MD Acquisition, LLC v. Myers

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
IN RE:
MARTIN L. MYERS,
Debtor.
______________________________
MD ACQUISITION, LLC,
Plaintiff,
v.
MARTIN L. MYERS,
Defendant.
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CHAPTER 7
CASE NO. 11-61426
ADV. NO. 11-6092
JUDGE RUSS KENDIG
MEMORANDUM OF OPINION (NOT
INTENDED FOR PUBLICATION)
Now before the court is Martin L. Myers’ (“Defendant” or “Myers”) motion for summary
judgment, filed on June 15, 2012, and Defendant’s motion to strike, filed on August 2, 2012.
The court has jurisdiction over this case pursuant to 28 U.S.C. § 1334 and the general order
of reference entered in this district on April 4, 2012. 	Venue in this district and division is proper
pursuant to 28 U.S.C. § 1409. This proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
This opinion is not intended for publication or citation. 	The availability of this opinion, in
electronic or printed form, is not the result of a direct submission by the court.
time and date indicated, which may be materially different from its entry on the record.
of this court the document set forth below. This document was signed electronically at the
The court incorporates by reference in this paragraph and adopts as the findings and orders
Dated: 01:44 PM December 31, 2012
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FACTS
Defendant owned 100% of the common stock of Martin Designs, Inc. (“Martin Designs”)
which was in the business of producing a variety of products, including stationery, and then selling
these products to retailers. 	MD Acquisition, LLC (“Plaintiff” or “MDA”) was formed on October
8, 2003 to purchase approximately 75% of Martin Designs’ shares of common stock and all of its
preferred stock. 	Plaintiff paid Defendant over $9,500,000.00 and other consideration for the
stock. 	Myers retained 25% of the Martin Designs common stock. 	The sale was completed
through three documents: a Stock Purchase Agreement, 1 an Executive Employment Agreement,2
and a Stockholders’ Agreement.
On September 26, 2005, MDA, along with Martin Designs, filed a lawsuit in Franklin
County, 	Ohio 	against 	Myers 	for 	breaches 	of 	the 	Stock 	Purchase 	Agreement, 	Executive
Employment Agreement, and Stockholders’ Agreement, misappropriation of trade secrets and
confidential information, and rescission of the Stock Purchase Agreement (“state court case”).
During the pendency of the state court case, Martin Designs filed bankruptcy on February 21, 2008
and this Court remanded the state court case to the Franklin County Court of Common Pleas on
August 28, 2009. 	At the trial of the state court case, MDA prosecuted two breach of contract
claims against Myers for the Stock Purchase Agreement and the Executive Employment
Agreement.3
At the conclusion of the trial, the jury entered a verdict in favor of MDA for $4,245,106.00
for Myers’ breach of the Stock Purchase Agreement and $1,000,000.00 for Myers’ breach of the
Executive Employment Agreement. 	In addition, the Franklin County Court of Common Pleas
entered a judgment granting prejudgment interest to MDA in the amount of $3,453,640.60. 	Thus,
MDA won a judgment in the total amount of $8,698,746.60 against Myers.
On April 29, 2011, Myers filed a petition for relief under chapter 7 of the Bankruptcy
Code. 	On December 15, 2011, MDA filed a complaint seeking a determination that the entire
judgment above is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (4), and (6).
Specifically, MDA asserts that Myers should be denied discharge of $7,072,347.60 4 pursuant to
§523(a)(2)(A) for the judgment as a result of the breach of the Stock Purchase Agreement. 5 MDA
argues that Myers intended to deceive MDA by making misrepresentations in the Stock Purchase
Agreement about Martin Designs’ customer relationships and its inventory.
1 The Stock Purchase Agreement effectuated the transfer of the stock from Myers to MDA.
2 The Executive Employment Agreement required Myers to devote his business time, attention, skill, and energy to
the business of Martin Designs and use his best efforts to promote the success of Martin Designs.
3 As stated in MDA’s complaint. 	Also as stated in MDA’s complaint, Martin Designs prosecuted three claims
against Myers: breach of contract for both the Executive Employment Agreement and Stockholders’ Agreement and
misappropriation of trade secrets and confidential information.
