Vision W., Inc. v. Catalan (In re Catalan)

590 B.R. 678

IN RE: Alan H. CATALAN, Debtor.

Vision West, Inc., Plaintiff,

v.Alan H. Catalan, Defendant.

Bky. No. 17-13225 ELF

Adv. No. 17-0210 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed September 11, 2018

Thomas E. Reilly, Thomas E. Reilly PC, Sewickley, PA, for Plaintiff.

Alan H. Catalan, pro se,

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In 2013, Vision West, Inc. ("Vision West") sued Addison Dane, Inc. ("Addison Dane") in the Court of Common Pleas, Lancaster County ("the State Court") for breach of a contract pursuant to which Vision West financed Addison Dane's purchase of inventory for its business operations. In the same lawsuit, Vision West sued Alan H. Catalan ("the Debtor") to enforce his personal guaranty of the Addison Dane-Vision West contract.

In 2017, the State Court entered a default judgment in the amount of $132,832.11 as a sanction against both the Debtor and Addison Dane due to discovery misconduct. The Debtor subsequently filed this chapter 7 bankruptcy case.

Vision West commenced this adversary proceeding, seeking to have the default judgment against the Debtor determined nondischargeable under 11 U.S.C. § 523(a)(6) as a debt for willful and malicious injury.

Presently before the court is Vision West's motion for summary judgment. The Debtor is currently pro se and has not participated in the proceeding since his former counsel withdrew his appearance (with the court's consent) in January 2018, prior to the filing of the Vision West's summary judgment motion.

Vision West's motion establishes that there are no undisputed facts. In light of those facts, I conclude that the Debtor and Vision West each is entitled to partial summary judgment.

Most of the subject debt arises from a simple breach of contract and is therefore dischargeable. However, Vision West has shown that the portion of the debt attributable to attorney's fees incurred in seeking the Debtor's discovery compliance is "for willful and malicious injury ... to [Vision West's] property." See 11 U.S.C. § 523(a)(6). Therefore, I will enter an order determining that $17,365.00 is nondischargeable and that the balance of the $132,832.11 debt is dischargeable.¹

II. PROCEDURAL HISTORY

The Debtor filed this voluntary chapter 7 bankruptcy case on May 4, 2017. On July 31, 2017, Vision West filed this adversary complaint seeking a determination that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(6).

The Debtor filed an answer to the complaint on September 8, 2017. The parties' attempt at mediation failed. Thereafter, the Debtor's attorney was granted leave to withdraw as counsel on January 17, 2018.²

One month later, on February 16, 2018, Vision West filed a motion for summary judgment ("the Motion"), which I denied for Vision West's failure to follow rules of court pertaining to notice and service. (Doc. # 32). On April 26, 2018, Vision West renewed its Motion. (Doc. #s 34, 35, 37).

After Vision West certified that the Debtor had not responded to the Motion, I ordered Vision West to file a supplemental memorandum of law addressing:

• whether the entry of a judgment on an otherwise dischargeable debt as a litigation sanction transforms the dischargeable debt into a nondischargeable debt under 11 U.S.C. § 523(a)(6).

• whether the underlying contract between the Plaintiff and the Debtor included an attorney's fee-shifting provision.

Vision West timely filed a supplemental brief on June 19, 2018, addressing the first issue and advising the court that the underlying contract contained a fee-shifting provision. ("Plaintiff's Supp. Memo," Doc. # 44). Therefore, the Motion is ready for decision.³

III. SUMMARY JUDGMENT STANDARD

I have previously discussed the legal standard employed in deciding a motion for summary judgment, including the proper application of the burden of proof:

[S]ummary judgment must be granted to a moving party when, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Summary judgment is appropriate if there are no disputed issues of material fact and the undisputed facts would require a directed verdict in favor of the movant.

On a motion for summary judgment, the court's role is not to weigh the evidence, but to determine whether there is a disputed, material fact for resolution at trial. A genuine issue of material fact is one in which sufficient evidence exists that would permit a reasonable fact finder to return a verdict for the non-moving party. However, if it appears that the evidence is so one-sided that one party must prevail as a matter of law, the court shall enter judgment accordingly in that party's favor.

Proper resolution of a motion for summary judgment also requires consideration of the parties' respective burdens.

If the moving party bears the burden of proof, the movant must support its motion with credible evidence that would entitle it to a directed verdict if not controverted at trial. Evidence must establish all the essential elements of its case on which it bears the burden of proof at trial, [such that] no reasonable jury could find for the non-moving party. If the movant (with the burden of proof at trial) meets this initial burden, the responding party may not rest on the pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material which demonstrate a genuine issue of material fact to be resolved at trial.

