Filed: Apr. 04, 2014
Latest Update: Mar. 02, 2020
Summary: Case: 13-10681 Date Filed: 04/04/2014 Page: 1 of 8 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 13-10681 Non-Argument Calendar _ D.C. Docket Nos. 1:11-cv-23229-KMW, 09-28211-LMI RICARDO FERNANDEZ, Plaintiff-Appellant, versus HAVANA GARDENS, LLC, Defendant-Appellee. _ Appeal from the United States District Court for the Southern District of Florida _ (April 4, 2014) Before TJOFLAT, PRYOR, and EDMONDSON, Circuit Judges. PER CURIAM: Case: 13-10681 Date Fil
Summary: Case: 13-10681 Date Filed: 04/04/2014 Page: 1 of 8 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 13-10681 Non-Argument Calendar _ D.C. Docket Nos. 1:11-cv-23229-KMW, 09-28211-LMI RICARDO FERNANDEZ, Plaintiff-Appellant, versus HAVANA GARDENS, LLC, Defendant-Appellee. _ Appeal from the United States District Court for the Southern District of Florida _ (April 4, 2014) Before TJOFLAT, PRYOR, and EDMONDSON, Circuit Judges. PER CURIAM: Case: 13-10681 Date File..
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Case: 13-10681 Date Filed: 04/04/2014 Page: 1 of 8
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-10681
Non-Argument Calendar
________________________
D.C. Docket Nos. 1:11-cv-23229-KMW, 09-28211-LMI
RICARDO FERNANDEZ,
Plaintiff-Appellant,
versus
HAVANA GARDENS, LLC,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(April 4, 2014)
Before TJOFLAT, PRYOR, and EDMONDSON, Circuit Judges.
PER CURIAM:
Case: 13-10681 Date Filed: 04/04/2014 Page: 2 of 8
Debtor-Appellant Ricardo Fernandez (“Ricardo”) appeals the district
court’s decision affirming the Bankruptcy Court’s ruling in favor of Havana
Gardens, LLC. The Bankruptcy Court awarded Havana Gardens a monetary
judgment and determined that a portion of that judgment ($57,781.38) was non-
dischargeable under 11 U.S.C. § 523(a)(4). No reversible error has been shown;
we affirm. 1
Briefly stated, Ricardo and Sergio Fernandez (“Sergio”) entered into a
business relationship to develop a parcel of real property into a condominium
building. Ricardo and Sergio formed a limited liability company -- Havana
Gardens, LLC -- and were the LLC’s only managing members.
Over time, disputes arose about the handling of Havana Gardens’s finances,
including some state court litigation. After Ricardo filed for bankruptcy, Sergio
and Havana Gardens filed this action in Bankruptcy Court seeking (1) a money
judgment against Ricardo for money that Ricardo allegedly diverted from Havana
Gardens and used for his personal benefit and (2) a determination that the debt
resulting from the monetary judgment was non-dischargeable pursuant to
11 U.S.C. § 523(a)(2)(A) and (a)(4).
1
Havana Gardens has not cross-appealed the Bankruptcy Court’s decision; so we will not review
whether the Bankruptcy Court erred when it determined that a portion of Ricardo’s debt was
dischargeable.
2
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After a bench trial, the Bankruptcy Court awarded Havana Gardens a
judgment for all personal expenses 2 that Ricardo paid for using the company’s
funds. 3 But only a portion of that judgment was deemed non-dischargeable.
The Bankruptcy Court first determined that Havana Gardens was unentitled
to relief under section 523(a)(2)(A) because nothing evidenced that Ricardo
“obtained money under false pretenses”. See 11 U.S.C. § 523(a)(2)(A) (an
individual debtor is not discharged “from any debt . . . for money, property,
services, or an extension, renewal, or refinancing of credit, to the extent obtained,
by . . . false pretenses, a false representation, or actual fraud” (emphasis added)).
The Court also determined that many of Ricardo’s personal expenses --
although paid for improperly using Havana Gardens’s funds -- were not the
product of “embezzlement” under section 523(a)(4). Because Ricardo made no
attempt to conceal the personal nature of many of his expenditures (particularly
those payments which he paid for using company checks), he had not acted with
fraudulent intent or deceit.
The Bankruptcy Court found, however, that Ricardo acted with fraudulent
intent for two categories of personal expenses: undeposited rent payments and
certain unexplained credit card charges. Because the Bankruptcy Court concluded
2
Except for Ricardo’s personal health insurance and cell phone expenses, which the Bankruptcy
Court determined Ricardo could have reasonably expected would be paid for by the company.
3
The Bankruptcy Court also concluded that Sergio had no personal claim against Ricardo.
Sergio has not appealed the Bankruptcy Court’s order; so Sergio’s claim is not before us.
3
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that Ricardo had embezzled those funds, it declared that portion of Ricardo’s debt
non-dischargeable under section 523(a)(4). The district court affirmed.
We review the Bankruptcy Court’s conclusions of law de novo and its
findings of fact for clear error. See In Re Bilzerian, 153 F.3d 1278, 1281 (11th Cir.
1998). “Because a determination concerning fraudulent intent depends largely
upon an assessment of the credibility and demeanor of the debtor, deference to the
bankruptcy court’s factual findings is particularly appropriate.” In Re Miller,
39
F.3d 301, 305 (11th Cir. 1994). The creditor must show non-dischargeability by a
preponderance of the evidence. Grogan v. Garner,
111 S. Ct. 654, 661 (1991).
A discharge in bankruptcy will not discharge an individual debtor from
certain debts, including debts for embezzlement. See 11 U.S.C. § 523(a)(4). The
term “embezzlement” in section 523(a)(4) is defined by federal common law. See
In Re Langworthy, 121 B.R. 903, 907 (Bankr. M.D. Fla. 1990). Under federal
common law, “embezzlement” is “the fraudulent appropriation of property by a
person to whom such property has been entrusted, or into whose hands it has
lawfully come.” United States v. Sayklay,
542 F.2d 942, 944 (5th Cir. 1976).
On appeal, Ricardo does not dispute that he appropriated company funds for
his own benefit. He contends, however, that he did not do so with the requisite
fraudulent intent.