4 Judgment of $4,245,106.00 plus prejudgment interest of $2,827,240.60.
5 MDA argued at the hearing, and in its response to the motion for summary judgment, that it also holds a §
523(a)(2)(A) claim with respect to the breach of the Executive Employment Agreement, but Count I of the complaint
references only the Stock Purchase Agreement.
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MDA asserts that Myers should be denied discharge of $1,626,400.00 6 pursuant to
§523(a)(4) for the judgment as a result of the breach of the Executive Employment Agreement.
MDA argues that the conduct that gave rise to the breach of the Executive Employment Agreement
also amounts to fraud or defalcation while acting in a fiduciary capacity or embezzlement.
Finally, MDA asserts that Myers should be denied discharge pursuant to § 523(a)(6) as to the total
judgment against him from the state court case. 	MDA argues that Myers’ breaches of the Stock
Purchase Agreement and Executive Employment Agreement amount to a willful and malicious
injury to MDA.
Myers filed a motion for summary judgment on June 15, 2012 arguing that issue preclusion
applies to the judgment rendered in the state court case. 	On July 27, 2012, MDA filed a response
in opposition to Myers’ motion for summary judgment. 	Myers then filed, on August 2, 2012, a
motion to strike certain documents attached as exhibits to MDA’s response7 and the arguments
related to those documents. 	Myers also filed on the same day a reply to MDA’s response to the
motion for summary judgment, incorporating the motion to strike into his motion for summary
judgment. 	MDA then filed, on August 16, 2012, a response in opposition to Myers’ motion to
strike. 	Myers filed a reply to MDA’s response to the motion to strike on August 22, 2012. 	On
October 15, 2012, a hearing was held on both the motion for summary judgment and motion to
strike.
LAW AND ANALYSIS
I. 	Summary Judgment Standard
Federal Rule of Civil Procedure 56(a), applicable to this proceeding by way of Federal
Rule of Bankruptcy Procedure 7056, provides that “[t]he court shall grant summary judgment if
the movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” 	Summary judgment is not appropriate if a material dispute of the
facts arises such that a “reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
II. 	Collateral Estoppel
Defendant argues that collateral estoppel, also known as issue preclusion, applies and bars
the relitigation of the issues decided in the state court case. 	The doctrine of collateral estoppel
accords finality to issues actually and necessarily decided in a prior suit. 	See Parklane Hosiery
Co., Inc. v. Shore, 439 U.S. 322, 326 (1979). 	Collateral estoppel may be invoked in
nondischargeability proceedings. 	Grogan v. Garner, 498 U.S. 279, 284-85 (1991). 	The full faith
and credit principles of 28 U.S.C. § 1738 require this Court to accord preclusive effect to a state
court judgment if it would be preclusive under the law of the state in which the judgment was
rendered.
6 Judgment of $1,000,000.00 plus prejudgment interest of $626,400.00.
7 Myers’ motion to strike lists attachments 1 through 7 and trial exhibits EEO through ZZQ.
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Parties dispute what law should be applied to determine if collateral estoppel applies to the
state court judgment; Myers argues that New York state law applies and MDA appears to argue
that Federal law applies. 	In the Sixth Circuit, “state law dictates whether a state court judgment
should be afforded issue-preclusive effect.” 	King’s Welding & Fabricating, Inc. v. King (In re
King), Case No. 10-63468, Adv. No. 10-6099, 2011 Bankr. LEXIS 2755, *9 (Bankr. N.D. Ohio
July 14, 2011) (citing Ed Schory & Sons, Inc. v. Francis (In re Francis), 226 B.R. 385, 388 (B.A.P.
6th Cir. 1998)); accord Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 461 (6th Cir.
1999); Sill v. Sweeney (In re Sweeney), 276 B.R. 186, 189 (B.A.P. 6th Cir. 2002); Simmons
Capital Advisors, Ltd. v. Bachinski (In re Bachinski), 393 B.R. 522, 535 (Bankr. S.D. Ohio 2008).
The state court case was resolved under the laws of the State of New York and, thus, New York
law on collateral estoppel must be applied.
