Bestway Concrete Co. v. Berkey (In re Berkey)

In re: JOHN WILLIAM BERKEY LYNDIA LANELL BERKEY Debtors.BESTWAY CONCRETE COMPANY Plaintiff,

v.JOHN WILLIAM BERKEY Defendant.

Case No. 08-25408 MER

Adversary No. 08-1919 MER

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLORADO

Dated August 18, 2011

The Honorable Michael E. Romero

ORDER

THIS MATTER comes before the Court on the following:

• Defendant's Dispositive Motion A: Bestway Claimed Damages on 10 Invoices That Have No Addresses and Defendant Received No Trust Fund Payments (Docket No. 115) ("Motion A").

• Defendant's Dispositive Motion B: Defendant Did Refund the Trust Funds Claimed by the Plaintiff in Regards to the Oakwood Homes 12 Joint Checks Thereby Eliminating Defendant's Responsibility to Plaintiff Under Colorado Trust Fund Statutes (Docket No. 116) ("Motion B").

• Defendant's Dispositive Motion C: Plaintiff Claimed Damages on Two Properties That Defendant Did Not Collect Trust Funds From the Builder (Docket No. 117) ("Motion C").

• Defendant's Dispositive Motion D: Bestway Concrete Signed Eleven (11) Oakwood Homes Joint Checks and Bestway Was Complicit in the Use of Funds (Docket No. 118) ("Motion D").

• Defendant's Dispositive Motion E: Bestway Was Paid by Builders and Released Liens for $112,954.28 of Invoices Bestway Now Claims as Due from Defendant Under the Colorado Mechanic Lien Trust Fund Statutes (Docket No. 119) ("Motion E").

• Defendant's Request Court's Leave to File an "Amended" Dispositive Motion A: Bestway Claimed Damages on 8 Invoices (Not 10 Invoices Previously Stated) that Have No Addresses and Defendant Received No Trust Fund Payments (Docket No. 126) ("Amended Motion A").

• Plaintiff Bestway's Response in Opposition to Defendant's Dispositive Motions A, B, C, D, and E (Docket No. 128) ("Response").

• Defendant's Motion for the Court's Leave for Defendant to File Response to Plaintiff's Response to Defendant's Dispositive Motions A, B, C, D, and E (Docket No. 130) ("Reply").

The Court hereby grants Defendant's motion for leave to file his Reply (Docket No. 130) and has considered that Reply as well as the other pleadings. Having reviewed the pleadings and the file and considered the legal arguments advanced by the parties, the Court makes the following findings of fact and conclusions of law.

JURISDICTION

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 (a) and (b) and 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I), as it involves the determination of the dischargeability of a particular debt.

BACKGROUND FACTS

The Complaint filed by Bestway Concrete Company ("Bestway") alleges it supplied concrete to one or more of Defendant John Berkey's ("Berkey") companies on several residential and commercial real estate projects. Berkey is the managing member and majority owner of Tech Companies, LLC ("Tech Companies"), which operated several entities, including Tech Foundations, LLC ("Tech Foundations"). The Complaint states Tech Foundations received payment of $655,143 from the developers of properties for which Bestway supplied materials but for which Bestway did not receive payment. Bestway alleges the funds were trust funds under the Colorado Trust Fund Statute ("TFS"),¹ and asserts Berkey, who is an individual member of Tech Foundations, is personally liable for the funds.

In addition, the Complaint alleges certain payments for materials were made by joint checks to Tech Foundations and Bestway in the amount of $184,716. According to the Complaint, Berkey forged a signature from Bestway and deposited the checks. Bestwaycontends the deposit of the checks with the forged signatures constitutes theft under the Colorado Theft Statute ("Theft Statute").²

The Complaint contains three claims for relief: (1) for nondischargeability of the $655,143 under 11 U.S.C. § 523(a)(4),³ pursuant to the TFS and for nondischargeability of treble damages under the Theft Statute; (2) for nondischargeability of the $184,716 under § 523(a)(4) under the TFS and for nondischargeability of treble damages under the Theft Statute; and (3) for nondischargeability of the $184,716 under § 523(a)(2)(A).

Berkey's Answer denies the TFS allegations, the Theft Statute allegations, and the fraud allegations. The Answer raises the following affirmative defenses: (1) failure to state a claim; (2) statute of limitations; (3) waiver, estoppel, or laches; and (4) damages are not authorized by law. On November 18, 2009, Berkey was given leave to amend his Answer to add ten defenses, all of which asserted fraud or unclean hands on the part of Bestway. In addition, Mrs. Berkey was dismissed as a party defendant.

