Madison Resource Funding Corp. v. Jerry Marsh
20-6018
| 8th Cir. | Jul 21, 2021Background
- Synico Staffing (run by brothers Robert and Jerry Marsh) supplied temporary staff to U.S. Bank; Jerry later formed Syglo, a subvendor, without U.S. Bank's or Madison's knowledge.
- Madison provided payroll/billing financing to Syglo under a Master Agreement and Security Agreement; Jerry signed a guaranty of Syglo’s obligations.
- Madison advanced funds for Syglo workers at U.S. Bank; a contractual dispute with the U.S. Bank counterparty left Syglo unable to pay Madison.
- Madison terminated the Master Agreement and claimed it was owed $1,676,162.20; Madison sued each Marsh in separate adversary proceedings.
- Bankruptcy court found Jerry’s guaranty debt and Robert’s vicarious/conspiratorial liability nondischargeable under 11 U.S.C. §523(a)(2)(A) due to fraudulent misrepresentations/omissions, and awarded the $1,676,162.20 damage amount.
- Debtors appealed only the amount of damages; the appellate panel affirmed the bankruptcy court’s award.
Issues
| Issue | Plaintiff's Argument (Madison) | Defendant's Argument (Marshes) | Held |
|---|---|---|---|
| Whether $1,676,162.20 is properly nondischargeable under §523(a)(2)(A) | Madison: proved representations, fraud, and resulting damages for the full indebtedness | Debtors: challenge amount; argue it improperly includes profit and is not recoverable under Minnesota fraud damages law | Affirmed — amount established as a debt (breach of guaranty/conspiracy) and excepted from discharge under §523(a)(2)(A) |
| Whether Minnesota fraud-damages rules bar recovery of profit portion of the debt | Madison: dischargeability determined under bankruptcy law; debt is a nonbankruptcy law obligation (guaranty) and recoverable | Debtors: state-law rule on fraud damages limits recovery of profit, so award is excessive | Affirmed — state fraud-damage limitation is not dispositive; the claim is a contractual/guaranty debt properly excepted from discharge |
| Whether deemed admissions (RFAs) and testimonial evidence suffice to prove amount | Madison: RFAs were deemed admitted and, together with trial exhibits and testimony (Ex. 33, Chipman), establish the amount | Debtors: RFAs were not all admitted; testimony alone was insufficient and lacked documentary calculations | Affirmed — many RFAs were deemed admitted, documentary Exhibit 33 and testimony supported the award; trial-court credibility findings stand |
Key Cases Cited
- Kinard (In re Kinard), 998 F.3d 352 (8th Cir. 2021) (elements and proof standard for §523(a)(2)(A))
- Pierce (In re Pierce), 779 F.3d 814 (8th Cir. 2015) (de novo review of legal conclusions)
- Ungar (In re Ungar), 633 F.3d 675 (8th Cir. 2011) (clear-error review of factual findings)
- Reuter (In re Reuter), 686 F.3d 511 (8th Cir. 2012) (must establish liability under nonbankruptcy law before nondischargeability)
- Peabody Energy Corp., 958 F.3d 717 (8th Cir. 2020) (definition and scope of a "claim")
- Grogan v. Garner, 498 U.S. 279 (1991) (dischargeability determined by federal bankruptcy law)
- Flight Transp. Corp. Sec. Litig., 874 F.2d 576 (8th Cir. 1989) (Congress intended "claim" to include virtually all obligations to pay money)