James River Petroleum, Inc. v. Dickson (In re Dickson)

In re: JAMES DOUGLAS DICKSON,

NIKOLE ANN DICKSON, Debtors.

JAMES RIVER PETROLEUM, INC., Plaintiff, v. NIKOLE ANN DICKSON, Defendant.

Case No. 19-70934-SCS

APN 19-07013-SCS

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA NORFOLK DIVISION

September 29, 2020

Chapter 7

MEMORANDUM OPINION

This matter came on for trial on January 28, 2020, upon the Complaint Pursuant to 11 U.S.C. § 523 Objecting to the Dischargeability of the Debt to James River Petroleum, Inc. and for Entry of Judgment filed by James River Petroleum, Inc. ("James River"). At the conclusion of the trial, the Court took this matter under advisement. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(b)(2) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. Upon consideration of the evidence, arguments presented by counsel at the trial, and pleadings submitted, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I. PROCEDURAL HISTORY

Nikole Ann Dickson ("Mrs. Dickson") and James Douglas Dickson ("Mr. Dickson," and collectively, with Mrs. Dickson, the "Debtors") filed, by counsel, a petition under Chapter 7 of the United States Bankruptcy Code on March 14, 2019. On their schedules, the Debtors listed $186,289.55 in total unsecured nonpriority debt with the amount owed to James River set forth as "unknown." See Schedule E/F, Case No. 19-70934-SCS, ECF No. 1, at 35, 42. The § 341 Meeting of Creditors was held and concluded on April 23, 2019. The Debtors received their Chapter 7 discharge on July 1, 2019. Seven days prior, on June 24, 2019, James River filed a Complaint Pursuant to 11 U.S.C. § 523 Objecting to the Dischargeability of the Debt to James River Petroleum, Inc. and for Entry of Judgment, which commenced the above-captioned Adversary Proceeding. Complaint Pursuant to 11 U.S.C. § 523 Objecting to the Dischargeability of the Debt to James River Petroleum, Inc. and for Entry of Judgment, Adv. Proc. No. 19-07013-SCS, ECF No. 1 (hereinafter, "Complaint").

In the Complaint, James River requests the Court to determine the dischargeability of the debt owed by Mrs. Dickson pursuant to a lease agreement and consignment contract entered into between James River and Dickson Convenience Store LLC (hereinafter, "Dickson Convenience") on September 21, 2017, and a guaranty agreement entered into between Mrs. Dickson, Dickson Convenience, and James River on the same day. See id. at preamble, paras. 9-10, 12. Under the lease agreement, James River leased a convenience store located in Elizabeth City, North Carolina, to Dickson Convenience. Id. at para. 9; see also id. Ex. A, Lease Agreement between James River Petroleum, Inc., and Dickson Convenience Store LLC, dated September 21, 2017 (hereinafter, "Lease Agreement"), at preamble.¹ As a condition precedent to the Lease Agreement, James River required Dickson Convenience to enter into a consignment contract for James River's delivery of petroleum products to Dickson Convenience. Id. at paras. 9-10; see also id. Ex. B, ConsignmentContract between James River Petroleum, Inc., and Dickson Convenience Store LLC, dated September 21, 2017 (hereinafter, "Consignment Contract"), at para. B(1).² When Dickson Convenience sold the petroleum products, the proceeds were to be paid to James River. Id. at paras. 11, 13. James River alleges that the proceeds from the cash sales of consigned petroleum products constituted its property. Id. at paras. 1, 11, 13. However, Mrs. Dickson and Dickson Convenience purportedly failed to comply with the Consignment Contract by failing to turn over all daily cash proceeds to James River. Id. at paras. 1, 13. Mrs. Dickson individually guaranteed all payments and obligations under the Lease Agreement and Consignment Contract. See id. at para. 12; see also Consignment Contract Ex. B (Guaranty Agreement between Nikole Dickson and James River Petroleum, Inc., dated September 21, 2017) (hereinafter, "Guaranty Agreement").³ James River seeks to have the Court declare the amounts guaranteed by Mrs. Dickson to be nondischargeable pursuant to 11 U.S.C. §§ 523(a)(4) and 523(a)(6) and further requests entry of judgment against Mrs. Dickson for breach of fiduciary duty and conversion. Complaint, at preamble, paras. 12, 18, 25, 35, 41.

