Security Alarm Financing Enterprises, Inc. v. Parmer et al
Filing
144
MEMORANDUM OPINION AND ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT AND DENYING MOTION TO STRIKE RESPONSE IN SUPPORT OF DEFENDANT BROZIK'S MOTION FOR PARTIAL SUMMARY JUDGMENT. The Court denies Security Alarm Financing Enterprises, Inc.'s [1 01] Motion for Summary Judgment; denies Mitch Brozik's 104 Motion for Summary Judgment and denies Security Alarm Financing Enterprises, Inc.'s 118 Motion to Strike memorandum of Secure US, Inc. purporting to join in Mitch Brozik's motion for summary judgment. Signed by Senior Judge Frederick P. Stamp, Jr on 4/14/14. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
SECURITY ALARM FINANCING
ENTERPRISES, INC.,
Plaintiff,
v.
Civil Action No. 1:12CV88
(STAMP)
BETTY PARMER, SECURE US, INC.
and MITCH BROZIK,
Defendants.
MEMORANDUM OPINION AND ORDER
DENYING MOTIONS FOR SUMMARY JUDGMENT AND
DENYING MOTION TO STRIKE RESPONSE IN SUPPORT OF
DEFENDANT BROZIK’S MOTION FOR PARTIAL SUMMARY JUDGMENT
I.
Originally,
Procedural History
Security
Alarm
Financing
Enterprises,
Inc.
(“SAFE”) filed the above-styled civil action in this Court only
against the defendants, Secure US, Inc. (“Secure US”) and Betty
Parmer (“Parmer”).
In its complaint, SAFE asserted a claim of
successor liability as a result of the sale of Secure US, in
addition
to
seeking
a
declaration
that
SAFE’s
judgment
lien
continues to attach to Secure US’s assets, as the sale of Secure US
was not commercially reasonable.
Secure US then filed a motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim, which SAFE opposed.
Thereafter, SAFE filed a
request for entry of default as to Parmer, as Parmer failed to file
a timely responsive pleading to SAFE’s complaint.
ordered that default be entered against Parmer.
This Court then
After default was
entered, SAFE requested that this Court enter a default judgment
against Parmer.
default.1
At that time, Parmer filed a motion to set aside
SAFE then filed a motion to amend its complaint wherein
it sought to add two additional claims and one additional party.
In its memorandum opinion and order, this Court first denied
Secure US’s motion to dismiss, as this Court found that SAFE had
stated sufficient factual allegations to state a claim upon which
relief may be granted.
This Court then determined that good cause
existed to set aside default as to Parmer, and denied SAFE’s motion
for default judgment.
As to the plaintiff’s amended complaint,
this Court found that granting SAFE leave to amend would not
prejudice the defendants, nor were the amendments sought futile or
brought in bad faith.
Thereafter, SAFE filed its amended complaint, wherein it
added claims for fraud and conspiracy to commit fraud. Included in
these two additional claims is an additional party, defendant Mitch
Brozik (“Brozik”).
In response to the claims, Brozik filed a
motion to dismiss seeking to dismiss both Counts III and IV, which
are
SAFE’s
claims
respectively.
for
fraud
and
conspiracy
to
commit
fraud
This Court denied Brozik’s motion to dismiss, but
ordered SAFE to file a more definite statement as to the time,
1
Parmer entitled this motion and referred to her request as a
motion to set aside default judgment. However, as this Court had
not entered default judgment against Parmer at the time of this
filing, this Court construed Parmer’s motion as a motion to set
aside default.
2
place, and contents of the false representations made by Brozik.
As to Brozik’s waiver argument and indispensable party argument,
this Court found that SAFE did not waive its right to assert the
claims in its amended complaint nor did SAFE fail to join an
indispensable
party.
SAFE
thereafter
filed
a
more
definite
statement in compliance with this Court’s order.
Brozik then filed a second motion to dismiss, and Secure US
filed
an
answer
and
a
counterclaim.
In
response
to
the
counterclaim, SAFE filed a motion to strike the counterclaim or in
the alternative to dismiss the counterclaim.
This Court granted
SAFE’s motion to strike, finding that SAFE did not change the
theory and scope of the case in regards to Secure US so as to allow
such amendment without leave of court and Secure US failed to seek
such leave to add its counterclaim.
As to Brozik’s second motion
to dismiss, this Court denied the motion, finding that SAFE
adequately pled its claim for fraud and again finding that SAFE did
not waive its right to assert any claims in its amended complaint.
After
Brozik
and
Secure
scheduling
order,
Brozik
judgment.
