JAMES J. ROBINSON, Chief Bankruptcy Judge.
Automation Support, Inc. d/b/a Technical Support ("Support") and its sister corporation, Soyokaze, Inc. ("Soyokaze" and together with Support, the "Plaintiffs"), alleged that their former employee and human resources coordinator, Becky Wallace (a co-debtor in the underlying bankruptcy case and herein, "Becky"), willfully and maliciously abused her human resources responsibilities, causing them to suffer substantial damages. Central to the Plaintiffs' allegations were claims that Becky intentionally mishandled a sexual harassment claim against the husband of the Plaintiffs' chief executive officer, and that Becky knowingly provided misinformation to an employee regarding his unused vacation time for which he later sought compensation, albeit unsuccessfully. The Plaintiffs claimed that pursuant to § 523(a)(6) of the Bankruptcy Code,
After three days of trial, during which the court heard the testimony of the parties and other witnesses, and reviewed multiple exhibits and deposition testimony, the court has concluded that there was indeed a willful and malicious injury, but not caused by Becky. Contrary to the Plaintiffs' allegations, Becky was the victim of the willful and malicious conduct perpetrated by the Plaintiffs at the hands of their owners and executive officers, Renee McElheney ("Renee") and her husband, Billy McElheney ("Billy" and together with Renee, the "McElheneys"). The McElheneys adhere to the adage that the best defense is a good offense, and their offense, wantonly directed at Becky, was pursued in bad faith. Simply put, the McElheneys were vexatious bullies. They prosecuted this adversary proceeding for oppressive reasons, in a selfish attempt to distract attention away from Billy's aggressive and boorish behavior toward a subordinate female employee. Below is an account of the Plaintiffs' and the McElheneys' sordid scheme to cast blame on Becky for their self-inflected woes.
The court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the General Order of Reference, as amended, entered by the United States District Court for the Northern District of Alabama.
Support was founded in 1997. Its principal and apparently only place of business is located in Midlothian, Texas, a small town about sixty miles south of Dallas. Support provides automation support and systems integration to the food industry for numerous customers throughout the United States and beyond. Many of its customers are Fortune 500 companies. Support has always been owned and controlled by the McElheneys. Renee was the chief executive officer and managed the inter-office affairs, while Billy worked with the engineers—or integrators, as the parties often referred to them—and ran the technical and customer service side of the business. The McElheneys were longtime residents of Midlothian and were extensively involved in its civic and business matters, and were active in a local church.
Becky and her husband, Tim Wallace ("Tim" and together with Becky, the "Wallaces"),
Before her employment with Support, Becky assisted her husband at the church, but in 2004, Support hired her as an administrative assistant to help Renee. When Becky started with Support, it had nine other employees, and her duties were diverse.
During her testimony, Renee attempted, unsuccessfully, to cast Becky as an HR expert with vast training and experience, when in actuality, Becky's HR responsibilities were limited to keeping track of vacations and paid time off, and assisting a handful of employees in a small office with their employee-benefits matters, although on one occasion Becky was involved in an employee termination, the grounds for which were not sexual harassment. Until the episode involving Billy and a female employee that culminated in the employee's resignation and filing a sexual harassment lawsuit, Becky was never confronted with a sexual harassment complaint, much less such a complaint directed against the husband of Becky's immediate boss—a boss who was a close friend, fellow church member, and the CEO of Becky's employer.
After Becky became Support's HR coordinator, she and the McElheneys prepared an Employee Handbook. (Plaintiffs' Ex. 50; the "Employee Handbook" or "Handbook.") The Employee Handbook was distributed to the employees in early 2009, years before any of the events giving rise to this adversary proceeding occurred; more about the Handbook later.
The building in which Support's offices were located was vacant at one end, and in 2010 the McElheneys filled that vacancy with a massage spa. They incorporated under the name of Soyokaze, which was derived from a Japanese word meaning a breath of air or a gentle, calming breeze. The McElheneys explained their decision to fill the vacant space with a massage spa as an altruistic "endeavor[] to create a place where people could escape from the day to day world, relax, and find peace." (First Amended Complaint, AP Doc. 94, ¶ 13.) The McElheneys' explanation of why an engineering and technical logistics enterprise would choose to open an adjoining and affiliated massage business was peculiar, especially in light of the five massage establishments that were already in the small town of Midlothian. Regardless, opening a massage spa turned out not to be such a good idea after all, and at least during the time in question, it certainly did not bring peace to the McElheneys.