According to James River, Mrs. Dickson and Dickson Convenience had a fiduciary duty to turn over all proceeds from the sale of petroleum products each day under the Guaranty Agreement and the Consignment Contract, respectively. Id. at para. 15. James River asserts Mrs. Dickson intentionally caused Dickson Convenience to fail to turn over $171,575.11 of funds held in trust for the benefit of James River and was personally responsible for Dickson Convenience's conduct. Id. at paras. 16-17. James River argues Mrs. Dickson's actions constituted a breach of her fiduciary duties to Dickson Convenience. Id. at para. 18. James River further alleges thatDickson Convenience and Mrs. Dickson are additionally liable for late fees equal to 10 percent of the funds not turned over to James River pursuant to the Consignment Contract and the Guaranty Agreement, for total late fees of $17,157.51. Id. at para. 19; see also Consignment Contract, at para. C(5)(a). Additionally, James River alleges that Mrs. Dickson agreed to indemnify and hold James River harmless for any loss or damages, including attorney's fees, arising out of Dickson Convenience's failure to comply with the Consignment Contract. Complaint, at para. 20; see also Consignment Contract, at para. E(12); Guaranty Agreement, at para. 1.

Next, James River asserts that Mrs. Dickson's failure to turn over the $171,575.11 in proceeds from the sale of petroleum products constituted conversion because she fraudulently appropriated funds belonging to James River for her own benefit or the benefit of Dickson Convenience. See Complaint, at paras. 22-23. James River argues that Mrs. Dickson deprived James River of possession of the proceeds and that she wrongfully exerted dominion over that sum, which was inconsistent with James River's rights to the funds. Id. at paras. 24-25. James River contends that Mrs. Dickson knew that the $171,575.11 constituted its property and that she intended to permanently deprive James River of those funds. Id. at paras. 26-27.

Third, James River alleges that Mrs. Dickson's outstanding debt to James River, including the $171,575.11 in funds not turned over to it, the related late fees, and James River's attorney's fees and costs, are nondischargeable because they arose from Mrs. Dickson's and Dickson Convenience's fraud and defalcation. Id. at para. 30. James River argues that Mrs. Dickson and Dickson Convenience owed fiduciary duties to it with respect to the funds, which it asserts were to be held in express trust for James River's benefit, that Mrs. Dickson was personally responsible for Dickson Convenience's conduct, and Mrs. Dickson caused Dickson Convenience to fail to turn over the funds that were to be held in trust. Id. at paras. 29, 32. James River contends Mrs. Dicksonfraudulently appropriated the funds for her own benefit or for the benefit of Dickson Convenience. Id. at paras. 31, 34. James River alleges that Mrs. Dickson's conduct "constitutes fraud and defalcation while acting in a fiduciary capacity, embezzlement and larceny" pursuant to 11 U.S.C. § 523(a)(4). Id. at para. 35.

Finally, James River alleges that Mrs. Dickson caused injury to James River by converting the latter's funds without just cause or excuse. Id. at paras. 37, 40. James River asserts that Mrs. Dickson intended to wrongfully deprive James River of its funds, acting with substantial certainty that her actions would cause harm to James River. Id. at paras. 38-39. James River contends that Mrs. Dickson maliciously converted James River's funds, demonstrating a subjective motive to cause harm to James River. Id. at paras. 37, 39. James River alleges that Mrs. Dickson's actions constitute willful and malicious injury within the meaning of 11 U.S.C. § 523(a)(6), making the resulting damages nondischargeable. Id. at para. 41. The Complaint asserts that the total nondischargeable debt pursuant to 11 U.S.C. §§ 523(a)(4) and 523(a)(6) is not less than $171,575.11, plus late fees of $17,157.51, attorney's fees and costs, and pre- and post-judgment interest at the federal judgment rate. Id. at prayer.

Mrs. Dickson, by counsel, filed an answer to the Complaint on July 26, 2019, admitting that she entered into the Lease Agreement and Consignment Contract. See Answer to Complaint, Adv. Proc. No. 19-07013-SCS, ECF No. 5 (hereinafter, "Answer"), at paras. 9-10. Mrs. Dickson admits that the Consignment Contract "contains a guaranty" but does not waive any defenses with respect to the Guaranty Agreement and neither admits nor denies that she entered into such agreement. Id. at para. 12. Mrs. Dickson denies that James River, under the terms of the Consignment Contract, could access and track all of Dickson Convenience's sales through James River's point of sale system and demands strict proof of accounting. Id. at para. 13.

Mrs. Dickson admits that James River owned the proceeds from the sale of the petroleum products. Id. at para. 1. However, Mrs. Dickson denies that she and Dickson Convenience intentionally failed to comply with the Consignment Contract by failing to turn over all daily proceeds from the cash sale of petroleum products. Id. at paras. 1, 11, 13, 16. Mrs. Dickson rejects James River's assertion that she and Dickson Convenience owed any fiduciary such duties to James River to turn over all proceeds from the sale of petroleum products. Id. at para. 15. Mrs. Dickson denies that she intentionally caused Dickson Convenience to fail to turn over the funds and that she was personally responsible for Dickson Convenience's conduct. Id. at paras. 16-17. Mrs. Dickson further denies that she breached her...