JAMES P. SMITH, Bankruptcy Judge.
Before the Court is Plaintiffs' motion for partial summary judgment in which Plaintiffs seek a determination that certain claims against Defendant/Debtor ("Debtor") are nondischargeable under 11 U.S.C. § 523(a)(6), and that Debtor should be denied a discharge under 11 U.S.C. §727(a). The Court, having considered the record and the applicable law, now publishes this memorandum opinion.
"A motion for summary judgment should be granted when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.' Fed.R.Civ.P. 56(c) . . . Celotex Corp. v. Catrett, 477 U.S. 371, 322, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986); see also Morisky v. Broward County, 80 F.3d 445, 447 (11th Cir. 1996). On a summary judgment motion, the record and all reasonable inferences that can be drawn from it must be viewed in the light most favorable to the non-moving party. See Cast Steel, 347 F.3d at 1301." Midrash Sephardi, Inc., v. Town of Surfside, 366 F.3d 1214, 1223 (11th Cir. 2004), cert. denied 543 U.S. 1146, 125 S.Ct. 1295, 161 L.Ed.2d 106 (2005).
Although Rule 56 was completely rewritten in 2010, no change was made to the summary judgment standard itself or to the burdens imposed on movants and opponents. Wright, Miller & Kane, 10A Federal Practice and Procedure, Text of Rule 56, n.6 (Supp. 2011). Plaintiffs have the burden of proof on their objections to discharge and dischargeability.
At all relevant times, Debtor John Barry Colvin has been the sole owner and CEO of U.S. Jets, Inc. ("U.S. Jets"). Raymond O. Boyd ("Boyd") has been the sole member and owner of Jets R US, LLC. ("Jets R US").
In June 2006, Jets R US purchased a Lear jet, model number 35A, from U.S. Jets. Contemporaneous therewith, U.S. Jets leased the jet back from Jets R US for a term beginning June 1, 2006 and ending May 31, 2013. In addition, shortly thereafter, AFB&T, a Georgia bank, formerly known as Athens First Bank & Trust Co., assigned to Boyd a promissory note and security agreement (as well as other collateral documents) from U.S. Jets.
Paragraph 12 of the jet lease agreement between Jets R US and U.S. Jets provided, in pertinent part:
In the spring of 2007, disputes arose between the parties regarding alleged defaults resulting in Jets R US repossessing the jet.
During that litigation, disputes arose regarding the inspection of records and property belonging to U. S. Jets and in which Boyd held a security interest under the assigned note and security agreement. On February 13, 2009, the state court held a hearing on Boyd's motion requesting sanctions against U.S. Jets for its failure to comply with a prior inspection order by the court. At the hearing, both Boyd and Debtor testified, at length, about the aircraft flight log and maintenance records for the jet ("Aircraft Records"), the importance of the Aircraft Records, their whereabouts, Debtor's failure to produce the Aircraft Records and Debtor's contention that Boyd had stolen the Aircraft Records. On March 6, 2009, the state court entered its Corrected Order ("Contempt Order") in which it found, in part:
The state court then ordered that Debtor would be incarcerated unless he produced the Aircraft Records by a date certain.
U.S. Jets appealed this decision to the Court of Appeals for the State of Georgia. In an opinion published July 12, 2011 (Case No. A11A0348), the Georgia Court of Appeals dismissed the appeal because U.S. Jets did not file an appellant's brief as required by that court's rules. In the opinion, the court further held:
Thereafter, on November 7, 2011, the Supreme Court of Georgia (Case No. S11C1786) denied Debtor's petition for certiorari.
Debtor filed this Chapter 7 bankruptcy case on December 30, 2010. Boyd and Jets R US filed this adversary proceeding against Debtor on April 20, 2011.
In support of their motion for partial summary judgment, Boyd and Jets R US rely almost entirely upon the Contempt Order. They contend that collateral estoppel bars relitigation of any issues decided by the state court and that the Contempt Order establishes the facts necessary to show that their claims against Debtor are nondischargeable and that Debtor is not entitled to a discharge.
