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Groupwell International (Hk) Limited v. Gourmet Express

January 24, 2013

GROUPWELL INTERNATIONAL (HK) LIMITED PLAINTIFF
v.
GOURMET EXPRESS, LLC
DEFENDANT



MEMORANDUM OPINION AND ORDER

This matter is before the Court on Groupwell's Third Motion for Partial Summary Judgment [DN 90]. Also before the Court is Gourmet's Motion for Relief Pursuant to Fed. R. Civ. P. 56(d) [DN 99]. Fully briefed, these matters are ripe for decision. For the following reasons, Groupwell's motion for partial summary judgment is GRANTED and Gourmet's motion for relief is DENIED.

I.BACKGROUND*fn1

This controversy arises out of a dispute between Groupwell, a seller of frozen seafood and vegetables, and Gourmet, a manufacturer of frozen dinners. On September 25, 2009, Groupwell filed suit against Gourmet alleging breach of contract. (Compl. [DN 1].) On February 2, 2010, Groupwell filed an Amended Complaint. (Am. Compl. [DN 14].) On November 8, 2010, Gourmet filed its Second Amended Answer and Counterclaims against Groupwell alleging that Groupwell, along with former Gourmet executives Robert Scully and Kevin Scully, conspired to overcharge Gourmet for products through the use of fraudulent invoices. (Ver. 2d Am. Answer to Am. Compl. & Countercls. [DN 49].) The Scullys would approve the fraudulent invoices and cause Gourmet to pay them. The overcharge that was received by Groupwell was redistributed in the form of a kickback to the Scullys and members of their families. (Id.) The factual basis for Gourmet's Second Amended Answer was largely based on an indictment that was issued against the Scullys in the U.S. District Court for the Western District of Texas on July 7, 2010. (Indictment [DN 44-2].) A superseding indictment was issued against the Scullys on November 17, 2010. (Superseding Indictment [DN 59-6].)

Similar claims were alleged against the Scullys in an earlier lawsuit by Kenneth Sliz. Sliz and the Scullys were part owners of Gourmet in 2007 when the Scullys and Gourmet sued Sliz in Bexar County District Court, Texas. Sliz answered the complaint and counterclaimed, both individually and derivatively on behalf of Gourmet, alleging that the Scullys were part of a self-dealing fraudulent invoice scam involving Siam Star Seafood, N&D International Business Consultants, Ltd., N&DD, and Groupwell International (HK) Limited. (Def.'s Countercl. [DN 55-3].) While the counterclaims discussed these business entities, none of them were ever made a party to the Bexar County lawsuit.

After the Bexar County lawsuit was filed, Gourmet filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Texas in August 2007. At some point, Ilex Capital Group was contacted about potentially purchasing Sliz's interest in Gourmet. Eventually, Ilex agreed to purchase a controlling share of the company. As part of the purchase agreement, the parties to the Bexar County suit agreed to enter a settlement agreement releasing their claims against one another. On January 23, 2008, the bankruptcy court approved Gourmet's Second Amended Disclosure Statement regarding its Plan of Reorganization. (Order Approving 2d Am. Disclosure Statement [DN 90-10].) Two days later, a Settlement Agreement was executed in Bexar County. (Sett. Agr. [DN 55-6].) An Agreed Order of Dismissal was filed in that case soon thereafter. (Agreed Order [DN 55-8].)

On March 2, 2011, in this lawsuit, Groupwell moved for partial summary judgment based on the releases contained in the Settlement Agreement and the res judicata effect of the Agreed Order of Dismissal. (Pl.'s 2d Mot. for Partial Summ. J. [DN 55].) The Court denied that motion based on ambiguities in the Settlement Agreement and the inapplicability of the doctrine of res judicata with respect to the Agreed Order. (Mem. Op. & Order [DN 70].) Subsequently, on Groupwell's motion to bifurcate, the Court bifurcated the trial on the parties' intent regarding the Settlement Agreement and ordered that discovery be limited to issues surrounding that intent. The Court stayed Groupwell's obligations to respond to discovery on Gourmet's allegations of fraud. (Order [DN 83].)

Groupwell has now moved for partial summary judgment based on the res judicata effect of a different order--namely, the bankruptcy court's order of January 23, 2008 that approved Gourmet's Second Amended Disclosure Statement regarding its Plan of Reorganization. (Pl.'s 3d Mot. for Partial Summ. J. [DN 90].) In response, Gourmet has asked the Court to deny Groupwell's motion or, in the alternative, enter an order holding the resolution of the matter in abeyance until the first trial's conclusion. (Def.'s Mot. for Relief Pursuant to Fed. R. Civ. P. 56(d) [DN 99].)

