Sorensen v. DeWall, 21-09028

Harold and Julie Sorensen and Nolan DeWall were shareholders of Voorhies Grain, Inc.; DeWall was hired as manager and acquired increased control and shares.
DeWall obtained two loans from GNB ($6,000,000 in 2016 and $2,500,000 in 2017) that the Sorensens personally guaranteed.
Plaintiffs allege DeWall submitted false/counterfeit warehouse receipts and false financial information, overstated grain inventory and quality, mixed beans and corn causing spoilage, and lost chemical inventory (~$500,000), all reducing collateral value.
GNB’s insurer recovered $1.5 million after concluding fraud by DeWall and applied $1,160,502.65 to the debt; a principal balance remained and Plaintiffs paid at least one interest payment.
DeWall filed Chapter 12 (July 20, 2021); Sorensens filed an adversary seeking nondischargeability under 11 U.S.C. § 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6). DeWall moved to dismiss.
The bankruptcy court denied the motion to dismiss as to all four counts, finding the complaints sufficiently pleaded under Iqbal/Twombly and Rule 9(b).

Issue	Plaintiff's Argument	Defendant's Argument	Held
§523(a)(2)(A) false pretenses/representations	DeWall knowingly made materially false statements and provided counterfeit receipts to induce GNB financing and Plaintiffs’ guarantees	Complaint lacks sufficient factual matter to be plausible under Iqbal/Twombly	Survives: pleadings sufficiently allege actionable false representations and intent
§523(a)(2)(B) statements in writing	Written financials and receipts were fraudulent and relied on by GNB and Plaintiffs	Insufficient particularity and plausibility under Rules 8 and 9(b)	Survives: factual allegations meet Rule 9(b) and plausibility standards
§523(a)(4) fraud/defalcation in fiduciary capacity	DeWall, as officer/manager/shareholder, owed fiduciary duties to co-shareholders and committed defalcation/ fraud	Long precludes treating corporate officer as fiduciary to third-party creditors; duties not pleaded as trust obligations	Survives: plaintiffs are co-shareholders (not third-party creditors), Iowa law recognizes officer-shareholder fiduciary duties; pleadings meet Rule 9(b)
§523(a)(6) willful and malicious injury	DeWall committed intentional fraud (an intentional tort) that was certain or almost certain to harm Plaintiffs who personally guaranteed the loans	Any injury was also to DeWall as shareholder, so conduct was not sufficiently willful/malicious	Survives: fraud is an intentional tort (willful) and objective likelihood of harm supports malice; pleadings adequate

Ashcroft v. Iqbal, 556 U.S. 662 (pleading must state a facially plausible claim)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for complaints)
In re Long, 774 F.2d 875 (8th Cir.) (fiduciary exception under §523(a)(4) limited to express trusts; caution about officers as fiduciaries to creditors)
In re Interstate Agency, Inc., 760 F.2d 121 (6th Cir.) (discussing officer fiduciary duties in bankruptcy context)
Cookies Food Prods., Inc. v. Lakes Warehouse Distrib., Inc., 430 N.W.2d 447 (Iowa 1988) (Iowa recognizes fiduciary duties of corporate officers to corporation and shareholders)
Kawaauhau v. Geiger, 523 U.S. 57 (willful means intentional tort for §523(a)(6))
In re Scarborough, 171 F.3d 638 (8th Cir.) (willful and malicious are distinct elements under §523(a)(6))
In re Miera, 926 F.2d 741 (8th Cir.) (malice satisfied when conduct is certain or almost certain to cause harm)
Glidepath Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435 (S.D.N.Y. 2007) (Rule 9(b) read in light of Rule 8’s liberal pleading standard)