In re Bleam
| Decision Date | 13 October 2006 |
| Docket Number | Adversary No. 06-80090-JW.,Bankruptcy No. 06-00128-JW.,Bankruptcy No. 05-45417-DD.,Adversary No. 06-80084-DD. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re Douglas L. BLEAM, Debtor. Arrow Concrete Company, Plaintiff, v. Douglas L. Bleam, Defendant. In re John R. Kautter, Debtor. Arrow Concrete Co., Plaintiff, v. John R. Kautter, Defendant. |
Philip L. Fairbanks, Beaufort, SC, for Debtors.
ORDER DENYING OBJECTION TO DISCHARGEABILITY OF DEBTS
THIS MATTER is before the Court on complaints of Arrow Concrete Co. ("Plaintiff' or "Arrow") seeking a determination that the debts owed it by John R. Kautter ("Kautter") and Douglas L. Bleam ("Bleam")(hereinafter Kautter and Bleam are jointly referred to as "Defendants" or "Debtors") not be discharged in the bankruptcy cases filed by the Debtors. Arrow's claim is that Defendants failed to ensure that their construction business paid Arrow's claim for materials supplied for construction jobs undertaken by the business, that Defendants are personally liable for the debt under South Carolina law, and that the failure to pay the debt is a defalcation by Defendants while in a fiduciary capacity with Arrow. The complaint seeks an exception from discharge pursuant to 11 U.S.C. §§ 523(a)(2), (a)(4) and (a)(6)1 of a debt in the amount of $38,560.05. The issues are joined and the parties have presented the case by stipulated facts and briefs.
The facts admitted by the pleadings are:
1. Arrow is a foreign company licensed to do business in the State of South Carolina with all fees and a license paid. It is otherwise entitled to bring these actions.
2. Bleam filed a petition for relief under chapter 7 of the Bankruptcy Code on December 22, 2005. His case was subsequently converted to chapter 13 on Bleam's notice of conversion and reconverted to chapter 7 on a finding that the debtor was not eligible for chapter 13 relief due to the debt limitations of 11 U.S.C. § 109(e). Kautter filed a petition fore relief under chapter 7 of the Bankruptcy Code on January 13, 2006.
3. That this court has jurisdiction and that these proceedings are core proceedings.
4. Plaintiff is a creditor in the bankruptcy proceedings of the Debtors.
5. Bleam and Kautter are officers and/or directors of Concrete Impressions of the Lowcountry, Inc. (hereinafter "Concrete Impressions"), a South Carolina corporation.
6. Bleam, Kautter, and/or Concrete Impressions received payment or other compensation for the services, labor, and/or material provided by the Plaintiff and failed to remit to the Plaintiff payment for same.
7. During and after the times mentioned in the complaint, Defendants remitted no payment(s) to the Plaintiff.
8. By obtaining and/or accepting an extension of credit from Plaintiff and incurring charges on the account, Defendants as officers and/or directors of Concrete Impressions represented an intention to repay the amounts charged.
The parties also stipulated the following facts (omitting the parenthetical specifications of abbreviated further reference and substituting others to achieve consistency and to avoid confusion):
9. Douglas L. Bleam and John R. Kautter, were the shareholders, directors, and principals of Concrete Impressions, a South Carolina corporation engaged in the construction trade.
10. As principals of Concrete Impressions, both individuals were responsible for overseeing the accounting and bookkeeping for Concrete Impressions.
11. The Debtors were further responsible for hiring and routing payment to laborers, subcontractors, and materialmen utilized by Concrete Impressions in its construction business.
12. In maintaining the accounting and bookkeeping for Concrete Impressions, the Debtors neither maintained nor required the maintenance of separate job cost ledgers or tallies for each construction project undertaken by Concrete Impressions.
13. The Debtors, and accordingly Concrete Impressions, failed to maintain separate accounting records for each project or job site.
14. Neither the Debtors nor Concrete Impressions have any way to demonstrate the extent, if any, to which laborers, subcontractors, and materialmen were paid out of the proceeds received from the particular projects undertaken by Concrete Impressions as required by the laws of South Carolina.
15. Arrow, was a materialman that supplied materials totaling Thirty-eight Thousand Five Hundred Sixty and 55/100 Dollars ($38,560.55) in value on a variety of construction jobs undertaken by Concrete Impressions.
16. Concrete Impressions received payments for work performed on the various construction jobs and projects which it undertook.
17. Concrete Impressions utilized the funds received from the various jobs and project to meet various expenses and expenditures unrelated to the claimant.
18. Concrete Impressions, operating under the control of Debtors, failed to remit any payment to the Claimant out of funds received from some of the underlying construction projects.
19. Due to the failure of maintaining job cost accounting records for Concrete Impressions' business, the Debtors are unable to determine how much money was received on each job on which the Claimant was involved or determine the amounts incurred with other laborers, subcontractors, or materialmen for such projects.
20. No effort has been taken, or presently can be taken, to allocate the monies received amongst all the laborers, subcontractors or materialmen associated with each project.
