DANIEL S. OPPERMAN, Bankruptcy Judge.
Before the Court is Plaintiff Gypsum Supply Company's Motion for Summary Judgment. The Defendant in this adversary proceeding is the Debtor Anthony Jerome Marinelli. Plaintiff filed this action under 11 U.S.C. §§ 523(a)(4) and 523(a)(6) objecting to the dischargeability of debt. The instant Motion for Summary Judgment is brought pursuant to Section 523(a)(4) only.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) (determinations as to the dischargeability of certain debts).
The Defendant Anthony Marinelli was the owner, officer, and resident agent of Livingston Ceiling and Partitions, Inc. ("Livingston Ceiling") at all relevant times. Livingston Ceiling engaged Plaintiff as its construction material supplier on an open account basis, with Livingston Ceiling agreeing to pay a 1.5% per month time price differential service charge for any outstanding amounts owing and to pay any attorney fees and collection costs. Defendant personally guaranteed the account with Plaintiff on behalf of Livingston Ceiling.
Prior to the bankruptcy filing of Defendant, Livingston Ceiling and Defendant requested that Plaintiff supply labor and materials and supplies for various projects for property improvements, consisting of two specific projects. The first was known as the "Hamilton Project," in which Plaintiff later confirmed Livingston Ceiling was paid $549,111.45, and the second was for the "Brush Park Project," in which it was confirmed that Livingston Ceiling was paid $191,143.90. Livingston Ceiling and Defendant did not pay Plaintiff in full from these funds. The current amount owed by Livingston Ceiling to Plaintiff on these two projects is $14,516.52, plus treble damages, a time price differential service charge of 1.5% per month, and reasonable attorney fees. Plaintiff asserts summary judgment is appropriate because these facts are undisputed, attaching the relevant documents to support such, and that under applicable Michigan law, this debt is nondischargeable under Section 523(a)(4).
Defendant has been unrepresented by counsel at all times in this adversary proceeding and has been given much time and many opportunities to obtain counsel. Defendant filed a two-word response to the instant Motion, stating: "I disagree." At oral argument, Defendant did add that Livingston Ceiling had a 10-year relationship with Plaintiff, and that when Livingston Ceiling fell behind in payments, Plaintiff would stop delivery of products until payment arrangements were made and Defendant would advise Plaintiff to place a lien on certain projects, such as the ones in this case. Defendant orally disputed the remaining amounts that were claimed owed by Plaintiff, but did not supply written or sworn evidence in support of these statements.
Federal Rule of Civil Procedure 56 is made applicable in its entirety to bankruptcy adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Rule 7056(c) provides that summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See Choate v. Landis Tool Co., 46 F.Supp. 774 (E.D. Mich. 1980). The moving party bears the burden of showing the absence of a genuine issue of material fact as to an essential element of the non-moving party's case. Street v. J.C. Bradford & Co., 886 F.2d 1472 (6th Cir. 1989) (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). The burden then shifts to the non-moving party once the moving party has met is burden, and the nonmoving party must then establish that a genuine issue of material fact does indeed exist. Janda v. Riley-Meggs Indus., Inc., 764 F.Supp. 1223, 1227 (E.D. Mich. 1991).
Section 523(a)(4) excepts from discharge a debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny . . . ." The Sixth Circuit has held that § 523(a)(4) requires:
R.E. America, Inc. v. Garver (In re Garver), 116 F.3d 176, 178-79 (6th Cir. 1997); see also Patel v. Shamrock Floorcovering Services, Inc. (In re Patel), 565 F.3d 963 (6th Cir. 2009); Carlisle Cashway, Inc. v. Johnson (In re Johnson), 691 F.2d 249, 251-52 (6th Cir. 1982) (finding that fiduciary capacity "applies only to express or technical trusts and does not extend to implied trusts, which are imposed on transactions by operation of law as a matter of equity" and "the requisite trust relationship must exist prior to the act creating the debt and without reference to it") (citations omitted).
To establish the existence of an express trust, the plaintiff "must demonstrate: (1) an intent to create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary." Patel, 565 F.3d at 968 (internal quotation marks and citation omitted).
Once the plaintiff has established the existence of a trust and that the defendant is a trustee of a trust, the burden of proof shifts to the defendant. In Cappella v. Little (In re Little), 163 B.R. 497 (Bankr. E.D. Mich. 1994), the Court found that the question of burden of proof for defalcation while acting in a fiduciary capacity was a substantive question, and thus should be determined under state law. Id. at 502. In reviewing Michigan law, the Cappella Court found that:
Id. at 500-01 (internal quotation marks and citations omitted).
The Sixth Circuit Court of Appeals has held that defalcation for purposes of § 523(a)(4) "occurs through the misappropriation or failure to properly account for those trust funds" by a fiduciary. Garver, 116 F.3d at 180 (citation omitted). It requires a "pre-existing fiduciary relationship." Patel, 565 F.3d at 968.
In Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013), the Supreme Court decided the level of intent required for defalcation under § 523(a)(4):
Id. at 273-74 (internal quotation marks and citation omitted).