On December 12, 2010, this Court entered an Order denying Bestway's and Berkey's Cross-Motions for Summary Judgment, and denying Berkey's First and Second Dispositive Motions.⁴ Thereafter, Berkey filed the pending Motions.

DISCUSSION

Motion A and Amended Motion A

The Court's file contains only the first page of Motion A, the certificate of mailing, and a summary labeled "Schedule A-Bestway Unpaid Invoices With No Addresses." However, on the first page of Motion A, Berkey states Bestway has submitted ten invoices, totaling $19,828.32. It also states no addresses were provided with these invoices, and Berkey has no record of addresses for the invoices, nor does he have a record of receiving payments from any builder for the invoices. Exhibit A does not indicate to whom the invoices were submitted, but appears to be simply a summary of those invoices.

Bestway's response to Motion A notes Berkey claims the following invoices have no addresses: Bestway Invoice Nos. 265619, 266037, 266438, 266439, 26941, 270118, 271409, 272116, 272934, and 273785. Bestway submits, as its Exhibit 1, copies of Invoice Nos. 265619, 266037, 266438, 266439, 26941, 270118, 271409, 272116, 272934, 273785, pointing out each invoice has a "ship to" address on its face.

Bestway recognizes cement pumpers may arrive at a central location at a building site, and be directed to a different lot in the site. However, Bestway asserts if it was not paid for the concrete delivery, it could file a lien against the property to which the concrete was supplied, and maintains the property addresses do not need to be listed on each invoice. In addition, Bestway argues even if Tech Foundations knew the property developer would not pay it specifically for the concrete delivered pursuant to the invoices, it also should have known payments it received from the developer were intended to cover Tech Foundations' standard costs, including concrete delivery, which costs would have been included in project bids by Tech Foundations. Bestway contends since Tech Foundations admitted it was paid on the subject contracts, it must have been paid with trust funds, and if Tech Foundations did not pay Bestway, it violated the TFS, as suppliers should have been paid in full before Tech Foundations used funds from the payments for its own purposes.

Regarding Bestway's response to Motion A, Berkey concedes he mistakenly referred to invoices without an address when he really meant to refer to invoices for a property with an unknown owner. Berkey agrees the invoices contain addresses, but asserts no trust fund monies were received for the invoices. He disputes Bestway's assertion he previously stated Tech Foundations was paid in full for its contracts with various developers. Rather, he contends Tech Foundations has written off a large portion of what it was owed from builders. He reiterates his argument the TFS does not require all funds on all projects must be used to pay trust fund vendors on all projects before funds can be used for other purposes, arguing each project must be accounted for separately.

Amended Motion A seeks to correct Berkey's assertion Bestway submitted ten invoices, totaling $19,828.32, for which no addresses were provided, and for which Berkey does not have records indicating payments from builders. According to Amended Motion A, the actual number of the subject invoices is eight, totaling $18,712.88. Bestway has not responded specifically to Amended Motion A, but presumably would raise the same arguments as to Berkey's assertions regarding the invoices as it raised in response to Motion A.

Under the TFS, the duty to account for the funds paid to a contractor or subcontractor, and to assign those funds by project, rests on the contractor or subcontractor to whom payments are made (in this case, Tech Foundations).⁵ Moreover, Berkey's Reply demonstrates the existence of genuine issues of material fact. First, he admits the subject invoices containedaddresses, but asserts the properties had unknown owners. There is no showing Bestway has a duty to track the owners of the properties for which concrete was delivered. Under the TFS, such tracking would be the duty of Tech Foundations. Whether such records exist is a question for trial. Second, the parties dispute whether, and how much, Tech Foundations was paid for the projects referred to in Motion A, another material fact. For these reasons, both Motion A and Amended Motion A must be denied.

Motion B

Motion B states Oakwood Homes issued 12 joint checks to Tech Foundations and Bestway in the amount of $60,780.78. These checks were cashed, but Bestway alleges they were not endorsed by Bestway, only by Tech Foundations. Motion B concedes the joint checks were not signed by Bestway, but asserts Berkey and US Bank, where Tech Companies' bank account was kept, agreed to repay the $60,780.78. Therefore, US Bank returned the $60,780.78 to Bestway through Oakwood Homes' bank, Compass Bank. According to Berkey, Oakwood Homes then repaid the $60,780.78 to Bestway, with the result no trust funds were received by Berkey that could be subject to the TFS.

In its response to Motion B, Bestway acknowledges joint checks were written to Tech Foundations and Bestway in the amount of $60,780.78, and alleges US Bank allowed Tech Foundations to deposit the joint checks without the endorsement of...