Versus. Dominic Ovella Appellee. Reply Brief of Appellants (Oral Argument Requested)

Transcription

1 E-Filed Document Aug :28: CA Pages: 16 In the Supreme Court of Mississippi No CA Beth Donaldson, Colie Donaldson and Coby Donaldson Appellants Versus Dominic Ovella Appellee Reply Brief of Appellants (Oral Argument Requested) David Baria, MS Bar No Baria-Williamson, PLLC 544 Main Street Bay St. Louis, MS Ph. (228) ; Fx. (601) dbaria@baria-williamson.com Robert C. Williamson, MS Bar No Brandon Jones, MS Bar No Baria-Williamson, PLLC 4316 Old Canton Road, Ste. 100A Jackson, MS Ph: (601) ; Fax: (601) rcw@baria-williamson.com bjones@baria-williamson.com Attorneys for Appellants

2 Table of Contents Table of Contents... ii Table of Authorities... iii Statement on Oral Argument... 1 Statement of the Issues Presented... 1 Statement of the Case Summary of the Argument Argument I. Judicial estoppel cannot be invoked because the Donaldsons did not label the corporate veil as a separate affirmative defense. Ovella had the burden of proving his claims fell within an exception to the shield. But Ovella did not plead piercing the veil. The corporate shield is not an affirmative defense. Even so, the Donaldsons did invoke it and Ovella never contended the defense had been waived II. Neither collateral estoppel, judicial estoppel nor res judicata apply because the district court s order denying sanctions did not adjudicate probable cause or malice III. The existence of factual disputes over whether Ovella lied, had probable cause and acted with malice preclude summary judgment Conclusion Certificate of Service ii

3 Table of Authorities Case Page Am. Plastics, Inc. v. Inland Show Mfg. Co., Inc., 592 F.Supp. 875, 879 (N.D. Miss. 1984)... 8 Booneville Collision Repair, Inc. v. City of Booneville, 152 So.3d 265 (Miss. 2014)... 9 Buchanan v. Ameristar Casino Vicksburg, Inc., 957 So.2d 969, 977 (Miss. 2007)... 8 Canadian Nat l. Ry. Co. v. Waltman, 94 So.3d 1111, 1116 (Miss. 2012)... 8 Gray v. Edgewater Landing, Inc., 541 So.2d 1044, 1047 (Miss 1989)... 8 Jacox v. Circus Circus Mississippi, Inc., 908 So.2d 181, (Miss. App. 2005) Kirk v. Pope, 973 So.2d 981 (Miss. 2007)... 9 Penn. Nat l. Gaming, Inc. v. Ratliff, 954 So.2d 427, (Miss. 2007)... 7 Rosson v. McFarland, 962 So.2d 1279, 1285 (Miss. 2007)... 8 Stuart v. Univ. of Miss. Medical Center, 21 So.3d 544, 550 (Miss. 2009) Statutes Page Fed. Rule Civ. P. 8(c)(1)... 7 Miss. R. Civ. P. 8(c)... 7 Treaties Page Encyclopedia of Mississippi Law iii

4 Statement on Oral Argument Affirming the trial court decision on the grounds urged by the Appellee would undermine the existing understanding of the doctrines of judicial estoppel and res judicata and what constitutes or does not constitute an affirmative defense. In addition, it would green light filing civil suits against corporate owners and officers as a tactic to coerce corporate defendants into capitulating into paying money not owed and giving up legitimate claims a message contrary to previous decisions of this Court. Oral argument will help the Court determine how to strike the balance between legitimate and illegitimate civil suits against corporate owners and officers. Statement of the Issues Presented Appellee s Brief raises the following additional issues for the Court s consideration: IV. Under the doctrines of judicial estoppel or res judicata, did the Donaldsons waive their malicious prosecution claim by not pleading the corporate shield as a specific affirmative defense in the federal lawsuit when (i) Ovella had the burden of proof and did not contend in the federal lawsuit that the Donaldsons had waived any defense based on the corporate shield, and (ii) the Donaldsons denied individual liability and affirmatively pled failure to state a claim, acting in the scope of employment by B & C, and filing suit without factual basis against individuals with no liability to him. 1

