Source: https://www.neb.uscourts.gov/judges-info/opinions?page=2
Timestamp: 2019-04-26 08:46:21+00:00

Document:
The court granted summary judgment to the debtor in a non-dischargeability action under § 523(a)(4) brought by a defendant in a state-court lawsuit filed by a creditor of the debtor. The debtor had purchased cattle from the state-court plaintiff, a livestock auction company, for resale to the state-court defendant, a cattle feeding operation. The cattle feeder paid the debtor for the cattle, but the debtor’s check to the auction company was dishonored and remains unpaid. When the auction company sued the cattle feeder in state court to recover payment for the animals, the cattle feeder specifically denied that the debtor had acted as its agent and fiduciary, but it filed this adversary proceeding to protect itself in the event it was held liable in the state-court litigation.
The evidence submitted on the summary judgment motion did not support a finding that the parties had a technical or express trust that would give rise to a fiduciary relationship as required under § 523(a)(4), nor that there was any intentional wrongdoing by the debtor.
The court denied the debtor’s motion for a temporary restraining order to stop a foreclosure sale of certain real estate. In evaluating the Dataphase factors, the court questioned the debtor’s standing and found no likelihood of success on the merits because the debtor admittedly had not paid the mortgage for more than three years and tendered no performance or cure at this time.
The debtor’s employment was terminated shortly before the Chapter 7 petition was filed. Her 401(k) plan was liquidated and the proceeds were deposited in her bank account on the eve of bankruptcy. She spent most of the funds prior to the § 341 meeting. She thereafter amended her bankruptcy schedules to claim the proceeds as exempt because they came from her retirement account. The trustee objected. The court ruled the objection moot, because the money was no longer in the debtor’s account and the trustee would have no way of recovering it. Regardless of whether the funds were exempt, the trustee had no remedy.
This is an adversary proceeding seeking denial of discharge for transferring property with intent to hinder, delay or defraud a creditor. The plaintiffs alternatively ask the court to except the debt from discharge under § 523(a)(2)(A), (a)(4), or (a)(6).
The debtor intended to purchase a restaurant owned by the plaintiffs. They entered into an employer/employee relationship with an anticipated buyout agreement. The debtor operated the business for three months with oversight from the plaintiffs, who lived out of state. The restaurant closed permanently after suffering damage in a fire, the debtor filed a Chapter 7 proceeding, and the plaintiffs filed this adversary proceeding alleging they were owed $62,000.
After a careful and extensive review of the evidence at trial, the bankruptcy court concluded that all but $1,300 of the debt should be discharged. The plaintiffs did not establish the elements of § 727(a)(2)(A), and the evidence did not support the allegations of false representations made with the intent to deceive or the existence of a fiduciary relationship. At most, there was evidence that the debtor removed some property from the restaurant premises after the fire, and such conduct was intentional and with the knowledge that it would harm the plaintiffs. The $1,300 value of the items taken was excepted from discharge under § 523(a)(6).
The bankruptcy court recommends to the district court that it withdraw the reference of this adversary proceeding. The bankruptcy trustee is pursuing claims of trade secret misappropriation and copyright infringement against a former software developer for a company affiliated with the debtor and the former customer who subsequently hired her. A similar lawsuit is currently pending in federal district court. The causes of action in the adversary proceeding are non-core and do not arise under Title 11. Judicial economy dictates that the two cases should be processed and heard together, and the forum to do so is the United States District Court.
The debtor and the plaintiff used to be married to each other. As part of the dissolution of their marriage and the arrangements for child custody and support, the debtor was ordered to pay a certain amount of monthly child support. She also was ordered to pay attorney fees incurred by the plaintiff as part of the district court and appellate court litigation they engaged in.
In this adversary proceeding, the bankruptcy court determined that under 11 U.S.C. § 523(a)(5), only the child support was excepted from discharge. The attorney fee awards were not in the nature of support and could not be considered to be domestic support obligations. However, the attorney fees do fall within the scope of 11 U.S.C. § 523(a)(15), which excepts from discharge certain debts incurred in connection with a divorce that do not constitute domestic support obligations. Accordingly, the attorney fees are not dischargeable.

References: § 523
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 § 727
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