Mid-South Maint., Inc. v. Jones (In re Jones)
| Decision Date | 09 March 2018 |
| Docket Number | Case No.: 15-14513-JDW,A.P. No.: 16-01062-JDW |
| Parties | In re: BILLY CRAY JONES and JUDY CAROLYN JONES, Debtors. MID-SOUTH MAINTENANCE, INC., et al., Plaintiffs. v. BILLY CRAY JONES and JUDY CAROLYN JONES, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Mississippi |
The Order of the Court is set forth below. The case docket reflects the date entered.
Chapter: 13
This adversary proceeding is before the Court on the Adversary Complaint (the "Complaint") (A.P. Dkt. #1) to determine dischargeability filedby the creditor-plaintiffs Mid-South Maintenance, Inc.; Mid-South Maintenance, Inc., Memphis; and Worldwide Steel Works, Inc., (collectively, "Mid-South") against the debtor-defendants Billy Cray Jones and Judy Carolyn Jones (the "Defendants").
This trial encompassed three related adversary proceedings2 centered around the undisputed embezzlement of Mid-South's funds by non-defendant Kimberly Cray Burk, the daughter of these Defendants. Her scheme involved falsifying the employment of her parents, and others, as employees of Mid-South and depositing paychecks into their bank accounts, which she controlled. The three adversary proceedings share common issues of fact and law. Many of the witnesses testified to facts material in all three proceedings, and the arguments were virtually identical. For these reasons, the adversary proceedings were tried together, although each remains distinct.
The defendants in each adversary proceeding told basically the same story: although tens of thousands of embezzled dollars went through their accounts, none of the defendants had any knowledge that they were spending embezzled funds because Kimberly controlled the bank accounts and they never looked at their bank statements. All of the defendants claim that Kimberly perpetrated this embezzlement without their knowledge, eventhough the defendants, not Kimberly, spent the majority of the money, which greatly exceeded their own personal incomes. In determining the facts that follow, the Court's in-person observation of each witness was an important factor in determining credibility.
Having heard extensive testimony over a period of three days and examining the documents admitted into evidence, this Court concludes that a judgment of nondischargeability is due to be entered in favor of Mid-South against debtor-defendants Billy Cray Jones and Judy Carolyn Jones.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334, and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding as set forth in 28 U.S.C. § 157(b)(2)(B) and (I).
Kimberly Burk, who is not a defendant here, is a persistent criminal. She is currently serving her third prison term for embezzlement. In 1990, shepleaded guilty to bank fraud after stealing approximately $50,000 from an employer. In 2011, she pleaded guilty to embezzling $40,000 from another employer, Nu-Corp. She has most recently pleaded guilty to embezzling at least $1.4 million from Mid-South, and is currently in prison for that crime. This third embezzlement forms the foundation of this adversary proceeding.
Kimberly began working for Mid-South in 2005, eventually becoming the office manager. Through this position, she deposited unearned payroll checks into various accounts of family members by direct deposit. In order to hide her scheme, Kimberly received all of the bank statements for Mid-South. She then gave falsified summaries to Mid-South's owner, CPA, and auditors. When other employees raised questions, Kimberly would fire them. Mid-South's annual audit and outside CPA firm did not uncover Kimberly's scheme. In fact, the Mid-South embezzlement was discovered only after Kimberly went to prison for embezzling from Nu-Corp.
During the relevant time period, Mid-South's annual income averaged $15,000,000. The $300,000 a year that Kimberly stole was material, but not so crippling to the company that theft was suspected. Dennis Jones, owner of Mid-South, assumed the company's construction projects were not doing well and that was the reason for the decreased profits. This assumption was supported by the project summaries Kimberly gave him. Dennis crediblytestified that he was so focused on the construction side of his business that he never considered that the issue was coming from the office.
