First Am. Title Ins. Co. v. Gaskill (In re Gaskill)

• Citation: 480 B.R. 291
• Decision Date: 18 September 2012
• Docket Number: Bankruptcy No. GG 11–01322.,Adversary No. 11–80230.
• Parties: In re Jan M. GASKILL, Debtor. First American Title Insurance Company, Plaintiff, v. Jan M. Gaskill, Defendant.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan

480 B.R. 291

In re Jan M. GASKILL, Debtor.First American Title Insurance Company, Plaintiff,

v.Jan M. Gaskill, Defendant.

Bankruptcy No. GG 11–01322.

Adversary No. 11–80230.

United States Bankruptcy Court, W.D. Michigan.

Sept. 18, 2012.

William H. Franks, Esq., and Kelli L. Baker, Esq., Grand Rapids, MI, attorneys for First American Title Insurance Company, Plaintiff.

Roger G. Cotner, Esq., Grand Haven, MI, attorney for Jan M. Gaskill, Debtor–Defendant.

OPINION REGARDING NONDISCHARGEABLE DEBT ADVERSARY PROCEEDING

JAMES D. GREGG, Chief Judge.

I. INTRODUCTION.

This adversary proceeding involves losses sustained by the Plaintiff, First American Title Insurance Company (“First American”) when Advantage Title and Escrow Agency, Inc. (“Advantage Title”) failed to remit premium payments owed to it under an insurance agency agreement. At the time the losses were sustained, Jan M. Gaskill (the “Debtor”) was Vice President and Treasurer of Advantage Title. First American asserts that the Debtor's failure to remit premiums constituted “defalcation while acting in a fiduciary capacity” and that the resulting debt should be nondischargeable under § 523(a)(4) of the Bankruptcy Code.¹

II. JURISDICTION.

This court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. The case and all related proceedings have been referred to this court for decision. 28 U.S.C. § 157(a); Local Rule 83.2(a) (W.D.Mich.). This adversary proceeding is a statutory core proceeding. 28 U.S.C. § 157(b)(2)(1) (determinations regarding dischargeability of a debt). Notwithstanding the holding in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), this court is constitutionally authorized to enter a final order. See Tibble v. Wells Fargo Bank, N.A. (In re Hudson), 455 B.R. 648, 656 (Bankr.W.D.Mich.2011) (the Stern decision is extremely narrow; “[e]xcept for the types of counterclaims addressed in Stern v. Marshall, a bankruptcy judge remains empowered to enter final orders in all core proceedings”). This opinion constitutes the court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

III. FACTS.

In March 2002, Sandy Peck (“Peck”) established Advantage Title. When the corporation was formed, Peck was the sole shareholder. Not long after Advantage was formed, Peck asked the Debtor to join her in this new business venture. Peck and the Debtor had previously worked together at another title insurance agency, and had been close friends for over twenty years. The Debtor had also been an insurance agent licensed by the State of Michigan since August 10,1994. She accepted Peck's invitation and was appointed as Vice President and Treasurer of the corporation on March 21, 2002. On April 15, 2002, Advantage Title opened for business. Approximately one year later, in April 2003, the Debtor received a fifty percent ownership interest in Advantage Title and continued to hold the positions of Vice President and Treasurer. (Tr. at 71–72.) On a day-to-day basis, the Debtor handled closings for Advantage Title.

Just prior to the official opening of Advantage Title, First American and Advantage Title entered into a written Policy Issuing Agency Contract (“Agency Agreement”) dated March 18, 2002. (Plaintiffs Ex. 1.) Under the Agency Agreement, Advantage Title was authorized to act as First American's agent by issuing title insurance commitments and policies in First American's name. The Agency Agreement provided that any such insurance policy or commitment must be “signed, personally, by such designated signatories of [Advantage Title], who have been authorized by [Advantage Title] and approved in writing by [First American].” ( Id. at ¶ 2(b).) The only signatory identified in the Agency Agreement as “presently approved” by First American was Peck. The Agency Agreement was amended on several occasions. None of these amendments identified additional approved signatories. ( Id.; Tr. at 48–49.) Notwithstanding the multiple amendments, the Debtor was never listed as an approved signatory who was an authorized agent of First American.

The Agency Agreement also required Advantage Title to provide monthly reports to First American of all policies issued and to maintain a segregated account to hold premiums due to First American.² (Plaintiff's Ex. 1 at ¶ 5, 6.) First American was to receive twenty-percent of the premiums collected with Advantage Title retaining eighty-percent. (Tr. at 77). Pursuant to the Agency Agreement, First American was authorized to audit the books and records of Advantage Title.

