In re Tinkler

311 B.R. 869

In re Charles F. TINKLER, Jr., Debtor Bombardier Capital, Inc., Plaintiff, v. Charles F. Tinkler, Jr., Defendant.

Bankruptcy No. 03-10189 DEC. Adversary No. 3-1304 HRT.

United States Bankruptcy Court, D. Colorado.

June 2, 2004.

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Nancy D. Miller, Denver, CO, for Debtor.

Maria J. Flora, Denver, CO, for Trustee.

ORDER

HOWARD R. TALLMAN, Bankruptcy Judge.

This case comes before the Court on Plaintiffs Amended Complaint for Determination that Debt is not Dischargeable the "Amended Complaint". The matter was tried to the Court on March 29, 2004 and March 30, 2004. The Court has reviewed the evidence adduced at trial and has considered the arguments of the parties. It is now ready to rule.

Plaintiffs Amended Complaint states causes of action under 11 U.S.C. § 523 for nondischargeability of Defendant's debt to Plaintiff due to: embezzlement or larceny, § 523(a)(4); and willful and malicious injury, § 523(a)(6). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b).

Facts

The following facts are relevant to the Court's determination of this matter:

1. Defendant Charles F. Tinker, Jr., "Mr. Tinkler" was President, director and sole shareholder of Grand Lake Motor Sports, Inc., a Colorado Corporation "Grand Lake".

2. Grand Lake was in the business of selling, renting and servicing snowmobiles, all terrain vehicles and associated recreational equipment.

3. Plaintiff, Bombardier Capital, Inc. "BCI", provided floor plan financing for Grand Lake's purchase of snowmobiles, sleds, repair parts, accessories and related equipment sold by Grand Lake in the ordinary course of its business.

4. On September 14, 1994, Grand Lake entered into an Inventory Security Agreement and Power of Attorney with BCI the "Agreement".

5. The Agreement provides generally that BCI would extend credit to Grand Lake for the acquisition of inventory and other purposes. It further provided that Grand Lake granted a security interest to BCI in all of the inventory purchased with the credit provided by BCI.

6. Grand Lake purchased snowmobiles from BCI for two distinct purposes:

a. To resell as new machines; and

b. To use as rental machines.

7. The Agreement specifies two payment plans: 1) Pay as Sold Plan; and 2) Scheduled Payment Plan. The Agreement provides that payment shall be made according to either or a combination of those plans, at BCI's discretion. The Scheduled Payment Plan, as described in the Agreement, contains no provision for payment of the balance due on a piece of inventory when sold.

8. Tom Stich testified on behalf of BCI. He is currently an employee of Bombardier Recreational Products, Inc., out of Sherbrooke, Quebec, and formerly, during the time period relevant to this action, he was a BCI employee. Mr. Stich testified that retail snowmobile inventory was to be paid as sold; parts and accessories were to be paid on scheduled payments; and rental machines were to be paid on scheduled payments, but the balance due on each machine was payable when sold.

9. The evidence that BCI pointed to in support of the stated payment arrangement for the rental machines was a document called a "dealer binder." Dealer binders for the 1998-1999 season and for the 1999-2000 season were introduced into evidence. Each of those documents contains language that supports Mr. Stich's interpretation of Grand Lake's payment obligation on the rental machines. The Court will not take those documents into consideration for two reasons:

a. Neither one covers the time period at issue in this case;

b. Both documents were prepared by Bombardier Recreational Products on behalf of Bombardier Motor Corporation of America. Both of those entities are separate and distinct from the Plaintiff seeking to enforce its security agreement in this adversary matter.

10. Mr. Tinkler is the Debtor in bankruptcy case number 03-10189 MER filed in the Bankruptcy Court for the District of Colorado on January 7, 2003.

11. BCI filed a proof of claim in Tinker's bankruptcy case in the amount of $229,521.81. Of that amount, BCI claims that the nondischargeable portion is either:

a. $110,000.00 based upon the amount of proceeds received by Grand Lake and generated by the sale of inventory to a third party which was not turned over to BCI; or

b. $189,000.00 based upon the value of inventory for which Grand Lake has been unable to account.

12. Between the dates of March 30, 2002, and May 13, 2002, Grand Lake sold 39 snowmobiles financed by BCI to one Tom Scheele for a total of $110,659.95. Such sales were made without the consent or knowledge of BCI.

