Allen v. Drake (In re Drake)
Allen v. Drake (In re Drake)
Opinion of the Court
This matter is before the Court on the motion for Summary Judgment (the "Motion") filed by Plaintiff Terry Allen ("Allen" or "Plaintiff") pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. This adversary proceeding was commenced when Allen filed a complaint (the "Complaint") against the debtor, Richard W. Drake ("Drake" or the "Debtor"), requesting a determination that the judgment Allen obtained against Drake in the Second Judicial District Court of the State of Nevada (the "District Court") is nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code,
Background
The state court litigation that preceded Drake's bankruptcy filing concerned Hotel Contracting Services, Inc. ("HCS"), a business in which Drake, Allen and others were all, at one time, shareholders, officers and directors. The debt that Allen seeks to be held nondischargeable arose from a suit filed by Drake in the Second Judicial District Court of the State of Nevada
*884Allen moved to dismiss the Nevada Action
On appeal, the Nevada Supreme Court affirmed the dismissal of the Nevada Action and found that certain of Drake's asserted causes of action violated Nevada's anti-SLAPP statute. It held that the District Court should have granted Allen's anti-SLAPP motion and entered an order remanding the case to the District Court to consider Allen's request for attorney's fees (the " Remand Order").
On January 25, 2017, Drake filed a Chapter 7 bankruptcy case (Case No. 17-10253-(KHK) ) in this Court. Allen timely filed the Complaint on February 15, 2017, Drake filed his answer on March 10, 2017, and Allen filed the Motion to dismiss the Complaint on June 15, 2017. The Debtor responded to the Motion, and the parties have submitted memoranda. The Court heard oral argument on the Motion on September 18, 2017, after which it took the matter under advisement.
The Undisputed Facts
Rule 56(a) of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 56(a),
Allen maintains that the facts compelling the Court to rule that his claim is nondischargeable pursuant to § 523(a)(6) are established by the six exhibits attached to the memorandum accompanying the Motion (the "Memorandum"). These exhibits include the Remand Order and the Judgment Order, proof of domestication of the Judgment Order in Virginia, pleadings from the Nevada Action, and the Debtor's response to Allen's interrogatories.
*885In his response to the Motion, the Debtor challenges Allen's exhibits on evidentiary and procedural grounds, asserting that the exhibits are not properly authenticated, include hearsay, and cannot be considered because they were not attached to the Complaint or identified in the Plaintiff's Rule 7026 disclosures.
Notably, the Debtor does not contend that the documents are not what they purport to be, contain any inaccuracies or omissions, or are unable to be presented in a form that would be admissible in evidence.
The evidence in the record, submitted in accordance with Rule 56(c) and considered in the light most favorable to the Debtor (the non-moving party), establishes the following. On October 13, 2015, the District Court entered the Judgment Order. The Judgment Order references and is based upon the Remand Order, which held that the Debtor violated the Nevada anti-SLAPP law, a statute designed to prevent meritless lawsuits instituted to prevent the exercise of First Amendment rights.
On remand, the District Court entered the Judgment Order, awarding Allen $45,841.00 in attorneys' fees, $753.52 in costs, $3,138.77 in additional costs and $1,676.60 pursuant to
First, Plaintiff's Opposition was untimely and thus may be construed as a consent to the motion....
Second, Plaintiff's attempt to amend his Complaint to add a claim for breach of contract is improperly pled ....
Third, Plaintiff's additional request to amend his Complaint for breach of contract is improperly pled ....
Fourth, Defendant's request for fees and costs pursuant to NRS 41.670 is reasonable in light of the decision by the Supreme Court's decision [sic] granting Defendant's anti-SLAPP motions as to Plaintiff's first, second, fourth, fifth, and sixth causes of action.
The Judgment Order has become final.