Brozik seeks summary judgment as to the fraud and
and
US
filed
SAFE
motions
filed
to
motions
amend
for
the
summary
conspiracy claims. Specifically, he argues that SAFE has failed to
sustain its claim for fraud because: (1) exercising a legal right
is not fraud; (2) SAFE has failed to prove actual fraud; and (3)
SAFE has sustained no actual damages.
3
As to SAFE’s conspiracy
claim, Brozik argues that SAFE has failed to sustain such claim
because: (1) Parmer’s testimony evidences a lack of a conspiracy
and without her, the conspiracy as to all parties fails; (2)
financial support from Parmer does not evidence conspiracy; (3)
conspiracy to commit fraud requires injury and there is no injury
here; and (4) SAFE did not allege Parmer participated in fraud.
SAFE filed a response in opposition to such arguments, and Brozik
replied.
Secure US also filed a response to Brozik’s motion.
This
response states that Secure US finds Brozik’s motion for summary
judgment to be well founded, and joins in his motion.
SAFE then
filed a motion to strike this response as an untimely attempt to
file a dispositive motion.
Secure US did not file any response to
SAFE’s motion to strike.
This Court denies SAFE’s motion to
strike, but nonetheless, will not consider Secure US’s motion as a
separate motion for summary judgment.
In SAFE’s motion for summary judgment as to all claims, it
argues that: (1) because the secured party sale was a “friendly”
sale intended to avoid Secure US’s creditors, SAFE’s judgment lien
was not extinguished; (2) Parmer is liable for judgment as a
successor to Secure US; (3) Secure US and Brozik participated in a
fraudulent scheme to prevent SAFE from exercising its rights as a
judgment creditor; and (4) defendants participated in a civil
conspiracy to prevent SAFE from exercising its rights as a judgment
4
creditor.
Both Secure US and Brozik filed timely responses to
SAFE’s motion for summary judgment.
response.
Parmer filed an untimely
SAFE separately replied to each response.
For the reasons stated below, this Court denies Brozik’s
motion for summary judgment and denies SAFE’s motion for summary
judgment.
II.
Facts
This action arises out of the sale of Secure US to Parmer.
In
2010, a judgment was entered in favor of SAFE against Secure US in
the amount of $1,132,028.42.
counterclaims
filed
by
SAFE
This judgment was the result of
in
a
interference,
separate
common
law
for
defamation,
tortious
competition.
Thereafter, SAFE registered a certified copy of the
judgment with this Court.
and
proceeding
unfair
At that time, SAFE obtained a lien upon
Secure US’s assets after this Court issued a writ of fieri facias.
SAFE then filed a motion for the sale of Secure US’s customer
accounts, which Secure US opposed.
The Milan Puskar Amended and
Restated Revocable Trust (“the Trust”), an entity that alleged it
had a superior lien on Secure US’s property in the amount of $4.4
million, then intervened to oppose the sale as well.
Both the
Trust and Secure US opposed the sale by stating that the sale
amount
would
not
satisfy
the
Trust’s
lien.
United
States
Magistrate Judge James E. Seibert then found that SAFE’s motion for
5
sale should be granted and this Court agreed, overruling objections
from the Trust and Secure US.
Secure US then requested that SAFE agree to postpone the sale
to pursue additional settlement negotiations.
SAFE and Secure US
filed a proposed agreed order continuing the sale for the purpose
of engaging in settlement discussions.
This Court then issued an
order continuing such sale until May 16, 2012, for the purpose of
working towards a settlement.
issued
the
order,
negotiations.
Secure
US
SAFE alleges that after this Court
refused
to
continue
settlement
SAFE contends that on April 20, 2012, it received a
notice in the mail regarding a secured party sale of Secure US’s
assets.
5, 2012.
This notice stated that such sale would take place on May
SAFE alleges that Brozik, as President of Secure US at
the time, was responsible for providing the instructions regarding
the settlement negotiations, including the instruction to obtain a
continuance. SAFE asserts that Brozik’s representation that Secure
US intended to continue to pursue good faith negotiations was false
and that Brozik had already contacted Parmer to advise her of the
allegedly bogus secured party sale.
SAFE asserts that Parmer bought the Trust’s notes for $2.5
million prior to the scheduled sale.
SAFE further asserts that
Parmer is Brozik’s aunt, and has no history in the security alarm
business, which Secure US conducts. Brozik was the owner of Secure
US until Parmer eventually purchased Secure US. SAFE contends that
6
it sent a letter objecting to the sale based on irregularities and
unusual terms that would discourage buyers, which reached the
attorney who would be conducting the sale.
