Ray v. Reynolds

[This opinion is not intended for publication as the precedential effect is deemed limited.]
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF TENNESSEE
In re
DELORES LEE REYNOLDS, 	No. 2:25-bk-50898-RRM
Chapter 7
Debtor.
__________________________________________________
RICHARD F. RAY,
Plaintiff,
vs. 	No. 2:25-ap-05016-RRM
Adversary Proceeding
DELORES LEE REYNOLDS,
Defendant.
M E M O R A N D U M
APPEARANCES :
Ryan E. Jarrard, Esq. 	Christopher D. Meyer, Esq.
Quist, Fitzpatrick & Jarrard, PLLC 	John M. Lassiter, Esq.
2121 First Tennessee Plaza 	Burr & Forman LLP
Knoxville, Tennessee 37929 	190 E. Capitol Street, Suite M-100
Attorney for Plaintiff 	Jackson, Mississippi 39201
Attorneys for Defendant
SIGNED this 14th day of October, 2026
_____________________________________________________________
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Rachel Ralston Mancl, United States Bankruptcy Judge. 	Plaintiff Richard Ray was
awarded a judgment in the amount of $380,317.29 for the fees he incurred but was not paid as the
court-appointed receiver for Fuller Enterprises, LLC. The Chancery Court for Sullivan County,
Tennessee, entered the judgment jointly and severally against the debtor Delores Lee Reynolds,
her father William J. Robinette, Sr., and her sister Jody Virginia Lynn Stewart, after concluding
that “[t]heir request for the appointment of a receiver was made under false pretenses, false
representation, and actual fraud that they had any valid interest in Fuller Enterprises, LLC.” 	Mr.
Ray asserts that his judgment is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) because
the debtor sought and obtained his appointment as receiver when she, in the words of the Chancery
Court, “attempted to steal and/or fraudulently acquire Fuller Enterprises, LLC from the legal heirs
of [her deceased brother] William J. Robinette, Jr.” 	The debtor contends that Mr. Ray has not
pled a claim under § 523(a)(2)(A) because “[t]he Complaint does not allege that [she] obtained
money, property, or services from the Receiver by fraud, not does it allege that the Receiver
conferred any benefit on [her] as a result of the deception.” 	While the benefit of the obtained
appointment may have been fleeting—and, in the end, the services costly—the allegations
specifically made in the complaint and those incorporated from the attached 30-page final
judgment of the Chancery Court satisfy the elements of a § 523(a)(2)(A) claim.
I.
To survive the debtor’s motion to dismiss made under Fed. R. Civ. P. 12(b)(6), the
“complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that
is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “The purpose of a Rule 12(b)(6) motion is to test whether,
as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint
is true.” Johnstone Supply of Detroit v. Rooks (In re Rooks), No. 16-33151, 2017 WL 4404272,
at *3 (Bankr. N.D. Ohio Sept. 28, 2017) (quoting Campbell v. Nationstar Mortgage, 611 Fed.
Appx. 288, 291 (6th Cir. 2015)). Accordingly, the court will assume that all well-pleaded facts
are true, view them in a light most favorable to the plaintiff, and resolve any ambiguities in the
plaintiff’s favor. Id. (citing Paige v. Coyner, 614 F.3d 273, 277 (6th Cir. 2010); Bower v. Fed.
Express Corp., 96 F.3d 200, 203 (6th Cir. 1996); Jones v. City of Cincinnati, 521 F.3d 555, 559
(6th Cir. 2008); and Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007)).
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As a preliminary matter, it’s the debtor’s position that the allegations in the complaint fail
to satisfy the pleading requirement of Rule 9(b) of the Federal Rules of Civil Procedure,
incorporated by Fed. R. Bankr. P. 7009, that the circumstances constituting fraud be stated with
particularity.
Rule [9(b)] has the “broad purpose of ensuring that a defendant is provided with at
least the minimum degree of detail necessary to begin a competent defense.”
United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir.
2008). Therefore, “so long as a relator pleads sufficient detail—in terms of time,
place and content, the nature of a defendant's fraudulent scheme, and the injury
resulting from the fraud—to allow the defendant to prepare a responsive pleading,
the requirements of Rule 9(b) will generally be met.” Id.
