In re Treadwell, 020110 FED8, 09-6023

Docket Nº:09-6023
Opinion Judge:KRESSEL, Chief Judge, MAHONEY and SALADINO, Bankruptcy Judges
Party Name:In re: Larry Weldon Treadwell; Carole Elaine Treadwell, Debtors. v. Glenstone Lodge, Inc., Defendant - Appellant. Larry Weldon Treadwell; Carole Elaine Treadwell, Plaintiffs - Appellees,
Judge Panel:Before KRESSEL, Chief Judge, MAHONEY and SALADINO, Bankruptcy Judges.
Case Date:February 01, 2010
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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In re: Larry Weldon Treadwell; Carole Elaine Treadwell, Debtors.

Larry Weldon Treadwell; Carole Elaine Treadwell, Plaintiffs - Appellees,

v.

Glenstone Lodge, Inc., Defendant - Appellant.

No. 09-6023

United States Court of Appeals, Eighth Circuit

February 1, 2010

Submitted: December 18, 2009.

Appeal from the United States Bankruptcy Court for the Western District of Missouri.

Before KRESSEL, Chief Judge, MAHONEY and SALADINO, Bankruptcy Judges.

KRESSEL, Chief Judge.

Glenstone Lodge appeals from the bankruptcy court's order1 avoiding its judicial lien on the debtors' home and determining the underlying debt to be dischargeable. We affirm in part and reverse in part.

BACKGROUND

Carole and Larry Treadwell are married. Carole runs Memory Travel, a travel agency. Memory Travel is not incorporated. Larry and Carole consider themselves to be co-owners of the business because they are married and share equally in "everything."

Carole is a member of the Red Hat Society, Inc., a social organization for women over the age of fifty. Members are known for their flamboyant red hats and refer to themselves as "redhatters." In early 2005, Carole began organizing an event in Gatlinburg, Tennessee for redhatters. Although the event was not an official Red Hat Society event, Carole used the corporation's logos on her advertisements and in her correspondence.

In April of 2005, Carole contacted the Gatlinburg Department of Tourism for assistance in selecting facilities for the event. The Department sent a sales lead to area hotels, including Glenstone Lodge, Inc. Claudette Geoffrion, the former director of sales at Glenstone, contacted Carole with a proposal and Carole selected Glenstone for the redhatter event's accommodations. For the next several months, Carole and Claudette frequently exchanged e-mails and talked on the phone. Together they made arrangements for guest accommodations as well as for entertainment and activities for the redhatter event, which included a Hawaiian luau, a fifties-themed sock hop dinner, day trips, and a pajama breakfast.

In a May 5, 2005 e-mail, Carole told Claudette that each redhatter would make her reservation through Carole, and that Carole would then pay Glenstone "via one check." In June of 2005, Carole signed an initial contract with Claudette for 150 rooms for April 20-23, 2006. Carole paid the required $250 deposit. The contract provided that the first night's room and tax would be paid in March 2006 when Carole submitted a list of room assignments. The balance was to be paid at check-in on April 20, 2006. Carole then advertised the Gatlinburg trip to the redhatters, who responded enthusiastically.

In October of 2005, Carole realized that she had undercharged the redhatters for the Gatlinburg event. She knew that she had made a serious mistake in her estimation of the costs of entertainment, decorations, transportation and other incidentals. Carole knew she would not be able to satisfy the Glenstone bill for the event, and all representations she made about the bill from that time on were knowingly false. She continued to receive some prepayments and deposits from the redhatters, but used the funds to pay for other trip-related expenses such as the entertainers.

In January of 2006, Carole took $10,000 from the redhatters' deposits to pay for her mother's funeral expenses. That same month, Carole and Larry visited Glenstone and made further arrangements for the event with Claudette and other staff members.

Carole did not make the required payment in March when she submitted her list of room assignments. The bankruptcy court found that Glenstone had, for some reason, waived the contractual requirement. On April 20, 2006, the Treadwells and the redhatters arrived. The contract required that the balance due be paid at check-in, but Carole obtained another waiver. By April 24, 2006, the last day of the event, Memory Travel had not paid anything to Glenstone except for the initial $250 deposit. However, Carole collected about $20,000 from the redhatters during the event and had hoped to collect additional deposits from the redhatters in anticipation of future events. The Treadwells left on Monday, April 24, 2006 without checking out, paying the outstanding charges, or notifying Glenstone staff of their departure. The bill was over $60,000.

On Monday, April 24, Glenstone staff contacted Carole about her failure to pay the bill. Carole responded by email on April 26, stating that she had turned the bill over to her bookkeeper and that she would pay it after some minor adjustments were made. Carole did not have a bookkeeper. On April 26, Carole sent a $20,000 check from the Treadwell Family Revocable Living Trust's bank account by overnight delivery as partial payment. On April 27, when Glenstone told her they had not received the check, she wired $15,000 to Glenstone and promised that she would immediately send a $5,000 check as well. She asked Glenstone not to deposit the $20,000 check. Glenstone did not receive the $5,000 check so it attempted to deposit the $20,000 check. However, Carole had issued a stop payment on the $20,000 check. Carole made no other payments to Glenstone following the wire transfer.

Glenstone sued the Treadwells and the Treadwell Family Revocable Living Trust in state court in Sevier County, Tennessee, asserting: (i) fraud pursuant to § 62-7-107(b) of the Tennessee Code; (ii) violations of the Tennessee Consumer Protection Act; (iii) conversion; (iv) breach of agreement; (v) fraud, promissory fraud, mail and wire fraud; and (vi) violation of various provisions of the Tennessee Code based on the stop payment of the $20,000 check. Glenstone also named The Red Hat Society, Inc. as a defendant. The Red Hat Society, Inc. filed a cross-claim against the Treadwells and denied any involvement in the event. Glenstone dismissed The Red Hat Society, Inc. as a defendant. The Treadwells and the Treadwell Family Revocable Living Trust failed to answer, and the Chancery Court for Sevier County, Tennessee awarded treble damages and entered a default judgment against them in the amount of $153,611.44 plus costs. Glenstone registered the judgment against the Treadwells in Missouri, thereby creating a lien against the Treadwells' residence.

On August 27, 2008, the Treadwells filed a chapter 7 bankruptcy petition. On September 18, 2008, the Treadwells initiated this adversary proceeding against Glenstone, seeking to avoid Glenstone's judicial lien on their home. Glenstone answered and counterclaimed against the Treadwells, seeking a determination that the Treadwells' debt to it was nondischargeable under 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6).

The court held a trial on April 22 and 23, 2009. The Treadwells and Glenstone employees Urcella House and Rita Marshall testified. Claudette Gioffrion, who would have been the most knowledgeable about Glenstone's communications with the Treadwells, did not testify. On June 16, 2009, the court issued a memorandum opinion and order directing judgment in favor of the Treadwells. The bankruptcy court found that the judicial lien was...

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