In Re: John Schilling Gutierrez, Sr.

Filing 11

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Jay C. Zainey on 3/13/2012.(gbw, )(copy to Bankruptcy Court, Judge Jerry Brown)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
AEROTEK, INC. & TEKSYSTEMS, INC.

CIVIL ACTION

VERSUS

NO. 08-4638 C/W
09-6998

REVENUE CYCLE MANAGEMENT, INC., ET AL.

SECTION "A"(1)

FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter was submitted for trial on the briefs on
December 16, 2011.

Having now considered the pleadings, evidence

offered at trial, arguments of counsel, and applicable law, the
Court issues its Finding of Fact and Conclusions of Law pursuant
to Federal Rule of Civil Procedure 52(a).

To the extent certain

findings of fact are more appropriately classified as conclusions
of law, they should be so construed.

To the extent certain

conclusions of law are more appropriately classified as findings
of fact, they should be so construed.
I.

FINDINGS OF FACT
Plaintiffs Aerotek, Inc. and TEKsystems, Inc. are separate

corporate entities, both of which are part of the Allegis Group.
Aerotek and TEKsystems provide staffing services to business
clients around the country.

The services provided by Aerotek and

TEKsystems sometimes go unpaid, requiring Aerotek and TEK systems
to use a third-party collection agency to recover funds owed by
1

customers.
Defendant Revenue Cycle Management, Inc. (“RCM”) operated as
a collection company within Louisiana, accepting collections from
all over the United States.

Aerotek and TEKsystems hired RCM to

pursue collection efforts on their behalf sometime in 2005.
Defendant John Gutierrez incorporated RCM in Louisiana in 2002
and former defendant John Anderson became a co-owner and vicepresident of the corporation in 2003.

Gutierrez and Anderson

were the two owners of RCM between 2003 and the time that it
closed in October or November 2008.

Gutierrez was the director

of RCM during the entire time that RCM was in business.
Gutierrez ran the company day-to-day from its inception in
2002 until about mid-2005 when Hurricane Katrina struck.

When

business conditions were favorable RCM had as many as 20
employees and operated the business at a profit.
had in excess of 3500 clients.

At its peak RCM

Customers received their

remittances from collected debts in accordance with their
contracts.
Plaintiffs’ relationship with RCM was contractual in nature.
(08-4638; FAC ¶ 21).

When Plaintiffs were owed money by a

customer they typically sent a collection amount to RCM, and
would provide the name of the debtor, the debtor’s account
number, the amount to be recovered, and the date assigned.
4638;FAC ¶ 19).

(08-

If RCM agreed to pursue the collection account

2

on behalf of Plaintiffs, then RCM would send an acknowledgment
letter accepting the collection account, outlining its 15 percent
contingency fee, and detailing the terms and conditions under
which RCM agreed to accept the collection account.
¶ 20).

(08-4638; FAC

Examples of the acknowledgment letters are located at

Exhibit 1 to the complaint (09-6998) and Plaintiffs’ trial
exhibit H-3.

If RCM was able to successfully collect from the

debtor then it deducted its 15 percent collection fee from the
money collected and remitted the remaining funds to either
Aerotek or TEKsystems.1

(08-4638; FAC ¶ 23).

At some point in time a representative of TEKsystems
contacted RCM’s Kitty Mayo with questions about remittances.
Kitty Mayo served as the sales manager for RCM.
company in August or September of 2004.

Mayo joined the

(Mayo depo. at 9).

Mayo

had worked in the collections industry since 1996 and Aerotek and
TEKsystems had been her customers for years.

Mayo brought

Aerotek’s and TEKsystems’ collections business to RCM when she
joined the company.

When Mayo attempted to follow-up on

1

Plaintiffs posit that they were set up as “gross” clients
with RCM such that when RCM received payment from a debtor, RCM
would send a remittance check to Plaintiffs for 100 percent of
the amount received and then submit a bill to Plaintiffs for
RCM’s commission, and this appears in the Pre-trial Order (Rec.
Doc. 217) as an Uncontested Material Fact. But the deposition
testimony submitted overwhelmingly establishes that the normal
course of conduct between the parties was for RCM to deduct its
15 percent fee and then remit the balance to Plaintiffs. Nothing
in the documentary evidence suggests that RCM was contractually
obligated to treat Plaintiffs as “gross” clients.
3

TEKsystems’ inquiries about remittances she received little
assistance from other RCM staff, including Gutierrez.

