Long v. Piercy (In re Piercy), 3:18-bk-32261-SHB

CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee
Docket Number3:18-bk-32261-SHB,3:18-bk-32260-SHB,3:18-bk-32262-SHB,Adv. Proc. 3:18-ap-3043-SHB,3:18-ap-3044-SHB,3:18-ap-3046-SHB
Decision Date24 February 2023


M. DUSTIN LONG Plaintiff


Nos. 3:18-bk-32261-SHB, 3:18-bk-32260-SHB, 3:18-bk-32262-SHB

Adv. Proc. Nos. 3:18-ap-3043-SHB, 3:18-ap-3044-SHB, 3:18-ap-3046-SHB

United States Bankruptcy Court, E.D. Tennessee

February 24, 2023

SWANSON & COWAN, LLP Mark A. Cowan, Esq. Attorneys for Plaintiff

QUIST, FITZPATRICK & JARRARD Ryan E. Jarrard, Esq. Attorneys for Defendants




Plaintiff filed a Complaint in each of the foregoing adversary proceedings0F[1] on October 22, 2018 [Doc. 1], asking the Court to determine that a state-court judgment in the amount of $151,670.87 entered against Defendants jointly and severally is nondischargeable pursuant to 11 U.S.C. § 523(a)(4). On August 20, 2019, the Court entered a Judgment in favor of Defendants [Docs. 21, 22] that was timely appealed by Plaintiff [Doc. 25]. After the Judgment was affirmed by the United States District Court for the Eastern District of Tennessee [Doc. 35], Plaintiff timely appealed to the Sixth Circuit Court of Appeals [Doc. 36]. On December 29, 2021, the Sixth Circuit reversed the Judgment and remanded to the bankruptcy court, stating that "Long's state-court judgment may . . . be declared nondischargeable as a debt for fraud or defalcation while the Piercys were acting in a fiduciary capacity under § 523(a)(4), provided that Long can produce evidence of their wrongful intent." Long v. Piercy (In re Piercy), 21 F.4th 909, 928 (6th Cir. 2021) (emphasis added). After remand, the Court scheduled a trial, which was held on November 14, 2022.

The trial record consists of the Joint Pretrial Statement filed on November 4, 2022 [Doc. 49], eleven exhibits [Doc. 50-1] stipulated for admission or otherwise admitted into evidence or part of the trial record,1F[2] and the testimony of M. Dustin Long ("Long"); Lester Dan Piercy, Jr. ("Dan"); Delores J. Piercy ("Delores"); and Joseph Shane Piercy ("Shane"). The parties


stipulated that proper venue lies with this Court and that the matters to be decided are core; that Long obtained a state-court judgment against the Piercys for $151,670.87; and that "the 'findings of fact & conclusions of law' that accompanies the [state-court] judgment is [sic] the [state] trial court's findings for the referenced judgment." [Doc. 49 at 2.] At the Court's direction, the parties filed pretrial and post-trial briefs [Docs. 52, 54, 56, 57.]

In the Joint Pretrial Statement, the parties identified the sole issue before the Court as: "Pursuant to the Sixth Circuit Court of Appeals ruling on December 29, 2021, did the Defendants act with the requisite wrongful intent required under 11 U.S.C. § 523(a)(4) with respect to Mr. Long[?]" [Doc. 49 at 1.] Because the Joint Pretrial Statement failed to expressly identify both embezzlement and defalcation as the remaining theories under § 523(a)(4) and Long's pretrial brief included only a passing reference to embezzlement, the Court clarified at the outset of the trial that Long intended to prove both embezzlement and defalcation as a "belt and suspenders" approach to the § 523(a)(4) claim.


Long's claim against the Piercys arises from a partners' dispute for the partnership created by the Contract executed by Long and the Piercys on April 27, 2011. The Contract provides (in total):

This agreement is made this 27th day of April, 2011, between GOINS HOLLOW QUARRY, LLC., having its principal place of business at 4586 Highway 25E, Tazewell, TN 37879, and LONG EXCAVATING AND HAULING having its principal place of business at 120 Raymond Layel Road, Bean Station, TN 37708
This agreement provides compensation from the sale of DGA and shot rock[3F[4] which will be crushed and screened from the location of Grainger/Claiborne line
along Highway 25E. This material is being purchased for $2.67 per ton from Hinkle Contracting Company, LLC, by Assignment and Assumption and Transfer Agreement [("Assignment Agreement")4F[5], which agreement has been signed by the parties, Dustin Long and Dan Piercy, Jr.
The following percentages will apply to the profit from the sale of aforesaid DGA and shot rock:
Twenty-five percent (25%) for Dustin Long
Twenty-five percent (25%) for Dolores Piercy
Twenty-five percent (25%) for Shane Piercy
Twenty-five percent (25%) for Dan Piercy, Jr.
All parties agree to these percentages for the profit made from the sale of these products[.]

