Now Updating
In re: DIANN MARIE CATES

Summarizing by Lars Fuller

Ratliff Ready-Mix, L.P. v. Pledger

Citation:
Ratliff Ready-Mix, L.P. v. Pledger, No. 14-50023, --- Fed. Appx. ---, 2015 WL 294829 (5th Cir. Jan. 23, 2015)
Tag(s):
Ruling:
The Fifth Circuit affirmed the bankruptcy and district courts, holding that section 523(a)(4) of the Bankruptcy Code did not render the debt owed by the former president and CEO of a general contractor to a concrete subcontractor notwithstanding the fact that the former president and CEO intentionally misapplied funds as described in the Texas Construction Trust Fund Statute because the use of the funds was covered by an affirmative defense in the Trust Fund Statute. In particular, while the former president and CEO intentionally diverted the funds from the projects that the subcontractor was working on, the payments were (1) made on other projects and overhead, and (2) made to benefit the health of the failing business rather than the former president CEO's own uses.
Procedural context:
The concrete subcontractor filed an adversary proceeding to request a determination that the debt owed to it was nondischargeable under section 523(a)(4) of the Bankruptcy Code. Although the bankruptcy court initially granted the subcontractor's partial summary judgment motion, upon reconsideration, the bankruptcy court reversed its prior order and ruled in favor of the former president and CEO. The subcontractor filed an interlocutory appeal to the district court, which affirmed and remanded. The subcontract appealed a second time after the bankruptcy court entered a final order and the district court again affirmed. After the subcontractor appealed again, the Fifth Circuit reviewed the district court's decision affirming the bankruptcy court's order de novo.
Facts:
The general contractor contracted with the concrete subcontractor to supply concrete to be used in the three of the general contractor's ongoing projects. During this time, while the general contractor took in revenue in excess of its costs, the cost figures did not account for overhead or capture the overall health of the company, since many of the general contractor's other projects were unprofitable, even before accounting for overhead. Due to the losses, the general contractor experienced difficulty paying all of its subcontractors. Ultimately, every other subcontractor was paid in full. The concrete subcontractor eventually released all liens and bond claims related to the projects and allowed the general contractor to convert the indebtedness into a promissory note that was personally guaranteed by the former president and CEO. Subsequently, the former president and CEO filed for bankruptcy under chapter 7. The subcontractor then filed an adversary proceeding to request a determination that the debt owed to it was nondischargeable under section 523(a)(4) of the Bankruptcy Code. In particular, the subcontractor asserted that the Trust Fund Statute created the former president and CEO's fiduciary duty, the breach of which supported a determination that the debt was nondischargeable.
Judge(s):
Stewart, Chief Judge, and Jones and Higginson, Circuit Judges

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