Tennessee Commerce Bank v. Detweiler

The court Incorporates by reference in this parag1raph and adopts as the findings and orders
of this court the document set forth below.
IS/RUSS KENDIG
Run Kelldig
United States BankrnptcyJudge
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
INRE: 	) 	CHAPTER 11
)
JOSEPH J. DETWEILER, 	) 	CASE NO. 09-63377
)
Debtor. 	) 	ADV. NO. 09-6105
)
TENNESSEE COMMERCE BANK, 	) 	JUDGE RUSS KENDIG
)
Plaintiff, 	)
)
v. 	)
) 	MEMORANDUM OF OPINION
JOSEPH J. DETWEILER, 	) 	(NOT INTENDED FOR
PUBLICATION)	)
Defendant. )
)
On April 14,2010, Plaintiff filed a motion for summary judgment seeking a court
finding of nondischargeability under 11 U.S.c. § 523(a)(6). Defendant opposed the motion
with the filing of a response on May 4, 2010. 	Subsequently, Plaintiff filed a reply
memorandum. 	Defendant moved to strike the reply as untimely on May 25,2010. 	The
motion to strike is unopposed.
The court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.c. § 1409. This is a core proceeding under 28 U.S.c.
157(b)(I). 	The following constitutes the court's findings of facts and conclusions of law
under Federal Rule of Bankruptcy Procedure 7052.
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This opinion is not intended for publication or citation. 	The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the Court.
FACTS
The parties do not contest the underlYing facts. 	Debtor is the principal of J.J.
Detweiler Enterprises, Inc. (hereafter JJDE, Inc.). In 2007, Debtor, on behalfofJJDE, Inc.,
entered into various financing agreements to purchase several pieces of equipment.
American Bank Leasing Corporation provided the financing; it later assigned its interests to
Plaintiff. 	The loans were secured by interests in the equipment and the security interests
were properly perfected by the filing ofUCC financing statements. Pursuant to the financing
agreements, JJDE, Inc. could not transfer, assign or convey the equipment without the
lender's consent. The loans were personally guaranteed by Debtor.
On or about December 23, 2008, JJDE, Inc. sold the equipment for $70,000.00.
JJDE, Inc. received payments totaling $65,000.00; $5,000.00 remains unpaid. The proceeds
from the sale of the equipment was not paid to Plaintiff and Plaintiff never authorized the
sale of its collateral. Debtor was instrumental in making the decision to sell the equipment.
At the time of the sale, JJDE, Inc. was short on cash and the sale was made to keep the
business afloat. 	Debtor used the nloney to pay business expenses and testified that he
intended to continue nlaking the installnlent payments on the loans owed Plaintifffollowing
the sale.
LA W AND ARGUMENT
Plaintiffmoves for summary judgment, arguing that there is no dispute that Debtor's
actions in selling Plaintiff's collateral without its authorization was a willful and malicious
injury under 11 U.S.C. § 523(a)(6), thereby rendering the debt nondischargeable. RelYing
on Debtor's stated intention to continue paYing the debt owed Plaintiff, Defendant asserts the
requisite intent is absent from the "willful and malicious" equation, or at least a factual issue,
making sumnlary judgment inappropriate.
Motions for summary judgment are governed by Federal Rule of Bankruptcy
Procedure 7056, which incorporates Federal Rule of Civil Procedure 56, and states, in
applicable part:
The judgment sought should be rendered if the pleadings, the
discovery and disclosure materials on file, and any affidavits,
show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.
Fed. R. Bankr. P. 7056. The movant bears the initial burden of proof, being tasked with the
"responsibility of informing the ... court of the basis for its motion, and identifYing those
2
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portions [of the record] ... which it believes demonstrate the absence of a genuine issue of
n1aterial fact." 	Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 	In reviewing the
evidentiary materials, the facts and inferences arising therefrom are to be viewed in the light
most favorable to the non-moving party. Matsushita E1ec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
According to Plaintiff, Defendant's act of conversion "constitutes a willful and
malicious injury under § 523(a)(6)." 	(Plaintiffs M. Sumn1. J., p. 6). 	Plaintiff relies on
CMEA Title Agency, Inc. v. Little, 335 B.R. 376,386 (Bankr. N.D. Ohio 2005).
Plaintiffs contention is not an accurate representation of the law, as both this court and the
court in Little concluded. 	See Little at 387 ("finding that Little engaged in conversion,
however, does not excuse CMEA of its burden of showing that Little's conduct was willful
and malicious"); Richland Trust Co. v. Haley (In re Haley), Case No. 06-61593, Adv. No.
06-6214 at 4 (October 19, 2007) (unpublished) (concluding that summary judgment could
not be granted when the act was intentional, but it was not clear that the injury was
intentional). As noted in the Little and Haley cases, intent is not an element of conversion,
but it is an element for finding a willful and malicious injury under section 523(a)(6). Thus,
the fact that Defendant intentionally sold the equipment is not sufficient. He must have also
intended the harm that resulted to Plaintiff. 	See Kawaauhau v. Geiger, 523 U.S. 57, 61
(1998); Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir. 1999).
