EL ECTRONI C CI TATI ON: 2012 FE D App. 0007P (6th Cir.) File Na me: 12b0007p.06

BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n r e : THOMAS J . COTTI NG H A M AND PAT RI CI A JOE CO TT I

NG HA M , De bto rs
.

______________________________________ J EROME EWERS , et al. ,

Pla int if fs -A pp e lle e s,

v . THOMAS J . COTTI

NGHAM , De fe nd ant- Ap pe lla

nt.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 11-8042

Appea l from the United States B ankruptc y Court for the Easter

n District of Ke ntucky , at Covington

. Ba nkr. Case. N o. 09-22799; Adv. Pro. No. 10-2001.

Submit ted : April 23, 2012
Dec ided and F iled: J une 15, 2012
B e fo re : F UL TO N, Mc I VO R, SH EA -S TO NU M , B ank ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL
O N B R IE F : C

. E d

M a s s e y , B LA

N KEN S H IP M A S S E Y & S T E E L M A N , P L L C , E r l an g e r , K e n tu c ky, fo r Ap pe lla

nt. Willi am H. Bl e ssi ng , THE B L ESSI NG L AW FI RM, Cin c inn a ti, Oh io, fo r A pp e lle e s.- 2- ____________________ OP IN ION

____________________ SHE A- STO NU M , B ank

ru ptc y Ap pe llate Pane l Judg e
. Th e De bto r, Th oma s J. Co tti ng ham,
a pp e a ls f ro m an o rd e r e xce pti nga de bt ow e d to pla int if f, Spa c e s, I nc ., fr om dis c ha rg e purs ua

nt t o 11 U.S.C. § 523(a) (6). The bankruptc y court found that the De btor, Thomas Cottingham, c onspired wi th C o- De bto r Pa tr ic ia

Cottin g ham to c on ve rt

e mbe zzle d f

un ds and oth e r p ro pe rt

y fr om S pa c e s, I nc . T he De bto r a

rgue s th a t th e ba

nk ru ptc y c ourt e rr e d w he n it fo un d the De bto r co ns pir e d with his wife a nd acte d willfully

and maliciously

.

I. ISSU ES ON AP P EAL
I s the bankruptc y

court’s f inding that the D ebtor Thomas Cottingha m conspired with h is wife to c on ve rt

fu nd s sh e e mbe zzle d f

ro m he r p ri or

e mpl oy e r S pa c e s, I nc . c le arl y e rr on e ou s?
Did the bankr

uptcy cou r t c le a r ly err when it found De btor Thomas Cottingham c aused w illful and malicious injury

to Plainti ff?
II. JU RI SDI CT ION AND STANDARD OF RE VI EW
Th e B ank ru ptc y Ap pe llate Pane l of the Sixth Cir c uit ha s jur isd ic tio n to dec ide thi s a pp e a l. Th e Un ite d St a te s B ank

ru ptc y Court fo r t he Ea ste rn

Di str ic t of

Ke ntu c ky ha s a

uth or ize d a

pp e a ls t o the Pane l, a

nd ne ith e r p art

y ha s ti me ly

e le c te d to have thi s a

ppeal hear d by

the dis tr ic t c ourt

. 28 U.S.C. §§ 158(b)(6), ( c)( 1). A fina l or d er o f t h e bankruptc y court may

be appe aled a s of rig ht pursuant to 28 U.S.C. § 158(a)( 1). F or purpose s of appe al, an order is f inal if it “ends the litigation on the merits and le av es nothing for the c ourt to do but ex ecute the judg ment.” Mi dla nd As ph alt Corp. v. United States, 489 U.S. 794, 798, 109 S. C t. 1494, 14 9 7 (1 9 8 9 ) (citations and inter nal quotations omit ted). “ A bankr uptcy court’s judg ment deter

mining discha

rg eability is a fina l and appea lable orde r.” Cash Am

. Fin. Servs., Inc . v. Fox ( In re Fox ), 370 B.R. 104, 109 (B .A.P. 6th Ci r. 2 0 0 7 ) ( qu o t i n g Hertzel v. E duc. Credit Mgmt. Corp. ( In re He rtzel ), 32 9 B. R. 2 21 , 2 24 -2 5 ( B .A .P. 6th Cir. 2005)).- 3-