Mayo began

to suspect that TEKsystems was not getting paid the remittances
that it was due and she contacted Aerotek to see if the same
problems were occurring.
Plaintiffs eventually contacted Gutierrez directly to find
out what had happened to the remittances that they believed they
were owed.

In August 2008 Gutierrez participated in a conference

call with representatives of the plaintiff companies.

Plaintiffs

contend that Gutierrez denied that they were due any money and/or
claimed ignorance as to anything improper and stated that he
would have to investigate the matter to see if there was any
validity to Plaintiffs’ contentions.

On August 25, 2008,

Plaintiffs sent a letter to Gutierrez complaining that he had
subsequently been unwilling to speak with them via phone and that
they had received no assurances that RCM would be remitting the
money that Plaintiffs believed that they were owed.
H-12).

(Pla. Exh.

Plaintiffs terminated their business relationship with

RCM via that letter and indicated that they intended to conduct
an onsite audit within five days.

On August 28, 2008, Gutierrez

responded via fax that RCM was in the process of trying to audit
its records and that because Plaintiffs’ inquiry involved files
dating back to 2004, it would be necessary to pull hard copies
from a warehouse.

(Pla. Exh. H-13).

4

In closing, Gutierrez

suggested that RCM postpone its plans for an onsite audit because
RCM was in the process of preparing for an approaching hurricane.
Gutierrez stated that RCM would be in touch the following week.
Gutierrez did not follow up with Plaintiffs the following
week.

Gutierrez consulted with an attorney immediately after the

August 2008 teleconference and was advised to have no more
contact with Plaintiffs as he was likely to be sued.

(Def. Exh.

3).
Aerotek and TEKsystems filed Civil Action 08-4638 on October
10, 2008, against multiple defendants including John Gutierrez.
Via Civil Action 08-4638 Aerotek seeks to recover $366,946.22 in
unremitted funds and TEKsystems seeks to recover $80,377.13 in
unremitted funds.

Plaintiffs seek to recover the unremitted

funds under theories of breach of contract, fraud, embezzlement,
conspiracy, conversion, breach of fiduciary duty, negligence, and
unjust enrichment.

(FAC, Rec. Doc. 14).

On October 14, 2009,

the Court held an evidentiary hearing and entered a default
judgment in favor of Plaintiffs and against defendant RCM.
Docs. 70, 71).

(Rec.

A default judgment was later entered against

defendants Anderson & Gutierrez Development, LLC, Direct Mortgage
Funding, LLC, and John Anderson.

(Rec. Docs. 108, 168).

Plaintiffs voluntarily dismissed other defendants in the case.
(Rec. Docs. 152, 172, & 173).
remaining defendant.

John Gutierrez is now the sole

Plaintiffs seek to recover the unremitted

5

funds from him personally relying on theories of fraud, breach of
fiduciary duty, embezzlement, and conversion.
In response to this lawsuit and other financial concerns
defendant Gutierrez filed for Chapter 7 bankruptcy protection
(Bankruptcy Case No. 09-12211), which would serve to discharge
any indebtedness that he might owe to Plaintiffs.

Plaintiffs

responded by filing an adversary proceeding in Gutierrez’s
bankruptcy, seeking to except certain claims against Gutierrez
from discharge under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6).
(Adv. Pro. No. 09-1131).

Plaintiffs moved to withdraw the

automatic reference to the bankruptcy court and Judge McNamara
granted their motion on October 23, 2009.
2).

(CA09-6998, Rec. Doc.

The adversary claims for exception to discharge were

assigned Civil Action number 09-6998 and the matter was
transferred to this Section for consolidation with the claims for
affirmative relief asserted in Civil Action 08-4638.
During the course of the litigation Plaintiffs moved the
Court to draw an adverse inference related to Gutierrez’s failure
to retain documents and refusal to testify regarding relevant
matters.

(Rec. Doc. 199).

On May 17, 2011, the Court advised

the parties that the motion would be carried with the merits.
(Rec. Doc. 203).
Aerotek, TEKsystems, and Gutierrez elected to waive any
right to a jury trial and to proceed before the bench.

6

(Rec.

Doc. 174).