SAFE further contends
that the attorney conducting the sale did not adequately respond to
potential buyers, specifically a Mr. Patrick Egan.
Regarding the sale itself, SAFE asserts that numerous issues
existed.
Specifically, SAFE alleges that potential buyers were
only allowed to walk through the office and look around, and no
inspection of what was contained in the file cabinets was allowed.
Further, SAFE alleges that the potential buyers were denied access
to Secure US’s warehouse, which contained contents that were part
of the auction. SAFE also alleges that instead of Parmer accepting
a $3.6 million cash bid for the assets, Parmer purchased the assets
of the company for $4 million by issuing a credit bid.
SAFE asserts that after purchasing these asserts, Parmer
retained Brozik’s new company, MB Security, to manage, control, and
operate the assets as a security alarm monitoring business.
SAFE
further asserts that Brozik uses MB Security to manage and control
the assets that Parmer purchased from Secure US, in the exact same
manner he used them to run Secure US prior to its sale.
III.
Applicable Law
Under Rule 56(c) of the Federal Rules of Civil Procedure,
A party asserting that a fact cannot be or is genuinely
disputed must support the assertion by:
(A) citing to particular parts of materials in the
record, including depositions, documents, electronically
7
stored
information,
affidavits
or
declarations,
stipulations . . . admissions, interrogatory answers, or
other materials; or
(B) showing that the materials cited do not
establish the absence or presence of a genuine dispute,
or that an adverse party cannot produce admissible
evidence to support the fact.
Fed. R. Civ. P. 56(c).
The party seeking summary judgment bears
the initial burden of showing the absence of any genuine issues of
material fact.
(1986).
See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
“The burden then shifts to the nonmoving party to come
forward with facts sufficient to create a triable issue of fact.”
Temkin v. Frederick County Comm’rs, 945 F.2d 716, 718 (4th Cir.
1991), cert. denied, 502 U.S. 1095 (1992) (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)). However, as the
United States Supreme Court noted in Anderson, “Rule 56(e) itself
provides that a party opposing a properly supported motion for
summary judgment may not rest upon the mere allegations or denials
of his pleading, but . . . must set forth specific facts showing
that there is a genuine issue for trial.”
Id. at 256.
“The
inquiry performed is the threshold inquiry of determining whether
there is the need for a trial -- whether, in other words, there are
any genuine factual issues that properly can be resolved only by a
finder of fact because they may reasonably be resolved in favor of
either party.”
Id. at 250; see also Charbonnages de France v.
Smith, 597 F.2d 406, 414 (4th Cir. 1979) (Summary judgment “should
be granted only in those cases where it is perfectly clear that no
8
issue of fact is involved and inquiry into the facts is not
desirable to clarify the application of the law.” (citing Stevens
v. Howard D. Johnson Co., 181 F.2d 390, 394 (4th Cir. 1950))).
In Celotex, the Supreme Court stated that “the plain language
of Rule 56(c) mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who
fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party
will bear the burden of proof at trial.”
Celotex, 477 U.S. at 322.
In reviewing the supported underlying facts, all inferences must be
viewed in the light most favorable to the party opposing the
motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986).
IV.
A.
Discussion
Defendant Brozik’s Motion for Summary Judgment
Brozik argues that this Court should grant summary judgment in
Brozik’s favor as to SAFE’s fraud claim and SAFE’s conspiracy
claim.
1.
Accordingly, this Court will discuss each claim in turn.
Fraud Claim
Brozik argues that this Court should dismiss SAFE’s claim for
fraud because Parmer had the right to institute a foreclosure sale
pursuant to West Virginia Code § 46-9-610(a) and, while SAFE may
have also had foreclosure rights, Parmer’s rights were superior as
she was the senior lienholder.
Exercising this right, Brozik
9
asserts cannot be considered the basis for a claim for fraud. SAFE
argues in response that Secure US and Brozik cannot commit fraud to
enable Parmer to become the secured party in Secure US, and then
rely on Parmer’s exercise of rights that she obtained as a result
of the fraud to escape liability.
Under West Virginia law, the essential elements of fraud are
as follows:
(1) that the act claimed to be fraudulent was the act of
the defendant or induced by him; (2) that it was material
and false; that plaintiff relied upon it and was
justified under the circumstances in relying upon it; and
(3) that he was damaged because he relied upon it.
Poling v. Pre-Paid Legal Servs., Inc., 575 S.E.2d 199, 202 (W. Va.
