain of the Consultants - including Don Smith (Don Smith Consulting) - did not have an agreement with AS. Said agreement was not enteredinto until June 2013, after Kister had resigned from his employment and; therefore, Kister no longer had the ability to utilize Plaintiffs' funds to pay for said services."

In support of this paragraph, Plaintiffs first point to Jacobs' Supplemental Affidavit wherein he establishes his personal knowledge averring he was present at the Kister deposition. They also cite to pertinent portions of Kister's deposition in their response to the court's order for supplemental briefing. Jacobs' Supplemental Affidavit avers the following at Paragraph 11(b):

"My personal review of AS assets, which are now owned by Skycasters including: (i) an April 20, 2012 email exchange between McKinney and Kister (Kister Depo Ex. 24), attached hereto as Exhibit 1; (ii) an October 10, 2012 email exchange between Kister and Don Smith (Kister Depo Ex. 1020), attached hereto as Exhibit 2; (iii) a March 17, 2013 email from McKinney to Kister (Kister Depo. Ex. 70), attached hereto as Exhibit 3; and (iv) a "Consulting Agreement" between AS and Don Smith (Kister Depo . Ex. 83), attached hereto as Exhibit 4.

Plaintiffs cite to authority from the Sixth Circuit which holds, "[c]orporate officers are considered to have personal knowledge of the acts of their corporations and an affidavit setting forth those facts is sufficient for summary judgment." Fambrough v. Wal-Mart Stores, Inc., 611 Fed. Appx. 322, 330 (6th Cir. 2015), citing AGI Realty Serv. Grp., Inc. v. Red Robin Intern., Inc., 81 F.3d 160 (6th Cir. 1996) (unpublished). Through the Supplemental filings and briefing, Plaintiffs have established admissibility under Rule 56(c)(4) as to Paragraph 24 of the Initial Affidavit.

C. Paragraph 35 "During the course of discovery in the State Litigation, it was learned that AS - by and through Kister and McKinney - had entered into business agreements and "partnerships" with Plaintiffs' competitors including, without limitation, ViaSat/Exceed, RigNet, MobilSat and SpaceNet."

Similar to the previously challenged paragraphs, Plaintiffs point to the Joint Stipulation and Supplemental Affidavit to support Jacobs' averments. Plaintiffs contend Jacobs' status as CEO and owner imputes personal knowledge of Plaintiffs' business competitors to him. They cite to the Supplemental Affidavit which speaks to Jacobs' personal knowledge and review of AS documents following Plaintiffs' purchase of those assets arising from the AS bankruptcy. Through their clarifying response, Supplemental Affidavit, and the Joint Stipulation, Plaintiffs have resolved the court's concerns as to admissibility and hearsay under Fed. R. Civ. P. 56(c)(4) as to Paragraph 35 of the Initial Affidavit.

D. Paragraph 25 "Upon information and belief, having reviewed the invoices submitted by and payments to, the Consultants between 2012 and 2013, Plai...