In re Grenier, 430 B.R. 446, 451 (E.D. Mich. 2010), aff'd, 458 F. App’x 436 (6th Cir. 2012). In
Grenier the court held that “the Complaint’s reference to the state court fraud judgment provided
Defendants with sufficient detail concerning the fraud to allow them to prepare a responsive
pleading.” 	Id. 	The Chancery Court’s fraud judgment here likewise provides the debtor the
circumstances of fraud with particularity as follows:
Pursuant to Paragraph 8 of the (Amended) Order Appointing Receiver for Fuller
Enterprises, LLC D/B/A Fuller Paving filed September 27, 2021, the Court, in its
inherent authority and power based upon the Individual Plaintiffs’ improper,
willful, intentional, and malicious actions of falsifying documents, records, and
information to support their claims hereby assesses the Receiver’s compensation,
expenses, and costs to the Individual Plaintiffs. The Individual Plaintiffs requested
the appointment and services of a receiver. Their request for the appointment of a
receiver was made under false pretenses, false representation, and actual fraud that
they had any valid interest in Fuller Enterprises, LLC. But for the Individual
Plaintiffs’ willful and intentional false, misleading, and fraudulent assertions and
fraudulent documents to support their Verified Complaint and Amended Verified
Complaint, this Court would not have appointed the Receiver.
And if that were not enough, paragraphs 5 through 19 of the complaint supply the “who, what,
when, where, and how” regarding the fraud. Republic Bank & Tr. Co. v. Bear Stearns & Co., 683
F.3d 239, 256 (6th Cir. 2012) (quoting Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir.
2006)). Together the complaint and judgment provide fair notice to the debtor of the substance of
the fraud so that she may prepare a responsive pleading.
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II.
Section 523(a)(2)(A) excepts from discharge a debt for money, property, or services
obtained by false pretenses, a false representation, or actual fraud. The debtor asserts that Mr. Ray
has not established the elements for nondischargeability under § 523(a)(2)(A) as articulated by the
Sixth Circuit in Rembert, which requires a material misrepresentation the debtor knew to be false,
an intent to deceive, justifiable reliance by the creditor, and proximate causation of loss. 	See
Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir.
1998). The Rembert framework does not exhaust the reach of § 523(a)(2)(A). “The term ‘actual
fraud’ in § 523(a)(2)(A) encompasses forms of fraud … that can be effected without a false
representation” because “a false representation has never been a required element of ‘actual
fraud’….” 	Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 355, 359-362 (2016). 	“When a debtor
intentionally engages in a scheme to deprive or cheat another of property or a legal right, that
debtor has engaged in actual fraud and is not entitled to the fresh start provided by the Bankruptcy
Code.” 	Mellon Bank N.A. v. Vitanovich (In re Vitanovich), 259 B.R. 873, 877 (B.A.P. 6th Cir.
2001). “To except a debt based on actual fraud, the creditor must prove: (1) the debtor committed
actual fraud; (2) the debtor obtained money, property, services, or credit by the actual fraud; and
(3) the debt arises from the actual fraud.” Laake v. Goll (In re Goll), No. 23-13341 MER, 2026
WL 235947, at *9 (Bankr. D. Colo. Jan. 27, 2026).
“‘Actual fraud’ has two parts: actual and fraud.” 	Husky International
Electronics v. Ritz, 578 U.S. 356, 360, 136 S. Ct. 1581, 194 L. Ed. 2d 655 (2016).
The word “actual,” in the context of common-law fraud, denotes any fraud that
involves moral turpitude or intentional wrong. Id. (quoting Neal v. Clark, 95 U.S.
704, 709, 24 L. Ed. 586 (1878)); Field, 516 U.S. at 69, 116 S. Ct. 437 (holding that
the word “fraud” contains the elements ascribed to it at common law). The word
“fraud” encompasses all the multifarious means that human ingenuity can design
to gain an advantage over another, making a rigid and precise definition not only
useless, but essentially unworkable. See, Husky, 578 U.S. at 360, 136 S. Ct. 1581;
see also, In re Hunter, 535 B.R. at 213. 	Accordingly, anything that counts as
“fraud” and that is done with wrongful intent is “actual fraud.” Husky, 578 U.S. at
360, 136 S. Ct. 1581.