“Under New York law, collateral estoppel bars relitigation of an issue when (1) the
identical issue necessarily was decided in the prior action and is decisive of the present action, and
(2) the party to be precluded from relitigating the issue had a full and fair opportunity to litigate the
issue in the prior action.” 	Evans v. Ottimo, 469 F.3d 278, 281 (2d Cir. 2006) (citing Kaufman v.
Eli Lilly & Co., 65 N.Y. 2d 449, 455-56 (1985) (other citations omitted)).
In the instant matter, there is no dispute that MDA, as a party, had a full and fair
opportunity to litigate the issues in the state court case. 	The question that arises is whether the
issues raised in MDA’s complaint were decided in the state court case and are decisive of the
instant matter. 	The Court will explore each issue in detail below.
III. 	Section 523(a)(2)(A)
Under 11 U.S.C. § 523(a)(2)(A), a debt is nondischargeable if credit or an extension or
renewal of credit was obtained by “false pretenses, a false representation, or actual fraud, other
than a statement respecting the debtor’s or an insider’s financial condition.”
In order to except a debt from discharge under § 523(a)(2)(A), a creditor must
prove the following elements: (1) the debtor obtained money through a material
misrepresentation that, at the time, the debtor knew was false or made with gross
recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the
creditor justifiably relied on the false representation; and (4) its reliance was the
proximate cause of loss.
Rembert v. AT&T Universal Card Servs. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998)
(footnote omitted). 	The creditor must prove all elements by a preponderance of the evidence in
order to except a debt from discharge. 	Id. at 281 (citing Grogan, 498 U.S. at 291). 	Exceptions to
discharge are construed strictly against the creditor. 	Rembert, 141 F.3d at 281 (citing Mfr’s
Hanover Trust v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir. 1988)).
MDA asserts that the judgment against Myers in the amount of $4,245,106.00 plus
prejudgment interest of $2,827,240.60 for his breach of the Stock Purchase Agreement constitutes
fraud pursuant to § 523(a)(2)(A). 	Specifically, MDA argues that Myers made express
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misrepresentations to it which created a false impression of the business of Martin Designs and
induced MDA to enter into the Stock Purchase Agreement.
MDA also argues that it believes it holds a § 523(a)(2)(A) claim for Myers’ breach of the
Executive Employment Agreement. 	Contrary to MDA’s arguments, the complaint does not raise
a § 523(a)(2)(A) claim with respect to the breach of the Executive Employment Agreement. 	The
Court will not address in this memorandum of opinion any arguments regarding a § 523(a)(2)(A)
claim as a result of the breach of the Executive Employment Agreement. 	However, in the
interests of justice and having found no substantial prejudice to Myers, the Court will grant leave
to MDA to replead its complaint as to its § 523(a)(2)(A) claim for breach of the Executive
Employment Agreement.
A. Intent
Myers argues that MDA should be collaterally estopped from bringing its § 523(a)(2)(A)
claim because the jury found that Myers’ breach of the Stock Purchase Agreement did not
constitute an act of “intentional” or “willful fraud” and, thus, MDA already litigated the issue of
intent. 	MDA argues that the jury question pertaining to Myers’ intent was not necessary to the
outcome because the jury’s verdict for MDA awarded principal damages less than the damages
cap of $4,500,000.00, discussed below, and as such Myers’ intent was not an element of MDA’s
claim in the state court action. 	In addition, MDA argues that the “intentional” or “willful fraud”
issue decided by the jury is not the same issue as “intent to deceive” and, thus, the issue of intent
for purposes of § 523(a)(2)(A) was not actually litigated.
By way of background, the purpose behind the jury question pertaining to Myers’ intent
relates to the damages cap in the Stock Purchase Agreement. 	The Stock Purchase Agreement
contained a damages cap of $4,500,000.00 that could not be exceeded unless a claim or action
arose for intentional or willful fraud. 	The jury was asked to determine whether or not there was
“intentional” or “willful fraud” because if the jury awarded damages to MDA in excess of
$4,500,000.00, the applicability of the damages cap would be decided.
