Trans-W., Inc. v. Mullins (In re Mullins)

CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit
PartiesIn re JEFFREY THOMAS MULLINS and CHARITY DAWN MULLINS, Debtors. TRANS-WEST, INC., dba Transwest Truck Trailer RV, Plaintiff - Appellee, v. JEFFREY THOMAS MULLINS and CHARITY DAWN MULLINS, Defendants - Appellants.
Docket NumberBankr. No. 16-13773,BAP No. CO-20-046,Adv. No. 16-01282
Decision Date30 June 2021


TRANS-WEST, INC., dba Transwest Truck Trailer RV, Plaintiff - Appellee,
CHARITY DAWN MULLINS, Defendants - Appellants.

BAP No. CO-20-046
Bankr. No. 16-13773
Adv. No. 16-01282


June 30, 2021


Chapter 7


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

Before CORNISH, MICHAEL, and HALL, Bankruptcy Judges.

MICHAEL, Bankruptcy Judge.

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The Debtors, Jeffrey Thomas Mullins ("Mr. Mullins") and Charity Dawn Mullins ("Mrs. Mullins") (collectively, the "Mullins" or "Debtors"), appeal the Bankruptcy Court judgment in favor of the appellee, Trans-West, Inc., dba Transwest Truck Trailer RV ("Trans-West"), on Trans-West's complaint that its debt be excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). After a trial on the merits, the Bankruptcy Court determined that Mr. Mullins, while an employee of Trans-West, engaged in an extensive fraudulent kickback scheme netting himself over $1,000,000 to the detriment of Trans-West. The Bankruptcy Court found Mr. Mullins's actions created a debt to Trans-West that was excepted from discharge under § 523(a)(2)(A) for actual fraud and false representation, and § 523(a)(6) for willful and malicious injury. Under a theory of civil conspiracy, the Bankruptcy Court also found Mrs. Mullins was jointly and severally liable for the entire debt with her husband, and that the debt was excepted from discharge under the same statutory provisions. Lastly, the Bankruptcy Court found that the Mullins' debt was subject to treble damages under Colorado law, and that the entire amount was excepted from discharge for both Debtors. The Debtors appeal the findings of the Bankruptcy Court only as they apply to Mrs. Mullins. Because the Bankruptcy Court did not commit clear error in finding facts in support of its decision, we AFFIRM the judgment.

Factual and Procedural History

Because the appellants do not challenge the Bankruptcy Court's judgment with respect to Mr. Mullins, we limit our statement of facts to those necessary to review the judgment against Mrs. Mullins. Prior to October 2011, the Mullins lived in Texas, where

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Mr. Mullins owned and operated an RV sales business under the name Pinnacle Coach, LLC ("Pinnacle"). Although Mrs. Mullins was not actively involved in the purchase and sale of RVs through Pinnacle, the Bankruptcy Court found that she was an employee of Pinnacle with check-signing authority on the company's bank account, and involved in the winding down of Pinnacle in late 2011. In September 2011, Mr. Mullins relocated the family to Colorado, where he took a job as sales manager with Trans-West. From the end of 2011 until its discovery in mid-2015, Mr. Mullins orchestrated and conducted an elaborate fraudulent kickback scheme, wherein he used his position as sales manager to cause Trans-West to "buy high" from and "sell low" RV inventory to a network of business partners, who subsequently remitted checks or cash directly to Mr. Mullins that represented a portion of the profit from each transaction (the "Kickback Scheme"). Proceeds from the Kickback Scheme were deposited into a joint personal checking account held by the Mullins, a bank account of Pinnacle, and a bank account of Mullbuch, LLC ("Mullbuch"), a life-coaching company operated by Mrs. Mullins.

Upon discovery of the fraud, Trans-West brought claims against both of the Mullins in a state court civil action and referred the matter to the Weld County District Attorney for possible criminal charges. Criminal charges were later filed against Mr. Mullins in Weld County, Colorado. The civil matter was stayed when the Mullins filed a petition under chapter 7 of the Bankruptcy Code on April 20, 2016. Trans-West then initiated the present adversary proceeding, which was itself stayed until the conclusion of the criminal proceedings against Mr. Mullins. The litigation resumed before the

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Bankruptcy Court with the filing of a second amended complaint (the "Complaint"),2 which sought to establish a nondischargeable debt by Mr. Mullins to Trans-West under 11 U.S.C. § 523(a)(2)(A)3 for actual fraud and false representation, § 523(a)(4) for fraud or defalcation while acting in a fiduciary capacity, and § 523(a)(6) for willful and malicious injury. In addition, Trans-West asked the Bankruptcy Court to find Mr. Mullins liable to Trans-West for violating Colorado Revised Statutes § 18-4-405 ("§ 18-4-405"), Colorado's civil theft statute.4 Trans-West also asked the Bankruptcy Court to find each of the Mullins liable to Trans-West for conspiracy to commit false representation and actual fraud under § 523(a)(2)(A), and conspiracy to commit willful and malicious injury under § 523(a)(6). It sought a nondischargeable judgment against Mrs. Mullins alone for aiding and abetting fraud or defalcation while acting in a fiduciary capacity under § 523(a)(4). Lastly, Trans-West requested the Bankruptcy Court award it any damages proven at trial, including an award of treble damages, attorney's fees, and costs pursuant to § 18-4-405, for damages resulting from theft.

