Korn v. Warden (In re Warden)

• Decision Date: 30 May 2018
• Docket Number: Adv. Pro. No. 18-03037-HDH,Case No. 18-30095-HDH-7
• Parties: In re MICHAEL GEORGE WARDEN, Debtor. ANDREW R. KORN, RECEIVER, Plaintiff, v. MICHAEL GEORGE WARDEN, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Texas

In re MICHAEL GEORGE WARDEN, Debtor.ANDREW R. KORN, RECEIVER, Plaintiff, v. MICHAEL GEORGE WARDEN, Defendant.

Case No. 18-30095-HDH-7

Adv. Pro. No. 18-03037-HDH

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

May 30, 2018

The following constitutes the ruling of the court and has the force and effect therein described.

AGREED FINDINGS OF FACT, CONCLUSIONS OF LAW AND JUDGMENT DETERMINING DEBT TO BE NON-DISCHARGEABLE UNDER 11 U.S.C. § 523 (A)(6)

There came on to be heard the trial of the Complaint [D.E. 1]¹ filed by the Receiver, the Plaintiff in this Adversary Proceeding and a creditor of Warden in the Second Bankruptcy Case, wherein the Receiver requested that this Court determine that the Receiver's claim against Warden in the Second Bankruptcy Case is non-dischargeable under § 523(a)(6) and Bankruptcy Rule 7001(6), all as more fully described in the Complaint.

I. FINDINGS OF FACT AND CONCLUSIONS OF LAW²

A. JURISDICTION AND VENUE

A. On the First Petition Date, Warden filed his voluntary petition for relief under chapter 11 of the Bankruptcy Code [D.E. 1] initiating the First Bankruptcy Case.

B. On November 29, 2017, the Bankruptcy Court entered an Order [D.E. 30] granting the procedural consolidation and joint administration of the First Bankruptcy Case along with the Ventures Bankruptcy Case, the Melton Bankruptcy Case, and the bankruptcy case of H. Melton Ventures RD, LLC, Case No. 17-44521-MXM-11, into the Ventures Bankruptcy Case.

C. On December 6, 2017, an agreed order [D.E. 31] was entered converting the First Bankruptcy Case from chapter 11 to chapter 7 of the Bankruptcy Code.

D. The First Bankruptcy Case was administratively dismissed on December 11, 2017 when this Court entered an order to that effect [D.E. 35] (the "Dismissal Order") for the failure tofile (a) copies of employee income records within 14 days of the First Petition Date, (b) a statement of monthly income within 14 days of the First Petition Date, and (c) a statement of operations within 7 days of the First Petition Date. On December 12, 2017, Warden filed his motion [D.E. 36] seeking to reinstate the First Bankruptcy Case (the "Motion to Reinstate") on the grounds that since Warden was an individual and not a corporate entity, he did not have the documents checked off and listed on the Dismissal Order. Warden did not prosecute his Motion to Reinstate. Instead, he filed his voluntary petition for relief under 7 of the Bankruptcy Code on the Second Petition Date initiating the Second Bankruptcy Case.

B. THE ENTRY OF THE JUDGMENT, APPOINTMENT OF THE RECEIVER, THE ESTABLISHMENT OF THE RECEIVERSHIP ESTATE, AND THE AFFIRMATIVE DUTIES IMPOSED ON MELTON

E. On October 6, 2016, X Extreme obtained its Judgment against Warden and two related co-Defendants, Ventures and Melton in the State Court Action, for knowingly and intentionally breaching a contract and a guaranty. The total amount awarded to X Extreme under the Judgment was $205,832.26, plus post-judgment interest, and additional attorney's fees if the Judgment was appealed.

F. Melton owns 90% of Ventures, and Warden owns the remaining 10%. Ventures is a holding company that owns the following entities: (a) Havana Social Club LLC (100%) (this entity operated a cigar bar at the American Airlines Center, the home of the Dallas Mavericks and the Dallas Stars); (b) HMV The Courtyard Villa LLC (100%) (this entity operates a wedding chapel venue in Arlington, Texas); (c) Spa810 Greenville LLC (100%) (this entity operates a day spa); (d) Spa810 McKinney LLC (50%) (this entity operates a day spa); and (e) Worst Behavior LLC ("Worst Behavior") (100%) (this entity operated a party boat, but the boat was repossessed). Melton and Warden worked for Ventures and its subsidiaries.

