Lawrence v. Barber (In re Barber)

605 B.R. 495

IN RE: Brace E. BARBER, and Natasha L. Barber, Debtors.

Erik D. Lawrence, Vigilant Security Services, LLC, and Philippi Property Group, LLC, Plaintiffs,

v.Brace E. Barber, Defendant.

CASE NO. 16-03942

ADV. NO. 16-90268

United States Bankruptcy Court, M.D. Tennessee.

Signed August 9, 2019

Erin Angeline Malone-Smolla, Austin Lenoy McMullen, Bradley Arant Boult Cummings LLP, Nashville, TN, for Plaintiffs.

Keith David Slocum, Harlan Slocum & Quillen, Columbia, TN, for Defendant.

MEMORANDUM OPINION

Marian F. Harrison, US Bankruptcy Judge

The trial of this case resembled a "who-done-it." Who owns the four Russian belt-fed machine guns and twelve AK-47 assault rifles? Where are these guns? Who absconded with the guns and other personal property? Was there an unauthorized use of another's credit cards without an intent to indemnify the responsible guarantor?

This matter is before the Court on the complaint filed by Erik D. Lawrence ("Lawrence") and his companies, Vigilant Security Services, LLC ("Vigilant"), and Philippi Property Group, LLC's ("Philippi") (collectively "Plaintiffs") to determine the dischargeability of their claims against Debtor/Defendant Brace E. Barber ("Barber"). The complaint alleges that Barber took guns and other personal property entrusted to him by Lawrence and continued to use company credit cards for which Lawrence was the guarantor. The complaint asserts that the Plaintiffs' claims are nondischargeable under 11 U.S.C. §§ 523(a)(4) and (a)(6). For the following reasons, which represent the Court's findings of fact and conclusions of law, pursuant to Federal Rule of Bankruptcy Procedure 7052, the Court finds that Plaintiffs' gun claim is nondischargeable but that the personal property and credit card claims are dischargeable.

I. BACKGROUND

A. PROCEDURAL HISTORY

On May 31, 2016, Brace E. Barber and Natasha L. Barber ("Debtors") filed a joint Chapter 7 petition. On September 19, 2016, Plaintiffs Lawrence and Philippi¹ initiated this adversary proceeding by filing their Complaint against Barber. The Debtors received a discharge on January 10, 2017. On November 13, 2018, Plaintiffs filed an Amended Complaint. The Amended Complaint prays for judgment of nondischargeability against Barber for all amounts owed to Plaintiffs. On December 20, 2018, Plaintiffs took the deposition of John Hickman ("Hickman").² A bench trial was held on January 17, 2019. The questions posed at trial in this adversary proceeding are: (1) whether Barber is liable for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny, which are nondischargeable pursuant to 11 U.S.C. § 523(a)(4) ; and (2) whether Barber is liable to Plaintiffs for willful and malicious injury to Plaintiffs or to the property of Plaintiffs, which is nondischargeable pursuant to 11 U.S.C. § 523(a)(6).³

B. THE PARTIES

Lawrence is a resident of West Virginia who oversees a security company that does consulting and training for the United States Government. Vigilant, owned by Lawrence, is a company specializing in executive protection, where he teaches security procedures to different corporate entities and/or military agencies. Philippi, a limited liability company owned by Lawrence, owns certain assets, including real property, vehicles, and personal property.

Barber is an individual who resides in the state of Tennessee. Barber is the President and Incorporator of General Stability, Inc. ("General Stability"), a corporation organized under the laws of the State of Delaware and doing business in the State of West Virginia, including Barbour County, West Virginia. Barber and General Stability entered into the Buy Sell Agreement with Lawrence to purchase Blackheart International, LLC ("Blackheart"). Barber became President of Blackheart in connection with the transactions discussed in greater detail below. Blackheart was a military equipment logistics company that would receive quotes from government agencies or military units for equipment and would provide the agencies or units with a quoted price and availability. Tom Cornejo ("Cornejo") was an employee at General Stability and assisted Blackheart with its operations after Barber became the President of Blackheart. Cornejo worked under the direction of Barber. Kirk Newton ("Newton") was also an employee at Blackheart before and after the company was sold to Barber. After Blackheart was sold to Barber, Newton worked under the direction of Barber.

Hickman ("Hickman") is a resident of Mississippi. He is the Vice President of a security company in McLean, Virginia. He was the initial owner of the guns at issue in this case.

C. BUY/SELL TRANSACTION

Lawrence and Barber first met in January 2013 at a gun dealer/distributor show in Las Vegas. While in Las Vegas, Lawrence and Barber decided to enter into a business transaction.