II.STANDARD OF REVIEW

Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247--48 (1986).

Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence . . . of a genuine dispute[.]" Fed. R. Civ. P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson, 477 U.S. at 252.

III.DISCUSSION

GROUPWELL'S THIRD MOTION FOR PARTIAL SUMMARY JUDGMENT [DN90]

In its motion for partial summary judgment, Groupwell argues that the doctrine of res judicata bars Gourmet's claims as of January 23, 2008, the date when the bankruptcy court's confirmation order was entered. Further, Groupwell argues that Gourmet is judicially estopped from asserting its counterclaims because it did not identify them as assets in its bankruptcy. (Pl.'s Mem. in Supp. of its 3d Mot. for Partial Summ. J. [DN 90-1] 1.) The Court considers each of these arguments in turn.*fn2

A. Res Judicata

"The doctrine of res judicata is a judicially created doctrine, which may be said to exist as an obvious rule of reason, justice, fairness, expediency, practical necessity, and public tranquillity." Floyd Cnty. Bd. of Ed. v. Layne, 474 S.W.2d 397, 398 (Ky. 1971) (quoting 46 Am. Jur. 2d § 395, Judgments). In order to invoke the doctrine of res judicata, a party must establish the existence of a final judgment rendered upon the merits, an identity of parties, and an identity of issues between the prior judgment and the instant suit. BTC Leasing, Inc. v. Martin, 685 S.W.2d 191, 197 (Ky. App. 1984). The Sixth Circuit applies a four-part test that includes these elements. See Browning v. Levy, 283 F.3d 761, 771 (6th Cir. 2002) (noting that a claim is barred by res judicata if there is: "(1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their 'privies'; (3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action").

Groupwell contends that all of the necessary elements are present in the instant suit and that the doctrine of res judicata should operate to bar Gourmet's counterclaims. Gourmet contends that Groupwell cannot rely on the application of res judicata because Groupwell fraudulently concealed information from Gourmet and because Gourmet adequately reserved its claims in its bankruptcy.

1. Final Judgment Rendered Upon the Merits

As a general rule, the "[c]onfirmation of a plan of reorganization constitutes a final judgment in bankruptcy proceedings." Browning, 283 F.3d at 772 (quoting Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 480 (6th Cir. 1992)). Thus, a bankruptcy court's confirmation order "has the effect of a judgment by the district court and res judicata principles bar relitigation of any issues raised or that could have been raised in the confirmation proceedings." Id. (quoting In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458, 463 (6th Cir. 1991)). Here, the bankruptcy court entered an order confirming Gourmet's reorganization plan on January 23, 2008. (See Order Approving 2d Am. Disclosure Statement [DN 90-10].) The Court finds that this order is a final judgment rendered upon the merits. Thus, the first element of res judicata is present in this case.*fn3

2. Identity of Parties

Courts have held that in the context of bankruptcy matters, "not only formally named parties, but all participants in the bankruptcy proceedings are barred by res judicata from asserting matters they could have raised in the bankruptcy proceedings." In re Micro-Time Management Sys., Inc., 983 F.2d 1067 (6th Cir. 1993). Indeed, "creditors . . . must also be considered parties for res judicata purposes." Sanders Confectionary Prods., Inc., 973 F.2d at 480. In this case, Gourmet was the debtor in the bankruptcy proceeding and Gourmet identified Groupwell as a creditor in its Schedule F. (See Am. Schedule F [DN 90-5] 8 (identifying Groupwell as an unsecured creditor owed $509,604.86).) As Gourmet's creditor, Groupwell qualifies as a party for res judicata purposes. Since both Gourmet and Groupwell qualify as parties, the Court finds that the second element of res judicata is met.*fn4

3. Identity of Issues Between Prior Judgment and Instant Suit

Groupwell asserts that the final element of res judicata is present because there is an identity of causes of action and, thus, an identity of issues between the prior bankruptcy case and the instant lawsuit. According to Groupwell, there is an identity of causes of action because Gourmet's claims could have been asserted in the bankruptcy proceeding. Gourmet counters that the final element of res judicata cannot be met on the facts of this case because Gourmet lacked the requisite information to bring its claims against Groupwell at the time of the bankruptcy proceeding. Gourmet additionally counters that its ...


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