Marpad, L. L.C. v. Seevers (In re Seevers)

• Decision Date: 29 September 2017
• Docket Number: Adversary No.: 16–4009,Bankruptcy No.: 15–41941–SKH
• Citation: 574 B.R. 832
• Parties: IN RE: Nickolas Todd SEEVERS, Debtor. MarPad, L.L.C., a Nebraska Limited Liability Company, Catherine Martinez and Jose Padilla–Ruezga, Plaintiffs, v. Nickolas Todd Seevers, Defendant.
• Court: U.S. Bankruptcy Court — District of Nebraska

574 B.R. 832

IN RE: Nickolas Todd SEEVERS, Debtor.

MarPad, L.L.C., a Nebraska Limited Liability Company, Catherine Martinez and Jose Padilla–Ruezga, Plaintiffs,

v.Nickolas Todd Seevers, Defendant.

Bankruptcy No.: 15–41941–SKH

Adversary No.: 16–4009

United States Bankruptcy Court, D. Nebraska.

Signed September 29, 2017

Laura E. Troshynski, Pederson Law Office, North Platte, NE, for Plaintiffs.

Patrick M. Heng, Waite, McWha & Heng, North Platte, NE, for Defendant.

MEMORANDUM AND ORDER

SHON HASTINGS, JUDGE UNITED STATES BANKRUPTCY COURT

Plaintiffs MarPad, L.L.C., Catherine Martinez and Jose Padilla–Ruezga filed a Complaint seeking denial of Debtor/Defendant Nickolas Todd Seevers' bankruptcy discharge under 11 U.S.C. § 727. Alternatively, Plaintiffs seek a determination that Debtor's debt to Plaintiffs is excepted from discharge under 11 U.S.C. § 523(a)(2), (a)(4) and (a)(6).

In his Answer, Debtor denies the allegations. He affirmatively alleges that Plaintiffs breached the covenant of fair dealing and good faith in their contractual obligations with Debtor by intentionally hindering Debtor's performance of his obligations. Debtor asserts that Plaintiffs should be estopped from any alleged claim based on their bad faith. He further asserts that Plaintiffs failed to perform their contractual obligations to Debtor and should be barred from bringing this action. Lastly, he asserts that the alleged acts occurred more than one year prior to his bankruptcy petition date.

This adversary action is a core proceeding under 28 U.S.C. § 157(b)(2)(I). The Court has jurisdiction under 28 U.S.C. §§ 1334 and 157, and it has authority to enter a final order in this matter. This opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

I. FACTUAL BACKGROUND

MarPad, L.L.C., is a Nebraska limited liability company that owned and operated a restaurant, bar and camping area under the name "Lakehouse Bar & Grill" ("the Lakehouse") outside North Platte, Nebraska. Martinez and Padilla–Ruezga, who are married, owned 1,000 membership units comprising 100% of MarPad's membership units.

MarPad purchased the Lakehouse on April 1, 2010. At the time, Martinez and Padilla–Ruezga lived in Colorado, and Martinez traveled to Nebraska to run the Lakehouse on the weekends while Padilla–Ruezga and their three children remained in Colorado.

In the summer of 2010, Plaintiffs operated a convenience store and campground at the Lakehouse. For a new business, the Lakehouse "did pretty well" and the lake residents supported the Lakehouse, according to Martinez. The Lakehouse's profits were "not great," but Martinez considered it a long-term investment.

In 2012, Martinez moved to Nebraska to run the Lakehouse full time. By the end of 2013, she decided to return to Colorado. In January 2014, she contacted an agent to list the Lakehouse for sale. If the Lakehouse did not sell by the end of July 2014, Martinez intended to close it for the season and to operate the Lakehouse during the summer months only in subsequent years.

A. Debtor Meets Martinez and Executes Agreements with Plaintiffs

Debtor holds bachelor's and master's degrees in hotel and resort management. Prior to his involvement with the Lakehouse, Debtor purchased and operated a bar called the Red Zone. According to Debtor, the Red Zone "did phenomenal" until a compressor started a fire. The Red Zone was not properly insured, and Debtor did not have the funds to operate the business after the fire. Debtor closed the Red Zone in the last week of November 2013.

In the spring of 2014, Debtor was working at Applebee's when he met Steph Hopson. Hopson worked for Martinez the previous summer, and Martinez told Hopson that she was looking for staff to operate the Lakehouse during the summer of 2014. Hopson agreed to talk to people who might be interested. Hopson introduced Debtor to Martinez, and Martinez hired Debtor as a server in April 2014. Hopson also resumed working at the Lakehouse in April 2014.

Hopson and Debtor considered purchasing the Lakehouse. Martinez told Hopson and Debtor that she wanted a large down payment because she was not willing to turn over the Lakehouse without significant "skin in the game." At trial, Martinez recalled telling Hopson and Debtor she wanted a $100,000 down payment.