In the Support building, the front door dedicated to the Soyokaze space was usually locked so no one could walk in off the street without an appointment. To enter the Soyokaze spa without an appointment, a visitor would need to enter the building through Support's main entrance and lobby. The space occupied by Soyokaze's therapists was easily accessible from Support's end of the building. Support staff could walk down the hall, go through the laundry room and into Soyokaze's lobby and private massage rooms where the therapists worked. Billy, Renee, Becky, and others frequently took advantage of the easy access.
Although Becky was not an employee of Soyokaze, she pitched in where needed, including serving as its de facto HR coordinator. Soyokaze's massage customers would often make appointments by contacting Becky at her Support office; she had both a Support phone and a Soyokaze phone on her desk, and she answered both as part of her job duties.
Jayme Rankin ("Jayme"), a young woman fresh out of massage therapy school, began working at Soyokaze in February 2010. Renee and Billy hired Jayme as Soyokaze's only full-time therapist; two or three part-time therapist were also hired. The McElheneys and the Wallaces knew Jayme and her family—they all went to the same church together—and Becky had mentored Jayme at church while Jayme was in high school.
Jayme did not testify in person, but at the end of the trial, the parties stipulated that designated portions of Jayme's deposition ("Jayme's Deposition") testimony would be received as evidence in this adversary proceeding. Jayme's Deposition was taken in the lawsuit she filed against Billy, Soyokaze, and Support in the State District Court for Ellis County, Texas (the "State Lawsuit"). The central claim in Jayme's State Lawsuit was for sexual harassment, and the Plaintiffs contended that the expenses they incurred in defending that suit, including their attorney's fees—but not including the monies paid to settle the case following mediation—were the result of Becky's intentional and malicious acts, not Billy's iniquitous behavior. Thus, it is necessary to review Billy's, Becky's, and even Renee's contributions to the events that provoked Jayme to file suit, and determine who was to blame for causing those damages. But first, to put matters in perspective, it is worthwhile to mention one missing piece in the evidentiary puzzle that was readily available to the Plaintiffs, but conspicuously never appeared.
Most of the designated portions of Jayme's Deposition testimony pertained to what occurred between Billy and her while she worked at Soyokaze, and in particular, the happenings during the last few months before she resigned. It was significant that Jayme's Deposition testimony, which the court found to be credible and consistent with other reliable evidence, was never rebutted or otherwise seriously challenged. Billy sat through the three-day trial of this adversary proceeding as one of the Plaintiffs' corporate representatives, and one of the central actors in the State Lawsuit and this adversary proceeding, but he never testified; he never denied Jayme's troubling account of what went on between him, a middle aged man, and Jayme, his much younger female employee. The Plaintiffs had the burden to persuade the court by a preponderance of the evidence to accept their argument that it was Becky's willful and malicious mishandling of the matter, rather than Billy's misbehavior, that caused their damages. Yet they failed to call as their witness the one person who, in addition to Jayme, had personal knowledge of the critical events underlying the State Lawsuit—the one person who could have rebutted Jayme's Deposition testimony if it was not true.
Billy's wife, Renee, did testify, and her testimony was not so much a denial of her husband's aggressive conduct toward Jayme, but an implausible explanation of why Becky, rather than her husband, was the impetus for Jayme filing the State Lawsuit. Billy and Jayme know what happened behind closed doors at Soyokaze, but the only credible evidence offered to establish what actually occurred, and therefore what motivated the filing of the State Lawsuit and in turn necessitated the attorney fees sought as damages, was Jayme's firsthand account recorded in her deposition taken in the State Lawsuit, a lawsuit in which Billy, Support, and Soyokaze were her adversaries.
After Jayme was hired at Soyokaze, and in particular during her last three months on the job, Billy began showing her an unusual amount of attention. As Jayme described it, Billy would single her out and tried to treat her more like a girlfriend than an employee. He would book frequent massages with her, but rarely the other therapists. The sheer volume of massages he booked with Jayme contributed to her perception that his attentions were focused on her, and were escalating. Although Billy's primary duties were at Support, during the months of January through May of 2011, Jayme felt like he was always at Soyokaze following her. If he could not find Jayme at Soyokaze, he would inquire where she was, and search her out. After a Soyokaze staff meeting at the McElheneys' home in April 2011, Billy insisted on following Jayme across the street to her parked car, opened the door for her, and complimented her on her scent, further fueling her sense that she could not get away from him. During the last few massages Jayme gave Billy, she noticed he had applied fragrance to his genitalia, and he would at times hold her hand to the point of making her uncomfortable. During the last few massages she gave him, Billy became aroused to a noticeable degree, despite being draped with a sheet and a blanket. He arranged a special playlist of songs to play during his appointments with Jayme; he labeled the playlist with their initials "J and B" with a warning of "No Public Allowed." The other therapists noticed the playlist and asked Jayme what was going on between Billy and her. Jayme was embarrassed and uncomfortable that Billy was converting his massages into some sort of special occasions. To avoid having to deal with Billy's cloying attentions, she began staying away from the spa unless she knew she had a scheduled client. Sometimes she felt like she had to run away when she saw him coming her direction. Billy noticed Jayme was quiet and frequently absent, and that she acted more and more uncomfortable around him. Billy questioned her about what was wrong, asked her repeatedly if he had done something to make her mad, reassured her that he would do anything for her, and begged her not to leave the spa. The more he offered his inappropriately personal and clingy reassurances, the more Jayme determined to stay away.
