Fleming Mfg. Co. v. Keogh (In re Keogh)

• Decision Date: 30 April 2014
• Docket Number: Bankruptcy No. 12–46330–705.,Adversary No. 12–4294–659.
• Citation: 509 B.R. 915
• Court: U.S. Bankruptcy Court — Eastern District of Missouri
• Parties: In re Harold P. KEOGH, and Debra A. Keogh, Debtors. Fleming Manufacturing Company, Inc., Plaintiff, v. Harold P. Keogh, and Debra A. Keogh, Defendants.

509 B.R. 915

In re Harold P. KEOGH, and Debra A. Keogh, Debtors.

Fleming Manufacturing Company, Inc., Plaintiff,

v.Harold P. Keogh, and Debra A. Keogh, Defendants.

Bankruptcy No. 12–46330–705.

Adversary No. 12–4294–659.

United States Bankruptcy Court,

E.D. Missouri,

Eastern Division.

Signed April 30, 2014.

David L. Baylard, Baylard, Billington & Dempsey, PC, Union, MO, A. Thomas DeWoskin, Danna McKitrick, PC, St. Louis, MO, for Plaintiff.

Daniel E. Leslie, Leslie Spieler & Fulford LLC, Union, MO, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

KATHY A. SURRATT–STATES, Chief Judge.

The matters before the Court are Amended and Restated Complaint for Determination [sic] of Dischargeability of Debt or, In The Alternative, Denial of Discharge,¹ Answer to Amended and Restated Complaint for Determination of Dischargeability of Debt or, in the Alternative, Denial of Discharge, Movant/Plaintiff's Proposed Findings of Fact, Conclusions of Law and Judgment, Movant/Plaintiff's Trial Brief, Defendants['] Proposed Findings of Fact and Conclusions of Law, Joint Stipulation of Facts, Movant/Plaintiff Fleming Manufacturing Company, Inc.'s [Motion for] Taxation of Costs, Plaintiff's Motion for Leave of Court to File Supplemental Legal Memorandum and Motion to Amend Its Proposed Findings of Fact, Conclusions of Law and Judgment by Interlineation, Plaintiff's Supplemental Legal Memorandum and Motion to Amend Its Proposed Findings of Fact, Conclusions of Law and Judgment by Interlineation and Plaintiff's Submission of Attorneys Fees and Costs. A trial was held on February 12, 2013, March 21, 2013 and June 11, 2013, at which Debtors Debra A. Keough and Harold P. Keough appeared in person and by counsel and Plaintiff Fleming Manufacturing Company, Inc. was represented by counsel. Testimony and evidence were presented and the matters were taken under submission. Upon consideration of the record as a whole, the Court issues the following FINDINGS OF FACT:

Debtors Debra A. Keough and Harold P. Keough (hereinafter collectively “Debtors”) filed a Joint Petition under Chapter 7 of the Bankruptcy Code on June 29, 2012. On August 11, 2012, Chapter 7 Trustee Stuart Radloff filed his Report of No Distribution and on October 10, 2012, Debtors received a discharge under Section 727. Plaintiff Fleming Manufacturing Company, Inc. (hereinafter “Fleming”) now requests that this Court determine that certain debts be excepted from Debtors' discharge or alternatively that this Court revoke Debtors' discharge.²

Fleming is a Missouri corporation with its principal place of business in St. James, Missouri. Fleming manufactures and services industrial machinery used in the production of concrete products. Fleming was once owned by Bill Fleming. Bill Fleming sold Fleming to Eagle Building Technologies, Inc. (hereinafter “Eagle”). By separate agreement that was not disclosed to this Court, Bill Fleming was to receive continued payments from Fleming after Eagle assumed ownership of Fleming. Eagle owned Fleming from January 2001 through October 2008. Fleming is now owned by Steve Levy (hereinafter “Mr. Levy”).

Debtor Debra A. Keogh (hereinafter “Ms. Keogh”) was hired in September 1988 as the personal secretary of the former owner of Fleming, Bill Fleming. On or about August 15, 2000, Ms. Keogh became a Sales Person for Fleming. Her salary at that time was between $33,500.00 and $40,000.00.³ At some point before July 30, 2002, Ms. Keogh became the General Manager of Fleming.

On or about July 30, 2002, Ms. Keogh was informed that she would soon be paid an annual salary of $100,000.00.⁴ No later than January 1, 2003, Ms. Keogh became the President of Fleming ⁵ and her compensation at the $100,000.00 per year rate began. Ms. Keogh also served on the Board of Eagle in 2003.

As President of Fleming, Ms. Keogh had control over Fleming's revenue and working capital. Ms. Keogh was also in charge of Fleming's general operations, administrative sales and financial affairs in that Ms. Keogh managed Fleming's accounts payable and receivable, managed and had signatory authority on all of Fleming's bank accounts and had authority to open and close bank accounts, arrange safety deposit boxes and secure other banking services. Ms. Keogh established a $300,000.00 revolving line of credit with Bank of Sullivan on behalf of Fleming which Ms. Keogh used in connection with Fleming's operations. Ms. Keogh was further authorized to sign checks on an account established by Eagle as a supplement to Fleming's regular bank accounts. Ms. Keogh was also in charge of Fleming's human resources in that she had authority to hire, fire, retain and promote staff. Ms. Keogh was also responsible for making the aforementioned payments to Bill Fleming.