2002) (quoting Horton v. Tyree, 139 S.E. 737, 738 (W. Va. 1927)).
SAFE is claiming that the defendants participated in a fraudulent
scheme that enabled Parmer to obtain the secured party rights,
which then enabled Parmer to exercise those rights.
SAFE is not
alleging that the exercise of those rights alone constitutes fraud,
but rather, that the situation taken as a whole was fraudulent.
Brozik,
fraudulent
to
in
support
exercise
of
a
his
argument
person’s
legal
that
right,
it
cannot
provides
be
two
citations, only one of which this Court need distinguish, as the
remaining citation is not a case cite, but rather a citation to an
appellate brief for a case not yet decided.2
2
The actual case law
See ECF No. 105 *6 (citing PDVSA Petroleo, S.A., v. Trigeant,
Ltd., No 12-40062, 2013 WL 3803133 (5th Cir. July 15, 2013)).
10
cited by Brozik is Hablas v. Armour & Co., 270 F.2d 71 (8th Cir.
1959).
The United States Court of Appeals for the Eighth Circuit
in Hablas found that it was defendant’s lawful right to discharge
the plaintiff, and therefore, such discharge could not constitute
the basis for the plaintiff’s action for wrongful discharge.
at 79.
Id.
In this instance, the actual sale of the assets, which
Parmer may have had the legal right to enforce, is not the sole
basis for the fraud, but is merely one part of the alleged fraud.
Thus, SAFE is not challenging one event, like the plaintiff in
Hablas, but is challenging the actions of the parties as a whole
that were allegedly fraudulent.
Further, it is worth noting that prior to discussing the
plaintiff’s claim for wrongful discharge, the court in Hablas
discussed
the
plaintiff’s
claim
for
common
law
fraud.
The
plaintiff claimed that while he was also wrongfully discharged, he
was induced to continue his employment prior to his discharge by
fraudulent representations. Id. at 75. Rather than merely stating
that because the defendant had the right to discharge the plaintiff
he could not claim fraud, the court assessed the plaintiff’s fraud
claim based on the entirety of the facts before it.
Id. at 75-78.
This is the more analogous situation to the instant action.
SAFE
claims that the alleged fraudulent actions of the defendants
resulted in Parmer’s ability to conduct the sale, not that the
exercise of such rights was the sole act of fraud.
11
Thus, the facts
as a whole must be taken into account to determine whether or not
the defendants did in fact act fraudulently.
Brozik next argues that SAFE’s fraud claim fails because SAFE
has failed to prove actual fraud.
“Actual fraud is intentional,
and consists of intentional deception to induce another to part
with
property
or
to
surrender
legal
right,
and
which
Stanley v. Sewell Coal Co., 285
accomplishes the end designed.”
S.E.2d 679, 683 (W. Va. 1981).
some
Brozik attempts to argue that SAFE
cannot prove actual fraud because there is no evidence that the
defendants caused SAFE to “part with property or surrender a legal
right.”
Brozik asserts that whether the sale was postponed, or
not, did not change SAFE’s legal right to the court-ordered sale or
SAFE’s ability to seek relief from the Court after it became
concerned about the parties’ agreement to negotiate a settlement.
This Court finds Brozik’s argument unpersuasive.
SAFE is
arguing that the alleged fraudulent conduct regarding the possible
settlement negotiations caused SAFE to lose its right to the courtordered sale.
This Court finds that SAFE has alleged sufficient
facts to establish such a claim.
Brozik’s attempt to again imply
that SAFE’s failure to seek relief from the Court after SAFE became
aware that Secure US would not longer participate in settlement
negotiations, is unavailing.
Brozik is essentially attempting to
make the argument that he twice made in his previous motions to
dismiss. In the motions to dismiss, Brozik argued that SAFE waived
12
its right to assert a fraud claim by not seeking relief from this
Court prior to the sale being conducted by Parmer; thus, asserting
that no legal right was actually given up.
Rather than explaining
for the third time why such argument is without merit, this Court
feels that it is sufficient to direct the parties to this Court’s
orders concerning Brozik’s motions to dismiss, wherein this Court
twice discussed Brozik’s waiver argument. See ECF Nos. 84 and 127.
Brozik’s final argument as to why SAFE’s fraud claim fails is
that SAFE admits that the only damages it suffered based on the
alleged fraud are attorneys’ fees.
Brozik asserts that attorneys’
fees alone cannot satisfy the damages element of a fraud claim.
First, this Court notes that after reviewing the record in this
case, SAFE did not admit that the only damages it suffered were
attorneys’ fees. Second, this Court notes that Brozik has made the
argument concerning the lack of damages twice before in both of his
motions to dismiss.
