Direct Capital Grp. LLC v. Hadley (In re Hadley)
| Decision Date | 19 August 2011 |
| Docket Number | Case No. 09-73717-FJS,APN: 09-07141-FJS |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re: Charles D. Hadley, III, Janet M. Hadley, Debtors. Direct Capital Group, LLC, Plaintiff, v. Charles D. Hadley, III, Defendant. |
This matter comes before the Court upon trial of the above-captioned adversary proceeding. The Court has subject-matter jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). Venue is proper pursuant to 28 U.S.C. §§ 1408(1) and 1409(a). Upon consideration of the pleadings, the evidence presented at trial, and the arguments of the parties, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. As stated below, the Court dismiss Plaintiff's § 523(a)(4) count and denies without prejudice Plaintiff's § 523(a)(6) count; the Court previouslydismissed Plaintiff's § 523(a)(2) count.
On September 8, 2009, Charles D. Hadley, III (the "Defendant") and Janet M. Hadley (collectively, the "Debtors") filed, as joint debtors, a voluntary petition for relief pursuant to Chapter 13 of Title 11 of the United States Code (the "Code"). (Case No. 09-73717-FJS, Doc. No. 1.) On September 14, 2009, the Debtors filed their first Chapter 13 Plan. (Case No. 09-73717-FJS, Doc. No. 12.) The Debtors filed an Amended Plan on January 29, 2010. (Case No. 09-73717-FJS, Doc. No. 33.) Ultimately, the Debtors filed a Second Amended Plan on April 19, 2010 and a Third Amended Plan on July 8, 2010. (Case No. 09-73717-FJS, Doc. Nos. 62, 81.) On August 3, 2101, the Chapter 13 Standing Trustee filed an Objection to Confirmation of the Debtors' Third Amended Plan, citing failure to make a lump sum payment required under the terms of the Plan.1 (Case No. 09-73717-FJS, Doc. No. 90.) Subsequently, on November 16, 2010, the Chapter 13 Standing Trustee filed a Motion to Dismiss the Case for failure to make plan payments because the Debtors were five months in arrears on their Chapter 13 Plan (the "Motion to Dismiss"). (Case No. 09-73717-FJS, Doc. No. 96.) On January 6, 2011, the Court entered an Order settling the Motion to Dismiss. (Case No. 09-73717-FJS, Doc. No. 98.) The Debtors' Chapter 13 plan has yet to be confirmed by Order of the Court.2
The instant matter is one of three pending adversary proceedings filed against Defendant. On December 14, 2009, Reginald J. Padgett ("Padgett") filed suit against Defendant seeking a determination of nondischargeability as to certain debts pursuant to §§ 523(a)(2)(A) and 523(a)(4) of the Code. (APN 09-07140, Doc. No. 1.)3 On December 14, 2009, Direct Capital Group, LLC ("Plaintiff or "DCG"), in the instant matter, filed suit against the Debtors seeking a determination of nondischargeability as to certain debts pursuant to §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6) of the Code. (APN 09-07141, Doc. No. 1.) Plaintiff also sought a denial of the Debtors' discharge pursuant to § 727 of the Code. Lastly, on April 19, 2010, Textron Financial Corporation ("TFC") filed suit against Defendant seeking a determination of nondischargeability as to certain debts pursuant to §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6) of the Code. (APN 10-07053-FJS, Doc. No. 1.) The Court will issue separate Orders and Memorandum Opinions in each adversary proceeding.
The facts of each of adversary proceeding arise out of the same circumstances. Atlantic Golf Cart and Equipment, Inc. ("Atlantic Golf") is a corporation registered with the State Corporation Commission for the Commonwealth of Virginia, and its principal business purposes were (1) to sell new and used golf carts, (2) repair and service golf carts, and (3) lease out golf carts. (Pl.'s Ex. 11, June 7, 2010 Dep. Tr. of Def. at 11:2-12:17.) DCG's and TFC's allegations center around the fact that golf carts leased or sold to Atlantic Golf disappeared from Atlantic Golf's inventory without the lessor or retailer having been properly compensated, in contravention of existing contracts.
Defendant has been employed on a full time basis as a firefighter for the City of Chesapeake since 1984. (Pl.'s Ex. 11 at 7:17-20.) Defendant has been an officer and stockholder in Atlantic Golf since its inception in 1990. (Pl.'s Ex. 11 at 10:5-6.) Defendant served as vice-president of Atlantic Golf between 1991 and 1998. Defendant became president of Atlantic Golf in 1998. (Pl.'sEx. 11 at 9:17-18, 9:24-10:2.) Until October 31, 2001, Defendant held 50% of Atlantic Golf's stock. (Pl.'s Ex. 11 at 9:10-10:23.) Padgett held 50% of Atlantic Golf's stock up until October 31, 2001, when Padgett sold his 50% interest in Atlantic Golf to Defendant. (APN 09-07140-FJS, Doc. No. 1, ¶ 7.)
