Ewers v. Cottingham (In re Cottingham)

• Decision Date: 15 June 2012
• Docket Number: BAP No. 11–8042.
• Citation: 56 Bankr.Ct.Dec. 169,473 B.R. 703
• Parties: In re Thomas J. COTTINGHAM and Patricia Joe Cottingham, Debtors. Jerome Ewers, et al., Plaintiffs–Appellees, v. Thomas J. Cottingham, Defendant–Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

473 B.R. 703

56 Bankr.Ct.Dec. 169

In re Thomas J. COTTINGHAM and Patricia Joe Cottingham, Debtors.

Jerome Ewers, et al., Plaintiffs–Appellees,

v.Thomas J. Cottingham, Defendant–Appellant.

BAP No. 11–8042.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Submitted: April 23, 2012.

Decided: June 15, 2012.

ON BRIEF: C. Ed Massey, Blankenship Massey & Steelman, PLLC, Erlanger, KY, for Appellant. William H. Blessing, The Blessing Law Firm, Cincinnati, OH, for Appellees.

Before: FULTON, McIVOR, SHEA–STONUM, Bankruptcy Appellate Panel Judges.

OPINION

SHEA–STONUM, Bankruptcy Judge.

The Debtor, Thomas J. Cottingham, appeals from an order excepting a debt owed to plaintiff, Spaces, Inc., from discharge pursuant to 11 U.S.C. § 523(a)(6). The bankruptcy court found that the Debtor, Thomas Cottingham, conspired with Co–Debtor Patricia Cottingham to convert embezzled funds and other property from Spaces, Inc. The Debtor argues that the bankruptcy court erred when it found the Debtor conspired with his wife and acted willfully and maliciously.

I. ISSUES ON APPEAL

Is the bankruptcy court's finding that the Debtor Thomas Cottingham conspired with his wife to convert funds she embezzled from her prior employer Spaces, Inc. clearly erroneous?

Did the bankruptcy court clearly err when it found Debtor Thomas Cottingham caused willful and malicious injury to Plaintiff?

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States Bankruptcy Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations and internal quotations omitted). “A bankruptcy court's judgment determining dischargeability is a final and appealable order.” Cash Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (6th Cir. BAP 2007) (quoting Hertzel v. Educ. Credit Mgmt. Corp. (In re Hertzel), 329 B.R. 221, 224–25 (6th Cir. BAP 2005)).

Determinations of dischargeability under 11 U.S.C. § 523 are conclusions of law reviewed de novo. In re Fox, 370 B.R. at 109 (citing Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (6th Cir. BAP 2000)). De novo review requires the “appellate court [to determine] the law independently of the trial court's determination.” Id. (quoting O'Brien v. Ravenswood Apartments, Ltd. (In re Ravenswood Apartments, Ltd.), 338 B.R. 307, 310 (6th Cir. BAP 2006)).

However, “[t]he factual findings underlying the bankruptcy court's dischargeability ruling are upheld on appeal unless they are clearly erroneous.” Id. (citing In re Hertzel, 329 B.R. at 225 and Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 622 (6th Cir. BAP 2005) (dischargeability determinations present mixed questions of law and fact; the bankruptcy court's conclusions of law are reviewedde novo, while findings of fact are reviewed for clear error)). A bankruptcy court's findings of fact should not be disturbed simply because another trier of fact might construe the facts differently or reach a different conclusion. See Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). A factual determination should be upheld unless “although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” In re Bailey, 254 B.R. at 903. (citation omitted).

III. FACTS

Thomas and Patricia Cottingham (together, the “Debtors”) are married and until 2010, upon Patricia Cottingham's incarceration, lived together. They have two adult sons who lived with them through June 2006. From the early 1990's through June 2006, Debtors lived at 22 St. Nicholas Place, Ft. Thomas, Kentucky. They leased the St. Nicholas Place residence for $750 per month in rent.

Thomas Cottingham is a construction superintendent with 32 years of experience. He has held himself out as skilled in construction supervision and cost estimating. In the 1990's, the Debtors owned and operated a construction company called Cottingham Construction. The company failed and as a result the Debtors incurred substantial personal tax liabilities arising from the company's unpaid tax liabilities. In addition, the Debtors did not pay their personal income taxes in 2000 and 2001. The Debtors had a monthly payment obligation to the IRS as a result of these unpaid taxes. Thomas Cottingham was aware of the monthly payment obligation. The Debtors were at that time unable to meet all of their financial obligations.