Arrow maintains that South Carolina law creates a first lien on and a trust in money received by a contractor in connection with the erection or repair of a building in favor of material suppliers and others, in proportion to the respective claims of the unpaid laborers, subcontractors and suppliers. Arrow further contends that state law renders the failure to pay these claims a misdemeanor and that it also supplies a remedy for non-payment in tort. Arrow argues that corporate officers and directors are or can be personally culpable for the misdemeanor and civilly liable for the injury. Finally, Arrow argues that the debt should be excepted from the discharge in these cases pursuant to § 523(a)(4). Defendants' answer to Arrow's complaint admits Arrow's status as a creditor of the individual debtors. Their brief suggests that this liability is by virtue of "a standard personal guarantee" which is not before the Court. Defendants deny that they individually are "contractors" within the meaning of the South Carolina construction lien statute and deny that they are fiduciaries or that their acts were a defalcation within the meaning of the Bankruptcy Code
The plaintiff has the burden of proving an objection to discharge under § 727 or an exception from dischargeability under § 523 by a preponderance of the evidence. Grogan, v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Farouki v. Emirates Bank Int'l, Ltd., 14 F.3d 244 (4th Cir.1994). The party challenging the dischargeability of a debt bears the burden of proof. Robb v. Robb (In re Robb), 23 F.3d 895 (4th Cir.1994). Once the plaintiff makes a prima facie case, the burden of proof shifts to the debtor to offer credible evidence to satisfactorily explain his or her conduct. Farouki, 14 F.3d at 249-50. "The exceptions to discharge were not intended and must not be allowed to swallow the general rule favoring discharge." In re Cross, 666 F.2d 873 (5th Cir.1982). Thus, exceptions to discharge are narrowly construed.
The Court turns first to the Plaintiff's claims pursuant to §§ 523(a)(2) and (a)(6). The Plaintiff's brief does not mention these sections and it appears to have abandoned these causes of action. The Defendants' answers to the complaints included motions to dismiss these claims for relief pursuant to Fed.R.Civ.P. 12(b)(6). In dismissing claims for failure to state a cause of action a court must construe the allegations in the light most favorable to the plaintiff and assume the facts alleged in the complaint to be true. If it is clear as a matter of law that no relief could be granted under any set of facts that could be proved consistent with the allegations of the complaint then the offending causes of action must be dismissed. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).
The plaintiff's refers to § 523(a)(2) without noting or differentiating its two subsections, which require significantly different proof. To establish a claim under § 523(a)(2)(A), "[a] creditor must establish five elements ... (1) that the debtor made a representation, (2) that at the time the representation was made, the debtor knew it was false, (3) that the debtor made the false representation with the intention of defrauding the creditor, (4) that the creditor justifiably relied upon the representation, and (5) that the creditor was damaged as the proximate result of the false representation." See Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 134 (4th Cir.1999); MBNA Am. v. Simos (In re Simos), 209 B.R. 188, 191 (Bankr.M.D.N.C.1997). On the other hand, § 523(a)(2)(B) requires a false written statement respecting the financial condition of a debtor or insider. In re Blackwell, 702 F.2d 490, 492 (4th Cir.1983). No set of facts could be proven under the complaint to support a cause of action under § 523(a)(2) in that there is no allegation of making a representation with the intent of defrauding the creditor, justifiable reliance, or a written statement. The cause of action under § 523(a)(2) is dismissed.
The plaintiff refers to § 523(a)(6) in its complaint, but nowhere in the complaint is there notice by allegation of any basis for a claim of willful and malicious injury to plaintiff or its property. The cause of action under § 523(a)(6) is likewise dismissed.
Turning to...
To continue reading
Request your trial
-
In re McClendon
...Section 523(a)(2)(B). Blackwell v. Dabney (In re Dabney), 702 F.2d 490, 491 (4th Cir. 1983); see also Arrow Concrete Co. v. Bleam (In re Bleam), 356 B.R. 642, 647 (Bankr.D.S.C.2006). There is no evidence of any such written statement having been presented to the plaintiff by the defendants ......
-
In re Bearden
...duty must have existed prior to the wrongdoing from which the debt arose)(internal citations omitted); Arrow Concrete Co. v. Bleam (In re Bleam), 356 B.R. 642, 649 (Bankr.D.S.C.2006) (Detailed discussion of § 523(a)(4)). Defendants' claim fails for two reasons. First, Section 523(a)(4) requ......
-
Winston-Salem City Employees' Fed. Credit Union v. Casper (In re Casper)
...of proof shifts to the debtor to offer credible evidence to satisfactorily explain his or her conduct.” Arrow Concrete Co. v. Bleam (In re Bleam), 356 B.R. 642, 647 (Bankr.D.S.C.2006) (citing Farouki v. Emirates Bank Intern., Ltd. (In re Farouki), 14 F.3d 244, 249–50 (4th Cir.1994)). The Pl......
-
Drennan v. Hunnicutt (In re Hunnicutt)
...of “fiduciary” is governed by federal common law and is strictly construed in dischargeability actions. Arrow Concrete Co. v. Bleam (In re Bleam), 356 B.R. 642, 649 (Bankr.D.S.C.2006) (citing Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934)). See also Lewis v. ......