SmartSky Networks, LLC v. Gross (In re Gross)

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IN RE: DAVID DOV GROSS Debtor

SMARTSKY NETWORKS, LLC, v. DAVID DOV GROSS, Defendant.

No. 22-517-5-JNC

Adv. Pro. No. 22-00109-5-JNC

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division

May 5, 2023

Chapter 7

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

Joseph N. Callaway United States Bankruptcy Judge

Before the court are the cross motions for summary judgment filed by plaintiff SmartSky Networks, LLC ("SmartSky" or "SSN"), and defendant-debtor David Dov Gross ("David Gross" or "Debtor"). SmartSky filed its motion for summary judgment and supporting memorandum of law (Dkts. 29 and 30, "SmartSky's motion") on March 3, 2023. Debtor also filed his motion for summary judgment along with a Declaration of Debtor and supporting memorandum of law (Dkts. 31 and 32 "Debtor's motion") on March 3, 2023. The parties each filed a response on March 31, 2023 (Dkt. 40 "SmartSky's Response" and Dkt. 41 "Debtor's Response.") SmartSky filed a reply brief on April 11, 2023 (Dkt. 42, "SmartSky's Reply"). A hearing was scheduled for and held on April 18, 2023, in Greenville, North Carolina. Christopher Blake appeared on behalf of SmartSky, and Britney Millisor appeared for the Debtor.

After hearing arguments from counsel, the court denied Debtor's motion for summary judgment, and took SmartSky's motion for summary judgment under advisement, noting Debtor's willfulness had been established but the court had to further consider whether maliciousness had been established. For the reasons stated below, the Debtors' motion for summary judgment is denied, and SmartSky's motion for summary judgment is granted in part and denied in part.

PROCEDURAL HISTORY

On March 10, 2022, Debtor filed a voluntary petition pursuant to Chapter 7 of the Bankruptcy Code, Case No. 22-00517-5-JNC. On March 21, 2022, Debtor filed a summary of assets and liabilities (BK Dkt. 12), which listed the Final Judgment entered against him on February 7, 2022, in the United States District Court for the Middle District of North Carolina ("MDNC") in SmartSky Networks, LLC v. Wireless Systems Solutions, LLC, Case No. 1:20-CV-00834 (the "MDNC" case). The Final Judgment was entered based on Plaintiff's Motion to Confirm Final Arbitration Award (MDNC Dkt. 166). Debtor contends the Final Judgment is void due to the MDNC lacking subject matter jurisdiction and therefore appealed the matter to the Fourth Circuit Court of Appeals contending the MDNC lacked subject matter jurisdiction to enter the Final Judgment and Permanent Injunction. SmartSky Networks, LLC v. DAG Wireless Ltd, No 22-1253, Fourth Circuit Court of Appeals. The appeal remains pending.

On June 13, 2022, Plaintiff SmartSky initiated this Adversary Proceeding objecting to the dischargeability under 11 U.S.C. § 523(a)(6) of a debt for willful and malicious injuries caused by Debtor. The debt arises from a two-week arbitration, resulting in a final award in SmartSky's favor against Debtor for $2,548,892.04 for attorneys' fees, costs of arbitration, and sanctions (the "Award") confirmed in the MDNC case. SmartSky filed a first amended complaint on June 17, 2022 (Dkt. 4). On June 22, 2022, an Order of Discharge was entered under 11 U.S.C.§ 727 (BK Dkt. 37). Debtor answered the First Amended Complaint on August 12, 2022 (Dkt. 10), denying the allegations of the First Amended Complaint and contending the debt is dischargeable as there was no finding of willful and malicious injury in the Award.

JURISDICTION

The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 151 and 1334 and is authorized to hear this case under the General Order of Reference entered August 3, 1984, by the United States District Court for the Eastern District of North Carolina. The primary matters raised in the adversary proceeding make it a core proceeding pursuant to 28 U.S.C. § 157(b), and the court has statutory authority to enter a final judgment as to those matters. In addition, the parties consented to this court entering final judgment on all matters raised in the adversary proceeding. See Pretrial Scheduling Order of September 22, 2022 (Dkt. 25). The court consequently has constitutional authority to enter final judgment in this adversary proceeding. Wellness Int'l Network, Ltd., v Sharif, 575 U.S. 665, 135 S.Ct. 1932, 1947 (2015).