In the Buy Sell Agreement, dated February 20, 2013, Barber and General Stability agreed to buy 100% of the ownership of Blackheart and 100% of Vigilant from Lawrence. On April 1, 2013, the sale of Blackheart and Vigilant was completed, and Barber became the President and owner of Blackheart. As of April 1, 2013, all employees at Blackheart started reporting to Barber. After the closing, Philippi leased Blackheart certain premises, including one floor of a warehouse in Barbour County, West Virginia. On April 22, 2013, General Stability assigned Lawrence a 51% interest in Blackheart.

Shortly after the closing, Barber and Steaphan Weir ("Weir")⁴ became unable to make payments as promised. As a result, Barber, Weir, and Lawrence entered into a forbearance agreement on June 1, 2013. In the Agreement Pursuant to Buy Sell Agreement ("June 1, 2013, Agreement"), it was agreed that Vigilant would be sold back to Lawrence. Additionally, under the June 1, 2013, Agreement, Lawrence transferred to General Stability his 51% ownership interest in Blackheart that he previously acquired on April 22, 2013. Lastly, under the June 1, 2013, Agreement, Barber and Weir personally and individually guaranteed the performance of all obligations, payments, and debts owed under the June 1, 2013, Agreement, and all prior agreements.

D. GUNS

In 2013, Lawrence learned that Hickman, his friend and business colleague, had a foreign gun familiarization training program that was going out of business. Because his business was ending, Bureau of Alcohol, Tobacco, Firearms, and Explosives ("ATF") rules required Hickman to either destroy the guns he used in his business or transfer the guns to another authorized dealer. As a result, Hickman and Lawrence agreed that the guns would be given to Lawrence to possess and own. The agreement included a total of sixteen guns: four PKMs, which are Russian belt-fed machine guns, and twelve AK-47s, which are assault rifles.

Lawrence testified that the sixteen guns have a total current market value of $70,000. Because it is difficult to procure the parts kits to make them, Lawrence testified that the guns are hard to make. These types of guns are rare in the United States and continue to increase in value over time. As part of his consulting work done through Vigilant, Lawrence taught military units how to use foreign guns, including PKMs and AK-47s. Hickman also testified in his deposition that "all sixteen weapons are worth about $70,000 to replace."

Lawrence and Hickman entered into a verbal agreement that if Lawrence used the guns for training, he would pay Hickman a rental fee until the value of the weapons was paid. Lawrence then applied for a Federal Firearms License ("FFL") in the name of Vigilant so that Vigilant could use the guns for business purposes in connection with the training classes offered by Lawrence. Lawrence could not keep the guns until such time as Vigilant's FFL application was finalized so it was agreed that Barber would store the guns in Blackheart's gun vault until then. Hickman brought the guns to Barber's home outside Nashville, Tennessee, so that Barber could drive the guns to West Virginia and pass them on to Lawrence. Upon arriving in West Virginia, the guns were stored in Blackheart's gun vault in the warehouse owned by Philippi. Lawrence confirmed that all of the guns were placed in the gun vault by checking the serial numbers. The guns were also noted in Blackheart's "bound book," which is a mandatory disposition book that each gun dealer must maintain. Specifically, under ATF regulations, a gun dealer must note in his bound book any guns he possesses for more than twenty-four hours. A bound book is not a list of the dealer's assets, but rather a record of the possession and disposition of guns at a given point in time. See 27 C.F.R. § 478.121(c).

On December 30, 2013, Vigilant's FFL application was approved, and an FFL license was issued to Vigilant. Upon receiving the FFL, Lawrence asked Barber to transfer the sixteen guns to him. Barber did not transfer the guns to Lawrence. Due to Lawrence's deteriorating relationship with Barber at the time, Lawrence asked Hickman to follow up with Barber about transferring the guns to Lawrence.

Hickman testified in his deposition that he made repeated inquires with Barber regarding the status of transferring the guns to Lawrence. Lawrence and Hickman eventually discussed that the guns could be "cut" and returned as parts. The guns were never returned to Lawrence or Hickman in any form. Lawrence has had to rent guns from other competitors or partners in order to run his training sessions.

Barber initially testified at trial and claimed in his 2017 interrogatory responses that Viqen, LLC, a Blackheart creditor, took possession of the guns on May 12, 2015, when it seized Blackheart's collateral after Blackheart defaulted on its debts. He claimed that he had no knowledge of the location or disposition of the guns after that date. Yet, emails were introduced at trial showing that after the alleged seizure, emails were exchanged between Barber and his employees indicating that Blackheart still had...