Nat'l Diversity Council v. Carter (In re Carter)

Decision Date19 November 2018
Docket NumberCase No. 17-35082,Adversary No. 17-03446
CourtU.S. Bankruptcy Court — Southern District of Texas

Chapter 7


National Diversity Council ("NDC"), the plaintiff in the above-referenced adversary proceeding, brought this suit under 11 U.S.C. §§ 523(a)(2) and (6)1 to prevent discharge of a judgment it recovered against Carmen Michelle Carter (the "Debtor") as a result of a unanimous jury verdict from a state court trial. [Adv. Doc. No. 1].

This Court held a multi-day trial in this adversary proceeding that concluded on August 8, 2018. After closing arguments, the Court ordered NDC's counsel to file a brief addressing certainlegal arguments by no later than September 7, 2018, and also instructed the Debtor's counsel to file a response by no later than October 8, 2018. The Court then took the matter under advisement.

Based upon the entire record, the Court now issues these written Findings of Fact and Conclusions of Law pursuant to Rule 7052 explaining why it has decided to grant, in part, the relief requested by NDC and enter an order declaring that a portion of the judgment debt is a non-dischargeable obligation owed by the Debtor. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as this Court deems appropriate or as any party may request.


The relevant facts—as established by the pleadings and the evidence—are as follows:

A. NDC's Background

1. NDC is a Texas nonprofit corporation with its principal place of business in Harris County, Texas. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 55:2-4; Adv. Doc. No. 1-1 at 2 of 7, ¶ 2.1].

2. NDC seeks to promote diversity and inclusion in the workplace and in communities throughout the United States. [See Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 10:5-8]. NDC hosts an annual conference that focuses on diversity and leadership workshops by securing high-profile individuals who are experts in diversity (e.g., former Secretary of State Colin Powell, former Governor Jeb Bush, and American actress Angela Bassett) to participate in the annual conference as speakers. [Id. at 23:18-24:5].

3. NDC has over 30 employees. [Id. at 23:13-14]. NDC also has approximately 450 corporate members nationally. [Id. at 23:15-17].

4. Randolph Dennis Kennedy ("Kennedy") is the founder and chairman of NDC.2 [Id. at 22:21-25].

5. Kennedy has received several undergraduate degrees from the University of Houston, including a Bachelor of Science degree in economics, a Bachelor of Science degree in corporate science, and a Bachelor of Business Administration degree in management. [Id. at 24:19-22]. Kennedy has also received a Master of Business Administration degree from the University of Houston. [Id. at 24:17-20]. Prior to establishing NDC, Kennedy worked in the human resources departments of certain corporations. [Id. at 24:17-19].

6. In 2004, Kennedy first met the Debtor. [Id. at 25:4-6]. Kennedy and the Debtor have been friends for ten years. [Id. at 26:24-27:1].

B. The Debtor's Background

7. Since 2005, the Debtor has been a full-time professor at the University of Phoenix, where she teaches undergraduate and graduate students the following courses: employment law; labor law; compensation and benefits; organizational development; philosophy; and business communication. [Id. at 152:12-21].

8. In 2006, the Debtor established a sole proprietorship called Diversity on Demand, which, as she described in the pretrial statement, is a "small, woman-owned business enterprise." [Id. at 100:24-101:2; Adv. Doc. No. 16 at 4 of 17]. In addition to Diversity on Demand, she is also the sole proprietor of Inside Diversity and Diversity on Demand for Leadership. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 101:14-20]. On behalf of her businesses, the Debtor offers services to coach and educate people in areas such as human resources, organizational development, anddiversity and inclusion work. [Adv. Doc. No. 16 at 4 of 17]. Her client base has included the following types of organizations: nonprofit organizations, faith-based organizations, small businesses, colleges, universities, government agencies, and various groups of clients in the private sector. [Id.].

9. The Debtor has a bachelor's degree in accounting from Jackson State University and a master's degree in labor relations from the University of Wisconsin - Milwaukee. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 149:9-22]. She also has an honorary doctorate. [Id. at 101:9-10].

10. The Debtor is a sophisticated businesswoman; indeed, she herself testified that she is sophisticated and experienced. [Id. at 101:11-13]. She also has over 20 years of experience in human resources. [Id. at 101:3-4].

11. Because the Debtor is very knowledgeable in the diversity sector, Kennedy believed that it would be mutually beneficial if the Debtor worked as a consultant for NDC. [Id. at Trial Tr. 25:7-19, 64:4-7].