At first blush, Myers’ argument for issue preclusion on the intent element is compelling.
Applying the jury verdict literally, the issue of intent appears to be already litigated. 	Upon further
review, however, the Court is not convinced. 	The state court case was not one for fraud, but for
breach of contract. 	The elements required for a breach of contract, as provided in jury instruction
#19, do not include an intent element. 	The jury only considered the issue of intent as it related to
the damages cap, not as to fraud. 	Therefore, the Court believes that the actual issue of “intent to
deceive” for purposes of § 523(a)(2)(A) was not actually litigated in the state court case.
Further, the jury may have realized the limited purpose for the question about “intentional”
or “willful fraud,” i.e. applicability of damages cap, and answered in the negative knowing the
answer to that question was moot. 	The question regarding intent is the last question on jury
verdict form #1 after the jurors already found damages below the damages cap and, thus, it is
possible that the jurors realized this question was moot. 	Myers argues that the jury verdict form
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does not instruct the jurors to skip this question as it does for other questions that are deemed moot
by previous answers. 	Because the form does not instruct jurors to skip this question for mootness,
the juror’s answer to it cannot be determined irrelevant. 	The Court rejects this argument. 	The
instructions that relate to the jury skipping questions reference whether the jurors answered
specific questions positively or negatively to previous questions. 	To skip the intent question
would require that the jurors total the damages awarded previously on the verdict form and make a
determination if it is above or below the damages cap. 	To do this may have led to confusion and
a possible error in answering or not answering the intent question. 	The Court is inclined to
conclude that the jurors were instructed to answer the intent question regardless of the damages
awarded, not because they were making a definitive conclusion of Myers’ intent, but to avoid
confusion. 	The Court cannot conclude that the issue of intent was thoroughly reviewed by the
members of the jury given the claims of the state court case, the damages cap, and the jury verdict
form. 	Further, it is not legally relevant whether the jury factually considered this issue because
legally they did not. 	The law requires that the finding be necessary to the outcome. 	Spilman v.
Harley, 656 F.2d 224 (6th Cir. 1981). 	Given the amount of damages awarded, this finding was
unnecessary to the outcome and mere surplusage.8
B. Justifiable Reliance
Myers argues that MDA unsuccessfully litigated the issue of justifiable reliance because
the jury found on question 2a of verdict form no. 1 that MDA would have still entered into the
Stock Purchase Agreement had it known that Myers’ representations and warranties in the Stock
Purchase Agreement were false. 	MDA argues that the jury actually decided the reliance issue in
its favor. 	Specifically, jury instruction #19, which listed the elements required for MDA to
prevail on its claim for breach of the Stock Purchase Agreement, listed one of the elements as
MDA relied on the representations and warranties made by Myers. 	Since the jury found that
Myers breached the Stock Purchase Agreement, MDA argues that the jury necessarily found that
MDA relied on Myers’ representations and warranties.
The Court rejects Myers’ argument that the issue of reliance was litigated through question
2a of verdict form no. 1. 	Question 2a is not dispositive on the issue of reliance. 	It is conceivable
that MDA would have still entered the Stock Purchase Agreement knowing that Myers made false
representations and warranties, but on different terms than actually made, e.g. price.
As to MDA’s argument on the issue of reliance, the Court finds that jury instruction no. 19
is dispositive on the issue of reliance as to the Stock Purchase Agreement. 	Myers argues that the
reliance issue to which MDA refers, the “representations and warranties” that the jury found MDA
relied upon, is nothing more than the contract terms of the Stock Purchase Agreement. 	The Court
rejects 	Myers’ 	argument. 	Myers 	presumably 	argues 	both 	that 	the 	“representations 	and
warranties” referenced in question 2a of verdict form no. 1 are not the contract terms, but that the
8 The Court is compelled to note that jury verdict form #2 found in Myers’ favor on MDA’s claim for intentional or
willful fraud. 	The Court is flummoxed why neither Myers nor MDA mention this jury verdict in their pleadings.
Without more background on this claim and the state court case, the Court can only conclude that jury verdict form #2
is not relevant to these pleadings.