Deter minations of discharg eability under 11 U.S.C. § 523 are conclusions of law review ed de novo. In re Fox , 370 B.R. at 109 (c i t i n g Ba i l ey v. B a iley ( In re Bailey ), 254 B .R. 901, 903 (B .A.P. 6th Ci r. 2000)) . De novo r eview r equire s the “a ppellate c ou rt [ t o deter

mine] t he law independe ntly

of the trial court’s de termination.” Id. (q u o t i n g O’ Br ie n v . R av e ns woo d A

pa rtm e nts , Ltd. ( In re Rav enswood Apartments, Ltd. ), 338 B .R. 307, 310 (B.A .P. 6th C ir. 2006)).
Howeve r, “[t] he fa ctual finding s underlying the bankruptc y court’s discharg eability ruling

are upheld on appe al unless they are clea rly err oneous.” Id. (c i t i n g In re He rtzel , 329 B.R. at 225 and Van Ake n v. Van Ak en ( In re Van Ak

en ), 320 B

. R

. 6 2 0 , 622 (B .A.P. 6th Ci r. 2005) (dischar g eabilit y d et er m inations present mix ed questions of lawand fa ct; the bankr uptcy court’s conclusions of laware revie wed de n o v o , while finding s of fa ct ar e re viewed f or cle ar e rror )). A bankruptc y court’s findings of f act should not be disturbed simply beca use anothe r trier

of fa ct might construe the fac ts diff

ere ntly or rea ch a differ ent conc lusion. See A nderson v. City of Bessem er City, N.C

. , 470 U.S. 564, 574 (1985). A f actua l determination should be upheld unless “a lthough ther e is evidenc e to support it, the reviewing court on the entire evidenc e is left with the def inite and firm conviction that a mistake ha s been c ommitt ed.” In re Bailey , 254 B.R. at 903. ( citation omitted).
III . F AC TS
Thomas and Patric ia Cottingham (tog ether , the “De btors”) a re ma rried a nd until 2010, upon Patricia Cottingha

m’s incar cer ation, lived toge ther. They have two adult sons who lived with them throug h J une 2006. F rom the ea rly 1990' s thr o u gh J u n e 2006, Debtors lived at 22 St. Nicholas Pla c e , F t. T ho ma s, Ke ntu c ky . T he y le a se d the St. Ni c ho la s Plac e re sid e nc e fo r $ 75 0 p e r m on th i n
re nt. Thomas Cottingham is a c onstruction superintende nt with 32 y ear s of experienc e. He has held himself out as skilled in construction supervision and cost estimating. I n the 1990' s, the Debtors owned a nd operated a c onstruction company called Cotting ham Construction. The c ompany failed and as a result t he Debtors incurre d substantial personal tax liabilit ies arisingfrom the c ompany ’s unpaid t ax liabiliti es. I n addition, the Debtors did not pay their per sonal income taxes in 2000 and 20 01 . T he De bto rs ha d a mon thl y pa y me nt ob lig a tio n to t

he I RS a s a

re su lt o f t

he se un pa id t a xes. Th oma s Co tti ng ham w a s awa re of the mon thl y

pa y me nt ob lig a tio n. Th e De bto rs we re a t th a t ti me
un a ble to m e e t a ll o f t

he ir fi na nc ia l ob lig a tio ns
.- 4-

After the fa ilure of Cottingha

m Construction, Thomas Cott ingha m b ec am e employ ed by Perfor mance Construction Company . Fr om 2003 to 2009, his y ear ly g ross income at Performa nce Construction Company

was be tween $5 3 , 0 00 and $59,000 and his we ekly take home pa

y was approximately

$750. I n add i t i on, Thomas Cottingham re ceive s $1,300 per month as pa rt of a lif e tim e annuit

y a s a re su lt o f a

pe rs on a l in

jur y /de a th s e ttl e me nt.
Pa tr ic ia Cottin g ham w a s e mpl oy e d b y Ca rd iol og y As so c iates as a

