Jacobi v. White

UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF MICHIGAN
MEMORANDUM OF DECISION AND ORDER
PRESENT: 	HONORABLE SCOTT W. DALES
Chief United States Bankruptcy Judge
I. INTRODUCTION
Erica L. White (“Erica” or the “Defendant”) filed her chapter 7 bankruptcy petition on
May 27, 2025, and shortly thereafter, Tammy J. Jacobi (the “Plaintiff”) commenced this adversary
proceeding to except from discharge various debts arising from her investment in White Knight
Consulting, LLC (“White Knight”).
The Plaintiff filed her Amended Complaint on March 13, 2026 (ECF No. 17, the “Amended
Complaint”), which prompted the Defendant to file her Motion to Dismiss Adversary Proceeding
(ECF No. 25, the “Motion”). 	The Plaintiff responded on April 27, 2026 (ECF No. 30, the
“Response”). 	After determining that the Defendant’s references to her bankruptcy schedules
In re:
ERICA L. WHITE,
Debtor.
_____________________________________/
Case No. 25-01516-swd
Hon. Scott W. Dales
Chapter 7
TAMMY J. JACOBI,
Plaintiff,
v.
ERICA WHITE,
Defendant.
____________________________________/
Adversary Pro. No. 25-80046
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would not require the court to treat the Motion as one for summary judgment under Rule 12(d),1
the court heard oral argument on June 4, 2026, in Kalamazoo, Michigan.
At oral argument, the Plaintiff commendably narrowed the issues for decision by foregoing
reliance on the fiduciary defalcation and “willful and malicious injury” provisions of 11 U.S.C. §
523(a)(4) and (a)(6).
For the following reasons, the court will grant the Motion in part (as to the Plaintiff’s claims
asserted on behalf of White Knight) and deny it in all other respects.
II. FACTUAL BACKGROUND
In early 2021, the Plaintiff discussed with the Defendant’s husband, non-party Aaron White
(“Aaron”), the possibility of investing $50,000.00 into White Knight in exchange for 10 percent
of the company. Amended Complaint at ¶ 12. In April 2021, Plaintiff agreed to invest in White
Knight and delivered a cashier’s check for $50,000.00 payable to Aaron personally (at his request)
to obtain a 10 percent membership interest in the company. Id. at ¶ 13. Additionally, the Plaintiff
signed a consulting agreement with White Knight under which she would assist in the development
and marketing of marijuana products at its dispensary. ECF No. 24. Aaron represented that he
would deposit the $50,000.00 into White Knight’s bank account, but he never did. 	Instead, he
deposited the money into the bank account of a related company, GLAC Processing Management,
LLC (“GLAC”), and allegedly funneled portions of the Plaintiff’s $50,000.00 investment directly
or indirectly to Erica, which she received and retained for her personal use. Amended Complaint
at ¶¶ 15-17; see also ECF No. 19. The Amended Complaint alleges “upon information and belief”
that “Erica knew, or at a minimum recklessly disregarded, that these transfers into accounts she
1 In the text of this opinion, references to any “Rule” are to the Federal Rules of Civil Procedure, and to any
“Bankruptcy Rule” are to the Federal Rules of Bankruptcy Procedure. References to the “Bankruptcy Code” or to
specific statutory sections are to 11 U.S.C. §§ 101-1532, unless otherwise specified.
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owned or controlled were investor funds solicited by Aaron for investment in White Knight,
including Jacobi’s $50,000, and not her personal funds, yet she retained and used them for personal
and household purposes” and therefore “knowingly participated in, and benefited from, the
scheme…” Amended Complaint at ¶¶ 17 (“knew” or “recklessly disregarded”) & 24 (“knowingly
participated in … the scheme”). Fairly read, the Amended Complaint alleges that the Defendant
and Aaron worked together to dupe the Plaintiff into giving them $50,000.00 through a fraudulent
scheme in which both knowingly played a role.