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“representations and warranties” referenced in jury instruction no. 19 are the contract terms. 	He
cannot have it both ways. 	Myers has provided no reason to distinguish between the use of the
language “representations and warranties” in question 2a as opposed to jury instruction no. 19.
Accordingly, the Court finds that MDA has established justifiable reliance as to Myers’ breach of
the Stock Purchase Agreement.
With respect to both intent and reliance, any argument as to claim preclusion on MDA’s §
523(a)(2)(A) claim is fundamentally flawed because it fails to recognize a distinction between
MDA’s state court case, brought under state law to enforce state created rights, and MDA’s claim
under § 523(a)(2)(A) to determine dischargeability. 	There exist two separate and distinct causes
of action in bankruptcy court: one being the cause of action on the debt and the other being the
cause of action to determine the dischargeability of that debt. 	Spinnenweber v. Moran (In re
Moran), 152 B.R. 493, 495 (Bankr. S.D. Ohio 1993) (quoting Brockenbrough v. Taylor (In re
Taylor), 54 B.R. 515, 517-18 (Bankr. E.D. Va. 1985)); accord Brown v. Felsen, 442 U.S. 127, 132,
135 (1979) (“neither the interests served by res judicata, the process of orderly adjudication in state
courts, nor the policies of the Bankruptcy Act would be well served by foreclosing petitioners from
submitting additional evidence to prove his case”). 	The state court case was MDA’s cause of
action on the debt itself and this adversary proceeding is MDA’s cause of action to determine
whether that debt is nondischargeable.
Likewise, Myers’ argument as to issue preclusion is also flawed. 	Myers cites the case of
Jones v. Reyes (In re Reyes), No. 10-52366-C, 2011 Bankr. LEXIS 2118 (Bankr. W.D. Tex. June
1, 2011) to support his argument that MDA cannot relitigate the characterization of its claims
making up the judgment against Myers. 	In Reyes, the court determined that since the jury found
that the defendants did not commit statutory fraud, the plaintiff could not relitigate the issue in
bankruptcy court. 	The Court declines to follow Reyes. 	First, Reyes is not binding on this Court
and only serves as a persuasive guide. 	Second, the Reyes court failed to cite any case law or other
authority for its decision and this Court is unable to find any case law from the Sixth Circuit to
support the decision in Reyes. 	Finally, it is possible to distinguish Reyes, as every meaningful
issue that would be relevant had been determined by the jury. 	It was not possible for the claims to
be recharacterized, unlike the current case in which relevant issues were undecided in any binding
fashion.
An extreme view of Reyes would hold that a plaintiff must plead and try every potential
cause of action in state court or be estopped thereafter. 	This would require a plaintiff with a
simple breach of contract claim and a complex fraud claim to fully prosecute both in the state
court, even if the contract claim alone exceeded the defendant’s collectibility. 	This would be
counterproductive. 	Plaintiffs need not assume bankruptcy will be filed and pursue every potential
cause of action for fear of a collateral estoppel or res judicata bar.
In short, there is no requirement that the allegations of a complaint filed in state
court prior to a debtor filing a petition in bankruptcy correspond to the elements of
the grounds contained in § 523(a) of the Bankruptcy Code. 	Otherwise, plaintiffs
in state court would be required to anticipate the bankruptcy of every defendant and
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litigate every conceivable issue under § 523(a) in the event a defendant should
subsequently file bankruptcy. 	Such needless litigation is not required by the
Bankruptcy Code. 	See Frank v. Daley (In re Daley), 776 F.2d 834 (9th Cir. 1985).
When a creditor is attempting to obtain a judgment in state court it may be assumed
that it is the success of the litigation and the amount of recovery that are significant
to the creditor and not the particular theory of recovery.
Moran, 152 B.R. at 496.
Finally, Myers reads MDA’s complaint to plead the facts as to the jury verdicts only.
However, the Court reads MDA’s complaint to argue that the facts which gave rise to the verdict in
the state court case are the same facts that it will use to make its claim for nondischargeability
pursuant to § 523(a)(2)(A). 	Since MDA has a cause of action for both the debt itself and a cause
of action for whether that debt is dischargeable, MDA’s complaint seeking nondischargeability
pursuant to § 523(a)(2)(A) is not barred by res judicata and is not barred by collateral estoppel for
other reasons set forth herein.
