DMM Grp., Inc. v. Hanna (In re Hanna)

603 B.R. 571

IN RE: Danny HANNA, Debtor.

DMM Group, Inc., Plaintiff's,

v.Danny Hanna, Defendant.

Case No. 17-30338

Adversary No. 17-03240

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed July 19, 2019

Walter J. Cicack, Jeremy M. Masten, Hawash Cicack & Gaston LLP, Houston, TX, for Plaintiff.

Reese W. Baker, Reese W. Baker, Baker & Associates LLP, Houston, TX, for Defendant.

MEMORANDUM OPINION REGARDING PLAINTIFF DMM GROUP, INC.'S COMPLAINT FOR DETERMINATION THAT DEBT IS NONDISCHARGEABLE

Jeff Bohm, United States Bankruptcy Judge

I. INTRODUCTION

Danny Hanna ("the Debtor ") filed a Chapter 13 petition on January 23, 2017 ("the Petition Date ") [Main Case Doc. No. 1]. On May 9, 2017, DMM Group, Inc. ("DMM ") initiated the pending adversary proceeding against the Debtor [Adv. Doc. No. 1]. Prior to the Debtor's filing of his Chapter 13 petition, DMM extended a loan of $150,000.00 to the Debtor's 100%-owned company, a debt that the Debtor personally guaranteed. DMM requests this Court to enter a judgment for the amount of the unpaid loan, plus attorneys' fees and costs, as a nondischargeable debt for which the Debtor is liable under 11 U.S.C. § 523(a)(2)(A).¹

The Court held a one-day trial in this adversary proceeding on May 29, 2019. The Court then took the matter under advisement. On July 1, 2019, this Court held a brief hearing to announce orally on the record that it had decided to grant the relief sought by DMM. The Court indicated that it would eventually issue written Findings of Fact and Conclusions of Law, together with a judgment, explaining its decision. However, the Court informed the parties that it would refrain from entering its written findings and conclusions, plus the judgment, until after DMM had proven up its reasonable attorneys' fees and costs. The Court instructed DMM's counsel to submit his fee bills to counsel for the Debtor by no later than noon on July 3, 2019, and also instructed the Debtor's counsel to file a certificate by no later than 5:00 p.m. on July 10, 2019 setting forth whether the Debtor objected to the amount of the fees and expenses requested by DMM. The Court further stated that if, and only if, the Debtor filed an objection would this Court hold a separate evidentiary hearing requiring DMM to prove up its reasonable attorneys' fees and expenses.

DMM's counsel did, in fact, timely submit his firm's fee bills, which reflect that the DMM's fees and expenses total $19,031.79. [Adv. Doc. No. 42]. The deadline of July 10, 2019 for the Debtor to file a certificate objecting to this amount has expired, and the Debtor has lodged no objection. Accordingly, the Court finds that the Debtor agrees that the amount of $19,031.79 is a reasonable amount for DMM to recover from the Debtor.²

Now that the issue of reasonable attorneys' fees and expenses has been determined, the Court proceeds to issue these written Findings of Fact and Conclusions of Law pursuant to Rule 7052 explaining why it has decided to grant the relief requested by DMM and enter a judgment declaring that $219,535.47, the outstanding amount owed under the loan documents (including unpaid principal, accrued unpaid interest, attorneys' fees and expenses) is a nondischargeable obligation owed by the Debtor. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as this Court deems appropriate or as may be requested by either of the parties.

II. FINDINGS OF FACT

1. The Debtor is a former principal of Blackwolf Security Group, LLC ("Blackwolf "). Blackwolf's headquarters was in the Woodlands, Texas, and it was in the security business—i.e. providing security to various corporations and organizations. [Tape Recording, May 29, 2019, Tr. at 10:17:24 - 10:17:35 a.m., 2:53:38 - 2:54:14 p.m.].

2. DMM is owned entirely by Dale Mohn ("Mohn "). [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m.]. Mohn is the sole decision-maker for DMM, whose business involves security consulting and making investments, which includes extending loans. [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m., 1:49:28 - 1:49:32 p.m., 2:20:22-2:20:46 p.m.].

3. Patrick Magill ("Magill ") is an accountant who has referred business to DMM in the past. [Tape Recording, May 29, 2019, Tr. at 1:49:25 - 1:49:42 p.m.].

4. Magill also provided accounting services to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:42 - 1:49:54 p.m.].

5. Magill suggested to Mohn that DMM might want to provide financing to Blackwolf, and a meeting was subsequently arranged. [Tape Recording, May 29, 2019, Tr. at 1:49:35 - 1:49:42 p.m.].

6. In early June of 2016, Mohn met with the Debtor, Magill, and Catherine Carriger ("Carriger "). [Tape Recording, May 29, 2019, Tr. at 1:48:46 - 1:49:03 p.m.]. The purpose of the meeting was to introduce the parties and to discuss a possible loan from DMM to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:03 - 1:49:42 p.m.]. At this meeting, Mohn met the Debtor and Carriger for the first time. The Debtor informed Mohn that Carriger was in the process of obtaining a security permit and setting up her own minority-owned company in Dallas—Blackwolf SG, LLC ("SG ")—to maximize the potential of securing a large contract with the U.S. Department of Labor. [Tape Recording, May 29, 2019, Tr. at 2:54:48 - 2:55:07 p.m.].

