Lawrence v. Frost Bank

Case Type:
Case Status:
No. 21-10103 (5th Circuit, Jan 12,2022) Not Published
The bankruptcy court did not err in finding that Lawrence intended to defraud Frost by perpetuating a fraudulent conveyance scheme and that Lawrence committed actual fraud actionable under § 523(a)(2)(A). The circumstances present a picture of deceptive conduct by which Lawrence was diverting assets out of Frost’s reach. Lawrence’s debt was accordingly nondischargeable.
Procedural context:
Kyle Mark Lawrence filed for bankruptcy under Chapter 7. Frost Bank contended in an adversary proceeding that the debt Lawrence owed to it was nondischargeable under 11 U.S.C. § 523(a)(2)(A). The bankruptcy court found Lawrence’s debt nondischargeable based on false representation and actual fraud. The district court affirmed. The Circuit Court affirmed the district court’s judgment.
Kyle Lawrence was the sole owner and member of Lawrence Built, LLC (Lawrence Built). Lawrence formed Lawrence Built as a Texas limited liability company in 2012. Lawrence Built sometimes operated under the assumed name “LB Commercial Roofing.” On July 30, 2017, Lawrence and Lawrence Built filed separate Chapter 7 bankruptcy cases. The bankruptcy proceeding involved four secured promissory notes. These notes were all executed by Lawrence Built in favor of Frost Bank (Frost). Lawrence was the guarantor. Three of these notes were unpaid as of the date Lawrence filed for bankruptcy. One of the notes at issue was secured by a commercial security agreement which gave Frost a security interest in all of Lawrence Built’s inventory, accounts receivable, general intangibles, instruments, rents, monies, payments and all other rights related to the accounts receivable. After granting this security interest to secure the note, Lawrence Built and Lawrence missed the very first payment on that note and all payments thereafter. On April 18, 2017, Lawrence signed a Certificate of Formation for a new entity, “LB Commercial Roofing, LLC.” Prior to this time, Lawrence used “LB Commercial Roofing” as a “d/b/a” for Lawrence Built. Like Lawrence Built, Lawrence was the sole owner and member of LB Commercial Roofing, LLC. Lawrence used the same logo for Lawrence Built, LB Commercial Roofing, and LB Commercial Roofing, LLC and the same phone number for Lawrence Built and LB Commercial Roofing, LLC. Lawrence never told Frost that he was creating and would be doing business through this new entity. Lawrence also met with a bankruptcy attorney in April and decided that he and Lawrence Built would file for bankruptcy. He did not file immediately, but waited to file for three months because he testified that he did not have the funds to file. In November 2016, after the execution of debt instruments with Frost Bank, Lawrence Built subcontracted with Cresta Construction under the assumed name LB Commercial Roofing. Frost alleged that Lawrence Built diverted revenue from this construction project to the new entity, LB Commercial Roofing, LLC, without informing Frost or Cresta Construction, and that Lawrence did the same thing when subcontracting with other construction companies. Additionally, Lawrence diverted some of the funds from LB Commercial Roofing, LLC into a personal account that he failed to disclose in his original bankruptcy filing. He also transferred several intangible assets from Lawrence Built to LB Commercial Roofing, LLC. Upon discovering this, Frost sued Lawrence in bankruptcy court, seeking to establish a breach-of-contract claim and have the court declare Lawrence’s debt nondischargeable. The bankruptcy court held that Frost had established a claim against Lawrence, and that the claim was nondischargeable under 11 U.S.C. § 523(a)(2)(A) because “there were ‘false representations’ and ‘actual fraud’ committed by Mr. Lawrence against Frost.”
Owen, Chief Judge, and Jones and Wilson, Circuit Judges

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