MDA has not asked for summary judgment on any counts of its complaint. 	In fact, MDA
has stated that it has facts to be proven. 	The Court believes that there is a genuine issue of fact as
to MDA’s § 523(a)(2)(A) claim and, accordingly, summary judgment is not appropriate. 	In the
interests of justice and having found no substantial prejudice to Myers, the Court will grant MDA
leave to replead its claim for nondischargeability pursuant to § 523(a)(2)(A) with particularity as
to both the Stock Purchase Agreement and the Executive Employment Agreement.
IV. 	Section 523(a)(4)
Pursuant to 11 U.S.C. § 523(a)(4), a debtor is not entitled to a discharge for any debt “for
fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 	MDA
makes a claim under § 523(a)(4) for both fiduciary fraud or defalcation, as well as embezzlement,
for the judgment against Myers for the breach of the Executive Employment Agreement in the
amount of $1,000,000.00 plus prejudgment interest of $626,400.00.
“A debt is nondischargeable as a defalcation when the preponderance of the evidence
establishes: ‘(1) a pre-existing fiduciary relationship; (2) breach of that fiduciary relationship; and
(3) a resulting loss.’” 	Bd. of Trs. of the Ohio Carpenters’ Pension Fund v. Bucci (In re Bucci),
493 F.3d 635, 639 (6th Cir. 2007) (citation omitted). 	The Sixth Circuit has construed the term
“fiduciary capacity” more narrowly than the term is used in other instances. 	Id. (citing Commw.
Land Title Co. v. Blaszak (In re Blaszak), 397 F.3d 386, 391 (6th Cir. 2005)). 	Application of the
defalcation provision is limited to express or technical trusts, excluding constructive or implied
trusts implied by operation of law as a matter of equity. 	Bucci, 493 F.3d at 639 (citing Carlisle
Cashway, Inc. v. Johnson (In re Johnson), 691 F.2d 249, 251-52 (6th Cir. 1982); Capitol Indem.
Corp. v. Interstate Agency, Inc. (In re Interstate Agency, Inc.), 760 F.2d 121, 125 (6th Cir. 1985)).
The defalcation provision does not apply to a debtor who fails to meet an obligation under a
common law fiduciary relationship. 	Bucci, 493 F.3d at 639 (citing R.E. Am., Inc. v. Garver (In re
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Garver), 116 F.3d 176, 179 (6th Cir. 1997)). 	Rather, the debtor must hold funds in trust for a third
party. 	Garver, 116 F.3d at 179.
To establish that a debt is nondischargeable based on embezzlement, the creditor must
establish that: (1) the creditor entrusted the property to the debtor, (2) the debtor misappropriated
the property for a non-intended use, and (3) there are indicators of fraud. 	Brady v. McCallister (In
re Brady), 101 F.3d 1165, 1173 (6th Cir. 1996) (citation omitted); accord Bucci, 493 F.3d at 644.
As noted above, Defendant argues that summary judgment is appropriate on MDA’s §
523(a)(4) claim because collateral estoppel applies and bars it. 	Specifically, Defendant argues
that MDA obtained a verdict of breach of the Executive Employment Agreement in the state court
case. 	In the instant matter, MDA’s complaint pleads that the verdict from the state court case
establishes a fiduciary relationship, defalcation, and embezzlement, but does not plead any
independent conduct. 	MDA argues that Defendant doesn’t mean collateral estoppel and instead
must be arguing res judicata or claim preclusion, which it knows to be clearly unavailing due to
Brown v. Felsen, 442 U.S. 127 (1979). 	Defendant is assertive in his argument that he is arguing
collateral estoppel, not res judicata, so the Court will address only the collateral estoppel
argument.
The state court case does not include any findings 9 of whether or not Defendant acted as a
fiduciary, whether or not an express or technical trust was created, and whether or not Defendant
committed embezzlement pursuant to § 523(a)(4). 	The state court case did not make these
findings because MDA proceeded against Defendant for a breach of the Executive Employment
Agreement, not for fiduciary fraud, defalcation, or embezzlement. 	Defendant’s argument of
collateral estoppel fails in this instance because the issue of whether Defendant committed
fiduciary fraud or defalcation did not arise in the state court case.
