Infinity Grp. LLC v. Lucas (In re Lucas)

• Decision Date: 01 August 2012
• Docket Number: Bankruptcy No. 11–33073–WRS.,Adversary No. 12–3012–WRS.
• Citation: 477 B.R. 236
• Parties: In re Jefferson Tyree LUCAS, Debtor. The Infinity Group LLC, Plaintiff v. Jefferson Tyree Lucas, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Alabama

477 B.R. 236

In re Jefferson Tyree LUCAS, Debtor.The Infinity Group LLC, Plaintiff

v.Jefferson Tyree Lucas, Defendant.

Bankruptcy No. 11–33073–WRS.

Adversary No. 12–3012–WRS.

United States Bankruptcy Court, M.D. Alabama.

Aug. 1, 2012.

Kimberly Diane White, Russell C. Balch, Auburn, AL, for Plaintiff.

Michael A. Fritz Sr., for Defendant.

MEMORANDUM DECISION

WILLIAM R. SAWYER, Bankruptcy Judge.

This Adversary Proceeding came before the Court for hearing on June 19, 2012, upon the Motion for Summary Judgment filed by Defendant Jefferson Tyree Lucas. For the reasons set forth below, summary judgment is entered in favor of Lucas. The Court concludes that the indebtedness owed by Lucas to Infinity is not excepted from the Debtor's discharge.

I. FACTS

Lucas filed a petition in bankruptcy pursuant to chapter 7 in this Court on November 22, 2011. (11–33073, Doc. 1). At the time he filed bankruptcy, he owed The Infinity Group $27,000 pursuant to a consent judgment entered by the Circuit Court for Lee County, Alabama.¹ Paragraph 3 of the Consent Judgment states as follows:

Southern States and/or Lucas shall pay to Infinity monthly the sum of $3,000.00 beginning on October 5, 2010, and continuing on the fifth day of each month thereafter to and including November 5, 2012. The failure to make any such payment on or before the 15th day of any month shall constitute a default by Southern States and Lucas shall be deemed non-performance of the judgment payment terms, and shall constitute a default under the terms of this Judgment. Funds of Southern States and Lucas equal to the amount of this Judgment shall be deemed to be held in trust by Southern States and Lucas until paid in full to Infinity, and Southern States and Lucas shall be deemed to have a fiduciary duty to Infinity with respect to such funds, and with respect to the payments to be made to Infinity under the terms hereof.

Lucas paid five installments under the agreement and then defaulted.

On February 10, 2012, Infinity filed a timely complaint alleging that the indebtedness owed it by Lucas is excepted from discharge pursuant to 11 U.S.C. § 523(a)(4). The parties filed a joint stipulation of facts. (Doc. 16). Lucas filed a motion for summary judgment on May 15, 2012, (Doc. 14) and Infinity filed a timely response on May 30, 2012. (Doc. 15). Notwithstanding the fact that the parties filed a joint stipulation of facts and had represented at the April 10, 2012 Scheduling Conference that there were no facts in dispute, Infinity argues in its brief that there are facts in dispute. Infinity did not submit anything in addition to its brief and the joint stipulation, leaving the Court unsure as to what might be in dispute. In an effort to clarify the underlying facts, the Court scheduled a hearing on the motion for June 19, 2012.

The hearing clarified several points.² First, the parties agreed that the $42,000 in dispute was the result of a contract dispute between Infinity, Lucas, and Lucas's business Southern States Electric, which has also filed a petition in bankruptcy in this Court. Second, the parties also agreed that there was no trust in existence prior to entry of the January 19, 2011 judgment in Lee County. Third, neither Lucas nor Southern States Electric transferred any specific property or funds into a trust for the benefit of Infinity when the parties signed the consent judgment. At the June 19 hearing, counsel for Infinity argued that the debt owed by Lucas was transferred to the trust and that was sufficient under Alabama law to create a valid trust; the Defendant disputes that argument.

II. CONCLUSIONS OF LAW

A. Subject Matter Jurisdiction.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b). This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(1). This is a final order.

B. Summary Judgment is Appropriate Here.

Lucas has moved for summary judgment based on the pleadings and a joint stipulation of facts submitted by the parties. Summary judgment is appropriate only if there is no genuine dispute as to any material fact. Fed. R. Bankr.P. 7056. Infinity opposes summary judgment arguing that it “has set forth specific facts showing that there is a genuine issue of material fact concerning the debt at issue is excluded from discharge due to defalcation.” (Doc. 15, p. 6). Yet, Infinity filed nothing in support of its opposition, other than its brief, and agreed to a joint stipulation of facts, which, by its very terms, is undisputed by the parties. “The nonmoving party must come forward with ‘specific facts showing that there is a genuine issue for trial.’ ” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (internal citation omitted). The preceding section lays out the facts, which are based on the joint stipulation of facts and the June 19, 2012 hearing. Infinity did not contest any of the facts laid in the joint stipulation either in its response or at the June 19 hearing. Regardless of how Infinity casts its argument, all of the matters in dispute are legal, not factual. Therefore, summary adjudication is appropriate here.

