562 F. App'x 854
11th Cir.2014Background
- Ricardo and Sergio formed Havana Gardens, LLC, as the two managing members, to develop real property into a condo building.
- Disputes arose over Havana Gardens’ finances, including prior state court litigation.
- After Ricardo’s bankruptcy filing, Havana Gardens and Sergio sued in Bankruptcy Court seeking money from Ricardo and a determination that some debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A) and (a)(4).
- The Bankruptcy Court awarded Havana Gardens a judgment for all personal expenses Ricardo paid with company funds, but only a portion was deemed non-dischargeable under § 523(a)(4).
- The district court affirmed; the Eleventh Circuit reviews de novo the legal conclusions and for clear error the factual findings, with credibility determinations given deference.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether undeposited rent and unexplained charges qualify as embezzlement under § 523(a)(4). | Havana Gardens contends Ricardo embezzled funds for personal use. | Ricardo argues lack of fraudulent intent; not embezzlement under § 523(a)(4). | Yes; the funds are non-dischargeable embezzlement due to fraudulent intent. |
| Whether Ricardo’s conduct constitutes fraudulent intent under § 523(a)(4) but not § 523(a)(2)(A). | Havana Gardens argues fraudulent intent supports § 523(a)(4). | Ricardo maintains differences between (a)(2)(A) and (a)(4) negate intent under (a)(4). | Correct; different inquiries apply; intent found for (a)(4) but not for (a)(2)(A). |
| Whether the Bankruptcy Court’s credibility findings were clearly erroneous to support § 523(a)(4) sanction. | Credibility supports concealment of personal use of funds. | Credibility findings were erroneous or unsupported. | No clear error; credibility determinations were reasonable and support the ruling. |
Key Cases Cited
- In re Bilzerian, 153 F.3d 1278 (11th Cir. 1998) (standard of review for fraud and embezzlement claims; de novo on law, factual findings reviewed for clear error)
- In re Miller, 39 F.3d 301 (11th Cir. 1994) (credibility determinations given deference in fraud findings)
- United States v. Sayklay, 542 F.2d 942 (5th Cir. 1976) (definition of embezzlement as fraudulent appropriation by entrusted party)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance of the evidence standard for § 523(a) non-dischargeability)