The Truth Tellers, LLC v. Levine (In re Levine)

IN RE: DAVID ANDREW LEVINE MONICA LARSON LEVINE, Debtors.

THE TRUTH TELLERS, LLC, Plaintiff, v. DAVID ANDREW LEVINE, Defendant.

No. 3:19-bk-1048

Adversary Proceeding No. 3:20-ap-36

United States Bankruptcy Court, N.D. West Virginia, Martinsburg

March 31, 2022

MEMORANDUM OPINION AND ORDER

B MCKAY MIGNAULT, CHIEF BANKRUPTCY JUDGE UNITED STATES BANKRUPTCY COURT

This adversary proceeding was commenced by The Truth Tellers, LLC ("Plaintiff" or "Truth Tellers") on September 8, 2020. Plaintiff's Complaint [dkt. 1] (the "Complaint") asserts that five transfers in the aggregate amount of $49 949.71 that David Levine ("Mr. Levine" or "Defendant") admittedly caused to be made from Plaintiff's bank account to either himself personally or to his businesses between September 6, 2019 and September 20 2019 (the "Disputed Transfers") are nondischargeable debts of David Levine pursuant to 11 U.S.C. § 523(a)(3) and (4).

This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). The Court is vested with subject jurisdiction pursuant to 28 U.S.C. § 157 and 28 U.S.C. § 1334.

Defendant filed his Answer [dkt. 7] (the "Answer") to the Complaint on October 9, 2020. The Court held a two-day trial in this matter on September 23-24, 2021 (the "Trial"), after which the Court received post-hearing briefs from the parties.

Plaintiff's Proposed Findings of Fact and Conclusions of Law [dkt. 88] ("Plaintiff's Brief") and Plaintiff's Reply in Support of Proposed Findings of Fact and Conclusions of Law [dkt. 90] ("Plaintiff's Response Brief") argue in part that the Disputed Transfers are nondischargeable pursuant to 11 U.S.C. § 523(a)(3) because Defendant knowingly failed to initially schedule his debt to Plaintiff. Pl.'s Brief at 25-26. However, because Plaintiff expressly waived this claim in its March 26, 2021 Response to Defendant's Motion for Summary Judgment, the Court will treat this claim as waived and not address it further. See Pl.'s Response to Mot. for Sum Jud. [dkt. 14] at 8 ("Because of [Defendant's] timely amendment [of his bankruptcy schedules to include Plaintiff], The Truth Tellers, LLC no longer challenges the dischargeability of the [Disputed Transfers] under 11 U.S.C. § 523(a)(3). Its challenge to dischargeability under 11 U.S.C. § 523(a)(4) remains.").

Plaintiff's Brief and Plaintiff's Response Brief also argue that the Disputed Transfers are nondischargeable pursuant to 11 U.S.C. § 523(a)(4) because Defendant either (a) committed fraud or defalcation while acting in a fiduciary capacity, (b) embezzled the Disputed Transfers, or (c) committed larceny with respect to the Disputed Transfers. See Pl.'s Brief at 27- 41. Only the first two of these three arguments were asserted in Plaintiff's Complaint-Plaintiff's Complaint does not assert a count relating to larceny and does not even contain the word larceny. Therefore, Plaintiff's argument with respect to larceny was not timely asserted in Plaintiff's nondischargeability Complaint and has been waived. Fed.R.Bankr.P. 4007(c).

Defendant's Post Trial Briefing in Support of Discharge [dkt. 89] ("Defendant's Brief") and Defendant's Response to the Plaintiff's Proposed Findings of Fact and Conclusions of Law [dkt. 91] ("Defendant's Response Brief") argue that Defendant did not engage in acts of defalcation, fraud, or embezzlement because Plaintiff's President, Anne Meador, was involved in various business enterprises with Defendant and was aware of how money was accounted for by Defendant. See, e.g., Def.'s Brief at 1-2. In short, Defendant asserts that Ms. Meador was aware of and consented to the Disputed Transfers. Additionally, Defendant argues that Plaintiff cannot show the culpable state of mind element required to prevail on a claim of fraud or defalcation in a fiduciary capacity or embezzlement. Id. at 2.

The matter is ready for adjudication.

I.

A. Factual Background

Anne Meador, the principal and sole owner of the Plaintiff, met the Defendant in September of 2018 at a meeting of the Jefferson County Development Authority. She and Mr. Levine found that they shared the same interests in environmental issues; both were vehemently opposed to the construction of the Rockwool plant in Jefferson County, West Virginia. Almost a year later, on or about August 1, 2019, Ms. Meador and the Defendant began a physically and emotionally intimate relationship. Later in August of 2019, Mr. Levine and Ms. Meador agreed to enter into a business relationship that centered around the creation of a documentary film. The Defendant took Ms. Meador to see an attorney, and she created the Plaintiff company for that purpose. While setting up Truth Tellers with Defendant, Ms. Meador also opened a bank account for Truth Tellers. She established herself as President and Mr. Levine as Secretary of Truth Tellers, ^[1] and Defendant was also made a signatory to the bank account. The banking institution was also directed to send bank statements for the Truth Tellers account to a building owned by Mr. Levine.

