- Case No. 10-2206 (6th Cir., Dec. 12, 2011)
- In affirming the lower courts’ rulings in favor of debtor Frank Slavik ("Slavik"), the Sixth Circuit held that (i) creditor Astro Building Supplies, Inc. ("Astro") had not met its burden of showing, as it had alleged, that Slavik became a fiduciary under the Michigan Builders Trust Fund Act and (ii) as a result, Astro could not show that its claim was nondischargable in Slavik's chapter 7 bankruptcy case. Under the relevant state statute, a trust (and resulting fiduciary relationship) arises only when a supplier provides materials to a contractor for a specific project, for which the contractor later receives funds, whereupon the contractor must pay the supplier before retaining any funds for himself. Because Astro did not supply Slavik for any particular project, no trust (and, therefore, no fiduciary relationship) ever existed, requiring judgment for Slavik on Astro’s 523(a)(4) claim. Moreover, Astro’s post-discovery-cutoff request for additional discovery to establish its 523(a)(4) claim was properly denied because Astro did not provide evidence of “excusable neglect” for the untimely request, as required by Bankruptcy Rule 9006. Finally, the Court affirmed the lower courts' denial of Astro’s 727(a)(3) claim because Slavik had no duty to maintain specific project records or otherwise document where particular supplies were used when Slavik obtained those supplies through an open account with Astro.
- Procedural context:
- Astro appealed from the district court's affirmance of the bankruptcy court's denial of Astro's nondischargability claims. The Sixth Circuit affirmed the district court's ruling.
- From 2003 to 2007, Slavik operated his construction business and made hundreds of roof repairs using supplies purchased through an open account with Astro. Neither Astro nor Slavik ever designated a specific project for which any particular building supplies were to be used, and Slavik would periodically pay one or more of Astro's invoices, either in part or in full. Slavik’s company went out of business in 2007, and he filed his chapter 7 case in 2008 while owing Astro approximately $77,000. Astro thereafter filed an adversary proceeding, arguing that the debt was nondischargeable (i) as a result of defalcation by a fiduciary under section 523(a)(4) of the Bankruptcy Code, and/or (ii) pursuant to section 727(a)(3) of the Bankruptcy Code because Slavik failed to keep adequate records.
- Siler, Kethledge, Adams (sitting by designation)
Margaret Kinney v. HSBC Bank USA
Summarizing by Lars Fuller
3285 in the system
2 Being Processed