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Brown v. Fuciarelli

United States District Court, D. Arizona

January 23, 2019

Richard Paul Brown, et al., Appellants,
v.
KA Fuciarelli, et al., Appellees.

          ORDER

          Dominic W. Lanza Judge

         Richard Paul Brown and Belinda Gail Brown (collectively, “the Browns”) have filed a “Motion for Leave to Appeal.” (Doc. 2.) As explained below, the motion will be denied.

         FACTUAL AND PROCEDURAL BACKGROUND

         A. The State-Court Proceedings

         The Browns own a controlling interest in a company called Hot Salsa Interactive, LLC (“Hot Salsa”). (Doc. 6-6 at 6.) In 2014, Mr. Brown spoke with Kevin Fuciarelli (“Fuciarelli”) about potentially investing in Hot Salsa. As part of these discussions, Mr. Brown sent an email to Fuciarelli stating: “Keep in mind that if you do decide to invest, I / Hot Salsa Interactive had federal contracts that I will not be able to discuss with you.” (Doc. 6-6 at 41.) Fuciarelli agreed to invest in Hot Salsa but, after providing approximately $1 million, came to suspect he'd been defrauded. (See generally Doc. 6-6 at 47-48.)

         In November 2016, Fuciarelli sued the Browns and Hot Salsa in Arizona state court. (Doc. 6 at 6.) The Browns denied the allegations and asserted counterclaims alleging that Fuciarelli had harmed them by, inter alia, providing only half of the $2 million investment he'd originally agreed to provide. (Doc. 6-6 at 5-8.) Among other things, the Browns alleged that Fuciarelli had “cause[d] Hot Salsa to lose the ability to continue to be a contractor of the U.S. Government” and to “incur[] damages from the loss of business opportunities, in an amount . . . which is several millions of dollars at present value.” (Doc. 6-6 at 8-9.)

         One of the disputed issues in the state-court litigation was the extent to which Hot Salsa had preexisting “federal contracts.” As part of the discovery process, Fuciarelli propounded interrogatories and requests for production that sought “all federal and nonfederal contracts to which Hot Salsa . . . was a party . . . .” (Doc. 6-6 at 35.) The Browns, however, refused to provide this information on the ground that “[t]he federal contract work performed by Hot Salsa . . . and Rick Brown is classified, and therefore details cannot be discussed or shared.” (Doc. 6-6 at 69.) As a result, Fuciarelli filed a motion to compel. (Doc. 6-6 at 46-50.) In an order issued on September 5, 2017, the state-court judge granted the motion to compel and ordered the Browns to “[f]ully answer Interrogatory No. 1, ” which was the interrogatory seeking information about the federal contracts.[1]

         B. The Bankruptcy Proceedings

         In January 2018, the Browns filed a Chapter 7 bankruptcy petition. This filing had the effect of halting the state-court litigation. (Doc. 6 at 7.)

         In February 2018, Fuciarelli[2] filed an adversary complaint alleging the Browns' $1 million debt was non-dischargeable under 11 U.S.C. § 523(a)(2) because it had been procured via fraud. In their answer to the complaint, the Browns again alleged that Fuciarelli had caused them to suffer harm in the form of lost government contracts. (Doc. 6-7 at 5-6.)

         In May 2018, Fuciarelli propounded-as part of the bankruptcy case- interrogatories and requests for production that sought “all federal contracts to which Hot Salsa was a party” and “[a]ll documents relating to any government or federal contract to which you or Hot Salsa were a party since 2013.” (Doc. 6-7 at 16, 18.)

         In July 2018, the Browns (then acting pro se) filed written objections asserting that “[n]either K.A., Fuciarelli, The Fuciarelli Group, nor his legal counsel have authorization and/or the proper security clearance to request or obtain the” contracts and that Fuciarelli had not demonstrated “that any information requested of Defendants . . . will be of any use as part of this bankruptcy proceeding.” (Doc. 6-7 at 31.)

         On October 24, 2018, the bankruptcy court held a hearing to address this dispute. (Doc. 6-4 at 2-25.) During this hearing, the Browns (now represented by counsel) argued the discovery request was improper in part because Fuciarelli's adversary complaint didn't specifically allege he'd relied on the presence of the purported federal contracts when deciding to make the $1 million investment. (Doc. 6-4 at 12-13.) At the conclusion of the hearing, the bankruptcy court ordered Fuciarelli to file an amended complaint containing those allegations (see Doc. 6-4 at 17-18) and further ordered that, “as to this discovery dispute, I am going to order that all of the Defendant's responses be submitted to the Court on an in-camera inspection that is under seal. . . . Is there a confidentiality agreement? I want to see it. Is there a federal contract? I want to see it.” (Doc. 6-4 at 19.)

         The following day, on October 25, 2018, the bankruptcy court issued a written order memorializing this ruling. (Doc. 2 ...


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