Lawson v. Conley (In re Conley)

• Decision Date: 05 October 2012
• Docket Number: Bankruptcy No. 10–30450.,Adversary No. 10–3169.
• Citation: 482 B.R. 191
• Parties: In re James CONLEY, Betty H. Conley, Debtors. Lowell Lawson, Plaintiff v. James Conley, Betty H. Conley, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

482 B.R. 191

In re James CONLEY, Betty H. Conley, Debtors.Lowell Lawson, Plaintiff

v.James Conley, Betty H. Conley, Defendants.

Bankruptcy No. 10–30450.

Adversary No. 10–3169.

United States Bankruptcy Court,

S.D. Ohio,

Western Division at Dayton.

Oct. 5, 2012.

John J. Scaccia, Jr., Springboro, OH, Krystle Marko, Utrecht & Young, LLC, Troy, OH, for Plaintiff.

Harold Jarnicki, Lebanon, OH, for Defendants.

Decision Determining Debts and Finding Debts Nondischargeable

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This proceeding is about a debtor who entered into an arrangement with a relative concerning the purchase and use of two commercial trucks, in combination with her debtor spouse who repaired trucks for the same relative in his own repair garage, and what happened when the business venture failed. The legal issues include whether the debtors' conduct in obtaining the titles to the two trucks through use of the Ohio unclaimed motor vehicle statute and the subsequent disposition of those vehicles gives rise to a nondischargeable debt. The plaintiff asserts that the conduct of the debtors constituted false misrepresentations or false pretenses which makes the asserted debt nondischargeable under 11 U.S.C. § 523(a)(2)(A); ¹ and in the alternative, the embezzlement of the motor vehicles makes the debt nondischargeable under § 523(a)(4). The court finds that the debtors' conduct gives rise to nondischargeable debts under § 523(a)(4).

II. Issues for Determination by the Court

The court must address the following issues: a) does this court have the authority subsequent to Stern v. Marshall² to determine Lawson's state law fraud and embezzlement claims which underlie his allegation that the Conleys owe him a nondischargeable debt and, if so, can the court also liquidate such claims through finding damages and entering judgment?; b) if the court has the authority to determine Lawson's state law claims, did the Conleys engage in conduct giving rise to liability under state law and, if so, what damages were incurred by Lawson?; and c) if the Conleys engaged in conduct that under state law gives rise to a debt owed by the Conleys to Lawson, is that debt nondischargeable under § 523(a)(2) or (4)?

III. Procedural Background, Evidence Presented at the Trial, and Findings of FactA. Procedural Background

James Conley and Betty Conley (“Betty” and collectively the “Conleys”) filed a joint Chapter 7 petition on January 28, 2010 and received a discharge on July 15, 2011.³ However, Lowell Lawson (“Lawson”) filed a complaint against the Conleys to determine the dischargeability of a disputed debt pursuant to § 523(a)(2) and (4) (doc. 1) and the Conleys answered (doc. 2). The court conducted a trial on July 22 and 29, 2011, the parties filed posttrial memoranda (docs. 84, 85 & 92), and the court took the matter under advisement. This decision constitutes the court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

On March 24, 2012, prior to the court reaching its decision, Lawson filed a motion to re-open the trial to admit “newly discovered evidence” and also sought an order of contempt and sanctions against the Conleys (doc. 96). After briefing and a hearing, the court denied the motion (docs. 110 and 111).⁴

B. Evidence Presented at the Trial

1. Lawson's Purchase of Volvo Tractors from Clear Choice and the Formation of the Agreement between Lawson and Betty Conley

Lawson ran a small trucking company which did business as “Lawson Trucking,” through which he hauled freight for brokers for a fee. Lawson testified that his company would typically haul 10–12 loads each week. Tr. 94. April Lawson, Lawson's wife, testified that as of January 2009 Lawson had two trucks, only one of which was operating. Tr. 177.

Betty and Lawson are relatives and have known each other for decades. In January 2009 Lawson told Betty that he needed money to pay for the insurance for his trucking operation or his insurance would be cancelled Tr. 382. In response, Betty gave him $1,000 to pay for the insurance, food and gasoline.

On April 8, 2009 Clear Choice Leasing, LLC (“Clear Choice”) sold Lawson seven Volvo commercial truck tractors—six 1998 models and one 1993 model. Clear Choice provided seller financing for this sale through a $30,000 promissory note signed by Lawson payable to Clear Choice. The certificates of title were transferred to Lawson with a lien noted on each title in favor of Clear Choice, with the vehicle identification numbers (“VIN”). The vehicles were a 1998 Volvo VIN# 4VGWDAJH9WN748726 (the “8726 Tractor”); a 1998 Volvo # 4VGWDAJH5WN748805 (the “8805 Tractor”); a 1998 Volvo # 4VGWDAJH6WN748800 (the “8800 Tractor”); a 1998 Volvo # 4VGWDAJH0WN748811 (the “8811 Tractor”) a 1998 Volvo # 4VGWDAJH8WN748815 (the “8815 Tractor”); a 1998 Volvo VIN # 4VG7DEJHXWN750349 and a 1993 Volvo VIN# 4VIWDBJF2PN659726.