This Court finds that Brozik has not brought
any new information or case law to this Court’s attention that
would alter this Court’s previous findings.
This Court stated the
following concerning Brozik’s damages argument in its order on
Brozik’s second motion to dismiss:
Even if this Court were to now accept defendant Brozik’s
argument that attorneys’ fees are not sufficient to
establish damages in an action for fraud, West Virginia
has held that a plaintiff’s measure of damages in an
action for fraud “would be any injury incurred as a
result of the defendant’s fraudulent conduct.” Persinger
v. Peabody Coal Co., 474 S.E.2d 887, 899 (W. Va. 1996).
Such damages include those for “full compensation for all
13
injuries directly or indirectly resulting from the wrong”
and punitive or exemplary damages. Id. “Damages for
annoyance and inconvenience are properly included in
compensatory damages.” Id. at 899 n.18.
In paragraph 96 of SAFE’s second amended complaint, SAFE
asserts that it
has suffered significant damages, including (but not
limited to) the fact that SAFE: (a) lost its rights to
conduct its Court ordered judgment lien sale, (b) has
been forced to file this lawsuit and incur attorney’s
fees . . . and (c) had its prior lawsuit was [sic]
dismissed due to Secure US’ [sic] claim that SAFE’s
judgment lien was extinguished.
ECF No. 86 *17.
Thus, SAFE is seeking compensatory damages in
addition to attorneys’ fees for the loss of its right to conduct
the sale, which was an injury directly or indirectly resulting from
the alleged fraud, and for the dismissal of its prior lawsuit,
which again is either a direct or indirect injury resulting from
the alleged fraud. ECF No. 127 *14-15. Brozik argues that because
Parmer purchased Secure US’s assets for more than what they were
valued at, SAFE cannot show that it incurred any damages as a
result of the loss of its right to conduct the sale.
This Court
finds that there is a genuine issue of material fact as to what the
loss of this right was worth, as the sale is alleged to be part of
the fraudulent scheme.
Thus, if a jury finds that the sale was not
properly conducted and part of a fraudulent scheme, it will be up
to the jury to determine what the worth of the assets was at the
time of the sale and if the loss of the right to conduct the sale
caused SAFE to incur any damages.
14
2.
Conspiracy Claim
A civil conspiracy, under West Virginia law, is
a combination of two or more persons by concerted action
to accomplish an unlawful purpose or to accomplish some
purpose, not in itself unlawful, by unlawful means. The
cause of action is not created by the conspiracy but by
the wrongful acts done by the defendants to the injury of
the plaintiff.
Dixon v. Am. Indus. Leasing Co., 253 S.E.2d 150, 152 (W. Va. 1979).
“The elements of a civil conspiracy claim are met therefore when it
is proven that (1) two or more people who are named as defendants
(2) agreed to commit overt tortious act(s) for a common purpose (3)
committed
the
overt
Plaintiff harm.”
tortious
act(s)
(4)
proximately
causing
Marfolk Coal Co., Inc. v. Smith, 274 F.R.D. 193,
197 n.4 (S.D. W. Va. 2011).
Brozik initially argues that SAFE’s conspiracy claim fails
because there is a lack of evidence that Parmer participated in the
conspiracy and that without Parmer, SAFE’s conspiracy claim must
fail.
In support of this argument, Brozik cites portions of
Parmer’s deposition indicating that Parmer was unaware of any
judgment obtained by SAFE, unaware that she had even purchased
Secure
US’s
assets,
and
unaware
of
the
secured
party
sale.
Further, Brozik argues that the fact that Parmer provided financial
support to Brozik is not a basis for conspiracy.
In response to
such argument, SAFE asserts that Parmer was a co-conspirator even
though she may not have fully understood all aspects of the
conspiracy.
SAFE argues that evidence exists to show that Parmer
15
was aware of the general goal of the conspiracy and that is
sufficient.
Specifically, SAFE cites Brozik’s deposition, wherein
he states that he told Parmer about his need for her to purchase
the notes from the Trust and thereafter foreclose on the notes.
After reviewing the depositions of both Parmer and Brozik,
this Court finds that the depositions taken together create a
genuine issue of material fact as to whether Parmer did in fact
engage in the conspiracy.
See ECF Nos. 105 Ex. B and 102 Ex. A.
While Parmer attempts to claim she was unaware of the sale and even
unaware that she was purchasing the notes from the Trust, Brozik
states the exact opposite.
