HeiTech Services, Inc. v. Rowe

Filing 4

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 10/24/2017. (tds, Deputy Clerk)

IN THF. UNITF.D STATES DISTI{ICT COURT
FOR THE J)JSTRICT OF MARYLAND
SO/lthem

HEITF.CH SF.RYICES, INC.,

D;I'i.\';o/l

CI.:-- .. ~
1:,/ r <..t.
'
~

*

Appellant,

*

v.

Case No.: G./I1-17-1319
Bank. Case No: T.JC-16-1151111

*
A TRON CARL ROWF.,

*

Appellee.

*

*

ZO/7 OCT 21.1 P 3: 40

*

*

*

*

*

*

*

MF.MORANDUM
Pending beforc thc Court is Appellant
Leave to Filc Interlocutory

*

Appellee

Judgmcnt.

HciTcch Scrviccs.

Appcal. ECF No. I. IlciTcch

no oral argumcnt

is necessary.

*

Inc.'s ("'l-IciTech's")

*

Motion for

sccKs to appcal an interlocutory
denying IleiTcch's

in which HeiTeeh sought to except from discharge

Atron Carl Rowc ("Rowc").

*

OPINION

the United States BanKruptcy Court for the District of Maryland
Summary

*

order of

Motion Il))"

a debt owed to it by

The motion has becn briefed. ECF No. I. ECF NO.2. and

Local Rule 105.6 (D. Md. 2016). For the reasons stat cd below.

Appcllant" s Motion is dcnied.
I.

BACKGROUND

I

Sincc 1997. Rowe was a part-owner

of Front Rowe. Inc. ("'FR!"'). a Virginia corporation.

ECF No. I at 102 On May I. 2012. FRI cntercd into a Primc Contract with the Unitcd States
Departmcnt

of Labor ("DOL"") lor documcnt

preparation

worK. Undcr the Prime Contract.

would pay FRI based on thc numbcr of pages that FRI scanned and digitizcd.

DOL

Ii/. T\Hl months

I The background
facts are taken from HciTech's j\'lotion and attached documents. ECF No. I and arc largely
uncontested. ECF No. 2 ~I I.
2 Pin cites to documents tiled 011 the Court's electronic tiling system (eM/EeF) refer 10 the page numbers generated
by that systelll.

later. on July L 2012. FRI entered into a Subcontractor
HeiTech. Under lhe Subcontract.

Agreement

(""the Subcontract")

FRI would receivc 51 % of the revenue received

1-leiTech would receive 49% of the revenue. based on the production
DOL. However.
undeITeporting
the Subcontract

with

from DOL and

output that FRI charged to

from July 2012 through May 2014. FRI sent I~llse invoices to IleiTech.
the revenues.

Id FRI additionally

was terminated

HeiTeeh subsequently

Illiled to pay ccrtain invoices to l-IeiTech. and

on March 3 I. 2014. Id at 10- I I.
sued FRI and Rowe (along with Rowe's co-owner)

States District Court I()r the Eastcrn District ofYirginia

(Cacheris.

in the United

J.) on .tunc 16. 2014.1d al9.

In that suit. HeiTcch brought a claim for breach of contract against FRI. and a claim of Ihlud
against all defendants.
Summary

It!. On December

19.2014 . .tudge Cacheris granted HeiTech's

.tudgment on the breach of contract claim. and entered ajudgment

Motion I(H'

in HeiTcch's

l~lVor

01'$505.758.63. 1d3 As to the Iraud claim . .tudgc Cacheris dcnied relief. reasoning that the li'aud
claim was based on the same harm as the contract claim. and would result in doublc rcc()\'ery. Id
In a subsequent

opinion on May 25. 2015 . .tudgc Cachcris determined

should be pierced and held that Rowe was individually
On Fcbruary

10.2016.

Id at 9. On March 17.2016.
of discharge

Rowe tiled a voluntary

\\'as entered on May 17.2016.

seeking to except the judgment

U.S.C. ~ 523(a)(2)(A)

and ~ 523(a)(6).

petition I(lr Chapter 7 bankruptcy

Court I()!' the District of Maryland

entered by .tudge Cacheris

and an order

li'om discharge

on

("Bankruptcy
under 11

It!. l-IeiTeeh tiled a Motion I()!' Summary .tudgment.

to establish

been determined

and that those determinations

.3

relief.