Conclusions of Law
Allen argues that the Debtor is collaterally estopped from relitigating issues decided by the Nevada courts. He maintains that the factual issues already decided in the Nevada Action include the elements necessary for this Court to find that the claim encompassed in the Judgment Order is nondischargeable under § 523(a)(6).
Section 523(a)(6) of the Bankruptcy Code excludes from discharge under § 727
Carrying the burden of establishing that a debtor's actions were willful and malicious can be challenging. In Singh v. Sohail (In re Sohail) , Adv. No. 08-03059-KRH,
The Fourth Circuit has held that "[s]tate court judgments can collaterally estop the litigation of issues in adversary proceedings in federal bankruptcy court." In re Duncan ,
When considering whether collateral estoppel should be applied, the Court must look to the law of the state where the judgment was entered.
Under Nevada law, a party seeking to invoke collateral estoppel must prove the following four elements: (1) the factual or legal issue decided in the prior litigation must be identical to the presented in the current case; (2) the prior ruling must have been on the merits and become final; (3) the party against whom the judgment is asserted must be a party or in privity with a party to the prior case; and, (4) the issue was actually and necessarily litigated. Five Star Capital Corp. v. Ruby ,
Nevada courts have held that summary judgment is appropriate when the claim is barred by issue preclusion.
Here, the Judgment Order and the Remand Order are final on the merits, and the parties in dispute are the same as in the prior litigation. What is left to be resolved is whether the issues previously decided were actually litigated and are identical to the issues that must now be decided. More specifically, in order to apply collateral estoppel, this Court must find that the parties actually litigated the issues and that the Nevada courts determined that the Debtor caused an injury to Allen by acting willfully and maliciously.
The thrust of Allen's argument is that the Nevada Supreme Court's finding that his anti-SLAPP motion should have been granted is sufficient to establish the elements of § 523(a)(6). Allen urges this Court to interpret the Nevada Supreme Court's ruling as a finding that the Debtor's suit was meritless, was filed solely to increase his litigation costs, and was therefore willful and malicious. This contention is apparently based solely on the Nevada Supreme Court's comment in John v. Douglas County School District that "[t]he hallmark of a SLAPP lawsuit is that it is filed to obtain a financial advantage over one's adversary by increasing litigation costs until the adversary's case is weakened or abandoned."
Allen has cited no instance in which a court has applied § 523(a)(6) to deny the discharge of a debt arising as a result of a creditor's successful anti-SLAPP motion. Although circumstances may exist in which such a debt may be excepted from discharge, it does not necessarily follow that any successful anti-SLAPP motion proves that the underlying litigation was filed vexatiously and with the actual intent to cause an injury to the other party. Therefore, the Court is unwilling to adopt a per se rule that a claim for damages awarded in connection with any anti-SLAPP motion is nondischargeable pursuant to § 523(a)(6).
In this case, Allen has not established by a preponderance of the evidence that that the parties litigated and the state courts determined that the Debtor's actions were willful and malicious. Even if the Court were to find that the Debtor injured Allen, collateral estoppel does not bar the Debtor from litigating the dischargeability of Allen's claim.
Although its anti-SLAPP statute may have been intended by the Nevada legislature to discourage lawsuits that "abuse the judicial process by chilling, intimidating, and punishing individuals for *890their involvement in public affairs," and to protect citizens' and public officials' "ability to openly engage in discussions of public concern," John v. Douglas County School Dist. ,
Likewise, the Judgment Order includes no findings of willfulness and maliciousness on the part of the Debtor. Its award of damages to Allen is based solely on the Debtor's procedural omissions and the Nevada Supreme Court's decision to grant the anti-SLAPP motion.