Brozik stated that he explained to
Parmer that she was going to purchase the notes and actually
foreclose on those notes as well.
See ECF No. 102 Ex. A *18.
Further, Brozik states that he explained to her that she would also
be the purchaser at the foreclosure sale.
Id.
Such contradictory
evidence produces a genuine issue of material fact that must be
presented to the finder of fact and cannot be resolved on summary
judgment.
Further, this Court finds that Parmer’s financial support can
in fact be considered evidence of a conspiracy and, thus, finds
Brozik’s argument to the contrary to be without merit.
See United
States v. Vest, 842 F.2d 1319, 1327 (1st Cir. 1988) (finding that
evidence of payments are probative to the existence of whether the
defendant was a member of the conspiracy); see also United States
16
v. Mills, 995 F.2d 480, 485 n.1 (4th Cir. 1993) (“[E]vidence of a
buy-sell transaction is at least relevant (i.e. probative) on the
issue
of
whether
a
conspiratorial
relationship
exists.”).
Accordingly, because this Court finds that there is a genuine issue
of fact as to whether Parmer was a member of the conspiracy, this
Court need not address Brozik’s argument that a conspiracy cannot
exist only between Brozik and Secure US.
Brozik’s last argument as to why he believes SAFE’s conspiracy
claim cannot go forward is that because SAFE did not name Parmer in
the fraud claim, Parmer cannot be liable for the conspiracy.
Brozik asserts that if one is not liable for the underlying tort,
he or she cannot be liable for the conspiracy to commit the tort.
Thus, Brozik asserts that because he and Secure US cannot conspire
with one another and Parmer cannot be considered part of the
conspiracy, the conspiracy claim fails.
In response, SAFE asserts
that it did not include Parmer in its claim for fraud because
Parmer did not make the misrepresentations to SAFE.
SAFE argues,
however, that Parmer was a party to the overall fraudulent scheme
and as such may be considered part of the conspiracy.
It is true that to state a claim for civil conspiracy to
defraud, the elements of fraud must be proven, as “the plaintiff
must
prove
that
the
defendants
have
actually
committed
some
wrongful act” for a conspiracy claim to be actionable.
Roney v.
Gencorp, 431 F. Supp. 2d 622, 637 (S.D. W. Va. 2006).
Liability
17
for the underlying tort, however, may be imposed on defendants
through a conspiracy claim “who did not actually commit a tort
themselves but who shared a common plan for its commission with the
actual perpetrator(s).”
Dunn v. Rockwell, 686 S.E.2d 255, 269 (W.
Va. 2009) (citations omitted).
Accordingly, while a defendant may
not have committed the fraud himself or herself, the person may
still be liable for conspiracy to commit fraud if he or she shared
a common plan for its commission with the actual perpetrators of
the fraud.
fraud
As such, SAFE need not name Parmer in the underlying
claim
to
assert
that
she
is
liable
for
a
conspiracy.
Instead, a jury may find Parmer liable on the conspiracy, without
finding her liable of the underlying fraud, if she shared a common
plan with the other defendants for the commission of the fraud.
Thus, Brozik’s argument that Parmer cannot be liable for conspiracy
absent SAFE naming her in the fraud claim is without merit and
Brozik’s motion for summary judgment must be denied.
B.
SAFE’s Motion for Summary Judgment
SAFE seeks an order from this Court granting summary judgment
in its favor on all claims.
Accordingly, this Court will address
each of SAFE’s four claims separately.
1.
Count I: Declaratory Judgment
SAFE initially seeks summary judgment as to its claim for
declaratory judgment.
Court
to
make
a
SAFE’s declaratory judgment claim asks this
finding
that
18
SAFE’s
judgment
lien
was
not
extinguished by the secured party sale.
Under West Virginia law,
“[e]very aspect of a disposition of collateral, including the
method, manner, time, place and other terms, must be commercially
reasonable.”
W. Va. Code § 46-9-610(b).
If the disposition is
“commercially reasonable, a secured party may dispose of collateral
by public or private proceedings . . . and at any time and place
and on any terms.”
party’s
actions,
Id.
if
In addition, regardless of the secured
the
transferee
at
the
secured
party’s
disposition does not act in good faith, it “takes the collateral
subject to . . . any other security interest or other lien.”
Va. Code § 46-9-617.
W.
Because Parmer is both the secured party who
conducted the sale and the eventual transferee of the collateral of
Secure US, she must have conducted the sale in a commercially
reasonable way as the secured party and acted in good faith as the
transferee.
