CHARLES CALDWELL, Bankruptcy JudgePage 2
On May 29, 2008, the Court conducted a hearing to determine whether to receive into evidence exhibits offered by the Sanderson Farms, Inc. ("Plaintiff"), and if not, whether this adversary proceeding should be dismissed. Based upon a review of the record and the statements of counsel, the Court has determined that the exhibits should not be admitted, and that Vincent J. Gasbarro ("Defendant") is entitled to the dismissal of this adversary proceeding on terms and conditions to be determined after the submission of memoranda and further hearing. A brief review will illustrate the bases for this decision.
Approximately three years ago, on August 17, 2005, this adversary proceeding was filed on behalf of the Plaintiff against the Defendant, pursuant to sections 523(a)(2)(A) and (6) of the United States Bankruptcy Code ("Code"). The dispute emanates from the ordering of meat processing products from the Plaintiff by an entity, Midwest Farms, Inc. ("Midwest"), that was controlled by the Defendant's family members. Plaintiff alleges that through a series of transactions, Midwest was rendered insolvent and unable to pay an outstanding balance of $118,214.50. All of these events occurred more than ten years ago, and one critical witness is deceased.
A similar adversary proceeding was commenced against the brother of the Defendant, Roch T. Gasbarro (02-2222). In that adversary, the Court denied a summary judgment motion filed by the Plaintiff, and after trial this Court issued an opinion finding that section 523(a)(6) of the Code is not applicable, and that the Plaintiff failed to sustain its burden of proof regarding its claim under section 523(a)(2)(A) of the Code. That decision is currently on appeal.
A Decision and Judgment Entry on these allegations were issued by the Franklin County, Ohio, Court of Common Pleas in the Plaintiff's favor, on March 6, 2001, and April 27, 2001, respectively. The March 6, 2001, Decision of the Common Pleas Court, however, stated:
This Court is not convinced that any of the Defendants intentionally defrauded the Plaintiff at the time the product was ordered, however, Alio, Rocky and Vincent Gasbarro knew or should have known that Midwest was in serious financial straits at the time of the orders and that payment to the Plaintiff for the product was highly unlikely. Furthermore, it is apparent to this Court that Midwest, through the control of the Gasbarros transferred the proceeds from the wholesale of the products to themselves or to other corporate entities within their control. In addition Midwest corporate assets that could have been used to pay Plaintiff were transferred by various means to other corporate entities dominated by the Gasbarro Family.
March 6, 2001, Decision, Page 3. (emphasis supplied)
Approximately one month later, on April 27, 2001, a Judgment Entry was entered by the Court of Common Pleas awarding to the Plaintiff $118,214.50 in compensatory damages, $118,214.50 in punitive damages, and $49,896.84 in legal fees, and interest. On March 25, 2004, the Ohio Court of Appeals for the Tenth Appellate District affirmed the compensatory damages award, but reversed and remanded with reference to the punitive damages and associated legal fees. The Appellate Decision was premised on the lack of supporting findings of fact at the trial level. Specifically, the Appellate Court focused on inconsistencies in the Ohio Common Pleas Court Opinion as detailed above, and ruled:
. . . (T)he trial court did not explain in its decision why it awarded punitive damages, nor did the court make a specific finding of malice. . . .
(G)iven language in the trial court's decision that it was not convinced that appellants "intentionally defrauded" appellee at the time the product was ordered, as well as the court's failure to indicate a finding of malice or to
elaborate on why it awarded punitive damages, we are reluctant to make the inference that the trial court fully considered the issue of malice before imposing an award for punishment.
Appellate Decision, Paragraph 59. (emphasis supplied).
On remand, according to Counsel for the Plaintiff, the Common Pleas Court did not require the presentation of evidence, but relied upon briefs. It was on this basis that on June 22, 2004, the Common Pleas Court entered an additional Judgment Entry. That Entry, however, does not contain sufficient references to facts that demonstrate intent or malice in order to support the award of punitive damages and associated legal fees. Instead, each paragraph cites a conclusion, without sufficiently identifying the factual foundations. An appeal of the June 22, 2004, Judgment Entry was not taken to test whether it was responsive to the remand instructions of the Court of Appeals.
On August 7, 2007, this Court denied the Plaintiff's Motion for Summary Judgment, that was premised upon the assertion that principles of issue preclusion barred the Defendant from litigating before this Court the dischargeability claim asserted under section 523(a)(6) of the Code. The summary judgment decision was based on the statutory requirement that there be a finding of intent compared to mere negligence, and the corresponding lack of a clear articulation of a factual foundation by the Common Pleas Court. Specifically, this Court was concerned that the use of the language, "knew or should have known," in the original Decision of the Common Pleas Court, served only as a finding of negligence, rather than a finding of the requisite deliberate acts.
In addition, the Defendant's summary judgment affidavit indicates that unlike his brother, he was not actively involved in the management of the business and the financial relationship with the Plaintiff, including payment. This information caused the Court to conclude that additional questions of material fact were raised that had to be resolved at trial regarding the scope of the Defendant's involvement in the business and the financial relationship with the Plaintiff. For all of these reasons, the Court determined that the Plaintiff was not entitled to summary judgment based upon the asserted preclusive impact of the state court proceedings, and that the Plaintiff was required to produce evidence to support its claims.
The Plaintiff's Motion for Leave to Appeal the summary judgment decision was denied by the United States District Court on November 15, 2007, and on this basis the Court scheduled a trial, fully expecting to hear testimony, both on direct and on cross-examination, in addition to the admission of documents. This, however, was not to be.
Inexplicably, the Plaintiff appeared for trial, and the only witness presented to support its fraud and willful and malicious injury claims was the Defendant. Further, despite this Court's determination in the summary judgment decision that the state court proceedings did not have a preclusive impact upon the instant litigation, the Plaintiff sought to introduce on a wholesale basis and without the benefit of direct and cross-examination, a significant portion of the record before the Common Pleas Court. This tactic is nothing more than a second, identical summary judgment motion, subject to the Court's prior ruling. On these bases, the Court has determined that the exhibits should not be admitted, and that the Defendant is entitled to the dismissal of this adversary proceeding pursuant to Rule 41(b) of the Federal Rules of Civil Procedure.
The questions that remain are on what terms should this case be dismissed and whether costs and attorney fees should be assessed against the Plaintiff based upon Rule 54(d)(1) and (2) of the Federal Rules of Civil Procedure. On or before July 31, 2008, the parties shall file and serve memoranda, limited to these questions. A hearing on the memoranda will be conducted on August 29, 2008, at 10:00 a.m. in Courtroom B. 170 North High Street, Columbus, Ohio. The parties and their counsel shall appear.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.