In addition, the Plaintiff’s allegations also contemplate a larger – and distinct but related –
fraud scheme. 	Plaintiff contends that the Defendant misappropriated funds belonging to White
Knight through an ongoing automatic teller machine (“ATM”) scam. As a part of the scheme, the
Defendant allegedly used money from White Knight’s cash registers to replenish ATMs that her
related entity, Erica E. White Holdings, LLC, owned and she never returned the stolen funds to
White Knight. Id. at ¶ 20.2 The Plaintiff contends that, as a part owner of White Knight, she has
derivative standing to bring claims for the ATM-related losses on behalf of the company. Id. at ¶
21.3
After these events soured the parties’ relationship, the Plaintiff and others filed a complaint
against the Defendant (and others) in Michigan’s Van Buren County Circuit Court (Case No. 24-
074097-CB, the “State Court Action”) involving the allegations included in this adversary
proceeding as well as claims for breach of contract, member oppression, and breach of fiduciary
2 Ms. White does not have an ownership interest in White Knight or GLAC, but owns 100% of Erica E. White
Holdings, LLC. See Case No. 25-01516-swd, Voluntary Petition (ECF No. 1 at ¶ 19); see also Order dated April 15,
2026 (ECF No. 29).
3 At oral argument, the court asked Plaintiff’s counsel to explain the seeming inconsistency in his client’s seeking to
rescind her investment (by demanding return of her investment) while enjoying the benefits of that same investment
(by asserting derivative standing). The court’s decision to deny derivative standing (see infra at p. 10) eliminates one
of the remedies and therefore the issue.
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duty.4 The automatic stay in this case (and in Aaron’s separate bankruptcy case in Florida) put the
brakes on the State Court Action, causing the Plaintiff to refocus her allegations through the non-
dischargeable debt lens in Erica’s bankruptcy case.
III. LEGAL STANDARD
To survive a motion to dismiss, a complaint must “contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Doe
v. Miami University, 882 F.3d 579, 588 (6th Cir. 2018). A claim has “facial plausibility when the
plaintiff pleads factual content that allows the court to draw reasonable inferences” in support of
the relief requested. Iqbal, 556 U.S. at 678; Miami University, 882 F.3d at 588. The Sixth Circuit
has explained that while the federal pleading rules do not require probability, allegations “merely
consistent with” liability will not survive a dismissal motion. Rondigo, LLC v. Twp. of Richmond,
641 F.3d 673, 680 (6th Cir. 2011).
Additionally, the Plaintiff’s fraud allegations trigger the heightened pleading standard of
Rule 9(b) (made applicable to this proceeding through Bankruptcy Rule 7009). 	To meet Rule
9(b)’s heightened standard, “a plaintiff must generally (1) specify the time, place, and content of
the alleged misrepresentation; (2) identify the fraudulent scheme and the fraudulent intent of the
defendant; and (3) describe the injury resulting from the fraud.” SFS Check, LLC v. First Bank of
Del., 774 F.3d 351, 358 (6th Cir. 2014). The rule provides, however, that general allegations of
intent and “other conditions of a person’s mind” will suffice at the pleading stage. Fed. R. Civ. P.
9(b).
4 While the Plaintiff may have other claims in the State Court Action, they form no part of this proceeding.
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IV. ANALYSIS
The Defendant, both in the Motion and at oral argument, makes three points: (1) that the
Plaintiff insufficiently pleaded claims of fraud by failing to allege that the Defendant made any
direct misrepresentation to the Plaintiff (and by relying exclusively on Aaron’s supposed
misrepresentations); (2) the allegations regarding the Defendant’s direct involvement “on
information and belief” may be consistent with fraud, but do not plausibly allege it with
particularity; and (3) the Plaintiff cannot assert claims on behalf of White Knight because she does
not have derivative standing under applicable, substantive, non-bankruptcy law. While the court
rejects the Defendant’s argument regarding the Plaintiff’s own fraud claims, it finds compelling
the argument against her derivative standing.
