The case sub judice presents the Court with the task of determining whether Frank Flores, III ("Defendant") should receive a full discharge allowed under the code or whether the claims of United Leasing, Inc. ("Plaintiff") should be excepted from Defendant's discharge based on Defendant's alleged conduct under 11 U.S.C. § 523 (a)(2)(B) and § 523 (a)(6).
This Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052, which incorporates Fed. R. Civ. P. 52 and 9014. Any finding of fact more properly considered a conclusion of law, or any conclusion of law more properly considered a finding of fact, should be so considered. On March 4, 2016, Defendant filed a voluntary petition for relief under Chapter 7, Title 11 of the United States Bankruptcy Code.1 Bankr. ECF No. 1.2 In the Defendant's bankruptcy case, the Court extended the deadline to file objections to Defendant's discharge until August 25, 2016. Bankr. ECF No. 56. Accordingly, Plaintiff timely objected to Defendant's discharge when Plaintiff filed its complaint on August 25, 2016, initiating the instant adversary proceeding. ECF No. 1. Specifically, Plaintiff brought its complaint to except its claims against Defendant from discharge under 11 U.S.C. § 523 (a)(2)(B) and § 523 (a)(6). Id. Defendant filed his answer on September 30, 2016. ECF No. 12. Pursuant to this Court's procedures, parties filed a "Standard Joint Pretrial Statement" on August 18, 2017, ECF No. 30, and within that joint statement the following facts were stipulated:
a. Prior to filing his chapter 7 bankruptcy, Defendant was the sole owner of Americorp, a Texas limited liability company, which was engaged in the trucking business.
b. Defendant was actively engaged in Americorp's business and acted as its chief executive officer.
c. Defendant is an "insider" of Americorp under 11 U.S.C. § 101 (31). Americorp is a chapter 7 debtor before this Court in No. 16-70208-M-7.
d. Plaintiff provides comprehensive leasing and financial services to the business community. In this instance in 2013, Americorp applied to lease trailers through a third party broker, Balboa Capital Corporation ("Balboa"). Balboa collected financial and other information from Americorp and Defendant and forwarded the financial information to Plaintiff for its consideration.
e. Defendant provided his personal Financial Statement as of April, 2013, to Balboa.
f. Plaintiff agreed to lease twenty-five (25) 2014 Hyundai 53' HT hycube dry vans (the "Trailers") to Americorp.g. Americorp executed a Master Lease Agreement, Addenda and Schedules in early August, 2013 (the "Lease"), with Balboa whereby Americorp leased the Trailers.
h. Concurrently, Defendant executed a guaranty of all Americorp's obligations under the Lease (the "Guaranty").
i. Shortly thereafter, Balboa assigned the Lease and Guaranty to Plaintiff with Americorp's and Defendant's written approvals.
j. The Trailers, which are titled in Plaintiff's name, were delivered to and accepted by Americorp and placed in service.
k. Defendant's Financial Statement indicates certain assets and liabilities as indicated in column A below, and column B below indicates corresponding facts:
| Certificate of Deposit in the |
| i. Failure to disclose that CD was |
| ii. 2004 Peterbilt Car Hauler with |
| purchased for $32,000 and sold |
| iii. 2004 Ford F-150 Lariat Truck |
| iii. Defendant sold this vehicle in |
| iv. 2002 Harley V Rod valued at |
| motorcycle in 2006, 2007 or |
| v. Defendant purchased the |
| vehicle under a salvage title for |
| vi. Defendant sold this piece of |
| vii. 1999 Hykster Forklift valued |
| vii. Defendant sold this piece of |
| equipment prior to April, 2013. |
| viii. Machinery and Tools valued |
| viii. Defendant sold this |
| building valued at $1,200,000. |
| x. Value significantly less; |
| Defendant had a contract that |
| failed to close for the purchase |
| xi. Defendant never owned this |
| xii. 5200 N. Veterans Rd, valued |
| xii. Undisclosed lien in favor of |
| vendor burdened the property in |
| xiii. Undisclosed obligation in the |
| amount of $50,000 to William |
l. Mexican truck drivers would pick up trailers from Americorp and take them into Mexico in accordance with the business practices of Americorp.