bo ok ke e pe r p ri or

to F e br ua ry 19 99 . H e r e mpl oy

me nt w a s te rm inate d in

19 99 . In 200 0, sh e wa s in dic te d a nd ple d guil ty to felony embezzlement of funds from he r for mer e mploy er Car diology As s o ci at es
. She was sentenc ed to five y ear s of probation and required to pay $44,613.49 in restitution at the rate of $800 per month. B y

the time she was sentenc ed, Thomas Cotti ng ham was awa re of his w ife’s c riminal activity and of the $800 per month re stitut ion obligation.
I n betwee n the time she wa s terminated a s a bookkee per at Cardiology Associates a

nd her i n d i ct m en t , P at ri ci a C o t t i n gh am wa s h i re d b y S p ac es , I n c. as an “a dm i n i s t ra t i v e a s s i s t an tfu l l ch ar ge bookkeepe r.” Plaintiff Jerome Ewe rs is the owner of S pace s, I nc. She wa s responsible for all of the

acc ounting and in c harg e of the rec ord keeping for the day to da y operations of Spaces, Inc. She, howeve r, di d

n o t h a v e c h e c k

s ig n in g a u th o r it y f o r th e b a n k a c c o u n ts o f

Sp a c e s , I n c
. H e r

s a la ry rang ed fr om approxim ately $30,00 0 to $38,000 during her e mploy ment with Spaces, Inc. He r
wee kly take home pa

y was be tween $600- 650 per w eek.
The De btors paid t h ei r l i v i ng expenses using a joint checkingacc ount with the Ba nk of Ke ntu c ky . B oth

De bto rs ha d a

uth or ity to s ig n c he c ks dr awn

on thi s a c c ount, and bo th D e bto rs in fac t wrote c hecks dr awn on this ac count. In addition th e De b t o rs had a joint ac count at Gua rdian Sa vin g s B ank . T he De bto rs us e d th is a c c ount t o p ay c e rt a in bil ls, inc lud ingthe re sti tut ion pa y me nts

. The De btors sometimes deposited their paychec ks into these accou n t s
. Of ten the De btors would take lar g e sums of ca sh back from these de posits, or the Debtors would c ash their pa y chec ks wi tho ut a n in te rv e nin g de po sit

. I n 2001, Patricia Cottingham beg an embe zz ling f unds and prope rty

from Space s, I nc. Ea ch

succe ssive y ear

the amount she e mbezz led g rew . I n 2001 and 2002, Patricia Cottingham embezzl ed $16,76 5

. 2 7 fr o m S pace s, I nc. The embezzled funds were deposited into the Debtors’ joint bank- 5-

acc ounts. I n 2003, Patricia Cottingha m embezzl ed $64,328.30. All of the e mbezz led funds we re deposited into t h e Debtors’ joint bank acc ount at Ba nk of Ke ntucky . I n 2004, she embe zz led $88,244.60 from Space s, I nc. She deposited a littl e more than half of that money direc tly into the De bto rs ’ j oin t a c c ount a t B ank of Ke ntu c ky . T he oth e r h a lf of the mon e y

wa s d e po sit e d f

ir st i nto a bank a ccount Patric ia Cottingham ope ned in her own name at Fifth Third Ba nk. I n 2005, she embezzled $213,544.61 in cash. The money was initially place d in the Fifth Third B ank ac count and was moved f

rom there to the Debtors’ joint accounts or to pay the Debtors’ expenses. I n addition, Patricia Cottingha

m creat ed a fo rged credit ca rd ac count with Fifth Third B ank in the name of Spa c e s, I nc . T he bil ls f

or the fo rg e d cred it c ard

we re se nt t o th e De bto rs ’ r e sid e nc e . Patr ic ia Cotti ng h am p ai d those bills usi ng embezzled funds. The total amount of those for g ed cr edit car d purcha ses was $1,892.59. In 2006, the t otal cash e mbezz led was $283,391.88, a nd the total of the forg ed cr edit car d purcha ses was $2,821.43. In 2 007, she embe zz led $328,516.10. In 2008, she embezzled $11,230.21.
J ust a s the amount she embezzled g rew with e ach succe ssive y ear , the Debt o rs ’ s p ending g reweac h succe ssive y ear , at a rate that far exceede d any

salary incre ase the y

might have rec eived from an e mp lo y e r
. Patr ic ia Co tt in g h a m w a s n o t th e o n ly o n e to s p e n d th e e mb e zzl e d f u n d s
. For ins tanc e , in