Like Defendant’s argument regarding MDA’s § 523(a)(2)(A) claim, his position is
fundamentally flawed because it fails to recognize a distinction between MDA’s state court case,
brought under state law to enforce state created rights, and MDA’s claim under § 523(a)(4) to
determine dischargeability. 	See 	Moran, 152 B.R. at 495. 	The state court case was MDA’s
cause of action on the debt itself and this adversary proceeding is MDA’s cause of action to
determine whether the debt is nondischargeable. 	As discussed above, the Court declines to
follow Reyes cited by Myers in support of his argument for collateral estoppel.
Defendant’s argument that MDA’s complaint pleads only the jury verdict form is
compelling, but ultimately fails. 	The Court believes that MDA is not arguing that the verdict
itself proves MDA’s § 523(a)(4) claim. 	Rather, the Court reads MDA’s complaint to argue that
the facts which gave rise to the verdict in the state court case are the same facts that it will use to
make its claim for nondischargeability pursuant to § 523(a)(4).
As discussed above, MDA has not asked for summary judgment on any counts of its
complaint and believes it has facts to be proven. 	It appears that there is a genuine issue of fact as
9 The Court refers to the jury verdicts, the jury instructions, and the Franklin County court’s judgment entry.
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to MDA’s § 523(a)(4) claim. 	Accordingly, summary judgment is not appropriate. 	In the
interests of justice and having found no substantial prejudice to Myers, the Court will grant MDA
leave to replead its claim for nondischargeability pursuant to § 523(a)(4) with particularity.
V. 	Section 523(a)(6)
Under 11 U.S.C. § 523(a)(6), a debt is excluded from discharge if the debt is “for willful
and malicious injury by the debtor to another entity or to the property of another entity.” 	A
creditor “must prove by a preponderance of the evidence that the injury from which the debt arises
was both willful and malicious.” 	Transp. Equip. Sales Corp. v. Hahn (In re Hahn), Case No.
09-37597, Adv. No. 10-3041, 2011 Bankr. LEXIS 2979, at 17 (Bankr. N.D. Ohio July 29, 2011)
(citing Markowitz, 190 F.3d at 463) (other citations omitted).
A willful injury is one “where the debtor ‘desires to cause consequences of his act, or . . .
believes that the consequences are substantially certain to result from it.’” 	Ewers v. Cottingham
(In re Cottingham), 473 B.R. 703, 709 (B.A.P. 6th Cir. 2012) (quoting Markowitz, 190 F.3d at
464) (other citations omitted). 	The injury itself must be deliberate or intentional, not just a
deliberate or intentional act that leads to injury. 	Musilli v. Droomers (In re Musilli), 379 Fed.
Appx. 494, 498 (6th Cir. 2010) (unreported) (quoting Kawaauhau v. Geiger, 523 U.S. 57, 61
(1998)). 	The Sixth Circuit has developed a non-exclusive list of “types of misconduct [that]
satisfy the willful and malicious injury standard: intentional infliction of emotional distress,
malicious 	prosecution, 	conversion, 	assault, 	false 	arrest, 	intentional libel, 	and 	deliberately
vandalizing the creditor’s premises.” 	Steier v. Best (In re Best), 109 F. App’x 1, 5 & n.2 (6th Cir.
2004); accord Musilli, 379 Fed. Appx. at 498.
In addition to proving a “willful” injury, the creditor must also prove that the debtor acted
maliciously. 	“Malicious injury means an injury caused in ‘conscious disregard of one’s duties or
without just cause or excuse.’” 	Cottingham, 473 B.R. at 709 (quoting Wheeler v. Laudani, 783
F.20 610, 615 (6th Cir. 1986)); accord Hahn, 2011 Bankr. LEXIS 2979 at 19. 	“[U]nless ‘the
actor desires to cause consequences of his act, or … believes that the consequences are
substantially certain to result from it,’ . . . he has not committed a ‘willful and malicious injury’ as
defined under § 523(a)(6).” 	Hahn, 2011 Bankr. LEXIS at 18 (quoting Markowitz, 190 F.3d at
464).