The deciding moment came when Billy offered to give Jayme a shoulder and neck massage to alleviate a migraine headache about which she had been complaining. It was not uncommon for Billy to demonstrate a new massage technique he had learned, as he saw himself as something of a student of massage. He used that approach to convince Jayme to let him work on her back and shoulders promoting his new technique as a possible cure. Unfortunately, after her initial refusal, she relented to his proposal. She entered the massage room alone, and bared her back and shoulders with a blanket pulled up to the bottom of her back, lying face down on a heated table when Billy entered. Billy was not content with her shoulders and neck as Jayme had specified, and went so far as to pull back the blanket and began to oil and massage her glutes below the waist under her clothing. At first, Jayme froze in shock. Then she recovered her wits enough to tell Billy that they were done, she was all better, and that he needed to stop now. She did not confront him about his behavior at that time; she was alone with him, her boss, in an exposed and embarrassing situation that she had been pressured into accepting.
After the "headache" massage, Jayme had reached her tipping point, and at a friend's recommendation, Jayme told Becky that she needed to talk to her privately, but not in the office.
They met at a local Starbucks coffee shop, but stayed in the car to avoid being overheard. They talked in the car over coffee for 15 or 20 minutes while Jayme explained to Becky that Billy had escalated from creepy attention to sexually harassing her at the spa. Becky had already noticed the unusual attention Billy was giving Jayme, but after hearing all the sordid details from Jayme, Becky became upset and confused. Becky was hearing the details of Billy's alleged sexual misconduct for the first time from a young woman she had mentored in high school and who was now being ill-treated by the husband of Becky's immediate boss. This was not an employee complaint for which HR textbooks could plausibly suggest an easy resolution, and Renee admitted as much in her testimony.
Becky also realized she was in an untenable situation that could end with the loss of her job; she knew Billy and Renee would accept nothing less than Becky taking the position that Jayme was lying. At that Saturday morning meeting, Becky told Jayme that, while she would have to run it by Billy and Renee, she was sure they could set up Jayme's schedule so she did not have to do any more massages for Billy. Becky's concern for Jayme was because she was Jayme's friend and mentor, not just the HR coordinator of Jayme's employer. But Jayme had more disconcerting information for Becky.
In Jayme's Deposition testimony, she stated that Billy told her that he did not like Becky, and lacked confidence in her abilities. He also told Jayme that if she or the other therapists had any problems or issues, they should come directly to him and not Becky. In other words, Billy was telling a subordinate female employee, whom he was harassing, not to go to Becky, the HR coordinator, with complaints, but to come to him, the perpetrator of the harassment, for advice. These revelations made Jayme uncomfortable; she found it inappropriate for her boss—Billy—to share his negative opinion of someone she considered her superior—Becky—and sharing this confidential information furthered Jayme's perception that Billy was escalating his "special" treatment of her.
After her conversation with Jayme, Becky was justifiably uncertain about what to do next. In addition to hearing the sexual harassment allegations, Becky had just learned that Billy disliked her; lacked confidence in her job-related abilities; and he had told all this to a subordinate employee who was Becky's youthful protégé.
The Wallaces and McElheneys planned to eat pizza together at the Wallaces' home on the evening of the same day—May 14, 2011, a Saturday—that Becky and Jayme had had their talk at Starbucks. Wanting to buy time to consider how to approach the McElheneys with the unsettling news concerning Jayme, Becky sent Renee a text message cancelling their dinner date.
On Saturday, Becky shared Jayme's allegations with her husband, Tim, and expressed her fear that she could lose her job. Tim reassured her that she was caught in the middle and that simply conveying the complaint and then dealing with it would pose no threat to her job. Becky knew better based on her knowledge of how the McElheneys did business, and knew if she did not immediately take Billy's side, and call Jayme a liar, it would not end well for her at Support. Tim encouraged Becky that she was running no risk by telling the McElheneys what Jayme had alleged—Becky was simply the messenger.