At a status conference held on September 29, 2011,

the parties further agreed that the claims at issue would be
suitable for a trial on the briefs in lieu of a live bench trial.
(Rec. Doc. 235).

The Court issued a briefing schedule and the

matter was submitted for a final decision on the briefs on
December 16, 2011.
II.

(Rec. Doc. 235).

CONCLUSIONS OF LAW
These consolidated cases present separate legal but

factually overlapping issues.

Via the claims presented in Civil

Action 08-4638, Plaintiffs seek affirmative recovery from
Gutierrez, in his personal capacity, for the amounts that they
believe that RCM failed to remit to them.

These claims are

grounded solely on state law and the Court has diversity
jurisdiction over these claims pursuant to 28 U.S.C. §
1332(a)(1).
Plaintiffs’ claims in Civil Action 09-6998, on the other
hand, are based solely on federal bankruptcy law and they do not
provide a cause of action for affirmative recovery as do the
state law claims.

These claims are non-dischargeability claims

which Plaintiffs must prove in order to avoid having any judgment
obtained against Gutierrez in 08-4638 extinguished by his
personal bankruptcy.

Hence, the claims in 09-6998 become

pertinent if and only if Plaintiffs prevail on their state law

7

claims in 08-4638.2

The claims asserted in 09-6998 constitute

core proceedings under federal bankruptcy law, 28 U.S.C. §
157(b)(2)(I), and the Court has jurisdiction over these claims
pursuant to 28 U.S.C. § 1334.
A.

Civil Action 08-4638
1.

Fraud

It is well-settled that a corporation is a distinct legal
entity with the legal fiction of corporateness shielding its
officers from liability for the corporation’s debts.

Dishon v.

Ponthie, 918 So. 2d 1132, 1134 (La. App. 3d Cir. 2006).

The

liability of corporate officers and directors to third parties is
generally determined under the laws of agency or mandate.

Dutton

& Vaughan, Inc. v. Spurney, 600 So. 2d 693, 697 (La. App. 4th
Cir. 1992) (citing L.L. Ridgway Co. v. Marks, 146 So. 2d 61 (La.
2

The validity of a creditor’s claim is determined by rules
of state law. Grogan v. Garner, 498 U.S. 279, 283-84 (1991)
(citing Vanston Bondholders Protective Comm. v. Green, 329 U.S.
156, 161 (1946)). Establishment of a debt under state law is a
proceeding separate and distinct from determining the
dischargeability of a debt. In re Holdaway, 388 B.R. 767, 782
(Bankr. S.D. Tex. 2008). In other words, there is no debt to
discharge if the plaintiff cannot establish liability against the
debtor. In re Ritz, 459 B.R. 623, 626 (Bankr. S.D. Tex. 2011).
Plaintiffs seem to meld the issues of debt from 08-4638 and
dischargeability from 09-6998, for instance proceeding as if
their fraud and conversion claims are governed by federal law.
But the issues of debt and dischargeability are distinct and
federal law does not govern the question of whether Gutierrez can
be held personally liable for the debts of the corporation. The
administrative docket management tool of consolidation does not
alter the analysis. In re Excel, 106 F.3d 1197, 1201 (5th Cir.
1997) (recognizing that consolidation does not merge suits into a
single cause).
8

App. 4th Cir. 1962)).

Thus, unless the officers and directors

purport to bind themselves individually, they do not incur
personal liability for the debts of the corporation.

Id.

Louisiana courts are very hesitant to hold an officer or director
personally liable for corporate obligations.

Lone Star Indus.,

Inc. v. Am. Chem., Inc., 461 So. 2d 1063, 1067 (La. App. 4th Cir.
1984).

This is especially true when the parties contract with

each other as corporations.

Id.

Under Louisiana law the corporate “veil” may be pierced
under the “alter ego” doctrine where the corporate entity is
disregarded to such an extent that the affairs of the corporation
are indistinguishable from the affairs of the officer or
director.

Tubos de Acero de Mex. v. Am. Intern. Invest. Corp.,

292 F.3d 471, 478 (5th Cir 2002) (citing First Downtown Dev. v.
Cimochowski, 613 So. 2d 671, 676 (La. App. 2d Cir. 1993)).
Another basis for piercing the corporate veil is statutorily
recognized and it applies where an officer or director, acting
through the corporation, defrauds or deceives a third party.
R.S. § 12:95.3

3

La.

