FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
At Saint Paul, Minnesota.
This adversary proceeding was commenced November 18, 2016 by Plaintiff Madison Resource Funding Corp. ("Madison") against Defendant Jerry Marsh. Dkt. No. 1. Madison sought a determination that a debt owed to Madison in the amount of $1,697,213.50 plus attorney's fees and interest is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). Dkt. Nos. 1; 42; 121-22. Madison alleged Jerry Marsh made misrepresentations and omitted material facts concerning the relationship between Synico Staffing, LLC ("Synico") and Syglo, LLC ("Syglo") when he executed a Madison Resource Funding Agreement ("Master Agreement") and an Accounts Receivable Security Agreement ("Security Agreement") in favor of Madison and when he later indicated that Syglo had been contracting with certain companies to provide staffing services.
The case was assigned to this Court on December 20, 2019. The case proceeded to trial on Count I of the Amended Complaint on February 25-26, 2020. Dkt. Nos. 42; 123. Counts II, III, and IV of the Amended Complaint were dismissed by stipulation of the parties. Dkt. No. 123. Paul Ratelle and Alexander Conti appeared for the Plaintiff; Matthew Fling appeared for the Defendant. The Court heard testimony of the following witnesses: Melody Smith; Amanda Naples; Mary (Molly) McQuillen; Robert Gilbert, Jr.; John Carney; Richard Chipman; and Jerry Marsh, and admitted the following exhibits: 1-13; 15-28; 31-33; 38-42; 45-54; 56; 58; 60-61; 63-72; 74-81; 83-86; 89-94; 97-110 (101 as amended); 112-14; 117; 136; 146; 148; 150-58; and the deposition of Mark Anthony Sawicki. The Court also admitted facts 1 through 9 listed on Madison's request for "judicial notice" after no objection was made to the request. Dkt. No. 124.
Following the admission of evidence in this adversary proceeding, the Court heard the trial of Madison Resource Funding Corp. v. Robert Marsh, Adv. No. 18-04198 on February 26-27, 2020. All evidence admitted in this adversary proceeding was admitted in Madison Resource Funding Corp. v. Robert Marsh, but the evidence heard and admitted in Madison Resource Funding Corp. v. Robert Marsh was not admitted in this adversary proceeding. Closing arguments for both cases followed the close of evidence in Madison Resource Funding Corp. v. Robert Marsh on February 27, 2020.
The Court denied the Defendant's motion to dismiss brought at the conclusion of Madison's case. The Court took Madison's motion in limine and the merits of the case under advisement following the conclusion of the closing arguments on February 27, 2020. Post-trial submissions were made in Madison Resource Funding Corp. v. Robert Marsh on March 6, 2020 and March 20, 2020 but these submissions were limited to Madison Resource Funding Corp. v. Robert Marsh and do not apply to this adversary proceeding. The parties agreed to continue mediation in both Marsh cases on May 26, 2020, and the mediator requested that no action be taken by the Court during themediation. An impasse was reported on September 30, 2020. The Court makes the following findings of fact and conclusions of law and holds the debt owed to Madison is not dischargeable.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and 1334, Fed. R. Bankr. P. 7001, and Local Rule 1070-1. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I). Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
Background Of Robert Marsh, Jerry Marsh And Synico
1. Robert Marsh and Jerry Marsh are brothers. Stipulation of Facts ("Stip."), Dkt. No. 117 ¶ 1.
2. From 1996 to 2005, Robert Marsh and Jerry Marsh worked together at a staffing agency called HCP, Inc. Robert Marsh owned HCP, Inc. and Jerry Marsh was the operations manager. HCP, Inc. filed for bankruptcy in 2005 and is no longer in existence. Stip. ¶ 2; ex. 3.
3. In 2006, Synico was formed. Synico was a temporary staffing agency which operated to fulfill the temporary staffing needs of other companies. Robert Marsh was employed as the president of Synico and Jerry Marsh was employed as the vice president of Synico. Stip. ¶ 3; ex. 3.
4. Jerry Marsh signed Synico's articles of incorporation. Ex. 117. Jerry Marsh was listed as a member and vice president of Synico, but there is no evidence he held ownership shares in the company. Exs. 3; 38-39; 117. To the extent Madison argued Jerry Marsh held an ownership interest in Synico, Madison failed to meet its burden of proving thatJerry Marsh held shares of the company. Jerry Marsh's denial of ownership of shares in Synico was credible. Jerry Marsh had signatory authority on Synico's accounts but denied having control of financial aspects of Synico, which he testified was Robert Marsh's role at the company. Ex. 40.