June 20 03 , T ho ma s Co tti ng ham pa id o ff a $3 ,1 33 .7 3 lo an ju st 3 da y s aft er Patr ic ia C o t t i n g h a m d e p o s i t e d

a c h e c k e mb e z z l e d

f r o m S p a c e s , In c
. i n t o t h e j o i n t b a n k a c c o u n t

. In Dec ember

200 3 , t he De btors paid another loan in the amount of $4,860.05 just two day s after a
c h e c k e mb e z z l e d f

r o m S p a c e s , In c
. w a s d e p o s i t e d i n t o t h e j o i n ta c c o u n ta tB an k o f K e n tu c ky. Simi lar e vents took place in 2004 when the De btors purcha sed a computer, paid pa st due taxes and purcha sed a Jeep Wrang ler.
The e vidence prese nted at trial showe d that in 2005, the Debtors de posited into their bank

acc ount a total of $32,539.49 fr o m t heir pa y chec ks. Contemporaneously with those deposits, the De bto rs wi thd

re w c a shin t

he a mou nt o f $ 31 ,0 74 .3 9 ( by

c a shwi thd

ra wa l, wri tin g a check to c a sh

or makin g an ATM wi thd

ra wa l)

. No tw ith sta

nd ing that th e De bto rs ’ n e t de po sit of e arn e d in c ome in 2005 was only

$1,465.10 in that same y ear , the Debtors spent $274,573.22 from their va rious bank

acc ounts on “living e x penses.” Some of tho s e ex p en s es wer e the sig nificant interior and exterior

renovations to t heir re ntal home in 2005 and ea rly 2006, which included la

ndscaping , construction of a multi-ti ere d deck, and the installation of a spa. The Court f ound t h at b as ed o n Thomas- 6-

Cotti ng ham’s 32 y ear s of experienc e in the construc tion indust ry , he must have know n the cost of the se re no vatio ns wa s si g nif ic ant.
Simi larl y in 2 00 6, the De bto rs sp e nt f ar m or e tha

n th e ir e arn e d in c ome . Ca shwi thd ra wa ls from their ba

nk acc ount al o n e ex cee ded their e arne d income. In total, Patricia Cottingham embezzled $286,213.31 and the Debtor s spent $391,731.16 from their bank acc ounts in 2006. The funds wer e used in pa

rt to purcha se a ne w J eep Commande r. Thomas Cottingham was pres en t at the time this purchase was made

. Although he denied being awa re of which bank a ccounts the dow n pay ment for t h e C o m mander was dra wn on, the Court found his testimony was not cr edible and found that he kne w that par t of it came from the Fifth Third A ccount, just day s after an embe zz led chec k was de posited therein. In addition, he knew that, as a res u l t o f t h e p urcha se of the Commander, the De btors incurre d an ong oing monthly pay ment obligation of $666.72 per month. Fur ther, in mid-2006, the De btors decide d to purcha se a house . Wit h her hus b an d ’s knowledge , Patricia Cottingha

m approa ched E wer s, the owner of Space s, I nc., to borrow $30,000 of the money fo r t he purc ha se of

the ho us e fr om E we rs . In th e do c umen ts p re pa re d a s a pa rt of that ho me p u r c h a s e , t h e D e b t o r s i n c l u d e d a l e t t e r i n d i c a t i n g t h e $ 3 0 , 0 0 0 w a s a g i f tf r o m t h e i r b r o t h e r
. In addition, Thomas Cotti ng ham wrote a letter expla i n i n g t he fa

mily ’s re cent f

inancial history

and dif fi c ult ie s. As a

pa rt of the loa n pr oc e ss, Th oma s Cottin g ham sig ne d a state me nt that sh ow e d th e ir inc ome wa s e xce e de d b y