The exhibits submitted by Allen in connection with the Motion fall short of establishing that the Debtor's Nevada lawsuit was dismissed because the Debtor acted with substantial certainty that Allen would be harmed or that the Debtor possessed a subjective motive to cause harm. Additionally, Allen has not shown that the Nevada courts made a finding that the Debtor's lawsuit was pursued with a knowing disregard for Allen's rights. The Nevada Supreme Court's decision was accompanied only by the finding that the Debtor's claims against Allen lacked a probability of success because they challenged Allen's attempt to dissolve HCS, relief that Allen was entitled to pursue under Nevada law. Remand Order at 4. The decisions of the state courts do not include the legal and factual findings necessary to establish the elements required to successfully prevail on an objection to discharge under § 523(a)(6) and, therefore, the Court finds that the Debtor is not collaterally estopped *891from litigating these issues in this adversary proceeding.
For these reasons, the Motion has been denied and a separate order has been issued.
Drake v. Burns , Case No. CV13-00975 (2d Judicial Dist. Ct. Nev. Washoe Cty. 2015).
The allegations of the Complaint were based upon both the HCS Defendants' acts relative to HCS and an earlier lawsuit the HCS Defendants had filed seeking relief against other directors for allegedly improper acts.
The Burns defendants were not served and were later dismissed from the suit.
Drake v. Allen , Nos. 64854 and 65602,
Made applicable pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure.
Bankruptcy Rule 7026 makes Rules 26 of the Federal Rules of Civil Procedure applicable in adversary proceedings. Rule 26(a) sets forth a party's duty to make certain pretrial disclosures.
In fact, Debtor's counsel candidly admitted at oral argument that he has no basis to contend that any of the exhibits is not an accurate copy of what it purports to be.
See Humphreys & Partners Architects, L.P. v. Lessard Design, Inc. ,
The Debtor did not object to the Plaintiff's initial Rule 26 disclosure or to the Corrected Exhibit Praecipe filed by the Plaintiff to add the exhibits inadvertently omitted from the Complaint.
See
1. If an action is brought against a person based upon a good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern:
(a) The person against whom the action is brought may file a special motion to dismiss; and
(b) The Attorney General or the chief legal officer or attorney of a political subdivision of this State may defend or otherwise support the person against whom the action is brought. If the Attorney General or the chief legal officer or attorney of a political subdivision has a conflict of interest in, or is otherwise disqualified from, defending or otherwise supporting the person, the Attorney General or the chief legal officer or attorney of a political subdivision may employ special counsel to defend or otherwise support the person.
2. A special motion to dismiss must be filed within 60 days after service of the complaint, which period may be extended by the court for good cause shown.
3. If a special motion to dismiss is filed pursuant to subsection 2, the court shall:
(a) Determine whether the moving party has established, by a preponderance of the evidence, that the claim is based upon a good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern;
(b) If the court determines that the moving party has met the burden pursuant to paragraph (a), determine whether the plaintiff has demonstrated with prima facie evidence a probability of prevailing on the claim;
(c) If the court determines that the plaintiff has established a probability of prevailing on the claim pursuant to paragraph (b), ensure that such determination will not:
(1) Be admitted into evidence at any later stage of the underlying action or subsequent proceeding; or
(2) Affect the burden of proof that is applied in the underlying action or subsequent proceeding;
(d) Consider such evidence, written or oral, by witnesses or affidavits, as may be material in making a determination pursuant to paragraphs (a) and (b);
(e) Except as otherwise provided in subsection 4, stay discovery pending:
(1) A ruling by the court on the motion; and
(2) The disposition of any appeal from the ruling on the motion; and
(f) Rule on the motion within 20 judicial days after the motion is served upon the plaintiff.
4. Upon a showing by a party that information necessary to meet or oppose the burden pursuant to paragraph (b) of subsection 3 is in the possession of another party or a third party and is not reasonably available without discovery, the court shall allow limited discovery for the purpose of ascertaining such information.
5. If the court dismisses the action pursuant to a special motion to dismiss filed pursuant to subsection 2, the dismissal operates as an adjudication upon the merits.
6. The court shall modify any deadlines pursuant to this section or any other deadlines relating to a complaint filed pursuant to this section if such modification would serve the interests of justice.
