Willmar Elec. Servs. Corp. v. Dailey (In re Dailey)
592 B.R. 341
D. Neb.2018Background
- Willmar Electric subcontracted cabling to SequrComm (CEO: Joseph K. Dailey) for Lincoln Public Schools projects; SequrComm required to pay its suppliers, principally Anixter.
- Willmar required SequrComm to sign "Unconditional Waiver and Release Upon Progress Payment" lien waivers certifying suppliers had been or would be promptly paid; Dailey signed multiple waivers in July 2014.
- SequrComm experienced serious cash-flow problems in mid-2014, owed large sums to Anixter, and sought outside financing; some Willmar payments to SequrComm were routed through factoring and used to pay other creditors, not Anixter.
- After Anixter was not paid, it filed a claim on Willmar’s payment bond; Willmar paid Anixter and sued in SequrComm’s bankruptcy, alleging Dailey’s lien waivers were fraudulent and debts nondischargeable.
- The Bankruptcy Court found Willmar failed to prove Dailey knew the waivers were false or intended not to pay Anixter and also found Willmar’s reliance may not have been justifiable; bankruptcy judgment for Dailey was appealed to district court.
Issues
| Issue | Plaintiff's Argument (Willmar) | Defendant's Argument (Dailey) | Held |
|---|---|---|---|
| Whether lien waiver statements fall under §523(a)(2)(A) (fraud) or §523(a)(2)(B) (financial condition) | Waivers were false statements inducing payment; thus nondischargeable under §523(a)(2) | Waivers concerned supplier payments, not Debtor’s overall financial condition | Court: Statements concerned supplier payments, not overall financial condition; §523(a)(2)(A) is the proper provision |
| Whether Dailey knowingly made false representations when signing waivers (element of §523(a)(2)(A)) | Dailey knew or should have known SequrComm was unable to pay Anixter and thus had no intent to pay; waiver statements were false when signed | Dailey lacked knowledge of the full Anixter debt at the time, intended to pay, and directed payments after learning of problems | Court: No clear error in Bankruptcy Court’s credibility findings; Willmar failed to prove Dailey knew waivers were false or lacked intent to pay |
| Whether Willmar justifiably relied on the lien waivers to make payments to SequrComm | Willmar relied on the waivers as a condition precedent to paying; reliance justified | SequrComm’s financial troubles were apparent; Willmar’s reliance may not have been justifiable | Court: Bankruptcy Court found Willmar did not prove justifiable reliance sufficiently; affirmed |
| Whether debt is nondischargeable under §523(a)(6) (willful and malicious injury) | Dailey’s actions were deliberate and intended to harm Willmar by diverting funds | No evidence of specific intent to harm Willmar or malice; actions reflect business/financial decisions | Court: No evidence of willful or malicious injury; §523(a)(6) claim fails |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (creditor bears preponderance burden to prove nondischargeability)
- Cohen v. de la Cruz, 523 U.S. 213 (fraudulent debts excepted from discharge)
- First Nat'l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604 (distinguishing §523(a)(2)(A) and (B))
- Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (definition of "financial condition")
- Kawaauhau v. Geiger, 523 U.S. 57 ("willful injury" requires deliberate intent to cause injury)
- In re Freier, 604 F.3d 583 (appellate standard and elements for §523(a)(2)(A))