C. The Oral Contract at Issue

12. At some point prior to 2012, the Debtor entered into an oral contract with NDC and D & L (hereinafter referred to collectively as "NDC") for her to provide, as a contractor consultant, certain consulting and training services to NDC's corporate members in exchange for 50% of the net profits3 (hereinafter, this oral contract is referred to as the "Agreement"). [Pl.'s Ex. 25; Adv. Doc. No. 1-1 at 3-4 of 7, ¶¶ 4.2-4.3]. The Agreement also applied to any services rendered by theDebtor that related to workshops, presentations, and conferences. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 19:19-23; see Pl.'s Ex. 25; Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 155:9-20]. The Agreement between NDC and the Debtor was that the equal profit-sharing agreement would apply even if the Debtor created the counseling or the training program or the materials. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 28:18-20].4

13. In 2012, Kennedy gave the Debtor, in her capacity as a contractor consultant for NDC, the following title: "Chief Talent & Diversity Officer." [See Aug. 7, 2018 Tr. 36:18-37:1, 65:8-10].

14. Pursuant to the Agreement, the Debtor and NDC agreed that NDC would send all invoices to NDC's members for whom the Debtor rendered consulting and training services and instruct these members to remit the payment directly to NDC. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 38:6-18; Adv. Doc. No. 1-1 at 3-4 of 7, ¶4.3]. The Debtor was required to send her invoice to NDC, and then NDC would send its own invoice to the member and thereafter collect the payment. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 38:6-18, 49:14-17; Adv. Doc. No. 25, Aug. 8, 2018, Trial Tr. 80:24-81:3; Adv. Doc. No. 1-1 at 3-4 of 7, ¶4.3]. Stated differently, the Debtor was not authorized to receive payments directly from NDC's members. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 38:6-18, 49:17-19; Adv. Doc. No. 25, Aug. 8, 2018, Trial Tr. 80:24-81:3; Adv. Doc. No. 1-1 at 3-4 of 7, ¶4.3]. Rather, the Debtor would receive her 50% share from NDC once NDC received payment on the invoices. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 38:6-18, 49:18-19; Adv. Doc. No. 25, Aug. 8, 2018, Trial Tr. 80:24-81:3; Adv. Doc. No. 1-1 at 3-4 of 7, ¶4.3; see Pl.'s Ex. 25].

15. Peter Jason DeGroot ("DeGroot") is the Chief Financial Officer of NDC. [Adv. Doc. No. 25, Aug. 8, 2018, Trial Tr. 75:14-16]. His duties included overseeing NDC's finances, managing NDC's cash flow, and administering NDC's payroll and accounts payable. [Id. at 76:6-15]. At the trial in this adversary proceeding, DeGroot credibly testified about the payment process when working with consultants, including the Debtor. Specifically, he testified that NDC's member would send payments to Kennedy or himself, and then upon receipt of these proceeds, he (on behalf of NDC) would then deduct the costs and expenses from this payment, remit one-half of the net profits to the consultant, and keep the remaining one-half for NDC. [See id. at 76:16-77:2, 80:24-81:3].

16. Kennedy credibly testified that he, on behalf of NDC, relied on the Agreement, as it relates to performing the work, invoicing NDC's members, and receiving payments. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 37:2-38:25].

17. By virtue of the Agreement, the Debtor and NDC agreed to cross-market their services among their respective client/companies because cross-promotion was equally beneficial to all parties involved. [Id. at 25:7-19, 64:4-7, 104:19-25]. Specifically, NDC's logo and Inside Diversity's logo both appear on certain contracts for which the Debtor rendered services and also on their respective websites. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 104:19-25; see Def.'s Ex. 35; Pl.'s Ex. 4]. Moreover, the Debtor authorized Kennedy to use her name to market and attractprospective clients; and, similarly, Kennedy authorized the Debtor to use NDC's platform to help market her own companies. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 65:17-66:7].

18. The Debtor did not have a non-compete agreement with NDC. [Id. at 59:14-19]. The Debtor was also not required to work exclusively for NDC. [Id.].

D. The Archer Daniels Midland Company

19. The Archer Daniels Midland Company ("ADM") became a member of NDC in 2011. [Id. at 30:11-15].

20. In August of 2012, Kennedy introduced the Debtor to representatives of ADM. [Pl.'s Ex. 1; Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 31:7-18]. The purpose of this introduction was so that the Debtor could solicit ADM's business for the benefit of NDC. [Adv. Doc. No. 24, Aug. 7, 2018, Trial Tr. 31:19-32:2].

21. On or around February 7, 2013, the Debtor...

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