Fleming began to experience financial difficulties as late as 2002. Fleming's major financial issues were caused by Internal Revenue Service (hereinafter “IRS”) delinquencies, its bank obligations to Bank of Sullivan and its payment obligations to Bill Fleming. Fleming also had weekly payroll obligations to satisfy. Fleming also financed certain ventures on behalf of Eagle. Ms. Keogh grew frustrated with the pressures to meet Fleming's several financial obligations which ultimately conflictedwith Ms. Keogh's personal ideas on how she wanted to operate Fleming. As a result, Ms. Keogh made a series of poor decisions which are summarized as follows.

Ms. Keogh hired her family members: her daughter Mackenzie Keogh (hereinafter “Daughter Mackenzie”), her son Stephen Keogh (hereinafter “Son Stephen”), on occasion her father Melvin Kamler (hereinafter “Mr. Kamler”), her brother Matthew Kamler, Debtor Harold P. Keogh (hereinafter “Mr. Keogh”), and her son's then-girlfriend and mother of one of Debtors' grandchildren Jennifer Cunningham (hereinafter “Ms. Cunningham”). Ms. Keogh authorized salaries for certain family members which were based on time sheets that were either falsified by Ms. Keogh or which Ms. Keogh authorized with knowledge of the falsity of the time sheets. She also caused Mr. Keogh to be paid for cleaning services which were not provided. Ms. Keogh also caused Fleming checks to be made to cash, which she would use for personal purposes and would co-mingle with her personal funds. Ms. Keogh also alleged to Eagle that certain funds were needed to satisfy certain Fleming debt, particularly that owed to the Bank of Sullivan and to the IRS, however, though Ms. Keogh was granted the necessary funds to make the payments, there are either no records of receipt of payments Ms. Keogh alleged to have made or no records of receipt of payments around the time Ms. Keogh alleged the need for funds to make those payments. Ms. Keogh also decided to issue herself and her family members checks in various amounts at various times in alleged satisfaction of commissions to which she claimed to be entitled.

Ms. Keogh took loans on behalf of Fleming from her father Mr. Kamler and ultimately caused repayment to Mr. Kamler to be granted priority over Fleming's other creditors. Finally, Ms. Keogh decided to leave Fleming and start her own company, first Innovative Manufacturing Concepts (hereinafter “Innovative”) and then, after Innovative failed, International Molds Company (hereinafter “IMC”), which she formed using Fleming's proprietary technical drawings. Ms. Keogh misappropriated three (3) Lomega External Hard Drives which contained Fleming's proprietary technical drawings and customer list and used the same at Innovative and IMC. Ms. Keogh also caused prints of Fleming's technical drawings to be made, and/or took prints of those drawings from Fleming. Fleming's technical drawings bore the name “Fleming” on them, which Ms. Keogh manually removed or caused to be manually removed, and then superimposed the name “IMC.” Each of Fleming's drawings also contained a corresponding Fleming catalogue number which was not changed or altered by Ms. Keogh.

In support of the above, Fleming presented numerous documents and the testimony of Ms. Cunningham, Dustin Ungar (hereinafter “Mr. Ungar”), Deputy Sheriff Mike Templeton (hereinafter “Deputy Sheriff Templeton”), Cuba Police Chief Paul Crow (hereinafter “Chief Crow”) and Mr. Levy. In defense, Debtors both testified, as did Mr. Kamler.

Ms. Cunningham began working at Fleming in mid–2002 at age 16 as a receptionist. At that time, Ms. Cunningham was Son Stephen's pregnant girlfriend. Ms. Cunningham worked full-time over the 2002 Christmas season but began to work part-time from 3:30pm to 5:30pm in January 2003 because she resumed her high school studies. Ms. Cunningham's January 2003 time sheets however reflect work of 40 to 50 hours per week, and she received wages at $8.00 per hour, plus overtime, based on those fallacious time sheets. ⁶ No deductions for taxes, medicare or other customary deductions were taken from any of Ms. Cunningham's paychecks.

Ms. Cunningham and Son Stephen's baby was born in February 2003. Ms. Cunningham testified that she did not work at all in February of 2003 though her time records and pay received from Fleming in February 2003 indicate that she worked at least 40 hours per week. The respective time sheets were either filled out by Ms. Cunningham at Ms. Keogh's direction and approved by Ms. Keogh, were filled out by Son Stephen at Ms. Keogh's direction and approved by Ms. Keogh or were filled out and approved by Ms. Keogh. All paychecks to Ms. Cunningham were issued by Ms. Keogh.

Ms. Cunningham graduated from high school in May 2004 and around that same time, she left Fleming. No W–2 or Form 1099 was ever issued to Ms. Cunningham for the wages she received. Ms. Cunningham does not appear on any employee records,⁷ Fleming's 2003 payroll check register,⁸ or Fleming's 2003 W–2 report.⁹ Ms. Keogh testified that she believes Ms. Cunningham was paid for work performed or that payment made was for Ms. Cunningham's maternity leave.

Ms. Keogh also hired Son Stephen who initially...