Lykins v. Thomas (In re Thomas), Adversary No. 11-1056 MER

• Decision Date: 27 December 2013
• Docket Number: Adversary No. 11-1056 MER,Case No. 10-38306 MER
• Parties: In re: JOHN CHARLES THOMAS MICHELLE LYNNE THOMAS Debtors. CHRISTOPHER LYKINS LORI J. WAKNIN Plaintiffs, v. JOHN CHARLES THOMAS Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado

In re: JOHN CHARLES THOMAS MICHELLE LYNNE THOMAS Debtors.
CHRISTOPHER LYKINS LORI J. WAKNIN Plaintiffs,
v.
JOHN CHARLES THOMAS Defendant.

Adversary No. 11-1056 MER
Case No. 10-38306 MER

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLORADO

Signed/Docketed December 27, 2013

The Honorable Michael E. Romero
Chapter 7
ORDER

THIS MATTER comes before the Court on the Complaint filed by Plaintiffs Christopher Lykins ("Lykins") and Lori J. Waknin ("Waknin") (collectively, the "Plaintiffs"), and the Answer filed by Debtor-Defendant John Charles Thomas ("Thomas"). The Court has considered the evidence and arguments presented by the parties, and hereby makes the following findings of fact and conclusions of law.

JURISDICTION

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(a) and (b) and 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) because it involves determinations as to the dischargeability of a particular debt under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6).¹

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BACKGROUND

A. The Consignment Agreement and Sale of the Vehicle

Waknin, Lykins, Thomas and Christopher Blair Teta ("Teta") are all residents of Colorado. On March 17, 2006, Thomas and Teta formed Spotlight Motors, LLC ("Spotlight") under the laws of Colorado. At all relevant times, Thomas and Teta were the sole owners and members of Spotlight, and shared equally in all management responsibilities. Spotlight, at the time of the subject transactions, was a licensed Colorado automobile dealer and engaged in the business of selling used automobiles to the retail public.

On July 21, 2009, Waknin and Spotlight, through Teta, entered into an agreement for consignment of Waknin's 2002 Mercedes Benz CLK 430 (the "Vehicle") to Spotlight to be sold (the "Consignment Agreement").² The Consignment Agreement is handwritten, signed by Teta and states, in total:

Spotlight Motors to consign 2002 M-B CLK430 starting 7/21/09. Ask price $24,995. Seller Fee 10% of selling price t.b.d. by Lori Waknin plus $250 for marketing (nonrefundable).³

Waknin negotiated the Consignment Agreement with Teta only, and Thomas did not make any representations to Waknin regarding the Consignment Agreement or a payoff of the Vehicle's existing lien.⁴ However, at all relevant times, Thomas and Teta knew Public Service Credit Union ("PSCU") held a lien against the Vehicle in the amount of $15,960.20.

Over a month later, on August 28, 2009, Lykins saw the Vehicle on Spotlight's car lot and negotiated with Thomas for the purchase of the Vehicle. Lykins ultimately agreed to pay a grand total of $21,385.42 in exchange for the Vehicle, which included the $19,500 sale price, plus additional dealer fees and taxes in the amount of $1,885.42.⁵ Lykins tendered to Spotlight a cashier's

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check dated August 28, 2009, in the amount of $21,382.42.⁶ In return, Lykins received a "Dealer's Bill of Sale for a Motor Vehicle" dated August 28, 2009, identifying Thomas as the dealer's agent and Lykins as the buyer, along with a "Standard Sales Tax Receipt."⁷

From the $19,500 portion of the certified funds from Lykins, Spotlight deducted a commission in the amount of $1,950 (10% of the $19,500 "selling price") and an $85 fee for detailing the Vehicle prior to sale.⁸ Spotlight noted $15,960.20 would be withheld for the payoff of the PSCU lien,⁹ and paid Waknin the remaining net amount of $1,504.80.¹⁰ Waknin acknowledged receipt of $1,504.80 from Spotlight, representing her total profit from the sale of the Vehicle to Lykins.¹¹

On September 21, 2009, Spotlight issued a check payable to PSCU in the amount of $15,596.56 to pay off the PSCU lien secured by the Vehicle.¹² However, this check was dishonored for insufficient funds,¹³ and the PSCU lien remained against the Vehicle. The circumstances surrounding the failure to pay off the PSCU lien form the basis of Waknin's claims against Thomas.