At the time the Agency Agreement was executed, Peck was the sole shareholder of Advantage Title. Peck, in her capacity as President, negotiated and signed the Agency Agreement, and all subsequent amendments, on behalf of Advantage Title. (Plaintiff's Ex. 1, Tr. at 33.) Peck remained First American's main contact at Advantage Title throughout their agency relationship. In fact, aside from quarterly lunch meetings, which Gaskill sometimes attended, First American dealt exclusively with Peck. (Tr. at 35–36.)

Advantage Title had a number of escrow accounts at different times during its history, but it eventually maintained only an operating account. (Tr. at 75.) The Debtor had authority to write checks from all of the accounts held by Advantage Title. However, in practice, Peck had the sole responsibility for maintaining the operating account, paying the corporation's bills and remitting First American's portion of the premiums collected.³ Additionally, Peck alone communicated with Advantage Title's accountant to prepare all necessary tax returns and financial statements. (Tr. at 75–76.) The Debtor did not receive or review the corporation's mail or pay its bills. Nor did the Debtor review the tax returns, the quarterly or annual financial statements of the company, or the bank account statements. (Tr. at 86.)

While Peck handled the operating side of the business, the Debtor was responsible for handling the agency's closings. When disbursements were made at closings, one check was issued payable to Advantage Title for the full premium amount, as well as for the closing costs. (Tr. at 79, 137.) The Debtor then provided the check to Peck who, the Debtor reasonably believed, deposited the funds into the operating account of Advantage Title. (Tr. at 79.) The Debtor generated monthly or bi-monthly reports listing policies issued and the total premiums collected. (Tr. at 79–80; 94.) The reports also specified the amount to be remitted to First American and the amount to be retained by Advantage Title. ( Id.) She then provided these reports to Peck who was responsible for forwarding the reports to First American, together with a check for its portion of the premium. (Tr. at 95; 107–08.)

Advantage Title held an operating line of credit with Union Bank for some period of time. In 2008, the bank (or its successor) ⁴ advised Advantage Title that collateral would be necessary to continue the line of credit. (Tr. at 119.) Due to her ongoing divorce proceedings, Peck was only able to offer “a couple vehicles” as collateral; to supply collateral, the Debtor mortgaged her home. (Tr. at 120.) As a result, Peck and the Debtor, upon the advice of their corporate counsel, entered into an agreement on November 19, 2008, regarding the “considerable debt” incurred by Advantage Title, including but not limited to the operating line of credit at Union Bank. The agreement provided in part that “[i]n the event [Advantage Title] is unable to meet its obligation, and any creditor demands payment from the Shareholders, or either of them, the Shareholders agree that each Shareholder shall be responsible for and shall pay 50% of any amount demanded by any creditor.” (Plaintiffs Ex. 6.) Although this document creates a contractual obligation between Peck and the Debtor if one of them becomes personally liable or pays on a corporate debt, it does not represent a personal guarantee of Advantage Title's debts to creditors. After reading the exhibit, the court finds it creates a contribution or indemnification relationship between Peck and the Debtor.

Some time in 2008, the close friendship between the Debtor and Peck began to deteriorate. (Tr. at 82.) On June 9, 2009, Peck abruptly advised the Debtor that she was moving to Texas. (Tr. at 81–82.) Peck left just days later. (Tr. at 81.)

After Peck's departure, things began “crashing in” at Advantage Title. (Tr. at 114.) The Debtor began receiving and reviewing the mail. Each day, the Debtor received notices that various corporate bills had not been paid, including premiums for their Errors and Omissions insurance, several years of property taxes, and state taxes. (Tr. at 83.) The Debtor also began working with a new accountant for the corporation to gather information for preparation of 2008 tax returns. In doing so, she discovered that much of the corporation's financial documentation was missing. (Tr. at 109–110.) At first, these developments were surprising to the Debtor. Prior to Peck's sudden departure, the Debtor believed that Advantage Title's financial situation was “tight.” (Tr. at 86.) Even so, the Debtor had a “rough” idea of Advantage Title's general operating expenses, and she believed that the funds being generated by Advantage Title were sufficient to cover these expenses. (Tr. at 115.)

Then the reason for the hidden financial deficiencies became clear: the Debtor discovered credit card statements which revealed that Peck—her former close friend and now missing business co-owner—had been using corporate credit cards to make undisclosed personal purchases over the course of several years. (Tr. at 112–13.) According to the Debtor's estimate, these purchases totaled approximately $250,000. ( Id.) Because the Debtor also discovered a number of the reports she generated following closings in Peck's desk, she advised her contact at First American that Peck had left...