Patricia Cocoma & Cusco Jacks, Inc. v. Nigam (In re Nigam), BAP No. CO-17-044

CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit
Writing for the CourtHALL, Bankruptcy Judge.
PartiesIN RE ASHLESHA NIGAM, Debtor. PATRICIA COCOMA and CUSCO JACKS, INC., Plaintiffs - Appellants, v. ASHLESHA NIGAM, Defendant - Appellee.
Decision Date09 August 2018
Docket NumberBAP No. CO-17-045,Adv. No. 14-1574,Bankr. No. 14-21517,BAP No. CO-17-044


PATRICIA COCOMA and CUSCO JACKS, INC., Plaintiffs - Appellants,
ASHLESHA NIGAM, Defendant - Appellee.

BAP No. CO-17-044
BAP No. CO-17-045
Bankr. No. 14-21517
Adv. No. 14-1574


August 9, 2018


Chapter 7


Appeal from the United States Bankruptcy Court for the District of Colorado

Before CORNISH, JACOBVITZ, and HALL, Bankruptcy Judges.

HALL, Bankruptcy Judge.

Appellants Patricia Cocoma and Cusco Jacks, Inc. ("Ms. Cocoma" and "Cusco Jacks," or together, "Appellants") appeal the bankruptcy court's Order Dismissing Complaint1 and Judgment2 denying Appellants' claims for

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nondischargeability of debts pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6).3 As the record supports the findings and conclusions made by the bankruptcy court, we affirm.

I. Facts4

Appellants filed this adversary proceeding against debtor Ashlesha Nigam ("Debtor") as a result of her membership in Summit, LLC ("Summit"), an Illinois limited liability company.5 Debtor, her brother Avneesh Nigam, and their father, Dr. Tara Nigam ("Dr. Nigam"), were all members of Summit. Dr. Nigam served as the sole manager of Summit.6 The family established Summit to develop and lease a mixed-use commercial property known as A Perryville Place, in Rockford, Illinois ("Perryville Place"). Debtor's role in the project was to attract tenants and oversee construction of tenant improvements.7 Appellants operated a retail store that sold "new age" products such as gems, crystals, and other gift-related items (the "Inventory").8

In May 2005, Debtor approached Ms. Cocoma as the owner of Cusco Jacks about moving her store location to one of the units in the soon to be constructed Perryville Place.9 After months of courting and lease negotiations, Cusco Jacks and

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Summit executed a lease for retail space in January 2006 (the "Lease").10 Because Perryville Place was new construction, the Lease required Cusco Jacks to bear the costs of building out the store up-front. Pursuant to the Lease, Summit would reimburse Cusco Jacks at a rate of $25 per square foot, or a maximum of $69,575.00, upon receipt of all contractor lien waivers for the build-out (the "Tenant Allowance Payment").11

Cusco Jacks moved into Perryville Place and opened for business in early July 2006, and Ms. Cocoma delivered all required build-out lien waivers to Summit.12 When Summit did not tender the Tenant Allowance Payment to Cusco Jacks, Ms. Cocoma began asking Debtor and Summit when Cusco Jacks would receive the Tenant Allowance Payment. Cusco Jacks paid rent from July to October 2006.13 but because it had yet to receive reimbursement for the build-outs, Cusco Jacks withheld rent for November and December 2006 and January and February 2007.14 In February 2007, Summit's title insurance company informed Ms. Cocoma the Tenant Allowance Payment was ready.15 However, the title insurance company then called Ms. Cocoma and told her the Tenant Allowance Payment would not be released to her without Summit's approval.16 Ultimately, the title insurance company paid the Tenant Allowance Payment directly to Summit. In fact, the bankruptcy court found Dr. Nigam intervened and instructed the title company to

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pay the Tenant Allowance Payment to Summit instead of Cusco Jacks on account of past-due rent.17

In March 2007, Summit's attorney sent Cusco Jacks a check for $30,586.50 as payment of the Tenant Allowance Payment.18 The letter accompanying the check stated Summit would settle its claims of almost $40,000 in unpaid rent by offsetting that amount from the $69,575 Tenant Allowance Payment.19 On advice of counsel, Cusco Jacks returned the $30,586.50 check to Summit, rejecting any settlement.20 To date, Cusco Jacks has not received the Tenant Allowance Payment.21

Cusco Jacks continued to operate at Perryville Place throughout 2007. But despite experiencing increasing sales,22 Ms. Cocoma decided to close Cusco Jacks in early 2008. Cusco Jacks began liquidating inventory and published an advertisement indicating the store would close on March 31, 2008.23 Debtor saw the ad and discussed it with her brother and father, Dr. Nigam, who became concerned that Summit would never receive the rents owed by Cusco Jacks. In fact, the bankruptcy court found Dr. Nigam, "was livid when he learned of the store closing [and] immediately contacted Summit's attorney and then informed his son that they would proceed with a distress warrant."24 Debtor was not a part of these

