T Street LLC v. Jaques, 615 B.R. 608

Background

Ronald Jaques was the managing member of Paradigm Property Solutions, LLC, which managed multiple apartment owners’ properties and held owner reserves, tenant rents, and security deposits in commingled “trust” accounts.
Paradigm (through Jaques) obtained multiple merchant cash advances (MCAs) and authorized daily ACH withdrawals; MCA repayments and other unauthorized debits were drawn from the Paradigm trust account.
Plaintiffs (several property-owner entities and a trust) received false owner statements, late-payment excuses, and, in one instance, altered/forged documents while their funds were short or missing; Paradigm’s accounts were essentially depleted by June 2018.
Plaintiffs sued in state court and obtained a temporary restraining order freezing Paradigm’s accounts; Jaques then opened new bank accounts, deposited tenant checks, and made withdrawals/transfers to himself and employees.
The bankruptcy court tried the adversary proceeding: it considered whether Jaques is personally liable (despite LLC status), whether debts are nondischargeable under 11 U.S.C. § 523(a)(2)(A) and § 523(a)(4), and the amount of damages and fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1) Personal liability of Jaques despite LLC shield	Jaques caused Paradigm’s misconduct; the LLC shield should not protect him for his own fraud/misconduct; pierce as alter ego.	Jaques argued Idaho LLC statute bars personal liability for company debts; he is distinct from Paradigm.	Court: Statute protects only vicarious liability; member remains liable for personal torts. Paradigm was Jaques’s alter ego; company liabilities imputed to him.
2) §523(a)(2)(A) — fraud/false representations	Plaintiffs relied on Jaques’s false statements, owner statements, and assurances about funds; these induced continued business and concealment.	Jaques contended statements related to Paradigm’s finances and are excluded by the §523(a)(2)(A) exception for statements respecting financial condition.	Court: Elements satisfied — misrepresentations, knowledge, intent, justifiable reliance, and proximate damage. Statements concerned owners’ funds (not Debtor’s financial condition); debts nondischargeable under §523(a)(2)(A).
3) §523(a)(4) — fiduciary fraud, defalcation, and embezzlement	For plaintiffs with express management agreements, Paradigm held funds in trust; Jaques committed fraud/defalcation/embezzlement by diverting trust funds to MCAs and unauthorized uses.	Jaques disputed existence of fiduciary trusts for some plaintiffs (e.g., Silver Fox, Trestles) and challenged scienter/intent.	Court: For EUDA, EJC, Oaklands, T Street, Doheny, and the Heron Trust, express trusts existed and fraud and defalcation met §523(a)(4); embezzlement (which needs only lawful possession) also established for plaintiffs including Trestles and Silver Fox. Debts nondischargeable under §523(a)(4).
4) Damages and fees	Plaintiffs seek recovery of owner reserves, rents, security deposits, unauthorized markups, taxes, extra insurance premium, and attorneys’ fees under Idaho law.	Jaques contested amounts and some contract terms; opposed some fee claims.	Court: Awarded specific damages to each plaintiff (totals enumerated in opinion) and allowed recovery of attorneys’ fees under Idaho Code §12-120; plaintiffs to submit fee affidavits for court determination.

Key Cases Cited

Drug Testing Compliance Grp., LLC v. DOT Compliance Serv., 383 P.3d 1263 (Idaho 2016) (LLC member liability and alter ego analysis under Idaho law)
Wandering Trails, LLC v. Big Bite Excavation, Inc., 329 P.3d 368 (Idaho 2014) (factors for piercing corporate veil/alter ego)
Verska v. Saint Alphonsus Reg’l Med. Ctr., 265 P.3d 502 (Idaho 2011) (statutory construction principles)
Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (definition of “actual fraud” for nondischargeability)
Bullock v. BankChampaign, N.A., 569 U.S. 267 (U.S. 2013) (defalcation standard — includes reckless/conscious disregard)
Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (U.S. 2018) (interpretation of “respecting the debtor’s financial condition” in §523(a)(2)(A))
Harmon v. Kobrin (In re Harmon), 250 F.3d 1240 (9th Cir. 2001) (elements for §523(a)(2)(A) nondischargeability)
Cal–Micro, Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119 (9th Cir. 2003) (narrow federal definition of “fiduciary” for §523(a)(4))
Transamerica Commercial Fin. Corp. v. Littleton (In re Littleton), 942 F.2d 551 (9th Cir. 1991) (elements/definition of embezzlement for §523(a)(4))
Murray v. Woodman (In re Woodman), 451 B.R. 31 (Bankr. D. Idaho 2011) (embezzlement in property-management context)