Commercial Cash Flow, L.L.C. v. Matkins (In re Matkins)

Decision Date22 August 2019
Docket NumberAPN 18-05007-SCS,Case No. 18-50047-SCS
Citation605 B.R. 62
Parties IN RE: William Kenneth MATKINS, Christy Ann Fuller-Matkins, Debtors. Commercial Cash Flow, L.L.C., t/a Beach Commercial Finance, Plaintiff, v. William Kenneth Matkins, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Virginia

Peter G. Zemanian, Zemanian Law Group, Norfolk, VA, for Plaintiff.

Barry W. Spear, Boleman Law Firm, P.C., Virginia Beach, VA, for Defendant.

MEMORANDUM OPINION
STEPHEN C. ST. JOHN, Chief United States Bankruptcy Judge

This matter came on for trial on February 12, 2019, upon the Corrected Complaint to Determine Nondischargeability of Debt pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4), filed by Commercial Cash Flow, L.L.C., t/a Beach Commercial Finance ("Beach Commercial"). At the conclusion of the trial, the Court took this matter under advisement. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(b)(2) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. Upon consideration of the evidence, arguments presented by counsel at the trial, and pleadings submitted, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. PROCEDURAL HISTORY

William Kenneth Matkins ("Matkins") and Christy Ann Fuller-Matkins (collectively, the "Debtors") filed, by counsel, a petition under Chapter 7 of the United States Bankruptcy Code on January 17, 2018. The § 341 Meeting of Creditors was held on February 12, 2018, and adjourned to March 26, 2018, on which date the meeting was concluded. The Debtors received their Chapter 7 discharge on April 18, 2018. Five days prior, on April 13, 2018, Beach Commercial filed a Complaint to Determine Nondischargeability of Debt pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4), which commenced the above-captioned Adversary Proceeding. A corrected complaint was filed on April 15, 2018. Corrected Complaint to Determine Nondischargeability of Debt, Adv. Proc. No. 18-05007-SCS, ECF No. 4 (hereinafter, "Complaint").1

In the Complaint, Beach Commercial requests that the Court deny the dischargeability of the debt owed by Matkins pursuant to a factoring agreement entered into by Matkins's company, Bay Rivers Industrial, Inc. ("Bay Rivers"), and Beach Commercial, and a guaranty as to that agreement signed by Matkins. Complaint, at paras. 9, 11. Under the factoring agreement, Bay Rivers sold product invoices to Beach Commercial in exchange for funds. Id. at para. 9. By purchasing the invoices, Beach Commercial acquired the right to receive the payment proceeds of the invoices. Id. at para. 10. Matkins guaranteed all debts and obligations that Bay Rivers incurred under the factoring agreement. Id. at para. 11. Beach Commercial seeks a determination of nondischargeability pursuant to the guaranty.

While Beach Commercial alleges that Bay Rivers continually violated the terms of the factoring agreement, the Complaint focuses on the nondischargeability of proceeds arising from the sale of six invoices. Id. at paras. 15-16. The Complaint seeks to have the Court determine the amounts guaranteed by Matkins to be nondischargeable "(i) based upon false certifications or representations or based upon actual fraud ... within the scope of 11 U.S.C. § 523(a)(2)(A) ; (ii) based upon fraud or defalcation committed while acting in a fiduciary capacity, within the scope of 11 U.S.C. § 523(a)(4) ; and/or (iii) based upon embezzlement or larceny, also pursuant to 11 U.S.C. § 523(a)(4)." Id. at preamble.

According to Beach Commercial, Matkins made false representations or committed actual fraud under 11 U.S.C. § 523(a)(2)(A) when he, on behalf of Bay Rivers, falsely represented to Beach Commercial that Huntington Ingalls Industries had received goods listed on three invoices from Bay Rivers (the "Huntington Ingalls Invoices"). Id. at paras. 17, 21. Beach Commercial asserts that it relied on these representations when it purchased the three invoices, which Matkins knew were invalid at the time of sale. Id. at paras. 19-20, 34-35. Beach Commercial also argues that Matkins committed actual fraud when he deposited a check from Glotech, Inc. ("Glotech Check"), which paid for three other invoices purchased by Beach Commercial, and spent those proceeds without informing Beach Commercial. See id. at paras. 23, 25-27, 37.

Next, Beach Commercial argues that Matkins committed fiduciary defalcation because, as president and part-owner of Bay Rivers, he is liable for selling invoices for goods that Bay Rivers never delivered, as well as failing to inform Beach Commercial that he deposited the Glotech Check. Id. at paras. 41-43. Beach Commercial argues that such action was done knowingly or with gross recklessness, and all debt resulting from these actions should be determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(4). Id. at para. 44.

