In re Carmell

Decision Date05 January 2010
Docket NumberAdversary No. 09 A 00659.,Bankruptcy No. 09 B 05547.
Citation424 B.R. 401
PartiesIn re David L. CARMELL, Debtor. New Century Bank, N.A., Plaintiff, v. David L. Carmell, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Illinois

Arnstein & Lehr, LLP (Michael L. Gesas), for Movant or Plaintiff.

Robbins, Salomon & Patt, Ltd. (Richard H. Fimoff), Chicago, IL, for Respondent or Defendant.

MEMORANDUM OPINION ON DEBTOR'S MOTION TO DISMISS NEW CENTURY BANK'S FIRST AMENDED COMPLAINT (DOCKET NO. 21)

JACK B. SCHMETTERER, Bankruptcy Judge.

This proceeding relates to the Chapter 7 bankruptcy case filed by the Debtor, David L. Carmell ("Carmell"). Plaintiff, New Century Bank, N.A. ("NCB") filed its Amended Adversary Complaint objecting to discharge and to dischargeability of Carmell's debt under sections 523(a)(2)(A), 523(a)(2)(B), 523(a)(6), 727(a)(3), 727(a)(4), 727(a)(5), and 727(a)(7) of the Bankruptcy Code. Carmell has moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6) Fed.R.Civ.P. and Rule 15(c) Fed. R.Civ.P., made applicable to this proceeding through Rule 7012 Fed. R. Bankr.P. and Rule 7015 Fed. R. Bankr.P. ("Motion to Dismiss," Docket No. 21).

INTRODUCTION

NCB's Original Complaint contained five counts objecting to discharge and to the dischargeability of Carmell's debt to NCB under sections 523(a)(2)(B), 523(a)(4), 523(a)(6), 727(a)(3), and 727(a)(5) of the Bankruptcy Code. Carmell moved to dismiss the original Complaint ("Original Complaint"), and NCB was granted leave to amend it. NCB filed its First Amended Complaint Objecting to Dischargeability of Debt and to Discharge ("Amended Complaint") on September 22, 2009. (Docket No. 18.)

PLEADINGS IN THE AMENDED COMPLAINT

In the Amended Complaint, NCB dropped former Count II, which objected to dischargeability under § 523(a)(4). NCB also added three counts.

New Count I of the Amended Complaint is an objection to dischargeability under § 523(a)(2)(A). In that Count, NCB specifically alleges that "Carmell fraudulently represented in Term Note A to New Century that 18 Leasing and Eagle American would be able to provide, among other things, the Rolling Collateral as security for the loans." (Amended Complaint ¶ 34.) NCB alleges that Carmell knowingly and intentionally failed to provide the Rolling Collateral to NCB and knowingly and intentionally failed to disclose that he could not provide the collateral.

In new Count V, an objection to discharge under § 727(a)(4), NCB alleges that Carmell knowing and fraudulently made a false oath that he did not submit financial documents to NCB when he stated in an affidavit filed in this case that he was not involved in the preparation or maintenance of financial records and did not prepare or submit documents to NCB.

In new Count VII, an objection to discharge under § 727(a)(7), NCB alleges that in the involuntary Chapter 7 bankruptcy cases filed against 18 Leasing (Bankr. No. 09-16510) and Eagle American (Bankr. No. 09-16519), Carmell concealed or failed to keep books and records from which 18 Leasing and Eagle American's financial condition could be ascertained. NCB further alleged that as an insider of 18 Leasing and Eagle American, Carmell has not complied with an order to file schedules, statements, and other required documents.

The remaining counts in the Amended Complaint reallege counts pleaded in the Original Complaint. Count II of the Amended Complaint realleges Count I of the Original Complaint, objecting to dischargeability under § 523(a)(2)(B). Count III of the Amended Complaint realleges NCB's objection to dischargeability under § 523(a)(6). Counts IV and VI reallege NCB's objections to discharge under § 727(a)(3) and § 727(a)(5).

Allegations in NCB's Amended Complaint and Original Complaint are assumed to be true for purposes of considering Carmell's Motion to Dismiss, all reasonable inferences being drawn in favor of NCB. See Bane v. Ferguson, 890 F.2d 11, 13 (7th Cir.1989).

FACTUAL ALLEGATIONS IN AMENDED COMPLAINT

Carmell was the majority owner and a founding member of 18 Leasing, LLC ("18 Leasing") and Eagle American Logistics, LLC ("Eagle American"). Carmell was also the President of Eagle Logistics Management, Inc. ("Eagle Logistics"). NCB alleges that 18 Leasing and Eagle American were created by Carmell and his business partner Michael McAfee ("McAfee") to receive the assets and operations of United Transportation, LLC and United Tractor Leasing, LLC (collectively "United"), trucking companies McAfee and Carmell operated out of Atlanta, Georgia. Prior to March 2008, United borrowed over $2,000,000 from Associates First Capital Corporation ("Associates First") to purchase at least 157 trucks for use in their common carrier and truck leasing operations.

