MacArthur Co. v. Cupit (In re Cupit)
514 B.R. 42
Bankr.D. Colo.2014Background
- Debtor is owner/president of Professional Roofing, Inc. (PRI); formed in 2001 and later regained control of PRI in 2011 after a prior sale and settlement.
- Prior owner’s tenure left PRI with over $600,000 in payables and insufficient receivables; owner withdrew cash and PRI’s line of credit was maxed.
- Beginning May 2011 PRI purchased materials from MacArthur; Job Cost Details show funds from jobs not fully paid to suppliers, with revenues diverted to unrelated bills.
- MacArthur and other suppliers filed state-court lawsuits; PRI filed Chapter 11, then Debtor filed Chapter 7; this adversary proceeding seeks nondischargeability under § 523(a)(4).
- Court applies Bullock v. BankChampaign to define defalcation; finds defalcation post-August 5, 2011, and awards partial nondischargeable debt, with future calculation of prejudgment interest and potential attorney’s fees under Colorado theft statute.
- Court concludes that the nondischargeable amount is $47,775.56 (60% of $79,625.94) and total nondischargeable claim up to $143,326.68 including treble damages; embezzlement/larceny claims denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there defalcation under §523(a)(4) after Bullock? | MacArthur asserts fiduciary duty under the Construction Trust Fund Statute and defalcation. | Debtor contends no defalcation due to lack of knowledge of fiduciary duties. | Yes, defalcation established for funds misdirected after Aug. 5, 2011. |
| Are treble damages and prejudgment interest available? | Treble damages permitted under state theft statute and Cohen v. de la Cruz. | Not applicable or limited by the defalcation finding. | Treble damages awarded; prejudgment interest to be determined; attorney’s fees may be recoverable under Colo. theft statute. |
| Are there nondischargeable claims for embezzlement or larceny? | Debt could be nondischargeable under embezzlement/larceny. | Bullock’s defalcation standard does not automatically prove embezzlement/larceny; intent lacking. | No embezzlement or larceny found. |
Key Cases Cited
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013) (defalcation requires intentional wrong; recklessness standard heightened)
- Cohen v. de la Cruz, 523 U.S. 213 (1998) (nondischargeability extends to any debt arising from fraud; ancillary costs too)
- In re Gamboa, 400 B.R. 784 (Bankr. D. Colo. 2008) (construction trust funds; traceability of funds; know-how not required)
- In re Storie, 216 B.R. 283 (Bankr. D. Colo. 1997) (fiduciary duties; knowledge not required for trust creation)
- People v. Mendro, 731 P.2d 704 (Colo. 1987) (statutory fiduciary duties; knowledge not defense)