4
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Ricardo argues mainly that, once the Bankruptcy Court determined that he
had no fraudulent intent for purposes of section 523(a)(2)(A), the Court necessarily
had to conclude that he had no fraudulent intent for purposes of section 523(a)(4). 4
But analyses under sections 523(a)(2)(A) and (a)(4) involve entirely different
inquiries.
Under section 523(a)(2)(A), the issue is whether a debtor had fraudulent
intent when he obtained money or property from a creditor. See 11 U.S.C.
§ 523(a)(2)(A). Because Ricardo, as the LLC’s co-manager, was in lawful
possession of Havana Gardens’s money, he had no fraudulent intent to obtain the
money for purposes of section 523(a)(2)(A). Instead, the issue was whether
Ricardo had a fraudulent intent to appropriate Havana Gardens’s money for his
own personal benefit. See Sayklay, 542 F.2d at 944. Because analyses of these
two subsections involve separate inquiries, nothing was inherently inconsistent
about the Bankruptcy Court’s determining that Ricardo acted with fraudulent intent
for purposes of section 523(a)(4) but not for purposes of section 523(a)(2)(A). Cf.
United States v. Trevino,
491 F.2d 74, 75 (5th Cir. 1974) (The “difference between
the crimes of embezzlement and stealing [is that e]mbezzlement presupposes
lawful possession and theft does not.”).
4
In making this argument, Ricardo relies heavily on selective quotes from the Bankruptcy
Court’s order which are taken out of context and which do not stand for the proposition that he
asserts they do.
5
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The Bankruptcy Court’s conclusion that Ricardo acted with fraudulent intent
was based mainly on the Court’s adverse credibility findings. While Ricardo made
no attempt to hide the majority of his personal expenses from Havana Gardens, the
Bankruptcy Court found Ricardo’s testimony about two categories of personal
expenses to be untruthful.
First, Ricardo testified that sometimes tenants made checks payable to him
personally instead of to Havana Gardens. Although Ricardo failed to deposit these
rent checks in the company’s bank account, he testified that he used the money to
pay for company expenses. Because evidence existed that Ricardo sometimes
deposited checks made payable to him in Havana Gardens’s account, the
Bankruptcy Court found Ricardo’s testimony untruthful about the use of other
checks made out to Ricardo personally. The Bankruptcy Court also found
untruthful Ricardo’s testimony that he split the rent payments between himself and
Sergio. Ricardo presents no evidence refuting the Bankruptcy Court’s credibility
finding, and we see no clear error.
Ricardo also testified that various unexplained credit card charges were for
appliances and closets for the condominiums. Because Ricardo testified
inconsistently about whether he or a contractor installed the closets, and because
Ricardo testified that he had an invoice for the appliances but failed to produce the
invoice for trial, the Bankruptcy Court found his testimony untruthful.
6
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On appeal, Ricardo challenges the Bankruptcy Court’s adverse credibility
finding about the charges for the appliances, contending that he was prevented
from producing the appliance invoice at trial when the Court granted Plaintiffs’
motion in limine.5 But the Bankruptcy Court’s adverse credibility finding was not
based on Ricardo’s failure to produce the invoice at trial. Instead, it was based on
Ricardo’s failure to produce the invoice during discovery, despite repeated requests
for documents and despite his knowing that the invoice was pertinent to matters
that would be litigated in the upcoming trial. We defer to the Bankruptcy Court’s
reasonable assessment of Ricardo’s credibility; and based on this record, the
Bankruptcy Court committed no clear error in determining that Ricardo’s
testimony lacked credibility.
In the light of the Bankruptcy Court’s adverse credibility ruling, Ricardo’s
testimony about the undeposited rent and about the credit card charges evidenced
an attempt to conceal that he used company funds for his personal benefit. That
Ricardo regularly and openly used company funds for other personal expenses (for
which the Bankruptcy Court determined Ricardo had no fraudulent intent), but
5
Despite repeated requests from the State Court, the Bankruptcy Trustee, and Plaintiffs, Ricardo
failed to produce corporate records -- including the invoice for the appliances -- until the evening
before the last pretrial conference in this action, when he disclosed 166 new exhibits. Plaintiffs
filed a motion in limine to exclude the proposed exhibits based on Ricardo’s alleged willful and
repeated violations of the Court’s discovery orders. The Bankruptcy Court granted the motion.
7
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attempted to hide his personal use of the company’s rent payments and credit card
also indicates that he acted in this respect with fraudulent intent. 6
Havana Gardens has shown by a preponderance of the evidence that Ricardo
acted with a fraudulent intent to appropriate certain company funds for his own
benefit. Thus, the portion of Ricardo’s debt attributable to the undeposited rent
and the unexplained credit card charges is non-dischargeable under section
523(a)(4) as embezzled funds.
AFFIRMED.
6
Ricardo argues that Sergio’s knowledge of Ricardo’s personal use of company funds should be
imputed on Havana Gardens. Because of the secretive nature of Ricardo’s use of the
undeposited rent and the unexplained credit card charges, however, neither Havana Gardens nor
Sergio had knowledge of, or acquiesced to, Ricardo’s personal use of these funds.
8
