Tri Supply & Equipment, Inc. v. Brady (In Re Brady)
458 B.R. 814
Bankr. D. Del.2011Background
- Debtor Donna K. Brady is a principal officer of several Delaware entities, including DK Brady Excavating, Brady Crab Co., and Brady Supply and Equipment.
- On Aug. 31, 2001, Brady and her entity DKBE entered a credit agreement with Tri Supply, with Brady and her husband Warren personally guaranteeing.
- Tri Supply supplied equipment/materials for construction, largely at a refinery, from 2001 through 2007.
- Debtor and DKBE defaulted; a Delaware Superior Court default judgment was entered November 24, 2009 in the amount of $371,260.60 plus 18% post-petition interest.
- Debtor filed Chapter 7 on January 11, 2010; Tri Supply commenced an adversary proceeding on April 3, 2010 asserting non-dischargeability under § 523(a)(4) and denial of discharge under §727(a)(2); Debtor answered May 3, 2010; the court heard oral argument on April 4, 2011.
- The Court must decide whether Debtor’s fiduciary duties arise under Delaware’s Construction Trust Statute and whether Debtor’s alleged transfers/concealments support denial of discharge under §727(a)(2).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor is a fiduciary under §523(a)(4). | Tri Supply argues the Construction Trust Statute creates an express fiduciary duty. | Brady argues she is not a contractor and thus not subject to the statute; officers/directors are not listed as contractors. | Count One dismissed; Brady not a fiduciary under §523(a)(4). |
| Whether Debtor’s transfers/hidden assets support denial of discharge under §727(a)(2). | Tri Supply alleges transfers to family, post-petition withdrawals, and other transfers show intent to hinder or defraud. | Each act has a plausible, legitimate explanation; no actual intent shown. | Count Two denied; discharge denial not established on these pleadings. |
| Whether the complaint adequately pleads the §727(a)(2) claims under Rule 9(b). | Tri Supply contends the complaint provides sufficient particularity of circumstances. | The complaint fails to allege specifics beyond conclusions. | Count Two survives Rule 9(b) scrutiny at pleading stage. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (discharge exceptions are strictly construed in favor of the debtor)
- Twombly v. Bell Atlantic Corp., 550 U.S. 544 (2007) (claims must have enough factual matter to raise a reasonable expectation of proof)
- Iqbal v. Ashcroft, 129 S. Ct. 1937 (2009) (pleadings require more than mere legal conclusions)
- Seville Indus. Mach. Corp. v. Southmost Machinery Corp., 742 F.2d 791 (3d Cir. 1984) (purpose of Rule 9(b) is to plead the circumstances of fraud with particularity)
- In re Moran, 413 B.R. 168 (Bankr.D. Del. 2009) (fiduciary status under §523(a)(4) limited to true trusts; state law used to identify fiduciary relationships)
- Crowe v. Moran (In re Moran), 413 B.R. 168 (Bankr.D. Del. 2009) (res judicata not bar to non-dischargeability claims; bankruptcy court jurisdiction governs dischargeability)
- In re Cohn, 54 F.3d 1108 (3d Cir. 1995) (§523(a)(4) burden on showing non-dischargeable debt)