An action seeking to hold a corporate officer or

Section 95, entitled Actions for Fraud, reads as follows:
Nothing in this Chapter shall be construed as
in derogation of any rights which any person
may
by
law
have
against
a
promoter,
subscriber, shareholder, director or officer,
or the corporation, because of any fraud
practiced upon him by any of such persons or
the corporation, or in derogation of any right
9

director personally liable for fraud, is separate from and does
not require disregard of the corporate entity under the alter ego
doctrine.4

Tubos de Acero, 292 F.3d at 479; Lone Star Indus.,

461 So. 2d at 1067.
Fraud is a misrepresentation or a suppression of the truth
made with the intention either to obtain an unjust advantage for
one party or to cause a loss or inconvenience to the other.
may also result from silence or inaction.
(West 2008).

Fraud

La. Civ. Code art. 1953

The two elements essential to establishing fraud are

the intent to defraud or to gain an unfair advantage and resulting
loss or damage.

Tubos de Acero, 292 F.3d at 479 (citing First

Downtown, 613 So. 2d at 677); Dutton & Vaughan, 600 So. 2d at 698

(citing Hall v. Ark.-La. Gas Co., 368 So. 2d 984 (La. 1979)).
However, fraud cannot be predicated on unfulfilled promises or
statements as to future events.

Dutton & Vaughan, 600 So. 2d at

698 (citing Wright Bros. Corp. v. Colomb, 517 So. 2d 1194 (La.
App. 4th Cir. 1987)).

Under Louisiana law, an action for fraud

cannot be based simply upon promissory statements relating to
future actions, and a mere failure to perform a promise or an

which the corporation may have because of any
fraud practiced upon it by any of these
persons.
La. Rev. Stat. Ann. § 12:95 (West 2010).
4

Plaintiffs herein are not relying upon the alter ego
method for piercing the corporate veil. They rely only upon the
fraud method.
10

agreement to do something at a future time, without more, is not
evidence of fraud.

Wright Bros., 517 So. 2d at 1197.

Gutierrez does not dispute that RCM failed to remit to
Plaintiffs all of the sums that were collected on their behalf.
Gutierrez does not, however, agree with the amounts that
Plaintiffs claim they are owed.
Plaintiffs have failed to produce sufficient proof of fraud
by Gutierrez so as to pierce the corporate veil and hold him
personally liable for the unremitted funds.
funds does not necessarily entail fraud.

Failure to remit

Plaintiffs had no

dealings with Gutierrez until August 2008, which was after they
discovered the missing remittances, and they terminated their
relationship with RCM almost immediately after having contact
with Gutierrez.

Nothing that Gutierrez stated or suppressed in

August of 2008 caused any of the damages that Plaintiffs allege
going back to 2005.
Mayo contends that Gutierrez assured her that her clients
would get paid and it was for this reason that she continued to
take their business.

(Def. Exh. O, Mayo decl. ¶ 10).

Plaintiffs

do not indicate when Gutierrez made this representation to Mayo
but the Court assumes that it occurred later in 2008 when
Plaintiffs started questioning Mayo about unremitted funds and
she attempted to discuss the matter with Gutierrez.

This

statement to Mayo is insufficient to support a finding that

11

Gutierrez defrauded Plaintiffs out of collected funds.
Allegations of fraud with respect to Gutierrez’s dealings
with a Slidell woman are irrelevant to the fraud claims that
Plaintiffs are trying to prove in this case.

Further, internet

postings, news articles, and reports about the Slidell incident
and other infractions intended to disparage Gutierrez’s
character, (Pla. Exh. H-2), constitute inadmissible hearsay.
In Tubos de Acero, supra, the Fifth Circuit suggested that
it would be inconsistent to deny a motion for summary judgment
filed by a corporation accused of fraud and conversion while
granting summary judgment for the corporate officer allegedly
involved.

292 F.3d at 479-80.

In the instant case the Court has

already entered a judgment against RCM, Inc.

But that judgment

was the product of default proceedings in which Plaintiffs’
evidence went unchallenged and in which Gutierrez’s personal
conduct was not at issue.
Gutierrez cannot be held personally liable for the funds
that RCM did not remit based on the allegation that he committed
fraud.
2.

