Peter G. Zemanian, VSB No. 24922 

Zemanian Law Group 

223 E. City Hall Ave., Suite 201 

Norfolk, Virginia 23510 

(757) 622-0090 

Counsel for Beach Commercial 

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

Newport News Division 

In re: WILLIAM KENNETH MATKINS, Case No. 18-50047-FJS 

 and 

 CHRISTY ANN FULLER-MATKINS, Chapter 7 

 Debtors. 

COMMERCIAL CASH FLOW, L.L.C., t/a, : 

BEACH COMMERCIAL FINANCE, : 

 Plaintiff, : 

 : 

v. : APN ________________ 

: 

WILLIAM KENNETH MATKINS : 

 : 

 Defendant. : 

CORRECTED COMPLAINT TO DETERMINE NONDISCHARGEABILITY OF DEBT 

Plaintiff Commercial Cash Flow, L.L.C., t/a Beach Commercial Finance (“Beach 

Commercial”), by counsel, respectfully submits the following as its complaint (this “Complaint”) 

seeking a determination on the nondischargeable status of a portion of the indebtedness owed to 

Beach Commercial by defendant William Kenneth Matkins (“Mr. Matkins”) to the extent: (i) 

based upon false certifications or representations or based upon actual fraud (unrelated to any 

statement regarding Mr. Matkins’ financial condition), within the scope of 11 U.S.C. 

§523(a)(2)(A); (ii) based upon fraud or defalcation committed while acting in a fiduciary 

capacity, within the scope of 11 U.S.C. § 523(a)(4); and/or (iii) based upon embezzlement or 

larceny, also pursuant to 11 U.S.C. § 523(a)(4). 

In support of this requested relief, Beach Commercial states as follows: 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 1 of 12
2

Parties

1. On January 17, 2018, Mr. Matkins and his spouse Christy Ann Fuller-Matkins 

(“Ms. Fuller-Matkins”, and together with Mr. Matkins the “Debtors”) filed with this Court a joint 

voluntary petition under chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 701, et 

seq. The Debtors are residents of Toano (James City County), Virginia. 

2. Mr. Matkins is the president and part owner of the former Bay Rivers Industrial, 

Inc. (“Bay Rivers”), a Virginia corporation which had its principal office located in Toano 

(James City County), Virginia. 

3. Beach Commercial is a Virginia limited liability company, with its principal 

office located in Virginia Beach, Virginia. 

Jurisdiction and Venue 

4. This Court has referred jurisdiction over this chapter 7 case pursuant to 28 U.S.C. 

§§ 1334(a) and 157(a). 

5. This Court likewise has referred jurisdiction over this particular proceeding, 

pursuant to the “arising in” and “related to” jurisdiction of 28 U.S.C. § 1334(b). 

6. This is an “adversary proceeding” within the meaning of Rule 7001(6) of the 

Federal Rules of Bankruptcy Procedure. 

7. This adversary proceeding is a “core proceeding” within the scope of 28 U.S.C. § 

157(b)(2)(I). 

8. Venue properly lies in this district by virtue of 28 U.S.C. § 1409(a). 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 2 of 12
3

 Allegations Common to All Counts 

9. Beach Commercial and Bay Rivers are parties to an Agreement dated as of 

February 7, 2017 (the “Factoring Agreement”), pursuant to which Beach Commercial at its 

option may extend to Bay Rivers short-term working capital via the purchase, from time to time, 

of specific invoices and accounts receivable (collectively “Sold Invoices”) offered for sale by 

Bay Rivers. A redacted copy of the Factoring Agreement is attached as Exhibit 1. 

10. Beach Commercial acquires complete ownership and title to all Sold Invoices 

offered for sale and purchased pursuant to the Factoring Agreement, and the right to receive all 

proceeds of such Sold Invoices. 

11. Mr. Matkins has personally guaranteed payment and performance of Bay Rivers’ 

obligations under the Factoring Agreement pursuant to a Continuing Guaranty and Waiver dated 

as of February 7, 2017 (the “Guaranty”). A copy of the Guaranty is attached as Exhibit 2. 