the ir lia bil iti e s.
After buy ing the house the De btors’ spendingcontinued. The re w ere ad d i t i o n al moving

ex p en s es , re p ay

m en to f t h e $ 3 0 , 0 0 0 l o an , h o m e i mp ro v em en tex p en s es , i n cl u d i n g k i t ch en fl o o ri n g,
c ounte r t op s, ne w a

pp lia nc e s, ne w he a tin g , ve nti ng and a ir c on dit ion ing sy ste ms. Th e De bto rs a lso spent over $60,000 on the ir adult children.
I n 2007, the pace and amount of t he Debtors’ spendingcontinued to incre ase. The Debtors spent money on a golf vacation ($2,632.76) , a new swimming pool, patio, and pool house a ddition, drivewa y , and other

exterior improvements t o the hom e ($71,285.17), down pay ments on four ne w vehicles ( $19,595.93); interior re novations and improvements ($37,979.20) ; wedding expenses for their son ($12,230.50), plus a n additional approximately $30,000 on their sons. I n total, the Debtors spent in excess of $460,366.24 in 2007.- 7-

I n addition to money , Patricia Cottingham also stole house hold g oods with a wholesale value of $1 27 ,1 56 fr om S pa c e s, I nc
. Mo st of tho se sto le n it e ms a re on dis pla y or in u se in t

he De bto rs ’ home. The ba

nkruptcy court co n cl u d ed t hat Thomas Cottingham must have known of his wife ’s embezzlement and subsequent conve rsion of funds. The bankruptc y court found T homas C o ttingham’ s assertion of ig noranc e to be incr edible. The bankruptc y court pointed out the signific ant amount by

which their a

nnual expenditures exceede d their combined y ear ly salary . The

c ourt a g re e d with De bto rs ’ co un se l th a t th is i s o ft e n th e ha llm ark of de bto rs sp e nd ing . T he dis pa ri ty in this case, howe ver, w as so out rag eous, the c ourt found that Thomas Cottingha m had to have be en
awa re that Debtors’ spe nding e x cee ded their e arne d income. “Most ce rtainly [i t ] p ut Thomas on notice as to the e x cessive a nd unusual am o u n ts of funds flowingin and out of the De btors’ bank

acc ounts.” Thomas Cottingham ha d acc ess to the joint accounts. The court noted that with relative

e a se he c ou ld de te rm ine pr e c ise ly wh a t mone y wa s flo wi ng in an d out o f t ho se a c c ounts . H e wr ote chec ks and made deposits into thos e ac counts. The ba nkruptcy court found that he c ould not “cry innocent b ec au s e h e chose to ke ep himself in the dar k about the spec ifics.” F urthermor e, he participated in purcha ses the De btors could not ha ve af forde d on their salar

y alone, a nd he sig ned paper work (tax returns a

nd loan documents) de tailing the D ebtors’ f inancial situation. Specifica lly , the bankr

uptcy court c onsidered “ (1) the sig nificant dispar ity bet wee n the Debtors’ income and e x pen s es , a dis parity that continued to incre ase ove r the c ourse of the embezzlement; (2) Thomas’ a cce ss to and participation in the family ’s financ es; (3) the cost of the ho me imp ro ve me nts; and (4 ) T ho ma s’ kn ow le dg e that Patr ic ia ha d r e c e ntl y

ple d guil ty

to
e mbe zzlin g fu

nd s f ro m he r p ri or

e mpl oy e r. ” Th e cou rt c on c lud e d, “ Th oma s c ann ot c on ve nie ntl y stick his head in the sand a nd say that he did not have know ledg e of Patric ia’s ac tiviti es until the day sh e a dmi tte d h e r guil t. H is p ro ff e re d ig no ra

nc e is n ot c re dib le .” “ He wa s an ac tiv e pa rt ic ipa nt i n the conve rsion of the stolen funds a nd proper ty .”
IV . D ISC USS ION
Ba sed on the e vidence in the rec ord re g ardingThomas Cottingh am ’s access to and involvement in the family financ es, t he bankruptcy court’s finding that Thomas C ottingham was an active pa rticipant in the conve rsion of Plaintiff’s asse ts, is ade quately supported. The que stion is not whether the Panel would have f

