In re Johann, Bankruptcy No. 89-03555-BKC-3P7
| Citation | 125 BR 679 |
| Decision Date | 03 April 1991 |
| Docket Number | Adv. No. 90-70.,Bankruptcy No. 89-03555-BKC-3P7 |
| Parties | In re Bernard Oscar JOHANN, Debtor. Valerie J. HALL, as Trustee for Timesharing Services, Inc., Plaintiff, v. Bernard Oscar JOHANN, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
Ronald Bergwerk, Jacksonville, Fla., for defendant.
Chester J. Trow, Ocala, Fla., for plaintiff.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This proceeding is before the court upon complaint of Valerie J. Hall, as Trustee for Timesharing Services, Inc., seeking exception to discharge pursuant to 11 U.S.C. § 523(a)(4) and (a)(6). A trial was held on February 12, 1991, and upon the evidence presented the Court enters the following Findings of Fact and Conclusions of Law:
Findings of Fact
Defendant was the president, sole stockholder and managing officer of Timesharing Services, Inc. (TSI). On October 4, 1988, TSI filed a chapter 11 petition which was later converted to a case under chapter 7.
On October 14, 1988, the Court entered an order in this case providing in paragraph 2:
The debtor-in-possession is authorized, subject to the control of the Court, to operate its business and manage its property, and to employ, discharge, fix the salaries and compensations of all managers, agents, and employees, except salaries and compensation of the debtor or its attorneys, officers, directors, and stockholders, whose compensation shall be determined by the Court; however, the debtor-in-possession may separately request authorization to pay its employees\' wages for the pay period immediately preceding the petition.
TSI subsequently filed an application to pay the salary of the defendant officer. After a hearing the application was denied.
Despite the Court's order of October 14, 1988, and between November 23, 1988, and January 27, 1989, TSI issued salary checks to the defendant totalling $9,526.66. The defendant knew that the debtor-in-possession needed court authority to compensate any corporate officer, including himself, and was charged with notice of such obligation under the October 14, 1988, order.
X-Stor Corporation was organized after TSI filed bankruptcy by defendant's wife, Betty Jean Johann. She is the principal officer, director, and stockholder of this corporation.
Post-petition the defendant, as debtor-in-possession, accepted a purchase order from X-Stor Corporation. The agreement dealt with the delivery of computer items over three years and provided that "if Timesharing Services, Inc. is not able to deliver, TSI will furnish X-Stor a list of manufacturers and sufficient documentation for X-Stor to complete the order."
TSI defaulted on delivery and, pursuant to the agreement, provided suppliers and manufacturers with documentation enabling them to produce the materials and technology for sale to X-Stor. It was the normal course of business for TSI to sell such items directly to consumers and not to others for re-sale.
Since conversion of the case to chapter 7, defendant has maintained an office at X-Stor Corporation and has consulted for his wife regarding the sale and marketing of the items her corporation purchased under the agreement.
The two issues which the court must adjudicate are 1) whether the $9,526.66 salary paid to the defendant constitutes a non-dischargeable debt under § 523(a)(4) and (a)(6) and 2) whether the transfer of the documentation from TSI to the suppliers and manufacturers created a non-dischargeable debt under § 523(a)(4) and (a)(6).
The exceptions to discharge outlined in § 523 are designed to prevent the debtor from avoiding, through bankruptcy, the consequences of wrongful conduct.
11 U.S.C. § 523(a)(4) provides in relevant part:
This Court has defined defalcation as a failure to account for money or property that has been entrusted to another. NesSmith Electric Co., Inc. v. Kelley (In re Kelley), 84 B.R. 225, 230 (Bankr.M.D. Fla.1988). The scope of the term is broader than embezzlement or misappropriation and is governed by an objective standard, vitiating the need for a showing of bad faith or intent. Id.
The debtor-in-possession is the trustee of a statutory trust, consisting of the estate property, with a fiduciary duty to account for it under §§ 704(2), 1106(a)(1), and 1107(a). As an officer, the defendant was the agent of the corporate debtor with a fiduciary duty to the debtor-in-possession and its creditors. Woodworking Enterprises, Inc. v. Baird (In re Baird), 114 B.R. 198, 205 (9th Cir. BAP 1990); In re Lowry Graphics, Inc., 86 B.R. 74 (Bankr.S. D.Tex.1988); and Sun Life Insurance Co. of America v. Koszuth (In re Koszuth), 43 B.R. 104 (Bankr.M.D.Fla.1984).
This Court has recognized that for purposes of dischargeability, embezzlement is defined as "`the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come.'" NesSmith Electric Co., Inc. v. Kelley (In re Kelley), at 231 (quoting Moore v. United States, 160 U.S. 268, 269, 16 S.Ct. 294, 295, 40 L.Ed. 422 (1895)). Although embezzlement does not require a showing of a fiduciary relationship, the plaintiff must prove fraud or fraudulent intent. Id.
Section 523(a)(6) provides in relevant part:
Willful and malicious injury under § 523(a)(6) includes conversion, which is the unauthorized exercise of ownership over goods belonging to another to the exclusion of the owner's rights. In re Van Loan, 114 B.R. 760, 762 (Bankr.M.D.Fla.1990). An intentional act which causes injury and is without just cause is sufficient grounds for a willful and malicious injury even where no showing of specific...
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