5 Statement of the Case Ovella s Brief omits or misstates important facts. First, the Donaldsons pled Ovella had not alleged any basis in law and fact for holding them individually liable. In their first defense, the Donaldsons pled Ovella had failed to state a claim. [R. 434]. In their answers to allegations of the Complaint, the Donaldsons denied all allegations of individual liability such as Ovella s allegation that Colie Donaldson individually warranted to perform certain work on the home [R. 437, 26], that Colie Donaldson performed work individually and was therefore individually liable [R. 437, 34], that Coby Donaldson performed work individually and was therefore individually liable [R. 437, 35], and that Beth Donaldson was liable because she was a principal for B&C Construction and was unjustly enriched. [R. 438, 36]. The Donaldsons also affirmatively pled: At all times Colie Donaldson and Coby Donaldson were acting in the course and scope of their employment with B & C Construction, LLC. [R. 439, 42]; The Ovellas complaint contains no facts or allegations justifying the claims against the individual defendants, [R. 444, 43]; The Ovellas entered a contract with B&C Construction and have absolutely no basis for suing the individuals named herein, [R.445, 44]; and Nick Ovella has, in the instant action, without factual basis or justification, filed suit against individuals with no cited liability to him. [R. 445, 500]. 2

6 Ovella never contended in the federal action that the Donaldsons had waived the protection of the corporate shield either by not pleading the shield as an affirmative defense or by filing a counterclaim. Second, the Appellee s Brief asserts at page 6, B & C s counter-claims were dismissed due to the fact that at the time of filing and time of contract they had no residential contractor s license. In reality, the district court recognized the absence of a license was not an adjudication on the merits of the counterclaim and that once the technical licensing issue was resolved, the case could be refiled: If I were to grant judgment as a matter of law, that could well be an adjudication on the merits, which I don t think would be fair under the circumstances. If I dismiss the case, I m dismissing it without prejudice. [R. 602]. His Honor continued by telling Ovella s then counsel, I m not saying you don t have any defenses to the claim, but I wouldn t want to see you stand before Judge Ozerden and say that Judge Guirola has ruled that they don t have a cause of action. [R. 602]. This case was refiled, successfully prosecuted, settled and dismissed with prejudice. Third, the Appellee s Brief lumps together the claims dismissed because of the corporate shield with those that were dismissed on other grounds. Ovella alleged Colie and Coby Donaldson committed fraud. Ovella testified that Colie Donaldson and Coby Donaldson represented to him (1) the house built on wooden columns over 18 feet in the air-- would be sway-proof; it would not sway or move in the wind, and (2) that the wood columns for the house would be 12x12. 3

7 Colie and Coby Donaldson s testimony contradicted Ovella s, creating a swearing match. Colie and Coby testified they told Ovella he would not feel excessive movement in the wind that is, the house would be sway resistant, not sway proof. They also testified that Ovella had approved a change in the columns because he wanted them to match brick clad columns on a house B & C had built for another individual, George Boudreaux. Of moment, when Ovella was cross-examined he admitted that he had ordered B & C to change the columns and that he had been told by an engineer during construction that any house on stilts would move some in the wind. Ovella alleged all of the Donaldsons were unjustly enriched. But he offered no testimony establishing that B & C made a profit. Colie Donaldson testified without contradiction that B & C was in the red on the project because Ovella had not paid for the extra work he and his wife had demanded. Ovella did not contend at trial B & C made a profit or offer any evidence that the Donaldsons were enriched by his house project. Though Ovella had B & C s documents, he did not use credit card payments to support his claim. The deposition testimony quoted at page 19 of the Appellee s Brief was made in February 2013, over a year after Ovella tried and lost his unjust enrichment claim. The deposition was taken in B & C Construction, LLC v Ovella, which was filed against Ovella for the contract balance and extra work owed by Ovella for the construction of his beach house after B & C s counterclaim was dismissed without prejudice. [R. 348] Ovella settled this case. 4