In re Universal Mktg., Inc., 541 B.R. 259, 279–80 (Bankr. E.D. Pa. 2015) (citations and quotations omitted).

IV. UNDISPUTED FACTS

The material undisputed facts in this proceeding are:⁴

1. After October 2012, Addison Dane was a corporation wholly owned by the Debtor. (Compl. ¶ 6).

2. Addison Dane sold eyeglasses under the name "World Spectacles." (Compl. ¶ 7).

3. From August 2012 to March 2013, Vision West paid the invoices for Addison Dane's purchase of inventory, with Addison Dane contractually obligated to repay Vision West. (Compl. ¶¶ 7-9).

4. Addison Dane and Vision West's credit relationship was guaranteed by the Debtor and Heather Estrada ("Estrada"). (Id. ).

5. In July 2013, Vision West commenced an action in the State Court against Addison Dane, the Debtor, and Estrada (the "State Court Defendants") seeking to recover $79,620.08 that Vision West claimed was due and owing on the credit that Vision West extended to Addison Dane. (Aff. ¶ 4).

6. The State Court Defendants defended against the State Court complaint by contending that the $79,620.08 represented an amount that Addison Dane directly paid to the vendors rather than money owed to Vision West. (Compl. ¶ 14).

7. At a pre-trial conference held on April 1, 2015, the State Court directed the parties to exchange information pertaining to the claimed debt. (Aff. ¶ 11).

8. Vision West complied with the court's directive but the State Court Defendants did not produce any documents. (Aff. ¶¶ 11-12).

9. On February 29, 2016, the State Court entered an order directing the State Court Defendants to provide complete answers to the Vision West's Interrogatories and to produce all responsive documents within ten (10) days of the order. (Aff. ¶ 19).

10. On March 15, 2016, the court granted the State Court Defendants' counsel's motion to withdraw as counsel. (Aff. ¶ 20).

11. As of June 2016, neither Addison Dane, the Debtor, nor Estrada provided documents as required by the February 29, 2016 Order. (Aff. ¶ 21).

12. On July 16, 2016, Vision West filed a motion to sanction the State Court Defendants for failing both to comply with the February 29, 2016 Order and properly respond to the discovery previously served. (Aff. ¶ 22).

13. At the Debtor's request, the hearing on the motion for sanctions, originally scheduled for September 26, 2016, was postponed to October 4, 2016. (Aff. ¶ 32).

14. The hearing was postponed again to November 21, 2016 due, in large part, to the correspondence between the Debtor and Vision West's counsel in which the Debtor asserted that he could produce a document showing the payments Addison Dane allegedly made to its vendors. The court then rescheduled the hearing to January 20, 2017. (Aff. ¶¶ 36-37).

15. The Debtor appeared at the January 20, 2017 hearing and represented to the State Court that the amount of $79,620.08 (which was the amount sought by Vision West) was paid to Vision West by cashier's check and that the Debtor was engaged in efforts to obtain a copy of the check and would produce it. (Aff. ¶ 42).

16. By order dated January 23, 2017, the State Court directed the Debtor to produce the cashier's check within fifteen (15) days of the date of the order or suffer sanctions, including the entry of a default judgment or a finding of contempt. (Aff. ¶ 43).⁵

17. On February 24, 2017, Vision West filed a motion for sanctions against the Debtor for failing to produce the cashier's check. This motion sought the entry of a judgment for $132,832.11: the $79,620.08 due, $27,867.03 in other damages plus $25,345.00 in attorney's fees. (Aff. ¶ 47 & Ex. K thereto).⁶

18. On April 25, 2017, the State Court entered judgment in the amount of $132,832.11 against the Debtor as a sanction for his failure to comply with the order of January 23, 2017. (Aff. ¶ 48).⁷

19. Nothing in the record suggests that, in entering its judgment, the State Court imposed any monetary sanction against the Debtor in excess of the attorney's fees requested by Vision West pursuant to the fee-shifting provision in its contract with Addison Dane.

V. DISCUSSION

A. 11 U.S.C. § 523(a)(6) : Legal Standards

1.

A creditor objecting to the dischargeability of a debt bears the burden of proof. In re Cohn, 54 F.3d 1108, 1114 (3d Cir. Pa. 1995). A creditor must show, by a preponderance of the evidence, all essential elements demonstrating that a claim is nondischargeable. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

Debts incurred for...