Tweedie v. Hermoyian (In re Hermoyian)

Decision Date14 February 2012
Docket NumberAdversary No. 10–05607–PJS.,Bankruptcy No. 10–44423.
Citation466 B.R. 348
PartiesIn re Michael George HERMOYIAN, Debtor.John Tweedie, Plaintiff, v. Michael George Hermoyian, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Michigan


C. William Garratt, Bloomfield Hills, MI, for Plaintiff.

Thomas Elkins, White Lake, MI, for Defendant.

Opinion Granting Judgment of Non–Dischargeable Debt

PHILLIP J. SHEFFERLY, Bankruptcy Judge.


Michael George Hermoyian is the Debtor in this Chapter 7 bankruptcy case. John Tweedie brought this adversary proceeding against him seeking a determination of non-dischargeability of debt alleged to be owed by the Debtor to Tweedie under § 523(a)(2)(A), (4), and (6) of the Bankruptcy Code. After a two day trial, the Debtor and Tweedie each filed a post-trial brief. The Court has reviewed the joint final pretrial order, the trial testimony, the transcript, the exhibits admitted during the trial, and the parties' post-trial briefs. After carefully reviewing and weighing all of the evidence in the record, the Court concludes that Tweedie is entitled to a judgment against the Debtor holding that the sum of $310,987.00 is a non-dischargeable debt. The following constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.


This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). Tweedie's non-dischargeability of debt claims under 11 U.S.C. § 523(a)(2)(A), (4), and (6) are core proceedings under 28 U.S.C. § 157(b)(2)(I).

Background Facts

The Debtor and Tweedie were boyhood friends who lived in the same neighborhood. Over the years, they remained friends and stayed in contact. Beginning in the 1970s, the Debtor made his living in the vending machine business, selling candy, coffee, cigarettes, soft drinks and other products. His business also provided a coffee service to offices and other businesses. Although he had partners for many years, after 1996 the Debtor owned and operated his own vending business, AIM Vending & Coffee Service, Inc., located in Farmington Hills, Michigan. Tweedie made his living in the heating, cooling and refrigeration business. Although Tweedie had moved to northern Michigan, he did some work with the Debtor over the years by assisting with the installation of vending machines for the Debtor.

In 2005, the Debtor and Tweedie began to do some new business together. The Debtor's vending business had been deteriorating for some time and the Debtor had learned of an opportunity to sell juice products for making slushies for sale in schools, which came about because of the passage of certain legislation restricting the sale of carbonated beverages in schools. Also, the juice products could be sold for making alcoholic drinks at other event locations. After the Debtor learned of these juice products and the potential opportunities for them, he met with the owner of a franchise business known as Breeze Freeze, Inc. (“Breeze Freeze”) to discuss the possibility of purchasing franchises for the sale of these juice products. Because of Tweedie's background in the cooling and refrigeration business, the Debtor spoke to Tweedie about the possibility of Tweedie getting into this business with the Debtor by providing funds to purchase and operate franchises selling Breeze Freeze products.

Beginning in late 2005, and continuing over the next two years, Tweedie provided funds to the Debtor for the purchase of equipment and franchises to sell Breeze Freeze products. Tweedie obtained those funds by borrowing from Alden State Bank. All told, from 2005 through 2007, Tweedie “advanced” funds to the Debtor on six separate occasions in the aggregate sum of $363,297.58. Tweedie also made one advance directly to one of the Debtor's companies, in the amount of $15,000.00. Unfortunately, at the time that Tweedie made these advances, the Debtor and Tweedie prepared little, if any, documentation to memorialize the terms of their agreement regarding the funds advanced by Tweedie.1 Even though they did not document their relationship regarding these advances, they did orally agree that the Debtor would make payments directly to Alden State Bank on the loans made by the bank to Tweedie. Using the funds advanced by Tweedie, as well as his own funds and funds that he received from his mother, the Debtor purchased two Breeze Freeze franchises covering territories in southeastern Michigan and the necessary equipment to operate those franchises.