12. During the six-month period from February 7 to August 31, 2017, Bay Rivers 

sold to Beach Commercial several Sold Invoices, with aggregate face values of $1,872,616.84. 

13. As of the date of this Complaint, Beach Commercial has received payments 

totaling $1,606,709.05 on its Sold Invoices. 

14. As of the date of this Complaint, a balance of $265,907.79 remains due and owing 

to Beach Commercial on Sold Invoices for which customer payments have not yet been received. 

15. Beach Commercial continues to seek payment from Huntington Ingalls Industries, 

the one remaining account debtor on unpaid Sold Invoices, but has uncovered a number of 

defalcations and malfeasance on the part of Mr. Matkins which have rendered at least a portion 

of such outstanding Sold Invoices uncollectible. 

16. Beach Commercial surmises that the entire $265,907.79 still-outstanding balance 

on Sold Invoices is impaired to some measure by the improper actions of Mr. Matkins as 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 3 of 12
4

“servicing agent” under the Factoring Agreement. Beach Commercial, however, has decided to 

restrict this request for nondischargeability to just six (6) Sold Invoices for which the 

malfeasance of Mr. Matkins is unquestionably clear. 

a. Fraudulent Receivables 

17. In this Complaint, Beach Commercial has identified three (3) Sold Invoices for 

which Bay Rivers did not deliver (and ultimately never delivered) to Huntington Ingalls the 

specified product - - that being 340 product items (the “Fraudulent Receivables”). 

18. Prior to offering to sell to Beach Commercial each of the Sold Invoices, Bay 

Rivers and Mr. Matkins were required to complete, sign and present to Beach Commercial its 

standard Authorization to Sell form (the “ATS”). A redacted copy of the completed ATS form, 

copies of the three subject invoices and related supporting paperwork are attached as Exhibit 3. 

19. Every ATS form completed and signed by Mr. Matkins, on behalf of Bay Rivers, 

and presented to Beach Commercial includes a number of transaction-specific certifications and 

representations, including: 

 2. The [c]ustomer [i.e., Huntington Ingalls] has received the goods and is 

satisfied with the quantity and quality. 

 8. The [s]eller [i.e., Bay Rivers/Mr. Matkins] understands that [Beach 

Commercial] is directly relying on all of the above certifications and 

representations when purchasing this invoice or these invoices.

20. For each and all of the outstanding Sold Invoices, Mr. Matkins circled the “Y”, in 

the affirmative, to the foregoing certification nos. 2 and 8. Mr. Matkins personally signed each 

and all of the completed ATS forms presented to Beach Commercial as required for sale of the 

outstanding Sold Invoices. Beach Commercial justifiably relied upon the truth and accuracy of 

Mr. Matkins’ certifications and representations when purchasing the Sold Invoices. 

21. Mr. Matkins’ offers to sell to Beach Commercial the Fraudulent Receivables, and 

his receipt (via e.f.t.) from Beach Commercial of the corresponding “Downpayment”, as 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 4 of 12
5

provided in section 2.2 of the Factoring Agreement, were based upon the false certifications and 

representations contained in the submitted ATS forms. Such false certifications were presented 

to Beach Commercial, despite Mr. Matkins knowing that the Sold Invoices comprising 

Fraudulent Receivables were not, at the time of their sale, bonafide or valid and thus were not 

collectible. 

22. As of the date of this Complaint, a total of $134,879.14 remains due and 

outstanding on the Fraudulent Receivables. 

b. Misappropriated Proceeds of Sold Invoices 

23. As of the date of this Complaint, Beach Commercial has identified another three 

(3) Sold Invoices for which Mr. Matkins, in breach of his obligations under the Factoring 

Agreement and the Guaranty, wrongfully diverted customer payments belonging to Beach 

Commercial (the “Misappropriated Proceeds”). 

24. The Factoring Agreement, in pertinent part, provides and requires: 

 That Bay Rivers is designated as the “servicing agent” for all Sold Invoices. 

Factoring Agreement, at preamble. 

 That Beach Commercial obtains complete ownership of, and title to, the Sold 

Invoices upon deposit or application of the corresponding Downpayment. 

Factoring Agreement, at ¶ 2.5. 

