473 B.R. 703
6th Cir. BAP2012Background
- Thomas and Patricia Cottingham are married; Patricia pled guilty to felony embezzlement from Cardiology Associates in 1999 and was on probation with restitution.
- Patricia later worked for Spaces, Inc. as an administrative assistant/bookkeeper, with Spaces’ owner controlling accounting but not check signing authority.
- Patricia embezzled funds from Spaces, Inc. beginning in 2001, with annual amounts increasing through 2008; embezzled funds were funneled into the couple’s joint accounts and used for lavish spending.
- Thomas, a construction supervisor, had ongoing financial obligations and significant undisclosed spending; the couple’s expenditures far exceeded their earned income.
- The Debtors’ joint accounts were used to deposit embezzled funds; Thomas had access to and participated in the couple’s finances, including signing checks and benefiting from purchases.
- In 2006–2007, purchases (e.g., a Jeep Commander, home improvements) and loans were financed with embezzled funds; Patricia embezzled tens of thousands yearly and forged a Spaces, Inc. credit card account.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the finding of conspiracy to convert funds was clearly erroneous | Cottingham engaged in a civil conspiracy by participating in Patricia's embezzlement and use of funds. | Cottingham did not knowingly participate; he should not be held liable for his spouse’s actions. | Not clearly erroneous; court upheld conspiracy finding. |
| Whether Cottingham caused willful and malicious injury to Spaces, Inc. | Cottingham knowingly participated in converting embezzled funds for joint benefit. | Cottingham lacked the requisite willful/malicious intent to cause injury. | Willful and malicious injury established; debt nondischargeable under § 523(a)(6). |
Key Cases Cited
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999) (defines willful injury as intended consequences or substantial certainty)
- Gonzalez v. Moffitt (In re Moffitt), 252 B.R. 916 (6th Cir. BAP 2000) (discusses willful/malicious injury standard and conspiracy concepts)
- Pinkerton v. United States, 328 U.S. 640 (1946) (liability of conspirators for acts of co-conspirators in furtherance of conspiracy)