Pier 48 Indy LLC v. Knipscheer (In re Knipscheer)

• Decision Date: 28 March 2023
• Docket Number: 20-02581-JMC-7A,Adversary Proceeding 20-50114
• Parties: IN RE: FREDERICUS JAN KNIPSCHEER, JR., Debtor. v. FREDERICUS JAN KNIPSCHEER, JR., Defendant. PIER 48 INDY LLC, Plaintiff,
• Court: U.S. Bankruptcy Court — Southern District of Indiana

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IN RE: FREDERICUS JAN KNIPSCHEER, JR., Debtor.

PIER 48 INDY LLC, Plaintiff, v. FREDERICUS JAN KNIPSCHEER, JR., Defendant.

No. 20-02581-JMC-7A

Adversary Proceeding No. 20-50114

United States Bankruptcy Court, S.D. Indiana, Indianapolis Division

March 28, 2023

ENTRY GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

THIS ADVERSARY PROCEEDING comes before the Court on Pier 48 Indy LLC's Motion for Summary Judgment filed by Pier 48 Indy LLC ("Creditor") on February 16, 2022 (Docket No. 33) (the "Motion"). The Court having reviewed and considered the Motion, Pier 48 Indy LLC's Brief in Support of Motion for Summary Judgment filed by Creditor on February 16, 2022 (Docket No. 34) (the "Brief), the Amended Complaint to Determine Dischargeability of Debt Pursuant to Section 523(a)(2), 523(a)(4), and 523(a)(6) filed by Creditor on August 11, 2020 (Docket No. 6) (the "Complaint") the Answer, Defenses, and Affirmative Defenses filed by Fredericus Jan Knipscheer, Jr. ("Debtor") on October 15, 2020 (Docket No. 12) (the "Answer") and the evidence designated by Creditor in support of the Motion (Docket No. 33-1), having noted that no response to the Motion was timely filed, and being duly advised, now GRANTS IN PART and DENIES IN PART the Motion.

Summary Judgment Standard

Creditor moves the Court to enter summary judgment in its favor and against Debtor pursuant to Fed.R.Civ.P. 56, made applicable to this adversary proceeding by Fed.R.Bankr.P. 7056.

To obtain summary judgment, Creditor must show that there is no genuine dispute as to any material fact and that Creditor is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The burden rests on Creditor, as the moving party, to demonstrate that there is an absence of evidence to support the case of Debtor, the nonmoving party. Celotex Corp. v Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554 (1986). After Creditor demonstrates the absence of a genuine issue for trial, the responsibility shifts to Debtor to "go beyond the pleadings" to cite evidence of a genuine issue of material fact that would preclude summary judgment. Id. at 324, 106 S.Ct. at 2553. If Debtor does not come forward with evidence that would reasonably permit the Court to find in Debtor's favor on a material issue of fact and if the law is with Creditor, then the Court must enter summary judgment against Debtor. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S.Ct. 1348, 1355-56 (1986); Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53; and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2511-12 (1986)).

Undisputed Material Facts

The Court first looks to the evidence presented by Creditor to determine whether a genuine issue of material fact exists, including (1) the Affidavit of Keith Stucker in Support of Motion for Summary Judgment attached to the Motion (Docket No. 33-1) (the "Stucker Affidavit"); (2) matters deemed admitted by virtue of Debtor's failure to respond to Plaintiff's Request for Admissions (Docket No. 31-1) (the "Admissions") attached to Plaintiff's Verified Motion to Deem Requests Admitted filed by Creditor on February 7, 2022 (Docket No. 31) and by virtue of this Court's Order on Plaintiff's Verified Motion to Deem Requests Admitted entered on February 10, 2022 (Docket No. 32);^[1] and (3) the allegations Creditor made in the Complaint that Debtor admitted in the Answer.^[2] "Admissions made under Rule 36, even default admissions, can serve as the factual predicate for summary judgment." United States v. Kasuboski, 834 F.2d 1345, 1350 (7th Cir. 1987) (citation omitted). "[Fed. R. Civ. P. 36(b)] provides that a matter admitted is 'conclusively established.'" Id.

Debtor is deemed to have admitted the following material facts:^[3]

Admissions No. 1: [O]n March 29, 2019, you on behalf of FK executed and delivered to Pier 48 a Management Agreement (the "Management Agreement") ....

Admissions No. 2: [T]he purpose of the Management Agreement and the relationship it created by and between Pier 48 and FK was for you to provide Pier 48 with your management oversite of the restaurant operations of Pier 48.

Admissions No. 3: [Y]ou had a fiduciary relationship with Pier 48 and were required to act in good faith in your dealings with Pier 48.