G. None of the State Court Defendants made a voluntary payment on the Judgment or cooperated in collection,³ and X Extreme was unable to collect on the Judgment. X Extreme sought the aid of the State Court in the appointment of a Receiver, and on April 25, 2017, the State Court entered its Receivership Order. Under the Receivership Order, the Receiver was directed to liquidate the State Court Defendants' non-exempt property,⁴ and the State Court Defendants were directed to turnover that property, plus the related documentation, to the Receiver, as well as all of their interests in businesses, ventures and all related documents, for that purpose.⁵ Under theReceivership Order and Texas law, all of the State Court Defendants' non-exempt property⁶ was in custodia legis when the State Court signed the Receivership Order.⁷

H. The Receivership Order imposed certain affirmative obligations on the State Court Defendants that included the following:

• Turnover of Documents and Receivership Assets. The State Court Defendants were ordered to turnover to the Receiver within 5 days of their receipt of a copy of the Receivership Order (a) the documents contained on Exhibit A to the Receivership Order together with all documents and financial records requested by the Receiver, and (b) all checks, cash, securities (stocks and bonds), promissory notes, documents of title and contracts owned by or in the name of the State Court Defendants.⁸

• Turnover of Business Documents. The State Court Defendants were ordered to identify and turnover to the Receiver all interests of the State CourtDefendants in any business or venture and all agreements, stock certificates and other documents pertaining to the State Court Defendants' ownership in the business or venture within 5 days from the State Court Defendants' receipt of a copy of the Receivership Order.⁹

• Continuing Duty. The State Court Defendants were ordered to continue, until the Judgment is paid in full, to turnover to the Receiver at the Receiver's address, all checks, cash, securities, promissory notes, documents of title, and contracts within 3 days from the State Court Defendants' receipt and possession of any such property.¹⁰

C. WARDEN'S WILLFUL AND MALICIOUS FAILURE AND REFUSAL TO COMPLY WITH THE RECEIVERSHIP ORDER

I. After the Receiver was appointed, he filed his oath and posted his bond on April 27, 2017. Later that afternoon, the Receiver visited Venture's offices. The Receiver was permitted to inspect the leasehold, but the Property Manager had already locked Ventures out of the premises. During the time period of May 12 - June 20, 2017, the Receiver collected the State Court Defendants' cash and property through several levies. The Receiver's levies of cash include the following:

DATE PAYMENT RECEIVED

SOURCE OF PAYMENT

AMOUNT OF PAYMENT ($)

May 12, 2017

Cirque Unit 1106, 2500 N. Houston

St., Dallas, TX 75219

9.70

June 1, 2017

Chase Bank, via cashier's check

dated May 26, 2017

17,971.73

June 2, 2017

Veritex Community Bank, via

cashier's check dated May 30, 2017

3,805.18

June 17, 2017

Havana Social Club, 3030 Olive

St., Suite 103, Dallas, TX

1,002.11

The Receiver's levies on personal property include the following:

DATE OF LEVY

LOCATION OF LEVY

PERSONAL PROPERTY LEVIED

May 12, 2017

Cirque Unit 1106, 2500 N. Houston

St., Dallas, TX 75219

Samsung large screen television

with remote, pool table, couch with

pillows, xBox video game

equipment, king size bed and

 DATE OF LEVY LOCATION OF LEVY PERSONAL PROPERTY LEVIED    bedding, night stands, headphones,Apple Ipad, several pairs of men'sboot, Keurig coffee maker, GeorgeForeman Grill  May 30, 2017  1900 Carnegie Lane, Grapevine,TX 76051  Personalized photograph album ofMelton's football accomplishmentsat the University of Texas, assortedsports memorabilia, large wall-hanging picture  June 17, 2017  W (Residences - South Tower),2408 Victory Park Lane, Dallas,TX  2014 Land Rover, Range RoverModel, Texas License Plate GHH-5908; color white 

The Receiver's levies are detailed in his Receiver's Report of June 20, 2107.

J. Warden and the other State Court Defendants did not cooperate with the Receiver, and they failed and refused to comply with the Receivership Order. Warden's violations of the Receivership Order include the following infractions:

• The Levied Assets Violation. Warden did not turnover to the Receiver any documents contained on Exhibit A to the Receivership Order, any documents and financial records requested by the Receiver, or any checks, cash, securities (stocks and bonds), promissory notes, documents of title or contracts owned by or in the name of the State Court Defendants. Warden had these assets to turnover to the Receiver, but he chose not to surrender them. Warden could have voluntarily tendered them to the Receiver, but he willfully and maliciously failed and refused to do so (the "Levied Assets Violation").

• The Business Documents Violation. Warden did not identify or turnover to the Receiver all interests that Warden had in any business or venture and all agreements, stock certificates and other documents pertaining to the Warden's ownership in the business or venture. Warden had these documents to turnover to the Receiver, but he willfully and maliciously chose not to surrender them (the "Business Documents Violation").

• The Ventures Bank Account Violation. The Receivership Order was entered on April 25, 2017. It was served on Warden on April 27, 2017. On May 1, 2017, $158,000 was withdrawn from a Ventures bank account. This money could have been, and should have been, turned over to the Receiver, but that did not happen. Warden willfully and maliciously did not surrender that money to the Receiver but, instead diverted those funds to his other business interests. Had that money been surrendered to the Receiver, the money and the items thatthe Receiver levied upon would have paid off the balance of the Judgment, with only costs remaining (the "Ventures Bank Account Violation").

• The Worst Behavior Bank Account Violation. Warden used the bank account of Worst Behavior as his own personal bank account in order to avoid complying with and obeying the Receivership Order and escaping the Receiver's

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