19 BK 00667, 19 AP 00592
The Plaintiff filed an adversary proceeding against the Defendant-Debtor, her former business partner at a failed brewery. She alleged a $600,000 debt he owed to her, which he personally guaranteed, was non-dischargeable because it was incurred by fraud (11 U.S.C. § 523(a)(2)(A)), fraud or defalcation by a fiduciary (§ 523(a)(4)), and the Debtor willfully and maliciously injured her (§ 523(a)(6)).
She alleged she was induced into loaning $600,000 and entering the business because the Debtor made the following misrepresentations: (1) the brewery would retain distribution rights to Cook County, Illinois; (2) the Plaintiff would be appointed a Class A member of the brewery and she would review all decisions, including who retains distribution rights; and (3) the Debtor would personally guarantee the loan. She testified that the Debtor gave away the Cook County distribution rights to a distributor behind her back without her permission and because these rights were not retained, potential investors backed out. The Defendant-Debtor testified that it was not possible to self-distribute in Cook County because after the Plaintiff stopped funding the business, it lacked sufficient funds for marketing, advertising, employees, and truck drivers necessary for self-distribution.
The court ruled against the Plaintiff, and in favor of the Defendant, finding the debt was dischargeable because the Plaintiff could not meet her burden to prove by a preponderance of the evidence that an exception to discharge applied. Regarding her fraud allegation under § 523(a)(2)(A), she could not show the Debtor made any false representations about the Cook County distribution rights, how the business would be run, or otherwise, since the evidence did not support her allegations. Regarding her § 523(a)(4) claim, she could not show an implied fiduciary relationship existed because their contract and testimony suggested the Plaintiff had at least as much power as the Debtor, if not more. Regarding her § 523(a)(6) claim, she could not show a “deliberate or intentional injury”: it was unclear that the Defendant intentionally filed the documents that allegedly gave away the distribution rights and the parties disputed whether the Plaintiff had the right to approve any and all contracts.
