Kirvan v. Camp Inn Lodge, LLC (In re Kirvan)

In re: GENE M. KIRVAN Debtor,

GENE M. KIRVAN, Appellant/Defendant, v. CAMP INN LODGE, LLC, Appellee/Plaintiff.

Case No. 20-CV-12491

Bankruptcy Case No. 17-2274-DOB

Adversary Case No. 17-02120-DOB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION

February 19, 2021

Honorable Thomas L. Ludington

Magistrate Judge Patricia T. Morris

Honorable Daniel S. Opperman

ORDER AFFIRMING BANKRUPTCY COURT'S OPINION AND JUDGMENT

On December 11, 2017, Appellant/Defendant Gene M. Kirvan ("Kirvan") filed for bankruptcy protection under Chapter 13 of the United States Bankruptcy Code. Shortly thereafter, Appellee/Plaintiff Camp Lodge Inn, LLC ("Camp Inn") filed an adversary complaint against Kirvan, claiming that he had embezzled over $50,000 from Camp Inn and that such funds were non-dischargeable under 11 U.S.C. §§ 523(a)(4) and (a)(6). On August 19, 2020, after a six-day trial on the merits, United States Bankruptcy Court Judge Daniel S. Opperman entered an opinion finding that Kirvan had embezzled $55,857.45 from Camp Inn and that such amount was non-dischargeable under §§ 523(a)(4) and (a)(6). Judge Opperman later entered a judgment awarding Camp Lodge trebled damages of $167,542.35 and reasonable attorney fees and costs under M.C.L. § 600.2919a. Kirvan filed his Notice of Appeal on September 11, 2020. ECF No. 1. The matter has been fully briefed by the parties. ECF Nos. 16, 17, 19. For the reasons stated below, the Bankruptcy Court's Opinion and Judgment will be affirmed.

I.

A.

The evidence and arguments introduced at trial were thoroughly recounted in the Bankruptcy Court's findings of fact, which are reprinted below in their entirety:

The trial of this adversary proceeding, which spanned six days, is a tale of two theories. Camp Inn's first theory is that the testimony and exhibits demonstrate that Mr. Kirvan took $59,752.45 from Camp Inn over the course of approximately 1 ½ years by pulling cash receipts from the hotel operations of Camp Inn and pocketing that money directly.¹ Per Camp Inn, the testimony of lay witnesses sets the foundation for this theory and the testimony of an expert witness, Cynthia Scott, a certified public accountant and certified fraud examiner, establishes the liability of Mr. Kirvan. Camp Inn's second theory examined and explored the reported income and expenses of Mr. Kirvan over the same period to demonstrate that Mr. Kirvan was living well beyond his known income means and therefore must have taken cash from Camp Inn. Mr. Kirvan's defense to these claims necessarily reacted to each theory separately.

Introduction of Parties and Circumstances

Deborah Wiltse is the sole member of Camp Inn. For many years she was involved in the restaurant business with her ex-husband and she has years of experience running a restaurant, Wiltse Brew Pub & Family Restaurant. During this time, Ms. Wiltse befriended Monsignor James Brucksch, the Catholic Priest for her church. As was Ms. Wiltse's family tradition, she included Mons. Brucksch in many family events, including vacations. Ms. Wiltse's marriage ended in divorce, and she received a settlement with her ex-husband of $150,000.00 that paid her a monthly income in which to live. Ms. Wiltse continued to work at the family business, and prior to her divorce she hired Mons. Brucksch as a part-time bookkeeper.

Shortly after her divorce was finalized, Mr. Kirvan entered her life. Mr. Kirvan was likewise in the midst of a divorce proceeding which was finalized in 2011. Mr. Kirvan is a man of many talents. He is a carpenter, a fishing guide on both Lake Huron and various rivers in Northern Michigan, and a manager of hotels. Prior to meeting Ms. Wiltse, he managed a local Days Inn and did various carpentry and fish guiding projects on the side. He moved in with Ms. Wiltse in 2011.

Camp Inn Lodge Opportunity

After her 2012 divorce, Ms. Wiltse continued to work at the family restaurant but was increasingly uncomfortable doing so. She started looking for an opportunity to work elsewhere and discovered that a local hotel and restaurant, Woodland Pines, could be acquired. Unfortunately, Ms. Wiltse did not have a substantial amount of money to make a down payment, but she was offered extremely favorable terms by the current owner because he wished to get out of this business. Ms. Wiltse felt extremely comfortable that she could run the restaurant portion of the business, but she had no experience in running a hotel. Mr. Kirvan, however, had significant experience running two local motels and persuaded her that he could manage the hotel operations and she could run the restaurant. After much discussion, the two of them agreed to enter into this enterprise and did so in 2014.

