Swift Fin., LLC v. Opoku (In re Opoku)
| Decision Date | 02 December 2020 |
| Docket Number | Adversary No. 19-4064,Case No. 19-40260 |
| Parties | IN RE: SAMUEL YAW OPOKU xxx-xx-5053 Debtor SWIFT FINANCIAL, LLC, as servicing agent for WebBank Plaintiff v. SAMUEL YAW OPOKU Defendant |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
Upon trial of the complaint filed by the Plaintiff, Swift Financial, LLC, in its capacity as the servicing agent for WebBank (the "Plaintiff") seeking a determination of whether an alleged debt owed to it by the Defendant-Debtor, Samuel Y. Opoku ("Opoku" or the "Debtor"), is dischargeable, the Court issues the following findings of fact and conclusions of law. The Plaintiff contends that the debt is nondischargeable under the alternative grounds set forth in 11 U.S.C. § 523(a)(2)(A), § 523(a)(2)(B), § 523(a)(4), and § 523(a)(6). After the trial, the Court took the matter under advisement. This decision disposes of all issues pending before the Court.
1. Spring Stars, LLC ("Spring Stars") was a company organized as an Ohio limited liability company, 100% of which was owned by the Debtor-Defendant, Samuel Y. Opoku (the "Defendant").2
2. Spring Stars was formed on November 14, 20133 and, at the time of the loan agreement in question in this dispute, was engaged as a licensed and bonded freight hauling company.
3. The Defendant was the 100% owner of Spring Stars and was, at all times relevant to this dispute, an officer, insider and the sole control person of Spring Stars, and accordingly owed fiduciary duties to his company.4
4. Notwithstanding his status as the sole owner of Spring Stars, the Defendant is not a sophisticated businessman and, as is true with many closely-held entities, legal niceties were often ignored and the line of demarcation between the corporate entity and its individual owner often became blurred.
5. In years prior to 2018, the Defendant's efforts to establish and develop the trucking business of Spring Stars had been a slow and inconsistent financial struggle.
6. Spring Stars had developed its freight hauling business by utilizing rented trucks for most of its existence.
7. Utilizing rented trucks for its business operations, for which Spring Stars had to pay mileage charges in addition to lease payments, was an expensive proposition.
8. It had often contributed to revenue stream disruptions for Spring Stars in the past.
9. As a result, the Defendant testified without contradiction that he had always utilized personal accounts to assist his company throughout its existence whenever corporate funds were either unavailable or expedited access to such corporatefunds in necessary amounts was precluded by transfer limitations of his bank.
10. A major and persistent issue in the Defendant's management of Spring Stars during its history, which was critical to its ongoing financial integrity, was the procurement and maintenance of required insurance coverage on all trucks utilized.5
11. Without acceptable insurance coverage on its trucks and trailers, any trucking company is precluded by regulatory agencies from providing transportation services.
12. Such proof of insurance was also apparently critical to the ongoing business relationships which Spring Stars had with its major customers as certificates verifying the insurance coverage from July 2017 to July 2018 had been tendered to at least five vendors, plus Penske as the lessor of certain units.6
13. The Defendant acknowledged at trial that his trucking company could not operate absent compliance with the insurance requirements.
14. Despite its critical nature, the acquisition and maintenance of appropriate insurance coverage for its operations was always problematic for Spring Stars and was often an annual concern for the Defendant.
15. Such compliance often required the involvement of specialized commercial insurance carriers and agents, such as Spring Stars' insurance broker, the Sebrite Agency of Minnetonka, Minnesota.7
16. Spring Stars had compliant insurance coverage for its trucking fleet for the annual period from July 3, 2017 to July 3, 2018.8
17. In that particular time period, Spring Stars had enjoyed a stablized revenue stream, primarily by providing transportation services to a company called Lasership and servicing its contractual obligations in the Cincinnati, Ohio area.
18. The Defendant had also successfully procured for Spring Stars sufficient financing from three different lenders in order to acquire ownership of its own vehicles, consisting of at least thirteen tractors and box trucks.9
19. Consistent with its history, just as Spring Stars began to enjoy the benefits of some stability, storm clouds appeared on the horizon yet again.
