In re: CHARLES TAYLOR MUHS, Debtor.
CHARLES TAYLOR MUHS, Defendant-Appellant. TKC AEROSPACE INC., Plaintiff - Appellee,
Argued: March 19, 2019
from the United States District Court for the Eastern
District of Virginia, at Alexandria. Liam O'Grady,
District Judge. (1:17-cv-01304-LO-TCB)
Reversed and remanded by published opinion. Judge Thacker
wrote the opinion, in which Judge Motz and Judge King joined.
ARGUED: Richard George Hall, Annandale, Virginia, for
Appellant. Douglas Clark Proxmire, VENABLE LLP, Tysons
Corner, Virginia, for Appellee. ON BRIEF:
Stephen K. Gallagher, Kevin W. Weigand, VENABLE LLP, Tysons
Corner, Virginia, for Appellee.
MOTZ, KING, and THACKER, Circuit Judges.
Thacker, Circuit Judge.
root of this appeal is a provision in the United States
Bankruptcy Code stating that a debt "for willful and
malicious injury by the debtor to another entity"
is nondischargeable in Chapter 7 bankruptcy. 11 U.S.C. §
523(a)(6) (emphasis supplied). In 2016, Charles Taylor Muhs
("Appellant") filed for Chapter 7 bankruptcy and
attempted to discharge a judgment in excess of $20 million
entered by an Alaska district court against him and in favor
of TKC Aerospace, Inc. ("TKCA"). TKCA, however,
claims that the judgment is nondischargeable because the
damages award was based on Appellant's willful and
malicious misappropriation of TKCA's trade secrets.
bankruptcy court, applying collateral estoppel principles,
concluded that Alaska's award of damages to TKCA
necessarily meant that Appellant willfully and maliciously
injured TKCA for purposes of § 523(a)(6), granted
summary judgment in favor of TKCA, and determined that the
entire judgment award was nondischargeable. The district
reverse. The Supreme Court has held that § 523(a)(6)
requires "a deliberate or intentional injury,
not merely a deliberate or intentional act that
leads to injury." Kawaauhau v. Geiger, 523 U.S.
57, 61 (1998) (emphases in original). Likewise, this court
has held that a creditor challenging dischargeability under
§ 523(a)(6) must prove that the debtor had an
"inten[t] to injure." In re Duncan, 448
F.3d 725, 730 (4th Cir. 2006). Because neither the Alaska
district court, nor the bankruptcy court, determined the
precise issue of whether Appellant intended to injure TKCA,
collateral estoppel and summary judgment were inappropriate.
Therefore, we remand to the district court with instructions
to remand to the bankruptcy court for further proceedings.
2007, Appellant became Vice President of Business Development
for TKCA, an Alaska corporation specializing in aircraft
procurement, logistics, and support. In that capacity,
Appellant had access to TKCA's proprietary information,
and his contract with TKCA prohibited him from disclosing
confidential information to any third party or competing with
TKCA for six months after his employment terminated. From
2009 to 2011, TKCA competed for and won Department of State
("DOS") contracts for Bombardier Dash 8 aircrafts,
modified to meet DOS needs. As part of this process, TKCA
would -- with the help of Appellant -- submit proposals to
DOS describing how it would perform such modifications.
March 28, 2011, Appellant left his position with TKCA to
accept a position with Knowledge International in Alexandria,
Virginia, although he continued to work for TKCA on a
part-time basis. Appellant also began to work closely with
Phoenix Heliparts, Inc. ("PHP"), an Arizona
corporation and (at the time) a competitor of TKCA, to secure
aircraft and develop bids for possible DOS solicitation. On
August 5, 2011, DOS issued a solicitation for up to two more
Dash 8 aircrafts, and PHP submitted a proposal. DOS awarded
the contract to PHP.
Alaska and Arizona Actions
September 26, 2011, TKCA filed a lawsuit in the District of
Alaska against Appellant, alleging breach of contract, breach
of implied covenant of good faith and fair dealing, breach of
fiduciary duty, unjust enrichment, tortious interference with
prospective business, fraud, and violation of the Alaska
Uniform Trade Secrets Act (the "Alaska Action").
See Compl., TKC Aerospace, Inc. v. Muhs,
No. 3:11-cv-189 (D. Alaska filed Sept. 26, 2011), ECF No. 1,
at 12-17. Specifically, the complaint alleged that Appellant
"stole a corporate business opportunity from TKCA and
delivered it to a competitor, using TKCA proprietary
information." Id. at 2.
October 20, 2011, TKCA filed a parallel suit against PHP in
the Superior Court for Maricopa County, Arizona, alleging
misappropriation of trade secrets under the Arizona Uniform
Trade Secrets Act, intentional interference with business
expectancy, unfair competition, and conversion. See TKC
Aerospace, Inc. v. Phoenix Heliparts, Inc., No.
