Gorny v. Lewis

In re
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
WILLIAMS. LEWIS,
Debtor.
)
)
)
)
)
)
Case No. 	12-20295
Chapter 7
BEVERLY GORNY, 	)
)
Plaintiff, 	)
)
v. 	) 	Adv. No. 	12-2027
)
WILLIAMS. LEWIS 	)
)
Defendant. 	)
OPINION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
On May 2, 2013, this matter came before the court for a telephonic hearing on the
Motion for Summary Judgment filed by debtor/defendant, William S. Lewis, ("Lewis")
and the response filed by the plaintiff, Beverly Gorny ("Gorny"). At the conclusion of the
hearing, the court took the matter under advisement.
Jurisdiction
The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157
and 1334. This is a core proceeding within the definition of28 U.S.C. § 157(b)(2)(1) and
(J). The motion is brought under Fed. R. Civ. P. 56, made applicable in adversary
proceedings by Fed. R. Bankr. P. 7056. 1 Gorny's complaint requests claims for relief
1 Unless otherwise indicated all future statutory reference are to the United States Bankruptcy Code, 11
U .S.C. 101 et seq.
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under II U.S.C. § 523(a)(4) which excepts debts from discharge for: (I) embezzlement;
(2) fraud or defalcation while acting in a fiduciary capacity; and, (3) willful and malicious
injury to Gorny under §523(a)(6).
Uncontested facts
Mr. Lewis filed his chapter 7 bankruptcy petition on April4, 2012. Historically,,
Lewis was a paint contractor. Prior to filing his bankruptcy petition and since 1995, he is
associated with Number One Properties, Cheyenne, Wyoming. 	The parties have known
each other since the 1980's and were involved in previous business transactions.
In November 2004, Gorny provided $75,000.00 to Lewis to purchase two lots in
Laramie County for the purpose of building a house on each lot and selling the properties.
The parties did not enter into a written agreement regarding this transaction. Ms. Gorny
paid the funds to Westwood Homes, LLC ("Westwood"), per Lewis' request. Mr. Lewis
is the sole owner of Westwood.
For whatever reasons, houses were not built on the lots. In November 2005, one
lot sold for the amount of$48,000.00. In December 2006, the second lot sold for
$40,500.00. In January 2007, Lewis paid Gorny the amount of$40,000.00 leaving an
unpaid balance in the amount of$35,000.00 plus interest subject to this non-
dischargeability complaint. The parties appear to disagree whether the business
transaction was an unsecured loan or whether Gorny intrusted the funds to Lewis for the
purpose of the joint land development venture.
Discussion
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A party claiming relief may move, with or without supporting affidavits, for
summary judgment on all or part of the claim. The judgment sought should be rendered if
the pleadings, the discovery and disclosure materials on file and any affidavits, reviewed
in the light most favorable to the party opposing the motion, show that there is not a
genuine issue as to any material fact and that the movant is entitled to judgment as a
matter of law. The Court should determine what facts are not genuinely at issue by
examining the pleadings and evidence before it. 	The Court should issue an order
specifYing what facts, including items of damages or other relief, are not genuinely at
issue? A material fact is one that could affect the outcome of the suit. A genuine issue is
one where the evidence is such that a reasonable jury could return a verdict for the
nonmoving party. 3 The court views the evidence in light most favorable to the nonmoving
party, but that party cannot rest on the mere allegations in its pleadings and must come
forward with evidence to raise a genuine issue. 4
(a)(6).
Gorny alleges that her claim should not be dischargeable under§§ 523(a)(4) and
The Bankruptcy Code provides, in part, as relevant:
A discharge under section 727 ... does not discharge an individual
debtor from any debt:
2 Fed. R. Civ. P. 56, made applicable by Fed. R. Bankr. P. 7056; Hardy v. S. F. Phosphates Ltd. Co., 185
F.3d 1076, 1079 (10" Cir. 1999) and Frandsen v. Westinghouse Corp., 46 F.3d 975,976 (IO'h Cir. 1995)
3 Farthingv. CityofShawnee, Kan.,39F.3d 1131, 1134(lO'hCir.1994).
4 !d.
