In re: Richard Scott Urban
SC-13-1047-PaJuKu
| 9th Cir. BAP | Apr 16, 2014Background
- BCS West, LLC formed June 2000 with Urban as a member along with Britton, Stirsman, and Millum; initial equity investments and loans by members.
- BCS suffered chronic working capital shortages from 2000–2008, with negative working capital by 2005–2006.
- Urban allegedly concealed from Britton and Stirsman that BCS was Sold Out of Trust on Key Bank’s floor-plan loan around mid-2006.
- Resolution of the Key Bank SOT occurred in October 2006 via a $750,000 investment by an affiliated entity; Urban later removed from management in 2008 and the businesses liquidated by 2009.
- Arbitration in 2009–2010 resulted in an Award (Feb. 2, 2011) finding Urban’s concealment and fiduciary breaches, with damages allocated primarily to prior-period fraud; post-2006 capital call damages were also awarded to BCS.
- Urban filed for Chapter 7 in 2012; BCS filed a nondischargeability action under 11 U.S.C. 523(a)(2)(A), (a)(4), and (a)(6); the bankruptcy court granted partial summary judgment in 2013, which this panel later vacated and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether issue preclusion applies to the State Court Judgment | Urban contends preclusion does not apply given record gaps. | BCS argues the Award and State Court Judgment are adjudicatory and final, justifying preclusion. | Issue preclusion not established; vacate and remand for further proceedings. |
| Whether 523(a)(2)(A) actual fraud applies to concealment of insider financial condition | Urban argues unwritten financial-condition concealment cannot support 523(a)(2)(A). | BCS maintains concealment can support actual fraud if it deceived insiders. | Ambiguous Award; not sufficient to establish 523(a)(2)(A) due to non-written insider-condition concealment. |
| Whether 523(a)(4) defalcation/fiduciary fraud applies | Urban argues the record does not prove defalcation with requisite culpable mind. | BCS contends the Award shows fiduciary fraud/defalcation sufficient for discharge exception. | Bullock v. BankChampaign requires culpable state of mind; summary judgment improper; issue remains. |
| Whether the State Court offset allocation can be precluded | Urban argues offsets were not litigated as to nondischargeable amounts. | BCS asserts the State Court Judgment allocation is final and binding for preclusion purposes. | Court upheld use of preclusive allocation for discharge analysis, but overall vacated on merits; remand. |
Key Cases Cited
- In re Belice, 461 B.R. 564 (9th Cir. BAP 2011) (defines 'financial condition' scope for 523(a)(2)(A))
- Citibank (S.D.) N.A. v. Eashai (In re Eashai), 87 F.3d 1082 (9th Cir. 1996) (unwritten representations of financial condition and reliance)
- Anastas v. Am. Savings Bank (In re Anastas), 94 F.3d 1280 (9th Cir. 1996) (section 523(a)(2) and non-written representations; dicta discussed)
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013) (necessitates culpable state of mind for defalcation and fiduciary fraud)
- In re Mele, 501 B.R. 357 (9th Cir. BAP 2013) (trust element framework for 523(a)(4) analysis)
- In re Sasson, 424 F.3d 864 (9th Cir. 2005) (allocation finality and preclusion in dischargeability contexts)