Floorplan Xpress, LLC v. Wille (In re Wille), Case No. 16-50315-can7
| Decision Date | 18 July 2017 |
| Docket Number | Adv. No. 16-04123-can,Case No. 16-50315-can7 |
| Parties | IN RE: LAYTON AND SUSAN WILLE, Debtors. FLOORPLAN XPRESS, LLC-OK, Plaintiff, v. LAYTON AND SUSAN WILLE, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Defendants Layton and Susan Wille move for partial summary judgment with respect to Plaintiff Floorplan Xpress, LLC-OK's complaint to determine dischargeability. Specifically, Defendants argue that there is no genuine dispute as to any material fact related to Plaintiff's allegations that Defendants owe a debt for fraud or defalcation while acting in a fiduciary capacity or embezzlement within the meaning of 11 U.S.C. § 523(a)(4), such that they are entitled to partial judgment on Plaintiff's complaint. Plaintiff opposes the motion. The matter is fully briefed and neither party requested oral argument. For the reasons set forth below, the court grants partial summary judgment in favor of Defendants and against Plaintiff.
Defendants, husband and wife residing in Missouri, filed a voluntary petition for chapter 7 relief. They scheduled a debt owed to Plaintiff in the amount of $94,079.03 arising out of a "Floorplan from former business, Best Way Motors, LLC." Plaintiff timely filed a complaint to determine dischargeability against both Defendants. Plaintiff alleges that Defendants had owned and operated a used car dealership known as Best Way Motors, LLC. Plaintiff states that Defendants caused their dealership to borrow $250,000 from Plaintiff pursuant to a floorplan financing arrangement, and that the loan was obtained by fraud, misrepresentation or false pretenses. Plaintiff also alleges that Defendants sold certain cars secured under that financing arrangement without paying Plaintiff pursuant to the terms of the loan. Plaintiff contends that under the express terms of the loan agreement, when Defendants sold the cars, they held the proceeds in trust for Plaintiff, and Defendants breached their fiduciary duties under that trust when they failed to turn over the sale proceeds. Plaintiff argues that Defendants owe it proceeds of $94,079.03, a number derived from the bankruptcy schedules. In the alternative, Plaintiff alleges Defendants embezzled the sale proceeds.
Plaintiff's two-count complaint seeks a determination of the amount of debt (Count I) and an exception from discharge under § 523(a)(2)(A) and § 523(a)(4) (Count II). Count II specifically alleges that the debt should be nondischargeable on the grounds (1) it is for fraud or defalcation while acting in a fiduciary capacity and (2) it is for embezzlement.
Defendants seek summary judgment only with respect to the § 523(a)(4) portion of Count II of Plaintiff's complaint. Defendants argue that, notwithstanding the language in the loan documents, the loan documents did not create a trust or render them fiduciaries. They also argue that any action in selling cars and failing to turn over the proceeds to Plaintiff as a secured lender cannot constitute embezzlement. The court agrees.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R.CIV. P. 56(a), as incorporated by FED. R. BANKR. P. 7056. The court views the evidence and draws inferences in the light most favorable to the nonmovant. Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999). Summary judgment is mandatory where a party fails to establish an essential element of its case, where that party will bear the burden of proof at trial. In re Shahrokhi, 266 B.R. 702, 707 (B.A.P. 8th Cir. 2001) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). The movant must show that there is no genuine dispute of material fact and that it is entitled to judgment as a matter of law; at that point, the burden shifts to the nonmovant to "designate specific facts showing that there is a genuine issue for trial." Id. at 706-07 (citations and internal quotations omitted). Substantive law determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). This means that only disputed facts that could affect the outcome of the suit under the substantive law may preclude the entry of summary judgment. Id.
Layton Wille owned and operated a used car dealership known as Best Way Motors, LLC (the "Dealer"). Susan Wille had no ownership interest. Layton, as managing member of the Dealer, executed a "Revolving Line Credit ("Floorplan") Agreement, Demand Promissory Note Security Agreement and Guaranty Agreement" (the "Loan") in favor of Plaintiff dated July 22, 2015 in the principal amount of $250,000. Both of the Defendants signed the Loan and executed an unconditional guarantee. The Loan was secured by a blanket lien in all of the Dealer's assets, including car inventory and titles. Loan ¶ 3.0.