Late in her term with Mid-South, Kimberly was arrested for embezzling $40,000 from Nu-Corp. Despite the charges, Dennis allowed Kimberly to continue working at Mid-South in the same capacity, because Kimberly convinced him of her innocence. She told him that the charges were related to stock certificates and expense checks cashed by others. The defendants argued that this arrest should have put Dennis on notice of Kimberly's activities, but Dennis credibly testified that he believed Kimberly. All witnesses (plaintiff and defense) testified that Kimberly was very convincing and deceived everyone. All witnesses also testified that Kimberly worked hard and was competent in her job.
Allusions were made by the defendants to a romantic relationship between Kimberly and Dennis, but there was no evidence to support this. All witnesses in close proximity credibly denied any improper relationship, including Kimberly and Dennis.
Billy Jones is Kimberly's father and an experienced businessman. He worked in the retail grocery business for approximately 50 years, first as an employee and later as a consultant. He was the Vice President of Piggly Wiggly, where he prepared budgets and managed profitability in order to earna bonus. He testified that he was "absolutely" familiar with profit and loss statements and was responsible for moving thousands of dollars. Despite his business background, Billy testified that he did not know anything about his personal bank account and never did any accounting for his business, JBK. He testified that he never checked bank statements or accessed his account online and rarely wrote checks. He testified that he depended solely on his wife, Judy, to manage their financial affairs. Billy never worked for Mid-South, but received, and spent, $188,764.66 in payroll checks.
Judy Jones is Billy's wife and Kimberly's mother. She has extensive experience in business management and accounting software sales and training. She also worked briefly as the President of Nu-Corp, Kimberly's employer prior to Mid-South and second embezzlement victim. Judy was the President of Nu-Corp when the charges were brought against Kimberly for the Nu-Corp embezzlement. In fact, Judy pleaded guilty to a misdemeanor associated with Kimberly's theft. Judy paid at least $50,000 to an attorney to defend herself, so she and Billy were well aware of Kimberly's history of stealing from employers.
Despite being acutely aware of Kimberly's past, Judy allowed Kimberly access to the Defendants' personal accounts and testified that neither defendant checked bank records. Judy also allowed Kimberly to receive all of the Defendants' bank statements. Judy has extensive experience withaccounting, and testified that she knows the importance of bank statements in balancing accounts. Judy ignored all of her financial training, and training she gave others, and allowed Kimberly, a known embezzler, to receive all of her bank statements and to have control over her accounts.
Even though Judy was responsible for the Defendants' personal finances, Judy claimed that she did not do any accounting for their personal account. She testified that she never looked at bank statements, accessed accounts online, or checked deposits or withdrawals. She testified that she relied solely on her check register by recording deposits received and checks written.4 Judy claimed that she always knew where their money was going and the amount that they had in their account, but was unable to identify any expenses when shown bank statements at trial. She was also unable to show that she ever did any reconciliation between her bank statements and her check register.
JBK is an unincorporated business, created by the Defendants, that sells accounting software. It sells, installs, and trains customers to use the software to monitor their holistic financial picture and prevent employee theft. At all times, Billy was the president of JBK and Judy performed all of the operations of the business, including ostensive management of its financials. While JBK only made $20,000 to $30,000 a year, the Defendants claimed to be completelyignorant of the $302,215.42 received from Mid-South that flowed through JBK's account, even though JBK had no relationship with Mid-South.
Despite being the president, Billy testified that he knew nothing about JBK's bank account. Billy testified that while in the grocery business, he utilized internal controls to prevent employee theft. Yet, he did nothing in his own business to manage his affairs. He testified that he never looked at bank statements, accessed the account online, inquired about the account at the bank, or made withdrawals. He claimed to depend solely on his wife, Judy, to not only manage their personal finances but also those of JBK.
Even though Judy was the bookkeeper for JBK, she testified that she never received any of the bank statements or the financial documents that would have shown the deposits from Mid-South, because she had given Kimberly control of the JBK account with no supervision. She testified that the only accounting she did for JBK was transfer information into QuickBooks (not the software JBK sold) from the check register, and she only looked at it a few times a year. She knew that bank statements were important, but claims that she allowed Kimberly to receive all the statements. Judy trained people to use accounting software, but did not use...
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