 That Bay Rivers’ employees and officers (including Mr. Matkins) are prohibited 

from depositing any customer checks received in payment of Sold Invoices. 

Factoring Agreement, at ¶3.1. 

 That all original paper checks and related check stubs, received by Bay Rivers in 

payment of Sold Invoices “must, as promptly as possible,” be delivered to Beach 

Commercial. Factoring Agreement, at ¶3.2. 

 That Bay Rivers “shall, without offset, act as a servicing agent and trustee of an 

EXPRESS TRUST for [Beach Commercial’s] benefit” with regard to Sold 

Invoices. Factoring Agreement, at ¶3.6. 

25. On or shortly after August 16, 2017, Mr. Matkins, on behalf of Bay Rivers, 

received from Glotech, Inc. its check no. 30694 in the amount of $34,921.70 in payment of Sold 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 5 of 12
6

Invoices owned by Beach Commercial. Redacted copies of the Glotech, Inc. check, the Sold 

Invoices on which the check was tendered in payment and related supporting paperwork are 

attached as Exhibit 4. 

26. In breach of his obligations under the Factoring Agreement, Mr. Matkins failed to 

deliver the Glotech, Inc. check to Beach Commercial. Mr. Matkins instead opened a new 

company checking account, at a banking institution different from Bay Rivers’ primary bank 

(BB&T). Without prior notice to or the consent of Beach Commercial, Mr. Matkins deposited 

the proceeds of the Glotech, Inc. check into this newly opened Bay Rivers checking account. 

27. On information and belief, Mr. Matkins promptly spent the proceeds received 

from Glotech, Inc. in payment of such Sold Invoices, and these Glotech, Inc. proceeds no longer 

are available to be remitted to Beach Commercial. 

c. Additional Charges 

28. As of the date of this Complaint, purchase discounts (i.e., factoring fees), a 1% 

late fee and 3% APR interest have been accumulating on the outstanding Fraudulent 

Receivables, in the amount of $8,463.67, and on the outstanding Misappropriated Proceeds, in 

the amount of $2,249.54, in accordance with sections 2.6, 5.4, 5.5 and 10.2.k of the Factoring 

Agreement. 

29. Through the date of filing of this Complaint, Beach Commercial has incurred 

$10,583.50 in attorney’s fees and other reimbursable costs on account of the unpaid Sold 

Invoices, which sums are recoverable under the terms of sections 10.2.e of the Factoring 

Agreement. 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 6 of 12
7

Count One - - 11 U.S.C. §523 (a)(2)(A) (false representation/actual fraud) 

30. Beach Commercial restates and incorporates for purposes of this Count One the 

allegations set forth in paragraphs 1-29 above. 

31. Section 523(a)(2)(A) excepts from discharge all debts of an individual debtor: 

(2) for money ... to the extent obtained by – 

(A) false pretenses, a false representation or actual fraud, 

other than a statement respecting the debtor’s or an 

insider’s financial condition. 

11 U.S.C. §523(a)(2)(A). 

32. The Factoring Agreement, in section 9.1, provides that Bay Rivers and Mr. 

Matkins jointly and severally “promise, represent, certify, warrant and covenant” that: 

[e]ach invoice sold to Beach Commercial, at the time 

of its creation and continuing until Beach Commercial 

receives the [c]ustomer’s payment, is an accurate and 

undisputed statement of a [c]ustomer’s indebtedness 

owed to [Bay Rivers] for goods, sold to, delivered to, 

and accepted by the [c]ustomer and/or for services 

rendered to and accepted by the [c]ustomer. 

33. An equivalent certification is made by Bay Rivers and Mr. Matkins pursuant to 

the corresponding completed, signed and delivered A.T.S. forms accompanying each of the Sold 

Invoices. 

34. Mr. Matkins, on behalf of Bay Rivers, obtained from Beach Commercial money 

based upon his false certifications and representations and upon actual fraud underlying the 

Fraudulent Receivables, for which Bay Rivers supplied no goods to Huntington Ingalls as of the 

date of sale to Beach Commercial of such Sold Invoices. 

