615 B.R. 479
Bankr. N.D. Ill.2020Background
- Plaintiff Chad Groom (Missouri) negotiated to buy a 1970 Dodge Challenger via defendant Patrick Krook, an Illinois resident who operated Show Your Auto, LLC as sole member/manager.
- Krook represented he was the seller’s broker, would obtain title, have agreed repairs made, and would forward the balance payment to the seller; Groom wired $86,750 to Show Your Auto (after a $10,000 deposit).
- Groom alleges Krook never contacted the seller, never paid the seller, never delivered the car, and kept the funds.
- Krook filed Chapter 7 in January 2019; Groom filed an adversary complaint seeking nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).
- Krook moved to dismiss all counts, arguing (among other things) that the funds belonged to the LLC and that the various § 523 grounds were inapplicable or mutually exclusive.
- The court evaluated the complaint under Rule 12(b)(6), accepted well-pleaded facts as true, and denied Krook’s motion to dismiss all three counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal liability of Krook despite LLC | Krook participated personally in torts; should be personally liable | Funds were corporate; any debt belongs to Show Your Auto, LLC | Krook can be held personally liable because he actively participated; corporate form does not shield him |
| § 523(a)(2)(A) – representational fraud | Krook falsely represented present facts (broker authority, contacting seller, obtaining title) and intended to deceive; Groom justifiably relied | Alleged statements were promises about future conduct (not actionable); complaint insufficiently particular | Count I states a plausible claim: promises made with no intent to perform can be actionable fraud; Groom pled facts supporting intent to deceive |
| § 523(a)(4) – embezzlement | Groom entrusted funds to Krook for payment to seller; Krook misappropriated them with knowledge he had no right to use them | Complaint lacks specifics (no escrow agreement, no detailed accounting); Beetler distinguishes consignment facts | Count II states a plausible embezzlement claim: money came to Krook lawfully and was fraudulently appropriated; Beetler is inapposite here |
| § 523(a)(6) – willful and malicious injury | Fraud/embezzlement were intentional and thus also support § 523(a)(6) relief | § 523(a)(6) is mutually exclusive from fraud/embezzlement claims | Count III is plausible; overlap among § 523 grounds is permissible after Husky; § 523(a)(6) need not be dismissed |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (factual content must permit reasonable inference of liability)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§ 523(a)(6) requires intent to cause consequences)
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016) (overlap among § 523(a) exceptions is permissible)
- Field v. Mans, 516 U.S. 59 (1995) (limitations on inquiry required for justifiable reliance)
- Viamedia, Inc. v. Comcast Corp., 951 F.3d 429 (7th Cir. 2020) (Rule 12(b)(6) standards for taking allegations as true)
- In re Davis, 638 F.3d 549 (7th Cir. 2011) (elements of § 523(a)(2)(A) representational fraud)
- Jendusa-Nicolai v. Larsen, 677 F.3d 320 (7th Cir. 2012) (definition of willful and malicious under § 523(a)(6))
- In re Weber, 892 F.2d 534 (7th Cir. 1989) (definition of embezzlement under § 523(a)(4))