On Monday morning, May 16, Becky noticed that Billy was scheduled for a two-hour massage with Jayme later that day. Knowing Jayme would not give Billy another massage, Becky sent Renee an email message saying that Jayme had other business to attend to and would not be available to give Billy a massage. That same day, Becky went to see Support's lawyer and told him a Soyokaze employee had made a disturbing allegation against Billy, without giving the lawyer the full details. Becky hoped the lawyer could give her advice on how to proceed without her having to disclose all the sordid details of the allegations. The lawyer told Becky to follow Support's Employee Handbook in handling the matter.
The next day, Tuesday, May 17, after leaving work, Becky sent an email message to Renee saying she needed to talk with Billy and her about an important employee matter, and asked for a meeting. That evening, the McElheneys came to the Wallaces' home. The McElheneys agreed that Tim could stay in the room while Becky told them about Jayme's allegations. After brief small talk, Becky told Billy and Renee that Jayme had made sexual harassment allegations against Billy. About five minutes into the hour-long meeting, Renee announced she did not want to hear anything further, and abruptly left, leaving behind her purse and her husband. The remainder of the meeting took place without Renee.
Billy never denied the allegations during that meeting, which troubled Becky. Becky also confronted Billy toward the end of the meeting with the information from Jayme regarding his directive that the female massage therapists not report to Becky, but only to Billy. The conversation ended with Billy asking Becky what she intended to do about the allegations, and Becky responding that she was not sure what to do. Billy offered no advice.
Becky knew Jayme was waiting to find out what the next step would be, and she told her the meeting with the McElheneys had not gone well, which was perhaps an understatement in hindsight. Becky's intuition, as articulated by her counsel in opening statements, proved correct: This is a classic case of "shooting the messenger."
As mentioned, Renee left the meeting at the Wallaces' after hearing only the first five minutes of Becky's report about Jayme's allegations against Billy. Nonetheless, Renee stayed long enough to know that Jayme was claiming sexual harassment, but what, if anything, Billy later told Renee about all of Jayme's allegations, as relayed by Becky, was not clear.
The next morning, Wednesday, May 18, Renee sent an email message to Becky asking if she knew what Jayme's plans were. Becky said that she did not know, and suggested that Renee reach out and contact Jayme. Renee attempted to set up a meeting with Jayme, but Renee told Jayme that she did not want Becky to attend the meeting. Jayme refused to meet with either or both of the McElheneys without Becky also being present, and did not respond to Renee's request for a meeting because it would have excluded Becky.
Previously, Becky told Jayme that if she would stay at Soyokaze, an accommodation could be arranged where she would not have to give massages to Billy or have private conversations with him, and Becky told Renee about the offered accommodation. Becky explained in her email message to Renee that because an accommodation was offered, "She [Jayme] cannot say that she was fired or that she was not given options to continue employment should she desire to do so." The accommodation offered by Becky, although illustrating her genuine efforts to protect the Plaintiffs and Billy, and resolve an inimical situation, did not entice Jayme to stay. Jayme called Becky and said she was going to submit her letter of resignation that day, but did not want to come by the office. Becky told her to drop the letter by Becky's house, and she would bring Jayme her therapist license. Early that afternoon, Becky sent the McElheneys an email message telling them she had learned Jayme intended to resign.
A few days after leaving Soyokaze, Jayme contacted a lawyer for legal advice and eventually filed suit against Billy, Support, and Soyokaze for sexual harassment. There was no evidence that Becky told, insinuated, suggested, or even hinted to Jayme that she should seek legal advice, much less file suit against the Plaintiffs and Billy. On the contrary, the evidence established that Becky tried to mitigate, not exacerbate, the possibility of litigation in what became the State Lawsuit.
In Jayme's Deposition taken in the State Lawsuit, she was asked, "Why did you file this lawsuit?" She answered unequivocally, and with no mention of Becky:
(Jayme's Deposition, p. 262, 10, 12-20.)
On Wednesday, May 18, Becky sent an email message to all Support employees telling them that her husband, Tim, would soon be transitioning out of his current position as youth minister with their church and that she would likewise be transitioning away from Support during the next few months, and anticipated being gone by August. (Plaintiffs' Ex. 24.) Earlier, she sent a draft of the message to Renee for her approval before sending it to Support's staff.
(Plaintiffs' Ex. 26.) This was not the reply one would expect from a corporate executive who thought his CEO-wife's assistant and HR coordinator was incompetent or attempting to intentionally harm his businesses.