35. Beach Commercial justifiably relied upon Mr. Matkins’ false certifications and 

misrepresentations underlying the Fraudulent Receivables. Field v. Mans, 516 U.S. 59 (1995) 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 7 of 12
8

(the standard for establishing a §523(a)(2)(4) nondischargeability claim is “justifiable reliance”, 

a less-demanding standard than “reasonable reliance”). 

36. The amount remaining due to Beach Commercial on the Fraudulent Receivables, 

and the associated interest and charges, are nondischargeable as to Mr. Matkins within the scope 

of 11 U.S.C. §523(a)(2)(A). 

37. In addition, by intentionally depositing the $34,921.70 Glotech, Inc. check into 

the new Bay Rivers checking account, Mr. Matkins committed an act of actual fraud, rendering 

such additional portion of his indebtedness to Beach Commercial nondischargeable under 11 

U.S.C. §523(a)(2)(A). Husky Int’l Elec., Inc. v. Ritz, 136 S. Ct. 1581 (2016) (creditor need not 

establish a “false representation” by debtor in order to establish “actual fraud” under 

§523(a)(2)(A); these are distinct concepts). 

Count Two – 11 U.S.C. § 523(a)(4) (fiduciary defalcation) 

38. Beach Commercial restates and incorporates for purposes this Count Two the 

allegations set forth in paragraphs 1 through 37 above. 

39. Section 523(a)(4) excepts from discharge all debts of an individual debtor: 

(4) for fraud or defalcation while acting in a fiduciary 

capacity, embezzlement or larceny. 

11 U.S.C. §523(a)(4). 

40. By virtue of his status as president and part owner of Bay Rivers, and pursuant to 

section 3.6 of the Factoring Agreement, Mr. Matkins stands in a fiduciary capacity for the 

actions and omissions of his company. See generally FDIC v. Sea Pines Company, 692 F.2d 

973, 976-77 (4th Cir. 1982) (“when [a] corporation becomes insolvent, the fiduciary duty of the 

directors shifts from the stockholders to the creditors”). 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 8 of 12
9

41. This shifted fiduciary duty exists by reason of Mr. Matkins’ status as officer and 

part owner of Bay Rivers, and is not predicated upon any direct trust relationship that must first 

be established by Beach Commercial. See Airlines Reporting Corp. v. Ellison (In re Ellison), 

296 F.3d 266, 270-72 (4th Cir. 2002) (personal conduct of officers, directors and shareholders 

created indebtedness to corporation’s creditor, thus rendering such debt nondischargeable under 

§ 523(a)(4)). 

42. Mr. Matkins’ and Bay Rivers’ sale to Beach Commercial of the Sold Invoices 

represented by the Fraudulent Receivables, unsupported by delivered goods, was (at a minimum) 

a grossly reckless defalcation on the part of Mr. Matkins while acting in a fiduciary capacity. 

43. Likewise, Mr. Matkins’ and Bay Rivers’ diversion of the Misappropriated 

Proceeds, and his subsequent nondisclosure of these misdirected payments via their intentional 

deposit into a new and unauthorized account, was a knowing, or at least grossly reckless, 

defalcation on the part of Mr. Matkins while acting in a fiduciary capacity. 

44. The resulting losses that have been, and continue to be, sustained by Beach 

Commercial, and all associated interest and charges, are the direct consequence of Mr. Matkins’s 

intentional or grossly reckless defalcation committed while acting in a fiduciary capacity, and 

thus are nondischargeable within the scope of 11 U.S.C. § 523(a)(4). See Bullock v. 

BankChampaign, N.A., 113 S.Ct. 1754, 1759-61 (2013) (“defalcation” under § 523(a)(4) 

requires an intentional wrong or reckless conduct on the part of the debtor); cf. Ansari v. Pahlavi 

(In re Pahlavi), 113 F.3d 17, 20 (4th Cir.) (nondischargeable defalcation under § 523(a)(4) occurs 

when there is “misappropriation of trust funds or money held in a fiduciary capacity . . . [or the] 

failure to properly account for such funds, but such defalcation “does not have to rise to the level 

of ‘fraud,’ ‘embezzlement’ or even “misappropriation’”) (citations omitted), cert. denied, 522 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 9 of 12
10

U.S. 914 (1997); see generally In re Giordano, 472 B.R. 313 (Bankr. E.D. Va. 2012) (Hon. Brian 

F. Kenney). 

Count Three – 11 U.S.C. § 523(a)(4) (embezzlement/larceny) 

45. Beach Commercial restates and incorporates for purposes of this Count Three the 

allegations set forth in paragraphs 1 through 44 above. 