In SAFE’s motion for summary judgment, SAFE asserts that
Parmer did not act in good faith, as she was attempting to assist
Secure US in avoiding SAFE’s judgment lien.
Parmer responded in
opposition to this argument, asserting that she did not have
knowledge of the sale, and only thought she was providing a loan to
Brozik.
that
Secure US and Brozik respond in opposition, by asserting
there
is
a
genuine
commercial reasonableness.
issue
of
material
fact
concerning
Thus, they assert that the issue must
be presented to the jury for a determination.
19
SAFE, however, is
not arguing in its summary judgment motion that the sale was
commercially unreasonable.
Parmer’s good faith.
Instead, SAFE’s motion focuses on
In order for a secured party, acting as a
transferee, to take the property free of other liens on the
property, the transferee must do so in good faith.
§ 46-9-617.
W. Va. Code
Nonetheless, this Court finds that there is a genuine
issue of material fact as to whether or not Parmer was acting in
good faith.
West Virginia Code § 46–1–201(20) defines “good faith” as
“honesty in fact and the observance of reasonable commercial
standards of fair dealing.”
Parmer testified at her deposition
that she believed she was only making a loan to Brozik and that she
did not know about the sale.
See ECF No. 105 Ex. B.
While
conflicting testimony exists from Brozik, it is up to the jury to
determine whether or not Parmer acted in good faith, and whether
her lack of knowledge constitutes good faith.
This Court notes
that as support for its argument that Parmer is not a good faith
purchaser, SAFE cites various cases wherein courts found bad faith
on the part of the purchaser or transferee.
This Court finds that
such cases are distinguishable, as it does not appear that the
purchasers or transferees in those actions were claiming to be
unaware that they owned the assets subject to the sale or that they
were unaware of the sale itself, which is the claim by Parmer in
this case. See ECF No. 102 *13-18 (SAFE’s memorandum in support of
20
its motion for summary judgment citing various cases in support of
its good faith argument).
Accordingly, this Court cannot grant
summary judgment in SAFE’s favor as to the declaratory judgment
claim.
2.
Count 2: Successor Liability
SAFE next argues that Parmer is liable to SAFE for the
judgment lien as a successor to Secure US.
determined based on state law.
Successor liability is
See Fuisz v. Lynch, 147 F. App’x
319, 321 (4th Cir. 2005) (applying Virginia law on successor
liability).
under
the
“In West Virginia, successor liability is analyzed
law
incorporation”.”
of
the
transferee
corporation’s
state
of
Carter Enterprises, Inc. v. Ashland Specialty
Co., Inc., 257 B.R. 797, 802 (S.D. W. Va.) (citations omitted).
Based on the representations made to this Court, this Court has no
reason to believe that the resulting entity is not operating as a
West Virginia entity.
Under West Virginia law, “[a] successor
corporation can be liable for the debts and obligations of a
predecessor
corporation
if
there
was
an
express
or
implied
assumption of liability, if the transaction was fraudulent, or if
some element of the transaction was not made in good faith.”
Syl.
pt. 3, Davis v. Celotex Corp., 420 S.E.2d 557 (W. Va. 1992).
Further, a successor corporation may be liable also if “the
successor corporation is a mere continuation or reincarnation of
its predecessor.” Id.
These are exceptions to the common law rule
21
that held “the purchaser of all the assets of a corporation was not
liable for the debts or liabilities of the corporation purchased.”
Id. at syl. pt. 2.
SAFE first argues that Parmer is liable as a successor because
Parmer, through the use of MB Security, operates the assets as a
mere continuation of Secure US.
In support of this argument, SAFE
asserts that the business is still run by the same employees using
the same offices, equipment, telephone numbers, email addresses,
and Internet website.
Further, SAFE argues that the business is
still known as Secure US.
Based on the case law of West Virginia,
however, “the principle consideration in determining whether one
corporation is mere continuation or reincarnation of the other is
whether only one corporation exists after completion of a transfer
of assets and whether there is a common identity of directors and
stockholders.”
Jordan v. Ravenswood Aluminum Corp., 455 S.E.2d
561, 564 (W. Va. 1995).
SAFE asserts that the United States Court
of Appeals for the Fourth Circuit does not follow this strict
theory of continuity of ownership that requires a common identity
of directors and stockholder. Such an assertion, however, does not
aid its argument, as this Court must apply West Virginia law.
The
Fourth Circuit decisions cited by SAFE in support of their argument
for a less strict theory of successor liability do not apply West
Virginia law, but instead apply the law of other states within the
circuit or the law pursuant to a federal statute.