8 Finally, Ovella s Brief omits that neither Ovella nor his wife ever claimed or offered any evidence that B & C and the Donaldsons lacked probable cause to sue them individually or that they made up facts to support those claims. Summary of the Argument The requirement of probable cause is one of the legal building blocks for our system of justice. It is a safety requirement that prevents individuals from using lawsuits to pervert the justice system, and it protects litigants from frivolous lawsuits, persons seeking so-called jackpot justice, or persons seeking to intimidate or coerce parties into giving up their claims. A jury could reasonably conclude Ovella had no honest belief the Donaldsons were personally liable to him, had no reasonable basis in law or fact to sue them and that the purpose of the suit was to use the individual Donaldsons to coerce B & C into accepting less than what B & C was owed for its work on Ovella s beach vacation house. A jury could conclude Ovella based his claims against the individual Donaldsons on lies. And a jury could conclude because of those lies, Ovella did not have reason to believe he would find through discovery some smoking gun to support his claims Ovella s Brief underlines the existence of factual disputes over the elements of probable cause and malice. Respectfully, the Donaldsons ask the Court to notice the Appellee s Brief does not even attempt to discuss how the evidence Ovella had when he sued or the evidence he offered at trial would satisfy the legal elements required 5

9 to prove the Donaldsons committed fraud, the Donaldsons committed acts or omissions sufficient to pierce the corporate veil or the Donaldsons were unjustly enriched. A party must have a reasonable legal and factual basis to sue. Appellee s Brief also essentially concedes a hard fought issue in the Court below whether the district court s denials of sanctions are res judicata or collaterally estop a malicious prosecution claim. Ovella devotes most of his brief to the argument that collateral or judicial estoppel bars the Donaldsons malicious prosecution claim by virtue of the Donaldsons answering the underlying federal complaint, failing to interpose a defense of no personal liability by virtue of the corporate status of B & C Construction, and doubling down by filing their own individual counterclaim and third-party complaints and losing them. The corporate shield is not an affirmative defense. Even if it were, the Donaldsons Answer sufficiently raised it and Ovella never contended the Donaldsons had waived the defense or were estopped to assert it in the federal action. Further, the Appellee s Brief cites no case law holding that the Donaldsons unsuccessful prosecution of their counterclaim against Ovella precludes them from later suing Ovella for malicious prosecution. The Donaldons malicious prosecution claim did not arise until the Donaldsons defeated Ovella s claim. Holding that filing a counterclaim precludes a party from pursuing claims that have not arisen would undermine the salutary purpose of the doctrine of collateral and judicial estoppel. 6

10 Respectfully, the Court should reverse and remand this case for trial. Argument I. Judicial estoppel cannot be invoked because the Donaldsons did not label the corporate veil as a separate affirmative defense. Ovella had the burden of proving his claims fell within an exception to the shield. But Ovella did not plead piercing the veil. The corporate shield is not an affirmative defense. Even so, the Donaldsons did invoke it and Ovella never contended the defense had been waived. The corporate shield is not an affirmative defense. Fed. Rule Civ. P. 8(c)(1) delineates those defenses which must be affirmatively stated: accord and satisfaction; arbitration and award; assumption of risk; contributory negligence; duress; estoppel; failure of consideration; fraud; illegality; injury by fellow servant; laches; license; payment; release; res judicata; statute of frauds; statute of limitations; and waiver. This is almost identical to the Mississippi Rule which adds the additional affirmative defense, discharge of bankruptcy. Miss. R. Civ. P. 8(c). Neither the Federal nor Mississippi rules require an individual defendant to make an affirmative defense where they believe a plaintiff is improperly seeking to pierce the corporate veil. Corporate veil claims are analyzed under state law. Penn. Nat l. Gaming, Inc. v. Ratliff, 954 So.2d 427, (Miss. 2007). The burden to show that a shareholder or employee of a company assumed individual liability rests with the plaintiff. Under Mississippi law, a plaintiff seeking to pierce the corporate veil must demonstrate a) Some frustration of contractual expectations regarding the party to whom he looked for performance; b) the flagrant disregard of corporate formalities 7