Admissions No. 4: [Y]ou misrepresented financial information and exaggerated returns and other investor promotions in order to induce Pier 48 to enter into the Management Agreement.

Admissions No. 5: [Y]ou consumed or transferred for your own benefit the property of Pier 48, including food and beverage inventory in an amount not less than $70,000.00.

Admissions No. 6: [Y]ou took, for your own benefit, the restaurant equipment of Pier 48 valued at not less than $10,000.00.

Admissions No. 7: [Y]ou took, for your own benefit, no less than three (3) computers and related equipment that were the property of Pier 48 valued at not less than $7,000.00.

Admissions No. 8: [Y]ou took and used for your own benefit the credit and funds of Pier 48 to obtain unauthorized goods and services valued at not less than $50,000.00.

Admissions No. 9: [Y]ou took funds of Pier 48 for your own benefit and to pay your own debts and obligations and/or the debts and obligations of other companies, partnerships or corporations in which you had an interest valued at not less than $50,000.00.

Admissions No. 10: [W]ithout approval by Pier 48 you used Pier 48 employees and payroll and benefits to operate non-Pier 48 restaurant entities valued at not less than $50,000.00. (Requests for Admissions No. 5 through 10 are collectively "Misappropriated Assets").

Admissions No. 11: [T]he Misappropriated Assets were not used for the purpose as authorized in the Management Agreement.

Admissions No. 12: [Y]ou represented to Pier 48 that the Misappropriated Assets would be used for the benefit of Pier 48.

Admissions No. 13: [Y]ou knew these statements were false at the time made and had no intention of using the Misappropriated Assets to benefit Pier 48.

Admissions No. 14: [I]t was your intention to deceive Pier 48 so that you could divert the Misappropriated Assets to your own use or the use of other companies in which you held an interest.

Admissions No. 15: Pier 48 reasonably relied on your representations related to the Misappropriated Assets.

Admissions No. 16: [Y]ou used artifice including false pretenses, a false representation and actual fraud to obtain unauthorized control over the Misappropriated Assets.

Admissions No. 17: Pier 48 has been damaged by your misrepresentations in an amount not less than $500,000.00.

There are no additional material facts that were offered via the Stucker Affidavit nor through allegations in the Complaint that were admitted by Debtor in the Answer.

Exceptions to Discharge

Creditor alleges that a debt owed by Debtor to Creditor is nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4) and/or (a)(6).^[4]

Exceptions to discharge under § 523 "are to be construed strictly against a creditor and liberally in favor of the debtor." In re Zarzynski, 771 F.2d 304, 306 (7th Cir. 1985). "The burden is on the objecting creditor to prove exceptions to discharge." Goldberg Sec., Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir. 1992) (citation omitted). The burden of proof required is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).

Section 523 provides, in relevant part:

(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt -

(2) for money, property, services, or an extension, renewal, or refinancing

of credit, to the extent obtained by -

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;

(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;

(6) for willful and malicious injury by the debtor to another entity or to the property of another entity ....

Reasoning - § 523(a)(2)(A)

The Seventh Circuit Court of Appeals distinguishes material differences among the three possible grounds for nondischargeability under § 523(a)(2)(A) and has formulated two different tests, one for both "false pretenses" and "false representation" and another for "actual fraud." See Rae v. Scarpello (In re Scarpello), 272 B.R. 691, 699-700 (Bankr. N.D.Ill. 2002) (citing McClellan v. Cantrell, 217 F.3d 890, 894 (7th Cir. 2000)).

To prevail on a nondischargeability claim under the "false pretenses" or "false representation" theory, a creditor must prove all of the following elements: "(1) the debtor made a false representation or omission, (2) that the debtor (a) knew was false or made with reckless disregard for the truth and (b) was made with the intent to deceive, (3) upon which the creditor justifiably relied." Ojeda v. Goldberg, 599 F.3d 712, 716-17 (7th Cir. 2010).

"What constitutes 'false pretenses' in the context of § 523(a)(2)(A) has been defined as 'implied misrepresentations or conduct intended to create and foster a false impression.'" Mem'l Hosp. v. Sarama (In re Sarama), 192 B.R. 922, 927 (Bankr. N.D.Ill. 1996) (quoting Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 959 (Bankr. N.D.Ill. 1995) (quotations omitted)). "False pretenses do not necessarily require overt misrepresentations. Instead, omissions or a failure to disclose on the part of the debtor can constitute misrepresentations where the circumstances are such that omissions or failure to disclose create a false impression which is known by the debtor." Id. at 928 (citation omitted).

A "false representation" is a...