Free v. Winborne (In re: Free)

Case Type:
Business
Case Status:
Affirmed
Citation:
18-31011 (5th Circuit, Feb 18,2019) Not Published
Tag(s):
Ruling:
As the bankruptcy court held, Free’s retention of Turkey Creek Appraisal’s profits after James Winborne’s death was intentional, willful, and malicious. Miller v. J.B. Abrams, Inc. (In re Miller), 156 F.3d 598, 606 (5th Cir. 1998) (“[A]n injury is ‘willful and malicious’ where there is either an objective substantial certainty of harm or a subjective motive to cause harm.”).Affirmed. The court also went through an extensive analysis of estoppel.
Procedural context:
After a state court entered judgment against Samuel Taylor Free and in favor of Leasa G. Winborne, Free filed for bankruptcy. Winborne brought an adversary proceeding in Free’s bankruptcy case seeking to prevent the discharge of the state-court judgment. The bankruptcy court, finding Free’s actions to be willful and malicious, excluded the judgment from the discharge and the district court affirmed. Free appealed again to the Fifth Circuit.
Facts:
At the time of James C. Winborne’s death, he and defendant Samuel Taylor Free were the only members of two limited liability companies: Turkey Creek Holding Company, LLC (“Turkey Creek Holding”), under which they bought and sold real estate, and Turkey Creek Appraisal Services, LLC (“Turkey Creek Appraisal”) (collectively, “the LLCs”), under which they performed real-estate appraisals. James Winborne and Free each held a 50% interest in each of the LLCs. Leasa G. Winborne, James Winborne’s wife, was his sole legatee. After James Winborne’s death, a state court issued a judgment of possession providing Leasa with possession of James’s 50% interest in each of the LLCs. In the meantime, Free continued to do business as Turkey Creek Appraisal and received checks payable to Turkey Creek Appraisal in return for his work. But rather than depositing these checks into the company’s account, as required by Turkey Creek Appraisal’s operating agreement, Free cashed the checks or deposited the funds into non-Turkey Creek Appraisal accounts. He then used these funds for personal items. Leasa Winborne did not receive any of these profits. Leasa Winborne brought suit in state court against Free seeking to recover her share of these profits, arguing that Free converted company funds for his own use. After a trial, the state court awarded Winborne $42,071, court costs, $1,500 in expert fees, and interest. Shortly thereafter, Free filed a petition for Chapter 13 bankruptcy. Winborne instituted an adversary proceeding, seeking a determination that her state-court judgment was nondischargeable under 11 U.S.C. §§ 523(a)(2) and (a)(6). The bankruptcy court granted Free’s motion to dismiss Winborne’s § 523(a)(2) claim. The bankruptcy court then tried Winborne’s §523(a)(6) claim. Subsection (a)(6) excludes from discharge any debt arising out of the debtor’s willful and malicious injury to another. § 523(a)(6). At trial, Free testified that he believed the LLCs had been dissolved because he thought he was the only member of the LLCs after James Winborne’s death and he thought he had unilaterally dissolved the companies. He also testified that he used the funds to pay Turkey Creek Appraisal’s bills and employees. He did not provide any documentary proof of those payments. Moreover, the bankruptcy court found Free’s testimony contradictory, evasive, and not credible. Thus, the bankruptcy court concluded, Free intentionally breached the operating agreements, intended to cause harm to Leasa Winborne, and in fact caused her harm. Accordingly, the bankruptcy court found the debt nondischargeable. Free appealed to the District Court for the Western District of Louisiana, which affirmed. Free appeals again.
Judge(s):
KING, SOUTHWICK, and ENGELHARDT, Circuit Judges.

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