The parties spent significant time at trial arguing whether Mr. Kirvan was a 50% owner of Camp Inn. Camp Inn, through Ms. Wiltse, vehemently denies his assertions and for the most part the paperwork supports her position. First, an original draft of the purchase agreement did include Mr. Kirvan as a purchaser, but his name was quickly taken off all documents at her direction. Second, there is no evidence that Mr. Kirvan advanced any monies whatsoever to acquire Camp Inn or form a new limited liability company. Third, Mr. Kirvan's criminal background precluded him from owning a membership interest in an organization that had a liquor license. While it is true that Mr. Kirvan produced evidence that Ms. Wiltse referred to him as her "partner" either directly or indirectly, the preponderance of the evidence weighs heavily in favor of Ms. Wiltse's position and against Mr. Kirvan's.

Ms. Wiltse and Mr. Kirvan began operating Camp Inn in the spring of 2014. During this time, Ms. Wiltse worked full-time at Camp Inn, but Mr. Kirvan split his time with his then current employer, as well as being a fishing guide. During this time, Mr. Kirvan did some remodeling of Camp Inn but utilized his former employer's account to procure the remodeling resources. Although his former employer's account was used, Camp Inn paid for these resources. Additionally, Mr. Kirvan used some countertops, sinks, fixtures, and keys that he claims were given to him by the previous owner of his previous employer, but that a dispute arose afterwards as to whether these items were actually given to Mr. Kirvan. As a result, Mr. Kirvan pleaded nolo contendere to a criminal charge in state court.

Operation of Camp Inn Lodge Hotel Division

Camp Inn is a classic Northern Michigan lodging enterprise that offers overnight accommodations. Guests check into the hotel at a front desk and make arrangements to pay for their hotel room either with cash, check, or credit card. Quite often, these rooms are reserved ahead of time and Camp Inn utilizes a computer program commonly known as the Room Master program.

Turning to the check-in and payment process, the front desk clerk takes care of the routine confirmation of the rooms, guests and reservations, the exchange of information and keys to a room, and the finalization of payment terms. If a credit card is used, the credit card information is taken and retained on a short-term basis. If a check or cash is the form of payment, the check or cash is received and then placed in an envelope. Each front desk clerk works approximately 8 hours, so for any given day there would be three envelopes, one for each front desk clerk. The envelope containing all of the payment terms or mediums is placed in the package along with the report indicating the particular room rented to the customer and other vital details.

Initially, Mons. Brucksch received the daily envelope and made the necessary arrangements to input the information in Camp Inn's computer, as well as prepare the deposit for the bank. Mons. Brucksch would take the information, prepare the necessary deposit slip and then present this package to the bank for deposit of checks and cash. Approximately 1 ½ months into this process, Mr. Kirvan expressed a great amount of frustration with Mons. Brucksch because he, per Mr. Kirvan, was having difficulty managing all of these tasks. Accordingly, he persuaded Ms. Wiltse to tell Mons. Brucksch that the initial daily packet should be delivered to Mr. Kirvan, who in turn would input the necessary information and then give the check, cash, and credit card information to Mons. Brucksch to process for a deposit. From mid-2014 through mid-2016, this protocol was in place. It is during this time that Camp Inn claims that Mr. Kirvan began slipping cash out of the daily envelopes and pocketing this money. Mr. Kirvan denies doing so.

Per Camp Inn, Mr. Kirvan would receive the daily package and prepare a slip for Mons. Brucksch to review. Since the credit card payments were made directly through the credit card processing system, Mr. Kirvan could not take any of these funds. The same is true for checks made payable to Camp Inn. But cash could be, and in Camp Inn's view, was taken by Mr. Kirvan. As its view goes, Mr. Kirvan would, from time to time, take cash out of the daily packages, jot down a different number for Mons. Brucksch to deposit, and then hand the information to Mons. Brucksch to complete the process.

By early 2016, the personal relationship between Mr. Kirvan and Ms. Wiltse deteriorated. Mr. Kirvan admitted that he was openly utilizing online dating sites while still living with Ms. Wiltse because he could see that this relationship would soon end. Also, he knew that the divorce payments to Ms. Wiltse would soon be completed. Accordingly, Mr. Kirvan arranged to purchase a separate house and began renovations on that house, all without the knowledge of Ms. Wiltse. This came to a head when Ms. Wiltse began learning of some of these developments and she resolved to fire Mr. Kirvan. After doing so, she began examining the hotel receipt records and saw that the expected revenues and the actual revenuesdid not match up. She brought in her accountant, who assigned Ms. Scott to investigate the possibility of

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