CMCO Mortgage, LLC v. Hill (In re Hill)

540 B.R. 331, 2015 Bankr. LEXIS 3733
CourtUnited States Bankruptcy Court, W.D. Kentucky
DecidedNovember 2, 2015
DocketCASE NO. 14-33623; AP NO. 15-3001
StatusPublished
Cited by4 cases

This text of 540 B.R. 331 (CMCO Mortgage, LLC v. Hill (In re Hill)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
CMCO Mortgage, LLC v. Hill (In re Hill), 540 B.R. 331, 2015 Bankr. LEXIS 3733 (Ky. 2015).

Opinion

MEMORANDUM

Alan C. Stout, United States Bankruptcy Judge

This adversary proceeding comes before the Court on the Motion for Summary [333]*333Judgment1 (the “Motion”) filed by Plaintiff CMCO Mortgage, LLC d/b/a Home Lending Source (“HLS”)- The Debtor, Aaron K. Hill (“Hill”), opposes the motion. The Court has considered the Motion, the responses of Hill, the supporting documents submitted by each party, and the comments of counsel given at the hearing held on the Motion, as well as the entire record presented to the Court in this matter. For the following reasons, the Court will grant HLS’ Motion for Summary Judgment.

JURISDICTION

Determinations of dischargeability are core proceedings under 28 U.S.C. § 157(b)(2)(I). The Court has jurisdiction over core proceedings under 28 U.S.C. §§ 1334 and 157(a).

FACTUAL AND PROCEDURAL BACKGROUND

The following facts are not in dispute. HLS was a mortgage company, where Hill worked as an employee. HLS terminated Hill on February 17, 2012, after HLS learned that Hill was taking actions HLS believed were adverse to its interests. In February 2012, HLS filed an action in Jefferson Circuit Court against Hill, and seventeen (17) other defendants. HLS amended its complaint in March 2012. HLS alleged that beginning in 2011, Hill began discussions with Peoples Bank, a direct competitor of HLS. Between November 2011 and February 2012, Hill allegedly engaged in unauthorized and extensive negotiations with Peoples Bank to open an internet division that would directly compete with HLS and while utilizing HLS employees. HLS alleged that in the course of his discussions with Peoples Bank, Hill disclosed HLS’ confidential and proprietary information to Peoples Bank. Furthermore, HLS alleged that Hill sent HLS’ trade secrets to Peoples Bank without HLS’ consent.

HLS alleged numerous claims against Hill, including: 1) Breach of Contract; 2) Breach of Fiduciary Duty; 3) Interference with Actual or Prospective Business Advantage; 4) Unfair Competition, Usurpation of Corporate Business Opportunities; 5) Trade Secret Misappropriation; 6) Conversion; and 7) Unjust Enrichment.

Peoples Bank paid for Hill’s representation, and retained an attorney to represent Hill and the other individual defendants who had been HLS employees. Hill filed an answer, and asserted counterclaims against HLS. In July, 2013, a mediation was held and the claims with the other defendants were settled. The claims against Hill were not settled. After the mediation, Hill’s attorney was apparently told by Peoples Bank that it would no longer pay for the representation of Hill. Nevertheless, that attorney continued to represent Hill gratis for a short period of time, but eventually the attorney withdrew on October 2, 2013, leaving Hill unrepresented.

Hill continued pro se in the state court litigation. On February 11, 2014, the state court entered an order setting the case for a pretrial conference on August 19, 2014 and for a trial to be held on September 22, 2014. After Hill failed to appear at the pretrial conference, on August 20, 2014, the state court entered a default judgment against Hill, as well as a judgment in favor [334]*334of HLS on all claims asserted by Hill (the “Default Judgment”)- The Default Judgment was entered in response to HLS’ motions for sanctions due to Hill’s “repeated and intentional failures to comply with the Court’s Second Jury Trial Order dated February 11, 2014, and his failure to appear at the final pretrial conference.” Exh. C & D to the Complaint.

On September 22, 2014, the state court held a trial to determine HLS’ damages on its complaint. HLS appeared and presented evidence as to its damages, and on October 3, 2014, the state court entered Findings of Fact and Judgment for Plaintiff CMCO Mortgage, LLC, D/B/A Home Lending Source against Hill in the amount of $3,417,477.00, with interest at twelve percent (12%) compounded annually (the “Damages Judgment”). According to the Damages Judgment, Hill was aware of the trial date, but failed to attend or otherwise participate in the trial.

The state court made several relevant findings in the Damages Judgment. At ¶ 6, the state court found that Hill engaged in unauthorized discussion to open an internet division that would be competitive to HLS, using HLS employees. The court found Hill disclosed HLS’ confidential and proprietary information to Peoples Bank. Moreover, Hill emailed the HLS information from his HLS email account to a personal email account before sending the information to Peoples Bank to avoid detection by HLS.

At ¶ 7, the court found Hill sent HLS’ trade secrets to Peoples Bank. These trade secrets had an economic value.

At ¶ 12 of the Damages Judgment, the state court found that Hill’s actions were “willful, intentional, in bad faith, egregious, and done with malice.” The court further determined that Hill’s “actions caused a willful and malicious injury to HLS” and constitute “fraud and defalcation while acting in a fiduciary capacity given his intentional misrepresentations made to conceal his wrongful actions from HLS, and his failure to meet his fiduciary obligations to HLS.” The court also found that “Hill intended the consequences of his actions, namely the destruction of HLS’ internet division. Hill’s actions were done in reckless disregard of HLS’ economic interests and expectancies.”

Although Hill filed a motion to reconsider, the state court denied the motion and neither the Default Judgment nor the Damages Judgment were appealed, vacated, or otherwise modified.

On September 29, 2014, Hill filed a petition for bankruptcy relief-under Chapter 7 of the Bankruptcy Code. On October 29, 2014, HLS filed its timely Proof of Claim for $3,417,477.00. Upon motion by HLS, pursuant to 11 U.S.C. § 362(d), this Court entered an order on June 8, 2015, annulling the automatic stay as it applied to the Damages Judgment issued by the state court on September 22' 2014 and entered on October 3, 2014.

On January 5, 2015, HLS filed this adversary proceeding against Hill, seeking a determination that the debts owed by Hill to HLS are non-dischargeable pursuant to 11 U.S.C. § 523 and seeking to deny Hill’s discharge pursuant to § 727(a). HLS sought to except the debt from discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6). HLS sought to deny Hill’s discharge pursuant to 11 U.S.C. § 727(a)(4)(A).

Hill answered the complaint denying the material allegations.

On July 21, 2015, HLS filed the Motion currently before the Court.

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Bluebook (online)
540 B.R. 331, 2015 Bankr. LEXIS 3733, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cmco-mortgage-llc-v-hill-in-re-hill-kywb-2015.