535 B.R. 268
Bankr. E.D. Tenn.2015Background
- Debtors filed Chapter 7 and disclosure revealed Deck Masters ownership; Morse as 51% owner and secretary as 49% owner.
- Plaintiff lent $100,000 to Deck Masters, with two cashier’s checks, intended for construction at 902 Geswein Court.
- Plaintiff alleges funds were to be used solely for Geswein Court construction and to be repaid, with equity in the project.
- Morse disputes owner’s intent, claiming funds were a general cash infusion to fund company operations and not earmarked for Geswein Court.
- Plaintiff asserts misrepresentation and concealment regarding use of funds; debtor acknowledges some misallocation and use for general expenses.
- Bankruptcy court denied summary judgment on most claims, finding genuine disputes of material fact remain.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 523(a)(2)(A) nondischargeability against Morse | Smith contends Morse lied about the loan’s purpose to obtain funds. | Morse claims no intent to deceive and funds were used for business needs. | Genuine disputes of material fact; summary judgment denied. |
| 523(a)(4) embezzlement against Morse | Funds entrusted for Geswein project were misused by Morse for other debts. | No clear misappropriation; intent and use contested. | Genuine disputes of material fact; summary judgment denied. |
| 523(a)(6) willful and malicious injury against Morse | Morse’s use of funds intended for Geswein caused injury to plaintiff. | No clear willful/malicious injury proven; reliance and intent contested. | Genuine disputes of material fact; summary judgment denied. |
| 727(a)(3) recordkeeping against Morse | Morse failed to keep adequate records of fund use. | Recordkeeping judged against professional standard; explanations disputed. | Genuine disputes of material fact; summary judgment denied. |
| 727(a)(5) loss/deficiency of assets against Morse | Unable to account for disposition of $100,000; assets not adequately explained. | Defendants argue explanations exist within extensive records. | Genuine disputes of material fact; summary judgment denied. |
Key Cases Cited
- Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277 (6th Cir. 1998) (elements of 523(a)(2)(A) and proof by preponderance of evidence)
- Vitanovich (In re Vitanovich), 259 B.R. 873 (Bankr. BAP 2001) (actual fraud broader than misrepresentation; circumstantial proof of fraud permitted)
- Keeney v. Smith (In re Keeney), 227 F.3d 679 (6th Cir. 2000) (complete financial disclosure required; fraud intent can be inferred from circumstances)
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999) (willful/malicious standard; intentional injury required)
- In re Fox, 370 B.R. 104 (6th Cir. BAP 2007) (embelezzlement analysis under 523(a)(4) and circumstances indicating fraud)