Conversion

Even absent intent to defraud, Louisiana law provides that a
corporate officer may be held personally liable for damages
resulting from his acts of conversion committed on behalf of the
corporation.

Tubos de Acero, 292 F.3d at 479; United States v.

12

Hibernia Nat’l Bank, 882 F. 2d 961, 964 (5th Cir. 1989).

The

tort of conversion is an intentional act done in derogation of
the plaintiff’s possessory rights.

Kinchen v. Louie Dabdoub Sell

Cars, Inc., 912 So. 2d 715, 718 (La. App. 5th Cir. 2005) (citing
Bruschweiler (Antiques) Ltd. v. GBA Great British Antiques, LLC,
860 So. 2d 644, 649 (La. App. 5th Cir. 2003)).

It is committed

when one wrongfully does any act of dominion over the property of
another in denial of or inconsistent with the owner’s rights.
Id.

Any wrongful exercise or assumption of authority over

another’s goods, depriving him of the possession, permanently or
for an indefinite time, is a conversion.

Id.

Although a party

may have rightfully come into possession of another’s goods, the
subsequent refusal to surrender the goods to one who is entitled
to them may constitute conversion.

Id.

The intent required for conversion is not conscious
wrongdoing but rather an intent to exercise dominion or control
over the goods that is inconsistent with another’s rights.

Tubos

de Acero, 292 F. 3d at 479 (citing La. State Bar Ass’n v.
Hinrichs, 486 So. 2d 116, 121 (La. 1986)).
fact is not a defense.

Id.

A mistake of law or

It is of no moment “what subsequent

application was made of the converted property, or that defendant
derived no benefit from his act.”

Id. (quoting Quealy v. Paine,

Weber, Jackson & Curtis, Inc., 475 So. 2d 756, 760 (La. 1985)).
Personal liability for a corporate officer can attach based on

13

his participation in the corporation’s act of conversion.
de Acero, 292 F.3d at 479.

Tubos

The officer need not have gained any

personal benefit from the conversion in order to be liable.

Id.

(citing United States v. Hibernia Nat’l Bank, 882 F.2d 961, 964
(5th Cir. 1989)).
It is undisputed that RCM collected some amounts that were
not remitted to Plaintiffs.

Given that RCM had Plaintiffs’ funds

in its possession at one time, yet can no longer produce those
funds to pay what is owed, it is more probable than not that a
conversion occurred somewhere along the line.

The Court reaches

this conclusion because RCM’s failure to remit funds to
Plaintiffs was not a one time occurrence so an occasional
inadvertent failure to mail a check or a mailed check having been
lost in the mail cannot account for all of the unremitted funds.
Further, because the funds are no longer available, RCM must have
exercised “dominion or control” over Plaintiffs’ property, and
the intent to commit wrongdoing is not an element of conversion.
But even if it is more probable than not that RCM converted
Plaintiffs’ property, this lawsuit is only concerned with whether
Plaintiffs can prove that Gutierrez converted their money, and if
he did the quantum involved.

The record contains no direct proof

that Gutierrez participated in any acts of conversion.

As an

officer of the company, Gutierrez cannot be held vicariously
liable for acts of conversion that he did not commit or

14

participate in.

And even if Gutierrez participated from time to

time in acts of conversion, which again need not amount to theft,
the only acts pertinent to this lawsuit are acts committed
specifically against Plaintiffs’ funds.

In Louisiana, the tort

of conversion is based on principles of fault as opposed to
strict liability.

Dual Drilling Co. v. Mills Equip. Invests.,

Inc., 721 So. 2d 853, 857 N.3 (La. 1998).

But the trust fund

checking account that held collection deposits was not dedicated
to Plaintiffs’ funds.

In other words, the account also contained

money that did not belong to Plaintiffs.

So even if Plaintiffs’

evidence could establish that Gutierrez converted client money on
certain occasions, Plaintiffs cannot establish that any specific
acts of conversion that might implicate Gutierrez involved their
money.
No witness, including Kitty Mayo, could testify as to any
specific mishandling of funds or wrongdoing by Gutierrez.

Mayo’s

testimony with respect to Gutierrez’s involvement in any type of
conversion was highly speculative.

