In re Taylor
| Decision Date | 02 July 1986 |
| Docket Number | Bankruptcy No. 84-01454-R,Adv. No. 85-0007-R. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Earl Charles TAYLOR, Debtor. ALLIANZ INSURANCE COMPANY, Plaintiff, v. Earl Charles TAYLOR, Defendant. |
Nathan Wasser, Landover, Md., for plaintiff.
Harry M. Johnson, Richmond, Va., for defendant.
This matter comes before the Court upon the complaint of the plaintiff, Allianz Insurance Company ("Allianz"), for a determination that a debt owing to it by the debtor and defendant in the above-styled proceeding, Earl Charles Taylor ("Taylor"), is nondischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(2). Taylor filed an answer in response to Allianz' complaint, and a trial was conducted on the issues raised by the parties on January 23 and 24, 1986. At the conclusion of said trial, briefs were ordered by the Court and this matter was taken under advisement. Accordingly, based upon the evidence adduced at trial, the briefs filed by the parties, and the arguments of counsel, the Court makes the following findings of fact and conclusions of law.
Taylor filed a petition for relief under Chapter 7 of Title 11 of the United States Code on October 2, 1984. Prior to the filing of his petition, from September 1979 to February 1982, Taylor was employed as a territorial salesman by Heraeus Dental Gold Corporation ("Heraeus"), formerly known as A. Szabo Company. Taylor sold precious and semi-precious metals and alloys, along with equipment used in the trade, to various dental labs in the Washington, D.C. metropolitan area.
The testimony at trial indicated that Taylor, like most salesmen in the dental gold business, carried his inventory with him, and upon receiving an order from a dental lab while making a sales call, Taylor often would deliver the metal ordered directly from his inventory. The customer was required to sign a sales invoice, acting as Heraeus' proof of delivery, and after delivering the original to the customer, Taylor was required to send one copy to Heraeus' main office in New York for posting to the customer's account and he would retain one copy for himself. Heraeus did, and still does, bill its customers on a monthly basis.
Although Taylor's sales manager, Leonard Stern ("Stern"), stated at trial that Taylor was not authorized to hold a ticket for a more favorable gold price before sending it to New York, it was the testimony of the three dental lab proprietors who testified at trial that Taylor routinely did not price tickets at the time he made a sale to them. Instead, he often held invoices for several days in order to give the customer the benefit of any downward fluctuation in the price of gold. Stern further testified that Taylor was required to call in daily between 10:30 a.m. and 11:30 a.m. to get the current gold quote. Although Taylor's practice of delaying the invoices would be of no personal monetary gain to him, it would give him a competitive advantage over other dental gold suppliers and it would work to the detriment of his employer.
One incident of Taylor's practice of delaying invoices was that the invoices were incomplete when Taylor left the dental lab, as the total purchase price was left blank since Taylor was holding out for the lowest periodic quote. The testimony indicated that in late 1981 and early 1982 certain dental labs in Taylor's territory discovered that they were being billed for merchandise they never ordered, and that tickets were being altered to reflect items never used by the individual labs. In fact, Sheik Mohammed ("Mohammed"), the proprietor of Silver Springs Dental Lab, testified that of 23 invoices submitted into evidence from his place of business, only one ticket bore his actual signature and that particular invoice had been altered.
Mohammed was one of the first dental lab proprietors to notice his account with Heraeus showing an unusually large balance. Mohammed testified that when he became aware of his account's inflated balance he completely stopped purchasing from Heraeus, yet the account continued to rise. As a result, Mohammed contacted Taylor for an explanation, and Mohammed stated that Taylor told him that his account was being inadvertently billed for gold shipped to another customer, and that he, Taylor, would immediately take steps to remedy the situation. Taylor was to promptly arrange for a $5,000 credit to be applied to Mohammed's next monthly statement; however, Taylor only managed to get a credit for 5 ounces of gold.
