664 B.R. 265
Bankr. D.N.D.2024Background:
- Glasser Images, owned and controlled by Jack Glasser, sold wedding photography/videography packages requiring customers to prepay (often by credit card) and did not segregate deposits or escrow funds for future performance.
- The business suffered severe cash-flow problems from 2018–2021, closed abruptly on October 7, 2021, and failed to perform many paid services.
- After the closure, hundreds of customers initiated chargebacks; PayJunction (the payment processor) paid approximately $900,033.36 in chargebacks to cardholders and sued, obtaining a Georgia default judgment against Glasser/Glasser Images for $977,241.14 (chargebacks, fees, attorneys’ fees).
- North Dakota Attorney General secured a consent judgment finding Glasser and Schacher violated the consumer fraud statute and ordering restitution ($767,188 against Glasser; $40,000 against Schacher); the consent judgment included admissions of deceptive practices.
- Glasser and Schacher filed Chapter 7 bankruptcies; PayJunction sued both in adversary proceedings seeking nondischargeability under 11 U.S.C. § 523(a)(2)(A) (and § 523(a)(6) against Glasser), asserting subrogation to cardholders’ fraud claims and direct liability theories against Schacher.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PayJunction may stand in the shoes of cardholders (subrogation) and assert §523(a)(2)(A) fraud against Glasser | PayJunction is subrogated (contract clause & equitable subrogation; §509 where applicable) and can pursue customers’ fraud claims | Glasser contends §509 doesn't apply to prepetition payments and disputes elements of fraud | Held for PayJunction: contract rights + equitable subrogation allow PayJunction to assert customers’ fraud claims; judicial estoppel bars Glasser from denying his consent-judgment fraud admissions, so §523(a)(2)(A) fraud established against Glasser |
| Amount nondischargeable | Entire Georgia judgment amount $977,241.14 (chargebacks + processing fees + attorneys’ fees) | Glasser argues offset/double recovery concerns and limits | Held: Full $977,241.14 is excepted from discharge under §523(a)(2)(A); Cohen permits inclusion of fees and related relief; Glasser may seek credit from state restitution overlap evidence |
| Whether PayJunction’s claim is enforceable against Schacher (contract, subrogation, direct fraud, alter-ego, agency/Bartenwerfer theory) | Schacher is liable as agent/beneficiary/alter-ego or via subrogation to cardholders | Schacher was not a contract signatory, had no control, no proof PayJunction reimbursed his restitution, and no proven fraud or partnership | Held for Schacher: Claim dismissed—PayJunction failed to prove an enforceable debt or subrogation/right to assert customers’ claims against Schacher; alter-ego, partnership, agency, and Bartenwerfer theories not established |
| Whether Glasser’s §523(a)(6) willful and malicious claim (intentional harm to PayJunction) is established | PayJunction alleged willful/malicious conduct by Glasser | Glasser denied intent; evidence insufficient | Held: §523(a)(6) claim dismissed without prejudice (court did not make a §523(a)(6) finding) |
Key Cases Cited
- Cohen v. de la Cruz, 523 U.S. 213 (1998) (nondischargeable fraud debts may include attorneys’ fees and related relief)
- Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 356 (2016) (actual fraud under §523(a)(2)(A) can include fraudulent transfers schemes; underlying law defines liability)
- Bartenwerfer v. Buckley, 598 U.S. 69 (2023) (§523(a)(2)(A) can apply when fraud was committed by someone other than the debtor; underlying law determines imputation of liability)
- New Hampshire v. Maine, 532 U.S. 742 (2001) (judicial estoppel doctrine and its purpose)
- Combs v. The Cordish Companies, Inc., 862 F.3d 671 (8th Cir. 2017) (factors guiding judicial estoppel application)
- In re Armstrong, 498 B.R. 229 (B.A.P. 8th Cir. 2013) (subrogee may assert third-party §523 claims)
- Portal Investments, LLC v. Johnson (In re Johnson), 584 B.R. 895 (Bankr. D.N.D. 2018) (attorneys’ fees and related expenses may be part of a nondischargeable fraud debt)
- Star Insurance Co. v. Continental Resources, Inc., 89 F. Supp. 3d 1015 (D.N.D. 2015) (equitable subrogation principles under North Dakota law)
- UMB Bank, N.A. v. Eagle Crest Apartments, LLC, 984 N.W.2d 360 (N.D. 2023) (veil-piercing/alter-ego factors and necessity of showing inequity or domination)
- In re Leedy Mortgage Co., 111 B.R. 488 (Bankr. E.D. Pa. 1990) (five-factor test often applied for equitable subrogation)