Diamond v. Vickery (In re Vickery)
488 B.R. 680
| 10th Cir. BAP | 2013Background
- IIAP raised $6 million through DIA, which was used to obtain three IVDS licenses; $3.6 million was transferred to DIA, leaving IIAP undercapitalized.
- IIAP filed for Chapter 11, later converted to Chapter 7; trustee sought avoidance of transfers as fraudulent and pursued related claims.
- California district court awarded $3.6 million in judgment against Vickery and co-conspirators, plus $1,000,000 punitive damages against Vickery in 2007.
- Vickery filed Chapter 7 in 2010; Trustee sought nondischargeability under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).
- Bankruptcy court granted Vickery summary judgment on § 523(a)(2)(A) (false representation) and § 523(a)(4); judgment on § 523(a)(6) remained.
- Panel reverses § 523(a)(2)(A) as to actual fraud as an independent basis and remands for proof of actual fraud; affirms false representation and § 523(a)(4) rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is actual fraud a separate basis under § 523(a)(2)(A)? | Diamond contends actual fraud suffices under § 523(a)(2)(A). | Vickery argues only false pretenses/representations can support § 523(a)(2)(A). | Actual fraud is an independent basis under § 523(a)(2)(A); remand for proof. |
| Can misrepresentations to investors support nondischargeability in IIAP’s favor? | Diamond seeks to tie investor misrepresentations to IIAP’s debt. | Vickery argues standing is limited to the creditor to whom the debt is owed; investors’ misrepresentations cannot support claim. | No; § 523(c)(1) requires the creditor to be IIAP; misrepresentations to investors cannot support § 523(a)(2)(A) claim. |
| Was the § 523(a)(4) claim trial by consent improperly permitted for embezzlement? | Diamond contends embezzlement was raised/argued and should have been tried. | Vickery contends embezzlement was not properly pleaded/raised; no implied consent. | Trial by consent not established; affirmed dismissal of embezzlement claim. |
| What is the proper standard for reviewing statutory interpretations and trial findings in § 523(a) nondischargeability matters? | Diamond relies on statute plain meaning and case law recognizing actual fraud. | Vickery argues standard of review and statutory interpretation should align with controlling authorities. | De novo review for statutory interpretation; clear error for factual findings. |
Key Cases Cited
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000) (actual fraud not limited to misrepresentation)
- Field v. Mans, 516 U.S. 59 (Supreme Court 1995) (reliance standard for § 523(a)(2)(A) analyzed via common-law terms)
- In re Young, 91 F.3d 1367 (10th Cir. 1996) (elements of § 523(a)(2)(A) including false representation and reliance)
- In re Vitanovich, 259 B.R. 873 (6th Cir. BAP 2001) (actual fraud not limited to misrepresentation in § 523(a)(2)(A))
- In re Parker, 264 B.R. 685 (10th Cir. BAP 2001) (fraud vs. non-fraud distinctions in § 523(a) analyses)