576 B.R. 717
Bankr. M.D. Ga.2017Background
- Oman Family Trust contracted with Pilot Builders, Inc. (owned and operated solely by Jacob Hilsman) in March 2014 to build a house for an estimated $342,500; draw schedule and allowances were in the contract.
- Construction began July 2014; Trust paid a total of $420,327 through Dec 2014–May 2015; parties stipulated ~$256,000 applied to labor/materials and $164,000 was unpaid or not applied to the house.
- Hilsman promised completion dates (Feb 2015, then April 2015, then June 15, 2015) as delays occurred; Pilot later disclosed financial trouble and Hilsman informed the Trust he could not finish the house in late May 2015.
- Trust finished the house with another contractor; Hilsman filed Chapter 7 on Sept 21, 2015; Pilot dissolved Oct 27, 2015.
- Trust sued to declare the $164,000 nondischargeable under 11 U.S.C. § 523(a)(2)(A) based on alleged false representations and sought to pierce Pilot’s corporate veil to hold Hilsman personally liable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| §523(a)(2)(A) — failure to disclose Pilot’s financial condition | Hilsman had a duty to disclose Pilot’s financial problems; nondisclosure was fraudulent | No inquiry was made; mere nondisclosure absent an overt false statement is not actionable | Court: Nondisclosure alone insufficient; Trust failed to prove false representation |
| §523(a)(2)(A) — false promise to complete by Feb/June dates | Promises to finish by specified dates were fraudulent because Hilsman knew he lacked ability/intent | Hilsman intended to complete when promises were made; delays caused by subcontractors and later unexpected cancellations | Court: Plaintiff did not prove Hilsman lacked intent to perform at time of promises; claim fails |
| §523(a)(2)(A) — misuse of Trust payments (diverting draws to other Pilot obligations) | Draw requests represented funds would be applied to Trust house; diversion shows intent to defraud | Contract did not require trust account or that draws be applied solely to Trust house; payments placed in Pilot account per practice | Court: No contractual or proven representation that funds would be held or used solely for Trust house; no false representation shown |
| Piercing corporate veil / personal liability | Pilot was Hilsman’s alter ego; commingling, control, failing formalities justify piercing | Pilot maintained separate bank account, records, filings; no commingling of corporate/personal funds; typical small‑business guarantees exist | Court: Trust failed to show abuse of corporate form; veil not pierced; Hilsman not personally liable |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (preponderance standard for nondischargeability under § 523(a)(2)(A))
- Fuller v. Johannessen (In re Johannessen), 76 F.3d 347 (11th Cir.) (elements of § 523(a)(2)(A))
- Palmacci v. Umpierrez, 121 F.3d 781 (1st Cir.) (promise of future intent is actionable only if maker lacked intent when made)
- Equitable Bank v. Miller (In re Miller), 39 F.3d 301 (11th Cir.) (statutory exceptions to discharge construed narrowly)
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (Sup. Ct.) (actual fraud under § 523(a)(2)(A) can encompass schemes without express misrepresentations)
- J‑Mart Jewelry Outlets, Inc. v. Standard Design, 218 Ga. App. 459 (Ga. Ct. App.) (Georgia standard for piercing the corporate veil)
Disposition: Trust’s complaint denied and dismissed with prejudice; claim that $164,000 was nondischargeable under § 523(a)(2)(A) denied; corporate veil not pierced.