MDA seeks a determination of nondischargeability for the judgment in the total amount of
$5,245,106.00 plus prejudgment interest of $3,453,640.60 against Myers for his breaches of the
Stock Purchase Agreement and the Executive Employment Agreement. 	Myers seeks summary
judgment in his favor arguing that issue preclusion bars MDA from relitigating the same issues in
this action. 	While MDA assets that Myers must mean res judicata, not issue preclusion, Myers
continues to assert issue preclusion.
Much of Myers’ argument is identical or nearly identical to that made with respect to
MDA’s § 523(a)(2)(A) claim as it relates to the Stock Purchase Agreement, discussed above, and
the Court will not repeat it here. 	With respect to Myers’ argument regarding intent and reliance
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for the breach of the Stock Purchase Agreement claim, the Court has already discussed and made
findings on those issues above. 	The jury’s verdict on the issue of intent as it relates to the Stock
Purchase is not dispositive. 	Despite the differing standards for intent between a § 523(a)(2)(A)
claim and a § 523(a)(6) claim, the Court, as discussed above, finds that the question of intent posed
to the jury served only to determine whether or not the damages cap applied. 	The jury’s verdict
on the issue of reliance is dispositive as the jury could not have found Myers breached the Stock
Purchase Agreement without a finding of reliance.
Turning now to the arguments regarding the Executive Employment Agreement, Myers
argues that verdict form no. 4 does not make the findings that MDA alleges. 	Again, it appears
that Myers reads MDA’s complaint to refer only to the jury verdict form for its § 523(a)(6) claim
for breach of the Executive Employment Agreement. 	The Court does not agree. 	The Court
reads MDA’s complaint to argue that the facts which gave rise to the verdict in the state court case
are the same facts that it will use to make its claim for nondischargeability pursuant to § 523(a)(6).
Myers fails to recognize a distinction between MDA’s state court case, brought under state law to
enforce state created rights, and MDA’s claim under § 523(a)(6) to determine dischargeability.
See Moran, 152 B.R. at 495. 	The state court case was MDA’s cause of action on the debt itself
and this adversary proceeding is MDA’s cause of action to determine whether that debt is
nondischargeable. 	As discussed above, the Court declines to follow Reyes cited by Myers in
support of his argument for collateral estoppel.
Myers also argues that MDA attempts to use the verdicts in favor of Martin Designs in the
state court case to make its § 523(a)(6) claim in this matter. 	MDA counters this argument by
stating that the same conduct by Myers applies to both its claims and Martin Designs’ claims in the
state court case and it is, therefore, appropriate to discuss the conduct giving rise to its claim. 	The
Court does not read MDA’s complaint as an attempt to use the debt of Martin Designs and the
findings related thereto to meet its burden of proof for the elements of its § 523(a)(6) claim. 	The
Court reads the complaint as setting forth facts which are so intertwined that it is impossible to
describe only MDA’s claims without reference to those of Martin Designs. 	Should MDA later
present evidence that solely relates to Martin Designs’ claims and debt, Myers is free to bring an
appropriate motion at that time.
Again, MDA did not request summary judgment on any counts of its complaint and
believes it has facts to be proven. 	There are genuine issues of fact as to whether Myers caused a
willful and malicious injury to MDA as a result of his breaches of the Stock Purchase Agreement
and Executive Employment Agreement. 	Accordingly, summary judgment is not appropriate.
VI. 	Motion to Strike
The Court, having decided Myers’ motion for summary judgment without reference to the
documents, and arguments raised by MDA arising from those documents, that Myers seeks to have
stricken, deems Myers’ motion to strike moot and will deny it accordingly.
An appropriate order will be entered simultaneously with this memorandum of opinion.
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# 	# 	#
Service List:
G. Christopher Meyer
Squire Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
Richard K Stovall
Allen Kuehnle Stovall & Neuman LLP
17 South High Street, Suite 1220
Columbus, OH 43215
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