"Collateral estoppel prohibits the relitigation of issues that have been adjudicated in a prior action. The principles of collateral estoppel apply in discharge exception proceedings in bankruptcy court."
991 F.2d at 675-76.
Thus, the Court will look to Georgia law to determine the effect of the state court judgment. In Georgia:
Debtor asserts that the first requirement, identity of parties or their privies, is not present because he was not a named defendant in the state court action. However, the Georgia Court of Appeals, in dismissing the appeal of the Contempt Order, specifically held that Debtor became a party to the state court litigation when he, individually, was held in contempt.
Further, the record shows that Debtor participated in, had a sufficient stake in, and had a similar or identity of interest with U.S. Jets in the state court contempt proceedings. "Privity connotes those who are in law so connected with a party to the judgment as to have such an identity of interest that the party to the judgment represented the same legal right; and where this identity is found to exist, all are alike concluded and bound by the judgment. [Cite]"
Debtor next argues that the Contempt Order is only an interlocutory order and not a final adjudication of the entire state court litigation. Debtor also argues that the Contempt Order is not a judgment.
This case is similar to the case of
Another hearing was held to determine whether he had purged himself of the contempt by producing the documents. The trial court found that Rich had not purged himself of contempt and ordered him to jail. Rich did not appeal that decision.
Thereafter, Rich brought a separate suit against the attorney who had represented the opposing party in the underlying litigation, alleging that the attorney and Rich had made a separate deal with regard to the trial court's contempt order and that the attorney had then falsely testified at the hearing where the court found that no such deal existed and ordered Rich to jail. The Court of Appeals of Georgia held:
329 S.E. 2d at 177.
With respect to the Contempt Order, the Georgia Court of Appeals dismissed the appeal and the Georgia Supreme Court denied certiorari. Thus, the order is a final order for purposes of collateral estoppel.
The Court must now determine whether the Contempt Order resolved the same or similar issues which are presented in this adversary proceeding and whether those issues were actually litigated and necessary to the decisions reached by the state court in the Contempt Order. This requires a review of each of the counts in this adversary proceeding on which Plaintiffs rely.
In their motion for partial summary judgment, Plaintiffs contend that Debtor should be denied a discharge in bankruptcy under 11 U.S.C. § 727(a)(2),(3),(4), and (7). These sections provide:
Section 727(a)(7) extends the basis for denial of discharge to the debtor's misconduct in a related bankruptcy case of a corporation of which the debtor is an officer, director or controlling person. See 11 U.S.C. § 101(31)(A)(iv) (defining insider of a corporation). Debtor, as sole owner and CEO of U.S. Jets, was an insider of U.S. Jets.
Plaintiffs contend that the Contempt Order establishes that Debtor, with intent to hinder, delay or defraud the Plaintiffs, destroyed or concealed the Aircraft Records. However, section 727(a)(2) applies to property of the debtor or property of the debtor's estate. The Contempt Order makes no finding that the Aircraft Records were property of Debtor.
Plaintiffs contend that Debtor concealed, destroyed or failed to keep or preserve records from which Debtor's financial condition or business transactions might be ascertained. However, the Aircraft Records were for a jet leased by U.S. Jets. The records may pertain to U.S. Jet's business transactions, but the Contempt Order makes no finding that the Aircraft Records are Debtor's business records, or that they would reflect Debtor's financial condition or business transactions. Thus, partial summary judgment on this count is denied.
Plaintiffs contend Debtor made a false oath when Debtor testified at the section 341 meeting of creditors for U.S. Jets
In their motion, Plaintiffs contend that Debtor's false testimony given in the U.S. Jets' bankruptcy case requires denial of discharge in Debtor's case. The testimony which Plaintiffs contend was false was given at the August 11, 2008, section 341 meeting of creditors in the U.S. Jets' case and at a cash collateral hearing in the U.S. Jets' case on August 28, 2008. Plaintiffs also rely on a series of letters and emails sent by U.S. Jets' bankruptcy counsel, Mr. Harris, in September 2008.
