Loucks v. Smith (In re Smith)

537 B.R. 1
CourtUnited States Bankruptcy Court, M.D. Alabama
DecidedAugust 27, 2015
DocketCase No. 14-32910-WRS; Adv. Pro. No. 15-3031-WRS
StatusPublished
Cited by13 cases

This text of 537 B.R. 1 (Loucks v. Smith (In re Smith)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Loucks v. Smith (In re Smith), 537 B.R. 1 (Ala. 2015).

Opinion

MEMORANDUM OPINION

William R. Sawyer, Chief United States Bankruptcy Judge

This adversary proceeding is before the Court on Defendant Rory Smith’s motion to dismiss the complaint of Plaintiffs Valerie Loucks and Amanda Woodham. (Doc. 6). The Defendant is the debtor in the underlying Chapter 7 bankruptcy. The Plaintiffs seek a determination that their claims against the Defendant are non-dis-chargeable under 11 U.S.C. § 523(a)(6). For the reasons set forth below, the Defendant’s motion is GRANTED and this case is DISMISSED with prejudice.

I. FACTS & PROCEDURAL HISTORY

As this case is before the Court on a motion to dismiss, the Court takes all facts pled in the complaint to be true.

A. The Parties

Rory Smith (“Smith”), the defendant in this case and the debtor in the underlying bankruptcy case, owned or controlled several entities formed for the purpose of operating a chain of Shoney’s restaurants throughout the Southeast. These entities were Sunrise USA, Inc. (“Sunrise”), Restaurant Help, Inc. (“RHI”), Service Solutions, Inc. (“SSI”), and Shorest, LLC (“Shorest”). Of particular importance to this litigation, Shorest and RHI operated a Shoney’s restaurant in Clanton, Aabama.

Plaintiffs Valerie Loucks and Amanda Woodham (collectively, “Plaintiffs”) were employees of the Shoney’s located in Clan-ton. According to the complaint, certain managers and co-workers of the Plaintiffs “frequently touched Woodham’s back, neck, and shoulders in a sexual manner ... that Woodham did not welcome or invite[,] ... repeatedly harassed Woodham because of her gender, ... frequently touched and hugged Woodham while making sexual comments about each of their bodies[,] ... [and] touched Woodham on her side, shoulder and buttocks[.]” (Doc. 1, ¶ 24). These same managers and coworkers subjected Loucks to similar conduct.1 (Doc. 1, ¶ 26). As a result of the [7]*7conduct from these people, the Plaintiffs “were subjected to an ongoing sexually hostile work environment with harassment in the form of unlawful touching, sexually inappropriate language, requests for sexual favors, and inappropriate sexual comments that demeaned, ridiculed and embarrassed Plaintiffs, all because of their gender.” (Doc. 1, ¶ 28).

The complaint also alleges that “the workplace was sexually hostile to all female employees, ... there was no sexual harassment policy or reporting procedure for female employees, and ... the employees were not trained on sexual harassment issues.... [T]he lack of policy and training at [Smithj’s companies fostered and encouraged this sexually. hostile environment. Plaintiffs complained of the sexual harassment to management personnel and to [Smith], to no avail.” (Doc. 1, ¶ 28).

The complaint does not allege that Smith engaged in this conduct himself, but it does allege he was aware of it and took no action to stop it. The Plaintiffs filed claims of gender discrimination and sexual harassment with the Equal Employment Opportunity Commission (“EEOC”) against certain managers and co-workers in August 2011. The Plaintiffs were subsequently subjected to retaliation and a hostile work environment. The EEOC sent Plaintiffs notices of a “Right to Sue” in January 2012. Woodham ultimately resigned her position, while Loucks was “constructively terminated.”

B. The District Court Litigation

The Plaintiffs sued Shorest and RHI in the District Court for the Middle District of Alabama in April 2012, alleging 7 counts: sexual harassment (quid pro quo and hostile environment), gender discrimination, retaliation, negligent hiring and retention, invasion of' privacy, assault and battery, and intentional infliction of emotional distress. (M.D. Ala. Case No. 12-00304-WHA, Doc. 3). In May 2013, on the eve of trial, Shorest filed Chapter 11 bankruptcy in the Bankruptcy Court for the Middle District of Tennessee; this case was quickly converted to Chapter 7 and Shorest was liquidated. (Bankr.M.D. Tenn. Case No. 13-04097-MFH).

The Plaintiffs resumed their sexual harassment suit against RHI. In October 2013, again on the eve of trial, RHI filed Chapter 7 bankruptcy in the Bankruptcy Court for the Middle District of Tennessee; however, this case was dismissed for the debtor’s failure to appear at a meeting of creditors. (Bankr.M.D. Tenn. Case No. 13-08608-KML). The Plaintiffs reinstated their suit against RHI and, in February 2014, amended their complaint to add Smith, Sunrise, and SSI as defendants. (M.D. Ala. Case No. 12-00304-WHA, Doc. 92).

RHI’s counsel had previously withdrawn from representation, and none of the sexual harassment defendants obtained new counsel or answered the amended complaint. In June 2014, the district court entered default judgment against Smith, Sunrise, RHI, and SSI. (M.D. Ala. Case No. 12-00304-WHA, Doc. 99). The defendants then obtained new counsel and moved to set aside the default. The district court denied the motion and scheduled a hearing to determine damages for November 3, 2014. RHI, SSI, Sunrise, and Smith each filed Chapter 7 bankruptcy in this Court on October 24, 2014. (Case Nos. 14-32907; 14-32908; 14-32909; and 14-32910).

[8]*8C. Adversary Proceeding

On May 4, 2015, the Plaintiffs initiated this adversary proceeding against Smith, seeking a determination that their claims against Smith are non-dischargea-ble because they stem from willful and malicious injury pursuant to 11 U.S.C. .§ 523(a)(6).2 (Doc. 1). Smith moves to dismiss, asserting that this Court lacks subject-matter jurisdiction and that the Plaintiffs have failed to state a claim for which relief can be granted because Smith’s conduct was not “willful.” (Doc. 6). The Plaintiffs respond that § 523(a)(6) does not require the existence of an independent intentional tortious act, and argue that Smith’s obstructionist use of bankruptcy was willful and malicious. (Doc. 10). They also argue that Smith is precluded from challenging the merits of their complaint under the doctrine of collateral estoppel. (Doc. 10). Smith responds that filing bankruptcy is not willful and malicious, and that collateral estoppel should not apply because the issues were not actually litigated in district court. (Doc. 11).

II. LAW

The issues are (1) whether this Court is barred by the district court’s entry of default judgment and the doctrine of collateral estoppel from considering the merits of Smith’s motion to dismiss, and (2) whether a claim for willful and malicious injury can be based on a debtor’s vicarious liability for sexual harassment. First, the Court will consider its jurisdiction and adjudicatory power. Second, the Court will discuss the standard of review for a motion to dismiss. Third, the Court will address the Plaintiffs’ collateral estoppel argument. Fourth, the Court will consider the merits of Smith’s motion to dismiss.

A. Jurisdiction and Adjudicatory Power

Rule 12(b)(1) of the Federal Rules of Civil Procedure, as incorporated by FED. R. BANKR. P. 7012(b), requires this Court to dismiss cases in which it lacks subject-matter jurisdiction. Though Smith asserts Rule 12(b)(1) as a basis for dismissal, he does not provide any legal or factual support for his assertion.

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Cite This Page — Counsel Stack

Bluebook (online)
537 B.R. 1, Counsel Stack Legal Research, https://law.counselstack.com/opinion/loucks-v-smith-in-re-smith-almb-2015.