Following Geiger, the Sixth Circuit Court of Appeals revisited section 523(a)(6) and
expounded on the "intent to harm" element and adopted an interpretation based on the
working definition of intentional torts from the Restatement (Second) of Torts: "unless' the
actor desires to cause [the] consequences of his act, or ... believes that the consequences are
substantially certain to result from it,' Restatement (Second) of Torts § 8A, at 15 (1964), he
has not committed a 'willful and malicious injury' as defined under § 523(a)(6)."
Markowitz, 190 F.3d at 464. 	In the Fourth Circuit, courts employ a similar test, referenced
as the "objective substantial certainty" or "subjective motive" analysis, to assess the intent
to injure. 	See, e.g., Ocean Equity Group, Inc. v. Wooten ( In re Wooten), 423 B.R. 108
(Bankr. E.D. Va. 2010) (citations omitted).
The court notes an incongruity in applying the Geiger test, and its progeny, to the
present facts. 	Geiger had been found liable for medical malpractice. 	When he filed
bankruptcy, his former patient sought to have the debt deemed nondischargeable. She was
not successful. There was no question that the doctor acted negligently and/or recklessly, but
the Supreme Court framed the question as whether "§ 523(a)(6)'s compass cover[s] acts,
done intentionally, that cause injury ... or only acts done with the actual intent to cause
injury ... ?" Geiger, 523 U.S. at 61. The Supreme Court ultimately found that "debts arising
from recklessly or negligently inflicted injuries do not fall with the compass of § 523(a)(6)."
Id. at 64.
In the context of medical malpractice, it is often much easier to grasp the contrast
between the act and the injury, specifically how one could intend the act but not the injury.
3
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It is less understandable when conversion of secured collateral is involved because it is
difficult to perceive how knowingly disposing of a secured creditor's collateral cannot be
equated with an intent to injure the creditor.} 	The willful deprivation of substantial rights
that are fundamental to the debtor-creditor relationship is a perceptible and known injury.
There's a strong argument that negative consequences are "substantially certain to result"
from the loss of the creditor's bargained-for protection. Case law, however, requires more.
Prior to Geiger, the Supreme Court examined conversion as a "willful and malicious
injury". See Davis v. Aetna Acceptance Co., 293 U.S. 328 (1934). Debtor, an automobile
salesman, engaged in the equivalent of floor-plan financing for the vehicles he sold. Davis
was based on his failure to pay the proceeds from a sale to the lender following a sale of a
vehicle, followed shortly by a bankruptcy filing. In Davis, the Supreme Court separated the
intent to commit the tort with the intent to commit the injury: "a willful and malicious injury
does not follow as of course from every act of conversion, without reference to the
circumstances." rd. at 332. It is here that the necessity of a factual inquiry arises.
Looking at the facts, there is no dispute that Defendant intended to sell the
equipment, to which he testified in his deposition. (Dep. of Joseph J. Detweiler, doc. 24,
p.4). He further stated he intended to continue making the regular payments to the lender.
(Dep. of Joseph J. Detweiler, doc. 24, p. 6). Plaintiff failed to identify any portion of the
record regarding Debtor's intent to cause the injury to Plaintiff. 	This is unlike section
523(a)(4) in which a plaintiff accusing a debtor of committing fraud while in a fiduciary
capacity need not prove the subjective intent to cause the monetary damage.2 Although
Plaintiff argues that the injury would necessarily flow from the action, this does not satisfy
Plaintiff's burden. 	The court finds that a genuine issue of material facts exists on the
question ofwhether Defendant intended to injure Plaintiff, constraining decision as a matter
of law. Plaintiff's motion for summary judgment will be denied.
} Martello v. Fowers (In re Fowers), 360 B.R. 888, 901 (Bankr. N.D. Ind. 2007)
provides elucidation of this quandary by giving "collateral conversion" scenarios which
implicate different views on intent to injure. Under the first example, the debtor is
"stiffed" by the purchaser, leaving him with no funds to pay the creditor. In
another scenario, the debtor sells the collateral, pockets the proceeds, and disappears.
As aptly noted by the court, most cases fall in the spectrum between these two
examples.
2 This subjective requirement may appear to amount to a "get out of jail free" card:
virtually any act that undermines the entire relationship that a secured creditor
bargained could still be dischargeable as long as it was accomplished with a subjective
intent to repay. The cases require more than the destruction of the secured creditors
right~, so long as the debtor subjectively intended to pay. The cases, including Davis,
focus on the intent to pay rather than the willful damage to secured rights.
4
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Turning to Defendant's motion to strike, the court will also deny the motion to strike
Plaintiff's reply memorandum. It is clear that the reply was not timely filed. Upon review,
the reply memorandum did not raise arguments that were substantially different from those
presented in the motion for summary judgment and Defendant was not prejudiced by the
untimely filing. As a result, the court does not find good cause to strike the reply.
An appropriate order shall be entered in conjunction with this opinion.
# 	# 	#
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