In fact, it was Mayo’s

interactions with John Anderson and statements that he made to
her that caused Mayo to surmise that RCM clients’ money was being
used by other business entities involving Anderson and Gutierrez.
Mayo’s chief complaint with respect to Gutierrez is that he put
her off when she tried to approach him about her concerns.
It is undisputed that during the pertinent time frame

15

Gutierrez had for the most part left the day to day operations of
RCM in the hands of Anderson, who was Chief Operating Officer.
Gutierrez was rarely in the office.
authority.

Anderson had check signing

Anderson simply quit coming to the office about two

months before RCM ceased operations.
Significant sums of money were transferred from RCM’s trust
account, which was used for collections deposits, to RCM’s
operating account.

Gutierrez was the signatory on at least 90

percent of the checks written from RCM’s trust account between
January 1, 2005, and August 31, 2007.

But most checks and

transfers were processed electronically and did not require an
actual hand-signature by Gutierrez.

An electronic stamp with

Gutierrez’s signature was used for signing non-paper checks.
Plaintiffs’ most damning evidence against Gutierrez is that
transfers were made to Direct Mortgage Funding, one of
Gutierrez’s other businesses that did not involve John Anderson,
and to Gutierrez personally from RCM’s operating account.

Using

funds from the operating account is not per se problematic but
the operating account was of course funded by transfers from the
trust account that contained collection deposits.

Even if this

establishes an act of conversion with respect to somebody’s
property, it does not establish that it was Plaintiffs’ property
that was converted in any given instance.
Gutierrez did not waive his rights under the Fifth Amendment

16

by answering the lawsuit.

Moreover, the Court will not utilize

an adverse inference to “punish” Gutierrez for following the
advice of his attorney and validly exercising his right against
self-incrimination.
Clearly, with the nature of the claims being asserted
credibility was of paramount importance.

Plaintiffs elected to

waive their right to have Gutierrez testify live before the Court
and instead relied upon a video deposition.

The Court has

reviewed the video deposition in conjunction with this decision
but found the deposition transcript far more useful.

The video

deposition does not give the Court an adequate basis to discredit
Gutierrez’s testimony.
Plaintiffs have failed to produce sufficient proof that
Gutierrez participated in acts of conversion so as to pierce the
corporate veil and hold him personally liable for the unremitted
funds.5
3.

Embezzlement

Louisiana law does not recognize a separate cause of action
for the intentional tort of “embezzlement.”

5

Any recovery for

In a case that is remarkably similar to this one, an
Illinois district court held that a client had no claim for
conversion against the director of a collection agency when he
used client funds for his own benefit. Cumis Ins. Soc., Inc. v.
Peters, 983 F. Supp. 787 (N.D. Ill. 1997). That holding,
however, was based on a principle of Illinois law that precludes
a conversion claim premised on money contained in an unsegregated
account.
17

acts of embezzlement would be covered either by the fraud claim
or the conversion claim.
4.

Breach of Fiduciary Duty

Plaintiffs cannot recover against Gutierrez under the theory
that he breached a fiduciary duty to them.

Under Louisiana law,

corporate officers and directors owe a fiduciary duty to the
corporation and its shareholders but they owe no such duty to
persons or entities that contract with the corporation.

Dutton &

Vaughan, Inc. v. Spurney, 600 So. 2d 693, 697 (La. App. 4th Cir.
1992) (citing Tahoe Corp. v. P&G Gathering Sys., Inc., 506 So. 2d
1336 (La. App. 2d Cir. 1987)).
Virdanco, Inc. v. MTS International, 820 P.2d 352 (Colo. Ct.
App. 1991), which Plaintiffs cite, is not relevant to Plaintiffs’
claims against Gutierrez for breach of fiduciary duty.

Virdanco

is based on Colorado law.
5.

Other Causes of Action

Plaintiffs have alleged other causes of action such as
negligence and unjust enrichment.

A debt premised on any of

these theories would be discharged by Gutierrez’s bankruptcy.
In sum, Plaintiffs have not established the existence of a
debt under state law.
B.

Civil Action 09-6998

Because the evidence does not establish a debt owed by
Gutierrez to Plaintiffs under state law, the issue of discharge
18

is moot.

Out of an abundance of caution the Court will

nonetheless address the discharge claims.
Plaintiffs seek to except the debt from discharge pursuant
to 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).

