Jeffrey Mullins v. United States Bankruptcy Court for the District of Colorado
20-46
| 10th Cir. BAP | Jun 30, 2021Background
- From 2011–2015 Jeffrey Mullins, Trans‑West sales manager, ran a kickback scheme: Trans‑West was caused to buy high/sell low to partners who then funneled profits to Mullins.
- Kickback proceeds were deposited into the Mullins’ joint personal account, Pinnacle (Jeffrey’s former business), and Mullbuch (Charity’s life‑coaching business).
- Trans‑West sued; criminal charges followed against Jeffrey. The Mullins filed Chapter 7, stayed the civil case, and Trans‑West pursued an adversary complaint for nondischargeability.
- The Bankruptcy Court found Jeffrey guilty of an extensive fraud (> $1,000,000) and excepted the debt from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(6).
- The Bankruptcy Court found Charity Mullins liable as a knowing co‑conspirator based on checks, deposits, spending, and other circumstantial evidence, and awarded treble damages, fees, and costs under Colo. Rev. Stat. § 18‑4‑405.
- The Mullins appealed only as to Charity; the BAP affirmed the Bankruptcy Court in all respects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of pleading / sua sponte amendment to add civil conspiracy | Trans‑West: Complaint put defendants on notice of conspiracy and resulting damages; no amendment required. | Mullins: Complaint did not plead conspiracy/§18‑4‑405 against Charity; court improperly amended pleadings. | Affirmed — complaint sufficiently alleged conspiracy; no improper sua sponte amendment. |
| Liability of Charity as civil co‑conspirator (state‑law claim) | Trans‑West: Charity actively and overtly participated (checks, deposits, company flows, spending), satisfying Colorado conspiracy elements. | Charity: Minimal involvement; lacked agreement/knowledge; mere receipt/benefit insufficient. | Affirmed — factual findings support knowing participation and conspiracy under Colorado law. |
| Nondischargeability under § 523(a)(2)(A) (actual fraud/false representation) | Trans‑West: Charity was an active, knowing participant so co‑conspirator fraud is attributable to her. | Charity: No false representation by her; lacked intent/knowledge to deceive Trans‑West. | Affirmed — intent and participation can be inferred from circumstances; § 523(a)(2)(A) applies to active co‑conspirators. |
| Nondischargeability under § 523(a)(6) (willful & malicious injury) | Trans‑West: Charity knowingly spent/converted stolen funds; conversion supports willful and malicious injury. | Charity: Mere receipt/expenditure without knowledge insufficient for § 523(a)(6). | Affirmed — court found knowledge and participation; conversion of stolen funds satisfied § 523(a)(6). |
| Treble damages and fees under Colo. Rev. Stat. § 18‑4‑405 applied to Charity | Trans‑West: Civil conspiracy causes all conspirators to answer for resulting damages; Complaint’s prayer and facts gave notice. | Charity: Enhanced damages were not properly pled against her. | Affirmed — conspiracy theory and Complaint provided notice; § 18‑4‑405 mandates treble damages and fees upon proof of civil theft. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (state‑law controls claim validity; different standard for nondischargeability)
- Kawaauhau v. Geiger, 523 U.S. 57 (§ 523(a)(6) requires a deliberate injury, not merely a deliberate act)
- Anderson v. City of Bessemer City, 470 U.S. 564 (appellate review of fact findings: not clearly erroneous if plausible)
- Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215 (active, knowing co‑conspirator liability for § 523(a)(2)(A) fraud)
- Haemonetics Corp. v. Dupre, 238 B.R. 224 (conversion/spending of stolen funds by spouse can support nondischargeability under § 523(a)(6))
- Bryant v. Tilley (In re Tilley), 286 B.R. 782 (receipt and expenditure alone insufficient for § 523(a)(6) without knowledge)