ound otherwise w ere it the initi al fa ct finder in this case, but whethe r,- 8-

upon a re view of the rec ord the Panel is left a def inite and firm convic tion that a mistake has bee n made. On the rec ord in this case , t h e P anel is not left with such a conviction. The ba

nkruptcy

c ourt ’s fi nd ing s o f f

a c t are no t c le arl y

e rr on e ou s.
Whil e the ba

nkruptcy court’s f

indings of f

act a re not disturbed unle ss clear ly err oneous, the bankruptc y

court’s c onclusions of law a re r eviewe d de novo . Section 523(a) (6) of the B ankruptc y Cod e e xclu de s fr om t

he de bto r’ s d isc ha

rg e , d e bts fo r “ wi llf

ul a nd ma lic iou s in

jur y by the de bto r t o another entity or to the prope rty

of anothe r e n t i t y . ” 1 1 U. S .C. § 523(a)( 6). A willful injury is one “whe re the [debtor] ‘desire s to cause c onsequenc es of his act, or ... believes that the conseque nces
are substantially

cer tain to result from it.’” Ma rk owi tz v . Ca mp be ll (

In re Ma rk

owi tz ), 190 F.3d 455, 46 4 ( 6th Cir . 1 99 9) (q

uo tin g Re state me nt ( Se c on d) of To rt s § 8A , at 15 (1 96 4) ); Go nz ale z v. M off it ( In re Mo ffi t), 252 B .R. 916, 921-22 (B.A.P. 6th Cir. 2000). Malicious injury means a n injury cause d in “consc ious disreg ard of one’s duties or w ithout jus t cause or excuse.” W h ee l erv. Laudani , 783 F.2d 610, 615 ( 6th Cir. 1986). There is no require ment that the debtor a cted with ill-will or a specific intent to cause ha rm. Id.
I n this c ase, the Plaintiff has alleg ed that Thomas Cottingha m is li able be cause he conspire d

w it h h is w if e an d p arti c ip a te d in th e s c h e me th a t in ju r e d Sp a c e s , I n c
. I n c a s e s w h e re similar alleg ations have be en made and proven, courts have denied the self-pr oclaimed “ innocent spouse”

a discharg e of the debt under § 523( a)( 6). See Haemone tics Corp. v. Dupre ( In re Du pr e ), 23 8 B .R. 224 (D. Mass. 1999), aff’d, 229 F.3d 1133, 200 W L1160447 (1st Cir. 2000) (unpublished) ; Synod of S. Atl. Presbyte rian Church v. Magpusao ( In re Magpusao ), 265 B .R. 492, 498-500 (B ankr. M.D. F la . 2 00 1) ; Nav ist

ar Fi n. Cor

p. v . S te llu ti ( In re Ste llu ti ), 167 B .R. 29, 34 (Ba nkr. S.D.N.Y. 1994).
I n In re Du

pr e , the debtor’s husband embezzled money from his employ er. He was indicted

and ple d gui lty

on 14 c ha rg e s o f w ir e fr a

ud . H is f or me r e mpl oy e rs a lso fi le d c ivi l a c tio ns a g a ins t the debtor a

nd her husba

nd alleg ing c ivil conspiracy

. The debtor filed her bankruptc y petition in the midst of the civil lit igation. The husband’s former employ ers c ommenced a n adver sary

proce eding ag ainst the debtor a lleg ing the debt should not be dischar g ed pursua nt to § 523(a)( 6).
The ba nkruptcy judge found that embe zz led funds we re pla ced i n t h e d ebtor’s joint bank

a c c ou n t s , t h a t t h e d e b t o r w a s aw ar e t h a t h e r h u s b an d w a s p r o v i d i n g f u n d s f o r t h e a c c o u n t s f

a r i n excess of his ear

nings, a nd that the debtor kne w t he amount of cash and expenditures fa r excee ded- 9-