Id HeiTech initiated an advcrsary procceding

arguing that all thc issues nccessary
by .tudge Cacheris.

veil

liable as well. Id at 12-13.

the Chapter 7 trustee entered a report of no distribution

March 18. 2016 in the United States Bankruptcy
Court").

that the corporate

that the debt is exceptcd

FRI did not contest the motion or the amount O\ved. EeF No. 18 at 13.

2

from discharge

had

were entitled to preclusive

elfect in the adversary proceeding. Ic/. at 8-9. Specilically. HeiTech argued that under the
Bankruptcy Code. a debt is not dischargeable to the extent that it was obtained by "false
pretenses. a false representation. or actual fraud:'
injury by the debtor:'

* 523(a)(2)(A).

* 523(a)(6) and that Judge Cacheris'

or by "willful and malicious

rulings had resolved these issues as it

related to its claim. The Bankruptcy Court applied federal collateral estoppel law. and Illlll1dthat
Judge Cacheris' decisions had not relied on Rowe's "intent to deceive" or "intent to injure" as
necessary parts of the decisions and noted that judgment on IleiTech' s Iraud claim had not been
granted: thus. the Bankruptcy Court ruled, Judge Cacheris' decision did not have a preclusive
effect requiring the Bankruptcy Court to except HciTcch'sjudgment

from dischargc. ECr No. I

at 17.
On May 15. 2017, IleiTech Iiled a Motion Illr Lcave to rile an Intcrlocutory Appeal with
this Court. ECl' No. I. which Rowe opposed on May 24. 2017. ECI' NO.2. IleiTcch asks this
Court to overrule thc Bankruptcy Court's denial of HeiTech's Motion Il)r Summary Judgmcnt.
arguing that Judge Cacheris' Iindings regarding Rowe's intent were "absolutcly essential" to its
holding. ECI' No. I at 5. Rowc. on thc othcr hand. argucs that HciTcch has not shO\\I1 that thcrc
is a "substantial ground for a dilference of opinion" on any relevant issuc. making an
interlocutory appcal improper. ECl' NO.2 at 3.
II.

STANDARD

OF REVIEW

Thc Court can hear a bankruptcy appcal pursuant to 28 U.S.c.
district courts jurisdiction to hear appcals "Irom linaljudgmcnts.

* 158(a), which givcs

ordcrs, and decrccs:' "Irom

interlocutory ordcrs and decrccs issucd under section 1121(d) of title II ... :' and "with leave of
thc court. Irom other interlocutory ordcrs and decrecs." Bankruptcy appeals "shall bc takcn in the
same manner as appeals in civil procecdings generally arc takcn to thc courts of appcals from the

district courts:' 28 U.S.c. ~ 158(c)(2). To seek an interlocutory appealli'om a bankruptcy
decision:
the appellant must demonstrate ..that exceptional circumstances justity a departure Irom
the basic policy of postponing appellate review until atier the entry of a lin'll judgment:'
Coopers & Lybrand \".Lil'esay. 437 U.S. 463 (1978) (citing Fisons. Lit!. \'. Uniled S/ales.
458 F.2d 1241. 1248 (7th Cir. I972)). When deciding whether to grant leave to appeal an
interlocutory order or decree of a bankruptcy court. the district court may employ an
analysis similar to that applied when certifying interlocutory review by the circuit court
of appeals under 28 U.S.c. ~ 1292(b). Allanlic Texlile Group. Inc. \'. Neal. 191 B.R. 652.
653 (E.D.Va.1996) (citations omitted). Under this analysis. leave to lile an interlocutory
appeal should be granted only when I) the order involves a controlling question of law.
2) as to which there is substantial ground I(lr a difference of opinion. and 3) immediate
appeal would materially advance the termination of the litigation.
In re Pawlak, 520 B.R. 177. 182 (D. Md. 2014). District courts will not hear an interlocutory
appeal when parties merely "disagree as to a Bankruptcy Court's interlocutory order. but rather
only where substantial ground fiJr disagreement exists as to the controlling issues of law that
infonned the order:' It!. (quoting In re Air Carpi. Inc.. No. CCI3-08-587. 2008 WL 2415039
(D. Md. June 11.2008)). "An issue presents a substantial ground for dilTcrence of opinion if
courts. as opposed to parties. disagree on a controlling legal issue:' Lynn \'. ,l/onarch ReCl"'(,/:l"
lvlgml.. Inc.. 953 F. Supp. 2d 612. 624 (D. Md. 2013).
III.