Ms. Meador deposited $50, 000 of her own personal funds into the Truth Tellers' bank account. Soon after, the Plaintiff made the following transfers:

1. September 6, 2019: Nineteen thousand dollars ($19, 000) to the Defendant's personal bank account that he shared with his wife (via check);

2. September 13, 2019: Seven hundred dollars ($700) to ThreeSquare, LLC;

3. September 18, 2019: Fifteen thousand dollars ($15, 000) to Indeco Union; and

4. September 20, 2019: Fifteen thousand two hundred and fifty dollars ($15, 250) to Indeco Union.

The total of these transfers amounted to $49, 950 (collectively, and as noted previously, the "Disputed Transfers"). The parties do not disagree over whether the Disputed Transfers occurred; the only disagreement relating to these transfers is whether they constitute nondischargeable debts.

Less than three months later, on December 13, 2019, Mr. Levine and his wife filed a Chapter 13 bankruptcy petition; their case was later converted to a Chapter 7 proceeding. The bankruptcy schedules did not initially list the Plaintiff as a creditor; however, Plaintiff received service of the bankruptcy case, filed a timely proof of claim, and eventually filed the instant adversary proceeding on September 8, 2020. Following initiation of the adversary proceeding, the Defendant amended the schedules to list the repayment obligation with regards to the Disputed Transfers on September 11, 2020.

In March of 2020, the Defendant ended his physically intimate and romantic relationship with Ms. Meador.

Of note are several companies formed by Mr. Levine and/or Ms. Meador. Indeco Union ("Indeco") was formed by Mr. Levine in 2017 and was meant to pursue the tokenization of renewable energy and the creation of incentives and liquidity for green projects. ThreeSquare, LLC ("ThreeSquare") was formed by Mr. Levine and his wife in 2002 and owns real property that is available for rental and/or lease. Geostellar, Inc. ("Geostellar") was formed by Mr. Levine in 2010 to operate a marketplace for residential solar energy. All of these entities are now in bankruptcy.

Mr. Levine also formed two other related entities: Climate Pictures (a non-profit company) and Our Climate, LLC (a single-purpose company created to produce an environmental documentary). Climate Pictures eventually hired Ms. Meador, and she took over as President and ran the company until she was terminated in March of 2020.

Ms. Meador, during her relationship with Mr. Levine, also started a company called Basic Space, LLC ("Basic Space") which was intended to be a real estate holding company that would purchase commercial properties owned by ThreeSquare. However, those transactions never occurred.

C. Arguments of the Parties

Both parties agree that the Defendant, as Treasurer of Plaintiff, owed fiduciary duties to the Plaintiff. Therefore, the Court will accept Mr. Levine's fiduciary status as admitted and focus only on the remainder of the parties' arguments addressing whether the Defendant committed defalcation, fraud, or embezzlement such that the Disputed Transfers should be declared nondischargeable in Mr. Levine's bankruptcy case.

The crux of the disagreement is whether the Defendant withdrew and used the Disputed Transfers with or without Ms. Meador's knowledge and authorization. The Defendant argues that Ms. Meador was aware of and consented to the Disputed Transfers, which occurred during their intimate relationship, and that the obligation to repay those transfers was memorialized in the Truth Tellers Note. The Plaintiff avers that Ms. Meador had no knowledge of the Disputed Transfers - Ms. Meador testified that she did not consent to the Disputed Transfers and only discovered the Disputed Transfers had occurred after the Defendant terminated their intimate relationship, after which she sought information about the Truth Tellers account from the bank.

II.

A. Governing Standard

Section 727(b) of the Bankruptcy Code states that "[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter . . . ." 11 U.S.C. § 727(b). Debts of the kind described in 11 U.S.C. § 523(a)(4) are exempt from discharge pursuant to § 727(b). The Plaintiff in a nondischargeability action bears the burden of proof to demonstrate, by a preponderance of the evidence, that a debt is exempt from discharge. See Grogan v. Garner, 498 U.S. 279, 283, 291 (1991).

Section 523(a)'s exceptions to discharge embody a basic policy of limiting relief only to an "honest but unfortunate debtor." Cohen v. de la Cruz, 523 U.S. 213, 217 (1998). Because Section 523(a)'s exceptions to discharge contravene the...