their ea rned inc ome. The bankruptc y court a lso found that she sig ned y ear ly tax returns and that she was int imately familiar with the amount of funds coming in and out of t he household. He found her claim of ig noranc e to be incr edible. The former employ ers arg ued before the bankruptc y court that the ir c la ims a g a ins t th e de bto r a ro se fr om t

he c ivi l c on sp ir a c y

be tw e e n h e r a

nd he r h us ba nd . D e sp ite h i s fa ct u al fi n d i n gs , t h e b an k ru p t cy co u rt fo u n d

t h e c o n s p i ra cy

cl ai m s d i s ch ar geab l e, wr i t i n g, “[t] here is not an iota of evidenc e that The resa acte d in conce rt with Paul in the act of c onverting Plaintiffs’ funds. . . . I have review ed the evidenc e and can f ind neither dire ct evidenc e of The resa ’s knowledg e of the source of the funds, nor circ umstantial evidence from which I could make a deter mination by

a pre pondera

nce of the evidenc e.” Id. at 227.
T h e dis trict court r ever sed the ba nkruptcy court a nd found that the e vidence did show knowledg e of a

nd participation in the scheme to conve rt the employ ers’ funds. “The scheme alleg ed involved not one, but two conver sions of the pilfere d funds. The f irst conver sion was the embezzlemen t itself for whic h appellants c oncede Paul bear s sole responsibility . The sec ond

c on ve rs ion , a

nd the on e a pp e lla nts se e k to pin

on Th e re sa , w a s th e us e of the mon e y to su pp or t th e ir

ex trava g ant lifestyle.” Id. at 229. The district c ourt found that her willful participation in the

conver s io n o f th e f

u n d s to b an kr o ll h e r li f

e s ty le s a ti s f ie d th e e xc e p ti o n to d is c h ar g e u n der § 523(a) (6). Id. at 230.
Simi larly , the bankr

uptcy court in In re M

agpusao noted, Courts have g ener ally

held that fra

udulent intent m ay

not be imputed from one spouse t o another based simpl y on the m arital relationship of t he parties. Se e Fi rst Tex. Sav. v. Ree d

( In re Re ed

), 70 0 F .2 d 9 86 , 9 93 (5 th C ir .1 98 3) ; In re Ma lta is , 202 B .R. 80 7, 81 1– 12 (B ank

r. D. Ma ss. 19 96 ); First USA v. Savage( In re Sav age ), 176 B .R. 61 4, 61 5 (B ank

r. M. D. F la .1 99 4) ; First Alli ance B ank v. Crider ( In re Crider), 17 1 B .R. 90 9, 91 1– 12 (B ank r. N. D. Ga .1 99 4) ; Chi c ago Ti tleIn s. Co. v . M ar t ( In re Ma rt), 7 5 B. R

. 8 0 8 , 8 1 0 (B an kr. S

. D. Fl a. 1 9 8 7 ). E v en k n o w l ed ge o f as p o u s e's misconduct is insufficient to confe r liability

. Ha e mo ne tics v . D up re , 238 B.R. 224, 22 8 ( D. Ma ss. 19 99 ); Ma rt , 75 B.R. at 810. Rathe r, knowledg e mus t b e concurre nt wi th p art ic ipatio n in

the us e or e njo y

me nt of the sto le n p ro pe rt

y in o rd e r f or lia bil ity to attach.

In re M agpusao , 265 B.R. at 498. (footnote omitted). The court in Magpusao found the de btor had kn ow le dg e c on c ur

re nt w ithpa

rt ic ipatio n in

the us e or e njo y me nt of a t le a st so me of the pr op e rt y his spouse had stolen. The ref ore, the court e x cepte d a ce rtain amount of the de bt from dischar g e.- 10-

