568 B.R. 281
Bankr. M.D. Tenn.2017Background
- In Feb–Mar 2015 the Pooles contracted with the Batsons for home construction and paid a $22,553.51 retainer deposited into the Batsons’ business account. The Batsons immediately used the funds for other purposes.
- The Pooles also paid $3,300 invoiced as an Impact Fee plus 10% contractor fee; the Batsons had not paid any Impact Fee and the fee was not required.
- The Batsons filed Chapter 7 on May 7, 2015 and abandoned the project; after petitioned, they produced an accounting showing only $618.83 in purchases for the Pooles’ site.
- The Pooles demanded return of the retainer post-petition; funds were not returned. Pooles seek nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6) and TCPA relief (treble damages, attorney’s fees, costs) for the Impact Fee.
- The bankruptcy court found (based on communications that the retainer would be set up “in house,” bank records showing overdrafts, and invoicing for an unpaid/unrequired Impact Fee) that Batsons made false representations and converted funds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nondischargeability under § 523(a)(2)(A) (fraud/false representation) | Poole: Batsons represented retainer would be set up "in house" and invoiced for an unpaid/unrequired Impact Fee; Pooles reasonably relied and suffered loss | Batson: funds routinely commingled; no intent to defraud; believed business was solvent | Held nondischargeable under § 523(a)(2)(A): false representation/false pretense, intent shown by misstatement and bank overdrafts, reasonable reliance and proximate loss |
| Nondischargeability under § 523(a)(4) (embezzlement/defalcation) | Poole: funds were entrusted and then appropriated for other uses with deceit, satisfying embezzlement elements | Batson: no fiduciary capacity/legitimate business use, no fraudulent appropriation | Held nondischargeable under § 523(a)(4): retainer and Impact Fee converted, deceit and circumstances show fraudulent intent |
| Nondischargeability under § 523(a)(6) (willful & malicious injury) | Poole: intentional conversion of funds caused injury | Batson: no intent to harm; intended to finish projects | Held dischargeable under § 523(a)(6): plaintiff failed to prove the higher willful-and-malicious standard |
| TCPA claim and damages (treble, fees, costs) | Poole: Batsons violated TCPA by charging and keeping Impact Fee and failing to refund; seeks treble damages, attorney fees, costs | Batson: contested factual basis; also argued post-petition context for refund demand | Held Batsons violated TCPA re: Impact Fee; treble damages awarded for $3,300 → $9,900 plus reasonable attorney fees and costs (to be proved by affidavit); TCPA damages nondischargeable |
Key Cases Cited
- Gleason v. Thaw, 236 U.S. 558 (bankruptcy discharge exceptions construed narrowly)
- Grogan v. Garner, 498 U.S. 279 (preponderance of evidence standard for nondischargeability)
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (purpose of fresh start in bankruptcy)
- Rembert v. AT & T Universal Card Servs., Inc., 141 F.3d 277 (6th Cir.) (elements of § 523(a)(2)(A) and inquiry into debtor intent)
- Brady v. McAllister (In re Brady), 101 F.3d 1165 (6th Cir.) (definition and elements of embezzlement under § 523(a)(4))
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir.) (willful and malicious standard for § 523(a)(6))
- Cohen v. de la Cruz, 523 U.S. 213 (statutory damages under state law are excepted from discharge)