T St. LLC v. Jaques (In re Jaques)

• Decision Date: 12 March 2020
• Docket Number: Adv. No. 18-06031-TLM,Case No. 18-01092-TLM
• Citation: 615 B.R. 608
• Parties: IN RE: Ronald Wade JAQUES, Debtor. T Street LLC, an Idaho limited liability company; Doheny LLC, an Idaho limited liability company; Trestles LLC, an Idaho limited liability company; Oaklands LLC, an Idaho limited liability company; EJC LLC, an Idaho limited liability company; EUDA LLC, an Idaho limited liability company; Tammara Heron, trustee of the Heron Family Trust ; and Silver Fox Management LLC, an Idaho limited liability company, Plaintiffs, v. Ronald Wade Jaques, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

615 B.R. 608

IN RE: Ronald Wade JAQUES, Debtor.T Street LLC, an Idaho limited liability company; Doheny LLC, an Idaho limited liability company; Trestles LLC, an Idaho limited liability company; Oaklands LLC, an Idaho limited liability company; EJC LLC, an Idaho limited liability company; EUDA LLC, an Idaho limited liability company; Tammara Heron, trustee of the Heron Family Trust ; and Silver Fox Management LLC, an Idaho limited liability company, Plaintiffs,

v.Ronald Wade Jaques, Defendant.

Case No. 18-01092-TLM

Adv. No. 18-06031-TLM

United States Bankruptcy Court, D. Idaho.

Signed March 12, 2020

David M. Fogg, ELC Legal Services, LLC, Meridian, ID, Paul Roland Mangiantini, Mangiantini Law Office, Eagle, ID, Nate Peterson, Nate Peterson Law PLLC, Boise, ID, for Plaintiffs.

Matthew Todd Christensen, Angstman Johnson, PLLC, Boise, ID, for Defendant.

MEMORANDUM OF DECISION

TERRY L. MYERS, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this adversary proceeding, T Street LLC, Doheny LLC, Trestles LLC, Oaklands LLC, EJC LLC, EUDA LLC, Tammara Heron as trustee of the Heron Family Trust, and Silver Fox Management LLC (collectively "Plaintiffs")¹ seek a determination that debts are owed Plaintiffs by Paradigm Property Solutions, LLC ("Paradigm"); these debts are imputed to Ronald Wade Jaques ("Debtor");² and these debts are nondischargeable under § 523(a)(2), (4), and/or (6).³ Plaintiffs contend Debtor, who is the managing member of Paradigm, misused and converted funds held in trust on behalf of Plaintiffs. Debtor contends he, as a member of Paradigm, is an individual distinct from Paradigm, and he is not liable for the debts of Paradigm. A trial was held in November 2019, and the parties submitted written closing briefs in December. The parties' closing briefs narrow the claims for relief to determinations of nondischargeability under § 523(a)(2)(A) and (a)(4).⁴

This Court has jurisdiction pursuant to 28 U.S.C. § 1334, and all issues before it are core matters on which it may enter final decisions under 28 U.S.C. § 157. After considering the evidence and the parties' closing arguments,⁵ and taking judicial notice of the Court's files,⁶ this Court enters the following findings of fact and conclusions of law.

II. FACTS

A. Background

1. The parties

Debtor is a graduate of Utah State University with a degree in finance and accounting. He is a member of the National Association of Real Property Managers and has attended that entity's conferences and trainings. Debtor testified that he has a working knowledge of QuickBooks and has been trained in the use of property management software called AppFolio, from which Paradigm generated financial information for itself and its property owner customers. Debtor was a member of two property management companies, Rentmaster of Rexburg, LLC ("Rentmaster"), and Paradigm.⁷ Debtor currently works as a temporary employee for Blue Cross of Idaho.

Plaintiffs are property owners of apartment complexes and other multifamily buildings managed by Paradigm until June 2018. Eric Uhlenhoff ("Uhlenhoff") provided testimony on behalf of T Street LLC, Doheny LLC, Trestles LLC, Oaklands LLC, EJC LLC, and EUDA LLC (collectively the "Uhlenhoff Entities"). Tammara Heron testified in her capacity as the trustee of the Heron Family Trust ("Heron Trust"), and her brother, Brett Heron, provided additional testimony regarding the relationship between the Heron Trust, Paradigm, and Debtor. Matthew Wilson ("Wilson") is a member of Silver Fox Management, LLC ("Silver Fox"), and provided testimony on behalf of Silver Fox. Generally, Plaintiffs allege that Paradigm, in the process of managing their properties, obtained and held their "owner reserves,"⁸ tenant rents, and security deposits in trust. Plaintiffs allege that Debtor put their monies to unauthorized uses, gave them false assurances that their money was safe, and ultimately failed to return and account for their funds.

2. Paradigm's banks accounts

Paradigm held two trust accounts—one commingled trust account for Paradigm's property owners (the "Paradigm Trust Account") and one trust account for Legacy Management Group, LLC ("Legacy"),⁹ with subaccounts for each of Legacy's property owners. Security deposits, Plaintiffs' tenants' rent payments, and owner reserves were comingled in the Paradigm Trust Account. Paradigm also had an operating account, separate from the two trust accounts, from which its operating expenses and ownership draws were taken. The Paradigm Trust Account was initially at JPMorgan Chase Bank, N.A. ("Chase"), in an account ending in 1762 (hereafter "Chase (1762)"). Exs. 1027 and 1057. However, Paradigm's trust funds were moved to a Mountain America Credit Union ("Mountain America") account ending in 3452-S50 (hereafter "Mountain America (3452-S50)") in January 2018.¹⁰ Exs. 1001-30 and 1060-2. Debtor was at all times in charge of accounting and oversaw check writing and other transactions.