13. On May 8, 2002, an agent of BCI performed a floor check of Grand Lake's inventory.

a. Mr. Tinkler met with BCI's agent on that date and provided information to her for the floor check report.

b. The floor check report contains a notation that "all rentals are now at National Snowmobile, Inc., 60001 U.S. Hwy 40, Granby, CO 80446, XXX-XXX-XXXX, to be auctioned off 5-24-02;" but that notation was false at the time it was made.

c. Mr. Tinkler signed the floor check report certifying the accuracy of the information contained on the report.

14. The snowmobiles which were sold to Tom Scheele were rental units and, at the time of the May 8, 2002, floor check report, thirty-three (33) of those rental units had already been sold to Scheele.

15. There was no auction of Grand Lake's rental units on May 24, 2002, or any other date.

16. Throughout the course of the Agreement, it had been Grand Lake's practice to pay over proceeds from the sale of new snowmobiles financed by BCI at the time that the periodic floor check was performed and not at the time of each sale.

a. BCI asserts that this practice was contrary to the Agreement and asserts that the Agreement required payment to be made to BCI at the time any BCI financed snowmobile was sold.

b. BCI knew of and had complained about Grand Lake's practice.

17. It had been Grand Lake's practice in prior years to sell off its inventory of rental machines in the Spring of the year and to wait until the Fall of the same year to make payment to BCI for those units. This practice was done without BCI's knowledge or consent.

18. The condition of Grand Lake's business in the Spring of 2002 was such that Tinker knew that the business would not survive over the summer months unless the business received additional capital or relief from its debt.

19. In the Spring of 2002, Mr. Tinkler was trying to address Grand Lake's business problems:

a. By attempting to refinance a mortgage on real property to generate cash;

b. By attempting to obtain funds from investors;

c. By approaching BCI and requesting that Grand Lake's current debt be placed on an unsecured note to be paid over time so that new inventory could be purchased under the Agreement.

20. On or about May 21, 2002, BCI learned for the first time that the rental units had already been sold.

21. BCI repossessed Grand Lake's remaining inventory on June 12, 2002.

Discussion

This action is brought to except Mr. Tinkler's debt to BCI from his bankruptcy discharge. BCI proceeds under two theories: 1) that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(4) as a debt for embezzlement or larceny; or 2) that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(6) as a debt for willful and malicious injury.

Liability Against Tinkler in his Individual Capacity

The threshold issue in this case is whether Mr. Tinkler, the individual, may be held to account for the debts of Grand Lake Motor Sports, Inc. As a general rule, a corporate officer or shareholder, by virtue of that status alone is not liable for the acts or debts of the corporation. Newport Steel Corp. v. Thompson, 757 F.Supp. 1152, 1156 (D.Colo.1990) ("A corporation is a separate entity distinct from the individuals comprising it. Personal liability cannot be imposed on an officer of a corporation merely because that individual is serving in such a capacity.") (citing United States v. Van Diviner, 822 F.2d 960, 963 (10th Cir.1987)). That is true even when the officer controls the operations of the corporation or is the sole shareholder of the corporation. The fact that Mr. Tinkler signed a personal guarantee of the corporate debt is of no relevance in this context. Non-dischargeability under § 523 is based upon the actions of the Debtor and not upon the mere fact of a personal guarantee.

If Mr. Tinkler is guilty of a wrongful act, the Court would be justified in disregarding the corporate entity to hold him accountable for his tort. But, even though there was argument to the effect that Mr. Tinkler had diverted funds from BCI's collateral to his personal use, the Court has seen no documentary evidence nor has it heard any testimony that substantiates that claim.

Conversely, if the corporation has committed a tort and Mr. Tinkler's individual actions, as opposed to his general corporate control, caused the corporation's tortious act, then he may be held to account. Hoang v. Arbess, 80 P.3d 863, 867 (Colo.Ct.App.2003) ("While an officer of a corporation cannot be held personally liable for a corporation's tort solely by reason of his or her official capacity, an officer may be held personally liable for his or her individual acts of negligence even though committed on behalf of the corporation, which is also held liable.") (citing Snowden v. Taggart, 91 Colo. 525, 17 P.2d 305, 307 (1932)). The Court must, therefore, determine if Grand Lake has committed a state law tort. Wachovia Bank and Trust Co. v. Banister (In re Banister), 737 F.2d 225 (2nd Cir.1984) (The provisions of the security agreement did not establish the creditor's right to possession of sale proceeds from yachts, therefore, it could not show that out-of-trust sales constituted a conversion under New York state tort law.).

BCI claims that its collateral has been converted. "Conversion is any distinct,...