C. Section 523(a)(4): Infinity Must Prove the Existence of an Express Trust.

Infinity contends that the debt owed to it by Lucas is excepted from Lucas's discharge pursuant to 11 U.S.C. § 523(a)(4), which states that “[a] discharge ... does not discharge an individual debtor from any debt—... (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]” Specifically, Infinity contends that the consent judgment entered into by Lucas, his company Southern States Electric, and Infinity created a trust, of which Lucas was a trustee and Infinity the beneficiary, and Lucas committed defalcation by defaulting on the payments under the consent judgment and filing bankruptcy. The Eleventh Circuit recently commented on the seriousness of a discharge and finding an exception to that discharge under § 523(a)(4):

A central purpose of the Bankruptcy Code is to provide an opportunity for certain insolvent debtors to discharge their debts and enjoy a fresh start. However, Congress has decided to exclude from the general policy of discharge certain categories of debts. One of these categories includes debts incurred by fraud or defalcation while acting in a fiduciary capacity. Such a debt is nondischargeable under 11 U.S.C. § 523(a)(4). Congress evidently concluded that the creditors' interest in recovering full payment of such debts outweighed the debtor's interest in a complete fresh start.

* * *

Furthermore, this Court must keep in mind that exceptions to discharge, such as § 523(a)(4), must be construed narrowly, and the burden is on the creditor to show that the exception to discharge applies. Id. (citing In re Mitchell, 633 F.3d 1319, 1327 (11th Cir.2011)).

Bullock v. BankChampaign, N.A., (In re Bullock), 670 F.3d 1160, 1164 (11th Cir.2012) (citing Eavenson v. Ramey, 243 B.R. 160, 164 (N.D.Ga.1999)). Thus, Infinity bears the burden of proving that its debt should be excepted from discharge under § 523(a)(4) and that burden is high, as this Court is charged with construing such exception narrowly. The Court must therefore turn to the underlying facts of the matter at hand to determine dischargeability, which turns on the question of whether Lucas breached a fiduciary duty resulting in a debt to Infinity.

It is well established that a creditor who seeks a determination that its debt is excepted from discharge pursuant to § 523(a)(4) must prove the existence of an express or technical trust and not merely the existence and breach of a fiduciary duty. “Section 523(a)(4)'s fiduciary defalcation exception is limited in application to situations involving express trusts, and does not have application to trusts implied by law, such as constructive or resulting trusts, or trusts implied from contract. The term ‘fiduciary’ in Section 523(a)(4) ... refers to a trustee of an express trust.” Houston v. Capps (In re Capps), 193 B.R. 955, 960 (Bankr.N.D.Ala.1995) (citing Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934); Quaif v. Johnson, 4 F.3d 950, 953 (11th Cir.1993); In re Cross, 666 F.2d 873, 881 (5th Cir.1982); Carey Lumber Co. v. Bell, 615 F.2d 370, 374 (5th Cir.1980); In re Angelle, 610 F.2d 1335, 1341 (5th Cir.1980)). See also Alonso v. Guerrero (In re Guerrero), 2010 WL 2926534, *2–3 (Bankr.S.D.Fla.) (breach of fiduciary duties of good faith and best interests of a corporation under state laws is insufficient to establish § 523(a)(4) claim); Tarpon Point, LLC v. Wheelus (In re Wheelus), 2008 WL 372470, *2–3 (Bankr.M.D.Ga.2008) (general duty of good faith imposed on corporate officers under state law; such as loyalty, good faith, and fair dealing; is insufficient to establish liability pursuant to § 523(a)(4)); EvaBank v. Richardson (In re Richardson), 2007 WL 2381990, *5 (Bankr.N.D.Ala.2007) (existence of a security agreement does not give rise to a fiduciary relationship within the meaning of § 523(a)(4)); Hosey v. Hosey (In re Hosey), 355 B.R. 311, 323 (Bankr.N.D.Ala.2006) (existence of a fiduciary relationship under state law not sufficient where express or technical trust do not exist); Kapila v. Talmo (In re Talmo), 175 B.R. 775, 779 (Bankr.S.D.Fla.1994) (broad concept of fiduciary duty under state law is not equivalent to the narrower bankruptcy meaning of fiduciary capacity for the purpose of § 523(a)(4)). Thus, to prevail here, Infinity must prove the existence of an express or technical trust.

D. The Consent Judgment Did Not Create an Express Trust.

The Court will divide its discussion of the nonexistence of an express trust into three subsections. First, the Court will discuss the fundamental requirements of a trust. Second, the Court will consider whether there was a definite trust res. Third, the Court will consider whether public policy bars...