632 B.R. 877
Bankr. M.D. Fla.2021Background
- Dwight Richert owned and ran Richert Funding, LLC (R/Funding), an accounts-receivable factoring firm that acted as ABL Farms’ back-office and maintained ABL’s A/R records.
- ABL’s indebtedness to R/Funding grew from ~$50,000 to over $8 million while R/Funding prepared ABL’s aging reports and controlled cash application; Richert knew ABL was not collecting receivables and was insolvent.
- Richert and ABL insiders falsified ABL’s A/R aging reports and concealed a shortfall of ~$1.4 million so BMO Harris Bank would extend asset-based loans; BMO advanced ~$4.557M (initially $3.89M paid to R/Funding) and later a $1M seasonal line—totaling $4.89M paid to R/Funding.
- Unbeknownst to BMO, R/Funding executed a secret 2014 Factoring Agreement to keep a secured position and continued factoring ABL; ABL later collapsed (check-kiting discovered), BMO obtained a judgment against ABL and sued Richert/R/Funding.
- BMO filed an adversary in Richert’s Chapter 7 seeking nondischargeability under 11 U.S.C. § 523(a)(2)(A), (4), and (6); the court found Richert personally orchestrated the fraud and held him liable under § 523(a)(2)(A).
- Damages: court measured BMO’s out-of-pocket loss (loaned amount less payments) at $4,742,403.67, added prejudgment interest to total $6,068,896.68, and awarded post-judgment interest thereafter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Richert’s conduct rendered debt nondischargeable under § 523(a)(2)(A) (fraud/false representation) | Richert knowingly falsified aging reports and misrepresented payoff and factoring status to induce BMO to lend; BMO justifiably relied and suffered loss | Richert denied intent or minimized role; argued some actions were by employees or inadvertent | Court: Held for BMO—Richert personally directed and participated in intentional fraud; § 523(a)(2)(A) satisfied |
| Whether § 523(a)(4) (embezzlement/larceny) supports nondischargeability | BMO argued Richert embezzled/converted loan proceeds paid to R/Funding | Richert argued BMO lacked standing because funds were paid to ABL and BMO only had a security interest | Court: Denied—BMO lacked standing for embezzlement/larceny; transfer to ABL precluded § 523(a)(4) claim |
| Whether § 523(a)(6) (willful and malicious injury/conversion) applies | BMO contended conversion occurred when funds were taken | Richert argued same standing and ownership defenses; no direct dominion over BMO’s property | Court: Denied—conversion claim fails for lack of standing/ownership by BMO |
| Proper measure of damages and interest | BMO sought full judgment amount against ABL and contractual interest | Richert argued against full ABL judgment and interest; challenged causal link and measure | Court: Damages limited to out-of-pocket loss (loan proceeds less payments): $4,742,403.67; no contractual interest, prejudgment interest awarded to reach $6,068,896.68; post-judgment interest at federal rate |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (preponderance standard for nondischargeability under § 523)
- Field v. Mans, 516 U.S. 59 (1995) (justifiable—rather than reasonable—reliance standard under § 523(a)(2)(A))
- Cohen v. De La Cruz, 523 U.S. 213 (1998) (definition of "debt" as liability on a claim for nondischargeability analysis)
- City Bank & Trust Co. v. Vann, 67 F.3d 277 (11th Cir. 1995) (discussing creditor’s duty to investigate; reliance inquiry)
- In re Miller, 39 F.3d 301 (11th Cir. 1994) (fraudulent intent and recklessness inference in nondischargeability determinations)