[Tr. Ex. 1 (Doc. 50-1 at 16).] Notwithstanding that the Contract stated that it was between GHQ and Long Excavating and Hauling ("LEH"), the state court ruled that the Contract was between Long and the Piercys, individually, because payment was to the individuals, all of whom signed the Contract. [Tr. Ex. 2 at 3.]

Long testified that he had been buying rock from the Piercys at a site that they called Goins Hollow #1 and that he had been in the rock hauling business for approximately 16 years. Long talked with Dan about how the Piercys were getting rock into their area on "the other side of the mountain." They talked over a few weeks or months, and Dan proposed to work together so that Long would not need to purchase rock crushing and screening equipment and the Piercys could keep expenses down. Hinkle had a stockpile of rock on leased property, and the parties agreed with Hinkle to purchase the "processed and unprocessed shot rock and dense graded aggregate rock" located on the Hinkle's leased property, which was known as Goins Hollow #2.

The Piercys provided the equipment for processing the rock, and Long operated the scale house where the rock to be sold was weighed before it left the quarry. As trucks came onsite,


they were weighed. Then after the rock was loaded onto the trucks, they were weighed again as they left the site to determine the volume or weight of the material being removed so that the sales price could be calculated. Long was charged with scheduling trucks and preparing and turning in at Goins Hollow #2 sales tickets on GHQ numbered forms for the amount of rock that was removed after it was weighed on the scale at Goins Hollow #2. The Piercys would then invoice the customer for the rock according to the tickets reflecting the scale-house weight of the rock. Neither Long nor LEH owned rock, but Long had a right to sell rock from Goins Hollow #2 by virtue of the Assignment Agreement. Long testified that his compensation for running the scale house at Goins Hollow #2 was the right to haul rock from the quarry.

The partnership started operating to sell rock on July 5, 2011. Long testified that he received two payments from the Piercys for his partnership work, one for July and one for August, but that both payments were short of what he had expected to be paid. Dan testified that the Piercys would pay invoices to Long at least 30 days from the date of the sale. He explained that they invoiced customer purchases monthly (e.g., from July 1 to the last day of July), with the payment to Long being tied to the date that the customer paid the invoice for the rock, which could be 45 to 60 days (or more) from the date of the sale. When asked why Long was not paid for September 2011 rock sales, Dan explained that everything was pushed out on a timeline for collection because they could not pay a dividend to Long unless they had the money from the sales. Delores also testified that they had to wait on customers to pay on their accounts, which was always at least 30 days from the sale of the rock from Goins Hollow #2.

Ultimately, the parties disputed how "profit" was to be determined under the Contract. Dan explained that the Piercys had interpreted profit to mean the sales proceeds net of the payment to Hinkle under the Assignment Agreement (i.e., $2.67 per ton) and all other expenses of the operation (which the Piercys thought meant a further reduction of $5.00 per ton). He said


that their interpretation arose out of the fact that they were providing everything to operate Goins Hollow #2 and that they had to borrow $165,000.00 to provide additional equipment that Long initially said he would provide, including a loader and a scale house. Although the Contract did not so provide, Dan testified that Long and the Piercys discussed in advance that profit would be calculated by reducing the Hinkle payment and $5.00 per ton for processing costs from gross sales, with the net to be split four ways.

Long testified that after he raised concerns with the Piercys about the July and August payments, they did not pay him anything for September or October, so he decided he needed to sell rock from Goins Hollow #2 to get his share of the partnership profits. At some point around early October 2011, Long got married and went on a honeymoon, during which he decided that when he returned, he was going to be more aggressive about questioning why he had not been paid. Long testified that at that time, in October, he was awaiting a payment for September and still had not cleared up the issue with the payments for July and August.

Then, as Dan and Delores testified (without refutation), while Long was on his honeymoon, the Piercys were contacted by Mark Cade.5F[6] Trial Exhibit 5 corroborates their testimony, establishing that on October 3, 2011, Cade emailed Dan to inquire about the haul price for an October 1 purchase from Long. [Tr. Ex. 5.] Cade sent Dan two tickets dated October 1, 2011, written on LEH forms and two tickets dated October 1, 2011, written on GHQ forms. [Tr. Exs. 3, 5.] Cade complained that the tickets reflected a price of $5.24 to $6.59 per ton but Long had quoted Cade a price of $3.70 per ton. [Tr. Ex. 5.] On October 5, Cade again emailed Dan, saying that Long had called Cade and they had resolved the haul charges to...

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