11 by the defendant corporation and its principals; and c) a demonstration of fraud or other equivalent misfeasance on the part of the corporate shareholder. Rosson v. McFarland, 962 So.2d 1279, 1285 (Miss. 2007)(quoting Gray v. Edgewater Landing, Inc., 541 So.2d 1044, 1047 (Miss 1989). The Gray court added that [t]o present a jury issue on a demand that the corporate veil be pierced, a party must present some credible evidence on each of these points. Id. Mississippi law generally favors maintaining corporate entities and avoiding attempts to pierce the corporate veil. Buchanan v. Ameristar Casino Vicksburg, Inc., 957 So.2d 969, 977 (Miss. 2007). Furthermore, [i]n order to make a prima facie case of jurisdiction, the plaintiff must make sufficiently particularized allegations demonstrating the applicability of the piercing doctrine to the facts of the case. Canadian Nat l. Ry. Co. v. Waltman, 94 So.3d 1111, 1116 (Miss. 2012)(quoting N. Am. Plastics, Inc. v. Inland Show Mfg. Co., Inc., 592 F.Supp. 875, 879 (N.D. Miss. 1984). One of the fundamental flaws in Ovella s Complaint is that it did not plead grounds to pierce the corporate veil or even plead that the actions of the Donaldsons were outside the scope of their authority. In their Answer, the Donaldsons pleaded: (1) no claim for relief against them had been stated, (2) the construction work performed by individuals was within the scope of work undertaken by B & C under its contract [R:439, 42], and (3) no factual or legal basis existed for imposing liability on them individually. [R. 445, 500]. Ovella never contended the Donaldsons had not sufficiently invoked the corporate veil. 8

12 The Appellee s Brief cites no case law holding that the Donaldsons pleading or lack of pleading the corporate veil or their unsuccessful prosecution of their counterclaim against Ovella precludes them from later suing Ovella for malicious prosecution. As discussed in the Donaldsons original brief, none of the requirements for judicial estoppel stated in Kirk v. Pope, 973 So.2d 981 (Miss. 2007) or Booneville Collision Repair, Inc. v. City of Booneville, 152 So.3d 265 (Miss. 2014) apply. Instead of directly addressing the Kirk and Booneville requirements, Ovella s Brief cites cases it contends relax those standards and then accuses the Donaldsons of trying to play fast and loose with the Court. But none of these cases hold that the circumstances bring this case within the judicial estoppel doctrine. For example, Ovella cites a Mississippi Torts Claim Act case which held that a state entity waived its right to raise as a defense a beneficiaries failure to comply with the 90- day-notice of claim waiting requirement. Stuart v. Univ. of Miss. Medical Center, 21 So.3d 544, 550 (Miss. 2009). The Donaldsons malicious prosecution claim did not arise until the Donaldsons defeated Ovella s claim. Holding that filing a counterclaim precludes a party from pursuing claims that have not yet emerged would be inconsistent with the doctrines of judicial and collateral estoppel. 9