A discharge

under the bankruptcy code does not discharge an individual debtor
from any debt–-for money to the extent obtained by false
pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor’s or an insider’s financial
condition (11 U.S.C. § 523(a)(2)(A)); for fraud or defalcation
while acting in a fiduciary capacity, embezzlement, or larceny
(11 U.S.C. § (a)(4)); for willful and malicious injury by the
debtor to another entity or to the property of another entity (11
U.S.C. § 523(a)(6)).
Plaintiffs have the burden of proving by a preponderance of
the evidence that one of the discharge exceptions applies to
Gutierrez’s debt.

See Grogan, 498 U.S. at 287-88; Holdaway, 388

B.R. at 779.
11 U.S.C. § 523(a)(2)(A):

Fraud

Under 11 U.S.C. § 523(a)(2)(A) a debt is not dischargeable
if obtained via by false pretenses, a false representation, or
actual fraud.

In order for false pretenses or false

representations to apply, the debtor must have made a knowing
falsehood upon which the damaged party relied.

Recover Edge, LP

v. Pentecost, 44 F.3d 1284, 1292-93 (5th Cir. 1995) (quoting

19

Allison v. Roberts, 960 F.2d 481, 483 (5th Cir. 1992)).
As previously explained, Plaintiffs have not established
that any false representations by Gutierrez caused them damage.
Non-dischargeability under an actual fraud theory also
requires proof of representations by the debtor that damage the
creditor.

Id. (quoting In re Roeder, 61 B.R. 179,181 (Bankr.

W.D. Ky. 1986)).

At no time did Gutierrez make representations

that damaged Plaintiffs.
Plaintiffs cannot prevail on their discharge claim on the
theory that Gutierrez defrauded them.
11 U.S.C. § (a)(4):

Breach of Fiduciary Duty;

Embezzlement or Larceny
Under 11 U.S.C. § 523(a)(4) a debt for fraud or defalcation
while acting in a fiduciary capacity, embezzlement, or larceny,
may not be discharged in bankruptcy.

While all aspects of this

exception involve debts arising from the debtors acquisition or
use of property that is not his, it is intended to reach those
debts incurred through abuses of fiduciary positions and criminal
acts.

In re Miller, 156 F.3d 598, 602 (5th Cir. 1998) (quoting

In re Boyle, 819 F.2d 583, 588 (5th Cir. 1987)).
The definition of “fiduciary” for purposes of this exception
is controlled by federal common law rather than state law.

Id.

But the federal common law definition is not broad in scope and
it is narrower than it is under general common law.
20

Id.

Under §

523(a)(4), “fiduciary” is limited to instances involving express
or technical trusts.

Id.

This case does not involve an express or technical trust.
Courts in this circuit recognize that corporate officers
generally do not owe a fiduciary duty to creditors of the
corporation.

In re Ritz, 459 B.R. 623, 633 (Bankr. S.D. Tex.

2011) (citing Conway v. Bonner, 100 F.2d 786, 787 (5th Cir.
1939); see also Floyd v. Hefner, No. 03-5693, 2006 WL 2844245
(S.D. Tex. Sept. 29, 2006).
Even though federal law ultimately governs the question of
fiduciary status, courts should also consult state law when
determining whether a debt was incurred while acting in a
fiduciary capacity.

In re Jones, 445 B.R. 677, 707 (N.D. Tex.

2011) (citing LSP Inv. Partner. v. Bennet, 989 F.2d 779, 789 (5th
Cir. 1993)).

As previously explained, under Louisiana law

Gutierrez did not owe a fiduciary duty to Plaintiffs as parties
who contracted with RCM.
Plaintiffs cannot prevail on their discharge claim on the
theory that Gutierrez was acting in a fiduciary capacity.
The term larceny is interpreted under federal common law
rather than state law definitions of larceny.

Jones, 445 B.R. at

706 n.106 (citing In re Barrett, 156 B.R. 529, 533 n.3 (Bankr.
N.D. Tex. 1993)).

Under federal common law, larceny has been

defined as “the felonious taking of another’s personal property

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with intent to convert it or deprive the owner of it.

Id.

The

larceny exception to discharge does not apply when the property
comes into the debtor’s possession lawfully.

