469 B.R. 158
Bankr. D. Conn.2012Background
- Debtor filed a Chapter 7 petition; Plaintiff CT Attorneys Title Insurance Co. filed an adversary to except a Judgment Debt from discharge under §523(a)(2)(A) (and §523(a)(4) amended).
- The Chapter 7 case resulted in a discharge for the Debtor on November 14, 2008; Plaintiff had filed a large unsecured claim, and a small unsecured dividend was paid.
- Denise, the Debtor’s former wife, embezzled funds from the Plaintiff during 1998–2000, with forged checks benefiting the LLC and Denise personally; the Debtor initially did not know of the embezzlement.
- Denise informed the Debtor of the embezzlement in January/February 2000; a Criminal Stipulation in separate federal proceedings later fixed a February 1999 confession date, creating judicial admissions.
- The State court judgment (December 11, 2003) against the Debtor, Denise, and the LLC arising from the same facts underlies the Judgment Debt at issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Denise’s embezzlement can be imputed to Debtor to make the debt nondischargeable under §523(a)(2)(A). | Plaintiff contends Denise’s fraud is imputable to Debtor via agency or conspiracy. | Debtor argues no agency or conspiracy liability for Earlier Embezzlements; later embezzlements require independent proof. | Nondischargeable to extent of Subsequent Embezzlements via agency and civil conspiracy. |
| Whether Debtor is vicariously liable for Denise’s Earlier Embezzlements. | Agency or civil conspiracy theories support vicarious liability. | There was no express/implied authority or agreement for Earlier Embezzlements; no conspiracy. | Not liable for Earlier Embezzlements. |
| Whether the joint venture/partnership theory applies to impute liability for the Center. | Debtor and Denise were a partnership in operating the Center. | LLC structure and ownership show no partnership; Denise had no ownership. | Partnership/joint venture theory rejected. |
| Whether §523(a)(4) embezzlement provides independent nondischargeability for Denise’s acts. | Embezzlement under §523(a)(4) should be nondischargeable. | §523(a)(4) adds no independent liability beyond §523(a)(2)(A) here. | Not additional beyond §523(a)(2)(A) for Subsequence Embezzlements; §523(a)(4) claim not separately impactful. |
| What is the overall dischargeability outcome for the Judgment Debt? | A substantial portion remains nondischargeable due to Denise’s fraud. | Most of the Judgment Debt is dischargeable; only specific portions survive. | Judgment Debt nondischargeable to the extent of Subsequence Embezzlements; remainder discharged; separate status conference ordered. |
Key Cases Cited
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (construction of actual fraud in § 523(a)(2)(A))
- Evans v. Ottimo, 469 F.3d 278 (2d Cir. 2006) (elements of actual fraud; reliance and intent)
- In re Woodall, 177 B.R. 517 (Bankr.D. Md. 1995) (definition of actual fraud under § 523(a)(2)(A))
- Marshak v. Marshak, 226 Conn. 652 (1993) (civil conspiracy requires underlying tort; not standalone liability)
- Gagne v. Vaccaro, 255 Conn. 390 (2001) (elements of unjust enrichment; relation to fraud theories)
- Davies v. General Tours, Inc., 63 Conn.App. 17 (2001) (partnership vs. joint venture analysis; intent governs)
- Nowak v. Capitol Motors, Inc., 158 Conn. 65 (1969) (apparent authority concepts in agency law)