a. 	Plaintiff’s Claims Under § 523(a)(2)(A)
First, the Defendant seeks dismissal under § 523(a)(2)(A) because the Plaintiff did not
identify a misrepresentation from the Defendant to the Plaintiff. 	The Defendant’s argument,
however, underplays the Supreme Court’s ruling in Husky International Electronics v. Ritz, 578
U.S. 355 (2016), which teaches that “actual fraud” encompasses larger schemes of fraud not
involving false representations. 	See Id. at 359 (“The term ‘actual fraud’ in § 523(a)(2)(A)
encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a
false representation.”). Nevertheless, as Judge Khorrami recently observed, Husky still requires
that the debtor act with the intent to defraud. Dottore v. Scheibel (In re Scheibal), Case No. 24-
55161, 2026 WL 1379193, at *6 (Bankr. S.D. Ohio May 14, 2026). The high court’s decision in
Bartenwerfer v. Buckley, 598 U.S. 69 (2023), does not alter that conclusion, absent partnership
principles, agency law, or some other authority that would saddle a debtor with vicarious liability
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for another’s fraud. 	See generally Id. Section 523(a)(2)(A) does not itself impose vicarious
liability between spouses or anyone else.
At oral argument, Plaintiff’s counsel skillfully zeroed-in on paragraph 17 of the Amended
Complaint, correctly arguing that the allegations within it simply plead the Defendant’s knowing
or reckless receipt of the $50,000.00 investment in a manner merely “consistent with” fraud. So,
under Rondigo, the allegation in paragraph 17 falls short of the plausibility line. Nevertheless, the
court cannot read the hedged allegations within that paragraph in isolation.5 Paragraph 17, coupled
with 	the 	later 	description 	of 	the 	Defendant’s 	alleged 	role 	in 	numerous 	other 	untoward
intercompany transfers comprising the ATM “scheme,” make plausible the allegations of Erica’s
culpability in a fraudulent scheme against the Plaintiff. As the Plaintiff alleged in the Amended
Complaint, 	while 	Aaron made 	the 	alleged 	misrepresentation, the 	Defendant 	nevertheless
participated in a larger fraudulent scheme designed to bilk investors in the couple’s various
cannabis businesses. Amended Complaint at ¶ 24.
The court reaches this conclusion at the pleading stage of this case by inferring that the
$50,000.00 transfer was simply a distinct part of a larger scheme, even assuming (i) the Defendant
made no misrepresentations directly to the Plaintiff; (ii) the Defendant may have been merely
“reckless” about the source of the funds;6 and (iii) the Plaintiff lacks standing to assert the ATM-
related claims belonging to White Knight. See infra, at p. 10. Here, the Plaintiff alleges that the
Defendant played a role in a larger fraudulent scheme involving the deceitful funneling of funds
5 Allegations on “information and belief” raise a red flag in this court, and while lawyers may take some comfort in
the coverage of certain posterior regions that pleading in this matter seems to provide, Bankruptcy Rule 9011’s
strictures apply even to allegations “on information and belief.” The court assumes that Plaintiff’s counsel, a long-
serving member of the bar, honored his obligations under the rule in filing the Amended Complaint.
6 It stands to reason that if § 523(a)(2)(A) excepts from discharge a debt arising from recklessness as to the truth of
the representation, Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir.
1998), then the recklessness alleged in paragraph 17 as to Ericka’s deceitful receipt of funds as part of the scheme
sufficiently alleges the discharge-disqualifying scienter, especially juxtaposed with the modus operandi that the ATM-
related allegations suggest with respect to her separate but similar wrongdoing.
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from White Knight and other entities directly or indirectly (for example through her ATM scheme)
to herself. As Judge Boyd put it a few years ago, the allegations paint “a picture” of a fraudulent
scheme of which the Defendant was a part and from which her discharge may not save her.
Michigan Unemployment Insurance Agency v. Heinisch (In re Heinisch), 600 B.R. 393, 402
(Bankr. W.D. Mich. 2019) (“A debtor’s fraudulent intent may be inferred when the totality of the
circumstances surrounding a given transaction presents a picture of deceptive conduct by the
debtor which indicates an intent to deceive the creditor.”) (internal quotations omitted).
Additionally, and similarly, the Defendant’s lack of ownership in White Knight or GLAC
does not warrant dismissal, contrary to her counsel’s suggestion. The Defendant attempts to rely
on the negative implications of the Supreme Court’s decision in Bartenwerfer v. Buckley, 598 U.S.
69 (2023) and this court’s decision distinguishing Bartenwerfer – In re Coleman, Adv. Pro.