Finally, Beach Commercial argues that Matkins's conduct constitutes embezzlement pursuant to 11 U.S.C. § 523(a)(4) and Virginia Code § 18.2-111 because he converted Beach Commercial's property for his own use without consent. Id. at para. 46. Beach Commercial also asks the Court to find that Matkins committed larceny if the Court finds that Matkins's intentional conduct was without Beach Commercial's initial consent. Id. at para. 47.

The Complaint asserts that the total nondischargeable debt owed to Beach Commercial is $191,097.55. Id. at prayer para. iv. This sum includes a 1% late fee; 3% interest on the Huntington Ingalls Invoices, calculated to be $8,463.67; $2,249.54 in interest, at 3%, on the invoices related to the Glotech Check; and $10,583.50 in attorney fees through April 13, 2018. Id. at paras. 28-29.

Matkins filed an Answer to the Complaint on May 17, 2018, admitting that some amount of money is owed to Beach Commercial but denying that the debt is nondischargeable. Answer to Complaint, Adv. Proc. No. 18-05007-SCS, ECF No. 7 (hereinafter, "Answer"), at para. 22. Matkins admits that he did not review every document submitted with the invoices sold to Beach Commercial. Id. at paras. 18, 19. He also asserts that he believed Bay Rivers was waiting on items from a third-party vendor before Bay Rivers could ship the products listed in the Huntington Ingalls Invoices that were sold to Beach Commercial. Id. at para. 21. Matkins admits he received and deposited the Glotech Check and that the funds were never remitted to Beach Commercial. Id. at paras. 25-26. However, he denies that he acted with gross recklessness or with intent to commit fraud or defalcation; that he owed a fiduciary duty to Beach Commercial; or that his actions constitute embezzlement or larceny. See id. at paras. 27, 37, 40-43, 46-47. Matkins argues instead that Beach Commercial was fully aware of Bay Rivers' financial issues and thus could not justifiably rely on Bay Rivers' certifications and representations. Id. at para. 20. Matkins prays that the Court dismiss the Complaint. Id. at prayer.

Several evidentiary pleadings were filed prior to the trial. Beach Commercial filed a Motion in Limine to Exclude Certain Testimony and Narrow Issues at Trial ("Motion in Limine") on February 4, 2019. Motion in Limine to Exclude Certain Testimony and Narrow Issues at Trial, Adv. Proc. No. 18-05007-SCS, ECF No. 30 (hereinafter, "Motion in Limine"). Citing several examples of delays and unclear responses to discovery requests, Beach Commercial asked the Court to prohibit Matkins from presenting evidence concerning actions related to the sale of the Huntington Ingalls Invoices.2 Id. at para. 25(a). Beach Commercial also requested that the Court conclusively establish that Matkins and/or another Bay Rivers employee knew that the items on the Huntington Ingalls Invoices would not be delivered until a date that was after those invoices were sold to Beach Commercial and to admit a deposition Beach Commercial took due to the denials of knowledge by a Bay Rivers employee. Id. at para. 25(b).

In response, Matkins argued that he complied with all discovery requests in good faith and provided all responses, documents, and testimony that he believed was relevant. Response to Motion in Limine, Adv. Proc. 18-05007-SCS, ECF No. 40, at paras. 2-3, 7. Matkins argued that he did not control the other deponents' unclear responses and that Beach Commercial was attempting to circumvent the Court's role as trier of fact. Id. at paras. 3, 6. Matkins prayed that the Court deny the Motion in Limine. Id. at prayer.

Beach Commercial and Matkins each lodged several evidentiary objections on February 5, 2019, which the parties noted at trial had been resolved. See Transcript of Feb. 12, 2019 Trial, at 6-8 (hereinafter, "Tr."). Additionally, on February 7, 2019, the parties filed a proposed agreed Order on Stipulation of Facts and Exhibits ("Stipulation").3 Proposed Order on Stipulation of Facts and Exhibits, Adv. Proc. No. 18-05007-SCS, ECF No. 35 (hereinafter, "Stipulation").

At trial, at the request of the parties, the Court determined that the Motion in Limine would be considered after the case was presented.4 See Tr. 3-5. Exhibits 1-28 and 30-31 tendered by Beach Commercial and Exhibits A and B tendered by Matkins were admitted without objection. See id. 8, 61, 80, 97-98, 102, 181. Following the trial, at the direction of the Court, the parties submitted an agreed Order on Deferred Consideration of Attorney's Fees/Expenses, which the Court entered on February 14, 2019. Under the order, Beach Commercial and Matkins agreed that if the Court rendered judgment in favor of Beach Commercial, Beach Commercial would have twenty-one (21) days to either submit a consent order regarding attorney fees or request the Court schedule a hearing to determine the amount of attorney fees Matkins owes Beach Commercial, and whether to admit Plaintiff's Exhibit 29 as well as any replacement or supplemental submissions by the parties.

II. FINDINGS OF FACT

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