The sole member of Clear Choice is Stephen M. Jordan. Jordan testified that two of the seven trucks were purchased later, in July 2009. In June 2009 Lawson executed an additional promissory note in the amount of $6,000 and Clear Choice took a lien on an additional tractor—another 1998 Volvo: VIN # 4VGWDAJh1wn748798. Although the modification of the original secured loan transaction was not entirely clear, Lawson held title to all the vehicles sold by Clear Choice. The purchase price for each tractor was $6,000. While some principal was paid over time, Lawson continued to owe Clear Choice most of the principal balance on the two promissory notes at the time of trial.

In April or May 2009 Betty, Lawson and Marcia Ledbetter, Lawson's office manager, met at Betty's residence to discuss Betty having her own truck terminal, using some of the trucks that Lawson had purchased from Clear Choice and Betty operating under Lawson Trucking's regulatory authority to haul loads. Tr. 92. On May 13, 2009 Betty gave Lawson $3,000 toward an ownership interest in Lawson Trucking, although the specifics of that interest were never defined by either party (Exh. C; Tr. 142, 175, 210–11, 264, 281, 389 & 446). The purpose of this investment was to form a joint venture with Lawson to permit Betty to use Lawson's licensing authority. Some of the $3,000 was used to pay insurance on the trucks.

Originally Lawson offered Betty five of the trucks acquired from Clear Choice on the condition that she made the loan payments owed to Clear Choice on those trucks. However, Lawson later decided that he wanted to keep three of those trucks, so they agreed that she would only purchase two trucks.

Ultimately Lawson and Betty agreed Betty would lease, with a purchase option, two of the 1998 Volvo tractors. The only document memorializing the agreement did not include any VIN numbers identifying which of the Volvo tractors Betty was acquiring. The lease payment by Betty on the two trucks was $1,100 each month [$550 per truck (Tr. 173–74) ], which would satisfy the obligation that Lawson had to Clear Choice on those tractors. In addition, she was responsible for all repairs and one-half of the insurance premiums on those two tractors. She was to pay Lawson $25 for each haul she received, but could otherwise keep any funds collected from any load hauled. The parties agreed to an “open door” policy, meaning that Betty was to allow Lawson (or one of his employees) to review all the paperwork for hauls. This policy enabled Lawson to comply with regulatory requirements and to have proper tax information. Under the parties' agreement, they would operate this business under the name “Lawson Trucking/All–In Transportation.” Betty testified this name was chosen because she paid Lawson all the funds she had and was “all-in.”

Lawson told Betty she could choose which of the Volvo tractors she would acquire. While she was not an expert on the condition of trucks, her husband, James Conley, had years of experience as a mechanic who repaired commercial tractors. Based on his recommendations, Betty chose two trucks out of the five available. Tr. 386–87. However, as will be discussed, the testimony was inconsistent as to which two tractors were to be used and purchased by Betty.

While the arrangement between Betty and Lawson was reduced to writing, the parties disagreed over which writing was the correct recitation of the agreement and whether Betty Conley ever signed the typed agreement. See Exhs. 14, 409; ⁵ 15, 454–55; 17, 512–13; 23, 623–24; and Exh. C and Tr. 96–103;124–39;147–49; 273–91; 318–38; 350; 383; 389–95; 398; 401; 410; 411–12; 414; 415; 432; and 446–47. Regardless, the parties reached agreement over the terms previously noted and the disputes concerning which form of the agreement is the correct one and whether Betty actually signed one of them is not material to the court's determinations.⁶ The material terms of the agreement were: 1) Betty was to purchase two Volvo tractors from Lawson by making the payments owed to Clear Choice on those trucks; 2) the purchase price and value of those two trucks was $6,000 each (Tr. 392); 3) Betty was authorized to use Lawson's regulatory authority under the name “All–In Transportation;” 4) Betty was to pay Lawson $25 for each load she hauled; and 5) Betty was responsible for all fuel, repairs and insurance.

2. Termination of the Agreement

The venture between Betty and Lawson quickly began to veer off course. The parties began to argue about the amounts that Betty owed to Lawson and the amounts that Lawson owed to James Conley dba Port Diesel for repairs made to Lawson's trucks; Betty's desire to setoff amounts that Lawson owed to James Conley for truck repairs against amounts she owed to Lawson; Betty's involvement in trying to collect on behalf of James Conley dba Port Diesel and difficulties in communication of information concerning loads which Betty hauled using Lawson's regulatory authority.

A central source of conflict between the parties during the three months of this...