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discussions, and according to her brother, had been cut out of the process completely by their father.25

Late at night on March 24, 2008, Ms. Cocoma received a call from the alarm company that secured Cusco Jacks. Ms. Cocoma went to the store and discovered that Debtor's brother, several Summit employees, a security guard, and a locksmith had entered Cusco Jacks.26 The locksmith was in the process of changing the locks to the building and Summit's employees were haphazardly boxing up Cusco Jack's Inventory. The packing continued until the early hours of March 25, 2008. Summit removed some of the Inventory from the store and caused other items to be stored in the basement of the store. The following day, Summit posted what appeared to be a notice of distress for rent pursuant to Illinois law on Cusco Jack's door.27

Debtor testified she had no involvement in entering Cusco Jacks or the execution of the distress warrant,28 and Ms. Cocoma admitted Debtor was not present on the night of March 24, 2008.29 Summit employees, including Debtor, inventoried Cusco Jacks' merchandise in the days following.30 Ms. Cocoma testified a few of the items (a picture frame and candy dish) were on display in Dr. Nigam's personal office on the premises.31 There are no facts in the record to suggest Summit wrongfully executed the distress warrant as Ms. Cocoma admitted

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she withheld rent payments.32 However, Ms. Cocoma believed she was justified in withholding rent because she had not received the Tenant Allowance Payment.

Appellants filed a complaint in Illinois state court against Summit, Dr. Nigam, and Debtor on March 26, 2008, alleging claims related to the wrongful eviction.33 For various reasons, including Debtor's health issues and Dr. Nigam's death in November 2010, neither Summit's distress for rent proceeding nor Appellant's wrongful eviction suit were ever concluded.34

After Dr. Nigam passed away, the loan secured by Perryville Place was declared to be in default by Summit's bank because Dr. Nigam served as the primary guarantor on the promissory note.35 The bank foreclosed, and the state court appointed a receiver.36 After appointment of the receiver, Debtor had no role in the operations of Summit.37 Another party eventually purchased Perryville Place. According to Debtor, these events precipitated her Chapter 7 bankruptcy filing in 2014.

On February 11, 2015, Summit's former counsel, Amy Silvestri, sent Ms. Cocoma a letter offering to release the Inventory if Appellants executed a release

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and waiver of their claims against Summit and its members.38 The February 11, 2015 letter is not in the record on appeal, so we must rely on the bankruptcy court's conclusion that counsel intended "to assist the Debtor by obtaining a release of liability for her."39 Appellants declined to settle and never obtained possession of the Inventory and its location is unknown.40 At some point thereafter, Perryville Place's new owner met with Ms. Cocoma about picking up the Inventory.41 Although the record is unclear as to the reason why, Perryville Place's new owner did not reach an agreement with Ms. Cocoma for turnover of the Inventory. Ms. Cocoma valued the Inventory in excess of $175,000, while Summit's inventory valuations suggested a value of $85,000.42

After Debtor filed a Chapter 7 petition on August 21, 2014, Appellants filed this adversary proceeding on November 17, 2014, alleging eight causes of action. Appellants' first cause of action alleged Debtor misrepresented the number of leases Summit had secured for Perryville Place to induce Cusco Jacks into signing the Lease and sought an exception from discharge pursuant to § 523(a)(2)(A) for false representation and fraud.43 Causes of action two through eight sought an exception to discharge of debts pursuant to § 523(a)(6) for willful and malicious injury by Debtor based on fraud, wrongful eviction, conversion, trespass to chattels, trespass, nuisance, and wrongful distraint of property.44

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Following a lengthy four-day trial, the bankruptcy court entered its Order Dismissing Complaint ("Dismissal Order") ruling that Appellants failed to carry their burden of proving the elements of their § 523(a)(2)(A) claim. Specifically, the court concluded that Appellants had not proven: 1) that Debtor made a false representation, 2) that Debtor had an intent to deceive, or 3) that there were damages in fact stemming from the alleged misrepresentation.45 Accordingly, the bankruptcy court dismissed the § 523(a)(2)(A) claim.

With regard to Appellants' claims for § 523(a)(6) willful and malicious injury based on wrongful eviction, conversion of the Inventory and conversion of the Tenant Allowance Payment, the bankruptcy court concluded Debtor was not liable because Appellants failed to prove she directed or was otherwise involved in any of the allegedly wrongful acts.46 The bankruptcy court also considered whether Debtor could be held vicariously liable for Summit's actions as a member of the company, but concluded she was not liable because the plain meaning of § 523(a)(6)'s language "for willful and malicious injury by the debtor," meant Debtor must have been a "direct participant" in the wrongful act.47 Finally, the bankruptcy court concluded the actions of Summit's attorney in denying return of the Inventory unless Appellants released their claims against Debtor could not be imputed to Debtor. Debtor's...

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