The U.S. Bank/Bartech Contract With Synico
5. In January 2012, Synico and U.S. Bank had a direct relationship and contract for Synico to provide U.S. Bank with temporary staff. Stip. ¶ 4.
6. In February 2012, Synico signed a loan agreement and line of credit agreement with Summit Community Bank for a $2,364,000.00 loan and $200,000.00 revolving line of credit. Stip. ¶ 5. Both the loan and line of credit were secured by all of Synico's assets. Stip. ¶ 5.
7. Later in 2012, U.S. Bank changed its temporary staffing business practices and contracted with The Bartech Group, Inc. ("Bartech") to facilitate all of U.S. Bank's temporary staffing requirements. Bartech acted as what is known in the staffing industry as a managed service provider. As a result, Synico no longer had a direct relationship and direct contract with U.S. Bank and had to go through Bartech to supply temporary staff to U.S. Bank. Stip. ¶ 6.
8. In January 2013, Synico and Bartech entered into a services agreement whereby Synico would supply U.S. Bank with temporary staff through Bartech. Stip. ¶ 7; ex. 41; 42. The agreement required Synico to inform Bartech of its intent to use a subcontractor to perform under the contract. It also required Synico to notify the "Customer" in advance of any changes to its use of a subvendor. Ex. 41 ¶ 10.1. Further, the agreement required the use of any subvendor to be "approved in writing by Customer." Ex. 42 ¶ 10. RobertMarsh was the signatory on these agreements, but listed Jerry Marsh, as vice president of Synico, as a point of contact for any notices. Ex. 42 ¶ 12.
Jerry Marsh Creates Syglo
9. In July 2013, Jerry Marsh formed Syglo, originally named McFarland Staffing Group, LLC. Syglo was a temporary staffing agency. Jerry Marsh was the sole owner and employee of Syglo. Stip. ¶ 8; ex. 45. Jerry Marsh testified that Syglo differed from Synico in that Syglo provided temporary staff to smaller and more industrial clients, but, otherwise, there was no real differences in how the businesses operated.
10. Jerry Marsh testified he made the decision to start Syglo in 2013 because he was not an owner of Synico and wanted to own a staffing agency. He considered himself an officer but not an owner of Synico.
11. In January 2014, he signed an account agreement at Anchor Bank for Syglo and listed Synico as his employer. Ex. 52. Synico continued to be listed as Jerry Marsh's employer on other account agreements at Anchor Bank in 2014 and 2015. Exs. 53; 54. Jerry Marsh testified that he owned Syglo but still worked for Synico as he was in the process of "getting Syglo off the ground." Exs. 64-65; 67-69; 77.
12. Jerry Marsh continued to provide workers' compensation and insurance audit services to Synico. Exs. 58; 61; 63-65; 77; 79-80. He testified he continued to work at Synico in a limited role under an "administrative agreement" and emails support that Jerry Marsh continued to oversee aspects of Synico from 2014 through 2016. Exs. 80-81; 83-86; 89; 94. On at least one occasion, Jerry Marsh referred to Syglo as "our other company" when discussing tax extensions for Synico. Ex. 90.13. Syglo had the same address as Synico. Ex. 45. Jerry Marsh testified he used a virtual office space to conduct business, but he still used the physical office he had at Synico as he still worked at Synico primarily on workers' compensation issues. Jerry Marsh testified he used the office at Synico because it was vacant and he had a key to Synico. Synico had a virtual office space that it assigned to Syglo in January 2014. Ex. 47. Jerry Marsh testified that most staffing agencies are no longer brick and mortar businesses because they can conduct most communications electronically.
14. The website for Syglo was registered under Synico's account and the domain-hosting fees appears to have been billed to Synico. Exs. 49-50.
15. The only equipment Syglo owned was Jerry Marsh's laptop. Jerry Marsh used the same phone number for Syglo that he used at Synico and Synico paid for the phone. Ex. 46. Jerry Marsh testified that he used his Synico cell phone as his Syglo phone because he had just left his job at Synico when he started Syglo.
16. Jerry Marsh testified that he maintained an email address with Synico and had an email address with Syglo. He used his Synico email address to conduct business in 2015 and 2016 and continued to identify himself as a vice president of Synico in the signature block of his email. Exs. 64-65; 67-69.
Synico and Syglo Enter Into A Subvendor Contract Concerning U.S. Bank/Bartech
17. Jerry Marsh sought Robert Marsh's advice and aid when he created Syglo and involved Robert Marsh in income discussions regarding Syglo. Test. of Jerry Marsh. Jerry Marsh testified that he told Robert Marsh he wanted to expand his business and knew U.S. Bank had been a long-term customer of Synico. After this conversation, Syglo began providing temporary
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