m. Americorp began to experience severe cash flow issues and could not timely pay Mexican drivers. Some Mexican carriers refused to return trailers until they were paid in full.
n. Fifteen Trailers may have been detained in Mexico and have not been returned to Plaintiff.
o. Americorp defaulted on its obligations to Plaintiff under the Lease, and Plaintiff demanded the return of the Trailers.
p. Plaintiff filed a general, unsecured proof of claim based on Defendant's guaranty of Americorp's obligations under the Agreement in Defendant's main case in the amount of $455,897.61, and no party, including Defendant, has objected to the proof of claim.
q. Plaintiff recently recovered a Trailer, and the proof of claim should be credited in the amount of $13,500.00.
Id. In the same pretrial statement, the parties stipulated that the only contested issues of fact to be determined at trial were: (1) "whether Defendant's Financial Statement was materially false;" (2) "whether Plaintiff reasonably relied on Defendant's Financial Statement in making its decision to lease the Trailers to Americorp;" and (3) "whether Defendant caused willful and malicious injury to the Trailers by sending them into Mexico." Id.
The Court conducted a trial on Plaintiff's complaint on October 12, 2017.3 At the trial, Plaintiff called Ms. Martha Ahlers ("Ahlers"), Vice-President and Chief Operating Officer for Plaintiff, as a witness. Min. Entry (10/12/2017). In addition to her position with Plaintiff, Ahlers serves on the Equipment Leasing and Finance Association executive board, a trade association representing the Plaintiff's industry. Id. Ahlers testified to the following facts:
1. Plaintiff is approximately a half-billion dollar generalist finance company that has been in business for fifty-two (52) years. Plaintiff conducts financing in twenty-five (25) different asset classes. The trailers asset class, such as the transaction involving Defendant, is one of Plaintiff's top ten (10) earning asset classes;
2. Ahlers is responsible for the bottom line and overseeing credit and sales in her employment with Plaintiff. She becomes personally involved in transactions dealing with more than $500,000. In her experience, Ahlers personally handled thousands of transactions similar to Plaintiff's transaction with Defendant;
3. Plaintiff has a standard credit policy procedure in place. According to that procedure, a prospective borrower's information is entered into Plaintiff's credit software where applicable underwriting can be viewed; then the credit spread is reviewed by a credit manager; next there is a write up by the sales representative handling the transaction;and then it is sent to management for approval. Finally a credit team reviews the credit of the corporation, the personal guarantor (if one exists), and the stated value of the assets. Plaintiff's transaction with Defendant followed Plaintiff's standard credit policy procedure.
4. This was the first transaction that Plaintiff had done with either Americorp or Defendant. Plaintiff found red flags in Americorp's financials. So, to alleviate concerns, Plaintiff required a personal guarantee from Defendant. As part of the personal guarantee, Plaintiff requested the Defendant's personal financial statement, which is the financial statement at issue in this case;
5. Over the course of her career, Ahlers has reviewed thousands of personal financial statements. She ranks the level of detail and strength in the personal financial statement provided by Defendant as an eight or a nine on scale of one to ten. Defendant's personal financial statement did not raise red flags. Furthermore, without Defendant's financial statement, Plaintiff would not have entered into the transaction because it was what "gave the personal guarantee teeth;"
6. There was no outside audit or review of the personal financial statement. Plaintiff only conducts audits when the transaction is over $1 million or other red flags are raised. This is reasonable conduct and similarly practiced in the industry. The consumer credit bureau report on the Defendant and the Defendant's tax documents did not raise any red flags. Thus, Plaintiff entered the transaction with Defendant due to the confidence established by the personal financial statement provided; and
7. Finally, if Defendant's personal financial statement truthfully reflected his financial condition, Plaintiff would not have entered into the transaction with Defendant.
Min. Entry (10/12/2017). The Court finds the testimony of Ahlers extremely credible.
Following Ahlers' testimony, Defendant was called to testify, and his testimony can be summarized as follows:
1. Defendant was the owner/operator and founder of Americorp. Profits and losses of Americorp flowed through to Defendant, and there were no
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