7. This meeting lasted approximately ninety minutes. [Tape Recording, May 29, 2019, Tr. at 1:52:03 - 1:52:08 p.m.]. The Debtor did much of the speaking and expressly represented to Mohn that Blackwolf was expanding its operations with a Dallas office and was planning to start a training business in Dallas. [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact Nos. 12b and 12g, page 7 of 13]. The Debtor further represented to Mohn that Blackwolf and SG needed a $150,000.00 loan to expand their respective businesses in Dallas. [Tape Recording, May 29, 2019, Tr. at 1:50:41 -1:51:17 p.m.]. Indeed, the Debtor expressly told Mohn that if DMM would extend financing of $150,000.00, all of the loan proceeds would be used solely to expand business operations in Dallas and that no loan proceeds would be used to pay Hanna or Carriger or for any non-business related purpose. [Tape Recording, May 29, 2019, Tr. at 2:00:10 - 2:00:50 p.m.]; [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12a, page 7 of 13]. The Debtor also informed Mohn that Blackwolf anticipated an increase in profits of approximately fifteen percent given the business in its pipeline. [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12e, page 7 of 13]. The Debtor also reviewed Blackwolf's balance sheet in order to acquaint Mohn with Blackwolf's financial condition at the time. [Tape Recording, May 29, 2019, Tr. at 1:50:17 - 1:50:27 p.m.]. However, the Debtor did not allow Mohn to take a copy of this balance sheet with him once the meeting adjourned because Mohn had not signed a non-disclosure agreement. [Tape Recording, May 29, 2019, Tr. at 1:50:25 - 1:50:32 p.m., 2:22:30 - 2:23:07 p.m.]. Based upon the financial statements that Mohn reviewed during the meeting, he tentatively concluded that Blackwolf and SG were viable operating entities to which DMM might extend financing. [Tape Recording, May 29, 2019, Tr. at 2:24:00 - 2:24:07 p.m.]. At this initial meeting, Mohn also asked some questions about Blackwolf, including whether the company was involved in any legal proceedings at the time. [Tape Recording, May 29, 2019, Tr. at 1:51:26 - 1:51:38 p.m.]. The Debtor responded that it was not—which was a truthful statement at that time. [Tape Recording, May 29, 2019, Tr. at 1:51:38 - 1:51:43 p.m.]. When the meeting was concluded, Mohn made no decision to provide the requested financing. [Tape Recording, May 29, 2019, Tr. at 1:51:18-1:51:25 p.m.].

8. In late August of 2016, the Debtor and Mohn met again to discuss the possibility of DMM extending a loan to Blackwolf and SG. [Tape Recording, May 29, 2019, Tr. at 1:52:29 - 1:52:41 p.m.]. Mohn also met Matt Antkowiak ("Antkowiak ") at this meeting. [Tape Recording, May 29, 2019, Tr. at 2:27:40 - 2:27:57 p.m.]. Antkowiak was Blackwolf's quality manager, compliance officer, and operations manager who would be responsible for opening and running Blackwolf's Dallas office and obtaining contracts with the Department of Labor. [Tape Recording, May 29, 2019, Tr. at 10:18:49 - 10:19:16 a.m., 10:45:56 - 10:46:18 a.m., 2:28:00 - 2:28:17 p.m.]. Paul Cherry ("Cherry "), a CPA and colleague of Magill, also attended this meeting. [Tape Recording, May 29, 2019, Tr. at 1:52:29 - 1:52:53 p.m.]. When the meeting was concluded, Mohn decided to provide the requested financing. [Tape Recording, May 29, 2019, Tr. at 2:31:44 - 2:31:57 p.m.].

9. On or about August 22, 2016, Blackwolf's account at Spirit of Texas Bank was frozen and the Spirit of Texas Bank commenced legal proceedings against Blackwolf, the Debtor, and Carriger. [Plaintiff's Ex. 28, BS 117-127]. This lawsuit was styled: Cause No. 2016-56225, Spirit of Texas Bank SSB v. Blackwolf Security Group LLC, Danny B. Hanna, and Catherine G. Carriger, in the 113th Judicial District Court, Harris County, Texas ("the State Court Lawsuit "). [Plaintiff's Ex. 28, BS 117-127]. The Debtor did not disclose these facts to Mohn at this time. [Tape Recording, May 29, 2019, Tr. at 11:00:08 - 11:00:27 a.m.].

10. On or about August 30, 2016, Blackwolf failed to make scheduled payroll to its employees. [Tape Recording, May 29, 2019, Tr. at 10:36:20 - 10:36:31 a.m.]. The Debtor did not disclose this fact to Mohn at this time. [Tape Recording, May 29, 2019, Tr. at 10:35:10 - 10:35:30 a.m.].

11. At this point in time, the Debtor became very concerned about the continued viability of Blackwolf. [Tape Recording, May 29, 2019, Tr. at 11:08:18

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