7. As used in this section:
(a) "Complaint" means any action brought against a person based upon a good faith communication in furtherance of the right to petition or the right to free speech in direct connection with an issue of public concern, including, without limitation, a counterclaim or cross-claim.
(b) "Plaintiff" means any person asserting a claim, including, without limitation, a counterclaim or cross-claim.
"These claims also lack a probability of success on the merits because they are based on Allen's alleged ulterior motive to dissolve HCS. In this regard, assuming that Allen desired to dissolve HCS, persons holding ten percent or more of the outstanding stock in a corporation may seek judicial dissolution of the corporation under NRS 78.650, and thus, seeking such dissolution is not an act that would subject them to liability." Remand Order at 4.
1. If the court grants a special motion to dismiss filed pursuant to NRS § 41.660 :
(a) The court shall award reasonable costs and attorney's fees to the person against whom the action was brought, except that the court shall award reasonable costs and attorney's fees to this State or to the appropriate political subdivision of this State if the Attorney General, the chief legal officer or attorney of the political subdivision or special counsel provided the defense for the person pursuant to NRS 41.660.
(b) The court may award, in addition to reasonable costs and attorney's fees awarded pursuant to paragraph (a), an amount of up to $10,000.00 to the person against whom the action was brought.
(c) The person against whom the action is brought may bring a separate action to recover:
(1) Compensatory damages;
(2) Punitive damages; and
(3) Attorney's fees and costs of bringing the separate action.
2. If the court denies a special motion to dismiss filed pursuant to NRS 41.660 and finds that the motion was frivolous or vexatious, the court shall award to the prevailing party reasonable costs and attorney's fees incurred in responding to the motion.
3. In addition to reasonable costs and attorney's fees awarded pursuant to subsection 2, the court may award:
(a) An amount of up to $10,000.00; and
(b) Any such additional relief as the court deems proper to punish and deter the filing of frivolous or vexatious motions.
4. If the court denies the special motion to dismiss filed pursuant to NRS 41.660, an interlocutory appeal lies to the Supreme Court.
Section 727 of the Bankruptcy Code,
In Haas v. Trammell (In re Trammell) ,
The Fourth Circuit tacitly acknowledged this as well in Duncan v. Duncan (In re Duncan) ,
"More importantly, the anti-SLAPP statute only protects citizens who petition the government from civil liability arising from good-faith communications to a government agency ."
The Nevada Supreme Court found that the Debtor's claims challenged Allen's attempt to dissolve HCS, something that Allen, as a shareholder, was entitled to seek under Nevada law. While Allen may argue that Drake's suit was an attempt, in part, to prevent him from exercising his right to petition the court for a dissolution of HCS, the Nevada Supreme Court's ruling falls short of finding that Drake's activity was malicious.
The Nevada anti-SLAPP statute does not require the movant to prove maliciousness in order to obtain dismissal of a lawsuit. The Nevada Supreme Court has pointed out that its anti-SLAPP statute was enacted "shortly after California adopted its statute, and both statutes are similar in purpose and language." John v. Douglas County School Dist. ,
California courts have held that in an anti-SLAPP action, a "special motion to strike can be based on any defect in the plaintiff's action. Thus, a special motion may be premised on legal deficiencies inherent in the plaintiff's claim, analogous to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Or, a motion may assume that the plaintiff cannot support that claim with evidence, analogous to a motion for summary judgment under Federal Rule of Civil Procedure 56." Rogers v. Home Shopping Network, Inc. ,
The Judgment Order states that the fees and costs in the amount of $51,409.89 awarded pursuant to N.R.S. 41.670 is "reasonable in light of ... the Supreme Court's decision granting Defendant's anti-SLAPP motions ...." The amount of Allen's claim has been established pursuant to a final order of the state court.
Reference
- Full Case Name
- IN RE: Richard W. DRAKE, Debtor. Terry Allen v. Richard W. Drake
- Status
- Published