Hopson and Debtor requested profit and loss statements from Martinez, but she gave them tax returns only. For this reason, Hopson decided she was not interested in purchasing the Lakehouse, but she continued working as a Lakehouse employee. Debtor decided to pursue the sale alone because he wanted to own a restaurant and he viewed the Lakehouse purchase as an opportunity.

Martinez gave Debtor access to the Lakehouse computer, but it contained limited information. According to Debtor, sales totaled approximately $35,000 per month during the four months the Lakehouse was open in 2013. Martinez did not provide Debtor any other financial information prior to the parties entering purchase and employment agreements.

By June 2014, Martinez planned to sell the Lakehouse to Debtor. Debtor and Martinez consulted an attorney they both knew to draft the legal agreements. According to Martinez, she wanted legal agreements in place because she was relocating and would not be around to monitor the business. Although Martinez wanted a significant down payment, she agreed to forego this payment but insisted upon agreements divesting Plaintiffs of financial responsibility but retaining ownership until the sale closed.

1. The Storm and Insurance Proceeds

In mid-June 2014, before the parties entered into purchase and employment agreements, a hailstorm significantly damaged the Lakehouse. At Martinez's request, Debtor compiled a list of damaged property to submit with an insurance claim. The storm shattered most of the glass patio tables; only two tables survived. In addition to the patio tables, the damaged property included the roof, umbrellas, windows, air conditioner compressor, walk-in cooler/freezer compressor and the point-of-sale system.

Debtor assisted the insurance adjustor who visited the Lakehouse to assess the damage. According to Debtor, the insurance company paid Martinez 70 percent of the cost of repairs immediately and agreed to pay the rest after the repairs were made.

The Lakehouse could not operate until Debtor purchased new patio tables. According to Debtor, he spent a total of $6,000 on tables, and Martinez did not reimburse him for any of the cost. At trial, he explained that Martinez told him the insurance proceeds belonged to her. Martinez, on the other hand, claimed that she reimbursed Debtor for the items he replaced after the insurance company sent her the insurance proceeds.

The insurance claim included $35,000 for a new point-of-sale system. The point-of sale system recorded daily sales. Consequently, it was critical for labor management, processing credit cards and communications between servers and kitchen staff. Because of damage to the system, the computers would not stay synched and would periodically stop working.

Debtor researched replacement point-of-sale systems, but Martinez thought a new system was unnecessary and too expensive. A local company repaired the system, but it was just a "bandaid," according to Debtor. The system continued to malfunction.

Beginning in July 2014, the system caused discrepancies in the reported cash. The impaired system affected the totals at the end of the day, including improperly accounting for servers' tips at the end of the night. Unless an employee printed the daily closing report from each of the three points-of-sale, the data was incorrect. Further, when the system crashed, Debtor could not give customers their bills because he had no way to tell them how much they owed. Debtor spent four to five hours per day dealing with issues caused by the faulty system. Similarly, Hopson testified that the system had many problems and that Martinez was aware of them. As a workaround, Hopson purchased her own iPad to track sales.

Debtor repeatedly told Martinez about the problems and "begged" her for a new point-of-sale system, particularly in light of the insurance proceeds Martinez received. Martinez acknowledged that Debtor expressed the difficulties of operating without a working system, but she considered the impaired system "a pain but not critical."

2. The Agreements

On July 28, 2014, Debtor entered into an agreement to purchase MarPad from Martinez and Padilla–Ruezga, effective retroactively to July 1, 2014. The purchase agreement outlined Debtor's payments for the Lakehouse. Specifically, Debtor agreed to pay Martinez and Padilla–Ruezga $410,000 as follows: $10,000 by October 1, 2014; $60,000 by December 20, 2014; $60,000 by June 15, 2015; and the final payment of the outstanding balance of principal and interest on August 31, 2015. The parties scheduled the sale closing for on or before August 31, 2015. Although MarPad remained the owner of the Lakehouse until the closing, Debtor began managing the Lakehouse on July 1, 2014. In other words, Debtor took control of all the assets at the Lakehouse, but he held no ownership interest.

Debtor and MarPad also entered an employment contract outlining Debtor's responsibilities on July 28, 2014. The employment contract provided that MarPad would employ Debtor through August 31, 2015. Debtor agreed to "devote his full-time efforts to his duties" as an employee. The contract obligated Debtor to perform certain duties on behalf of MarPad including ordering inventory, supplies and furnishings for the Lakehouse. The contract required: "Any significant events or projects must be approved by Catherine Martinez prior to engaging in any activities including purchasing of new equipment and materials deemed necessary for business operations and growth and new building improvements or changes." The employment contract provided that MarPad would have no out-of-pocket expenses after July 1.

The...