B. Chronology of events

1. February 2015 – November 2015: Trestles LLC, Doheny LLC, and the Heron Trust contract with Paradigm

In February 2015, Trestles LLC ("Trestles") acquired a sixteen-door¹¹ property located at 8721, 8727, 8739, and 8743 Hackamore in Boise, Idaho. See Ex. 1054 at 65, 69, 75, 81. Paradigm had a contract with the previous owner of that property and had started the leasing process. After interviewing Debtor, Trestles kept Paradigm as the property manager. Despite Uhlenhoff's testimony that Trestles and Paradigm had a written contract, no contract was produced at trial, and the terms of such contract remain unknown.

On July 24, 2015, Doheny LLC ("Doheny"), the owner of the Aspen Park Apartments located at 505 E. Florida Ave. in Nampa, Idaho, entered into a "Full Service Property Management Agreement" with Paradigm. Ex. 1045 at 1, 5. This agreement provided that Paradigm was to hold rents and security deposits in a "non-interest bearing trust account separate from [Paradigm's] personal or business operating accounts." Id. at 2. Paradigm was required to maintain accurate records of monies received and disbursed, and to provide those records—and a distribution—to Doheny on the twentieth of each month. Id. at 3. Paradigm was entitled to keep 5 percent of gross rents. Id. at 4. Though Paradigm was responsible for ensuring the proper management and maintenance of this twenty-four-door property, Paradigm was only entitled to reimbursement for maintenance costs in the event it advanced its own funds for maintenance. Id. at 3. Paradigm was not entitled to "mark up" the actually incurred maintenance expenses and collect the difference.¹² See w-src-number="2050567345" w-seq-number="00037" w-ref-type="ED" w-normalized-cite="DOCKETNO18-00851-TLM" w-pub-number="0004031" manual-edit="true" ID="I590d6ad465bc11ea89c0a34ca6ea4c68"> id.

On November 24, 2015, The Heron Family Trust (the "Heron Trust"), owner of the Crossfield Apartments located at 980 W. Parkstone St. in Meridian, Idaho, entered into a "Multi-Family Property Management Agreement" with Paradigm. Ex. 1063 at 1, 5–6. This agreement included Paradigm's Standard Contract Terms. However, Paradigm was entitled to keep all tenant application fees, non-sufficient funds bank fees, move-out inspection fees, non-payment delivery notice fees, any other tenant related fees, and 4 percent of gross rents. Id. at 4–5. Paradigm was also entitled to a markup of 7 percent if Heron Trust requested Paradigm's assistance in renovation, modernization, or capital improvements (i.e. , HVAC work or floor replacement). Id. at 4. The agreement also required the Heron Trust to provide a minimum owner reserve of $40,000. Id. Tammara Heron testified that the Heron Trust maintained an owner reserve of $50,000.

The agreement further provided that the Heron Trust was "responsible for the payment of all mortgage/notes, property taxes, special assessments, Homeowner Association fees, special assessments [sic ], all utilities, and premiums for casualty and liability insurance relating to the [Heron Property] unless otherwise modified in writing with [Paradigm]." Id. at 1, ¶ 3.5. The contract also stated that Paradigm "agrees to keep all mortgages, property taxes, association fees, or any other obligations which could lead to foreclosure action against the property current and paid in full." Id. at 2, ¶ 3.11. In addition, Tammara Heron testified there was an understanding with Debtor that Paradigm was to pay property insurance premiums on behalf of the Heron Trust. The evidence supports a finding that Debtor agreed to this arrangement. See Exs. 1087, 1081, and 1093. Paradigm was authorized to institute legal action to enforce lease terms, collect rents, or evict tenants, and could contract on the Heron Trust's behalf for lease enforcement. Id. at 2–3.

2. January 2016: the Heron Trust experiences early issues with Paradigm's services

In January 2016, the Heron Trust received a notice of delinquent property taxes. Ex. 1067-1. Robert Heron emailed Debtor to inquire about the issue. Debtor replied: "It is taken care of and it is a mistake and did not cost you! The payment was made on time and I have been working through it with them. It shows up as paid now and they are working to take it off completely." Ex. 1067-1. The Heron Trust also had some issues with delinquent utility bills in January. When the Heron Trust inquired about them, Debtor replied via email that it was "just checks passing in the mail." Ex. 1096.

3. June 2016 – August 2016: Debtor is treated for a "subacute stroke"

On June 27, 2016, Debtor was treated at Idaho Neurology, Saint Alphonsus, by Mary E. River, MD, following a "subacute stroke." Ex. 201-1. Debtor had follow-up visits with the doctor. There was no expert medical testimony to further explain the subacute stroke diagnosis or the implications thereof. Debtor reported that he (1) was limited in what he could perform due to headaches, (2) had issues with memory and multitasking, and (3) had other stroke-related...