In addition, the failure to satisfy the PSCU lien prevented the passage of clean title to Lykins. Following his purchase of the Vehicle a series of events centering around the title gave rise to Lykins' claims against Thomas. Before

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the initial temporary registration was about to expire, on October 28, 2009, Glenn M. McColm, an employee of Spotlight, sent a facsimile transmission to the Colorado Department of Motor Vehicles requesting an extension of Lykins' temporary registration for the Vehicle.¹⁴ Specifically, McColm stated: "Please get an extension for Mr. Christopher Lykins on his 2002 Mercedes. We apologize for the inconvenience to Mr. Lykins and for the extra work for the Dept. of Motor Vehicles. Spotlight Motors will have the title issue cleared up shortly."¹⁵ With this communication, Lykins obtained a motor vehicle tax receipt on November 5, 2009, which listed an expiration date of November 20, 2009,¹⁶ and a Colorado Temporary Registration with the same expiration date.¹⁷ Later, Thomas delivered a third temporary registration to Lykins with an expiration date of December 23, 2009.¹⁸ By late December 2009, Spotlight had ceased operations.

On November 4, 2009, Waknin commenced litigation against Spotlight in Denver District Court, Case 09 CV 10346 ("State Court Action"), alleging, inter alia, breach of contract, breach of fiduciary duty, conversion, and violation of the Colorado consumer protection act. Two months later, Lykins filed a complaint against Spotlight with the Colorado Department of Revenue, Auto Industry Division. On March 5, 2010, Lykins requested permission to intervene in the State Court Action, and the state court granted Lykins' motion to intervene. Later, the state court authorized Waknin to amend her complaint to implead Teta and Thomas individually, and plead additional claims.

On August 6, 2010, the state court entered an Order for Entry of Default Judgment in favor of Waknin and against Spotlight in the amount of $74,827.78 in the State Court Action. However, the State Court Action claims against Teta and Thomas were stayed on their respective bankruptcy petition dates.

B. The Related Teta Adversary Proceeding.

On June 30, 2010, Teta and his spouse, Laura Anne Teta, filed a voluntary petition for Chapter 7 bankruptcy relief, Case No. 10-26493-MER. On

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September 29, 2010, Lykins and Waknin commenced Adversary Proceeding No. 10-1706 MER against Teta by filing a Complaint containing virtually the same claims they now assert against Thomas (the "Teta Adversary"). Teta failed to file an answer or other responsive pleading. Upon Lykins and Waknin's request for a default judgment, and following an evidentiary hearing, this Court entered an order on June 16, 2011 determining Teta's debt to Plaintiffs is non-dischargeable under §§ 523(a)(2)(A), (a)(4) and (a)(6). The Court entered two judgments in favor of each Plaintiff, and both judgments are subject to a constructive trust.¹⁹

C. The Thomas Bankruptcy Case.

On November 8, 2010, Thomas and his spouse, Michelle Lynn Thomas, filed a voluntary petition for Chapter 7 bankruptcy relief. On January 25, 2011, the Plaintiffs filed their Complaint against Thomas (the "Thomas Adversary"). The allegations and claims for relief in the Complaint are identical to the claims set forth in the Teta Adversary, including the following: 1) fraudulent transfer under COLO. REV. STAT. § 38-8-101, et seq.; 2) alter ego doctrine under COLO. REV. STAT. § 7-80-107; 3) member liability under COLO. REV. STAT. § 7-80-606; 4) common law trustee doctrine; 5) violation of Colorado Consumer Protection Act under COLO. REV. STAT. § 6-1-105; 6) conversion/civil theft; 7) civil conspiracy as to civil theft; 8) fraud and fraud by check; 9) unjust enrichment; 10) nondischargeability under § 523(a)(2)(A); 11) nondischargeability under § 523(a)(4); and 12) nondischargeability under § 523(a)(6). Based on these claims, Plaintiffs requested a judgment for the following:

1) money damages in an amount sufficient to compensate Plaintiffs fully for their injuries, damages and losses;
2) treble damages pursuant to COLO. REV. STAT. §§ 18-4-405 and 6-1-113;
3) reasonable attorney fees and costs pursuant to COLO. REV. STAT. §§ 18-4-405 and 6-1-113;
4) prejudgment and post-judgment interest as allowed by law;
5) an order finding Thomas' debts to the Plaintiffs are nondischargeable in their entirety; and
6) such other relief this Court deems just and appropriate.

Unlike Teta, who failed to respond in the Teta Adversary, Thomas filed an Answer to the Complaint and defended the claims in this proceeding. Thomas generally denied all substantive allegations and raised the following affirmative defenses: 1) Plaintiffs' First, Second, Third, Fourth, Fifth, Sixth, Seventh and

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Ninth Claims for Relief fail to state a claim upon which this Court may grant relief; 2) this Court lacks jurisdiction over the subject matter on various claims asserted by Plaintiffs; 3) Plaintiffs cannot prove public impact necessary to prevail on their Fifth Claim for Relief; 4) Plaintiffs' First, Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh and Twelfth Claims for Relief are barred by the express provisions of §§ 523(a)(2)(A), (4), and (6).

As...