Early on Friday, May 20, out of the blue, Billy asked Becky if she knew the location of a fitness book with a detailed female anatomy section. Becky responded that she had no idea what he was talking about. Nothing more was said about the book, but Billy's inquiry was suspicious in light of his having just learned about Jayme's allegations. That same day, Renee, or someone acting at her direction, moved Becky's desk and yanked the Soyokaze phone from the wall in Becky's office, and also directed incoming Support calls to Renee's desk rather than Becky's. During the course of the day, Billy and Renee appeared angry with Becky and pointedly avoided speaking with her. That afternoon, in light of those developments, Becky was concerned and sent a message to Rich Rees, a Support engineer, asking that he not leave her in the office alone with the McElheneys "in this emotionally explosive environment. Billy began asking me questions about stuff [female anatomy book] I have absolutely no knowledge of and I do not want to be cornered after hours." (Plaintiffs' Ex. 30.)
The months-long transition away from Support initially contemplated by Becky, and agreed to by the McElheneys, was not to be. On Saturday, May 21, Becky drafted, and on Sunday, May 22, she submitted her resignation letter. (Plaintiffs' Ex. 31.) Becky realized that she and the McElhaneys were too incompatible to work together any longer, especially in light of their treatment of her and the atmosphere in the office on Friday. In her letter she requested six months' severance pay and agreed to sign a confidentiality agreement. Support's Employee Handbook provided that severance pay was available on a case-by-case basis in the company's discretion, and Becky knew of at least two employees who had been fired for serious offenses, but nevertheless were given up to four months' severance pay as well as insurance covering the same amount of time. She hoped, but did not expect, she would be offered at least a month's salary.
No severance was paid and no confidentially agreement was signed, and Becky left Support, Soyokaze, and the McElheneys believing that unpleasant chapter of her life was behind her. But the McElheneys were not about to let Becky leave quietly.
Although not a surprise given the circumstances, after she resigned, Jayme filed a complaint on September 7, 2011 against the Plaintiffs with the U.S. Equal Employment Opportunity Commission. (Plaintiffs' Ex. 38.) The EEOC complaint was consistent with Jayme's Deposition testimony and Becky's trial testimony:
(Plaintiffs' Ex. 38.)
Soon after the EEOC complaint, and as previously mentioned, Jayme filed the State Lawsuit against Billy and the Plaintiffs. Following mediation, the State Lawsuit was ultimately settled pursuant to a Settlement, Release and Indemnity Agreement dated August 28, 2014. (Plaintiffs' Ex. 106.) In exchange for a full release of the "Released Defendant Parties," Jayme was paid $13,750 as "payment of all Plaintiff's attorneys' fees, expenses and court cost." The definition of "Released Defendant Parties" included Support, Soyokaze, Billy and Renee, and their affiliates.
As briefly mentioned, after Becky joined Support, but before Soyokaze was organized, she and the McElheneys prepared an Employee Handbook that was distributed to all Support employees. (Plaintiffs' Ex. 50.) The Plaintiffs argued that had Becky simply followed the guidelines in the Handbook, their problems with Jayme would have been amicably resolved. The court disagrees, and finds that to the extent practical, Becky followed the Handbook complaint procedure, but to no avail; a recap of Becky's actions disproves the Plaintiffs' argument.
Jayme first reported Billy's abusive and harassing conduct to Becky on a Saturday. The following Monday, the next business day, Becky went to Support's lawyer for advice on what to do about a disturbing complaint by a Soyokaze employee made against Billy, one of Soyokaze's owners and executive officers. The lawyer told Becky to follow Support's Employee Handbook.
Section 15:2 of the Handbook provides that if an employee experiences sexual harassment, she should "notify [her] supervisor [Billy or Renee] and/or the Human Resources representative [Becky]." It continues: "If the complaint involves someone in your direct line of supervision [Billy], then you should inform another supervisor [Renee] or your Human Resources representative [Becky] of the complaint. . . . All supervisors/managers are required to immediately report any incidents of harassment, as set forth in our Complaint Policy." The Complaint Procedures were found in section 16:1, and provide that "[o]nce a complaint has been made, the Board of Directors working with Human Resources will determine how to handle it."
The day after talking with Support's lawyer, Becky met with the McElheneys and reported Jayme's allegations, but her message was not well received, and the McElheneys offered no advice to Becky on how she should proceed. In fact, Renee, Support's CEO, did not even wait for Becky to finish her report, but left the meeting as soon as she realized the topic was a sexual harassment claim against Billy. There were three or four board members: the two McElheneys plus Rich Rees and possibly David Humble.