By March 2008, Associates First and United were deeply involved in litigation in Johnson County, Georgia ("Georgia Litigation"). As part of the Georgia Litigation, United was ordered to surrender to Associates First collateral consisting of 157 trucks used in United's trucking business. On March 15, 2008, United was found in contempt of court in Johnson County Superior Court for failing to deliver the collateral to Associates First. (Amended Complaint, Ex. B "Order Finding Defendants in Contempt of Court.") NCB alleges that United could not surrender possession of the trucks as ordered because its trucks were missing, inoperable, or seized by the State of Georgia due to United's failure to pay certain Georgia taxes. Associates First offered to settle the Georgia Litigation provided that United pay $1,850,000 to it. Carmell then solicited loans on behalf of 18 Leasing and Eagle American in an attempt to meet Associates First's settlement demand.

In April 2008, Carmell and McAfee formed Eagle Logistics, 18 Leasing, and Eagle American. Eagle Logistics is the managing member of both 18 Leasing and Eagle American. In April 2008, Carmell allegedly sent NCB various financial and other documents relating to United's business ("Financial Documents") including: (1) an "equipment appraisal;" (2) a "financial recap and explanation of 2007;" (3) a "bank packet with all pertinent financial information;" (4) information regarding the "lending entities" Eagle American and 18 Leasing; and (5) Carmell's personal financial information. (Amended Complaint Ex. C.)

On May 22, 2008, as part of a settlement agreement with United, Associates First agreed to release all security interests and other liens held on collateral, including any trucks held by Associates as collateral ("Rolling Collateral"), within fourteen days of receiving $1,850,000 ("Settlement Agreement"). (Original Complaint Ex. F; Amended Complaint Ex. D.) On May 23, 2008, 18 Leasing and Eagle American entered into a Credit Agreement with NCB ("Credit Agreement"). (Amended Complaint, Ex. E.) Carmell signed the Credit Agreement in his capacity as President of Eagle Logistics. Under terms of the Credit Agreement, 18 Leasing and Eagle American agreed to borrow $1,850,000 and to execute a promissory note in that same amount ("Term Note A") payable to NCB. (Original Complaint Ex. D; Amended Complaint Ex. F.) Term Note A was "secured pursuant to [a] Security Agreement dated as of May 23, 2008." (Id. at ¶ 3.) Pursuant to the Security Agreement dated May 23, 2008, Term Note A was secured by all 18 Leasing's and Eagle American's tangible and intangible personal property, which included the Rolling Collateral. (Amended Complaint Ex. G "Security Agreement.") The Security Agreement provided that NCB's security interest included "All Equipment, vehicles, furniture and Fixtures." (Id. at (b)(iv).) 18 Leasing and Eagle American agreed to be jointly and severally liable for the $1,850,000. On May 23, 2008, Carmell executed a Continuing Unconditional Guaranty in which Carmell agreed to be personally liable for the contractual obligations under the Credit Agreement and Term Note A in the event that 18 Leasing and/or Eagle American were unable to perform their contractual obligations. (Amended Complaint Ex. H.)

On May 23, 2008, in reliance on Financial Documents provided by Carmell, NCB agreed to disburse $1,850,000 to Associates First in order to settle the Georgia Litigation and to transfer the assets and operations of United to 18 Leasing and Eagle American. NCB alleges that in soliciting the loans with NCB, Carmell knowingly and fraudulently failed to disclose to NCB that the Rolling Collateral was missing, inoperable, or subject to liens by the State of Georgia.

Associates First allegedly defaulted on the terms of the Settlement Agreement by failing to deliver title to the Rolling Collateral, thereby precluding 18 Leasing and Eagle American from taking possession of the Rolling Collateral. According to NCB, Associates First's default was caused by the State of Georgia's refusal to release vehicle titles because of state tax liens against the vehicles resulting from United's unpaid taxes. 18 Leasing and Eagle American defaulted under terms of the Credit Agreement and Term Loan Note A and have not repaid the amounts due under the Credit Agreement and Term Loan Note A. Carmell has not repaid any amount due under the Continuing Unconditional Guaranty.

NCB additionally alleges that in soliciting loans from NCB, Carmell submitted Financial Documents containing fraudulent valuations of United and material omissions amounting to fraud. At his Meeting of Creditors held under 11 U.S.C. § 341 on May 13, 2009, Carmell stated that his son and wife notified NCB of fraud associated with 18 Leasing and Eagle American's application to New Century Bank. (Amended Complaint Ex. I "Transcript of § 341 Meeting.") NCB further alleges that during the § 341 Meeting and by affidavit, Carmell swore that McAfee alone was responsible for the fraudulent Financial...

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