Carlos v. Howard (In re Howard)

• Docket Number: Case No. 22-11866-LMI,Adv. Pro. No. 22-01194-LMI
• Decision Date: 22 August 2023
• Citation: Carlos v. Howard (In re Howard), 653 B.R. 693 (Bankr. S.D. Fla. 2023)
• Parties: IN RE: Austin Brode HOWARD, Debtor. Chris M. Carlos, as trustee for the Chris M. Carlos Revocable Trust dated May 28, 2008, as amended and restated, Plaintiff, v. Austin Brode Howard, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

653 B.R. 693

IN RE: Austin Brode HOWARD, Debtor.

Chris M. Carlos, as trustee for the Chris M. Carlos Revocable Trust dated May 28, 2008,as amended and restated, Plaintiff, v. Austin Brode Howard, Defendant.

Case No. 22-11866-LMI

Adv. Pro. No. 22-01194-LMI

United States Bankruptcy Court, S.D. Florida, Miami Division

Filed August 23, 2023

Signed August 22, 2023

Eric B. Coleman, Atlanta, GA, Ivan J. Reich, Esq., Palm Beach Gardens, FL, for Defendant.

Drew M. Dillworth, Miami, FL, Darrell Winston Payne, Jenea M. Reed, Stearns Weaver Miller Weissler Alhadeff & Sitterson PA, Miami, FL, for Plaintiff Chris M. Carlos, as Trustee for the Chris M. Carlos Revocable Trust.

MEMORANDUM OPINION ON NON-DISCHARGEABILITY OF CERTAIN DEBTS

Laurel M. Isicoff, Chief United States Bankruptcy Judge

This matter came before the Court for trial on February 14-16, 2023 (the "Trial"). Chris M. Carlos ("Carlos"), as trustee for the Chris M. Carlos Revocable Trust dated May 28, 2008, as amended and restated (the "Carlos Trust" or "Plaintiff") commenced this Adversary Proceeding seeking denial of Austin Brode Howard's ("Howard" or the "Debtor" or the "Defendant") chapter 7 discharge with respect to the claims of the Carlos Trust. The Plaintiff's Adversary Complaint seeks exceptions from discharge under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6) (ECF #1) (the "Complaint").

The issue before the Court is whether a car broker/dealer who has, admittedly, taken or withheld money from a client, can avoid the consequences of those decisions with impunity. The answer is "no." For the reasons set forth below, the Court finds that Howard is indebted to the Carlos Trust in the amount of $755,745.00, and that the entire amount is non-dischargeable in accordance with sections 523(a)(2)(A), 523(a)(4), and 523(a)(6) of the Bankruptcy Code.

A BRIEF HISTORY

As more detailed in the Court's findings of fact laid out below, Howard and Carlos bonded over expensive cars. They became friends - close friends - until an incredible falling out. Howard claims that everything that Carlos and the Carlos Trust have done is revenge for Howard refusing to sign a non-disclosure agreement. The Carlos Trust argues that everything it has done is a consequence of discovering the Debtor defrauded the Carlos Trust in the manner described in the Complaint and presented at the Trial. A review of the evidence at Trial illustrates a pattern of shell games with Howard using the Carlos Trust cars to provide funds through the floorplan financing made available to Howard's various companies by NextGear Capital ("NextGear").

The Debtor filed a chapter 7 bankruptcy petition on March 8, 2022 (the "Petition Date"). On June 21, 2022 the Carlos Trust filed its five-count Complaint, seeking a determination of the non-dischargeability of three separate debts under sections 523(a)(2)(A), 523(a)(4), and 523(a)(6) of the Bankruptcy Code in the following amounts: (a) $563,835.00 (the "Phantom Debt"); (b) $91,910.00 (the "Vehicle Sales Debt") and $100,000.00 (the "Contempt Debt") (the Phantom Debt, Vehicle Sales Debt, and the Contempt Debt are collectively referred to as the "Claim").¹

After an unsuccessful Motion to Dismiss², the Debtor filed his Answer and Affirmative Defenses³, some of which were eliminated after this Court's ruling on the Plaintiff's Motion for Partial Summary Judgment⁴. Trial proceeded on the Complaint and the Affirmative Defenses.

FINDINGS OF FACT⁵

The Court has considered all of the evidence presented, including the joint stipulation of the parties, the testimony at Trial, the deposition designations, and the admitted exhibits.⁶ Based on all of the foregoing, the Court makes the following findings of fact.

Carlos is the Trustee of the Carlos Trust. All the cars or money that are the subject of the Complaint were purchased by, or provided by, the Carlos Trust.

The Motorcar Collection Miami Corp., a Florida corporation ("Motorcar Miami"), The Motorcar Collection, LLC, a Georgia Limited Liability Company ("Motorcar Atlanta"), and Collection Miami, LLC, a Florida Limited Liability Company ("Collection Miami", and collectively with Motorcar Miami and Motorcar Atlanta, the "Howard Entities"), each specialized in the purchase and sale of luxury automobiles.