After all was said and done, Becky had talked with Jayme and the McElheneys about the allegations, which Billy never denied, and she had observed firsthand Billy's unwarranted and excessive attentiveness toward Jayme. In addition to talking with the McElheneys, Becky talked with Support's lawyer, and the two other board members as the Handbook required. As the HR coordinator, Becky made an offer of accommodation to Jayme in an effort to defuse the hostile situation, but to no avail. Renee asked for a meeting with Jayme, but for good reason, Jayme refused to meet unilaterally with the McElheneys. With eyes wide open and being fully informed, the McElheneys—owners, board members, executives, parties with the most to lose—buried their heads in the sand, and did nothing aside from isolating Becky in the days following the revelation of Jayme's claims. Becky, while expecting some fallout, and maybe even the ultimate loss of her job, was caught off guard by the vehemence of the McElheneys' reaction and attack against her. It is preposterous that the Plaintiffs now blame Becky for a predicament of their principals' own making.
As a smokescreen, the Plaintiffs complained that Becky did not prepare a written report of her investigation. Other than documenting Billy's philandering behavior that no doubt would have been discovered in Jayme's State Lawsuit, a written report would have changed nothing. In the tumultuous days between learning of Jayme's allegations and realizing she had no future at Support, Becky indeed did not prepare a written report of Jayme's allegations. The Handbook's procedure looked good on paper, but it offered no practical help for this farcical situation.
There were no guidelines in the Handbook for handling a sexual harassment complaint when the harasser, together with his wife, owned and controlled the business and reacted with hostility toward the person they put in charge of receiving such complaints. It is ludicrous for the Plaintiffs to now complain that the letter of the Handbook was not followed, when its material terms were in fact followed by Becky in a genuine effort to protect the Plaintiffs and the McElheneys, to the extent practicable.
The McElheneys were not satisfied with only blaming Becky for the debacle caused by Billy's indiscretions that led to Jayme's tumultuous departure and the State Lawsuit. Totally unrelated to their claims associated with Jayme, the Plaintiffs also alleged that Becky, as HR coordinator, was responsible for willfully and maliciously inciting one of their former employees to make a claim for his accrued and unused vacation.
On May 17, 2011, Rich Rees, an engineer with Support and one of its board members, asked Becky, as HR coordinator, to provide him with the number of unused vacation days he had accrued. Prior to that time, Rees and Renee had discussed what to do about the vacation days he had not taken, and Becky was aware of their discussions. Becky sent Rees an email in response to his request for the information, stating that he had 21 weeks of unused vacation time. She never suggested he would be paid for unused vacation if he left Support or otherwise. Almost two years later, on March 3, 2013, Rees left Support, and when he was not paid for his unused vacation days, as he claimed Renee—not Becky—had promised, he filed a wage claim with the Texas Workforce Commission. Support successfully defended the claim, but it now wants Becky to pay the attorneys' fees it expended defending Rees's claim.
During her testimony, Renee never denied that Rees had not taken his allotted vacation days, although she complained he had not accounted for the two weeks during which he attended company-sponsored trips. Renee testified that Becky was wrong about unused vacation time carrying over from year to year, and that Becky willfully and maliciously gave Rees the 21-weeks figure to provoke him to pursue compensation from Support, thus creating a debt not subject to discharge under Code § 523(a)(6). The court does not agree, and finds that Becky had no ill motive, but instead gave Rees the information to correctly convey what the vacation records disclosed—one of Becky's duties as HR coordinator.
On May 6, 2011—before responding to Rees's inquiry about his unused vacation and before the bombshell conversation with Jayme—Becky sent a newsletter to all employees, including Renee and Billy, explaining Support's vacation policy. The newsletter stated that "Vacation time can be carried over if work scheduling necessitates that it cannot all be taken in one year." (Plaintiffs' Ex. 14, emphasis in original.) If the vacation policy as interpreted by Becky was wrong, neither of the McElheneys took the time to correct her error and tell their employees the accurate vacation policy.
Plaintiffs' Exhibit 50 appeared on its face, and was described on the Plaintiffs' Amended Exhibit List (AP Doc. 60) as the "Technical Support Employee Handbook," and it was admitted into evidence by agreement. Plaintiffs' Exhibit 50 was not offered as an "unadopted" version of the Handbook, and was referred to often by the Plaintiffs during the first two days of trial, with no indication it was anything other than the Handbook in effect during the times material to their claims against Becky.
In any event, neither section 9:3 of the Handbook—the unadopted version according to Renee—nor the newsletter mentioned above, said anything about Support paying employees for unused vacation time when they left their employment. The Plaintiffs' failure to produce a current version of the Handbook—assuming there was such a thing—and Renee's failure to offer any corroborating evidence that Becky was guilty of purposely supplying Rees with an unadopted version of the Handbook, caused the court to conclude that Renee's testimony with regard to the Handbook was a fabrication and undermined the credibility of all her testimony in this proceeding.