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(4) 	for fraud or defalcation while acting in a fiduciary capacity,
embezzlement, or larceny ... ;
(6) 	for willful and malicious injury by the debtor to another entity
or to the property of another entity ... "
Gorny alleges that Lewis ( 1) intentionally concealed the sale of the second lot and
diverted the funds to himself, constituting embezzlement; (2) was acting in a fiduciary
capacity regarding the funds and his intentional concealment of the sale and
misappropriation of the funds constitutes fraud or defalcation; and, (3) willfully and
maliciously injured Gorny by these acts of conversion.
Embezzlement
Embezzlement occurs when there is a fraudulent appropriation of property by a
person to whom such property has been entrusted, or into whose hands it has lawfully
come, and it requires fraud in fact, involving moral turpitude or intentional wrong, rather
than implied or constructive fraud. 5
Lewis initially did not address the embezzlement claim in this motion. In his reply
to Gorny's response to the motion for summary judgment, he argues that Gorny's claim is
meritless as Gorny loaned the funds to Lewis, without a written contract or agreement, did
not rely upon Lewis as a real estate professional; and should have protected her interests
by demanding the parties establish an escrow account.
The court finds that this argument is not supported by facts, but appears to be a
memorandum oflaw on the issue. Reviewing the facts in the light most favorable to the
5 In re Putvin, 332 B.R. 619 (IO'h Cir. BAP 2005).
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non-moving party, the court finds that there are material issues of genuine fact at issue
regarding the parties' intent regarding the transaction and whether there was fraud.
Fraud or defalcation
Under §523(a)(4), the creditor must show (I) the existence of a fiduciary
relationship between the debtor and the objecting party; and (2) a defalcation committed
by the debtor in the course of the fiduciary relationship. 6 The United Supreme Court
recently defined "defalcation," stating:
"where the conduct at issue does not involve bad faith, moral
turpitude, or other immoral conduct, the term [defalcation] requires an
intentional wrong. 	We include as intentional not only conduct that the
fiduciary knows is improper but also reckless conduct of the kind that the
criminal law often treats as the equivalent. Thus, we include reckless
conduct of the kind set forth in the Model Penal Code. Where actual
knowledge of wrongdoing is lacking, we consider conduct as equivalent if
the fiduciary "consciously disregards (or is willfully blind to) "a substantial
and unjustifiable risk" that his conduct will turn out to violate a fiduciary
duty." 7
Again, reviewing the admissible evidence submitted by Lewis, the court finds that
the parties intent and whether there was the existence of a fiduciary relationship between
Lewis and Gorny are genuine issues of material fact requiring the testimony and evidence.
Willful or malicious injury
The United States Supreme Court also held that under§ 523(a)(6), the word
"willful" modifies the word "injury" indicating that non-dischargeability takes a deliberate
6 In re Parker, 264 B.R. 685 (10'" Cir. BAP 2001).
7 Bullock v BankChampaign. N.A., No. 11-1518, 2013 U.S. LEXIS 3521 ,(March 18, 2013).
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or intentional injury, not merely a deliberate or intentional act that leads to injury.
Negligent or reckless acts do not suffice to establish that a resulting injury is "willful and
malicious. Intentional torts generally require that the actor intended "the consequence of
an act" not simply the act itself. 8
Upon a review of the pleadings, the court finds there are genuine issues of material
fact including, but not limited to: the relationship between the parties; whether a fiduciary
relationship existed; and whether the transaction was a loan or a transaction where Gorny
entrusted the funds to Lewis to purchase the lots. Additionally, the court finds that there
are genuine issues of material fact regarding Lewis' intent concerning the consequences of
his actions. Lewis' statement that he has "no feeling of malice to Ms. Gorny ... " does not
suffice to establish that the resulting injury to Gorny was not willful or malicious.
Therefore, the court finds that upon reviewing the admissible evidence, in the light
most favorable to Gorny, Lewis' motion for summary judgment fails and must be denied.
This opinion constitutes the Court's findings offact and conclusions of law. A
separate order shall be entered pursuant to Fed. R. Bankr. P. 9021.
DATED thi~ day of May, 2013.
Service to:
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Paul Hunter
Timothy L. Woznick
8 Kawaahau v. Geiger. 523 U.S. 57 (1998).
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