13 II. Neither collateral estoppel, judicial estoppel nor res judicata apply because the district court s order denying sanctions did not adjudicate probable cause or malice. Ovella persists in arguing that the Donaldsons lost their individual counterclaims and even goes so far as to state that the Donaldsons lost their counterclaims because they had no contractor s license. [Appellee s Br. at pg. 11] These arguments stretch credulity. As stated in Appellants original brief, the district court s order did not touch the merits. This is arguable only in the most charitable sense of the word. Ovella s statement regarding contractor s licenses, however, is patently false and there is no reference to this allegation anywhere in the district court s order denying sanctions. The trial court may well have relied upon the denial of sanctions as justification for granting summary judgment. However, the district court denied sanctions not on the merits but because the Donaldsons could not show they had complied with the safe harbor provisions. Judge Guirola denied sanctions against the Hailey McNamara firm because the claims were at least colorable [as to the Hailey McNamara firm] at the time of the signing of the Complaint. Here the court is saying the claims were colorable to Ovella s attorneys not Ovella. III. The existence of factual disputes over whether Ovella lied, had probable cause and acted with malice preclude summary judgment. In their original brief to this Court, the Donaldsons reviewed each claim made by Ovella to demonstrate fact issues exist whether Ovella had probable cause (a reasonable basis and honest belief) to sue the Donaldsons individually and whether 10

14 Ovella acted with malice (to coerce the Donaldsons into surrendering B & C s claims rather than bring a wrongdoer to justice). Rather than address each of the claims in his response, Ovella makes two broad arguments. The first is if Ovella was out of money and was not going to pay them and therefore lied, it is neither admissible nor relevant in opposition to the summary judgment. This is an incorrect statement of the law. To support his position Ovella inexplicably cites a premises liability case where the Mississippi Court of Appeals found that the mere occurrence of a fall on the floor within a business is insufficient to show negligence by a proprietor. Jacox v. Circus Circus Mississippi, Inc., 908 So.2d 181, (Miss. App. 2005). The second is that evidence concerning B & C s payments of bills on credit cards in Colie and Beth Donaldson s names and conducting B & C s operations from home established the corporate shield could easily be pierced by Ovella. The first flaw in this argument is factual: Ovella never alleged he was entitled to pierce the corporate veil. Ovella offered no evidence that he was entitled to pierce the veil. He relied solely on his tort claims. In a malicious prosecution action the issue is what facts Ovella knew when he filed. Ovella did not know or allege in his Complaint that Coby, Colie or Beth Donaldson were liable on an alter ego theory or seek to pierce the corporate veil or that funds were co-mingled. Ovella raised no issues about the payment of American Express bills in his original suit. As the deposition testimony attached to Ovella s Motion for Summary Judgment establishes, Ovella 11

15 asked no questions about credit card bills until over a year after he lost the original case. Further, the Donaldsons were not parties in the case in which the questions arose. The referenced bills were produced during discovery of B&C Construction and Equipment, LLC v. Dominic Ovella, USDC CA 1:12cv007 HSO-RHW, a case filed by B & C after its counterclaim against Ovella was dismissed. The Donaldsons respectfully ask that the Court take judicial notice of the dismissal of this suit as a result of a settlement, with a final judgment of dismissal entered July 23, Ovella cannot avail himself of a subsequent lawsuit to prop up a prior malicious prosecution claim. In deciding whether a person had probable cause to sue, the key question is what did the person know the facts apparent to the defendant at the time the prosecution was initiated. Encyclopedia of Mississippi Law 10. Conclusion For the reasons in Appellants Brief and for those explained above, Appellants request that the judgment of the Circuit Court of Harrison County, the Honorable Lawrence P. Bourgeois, Jr., be reversed and this matter be remanded to the lower Court. Respectfully submitted, this 5 th day of August s/ Brandon C. Jones Brandon C. Jones 12

16 Certificate of Service I certify that I have this day caused to be filed via the Mississippi Electronic Court a copy of the above and foregoing Appellants Reply Brief which forwarded a copy of such filing to: Dee Aultmann Attorney for Appellee/Defendant I further certify that a copy was mailed via U.S. First Class mail to: Honorable Lawrence P. Bourgeois, Jr. Judge, Harrison County Circuit Court So certified, this 5 th day of August 2015, s/ Brandon C. Jones Brandon C. Jones 13