Howard created Motorcar Atlanta in 2010 in Atlanta, Georgia. Howard created Motorcar Miami on March 28, 2020. Motorcar Miami was licensed by the Florida Department of Highway Safety and Motor Vehicles ("DMV") as a motor vehicle dealer from June 2020 through April 2022. Howard created Collection Miami on September 10, 2020. Collection Miami was never licensed as a motor vehicle dealer. Howard claims that Collection Miami was "doing business as" Motorcar Miami, but Motorcar Miami's dealer renewal application, submitted in April 2021, does not disclose Collection Miami as a d/b/a; that entity had a separate bank account as of May 2021.

Mr. Howard was the sole owner and operator of the Howard Entities. While Motorcar Atlanta had, at one time, up to 16 employees, Motorcar Miami had only one employee⁷ in addition to Howard.

Carlos, through the Carlos Trust, started purchasing cars from Howard, through Motorcar Atlanta, around late 2017. Howard, according to Carlos, handled everything to do with the cars, even cars that Carlos purchased elsewhere - title, tags, registration. Howard does not dispute that.

Over the course of several years, the Carlos Trust purchased vehicles and often decided to customize such vehicles through the Howard Entities. Five of those purchased vehicles are integral to the allegations of the Complaint and the subject of the Trial -

a. A 2016 Rolls Royce Ghost (the "Ghost")

b. A 2004 Mercedes E55 (the "Mercedes")

c. A 2011 Porsche Turbo (the "Porsche")

d. A white 2019 Ferrari 488 Spider with white leather interior (the "Ferrari")

e. A 2020 Rolls Royce Phantom (the "Phantom")

Most of the allegations of the Complaint and the evidence at Trial focus on how, notwithstanding that the Carlos Trust bought the vehicles, Howard did not transfer title to those vehicles⁸. Rather, Howard used the vehicles to finance his operations, and, allegedly, his personal expenses, while keeping a special rating for his financing.

Motorcar Atlanta had secured floorplan financing from NextGear, a subsidiary of Cox Automotive ("Cox"), and the sister company of Manheim Remarketing, Inc. ("Manheim") through which auto auction Motorcar Atlanta purchased many of its vehicles. Floorplan financing is a line of credit for dealer inventory that allows auto dealers to use a lender's money to finance their inventory in order to bridge the gap between the purchase and sale of vehicles. Up until the time those vehicles are sold to the end-user, the lender retains the vehicle titles. Howard was the personal guarantor of the floorplan financing loans from NextGear to Motorcar Atlanta. Howard testified that as part of the normal course of business, Motorcar Atlanta placed every vehicle in its inventory into the NextGear floorplan.

Over time, Carlos and Howard developed a close friendship that went beyond the purchase of cars. Not only were Howard and Carlos friends; Howard also became a friend to Carlos' family, and performed services for the family members as well. Howard ended up meeting, not just some of Carlos' family's business needs, but some of their personal needs as well. For example, in addition to a home in Atlanta, Carlos also owns a luxury condominium in Miami. Around late October 2020, Howard was engaged to perform condo management services for Carlos and Carlos paid separately for those services. Howard also did personal shopping for Carlos from time to time.

THE GHOST

In February of 2019, the Carlos Trust purchased the Ghost from Motorcar Atlanta. In November 2020, the Ghost was stolen from a restaurant in Atlanta. The Carlos Trust made an insurance claim. The insurance company required certain information, including the title to the car. Howard was asked to help fill out paperwork that the insurance company required in connection with the theft, including providing the title, which Howard supposedly was holding on to for the Carlos Trust.

However, unbeknownst to the Carlos Trust, Howard had never transferred title of the Ghost to the Carlos Trust.⁹ On February 22, 2019, after the Ghost was sold to the Carlos Trust, the Ghost was used as collateral by Motorcar Atlanta for a floorplan loan of $193,935.00. That financing was paid off on August 30, 2019. Then the Ghost was used again on September 24, 2019 for financing, which was paid off on April 28, 2020. The Ghost was used yet again for financing on June 9, 2020 and paid off on December 8, 2020.

Repeated demands were made over time to Howard to deliver the title of the Ghost to the insurance company. During a phone conversation on March 12 or 13, 2021 with Lisa Harper, counsel to the Carlos Trust, Howard said the title documents for the Ghost were being processed, but Ms. Harper testified that during that conversation Howard never mentioned that the Carlos Trust did not already own the Ghost, or that the title to the Ghost had never been registered to the Carlos Trust.

The evidence at Trial shows that Howard did not deliver title to the Ghost until the Carlos Trust purchased the Ferrari. At that point, Howard used the Ferrari to get an advance on the floorplan financing and apparently used that advance to pay NextGear to release its lien on the Ghost so that Howard could transfer the title from Motorcar Atlanta to Carlos Trust and finally deliver the title to the insurance company.

THE FERRARI

On or about November 4, 2020, a bill of sale reflecting Motorcar Miami as the seller, was delivered to the Carlos Trust, as buyer, for the purchase of the Ferrari. However, unbeknownst to the Carlos Trust, Howard did not transfer title of the Ferrari to the Carlos Trust. On November 11, 2020, after the Ferrari was sold to the Carlos Trust, Howard used the Ferrari to obtain financing from NextGear for...