When the $5,000 credit was not forthcoming, Mohammed contacted Heraeus directly. Upon receiving copies of the invoices billed to his account Mohammed discovered a significant number of invoices that had been submitted with his signature placed on them without his authority. According to Mohammed, when Taylor was confronted with the questioned invoices he admitted that he had in fact signed Mohammed's name to those invoices. The explanation proffered on Taylor's behalf was that the invoices were merely being altered to reflect an increase in the number of alloy units sold by Taylor, even though there would be some ultimate discrepancy in price. For example, Taylor asserts that if he sold 5 ounces of alloy X at $100 per ounce for $500 he would on occasion bill the sale as 10 ounces of alloy Y at $50 per ounce for the same price. According to the testimony, Taylor was apparently under some pressure to increase his sales quotas, the quotas being set by units sold rather than total dollar sales.
A similar situation arose with the DeConti Dental Lab, a small operation owned and operated by Joseph DeConti ("DeConti"). DeConti testified that he purchased regularly from Taylor and that his account balance began to rise at about the same time Mohammed began having problems with his account. DeConti stated that of 21 tickets submitted into evidence, only four bore his actual signature. DeConti, as did Mohammed, asserted that he never gave Taylor, or anyone else, the authority to sign his name to a sales invoice, and that it would be a rare occasion when even an employee signed for gold or other valuable metals.
DeConti, a native of Brazil, became aware of the problem in his account when he returned from Brazil after the 1981 Christmas holidays. During his absence, the dental lab was completely shut down and upon his return he noticed that sales were billed to his account during the period of time he was out of the country. DeConti contacted Taylor and informed him of the problem with the account, having since discovered other invoices billed to him of which he did not have a record, and Taylor asked DeConti not to call Heraeus, stating that he would fix the problem himself. When Taylor took no action, DeConti called Heraeus' New York office and asked for copies of the missing invoices reflected by his statement of billings. It was upon receipt of the copies of the invoices submitted to Heraeus for posting to his account that DeConti discovered the excess billings. DeConti stated that he subsequently received a credit against his account from Heraeus for approximately $4,000.
The third proprietor of a dental lab called by Allianz was Wallace Johnson ("Johnson"), the proprietor of Allegiance Dental Lab. Johnson became aware of the increases in his monthly statement in October 1981 after he had begun to cut back his overall dental gold purchases. Johnson testified that he spent the entire New Year's Day of 1982 going over his records, and, realizing the errors, he then called Heraeus to request copies of invoices of which he did not have a record and that were billed to his lab's account.
Johnson testified that about ten to fifteen minutes after he spoke to the main office of Heraeus he got a phone call from Taylor. According to Johnson, Taylor stated that he had mistakenly billed Johnson's lab for goods actually delivered to Allegheny Dental Lab, apparently hoping to explain the mixup on the confusion of the similar names. When Johnson told Taylor that Heraeus had informed him that his name was signed to all the tickets, Johnson stated that Taylor admitted signing Johnson's name. Johnson further testified that Taylor stated that he was having personal problems, and that he would make up what Johnson estimated to be an approximate $5,000 discrepancy in his account.
It was Johnson's testimony that Taylor offered to clear up the balance on Johnson's account by personal check; however, Johnson stated that he informed Taylor that he would accept nothing less than a cashier's check in order not to pursue the matter with Heraeus. Taylor never paid Johnson any amount on the account. Johnson later testified that of the 16 invoices from his lab submitted into evidence by Allianz, 10 bore forgeries of his signature. Heraeus, according to Johnson's testimony, allowed him a $6,200 initial credit and an additional $1,900 credit to be used at $100 a month on his future purchases as a result of the discrepancies in his account. At this time, the entire $1,900 credit has been consumed.
As a result of the problems in Taylor's territory, Heraeus made a claim to its insurer, Allianz, in February 1982. Once the claim was made, Allianz assigned an insurance adjustor, Daynard & VanThunen, to undertake an investigation of the claim. Daynard & VanThunen in turn hired Futterman & Goldglit, an accounting firm, to assist in determining the amount of the claim and the damages suffered. Heraeus had previously hired Peat, Marwick, Mitchell & Company ("Peat, Marwick") to undertake an audit of Taylor's inventory.
Originally, Leon Futterman, the accountant who prepared the report for Daynard & VanThunen, was scheduled to testify for Allianz. However, several days prior to trial Futterman became ill and Robert Mandeltort ("Mandeltort") appeared on his behalf. Mandeltort is a certified public accountant with Futterman's...
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