To preva il in thi s case , the Plaintiff had to show Thomas Cottingham’s knowled g e of a nd participation in the conversion of Plaintiff’s a ssets. A civil conspirac y i s d er i v ed fr om conce rted

a c tio n o f o ne or

mor e pe rs on s w he re by

lia bil ity is i mpo se d o n on e fo r the tor t of ano the r and

pr op e rl y fou n d that a def

endant’ s knowledg e of a

nd participation in a conspirac y can be inferr ed fr om the evi d en ce p rese nted to the cour t. The bankr

uptcy court found that Thomas Cotti ng ham had kn ow le dg e of

and partici pate d in

the sc he me to c on ve rt

the pil fe re d f

un ds fo r h is o wn

be ne fi t. Thomas Cottingham spent the money from the joint bank ac counts to buy things like c omputers and

car s, and wa s aw ar e of the cost of the household improve ments and the de btor’s outstanding financ ial obligations. He could not rea sonably have believed that their lifestyle was suppor ted by their ea rned inc ome. The ba

nkruptcy court ’s i n ference , based on the evidenc e, that Thomas Cottin g ham kn e w h is w if e wa s e mbe zzlin g fr om h e r n e w e mpl oy e r, is n ot c le arl y e rr on e ou s.
Ba sed on the e v i d en ce , the bankr uptcy court prope rly

conclude d that Thomas Cottingham is liable for a ll amounts arising f rom Patricia Cottingha

m’s willful and malicious injury

. See U nited S t a t es v. Bark

er Stee l Co., Inc. , 9 8 5 F

. 2 d 1 1 2 3 , 1 1 2 8

– 2 9 ( 1 s t C ir

. 1 9 9 3 ) ( “ I t i s w e ll s e tt le d tha t
me mbe rs of

a c on sp ir a c y

are le g a lly

re sp on sib le fo r t

he a c tio ns of

a c o- c on sp ir a tor

take n in f u r t h e r a n ce o f t h e s ch em e. ”) (c i t i n g Pinkerton v. U nited States , 3 2 8 U

. S. 6 4 0 , 6 6 S. Ct

. 1180, 90 L .E d. 14 89 (1 94 6) ; U n ite d S ta te s v. Baines , 812 F .2 d 4 1, 42 (1 st C ir .1 98 7) ; United States v. Fu sa ro , 708 F.2d 17, 21 (1st Cir.1983)). “O nce it is deter mined that a conspira cy

had bee n formed, all parties to the conspiracy are civilly liable for injuries cause d by acts pursua nt to or in furthera

nce of the c onspiracy . ‘A c onspirator ne ed not participate actively in or bene fit from the wr ong ful ac tion in order to be found liable. He need not even have planne d or known a bout the injurious action ... so long a s the purpose of the t ortious action was to advanc e the overa ll object of the conspira cy .’” Int’l Telecom ms. Satellite Org. v. Colino , 1 9 9 2 W L9 3 1 2 9 ( D

. D

. C

. 1 9 9 2) ; ac c or d R iv e t v . S

tate Farm Mut. Auto. Ins. Co., 31 6 Fed. Appx. 440 (6 th C ir . 2 00 9) (e vid e nc e tha t pa rt ie s a c te d in

c oll us ion wi th e a c h oth e r m a ke s e a c h r e sp on sib le fo r t he a c ts o f t

he oth e r) ; United St ates v. Elson , 577 F.3d 713, 723 ( 6th Cir

. 2 0 0 9 ) (a p ply ing a simil ar r ule in the context of criminal conspira cy ). Patricia Cot tingham embezzled the funds, but t he De btors jointly conspired to c onvert those f unds to serve the ir own purpose s. Thomas Cottingham, ther efor e, is responsible f or all of the injury

c a u s e d b y o r i nf u rt h e r an c e o f

t h e c o n s p i r a c y.- 11- V. CO NC LU SION
Th e ba nk ru ptc y c ourt did no t e rr in f ind ingthat T ho ma s Co tti ng ham c on sp ir e d w ithPa tr ic ia Cotti ng ham to conver

t embezzl ed funds a

nd other prope rty from Spaces, I nc. Thomas Cottingha m’s conspirac y

in the conver sion of Plaintiff’s assets constitutes willful and malicious injury to Plainti ff and the e ntire debt is nondischar g eable pursuant to 11 U.S.C. § 523(a)( 6). The Pane l AFF I RMS t he de c isi on of the ba nk ru ptc y c ourt

.