The Sixth Circuit has addressed the Michigan Building Contract Fund Act ("MBCFA"), which is also known as the Michigan Builders Trust Fund Act ("MBTFA"), in the context of a § 523(a)(4) non-dischargeability proceeding.
The Johnson court concluded that
Id. at 252-53.
Therefore, the first element of § 523(a)(4), a fiduciary relationship, is met for funds held under the Act. See also Patel, 565 F.3d at 963 (finding an individual debtor who was an officer, 50% shareholder and day-to-day administrator of affairs of a company hired to act as general contractor was himself a "contractor" subject to liability under the Act).
After the plaintiff establishes a breach of the fiduciary duty, "the plaintiff must demonstrate a loss resulting from the breach." Sangal v. Strickfaden (In re Strickfaden), No. 09-CV-15060, 2010 WL 3583427, at *4 (E.D. Mich. Sept. 9, 2010) (noting there is no defalcation if the funds were spent completing the project or toward contract-related bills). Supplying materials on open account is not sufficient to establish a res required under § 523(a)(4); however, supplying materials for a specific project does create the required trust under the Act. Astro Building Supplies, Inc. v. Slavik, No. 10-2206, 2011 WL 6157348, at *1 (6th Cir. Dec. 12, 2011).
In Patel, the Sixth Circuit Court of Appeals discussed intent in the context of the Act. As "carefully explained" in its previous holding in Johnson: defalcation occurs when evidence supports "the objective fact that monies paid into the building contract fund were used for purposes other than to pay laborers, subcontractors or materialmen first is sufficient to constitute a defalcation under section [524](a)(4) so long as the use was not the result of mere negligence or a mistake of fact." Thus, there is no such thing as "defalcation per se" and instead the debtor must have been objectively reckless in failing to properly account for or allocate funds.
Id. at 970 (quoting Johnson, 691 F.2d at 257). "[T]his Circuit has never countenanced `innocent' or merely `negligent' defalcation" as being sufficient to find a debt non-dischargeable under § 523(a)(4). Id. The Patel Court went on to find that the debtor recklessly misallocated funds, citing his testimony that he paid his own expenses, including his wages, before paying the plaintiff; the debtor's "woefully inadequate" attempts at accounting; and the debtor's concession "that his business operations were sloppy at best . . . ." Id. at 971. Proving the elements of a case under the Act, alone, is not sufficient under Bullock to entitle a creditor to relief under Section 523(a)(4); rather, the requisite finding of the state of mind of "moral turpitude or intentional wrong" is required. See Shears v. Vestal (In re Vestal), 521 B.R. 604, 610-12 (Bankr. W.D. Mich. 2014) (holding that the burden of proof shifts to the creditor challenging dischargeability to demonstrate that the debtor intentionally or recklessly acted when violating the Act.
Here, there are no genuine issues of fact as to the essential elements of this Section 523(a)(4) action. The facts of this case are not disputed by Defendant. While Defendant denies that summary judgment is appropriate, he offers nothing to contradict the facts as asserted by Plaintiff, which facts are supported by the exhibits attached to the instant Motion. The requisite fiduciary relationship exists because, under Patel, there is no dispute Livingston Ceiling was a "contractor" for purposes of the Act, and thus a fiduciary to its supplier, Plaintiff. And there is no dispute that Plaintiff supplied materials to Livingston Ceiling for the specific projects at issue. The breach of fiduciary duty occurred when Livingston Ceiling failed to remit payment in full to Plaintiff, despite receiving payment for the projects at issue. Defendant asserted at oral argument that all funds received from these projects went to pay bills and not to him personally, but Defendant offered no evidence or exhibits to support his statements. Even if these assertions are true, such do not offer a defense to Defendant, who chose to not pay Plaintiff, especially as Defendant's statements only vaguely assert that he did not pay himself, which leaves open the possibility that he paid others not connected with these projects.
Accordingly, Defendant has not adequately accounted for the funds and this failure satisfies the intent element. The damages suffered by Plaintiff total the remaining amount of $14,516.52, plus treble damages, a time price differential service charge of 1.5% per month, plus reasonable attorney fees. Thus, the Court finds that Plaintiff, as the moving party, has met its burden of showing the absence of a genuine issue of material fact under Section 523(a)(4), and that Defendant has failed to meet his burden of showing the existence of a genuine issue of material fact.
Plaintiff's Motion for Summary Judgement is GRANTED because no fact issues exist as to whether Defendant's actions amounted to defalcation while acting in a fiduciary capacity, resulting in the damages to Plaintiff as just stated. Pursuant to Section 523(a)(4), this warrants a finding of nondischargeability. Because the Court is granting summary judgment to Plaintiff on other grounds, the Court need not rule on Plaintiff's Rule 16(f) argument for judgment in its favor due to Defendant's failure to appear for the mediation conference.
Counsel for the Plaintiff is directed to prepare an order consistent with this opinion and entry of order procedures of this Court.