DISCUSSION

HeiTeeh argues that the Bankruptcy Court should have given Judge Cacheris' rulings
estoppel effect and that ..[tJhere is substantial ground for difference of opinion on the issues of
whether a speeitic tactual Iinding was 'necessary to the judgment .... meriting an interlocutory
appeal. ECF No. I at 4 (quoting In re Microso!i Corp. Ami/rusl Ulig.. 274 F.Supp. 2d 741 (D.
Md. 2003)). The Fourth Circuit t(lilows a live-part test to determine whether a previously
litigated issue or fact has a eollateral estoppel elTect on subsequent cases: "( I) the issue or lact is
identical to the one previously litigated: (2) the issue or lilet was actually resolved in the prior
proceeding: (3) the issue or tact was critical and necessary to the judgment in the prior
4

proceeding:

(4) the judgment

in the prior proceeding

li)l"eclosed by the prior resolution

is final and valid: and (5) the party to be

of the issue or fact had a full and l~tir opportunity

to litigate the

111 Micnlsl!fi CO/jJ. /Imi'rusl I.ilig .. 355 F.3d 322. 326
re

issue or fact in the prior proceeding:'

(4th Cir. 2(04). The third element limns the crux of the disputc in this motion for interlocutory
appeal. Specifically.

the parties contest whether findings in Judge Caeheris'

FRl"s intent to injure and intent to deceive wcrc critical and neccssary
Only issues or facts which are "critical and necessary
litigation"

opinions

related to

to his rulings. "

to the judgmcnt

in the prior

are afforded an estoppel effect. It/. at 327. See also Wells Fargo Equil'mem Fillallce.

Illc. v. Aslerhadi. No. 15-1371. 2017 WL 818714. n.11 (D. Md. March 2. 2(17) (linding that
"collateral
necessary

estoppel does not apply" where party had "not shown that this fact was critical and
to the judgment

in the prior proceeding.").

lIeiTech

deceive and intent to injure were critical and necessary
should be given preclusive
523(a)(2)(A)
Cacheris

effect in establishing

and (a)(6). The Court disagrees.

concludcd

argues that Rowes'

to Judge Cacheris'

exemptions

rulings and thus

Irom discharge

pursuant to ~~

As the 13ankruptcy Court correctly notcd. "Judge

that HciTech was entitled to a judgment

as a maller of law on the breach of

contract claim against FRI" but "Ials to the ll.aud claim. thc court denied relicfto
because it would result in double recovery
Virginia law. the clements

for the samc hann:'

obligation

violation or breach of that obligation:

ofa defendant

and (3) rcsulting

seeking to except a debt from discharge

"intent to deceive:"
"llondischargcability

NU1111t!I:r \'. R01l11lree

takes a deliberate

(In

injury or harm to the plaintifC

ECF No.

Because neither intent to injure

lInder ~523(a)(2)(A) must prove. among olher elements.

I'll Roul11n:I!J,

or illlClltional

I(llllld had been mct.

to a plaintiff: (2) the defendant's

I at 29 (citing Filak \'. George. 594 S.E.2d 610. 614 (Va. 2(04).

~ A creditor

IlciTech

ECF No.1 at 11 -12. Under

of a brcach of contract. which Judge Cacheris

are: "(I) a legally enforccable

intent to

an

478 F.3d 215. 218 (41h Cir. 2007). Under ~ 513(a)(6}.

iJ{illl:l'. not merely

a deliberate

Of intentional

ael that leads 10

injury:" Kmnwuhau \'. Gl!i}{er. 523 U.S. 57 (1998) (emphasis in original). Thus. according to FRI. ireslOppcl effcct
were given to these issues of intent. they would

be entitlcd

to sUlllmary

5

judgment

on their claimed

cxception.

nor intent to deccivc was necessary
contract claim. the judgment

for Judgc Cacheris to enter judgment

is not entitled to preclusive

The same is true for Judge Cacheris'
finding individual
Cacheris

defendants

effect on those issues.