46. Mr. Matkins’ intentional conduct with regard to both the Fraudulent Receivables 

and the Misappropriated Proceeds constitutes “embezzlement” under Virginia law. Va. Code § 

18.2-111; see Smith v. Commonwealth, 222 Va. 646, 649 (1981) (“[a] person entrusted with 

possession of another’s personalty who converts such property to his own use or benefit is guilty 

of the statutory offense of embezzlement”) 

47. Mr. Matkins’ conduct with regard to both the Fraudulent Receivables and the 

Misappropriated Proceeds likewise constitutes “larceny” under Virginia law. Va. Code 18.2-95. 

Under Virginia law, larceny is distinguished from embezzlement primary based upon the 

question of the owner’s consent to the perpetrator’s initial possession of the misappropriated 

property. Id. If it is determined that Mr. Matkins’ intentional conduct with regard to the 

Fraudulent Receivables and the Misappropriated Proceeds was without Beach Commercial’s 

initial consent, he will be liable for larceny (if not embezzlement). 

48. There is no separate requirement that Mr. Matkins have acted in a fiduciary 

capacity in order to determine nondischargeable a debt for embezzlement or larceny. The act 

alone will suffice. See In re O’Brien, 154 B.R. 480, 483-84 (Bankr. W.D. Tenn. 1993). 

49. The portion of the losses sustained by Beach Commercial, on account of the 

Fraudulent Receivables and the Misappropriated Proceeds, as well as all associated interest and 

charges are the direct result of Mr. Matkins’ embezzlement or larceny. 11 U.S.C. § 523(a)(4). 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 10 of 12
11

WHEREFORE, Beach Commercial respectfully requests that this Court enter a judgment 

determining: 

(i) that Mr. Matkins’ conduct in presenting false certifications and misrepresenting 

the validity of the Fraudulent Receivables are in the nature of money obtained by 

false representations, and that his intentional conduct in diverting the 

Misappropriated Proceeds constituted money obtained by actual fraud, all within 

the scope of 11 U.S.C. §523(a)(2)(A); 

(ii) that Mr. Matkins stands in a fiduciary capacity vis-à-vis Bay Rivers’ dealings 

with Beach Commercial, and has committed an intentional or grossly reckless 

defalcation within the scope of 11 U.S.C. §523(a)(4), with regard to both the 

Fraudulent Receivables and the Misappropriated Proceeds; 

(iii) that Mr. Matkins has committed acts of embezzlement and/or larceny under 

Virginia state law, within the scope of 11 U.S.C. §523(a)(4), with regard to both 

the Fraudulent Receivables and the Misappropriated Proceeds; 

(iv) that judgment be entered against Mr. Matkins in favor of Beach Commercial in 

the sum of $191,097.55, or in such other amount(s) that this Court deems 

appropriate, which is a portion of the total indebtedness owed by Mr. Matkins (as 

guarantor of the obligations of Bay Rivers) to the extent based upon the foregoing 

improper conduct; 

(v) that such judgment be declared nondischargeable as to Mr. Matkins; and 

(vi) that Beach Commercial be afforded such other and further relief as is just and 

equitable. 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 11 of 12
12

Respectfully submitted, 

COMMERCIAL CASH FLOW, L.L.C., t/a 

BEACH COMMERCIAL FINANCE 

By: /s/ Peter G. Zemanian 

 Of Counsel 

Peter G. Zemanian, VSB No. 24922 

Zemanian Law Group 

223 E. City Hall Ave., Suite 201 

Norfolk, Virginia 23510 

(757) 622-0090 

Counsel for Beach Commercial 

Case 18-05007-SCS Doc 3 Filed 04/15/18 Entered 04/15/18 17:44:52 Desc Main

 Document Page 12 of 12