574 B.R. 832
Bankr. D. Neb.2017Background
- MarPad (owned entirely by Martinez and Padilla-Ruezga) owned and operated the Lakehouse bar/restaurant. Seevers began managing the Lakehouse under an Employment Contract and agreed to buy MarPad under a Purchase Agreement effective July 1, 2014. MarPad retained title until closing.
- Before and during Seevers’ management the Lakehouse sustained hail damage and later an October 16, 2014 fire; insurance proceeds, damaged equipment, malfunctioning point-of-sale system, and disputed reimbursements/repairs were factual focal points.
- Disputes arose over Seevers’ use of MarPad bank accounts (cash withdrawals to replenish tip safe, various payments from the operating account, reimbursements), missing profit-and-loss reports, and allegedly unauthorized purchases and removals of property.
- Martinez discovered missing items after the fire and surveillance showing Seevers removing items; she paid vendors, taxes, and unpaid wages incurred while Seevers managed the business and then commenced suit. Seevers later filed Chapter 7 on December 11, 2015.
- Plaintiffs sought denial of Seevers’ Chapter 7 discharge under 11 U.S.C. § 727(a)(2) and, alternatively, a determination that debts owed to Plaintiffs are nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Seevers’ removal/ concealment of MarPad property within one year of petition warrants denial of discharge under §727(a)(2)(A) | Plaintiffs: Seevers removed property (fireplace, heaters, liquor, etc.) and concealed assets, which warrants denial of discharge. | Seevers: Items were either not his, were accounted for in schedules, or were removed earlier; also events occurred more than one year before petition. | Dismissed. Plaintiffs failed to prove (a) the items were Seevers’ property and (b) the acts occurred within one year before filing. |
| Whether Seevers’ representations and conduct make his debt nondischargeable under §523(a)(2)(A) (false pretenses/representations) | Plaintiffs: Seevers made false representations about payments, expenses, and intent/ability to buy MarPad to gain access to funds. | Seevers: Representations were not knowingly false; failures were breaches or misunderstandings, not intentional fraud. | Dismissed. Court found insufficient evidence of knowingly false representations, intent to deceive, and proximate causation for most alleged misrepresentations. |
| Whether a fiduciary relationship existed such that losses are nondischargeable under §523(a)(4) (defalcation in fiduciary capacity) | Plaintiffs: Employment Contract imposed trust-like duties (account management), creating an express fiduciary relationship. | Seevers: Relationship was contractual/employment; no express or technical trust; no trust res or declaration. | Dismissed. Court held no express or technical trust existed; mere employment/contractual duties insufficient for §523(a)(4). |
| Whether Seevers willfully and maliciously injured Plaintiffs under §523(a)(6) (tortious conduct nondischargeability) | Plaintiffs: Seevers intentionally depleted funds, removed property after the fire, and withheld records—conduct was deliberate and caused certain harm. | Seevers: Most actions were business decisions, reasonable expenditures, or authorized; only limited post-fire removals occurred and were not excused but were isolated. | Partial grant. Court found post-fire removal of liquor ($906.98), a fireplace ($299.98) and a heater ($119.00) were willful and malicious and nondischargeable under §523(a)(6); all other §523(a)(6) claims dismissed. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (plaintiff must prove nondischargeability by a preponderance; exceptions to discharge construed narrowly)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§523(a)(6) requires a deliberate or intentional injury, not merely an intentional act that leads to injury)
- City Nat’l Bank of Ft. Smith v. Bateman, 646 F.2d 1220 (8th Cir.) (standard elements for §727(a)(2)(A) claims)
- In re Treadwell, 637 F.3d 855 (8th Cir. 2011) (elements for §523(a)(2)(A) false representation claims)
- In re Nail, 680 F.3d 1036 (8th Cir. 2012) (federal law defines fiduciary under §523(a)(4); narrow scope requiring express or technical trust)
- In re Freese, 472 B.R. 907 (Bankr. D.N.D. 2012) (partnership/employment arrangements generally do not create express trusts for §523(a)(4) purposes)