HeiTech Services, Inc. v. Rowe

Filing 4

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

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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

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