Miller, 156 F.3d at

602.
The larceny exception does not apply under the facts of this
case because even if Plaintiffs could establish that Gutierrez
converted funds that were due Plaintiffs, those funds were not
obtained unlawfully.
For purposes of § 523(a)(4) embezzlement is defined as “the
fraudulent appropriation of property by a person to whom such
property has been entrusted, or into whose hands it has lawfully
come.”

Miller, 156 F.3d at 602 (quoting In re Thurston, 18 B.R.

545, 550 (Bankr. M.D. Ga. 1982)).

Because the discharge

exceptions are to be narrowly construed in favor of the debtor, a
creditor seeking to prevent discharge based on the embezzlement
exception must present proof of the debtor’s fraudulent intent in
taking the property.

Id. (citing Brady v. McAllister, 101 F.3d

1165, 1173 (6th Cir. 1996)).

Fraudulent intent is “an intent to

deceive another person and thereby induce such other person to
transfer, alter or terminate a right with respect to property.
Holdaway, 388 B.R. at 778 (quoting First Nat’l Bank v. Harrell,
94 B.R. 86, 91 (Bankr. W.D. Tex. 1988)).

Fraudulent intent may

be inferred from the conduct of the debtor and from the
circumstances of the situation.

Id.

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The elements to be proven

to make out a case of embezzlement are 1) appropriation of funds
by the debtor, 2) for the debtor’s use or benefit, and 3) with
fraudulent intent.

In re Patton, 129 B.R. 113, 116 (Bankr. W.D.

Tex. 1991).
The evidence does not support the finding that Gutierrez
appropriated Plaintiffs’ property with “fraudulent intent” as
this element is defined in this circuit.

Fraudulent intent has

not been proven because the evidence does not suggest that
Gutierrez employed any type of trickery, artifice, or deceit in
order to deprive Plaintiffs of their property.

Even if the

evidence had established that Gutierrez appropriated funds that
RCM was contractually obligated to remit to Plaintiffs, this does
not necessarily equate to fraudulent intent.
Plaintiffs have not presented sufficient proof of fraudulent
intent by Gutierrez in order to prevail on their nondischargeability claim premised on embezzlement.
11 U.S.C. § 523(a)(6):

Willful and Malicious Injury

Pursuant to § 523(a)(6) of the Bankruptcy Code, a debtor may
not be discharged from any debt “for willful and malicious injury
by the debtor to another entity or to the property of another
entity.”

Proof that the debtor committed an intentional act that

caused injury is insufficient to prevail on this exception.
Miller, 156 F.3d at 603.

Rather, the creditor must present proof

that the debtor acted with actual intent to cause the injury at

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issue.

Id. (citing Kawaauhau v. Geiger, 118 S. Ct. 974, 977

(1998)).

Injury is “willful and malicious” where there is either

an objective substantial certainty of harm or a subjective motive
to cause harm.”

Shcolnik v. Rapid Settlements, Ltd., No. 10-

20800, -- F.3d -- (5th Cir. Feb. 8, 2012) (quoting Miller, 156
F.3d at 606).

“[D]ebts arising from recklessly or negligently

inflicted injuries do not fall within the compass of §
523(a)(6).”

Texas v. Walker, 142 F.3d 813, 823 (5th Cir. 1998)

(quoting Kawaauhau, 118 S. Ct. at 977).

The tort of conversion

may or may not entail “willful and malicious” injury, id. at 82324, especially in Louisiana where the tort of conversion rests
upon a finding of fault, not necessarily a finding of intent, In
re Dyson, 277 B.R. 84, 88 (Bankr. M.D. La. 2002) (citing Dual
Drilling Co. v. Mills Equip. Invests., Inc., 721 So. 2d 853, 857
(La. 1998)).
Plaintiffs cannot prevail on this exception for the same
reason that their proof fails in proving a debt under state law.
C.

Plaintiffs’ Motion for Adverse Inference

Plaintiffs move the Court to draw an adverse inference
related to Gutierrez’s failure to retain documents/materials and
refusal to testify as to certain matters.

The motion is DENIED.

The content, probative value, and relevance of anything that
might have been on RCM’s computers is highly speculative.
Gutierrez did not repeatedly invoke his Fifth Amendment rights

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during his deposition and the Court is not inclined to penalize
him for validly doing so on the advice of counsel.
Judgment will be entered accordingly.
March 13, 2012

JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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