No. 23-80069, 2024 Bankr. LEXIS 2951 (Bankr. W.D. Mich. Dec. 9, 2024) – for the assertion
that, because Aaron made the alleged misrepresentations, the Plaintiff must connect the
Defendant’s alleged fraud to her ownership of White Knight or GLAC.
The Defendant’s cases, however, are distinguishable. 	Bartenwerfer and Coleman both
involve debtors that did not directly engage in the alleged fraud. See Bartenwerfer, 598 U.S. at 82
(2023) (“Ordinarily, a faultless individual is responsible for another’s debt only when the two have
a special relationship”); see also Coleman at p. 7 (“In other words, the state court imputed the
husband’s fraudulent intent to the wife [in Bartenwerfer] because the two had formed a legal
partnership.”) (internal quotations omitted). 	Bartenwerfer imposed vicarious liability under
applicable non-bankruptcy law; Coleman, in contrast, found no such law applicable.
The Amended Complaint, however, directly accuses the Defendant of taking part in the
wider fraudulent scheme. 	Taking the Plaintiff’s allegations as true, and drawing reasonable
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inferences, the Defendant was directly involved in the fraudulent retention of the Plaintiff’s
$50,000.00 investment and syphoning money from (or using) White Knight. While the Plaintiff’s
ultimate success will require her to prove her allegations, her pleading suffices at this stage of the
case.
Finally, the court finds that the Plaintiff has met the particularity requirement under Rule
9(b). The Amended Complaint and its exhibits satisfactorily describe the time, place, and manner
of the Defendant’s alleged fraudulent activity in compliance with the heighted pleading standard.
The allegations sufficiently put the Defendant on notice of the Plaintiff’s claim, considering the
details regarding Erica’s and Aaron’s funneling investor money (including Plaintiff’s investment)
out of their cannabis enterprise and into their own pockets. 	In short, this alleged fraudulent
scheme, if proven, would establish “actual fraud” under § 523(a)(2)(A), and therefore the
Amended Complaint survives the Motion.
b. 	Plaintiff’s Claims Under § 523(a)(4)
Despite the Defendant’s challenge to Plaintiff’s claims under § 523(a)(4),7 the court finds
that the Amended Complaint states a claim for embezzlement, largely for the same reasons
involving the overlapping claims under § 523(a)(2)(A). 	Indeed, as a practical matter, the court
struggles at times to distinguish claims under § 523(a)(2)(A) from claims for embezzlement under
§ 523(a)(4). 	Both target fraudulent schemes, with the former addressing generic fraud and the
latter capturing a narrower subspecies of fraud. Both involve a debtor’s discharge-limiting deceit.
In the present case, at least, the distinction strikes the court as largely academic, as it is difficult to
conceive of the Plaintiff’s proving one without the other.
7 As previously noted, the Plaintiff no longer asserts a fiduciary defalcation theory.
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In the Amended Complaint, the Plaintiff does not contend that she directly entrusted the
Defendant with her $50,000.00 investment. 	Instead, the Plaintiff describes Erica’s trickery in
receiving funds that the Plaintiff had entrusted to Aaron for a specific purpose – the investment
into White Knight – and Erica retained them for personal use, knowingly or recklessly disregarding
the Plaintiff’s interests under circumstances suggesting deceit.
Under § 523(a)(4), the creditor need not entrust funds to the debtor exclusively to constitute
embezzlement. 	As the Sixth Circuit Court of Appeals explains, embezzlement includes
“fraudulent appropriation of property by a person to whom such property has been entrusted or
into whose hands it has lawfully come.” 	In re Brady, 101 F.3d 1165, 1172–73 (6th Cir. 1996)
(internal quotation marks and citations omitted); see also Long v. Piercy (In re Piercy), 21 F.4th
909, 919 (6th Cir. 2021) (“Notably, embezzlement or larceny under the second prong of §
523(a)(4) requires demonstrating a debtor’s fraudulent intent…”). The allegations permit the court
to infer (at this stage of the proceedings) that even if Erica lawfully came into possession of the
$50,000.00 investment through Aaron and GLAC, it is certainly plausible to infer fraudulent intent.