Rable v. Childers (In re Childers), 651 B.R. 699, 733 (Bankr. N.D. Ohio 2023).
The debtor owes Mr. Ray a judgment debt of $380,317.29 for his unpaid fees from his
work as the receiver for Fuller Enterprises. The complaint points to the actual fraud of the debtor
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in falsely attempting to establish ownership of Fuller Enterprises to obtain the appointment of a
receiver. 	As the court stated, the receiver would not have been appointed “[b]ut for the [the
debtor’s use of] willful and intentional false, misleading, and fraudulent assertions and fraudulent
documents ….” 	A logical inference is that but for that fraud Mr. Ray likewise would not have
accepted the appointment. The Chancery Court found that the “actions of falsifying documents,
records, and information” to support the claim of ownership were “improper, willful, intentional,
and malicious.” 	“In most jurisdictions it is held that where the appointment of a receiver is
wrongfully made, causing the property of innocent persons to be wrongfully sequestered, that
equity and jurisdiction require that the party at whose instance the wrong was done bear the
burden.” Sklar v. Bernstein, 7 Tenn. App. 593, 601–02 (Tenn. Ct. App. 1928); see also 75 C.J.S.
Receivers § 458 (April 2026 Update) (“Ordinarily, one who causes or procures the wrongful
appointment of a receiver is liable for all the damages caused thereby.”). That is apparently what
the Chancery Court did—entered judgment against the debtor, her father, and her sister jointly and
severally to bear the burden of the receiver’s fees that remained unpaid. 	Mr. Ray alleges a debt
for the services of the receiver that the debtor obtained by false pretenses, a false representation,
and actual fraud.
The debtor relies on Metcalf v. Waters (In re Waters), 239 B.R. 893 (Bankr. W.D. Tenn.
1999), for the proposition that § 523(a)(2)(A) requires a debtor to have personally received a
benefit. 	Waters involved an attorney that concealed his negligence by lying to his clients for
several months about the dismissal of their personal injury lawsuit. 	Id. at 896. 	The clients
identified the fraud underlying their § 523(a)(2)(A) claim as the attorney’s concealment of the
dismissal. Id. at 901. The bankruptcy court reasoned that because the debtor’s deception consisted
of covering up a loss that had already happened, he did not procure anything: no money, property,
or services were obtained by anyone as a result of his deception. 	Id. at 902-03. 	Although
describing a circuit split in detail, the court specifically took no position on what benefit a debtor
must receive for § 523(a)(2)(A) to apply. 	Id. at 902. 	The court suggested only that the Sixth
Circuit “appears to favor” the benefits theory: the view that a creditor must prove the debtor
directly or indirectly obtained some tangible or intangible financial benefit. Id. at 901-02 (citing
Brady v. McAllister (In re Brady), 101 F.3d 1165, 1172 (6th Cir. 1996)). That conclusion itself
was drawn from Brady v. McAllister, which the Waters court carefully noted had not decided that
question. Id. There was simply no need for the Waters court to decide what benefit a debtor must
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receive because it found that the deception at issue did not procure any money, property, or services
that would cause § 523(a)(2)(A) to be applicable. Waters does not stand for the broad proposition
that the debtor would have this court accept.