second ruling. piercing the corporate

perpetrate

and (ii) that the individual

used the corporation

between the individual

fi'aud or a crime. to commit an injustice. or to gain an unfair advantage:'

2011)). As to the second factor. Judge Cacheris determined
FRI to evade personal

obligations

and to gain anunlilir

made no Iinding as to the perpetration

and the

/IIC .•

ECF NO.1 at

650 F.3d 423. 434 (4111 Cir.

that ..the individual

advantage:'

to

dclendants

uscd

ECF No. I at 46. Judge

of a fraud and any Iindings in the fact section of

the opinions

that plausibly

or necessary

to the decision to pierce the corporate

related to FIU's intcnt to injure or intent to deceive were not critical

1IeiTech directs the Court to

//1

veil and do not merit preclusive

re A1icro,\'o/i Corp. Al7lilrusll.ilig.

(D. Md. 2003). in support of its position that there is a substantial

ground

opinion as to this issue. In that case. the district court (Motz . .I.) certilied
interlocutory

veil. Judge

to cvade a personal obligation.

43 (citing Ne\!pOrl ""reII'SHoldillg.I' Corp. \'. Virtual Cily Visioll.

Cacheris

v'eil and

liable. EC.'!' NO.1 at 38. In order to pierce the corporate

needed to find "(i) a unity of intcrest and ownership

corporation.

on the breach of

effect.

274 F. Supp. 2d 741
I()f

a difference

of

its ruling f()r an

appeal to the Fourth Circuit. !d. At issue was whether certain factual lindings from

a previous

case in the United States District Court for the District of Columbia

"necessary

to the judgment"

that there was a "substantial

so as to trigger a "collateral
ground fl\!' difference

estoppel effect." !d. at 742. In finding

of opinion"

rclied heavily on the fact that the United District Courtl()r
Kotelly . .I.) had come to a decision contrary to his regarding
tilct entered by Judge Jackson

in Ulliled Slaies

1',

(,

(.iackson . .I.) were

on that question.

Judgc Motz

the District of Columbia
the preclusive

(Kollar-

effect of lindings of

.\!icl'llso/i. 87 F. Supp. 2d 30 (D.D.C. 2(00). !d.

As two courts had reached di fferent opinions as to the preclusive

effect of Judge Jackson's

findings of fact. Judge Motz certified his opinion for interlocutory
not direct the Court to any cases finding that Judge Cacheris'
entitled to preclusive
majority

effect rcgarding

**

523(a)(2)(A)

appeal. Ilcrc, IlciTcch docs

ruling (or a similar ruling) is

and (a)(6). Instead, HciTcch spends thc

of its Motion merely arguing that the Bankruptcy

Court was wrong. See ECr No. I at 5.

But HeiTech must show that "courts, as opposed to parties, disagree on a controlling
And to the extent HeiTech may rely on Judge Motz's decision in Microso/i
proposition
detennining

that the Court there noted that there was confusion
collateral

estoppel.

or "essential"'

Although

to a court's

Judge Cacheris

regarding the standard

upon in finding Rowe liable for breaching

to Judge Cacheris'

appeal ofthc

opinions.

Rowe's

fraudulcnt

and werc not rclied

his contract with HeiTech or picrcing the corporate

veil. These factual findings are not entitled to a preclusive

bring an interlocutory

that

prior judgment).

intent. none of these findings was necessary

of opinion"

on thc appcal of

effects. such findings must have becn "critical and

made a number of f[lctual findings regarding

ground for difference

for

Uti)!,., 355 F.3d 322, 327 (4th Cir. 2(04) (reasoning

for factual findings to be given preclusive
necessary"

fi.Jrthe general

the Fourth Circuit resolved any such confusion

that case. 111 Micro.\',!/i Corp. Alltitrust
re

legal issue:'

warranting

efrect. and there is no "substantial

an interlocutory

Bankruptcy

Court's

Judgment.

7

appeal. Thcreftll'c,

IlciTech

denial of its Motion ftl[ Summary

cannot

IV.

CONCLUSION
For the foregoing

reasons. IleiTech's

Motion for Leave to File Interlocutory

Appeal. lOCI'

NO.1. is hereby denied. A separate Order shall issue.

Date: Oetober"2.

&E--

i.

20 17

'GEORGE.I.
HAZEL
United States Distriet .Iudge

8