DCG, based in Portsmouth, New Hampshire, provided equipment financing to Atlantic Golf during the relevant period. DCG purchased golf carts from third party manufacturers and leased those carts to Atlantic Golf. (Pl.'s Ex. 2 at 1; Pl.'s Ex. 3 at 2.) On March 20, 2007, Atlantic Golf and DCG entered into the Master Lease Agreement (the "Master Lease Agreement"). (Pl.'s Ex, 1.) By its terms, the Master Lease Agreement incorporated Equipment Schedule No. 8241 (the "First Equipment Schedule") that was executed by DCG and Atlantic Golf on March 20, 2007. (Pl.'s Ex. 3.) According to the First Equipment Schedule, Atlantic Golf leased from DCG sixteen golf carts. (Pl.'s Ex. 3, at 3.) Atlantic Golf agreed to pay to DCG 48 monthly payments of $1,518.63, plus fees and taxes. On behalf of Atlantic Golf, Defendant signed the Master Lease Agreement in his official capacity as president of Atlantic Golf. (Pl.'s Ex. 1, at 3.)
The Master Lease Agreement also included a Master Guaranty (the "Master Guaranty") that incorporates the terms of the Master Lease Agreement that Defendant signed as Guarantor in his personal capacity. (Pl.'s Ex. 1, at 3.) A Master Delivery Guaranty and Master Assignment ofInvoices (the "Master Delivery Guaranty") was executed and is an addendum to the Master Lease Agreement. (Pl.'s Ex. 1, at 4.) Defendant signed the Master Delivery Guaranty on behalf of Atlantic Golf. By its terms, the Master Delivery Guaranty authorized DCG to pay in advance equipment suppliers the balance of invoices due before delivering the equipment to Atlantic Golf. From the limited evidence in the record, DCG purchased golf carts from TFC and would later lease those golf carts to Atlantic Golf. The First Equipment Schedule indicates that TFC billed directly DCG for golf carts that Atlantic Golf ordered from TFC. (Pl.'s Ex. 3, at 3.) DCG then leased those golf carts to Atlantic Golf, per the Master Lease Agreement. Further, where DCG paid in advance, Atlantic Golf agreed to pay DCG for funds advanced to equipment suppliers. (Pl.'s Ex. 1, at 4.)
Atlantic Golf and DCG executed Equipment Schedule No. 1848 ("the Second Equipment Schedule") on May 8, 2008. (Pl.'s Ex. 2.) The Second Equipment Schedule provided that DCG would lease to Atlantic Golf, for 60 months, ten used golf carts for a total payment amount of $54,480.00. (Pl's Ex. 2, at 2-3.) Defendant signed each Equipment Schedule, in his official capacity as president, on behalf of Atlantic Golf, the lessee. (Pl.'s Ex. 2, at 1; Pl.'s Ex. 3, at 1.) Both the First and Second Equipment Schedules "incorporate[d] the terms and conditions of the referenced Master Lease [Agreement]." (Pl.'s Ex. 2, at 1; Pl.'s Ex. 3, at 1.) Each was guaranteed by Defendant.
Among its provisions, the Master Lease Agreement granted DCG a "first priority security interest in the Equipment and authorize[d] [DCG] to file UCC financing statements or similar instruments recording such security interest." (Pl.'s Ex. 1, at 2, § 14.) The Master Lease Agreement included a forum selection clause and choice of law clause by which the laws of the state of New Hampshire controlled. (Pl.'s Ex. 1, at 2, § 15.) Section 20 of the Master LeaseAgreement is a merger clause that integrates the Master Lease Agreement. (Pl.'s Ex. 1, at 3, § 20.) The Master Lease Agreement stated terms of default. (Pl.'s Ex. 1, at 2, § 16.) The Master Lease Agreement deems a condition of default to have occurred if:
(a) [Atlantic Golf] fail[s] to make any payment required pursuant to this lease when due, (b) [Atlantic Golf] fail[s] to perform any obligation in this Lease or any other agreement with [DCG], (c) any representation or warranty made by [Atlantic Golf] is false, (d) a material adverse change (as determined by [DCG]) occurs in [Atlantic Golf's] financial condition or [DCG] believe[s] the prospect of payment or performance is impaired, (e) any insolvency, bankruptcy or other similar proceedings, (f) equipment condition or operation, delivery, defect in title, or seizure of the equipment, (g) death of a personal guarantor or (h) [Atlantic Golf] attempt[s] or actually repudiate[s] or revoke[s] any agreement with [DCG].
The Court finds as a finding of fact that Atlantic Golf and DCG operated pursuant to the terms of the Master Lease Agreement and each Equipment Schedules until August of 2009. On July 6, 2009, DCG sent two letters to Atlantic Golf, one letter for each Equipment Schedule. (Pl.'s Ex.'s 4, 5.) Pursuant to the First Equipment Schedule, DCG deemed Atlantic Golf to be in default for failure to remit timely payments on the leased golf carts. DCG exercised its right to accelerate the payment obligation due immediately from Atlantic Golf in the amount of $35,596.02. (Pl.'s Ex. 4.) Pursuant to the Second Equipment Schedule, DCG deemed Atlantic Golf to be in default for failure to remit timely payments on the leased golf carts. DCG exercised its...
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