CV2011-128889 (Ariz. Sup. Ct. filed Oct. 20, 2011) (the
"Arizona Action"). Although he was a witness in the
Arizona Action, Appellant was not named as a party. The
Alaska Action and the Arizona Action carried on
February 21, 2012, Appellant filed a motion to stay the
Alaska Action. In support of the motion, Appellant's
counsel -- the same counsel representing PHP in the Arizona
Action ___ ___ stated that the Arizona Action
"involv[ed] the same plaintiff . . . and same factual
and legal issues as those in the Alaska Action," and
"[t]he underlying factual allegations in [both
complaints] are virtually verbatim, the gravamen of the
claims are identical, and the relief requested is virtually
identical." J.A. 193. The request for stay also stated,
"this pending action is . . . substantially similar to
and significantly parallels the Arizona Action,"
id. at 199, and "[i]f TKCA prevails in the
Arizona Action, . . . then [Appellant] would be collaterally
estopped from arguing differently in this Court,"
id. at 214 n.3 (alterations omitted). The Alaska
court denied the motion to stay. After granting summary
judgment on some claims, however, on March 8, 2013, the
Alaska court deferred further scheduling until the Arizona
Action was complete.
from March 2012 to October 2013, the Arizona state court
conducted a bench trial for over 40 days on the issue of
PHP's liability regarding TKCA's trade secrets and
PHP's misconduct. Ultimately, on January 30, 2015, the
Arizona state court entered judgment in favor of TKCA and
against PHP on the Arizona Uniform Trade Secrets Act claim,
the tortious interference claim, and the common law unfair
competition claim, in the total amount of $20, 295, 782.58.
This amount was broken down as follows: $2, 883, 055.86 in
lost profits; $3, 882, 205 in research and development costs;
and $13, 530, 521.72 in exemplary damages. As to the latter,
the Arizona state court stated, "PHP [must] pay
exemplary damages pursuant to A.R.S. §
44-403(B)[ in an amount double awarded to TKCA for
its lost profit and research and development costs."
J.A. 105. The Arizona court found that PHP engaged in
"willful and malicious misconduct," id. at
59, and "PHP willfully and maliciously misappropriated
TKCA's trade secrets," id. at 66. It also
found that "PHP formed an agency relationship with
[Appellant]," and "[b]ecause of th[is
relationship], this court will attribute [Appellant's]
acts to PHP." Id. at 74, 75.
even though the Arizona state court attributed
Appellant's actions to PHP, the Arizona Action was not
based solely on the actions of Appellant. Indeed,
the Arizona court also found the following regarding Tina
Cannon, president of PHP at the relevant time, and her
husband Darrin Cannon, who was vice-president:
• "[T]he Cannons wiped their computers after
receiving a litigation hold letter and after trial started.
The court has rarely, if ever in a civil matter, witnessed a
party engage in such flagrant misconduct and act with such
disregard for the truth and such profound disrespect for the
law." J.A. 60;
• "This court finds that Darrin Cannon installed
and ran CCleaner with the intent to delete any evidence that
PHP had misappropriated TKCA's trade secrets and
proprietary and confidential information and also to conceal
PHP's efforts to delete relevant and material evidence of
its misconduct." J.A. 60-61;
• "During trial, Tina Cannon and [Appellant]
provided improbable explanations when confronted with
overwhelming evidence of PHP's efforts to secure the
award of the D[O]S contract." J.A. 65; and
• Tina Cannon "induced [Appellant] to violate his
non-compete agreement with TKCA and disclose TKCA trade
secrets in further breach of his employment contract."
when assessing whether exemplary damages were appropriate
pursuant to A.R.S. § 44-403(B) for willful and malicious
misappropriation, the Arizona court stated the following,
Attempts to conceal wrongful conduct with respect to trade
secrets provide evidence of willful and malicious
misappropriation. . . .
[T]he following are just a few examples that establish PHP
willfully and maliciously engaged in misconduct. Despite
knowing [Appellant's] contract with TKCA had a
non-compete clause, the Cannons induced [Appellant] to
misappropriate TKCA's trade secrets in order to compete
directly with TKCA. [Appellant], on behalf of PHP, withheld
vital information from TKCA so that PHP could establish a
material and temporal advantage in preparing a successful
proposal in response to the D[O]S solicitation. Tina Cannon
knew that [Appellant] had uploaded TKCA proprietary documents
to PHP's servers and PHP knowingly used the uploaded
documents to prepare its bid. PHP further knew that using the
uploaded documents would harm TKCA. . . .
PHP intentionally wip[ed] company servers after learning of a
subpoena, erasing company laptops in the evening and early
morning hours before court-ordered forensic imaging started .
. . .
J.A. 87. After awarding exemplary damages, the Arizona court
noted that TKCA also satisfied its burden of proof on
punitive damages, explaining, "This court finds by clear
and convincing evidence that PHP engaged in
outrageous conduct and acted with an evilmind
intending to injure TKCA by intentionally interfering
with TKCA's contracts and opportunities and then using
TKCA's proprietary information to misappropriate those
opportunities." Id. at 88-89 (emphases
supplied). The court made no ...