Although Tweedie intended that the funds he advanced were to be used for the juice business, and not for the Debtor's vending business at AIM Coffee & Vending Service, Inc., the Debtor did not initially create a separate legal entity for the juice business. Instead, the Debtor used his existing vending business entity as the vehicle for entering into the new juice business and ran both businesses out of one checkbook. Funds for the juice business were deposited with AIM Vending & Coffee Service, Inc., and that business entity paid the bills both for the vending business and the juice business. Although the juice business was not transacted by a separate legal entity, the Debtor named the juice business AIM Breeze Freeze. The Debtor ran the juice business from the same location in Farmington Hills that his vending business, AIM Coffee & Vending Service, Inc., operated from. The Debtor and Tweedie spoke regularly, and Tweedie helped the Debtor select and install the juice equipment, but Tweedie was not involved in the day-to-day running of the juice business.

After purchasing the first two franchises, the Debtor looked into acquiring other Breeze Freeze franchises. The Debtor became aware of an opportunity to purchase the rights to sell Breeze Freeze juice products at the Palace of Auburn Hills and at the DTE Amphitheater. At that time the juice products were being sold by Breeze Freeze itself in those venues rather than through franchisees. The Debtor spoke to Tweedie about advancing more money to purchase the rights to sell Breeze Freeze juice products at those venues. Tweedie took out more loans from Alden State Bank to obtain funds and advanced those funds in May, 2006 for the Debtor to purchase the rights and the equipment to sell Breeze Freeze juice products at these venues. Again, no documentation was drawn up to memorialize the agreement between the Debtor and Tweedie with respect to these advances and with respect to Tweedie's rights to repayment. It is not entirely clear from the record but it appears that the Debtor again used AIM Coffee & Vending Service, Inc. to conduct the juice business at the Palace of Auburn Hills and at the DTE Amphitheater, even though he had also created a separate legal entity under the name of AIM Breeze Freeze, LLC in April, 2006. The funds advanced by Tweedie to the Debtor for the juice business were not deposited in a separate legal entity, but instead were deposited with AIM Vending & Coffee Service, Inc., which then used a portion of those funds for the juice business. The Debtor freely admitted that AIM Vending & Coffee Service, Inc. did not segregate Tweedie's funds from its own revenue, and used Tweedie's funds, as well as its own revenue, to pay its bills and to pay the bills incurred in the juice business.

The juice business subsequently acquired other commercial accounts that generated revenue for it. Tweedie advanced additional funds. However, problems developed in the juice business. One of the large accounts in the juice business was Rock Financial, an entity involved in the mortgage business. When the mortgage industry deteriorated in 2007, Rock Financial laid off a large number of individuals and, in an effort to reduce the cost of the benefits to its employees, returned to the Debtor the juice product equipment that the Debtor had placed in Rock Financial's offices. That caused a substantial loss of revenue in the juice business. Also, sales were significantly reduced at the Debtor's other locations. Sales at the Palace of Auburn Hills dropped in 2008 to one-half or less from the previous years. Similarly, sales at the DTE Amphitheater dropped down to one-third of what they had previously been. Further, the owner of Breeze Freeze, the franchisor of Breeze Freeze products, was charged with a number of criminal activities, which affected Breeze Freeze's relationship with the Debtor's juice business. As a result, there were interruptions in the purchase of product and a need for additional funds. Meanwhile, AIM Vending & Coffee Service, Inc. continued to experience its own difficulties in the vending business. By mid–2007, because of a dispute with Coca Cola, AIM Vending & Coffee Service, Inc. lost virtually all of its business. It was forced to liquidate its business assets.

For the first time, the Debtor now attempted to separate the juice business that he had entered into with Tweedie from his failing vending business. The Debtor took steps with an attorney and an accountant to split apart the juice business from the vending business. The Debtor created a new entity, Tropical Breeze, Inc., in addition to the existing entity AIM Breeze Freeze, LLC, to separate the juice business from the vending business. The Debtor arranged to have a number of documents (Exhibits T through Z and AA) drawn up to accomplish this separation. They included a bill of sale, promissory notes, security agreements and other documents that pertained to the advances made by Tweedie as well as to other advances of funds made by the Debtor and the Debtor's mother into the juice business. As the Debtor attempted to belatedly memorialize the terms of repayment to himself, Tweedie, and the Debtor's mother, some of the documents that were drawn up, including a number of the promissory notes (Exhibits T and U), and at least...

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