The Sixth Circuit authority on which Waters relied does not stand for that broad proposition
either. In Brady the court held only that it “reject[ed] debtor's implication that a debt is
nondischargeable under section 523(a)(2)(A) only when the creditor proves that the debtor directly
and personally received every dollar lost by the creditor.” In re Brady, 101 F.3d at 1172. More
recently, the Sixth Circuit acknowledged a circuit split on whether the debtor must obtain
something from the fraud and declined to resolve the question because the debtor in that case
“clearly obtained a financial benefit from his fraud.” In re Leonard, 644 F. App’x 612, 619 (6th
Cir. 2016). 	The court explained, “[e]ven the stricter reading of subsection (a)(2)(A) does not
rigidly require plaintiffs to prove the direct transfer of money from a creditor to a debtor.” Id. It
is enough to show that the debtor “indirectly obtained some tangible or intangible financial
benefit…” Id. (quoting In re Brady, 101 F.3d at 1172). Like Waters and Leonard, this court also
does not need to decide at this stage what benefit the debtor must receive. The purpose of the
debtor’s attempt to steal or fraudulently acquire Fuller Enterprises, as described by the Chancery
Court, was to gain the financial windfall associated with ownership of the company. Placing the
company in receivership, and thereby removing the management of its own financial affairs, was
a step towards that end. Accepting the allegations as true, the complaint plausibly alleges that the
debtor obtained at the very least an indirect, intangible financial benefit from the receiver’s
services.
Finally, the debtor contends there is no direct link between the fraud alleged and the
appointment of the receiver, citing Dell v. Ables (In re Ables), 302 B.R. 917 (Bankr. M.D. Fla.
2003), for the proposition that courts have rejected attempts to repackage fraud on a court as fraud
against a party for professional fees. In Ables the debtor and his former wife retained counsel for
an adoption, which was finalized. Id. at 919. However, the state court subsequently annulled the
adoption, finding that the birth mother had been coerced into giving up her child. Id. The state
court found that the debtor had committed a fraud on the court by signing the adoption petition,
which falsely claimed a blood relationship with the birth mother. Id. The debtor’s ex-wife filed a
legal malpractice action for services rendered in connection with the adoption, and the attorneys
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filed a nondischargeability action against the debtor seeking to except from discharge any third-
party claims that might arise. 	Id. 	The attorneys argued that the debtor’s fraud on the court in
signing the adoption petition was the predicate fraud for their § 523(a)(2)(A) claim, but the court
found no causal connection between the debtor’s fraud in signing the petition for adoption and the
attorneys’ provision of services. Id. The court reasoned that the state court made no finding that
the debtor fraudulently induced the attorneys to represent him, and that for a debt to be
nondischargeable under § 523(a)(2)(A) there must be a direct link between the fraud and the
obtaining of services. Id. at 921–22. The present situation is markedly different. The Chancery
Court explicitly cited the debtor’s fraudulent actions as the express reason the receiver was
appointed, and the causal connection missing in Ables is apparent on the face of the Chancery
Court’s judgment.
The complaint alleges that the debtor, her father, and her sister attempted to steal Fuller
Enterprises, lied to the Chancery Court in pursuit of that goal, and produced a fabricated and forged
operating agreement in support of their motion to appoint a receiver. When the debtor states that
“[a]t best the Complaint alleges that [the debtor] and her Chancery Court Litigation coplaintiffs
made improper filings or misrepresentations to the Chancery Court … which allegedly led the
Chancery Court to impose a receivership” the debtor simultaneously demonstrates that she
precisely understands the fraud Mr. Ray is alleging and that it is pleaded in the adversary
complaint. In summary, the debtor’s lying to the Chancery Court with the intent to steal Fuller
Enterprises is the fraud Mr. Ray asserts she perpetrated, and the adversary complaint and attached
Chancery Court judgment clearly describe a scheme to deprive another of property or a legal
right—actual fraud. The use of deception to obtain the appointment of a receiver in furtherance
of the claim of ownership resulted in the indebtedness of $380,317.29 owed to Mr. Ray,
representing the unpaid fees for services he provided as receiver. 	The elements of a claim under
§ 523(a)(2)(A) have been pled.
III.
In concluding, the court notes that Mr. Ray quotes 11 U.S.C. § 523(a)(6) in his response.
The debtor replied that the statute was not pled in the complaint. The court agrees that § 523(a)(6)
was not included in the complaint. Its inclusion in the response to the motion to dismiss appears
inadvertent, as Mr. Ray has not otherwise asserted that the debt owed to him is nondischargeable
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under this provision. Accordingly, the court limits its analysis to § 523(a)(2)(A), the only claim
Mr. Ray asserts in his complaint, and for the foregoing reasons will enter an order denying the
motion to dismiss the complaint contemporaneously with the filing of this memorandum opinion.
# # #
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