BACKGROUND

SmartSky provides broadband air-to-ground ("ATG") wireless communications systems for use on aircraft. In 2017, SmartSky contracted with Wireless Systems Solutions, LLC ("WSS"), which is controlled by Laslo and Susan Gross, to further develop SmartSky's existing proprietary ATG products that SmartSky had been developing for several years (Award, ¶¶ 100-104). The business relationship was governed by several agreements between the parties, including a contract known as the "Teaming Agreement" (See, e.g., Award, at ¶ 133). During the performance of these agreements, Debtor, who is the son of Laslo and Susan Gross and worked for WSS, formed DAG Wireless Ltd. And DAG Wireless, LLC (collectively "DAG"), which provided much of WSS's product development efforts for the contracts with SmartSky. (Award ¶¶ 12, 173-176).

The honeymoon did not last long though, and on September 10, 2020, SmartSky filed a verified complaint against Debtor, Laslo Gross, Susan Gross, WSS, and DAG ("Respondents") in the MDNC, alleging ongoing breaches of the intellectual property and confidentiality provisions of the Teaming Agreement as well as misappropriation of trade secrets, unfair and deceptive trade practices, and false advertising. Four days later, SmartSky filed a Statement of Claim with the American Arbitration Association (the "AAA") asserting arbitration claims against WSS for damages arising out of its breach of contract (the "Arbitration").

DAG filed a motion to dismiss or compel arbitration of SmartSky's claims in the MDNC case, and WSS moved the MDNC court to compel arbitration of all claims and counterclaims between SmartSky and WSS. The MDNC court granted WSS's motion finding that the Teaming Agreement required all claims, other than claims for interim injunctive relief, between SmartSky and WSS to be arbitrated (Award ¶ 43.) By January 13, 2021, SmartSky and Respondents had agreed to consolidate all claims and counterclaims in the Arbitration and to be bound by the results (Award, ¶ 48). The arbitration hearing occurred from May 10 through May 21, 2021, in Charlotte, North Carolina. The arbitration panel (the "Tribunal") heard from nine fact witnesses and four expert witnesses, and 348 exhibits were entered into evidence (Awards ¶¶ 77-79).

FINDINGS OF THE ARBITRATION PANEL

On October 1, 2021, the Tribunal issued its Award consisting of an 81-page, single-spaced opinion with 427 detailed findings of fact and conclusions of law (Dkt. 33, Ex. A). By order and judgment filed February 7, 2022, United States District Judge Thomas Schroeder confirmed the arbitration award and entered final judgment against the Respondents in the MDNC case (subject to the appeal). Among the Tribunal's findings are the following determinations that particularly relate to Debtor:

1. WSS is a family business, managed by Laslo and Susan Gross. Ownership was held by Susan Gross (99%) and her son Michael Gross (1%) until August 3, 2020 when Susan Gros transferred her interest to the Gross Family Protection Trust. August 3, 2020 is the same date that WSS received SmartSky's letter notifying WSS of material breaches of the parties' agreements. (Award ¶ 169.)

2. Debtor has been an employee of WSS and signed a non-disclosure agreement with SmartSky in 2019 on behalf of WSS. (Award ¶ 172.)

3. DAG Israel was formed February 27, 2018, and DAG USA was formed June 19, 2019 (Award ¶ 173). WSS was DAG Israel's only customer (Award ¶ 176.)

4. In August 2020, DAG Israel issued a press release announcing "the launch of the Velocity XG System, a new wireless broadband solution for inflight connectivity." The release represented that the system was "FCC and DO-160 certified" and that it was currently commercially available. (Award ¶ 178). The photos in the press release were photos of the products WSS built for SmartSky (Award ¶ 179.)

5. David Gross communicated with [REDACTED] regarding the Velocity XG system (Award ¶ 182). He also communicated, by using a WSS email address with [REDACTED] regarding marketing the Velocity XG system. On behalf of DAG Israel, he communicated with [REDACTED] and sent to [REDACTED] the Velocity XG Package. (Award ¶ 184.)

6. In November 2020, David Gross was quoted in an article in CTech reporting that DAG Israel had announced the launch of its Velocity XG System. (Award ¶ 188.)

7. David Gross admitted that the assertion that Velocity XG Package was a commercially available, existing system, was false at the time the advertising occurred and at the time of the arbitration hearings. (Award ¶ 189.)

8. In April 2021, David Gross, along with Laslo Gross, made a detailed zoom presentation to several people regarding the supposedly existing ATG wireless system. During the presentation, Laslo and David Gross "bad mouthed" SmartSky, asserted that their system would be better than SmartSky's, represented that their system could be demonstrated in six weeks and that a nationwide network could be up in 14 weeks (Award ¶ 191.) After that zoom call, an important potential customer of SmartSky put a proposed contract on hold in order to evaluate the WSS/DAG system. (Award ¶ 192.)

9. Prior to its relationship with SmartSky, the evidence showed WSS "never developed an ATG system for communications with aircraft; that WSS had limited experience with ground stations designed for LTE systems using beamforming technology; that WSS had never developed ABR for aircraft; that WSS did not have

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