In re Guy

Decision Date28 April 1988
Docket NumberAdv. No. 85-6050.,Bankruptcy No. 85-60236
Citation101 BR 961
PartiesIn re Donald Joseph GUY, Debtor. Gene A. LEEB, Ronald J. George, Maureen McClinchy Wagner & Robert W. Bales, Plaintiffs, v. Donald Joseph GUY, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Indiana






R. Cordell Funk, Hammond, Ind., for plaintiff.

Charles Enslen, Highland, Ind., for defendant.




Statement of Proceedings

The Plaintiffs filed their nondischargeability complaint versus the Defendant, Donald Joseph Guy (hereinafter: "Debtor") under the above-captioned adversary proceeding number on June 14, 1985 alleging that a certain indebtedness to them by the Debtor is nondischargeable pursuant to 11 U.S.C. § 523(a)(2), (4) and (6).

The basis for the Plaintiffs' assertion of nondischargeability is a certain judgment entered in favor of the Plaintiffs versus the Defendant in the United States District Court for the Northern District of Indiana, Hammond Division on November 19, 1984, under Cause No. 80-220 in the sum of $46,106.87. This action was fully tried on the merits. The damages awarded in said judgment were broken down as follows: 1) $20,369.39 for the remaining principal amount due on contracts sued upon; 2) $17,737.48 in prejudgment interest for a total of $38,106.87 in compensatory damages; and, 3) $8,000.00 in punitive damages. A copy of said judgment is attached to Plaintiffs' complaint as Exhibit "A" and a copy of the court order on which said judgment is based is attached as Exhibit "B". The Debtor filed answer on June 24, 1985, and admitted rhetorical paragraph one of the Plaintiffs' complaint that said judgment had been entered (Exhibit "A") and the first sentence of rhetorical paragraph two relating to the entry of the findings and order concerning said judgment (Exhibit "B").

The District Court specifically found in its judgment of November 20, 1984, that the Plaintiffs had established by clear and convincing evidence the existence of tortious misconduct and thus formed the basis for the award of $8,000.00 in punitive damages.

The Court's Order of November 19, 1984 upon which said judgment was rendered, made the following findings of fact:

Findings of Fact

The parties stipulated to the following findings of fact:

1) On June 1, 1978, the parties entered into a written agreement wherein the four plaintiffs were individual investors, and the defendant was a security analyst who was given almost unlimited authority to invest funds supplied by plaintiffs.
2) Each plaintiff signed a separate written contract with the defendant entitled "Sussex Vampire Fund Agreement of Limited Partnership". The purpose of the partnership was the buying and selling of commodity futures contracts.
3) The four written contracts, all of which were identical, established the rules the plaintiff-investors and the defendant-investor would follow in this venture. The defendant, Donald J. Guy, drafted the contract and had used similar contracts in similar ventures in the past.
4) Initially, Leeb, et al., gave Guy $60,000.00 for one hundred twenty (120) shares in the limited partnership, equalling $500.00 per share. Guy was to invest this amount in the futures market, until the fund dropped below $30,000.00 at which time the unused funds were to be returned.
5) Plaintiffs made the following investments:
                (a)   Leeb        $25,000   50 shares   06-01-78
                (b)   George      $25,000   50 shares   06-01-78
                (c)   McClinchy   $25,000   10 shares   06-01-78
                (d)   Bales       $ 5,000   10 shares   05-11-78
                (e)   McClinchy   $ 5,800   10 shares   10-01-78
6) On October 1, 1978, Guy induced Maureen McClinchy to invest an additional $5,800.00 for ten (10) shares. McClinchy was led to believe the shares were worth $580.00 per share at that time based upon representations from Guy, when in fact the shares were worth only $254.00. These additional monies increased the initial investments of Leeb, et al., to $65,800.00.
7) The agreement entered into between Leeb, et al., and Guy, required the following:
a. Each month the General Partner will issue a report to the Limited Partners of the "net asset value" of each limited partnership unit as of the end of the month. (Paragraph 6.2 of the contract).
b. The General Partner shall deliver to each Limited Partner within (sixty) 60 days after December 31 of each year a statement of receipts and expenses together with a statement showing the profits and losses of fund for federal income tax purposes. (Article IV of the contract).
c. Upon dissolution and failure to reconstitute, accounting shall be made of the financial affairs of the Partnership. Thereupon, the General Partner . . . shall act as liquidating Trustee and immediately proceed to wind up and terminate the business and affairs of the Partnership. (Paragraph 5.2 of the contract).
d. Upon the reduction from the initial value of $500.00 per share to $250.00 per share (Net Asset Value), the Partnership shall immediately be dissolved. (Paragraph 5.1 of the contract).
e. A Limited Partner shall be entitled to return of his contribution upon dissolution of the partnership. (Paragraph 3.4 of the contract).
8) Guy was designated the General Partner, and made only one written report to Leeb, et al. The report was issued July 3, 1978.
9) Guy made misleading oral reports to the plaintiffs, upon which they relied to their detriment.
10) Guy failed to timely transmit tax information, as required pursuant to contract.
11) When the value of the fund dropped below the one-half mark on December 26, 1978, instead of liquidating the fund pursuant to agreed upon contract terms, Guy knowingly reinvested the monies without authority from Leeb, et al., and without attempting to advise Leeb, et al. of his intent to reinvest. Guy knew the value of each share was below $250.00 at the time of reinvestment.
12) On February 7, 1979, Guy liquidated the fund and realized approximately $111.00 per share, or a total of $13,630.61. Guy did not inform Leeb, et al., of the liquidation.
13) At the inception of the venture, each share was worth $500.00, and pursuant to contract, Guy was required to liquidate when the value per share fell to $250.00.
14) On April 8, 1979, pursuant to a letter, Gene A. Leeb and Ronald J. George demanded to examine the partnership records.
15) On July 13, 1979, pursuant to letter, Guy was informed that Leeb, et al., retained counsel to represent them. At that time Leeb, et al., demanded an opportunity to inspect the books, requested a statement of receipts and expenses, and demanded that Guy submit to binding arbitration to determine the amount of money due.
16) On August 23, 1979, Guy was advised, pursuant to letter, that Leeb, et al., elected to rescind their purchase of units in the limited partnership and to demand an immediate refund of the entire purchase price.
17) Guy withheld the funds realized, despite repeated demands, in a separate, non-interest bearing account until March 16, 1981, when he delivered to Leeb, et al., the sum of $12,130.61.
18) On March 25, 1979, Guy delivered to Leeb, et al., a notice that the partnership was in the process of being closed out and that final audit and report on final position, plus a check, would be forthcoming.
19) Thereafter, Guy refused to return the monies realized unless Leeb, et al., would agree to sign a release. This withholding of funds was an attempt to force settlement. When this attempt failed, Guy delivered $12,130.61 to Leeb, et al., on March 16, 1981.
20) Guy converted a portion of the $13,620.61 realized upon liquidation, in that he utilized $1,500.00 of those funds to pay an attorney to defend the action initiated by Leeb, et al. against him. This use of partnership funds was in violation of the terms of the agreement entered June 1, 1978, between Leeb, et al., and Guy. Article II Sections 2.1 and 2.2.
21) Guy also converted the following monies from the fund in that he received money from the checking account of the Sussex Vampire Fund without authority and for his own personal use:
(a) $1,000.00 on 6-07-78
(b) $133.78 on 7-01-78
(c) $1,200.00 on 8-27-78
22) Guy also converted to his own benefit $4,000.00 on October 20, 1978, from the Sussex Vampire Fund. Specifically, he withdrew that money from the Sussex Vampire fund and Paid it to another fund to which none of the plaintiffs contributed nor from which they would gain any benefit.
23) Guy withdrew a total of $7,883.78 from the Sussex Vampire Fund between June of 1978 and October of 1978 without the consent of Leeb, et al., contrary to the partnership agreement and for his own personal benefit.
24) Pursuant to contract, Leeb, et al. were entitled to $32,500.00 on December 26, 1978. That figure was reached in multiplying the number of shares (130) by their net worth on that date ($250.00). On February 7, 1979, the fund was liquidated and approximately $111.00 per share was realized, totaling $13,630.61. On March 16, 1981, $12,130.61 was delivered to Leeb, et al. leaving $20,369.39 due.
25) Leeb, et al. lost 12 percent interest on funds they did not receive.

The District Court in its "Memorandum" following the above finding of facts noted that the parties had stipulated that the $32,500.00 was due the Plaintiffs by the Debtor on or about January 1, 1979, that a demand for payment was made, and that on or about March 1, 1981, the Debtor paid $12,130.61 to the Plaintiffs on or about March 1, 1981.

The initial question addressed by the District Court was whether the Plaintiffs were entitled to pre-judgment interest pursuant to Indiana law on the principal sum due. The Court held that pre-judgment interest at the rate of 12% per annum was recoverable pursuant to Indiana Code 24-4.6-1-101 on the grounds that the...

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