By its terms, section 727(a)(7) requires that the alleged misconduct in the case of U.S. Jets take place within one year before the date of the filing of Debtor's bankruptcy petition or during Debtor's case. Debtor's case was filed on December 30, 2010, more than one year after the alleged misconduct occurred. Accordingly, partial summary judgment on this count is denied.
In their motion, Plaintiffs contend that they suffered injury by Debtor's failure to produce the Aircraft Records and Debtor's sale or other disposition of certain personal property in which Boyd had a security interest. They contend that their claims for damages resulting from these injuries are nondischargeable under 11 U.S.C. § 523(a)(6). That section provides:
In
Jets R US is the owner of the jet at issue. Any claim for damages would belong to it. The jet lease agreement required U.S. Jets, as lessee, to repair and maintain the jet, to maintain all log books and records pertaining to the jet, and to make such records available for examination by Jets R US. Without the Aircraft Records, which establish the jet's maintenance and repair history, the aircraft cannot be sold except, possibly, for parts.
In the Contempt Order, the state court rejected Debtor's explanations as to why he had not produced the Aircraft Records. Debtor's arguments in this case that he no longer has the Aircraft Records or that Boyd stole those records were all fully litigated in the state court case and resolved in favor of Plaintiffs and against Debtor. The state court found that Debtor had willfully failed to produce the records and that his " . . . actions and statements to others are consistent with a deliberate attempt to destroy the value of Plaintiffs' aircraft, and have it in Colvin's own words `sold for parts.'" This issue was actually litigated and was necessary for the court's finding of contempt.
It is undisputed that Debtor has still not produced the Aircraft Records. The failure to produce the Aircraft Records has caused damage to the value of the jet just as if Debtor had physically damaged the jet. The findings of the state court are entitled to collateral estoppel effect. When coupled with the fact that the Aircraft Records have still not been produced, the Court finds that Plaintiffs have established that Debtor willfully and maliciously injured the property of Jets R US. Accordingly, Jets R US is entitled to summary judgment. Pursuant to 11 U.S.C. § 523(a)(6), its claim against Debtor for damages that it suffered will be nondischargeable.
However, Jets R US has introduced no evidence as to the amount of damages to which it is entitled.
In the Contempt Order, the state court also considered allegations by Boyd that Debtor had disposed of certain personal property of U.S. Jets in which Boyd held a security interest. The court found that U.S. Jets and Debtor had failed to produce a ground power unit, hydraulic cart and an ice machine. As to the ground power unit and hydraulic cart, the court rejected Debtor's contention that they were leased and had been returned to the lessor. The court also rejected Debtor's contention that the ice machine belonged to his son. The court also heard testimony as to certain unspecified tools and equipment and rejected Debtor's contention that the tools and equipment belonged to him, individually, and not to U.S. Jets.
It is undisputed that none of the property addressed by the state court in the Contempt Order has been delivered to Boyd. The state court heard testimony from Debtor as to the whereabouts of this property, found that Debtor had disposed of the property and rejected all of Debtor's explanations and justifications for such dispositions. The Court specifically found that the property was Boyd's collateral. These issues were actually litigated and were necessary for the court's finding of contempt.
The Eleventh Circuit has held:
However, as to damages, no evidence has been submitted
In conclusion, summary judgment on Plaintiffs' claims under 11 U.S.C. § 727(a) for denial of discharge is denied. Summary judgment is granted with respect to Plaintiffs' claims under 11 U.S.C. § 523(a)(6). However, as to the issue of damages, summary judgment is denied.
The Court will enter a separate order consistent with this opinion. The Court will also enter a separate order scheduling a status conference in this adversary proceeding to discuss further proceedings herein.