After a four-day trial on the merits, which included live testimony from eight witnesses, three of whom were experts, and the deposition testimony of five additional witnesses, the Bankruptcy Court concluded that Mr. Mullins had orchestrated the fraudulent Kickback Scheme, which resulted in actual damages to Trans-West in excess

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of $1,000,000. Although Mr. Mullins tried to explain away the various deposits into his personal and business accounts, the Bankruptcy Court did not believe his explanations, and found the debt nondischargeable under § 523(a)(2)(A) for actual fraud and false representation5 and § 523(a)(6) for willful and malicious injury.6 The Bankruptcy Court then found Mrs. Mullins liable for civil conspiracy under Colorado law based on her "extensive[] and overt[]"7 participation in the Kickback Scheme. The Bankruptcy Court concluded that Mrs. Mullins conspired with her husband to commit actual fraud, false representation, and willful and malicious injury.8 Upon finding that Trans-West suffered at least $1,000,000 in actual damages, the Bankruptcy Court applied § 18-4-405 to assess treble damages for civil theft in the amount of $3 million in addition to attorney's fees and costs, and entered a nondischargeable judgment in that amount against both of the

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Mullins, jointly and severally. The Debtors do not challenge the findings of the Bankruptcy Court with respect to Mr. Mullins, but they assign five separate points of error to the Bankruptcy Court's conclusion that Mrs. Mullins was properly found liable for the debt to Trans-West.

Jurisdiction and Standard of Review

This Court has jurisdiction over this appeal. The Bankruptcy Court's judgment, which fully resolved the adversary proceeding, was entered on September 20, 2020. The Debtors filed a timely notice of appeal on October 12, 2020, and neither side elected to have this appeal heard by the United States District Court for Colorado.

The "issue of whether the [trial] court relied on the correct legal standard . . . is a matter of law which we review de novo."9 A bankruptcy court's factual findings, including whether a co-conspirator is liable under the theory of conspiracy, are reviewed on appeal for clear error; legal conclusions are reviewed de novo.10 To the extent review involves the sufficiency of the evidence, we review for clear error.11 "A finding of fact is 'clearly erroneous' if it is without factual support in the record, or if the appellate court, after reviewing all the evidence, is left with a definite and firm conviction that a mistake has been made."12 "If the [trial] court's account of the evidence is plausible in light of

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the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently."13 "This admonition applies equally regardless of whether the [trial] court's factual findings are based on credibility determinations[,] documentary evidence," or inferences from other facts.14 Whether a court erred in ordering the amendment of pleadings pursuant to Federal Rule of Civil Procedure 15(b) is reviewed for abuse of discretion.15


The Debtors make several assignments of error, which we will discuss in turn.

1. The Bankruptcy Court did not improperly sua sponte amend the Complaint pursuant to Federal Rule of Civil Procedure 15(b)(1).

The Debtors allege that Trans-West did not properly plead a claim for civil conspiracy under Colorado law, and that the Bankruptcy Court erred by sua sponte amending the Complaint pursuant to Federal Rule of Civil Procedure 15(b)(1) to include the claim. We find that, despite the Debtors' strained and narrow reading, the Complaint was sufficient to put them on notice that Trans-West was asserting a claim of civil conspiracy against Mrs. Mullins. Therefore, the Bankruptcy Court had no reason to resort to amendment of the Complaint.

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Despite the Debtors' insistence that a claim for conspiracy could not be maintained under § 523, multiple courts, including this Court, have found otherwise.16 When a plaintiff holds a claim against a debtor, but has not yet acquired a judgment, the process of finding the claim excepted from discharge by the bankruptcy court is a two-step dance.17 The first step requires the trial court to determine whether the plaintiff holds a valid claim against the defendant, which is controlled by state law.18 The relevant state law claim is whether Mrs. Mullins is liable to Trans-West on a theory of conspiracy. The Complaint clearly alleges the Mullins engaged in a conspiracy to unlawfully defraud or willfully and maliciously injure Trans-West, including allegations of each...

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