The Wallaces left Midlothian. Tim became the associate pastor of a small church in north Alabama and Becky took another administrative assistant position, this time in the medical field in Birmingham. But the McElheneys were far from finished with Becky. In December 2014, over three and a half years after Becky left Support, the Plaintiffs sued Becky in the U. S. District Court for the Northern District of Texas, (the "Federal Lawsuit") blaming Becky for a multitude of injuries and damages they claimed she caused during her final days at Support.
In addition to Becky, the Plaintiffs sued David Humble ("Humble") and his affiliate, Humble Design, LLC, as co-defendants in the Federal Lawsuit. Humble was an engineer with Support, and, according to Renee, one of its board members during the time Becky and Jayme worked for the Plaintiffs. Humble continued to work with Support after Becky and Jayme resigned, but over two years later, he also resigned. Portions of Humble's deposition, taken in the Federal Lawsuit on March 29, 2016, were designated by the parties as evidence. Humble's testimony supports the court's conclusion that the essence of this adversary proceeding is a vexatious act of revenge against Becky. The following is some of what Humble had to say:
(Humble Deposition pp. 170-71.)
(Humble Deposition p. 178.)
(Humble Deposition pp. 180-81.)
Humble further testified in his deposition that he told Billy, before the Jayme matter in May 2011, that he wanted off Support's board of directors. Humble stated that he did not trust Billy, and as early as 2007 considered leaving Support before actually doing so in July 2013, after fourteen years with Support. The McElheneys' treatment of Becky was only one of the reasons for Humble's growing distrust and disenchantment with Support and the McElheneys. Another Support engineer and board member, Rich Rees, left Support in early 2013, which was the watershed event that prompted Humble to finally leave Support, as he had been considering doing for many years.
Humble testified in his deposition that on the day Becky submitted her resignation letter— May 22, 2011—Billy held a meeting of Support's board of directors. According to Humble, Billy presented the letter to the board, and took the opportunity to conduct a character assassination of Becky. In a different meeting, held early the following week, Billy met with Humble, Rees, and Kevin Griffin
Humble also testified that Becky had not provided Rees and him—board members—with details regarding the employee complaint that turned out to be Jayme's, and that Billy failed to provide any particulars when asked, choosing instead to viciously castigate Becky for not taking his side. Humble and Rees went to the county courthouse and read Jayme's complaint filed in the State Lawsuit to get her version of events.
Becky's demonstrated restraint when talking to Support's lawyer and board members was not the action of a woman intent on spreading salacious gossip. Jayme and Humble, as stated in their depositions, noticed the malicious treatment accorded Becky in her last days with Support. The growing lack of respect Jayme and Humble had for the McElheneys was a result of the McElheneys' treatment of Becky, not anything Becky had done or failed to do.
In their original complaint filed in this adversary proceeding (AP Doc. 1), the Plaintiffs itemized with specificity the amount of damages they allegedly suffered "[a]s a result of [Becky's] intentional, systematic, and malicious actions": $254,815.62 lost profits for the years 2011 through 2014; $510,884.96 lost customer accounts; $65,179.40 and $3,308.13 defending claims made by Jayme and Rees; plus unspecified damages for the "tarnished and irreparably damaged" business reputations of the Plaintiffs and the McElheneys. The Plaintiffs amended their complaint (AP Doc. 94) and dropped their itemized claims for lost profits and lost customer accounts, but still claimed $65,179.40 and $3,308.13 they spent defending Jayme's sexual harassment claims and Rees's claim for unpaid vacation. They continued to allege the Plaintiffs' and the McElheneys' business reputations had been tarnished and irreparably damaged. The amended complaint concluded with a prayer for "compensatory, consequential, incidental, and exemplary damages" and a non-dischargeable judgment in favor of the Plaintiffs "in the amount determined by the Court."
Notwithstanding that there was no credible proof that Becky was liable to the Plaintiffs as a consequence of the events alleged in their amended complaint, even if liability had been proven, the proof of damages offered at trial was totally inadequate. The Plaintiffs never offered evidence that the costs of defending claims made by Jayme and Rees, primarily attorneys' fees, were reasonable.
The Eleventh Circuit summarized the standards for examining whether a debtor inflicted a willful and malicious injury under Code § 523(a)(6) as follows:
In re Monson, 661 F. App'x 675, 682-83 (11th Cir. 2016).
Soon after an adversary proceeding is filed, including this one, the court reviews the initial pleadings—the plaintiff's complaint and the defendant's answer—for a basic understanding of the allegations, defenses, and issues. After reading the Plaintiffs' original complaint and the accompanying Federal Lawsuit complaint attached as an exhibit, and even after reading the amended complaint, the court was left with the impression that if the Plaintiffs' allegations were proven, Becky would be exposed as a vindictive and vengeful person who was not deserving of the fresh-start discharge reserved for an honest but unfortunate bankruptcy debtor.