20. On or about May 1, 2018, Spring Stars was notified that its largest customer, Lasership, had lost its bid on the "CVG Cincinnati, OH area contract."10
21. Though the termination was apparently not immediate, the Defendant acknowledged at trial that 70% of Spring Stars' business revenue at that time was derived from its relationship with Lasership.11
22. With the knowledge that its revenue stream would at some point be negatively affected by the loss of the Lasership contract, the Defendant began to search for alternative sources of work for his trucking business.
23. However, the gross business income of Spring Stars remained strong through June 2018.
24. The uncontradicted evidence establishes that the gross business income for Spring Stars in the first half of 2018 was as follows: January: $528,000; February: $238,000; March: $286,000; April: $327,000; May: $294,000; June: $436,000; and July: $381,000.
25. Though Spring Stars successfully operated with its own trucking fleet in the first half of 2018, the Defendant was still searching for operating capital for Spring Stars.
26. The Defendant had personal contacts with a Los Angeles investment group known as Worldwide Capital and the Defendant believed that he might gain access to a $1 million loan for Spring Stars.
27. In the spring of 2018, the Defendant also began to receive unsolicited advertisements for the availability of a business capital loan from the Plaintiff, Swift Financial, LLC (the "Plaintiff").
28. The Plaintiff offered the availability of short-term business loans to the public through an internet portal known as LoanBuilder.
29. Any business loan that ultimately gained approval through the LoanBuilder process was actually funded by WebBank and was then serviced by the Plaintiff.
30. As he prepared Spring Stars to diversify from its heavy reliance upon the Lasership revenue stream, the Defendant was notified by the Sebrite Insurance Agency that the 2017 insurance policy from AmTrust Insurance Company would not be renewed by the company upon its renewal date in July 2018.
31. The Defendant was familiar with the ongoing challenge of procuring affordable insurance coverage for his trucking operations due to its prior incidents and he was hopeful that Sebrite could locate a feasible and affordable alternative for the upcoming year.
32. The Defendant was aware at that time of what could be characterized as "sub-prime" insurance alternatives, but many of those alternatives required a sizable down payment of 25% or more toward the substantial premium costs.
33. Again, however, without proof of satisfactory insurance, the trucking operations of the Defendant's company would be suspended.
34. Thus, the insurance problem was significant and mandated that the Defendant identify a solution.
35. Meanwhile, the Defendant was still engaged in the search for additional capital for Spring Stars in order to take full advantage of its newly-acquired vehicles.
36. The Defendant was soon reminded of the unsolicited direct mail invitations for available business financing which he had received by various means from the Plaintiff.
37. The Defendant, acting on behalf of Spring Stars, applied for the business loan from the Plaintiff through an online application process.
38. The Defendant had never applied for this type of business loan through a virtual environment.
39. The Defendant complied with each information request contained in the online application issued by the Plaintiff by which it sought to evaluate the Defendant's company as a potential borrower.
40. In the loan application, the Defendant stated that Spring Stars generated an average of $200,000 in gross monthly sales.12 That was a more conservative figure than the actual amounts received in the prior six-month period.
41. The Plaintiff insisted upon a mandatory payment authorization whereby it could initiate its own weekly payment from a designated Spring Stars bank account.
42. The Defendant was also required to execute an individual guaranty agreement to the Plaintiff.
43. In evaluating the Spring Stars' application, the Plaintiff's representative, Bonnie Carey, testified that the application (as applicable to this transaction) sought to confirm: (1) the percentage of ownership held by the applying business owner; (2) the annual revenue of the business; and (3) the existence of any liens or judgments which could interfere with the repayment obligations.
44. Ms. Carey confirmed that the Plaintiff's credit decision would be particularly influenced by the available monthly revenue stream and the lack of any liens or judgments.
45. To verify the business income of Spring Stars, the Plaintiff requested, and the Defendant supplied, bank statements for the period of February through May 2018.
46. The Plaintiff also independently investigated whether Spring Stars was a company in good standing with appropriate governmental agencies and, because it was a trucking company, such inquiry encompassed Spring Stars' standing with the United States Department of Transportation.
47. The Defendant truthfully answered every question tendered by the Plaintiff in its application form and supplied all of the supplemental information requested by the Plaintiff.
48. There was no "catch-all" question included in the...
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