After the failure of Cottingham Construction, Thomas Cottingham became employed by Performance Construction Company. From 2003 to 2009, his yearly gross income at Performance Construction Company was between $53,000 and $59,000 and his weekly take home pay was approximately $750. In addition, Thomas Cottingham receives $1,300 per month as part of a lifetime annuity as a result of a personal injury/death settlement.

Patricia Cottingham was employed by Cardiology Associates as a bookkeeper prior to February 1999. Her employment was terminated in 1999. In 2000, she was indicted and pled guilty to felony embezzlement of funds from her former employer Cardiology Associates. She was sentenced to five years of probation and required to pay $44,613.49 in restitution at the rate of $800 per month. By the time she was sentenced, Thomas Cottingham was aware of his wife's criminal activity and of the $800 per month restitution obligation.

In between the time she was terminated as a bookkeeper at Cardiology Associates and her indictment, Patricia Cottingham was hired by Spaces, Inc. as an “administrative assistant full charge bookkeeper.” Plaintiff Jerome Ewers is the owner of Spaces, Inc. She was responsible for all of the accounting and in charge of the record keeping for the day to day operations of Spaces, Inc. She, however, did not have check signing authority for the bank accounts of Spaces, Inc. Her salary ranged from approximately $30,000 to $38,000 during her employment with Spaces, Inc. Her weekly take home pay was between $600–650 per week.

The Debtors paid their living expenses using a joint checking account with the Bank of Kentucky. Both Debtors had authority to sign checks drawn on this account, and both Debtors in fact wrote checks drawn on this account. In addition the Debtors had a joint account at Guardian Savings Bank. The Debtors used this account to pay certain bills, including the restitution payments.

The Debtors sometimes deposited their paychecks into these accounts. Often the Debtors would take large sums of cash back from these deposits, or the Debtors would cash their paychecks without an intervening deposit.

In 2001, Patricia Cottingham began embezzling funds and property from Spaces, Inc. Each successive year the amount she embezzled grew. In 2001 and 2002, Patricia Cottingham embezzled $16,765.27 from Spaces, Inc. The embezzled funds were deposited into the Debtors' joint bank accounts. In 2003, Patricia Cottingham embezzled $64,328.30. All of the embezzled funds were deposited into the Debtors' joint bank account at Bank of Kentucky. In 2004, she embezzled $88,244.60 from Spaces, Inc. She deposited a little more than half of that money directly into the Debtors' joint account at Bank of Kentucky. The other half of the money was deposited first into a bank account Patricia Cottingham opened in her own name at Fifth Third Bank. In 2005, she embezzled $213,544.61 in cash. The money was initially placed in the Fifth Third Bank account and was moved from there to the Debtors' joint accounts or to pay the Debtors' expenses. In addition, Patricia Cottingham created a forged credit card account with Fifth Third Bank in the name of Spaces, Inc. The bills for the forged credit card were sent to the Debtors' residence. Patricia Cottingham paid those bills using embezzled funds. The total amount of those forged credit card purchases was $1,892.59. In 2006, the total cash embezzled was $283,391.88, and the total of the forged credit card purchases was $2,821.43. In 2007, she embezzled $328,516.10. In 2008, she embezzled $11,230.21.

Just as the amount she embezzled grew with each successive year, the Debtors' spending grew each successive year, at a rate that far exceeded any salary increase they might have received from an employer. Patricia Cottingham was not the only one to spend the embezzled funds. For instance, in June 2003, Thomas Cottingham paid off a $3,133.73 loan just 3 days after Patricia Cottingham deposited a check embezzled from Spaces, Inc. into the joint bank account. In December 2003, the Debtors paid another loan in the amount of $4,860.05 just two days after a check embezzled from Spaces, Inc. was deposited into the joint account at Bank of Kentucky. Similar events took place in 2004 when the Debtors purchased a computer, paid past due taxes and purchased a Jeep Wrangler.

The evidence presented at trial showed that in 2005, the Debtors deposited into their bank account a total of $32,539.49 from their paychecks. Contemporaneously with those deposits, the Debtors withdrew cash in the amount of $31,074.39 (by cash withdrawal, writing a check to cash or making an ATM withdrawal). Notwithstanding that the Debtors' net deposit of earned income in 2005 was only $1,465.10 in that same year, the Debtors spent $274,573.22 from their various bank accounts on “living expenses.” Some of those expenses were the significant interior and exterior renovations to their rental...