22
See Kaiser
Foundation Health Plan of Mid-Atlantic States v. Clary & Moore,
P.C., 123 F.3d 201 (4th Cir. 1997) (applying Virginia law on
successor liability); United States v. Carolina Transformer Co.,
978 F.2d 832 (4th Cir. 1992) (applying the law of successor
liability
under
the
Comprehensive
Environmental
Response,
Compensation, and Liability Act, 42 U.S.C. § 9601, et seq.).
In
applying the case law from the West Virginia, this Court finds that
Parmer cannot be held liable based on West Virginia’s continuation
theory of successor liability.
Parmer was not a director, nor was
she a shareholder of the previous corporation.
SAFE next argues that because the transfer was fraudulent,
Parmer is liable as a successor.
As this Court has indicated
above, however, there is conflicting evidence as to whether Parmer
was
a
participant
in
the
alleged
fraudulent
scheme.
The
depositions of Brozik and Parmer taken together create a genuine
issue of material fact as to whether Parmer did in fact engage in
the conspiracy.
See ECF Nos. 105 Ex. B and 102 Ex. A.
While
Parmer claims to be unaware she was purchasing the notes from the
Trust, Brozik states the exact opposite.
Brozik stated that he
explained to Parmer that she was going to purchase the notes and
actually foreclose on those notes as well.
*18.
See ECF No. 102 Ex. A
Parmer states that she thought she was only making a loan to
Brozik.
See ECF No. 105 Ex. B *5.
Accordingly, whether or not
Parmer participated in the alleged fraudulent scheme is a question
23
for the jury.
Thus, this Court cannot impose successor liability
based on the alleged fraud perpetrated by Parmer.
3.
Count 3: Fraudulent Scheme
SAFE asserts that this Court should grant summary judgment as
to SAFE’s claim for fraud against Brozik and Secure US.
As stated
above, under West Virginia law, the essential elements of fraud are
as follows:
(1) that the act claimed to be fraudulent was the act of
the defendant or induced by him; (2) that it was material
and false; that plaintiff relied upon it and was
justified under the circumstances in relying upon it; and
(3) that he was damaged because he relied upon it.
Poling v. Pre-Paid Legal Servs., Inc., 575 S.E.2d 199, 202 (W. Va.
2002) (quoting Horton v. Tyree, 139 S.E. 737, 738 (W. Va. 1927)).
SAFE asserts that it relied on the Secure US’s alleged fraudulent
representations concerning the settlement negotiations and Brozik
was involved in making such representations.
SAFE asserts that
such representations deprived them of their right to the courtordered sale and caused them to file this instant action seeking a
declaratory judgment that its judgment lien was not extinguished by
the sale to Parmer.
This Court, however, finds that the record establishes a
genuine issue of material fact concerning whether or not Brozik and
Secure US’s actions were fraudulent.
Brozik asserts that the
postponement of the sale was done without fraudulent intent.
Instead, he believed that the attorneys would settle on the terms
24
that he thought SAFE had previously agreed to.
A *15.
See ECF No. 102 Ex.
Secure US also asserts that the parties had reached a
settlement and the postponement was meant to work out the details
of the settlement. SAFE asserts that the representations of Brozik
and Secure US in seeking the postponement of the sale were not to
engage in further settlement discussions, but to make plans for
Parmer to purchase Secure US’s assets.
Such conflicting arguments
must be presented to the jury for their determination and cannot be
decided on summary judgment.
4.
Count IV: Conspiracy
Lastly, SAFE argues that this Court should grant summary
judgment in its favor as to SAFE’s claim for conspiracy.
to
prove
an
actionable
claim
for
conspiracy,
In order
however,
“the
plaintiff must prove that the defendants have actually committed
some wrongful act.”
Roney, 431 F. Supp. 2d at 637.
act at issue is the alleged fraud.
The wrongful
As this Court has found that
the fraud claim must be presented to a jury for determination, this
Court cannot grant summary judgment as to the conspiracy to commit
fraud claim.
V.
For
the
reasons
Conclusion
stated
above,
Security
Alarm
Financing
Enterprises, Inc.’s motion for summary judgment (ECF No. 101) is
hereby DENIED, Mitch Brozik’s motion for summary judgment as to
fraud and conspiracy (ECF No. 104) is hereby DENIED, and Security
25
Alarm Financing Enterprises, Inc.’s motion to strike memorandum of
Secure US, Inc. purporting to join in Mitch Brozik’s motion for
summary judgment (ECF No. 118) is hereby DENIED.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:
April 14, 2014
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
26
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