If Erica’s appropriation were unlawful, we would call it larcenous, but in any case, the
circumstances suggest fraud. The court finds that the Plaintiff sufficiently pled embezzlement or
larceny by describing the Defendant’s fraudulent retention of the $50,000.00 White Knight
investment. See Piercy, 21 F.4th at 919 (noting that the only difference between embezzlement
and larceny is the way the debtor obtains the property). 	A plaintiff may plead in the alternative,
and the court need not choose between embezzlement or larceny at this point. 	Fed. R. Civ. P.
8(a)(3).
To the extent the Motion seeks dismissal of the count under § 523(a)(4), the court will deny
it.
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c. 	Derivative Standing to Assert White Knight’s Claims
During oral argument the court and the parties extensively discussed whether the Plaintiff
may recover for injuries the Defendant allegedly inflicted on White Knight, generally by
perpetrating the purportedly vampiric ATM scheme through which Aaron and Erica siphoned cash
out of White Knight. Although the court finds the allegations relating to the ATM scheme have a
bearing on the Plaintiff’s direct claims (as part of the totality of the circumstances or modus
operandi), the Defendant correctly argues that Plaintiff cannot assert derivative claims on behalf
of White Knight. The Motion properly points out, without contradiction, that the Plaintiff never
made a written demand on the managers or members of White Knight before asserting derivative
standing, as the Michigan Limited Liability Company Act requires. See M.C.L. § 450.4510 (“[a]
member may commence and maintain a civil suit in the right of a limited liability company
if…[t]he plaintiff has made written demand on the managers or the members with the authority
requesting that the managers or members cause the limited liability company to take suitable
action.”).
In response, the Plaintiff argues that, because Aaron managed or controlled White Knight,
any demand, in writing or otherwise, would have been futile. Futility, however, is no defense to
the statute’s requirement according to the Michigan Court of Appeals. See Alliance Associates,
L.C. v. Alliance Shippers, Inc., Case No. 05-507573-CK, 2006 WL 1506687 at *3 (Mich. App.
Jun. 1, 2006) (“[M.C.L. § 450.4510] does not provide for an exception for futility.”). Moreover,
the court predicts that the written demand requirement is a matter of state substantive law, not
procedure, based on the Michigan Court of Appeals construction of an analogous provision under
the state’s Business Corporation Law. Cf. Karmanos v. Bedi, Case No. 15-014148-CB, 2018 WL
6252038 at *5 (Mich. App. Nov. 29, 2018) (finding that the Michigan Business Corporation Act’s
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written demand requirement for derivative suits is a matter of substantive law controlled by the
language of the statute). Therefore, the court will dismiss the Plaintiff’s claims pertaining to her
derivative standing as a part of White Knight.
It bears repeating: in dismissing the derivative claims the court is saying only that the
Plaintiff may not recover from the Defendant for injuries she may have caused White Knight
through the alleged ATM scheme. If, however, evidence related to the ATM scheme is relevant to
the Plaintiff’s claims under § 523(a)(2)(A) and (a)(4), and is proportional and not privileged, she
may seek discovery and admission without prejudice to any objection the Defendant may assert
under the rules of civil procedure or evidence.
Therefore, the court will limit the Plaintiff’s recovery in this proceeding to her initial
investment in White Knight, provided she proves Erica’s fraud in obtaining the funds. Recovery
of the nearly two million dollars that Erica and Aaron allegedly washed through White Knight’s
ATM, however, is a matter for another tribunal.
NOW, THEREFORE, IT IS HEREBY ORDERED the Motion is (i) GRANTED with
respect to the Plaintiff’s derivative claims on behalf of White Knight (and those claims are
DISMISSED); and (ii) DENIED in all other respects.
IT IS FURTHER ORDERED that the Clerk shall schedule a Rule 16 conference to take
place in Kalamazoo soon, but at a time convenient to the court and the parties.
IT IS FURTHER ORDERED that the Clerk shall serve a copy of this Memorandum of
Decision and Order pursuant to Bankruptcy Rule 9022 and LBR 5005-4 upon R. Todd
Redmond, Esq., Nicholas Scott Laue, Esq., and Sarah Ann LaSata, Esq.
IT IS SO ORDERED.
Dated June 9, 2026
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