What was proven at trial, and what the court finds, was that Becky tried her best to ameliorate an incendiary situation that was totally Billy's fault. The McElheneys were informed of Jayme's allegations, but did nothing to avoid the foreseeable consequences of Billy's conduct. Becky made an accommodation offer to Jayme—no more massaging Billy and he would keep his distance—which mirrored what Renee said she herself would have offered, but in any event was rejected by Jayme. There was nothing willful or malicious in Becky's handling of Jayme's complaint. It was the Plaintiffs, under the direction of the McElheneys, who stood by and did nothing aside from alienating Becky to the point that she resigned. But regardless of how you judge Becky's talents as an HR coordinator, there was a total absence of credible evidence that she suggested or otherwise caused Jayme to pursue legal action against the Plaintiffs and Billy.
And the same can be said about Rees's claim for his unused vacation time. Rees asked Becky to determine how many vacation weeks he had not used—it was Becky's job to keep up with employees' vacation time. She simply told him how much time he had accrued. She never told him he would be paid for his unused vacation weeks. Two years later he resigned, and made his claim based on his belief that Renee had refused to pay the settlement amount they had agreed to, with no suggestion that Becky had done anything other than provide him the information he requested. Rees's complaint with the Texas Workforce Commission disclosed his claim was motivated by Renee's decision to not pay him for vacation time, despite what he believed was their agreement to the contrary. There was nothing willful or malicious in Becky's supplying Rees with the number of vacation days shown in her records.
As for their tarnished reputations, to the extent the Plaintiffs' reputations suffered in the wake of the events occurring in May 2011, and the loss of key personnel, the Plaintiffs can blame the McElheneys.
Thus, the court concludes there is no debt owing by Becky to the Plaintiffs, there was no injury suffered by the Plaintiffs as the result of Becky's conduct, and that Becky's conduct was neither willful nor malicious. Because there is no debt and no injury, there is nothing to declare nondischargeable under Code § 523(a)(6). Although the court's conclusions resolve the claims made by the Plaintiffs against Becky, there is one remaining matter to be addressed.
The financial fresh start offered to the honest but unfortunate individual debtor is the essence of chapter 7 bankruptcy relief.
The court's findings set forth above demonstrate, and the court explicitly concludes, that this action was pursued in bad faith, as an act of harassment, by the Plaintiffs under the guidance of their corporate officers, for vexatious, wanton, and oppressive reasons. The Plaintiffs were not motivated by a desire to recover their losses from a wrongdoer and dishonest debtor based on a legitimate claim, but rather their aim was to cast blame on someone who innocently found herself in an untenable position.
Writing for the majority in Marx v. General Revenue Corp., 568 U.S. 371, 382 (2013), Justice Thomas stated, "Under the bedrock principle known as the `American Rule,' each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise. Notwithstanding the American Rule, however, we have long recognized that federal courts have inherent power to award attorney's fees in a narrow set of circumstances, including when a party brings an action in bad faith." (internal citations and quotations omitted). The Eleventh Circuit has condoned exceptions to the American Rule in cases such as this adversary proceeding:
Hayden v. Vance, No. 16-15326, 2017 WL 3912490, at *2 (11th Cir. Sept. 7, 2017). "[E]very judicial and quasi-judicial body has the right to award attorneys' fees under the common law bad faith exception to the `American Rule.'" Marshall & Co. v. Duke, 114 F.3d 188, 188-90 (11th Cir. 1997). "In assessing whether an award is proper under the bad faith standard, `the inquiry will focus primarily on the conduct and motive of a party, rather than on the validity of the case.'" Perry v. Orange Cty., 341 F.Supp.2d 1197, 1207 (M.D. Fla. 2004) (quoting Rothenberg v. Security Management Co., Inc., 736 F.2d 1470, 1472 (11th Cir.1984)).
Becky will not receive the meaningful financial fresh start she deserves, if she is left to bear the expense of defending this adversary proceeding.
Pursuant to Rule 7058, the court will enter a separate judgment conforming to this opinion. Moreover, because the court has found that this adversary proceeding was pursued by the Plaintiffs in bad faith, and for the purpose of harassing Becky, it will entertain Becky's motion seeking an award of the attorneys' fees and expenses she incurred in defending this adversary proceeding, should she choose to do so. Any such motion should be filed within fourteen days from the entry of this opinion and conforming judgment, and include an application for fees and expenses substantially in the form prescribed by Rule 2016 and the court's local rules. No doubt the Plaintiffs will disagree; thus they will be given an opportunity to demonstrate that an assessment of fees and expenses is not warranted. If Becky files a motion seeking attorneys' fees and expenses, the court will hold a hearing to consider whether it should be granted.
