Walker v. Vanwinkle (In re Vanwinkle), 562 B.R. 671

Background

Plaintiffs Walker and Crawford obtained a Kentucky state-court judgment against debtor Troy Vanwinkle for contract-based liabilities of TLC Developers, LLC (judgment $87,300).
Vanwinkle filed Chapter 7 on March 2, 2016; discharge entered July 28, 2016 after parties failed to timely prosecute discharge objections.
Plaintiffs filed an adversary complaint (first and then amended) seeking to except the state-court judgment from discharge under 11 U.S.C. §§ 523(a)(2)(A) (actual fraud) and 523(a)(6) (willful and malicious injury), alleging a post-judgment fraudulent-conveyance scheme to frustrate collection.
Plaintiffs conceded the underlying liability was contract-based (not fraud) but argued Husky permits excepting a debt from discharge based on a post-judgment fraudulent scheme.
The amended complaint described post-judgment transfers, a charging order, and alleged concealment but failed to plead a separate fraud-based or tort-based debt that was “obtained by” actual fraud or that the underlying liability was willful and malicious.
The court granted defendant’s motion to dismiss under Rule 12(b)(6) and dismissed the amended complaint with prejudice for failure to state a § 523(a)(2)(A) or § 523(a)(6) claim; plaintiffs were not given leave to amend.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a contract-based state-court judgment can be excepted from discharge under § 523(a)(2)(A) based on a post-judgment fraudulent-conveyance scheme	Husky allows actual-fraud theory to reach post-judgment schemes that frustrate collection, so the judgment should be non-dischargeable	§ 523(a)(2)(A) excepts only debts "obtained by" actual fraud; Plaintiffs have not alleged the debt was obtained by fraud or pleaded a separate fraud-based debt	Dismissed — plaintiffs failed to plead a debt "obtained by" actual fraud; Husky does not create a debt and exception simultaneously and does not convert preexisting contract claims into non-dischargeable fraud debts
Whether plaintiffs pleaded a separate cause of action or amount of loss caused by the alleged post-judgment fraud sufficient to support § 523(a)(2)(A) relief	Post-judgment fraudulent transfers caused additional losses; those losses render debt non-dischargeable	Plaintiffs did not plead a distinct cause of action or quantify post-judgment fraud losses; reliance solely on § 523 is insufficient	Dismissed — complaint lacked allegations of a distinct fraud-based liability or damages caused by the alleged scheme
Whether the state-court judgment is non-dischargeable under § 523(a)(6) (willful and malicious injury) based on post-judgment conduct	The debtor’s intentional post-judgment transfers and conversions were willful and malicious and thus render the judgment non-dischargeable	The underlying liability arose from contract, not willful and malicious acts; post-judgment misconduct is not the basis for the judgment itself	Dismissed — plaintiffs failed to plead that the underlying debt was based on willful and malicious injury as required by § 523(a)(6)
Whether leave to amend should be granted after dismissal motion	Plaintiffs had previously amended and were given opportunity but failed to respond to the motion to dismiss; additional amendment unnecessary	No further amendment warranted given procedural history and insufficient prior pleading	Denied — dismissal with prejudice; no additional amendment granted

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard requires plausible factual allegations)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (complaint must raise claim above speculative level)
Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (actual fraud under § 523(a)(2)(A) need not be based on a misrepresentation; debt must still be “obtained by” fraud)
McClellan v. Cantrell, 217 F.3d 890 (7th Cir.) (actual fraud can include schemes to deprive)
Rembert v. AT & T Universal Card Servs., Inc., 141 F.3d 277 (6th Cir.) (elements of fraud based on misrepresentation)
Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir.) (§ 523(a)(6) requires intent to cause injury)
Kawaauhau v. Geiger, 523 U.S. 57 (§ 523(a)(6) applies only to acts done with actual intent to cause injury)