The terms of the Loan authorized Plaintiff to make advances to or on behalf of the Dealer to enable the Dealer to purchase inventory. Loan ¶ 2.1. Paragraph 2.2 of the Loan provides:
After approval of Dealer and execution of this Agreement . . . Dealer may obtain an Advance/Loan under this Agreement by purchasing inventory throughLender's authorized Auction Companies. Dealer will execute a bill of sale for any purchased inventory, containing an endorsement in form as provided by and approved by Lender at the time of purchase. Upon receipt of the original or approved copy of the bill of sale, a completed Odometer Disclosure Statement, and the original title from the authorized Auction Company, reflecting Dealer as purchaser, Lender shall advance the purchase price of such inventory on behalf of Dealer. Interest shall accrue upon the principal amount of such Advance from the Advance Date.
Repayment of Advances is governed by Paragraph 2.7, and requires the Dealer to pay all amounts due under an "Advance" (as defined in Loan ¶ 1.1) within 48 hours of the "Maturity Date," regardless of whether the vehicle has been sold or not. The "Maturity Date" is defined as "the earlier of: (1) the sale of the vehicle which is the subject of this Advance/Loan; or (2) 90 days from Advance/Loan Date." Loan ¶ 1.8.
Paragraph 2.11 of the Loan, entitled "Power of Attorney," provides that, "[b]y execution of this Agreement, Dealer hereby gives and grants to Lender a limited Power of Attorney, and pursuant to such Power grants Lender the authority to execute any checks, titles, releases, insurance checks, bond checks, bond claims and any other document required to allow Lender to recover or repossess any of its' [sic] Collateral or proceeds of such Collateral." Paragraph 4.0 of the Loan, entitled "Sales of Purchase Money Inventory," provides:
Absent Default, Dealer may sell the Purchase Money Inventory to bona fide buyers in the ordinary course of Dealer's business. Upon the sale of any item of such Inventory, Dealer shall hold the amount received from the disposition of inventory in Trust for the benefit of Lender and Dealer shall pay to Lender all amounts due.
Other relevant loan provisions include (1) a dealer representation that it "has now and will have at the time of each Advance good and marketable title to the Purchase Money Inventory" [Loan ¶ 6.2]; (2) upon the event of default, Plaintiff shall have the rights and remedies of a secured party under the UCC with respect to the collateral [Loan ¶ 8.1]; and (3) Missouri law governs [Loan ¶ 9.8].
Defendants allege that Plaintiff advanced or loaned $250,000 to the Dealer on July 22, 2015 for the purchase of seven vehicles; Plaintiff did not controvert that statement, although Plaintiff alleges as an additional fact, which Defendants do not controvert, that the funds were loaned or advanced directly to auction companies to allow the Dealer to purchase the seven vehicles.2 At some point, the Dealer sold the seven vehicles and did not pay the sale proceeds to Plaintiff. Plaintiff still holds the titles to the seven vehicles. Plaintiff then sued the Dealer and Defendants in state court for damages for breach of contract, breach of guarantee, and fraudulent misrepresentation, in Floorplan Xpress, LLC-OK v. Best Way Motors, LLC, et al., Case No. 1616-CV16011, in the Circuit Court of Jackson County, Missouri. Plaintiff's petition was stayed by Defendants' bankruptcy filing.
Defendants argue that they are entitled to judgment because, as a matter of law, they owed no fiduciary duty to Plaintiff. Plaintiff responds that the Loan by its terms created a trust relationship between Defendants and Plaintiff, and that disputed material facts exist, precluding summary judgment. Plaintiff has not met its burden under Celotex of establishing that a fiduciary duty existed.
11 U.S.C. § 523(a)(4) provides that a discharge under § 727 does not discharge an individual debtor from any debt "for fraud or defalcation while acting in a fiduciary capacity." To establish nondischargeability under this subsection, a plaintiff must establish (1) that thedebtor committed fraud or defalcation3 (2) while acting within a fiduciary capacity. Here, the issue is whether the terms of the Loan created a fiduciary relationship.
The Eighth Circuit has addressed what "acting in a fiduciary capacity" means:
"The meaning of these words has been fixed by judicial construction" since before the Civil War; "the statute 'speaks of technical trusts, and not those which the law implies from the contract.'" Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S. Ct. 151, 79 L. Ed. 393 (1934), quoting Chapman v. Forsyth, 43 U.S. 202, 208, 2 How. 202, 11 L. Ed. 236 (1844)....
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