United States District Court, N.D. Alabama, Northeastern Division
OWEN BOWDRE, CHIEF UNITED STATES DISTRICT JUDGE.
Westlake Flooring Co. appeals the Bankruptcy Court's
Final Order and Judgment finding that Westlake failed to
prove that Debtor-Appellee Michelle Staggs's $152, 480.95
debt to it is non-dischargeable. On appeal, Westlake asserts,
as it did in its adversary proceeding before the Bankruptcy
Court, that 11 U.S.C. § 523(a)(6) excludes Ms.
Staggs's debt from dischargeability because it arose from
her infliction of a “willful and malicious
injury.” Westlake Flooring contends that Ms. Staggs,
using her status as an officer of her automobile dealership,
Alabama Direct, converted or assisted Alabama Direct in
converting Westlake's security interest in the proceeds
of sold vehicles for her and Alabama Direct's benefit.
Bankruptcy Court found that Westlake failed to show that Ms.
Staggs inflicted the injury about which Westlake complains
because Ms. Staggs had insufficient involvement with Alabama
Direct's operations to have “actively
participated” in the conversion. As a result, the
Bankruptcy Court concluded, Ms. Staggs's debt to Westlake
did not arise from her infliction of a willful and
malicious injury and, therefore, did not trigger the
exception to discharge under § 523(a)(6).
court, having considered the parties' arguments, the
record on appeal, and the applicable law, concludes that the
Bankruptcy Court did not clearly err in finding that Westlake
failed to prove by a preponderance of the evidence that Ms.
Staggs's $152, 480.95 debt arose from her infliction of a
willful and malicious injury. Accordingly, this court will
AFFIRM the Bankruptcy Court's Final Order and Judgment.
Staggs filed a Chapter 7 bankruptcy petition on December 21,
2015, in the Bankruptcy Court for the Northern District of
Alabama. On May 27, 2016, Westlake Flooring began the instant
adversary proceeding seeking denial of discharge under 11
U.S.C. § 523(a)(2), (a)(4), and (a)(6). The Bankruptcy
Court tried the matter on May 24 and 25, 2017, and entered a
Memorandum Opinion and Judgment in Ms. Staggs's favor on
September 22, 2017. Westlake Flooring timely filed its appeal
to this court.
court has appellate jurisdiction over the Bankruptcy
Court's Final Judgment under 28 U.S.C. § 158(a). On
appeal, this court reviews de novo legal
conclusions. In re Cox, 493 F.3d 1336, 1340 n.9
(11th Cir. 2007). This court reviews the Bankruptcy
Court's findings of fact for clear error. Fed.R.Bankr.P.
8013. A finding of fact is not clearly erroneous unless
“after reviewing all of the evidence” the court
is “left with the definite and firm conviction that a
mistake has been committed.” In re Int'l Admin.
Servs., Inc., 408 F.3d 689, 698 (11th Cir. 2005).
the court must narrowly construe all exceptions to Chapter 7
bankruptcy discharge. See Gleason v. Thaw, 236 U.S.
558 (1915); Local Loan Co. v. Hunt, 292 U.S. 234,
244-45 (1934). As the Supreme Court explained in
Hunt, “[o]ne of the primary purposes of the
Bankruptcy Act is to relieve the honest debtor from the
weight of oppressive indebtedness, and permit him to start
afresh free from the obligations and responsibilities
consequent upon business misfortunes . . . The various
provisions of the Bankruptcy Act were adopted in light of
that view and are to be construed when reasonably possible in
harmony with it so as to effectuate the general purpose and
policy of the act.” Hunt, 292 U.S. at 244-45
(internal quotation marks and citations omitted).
Westlake & Alabama Direct
Westlake, a “floor-plan financier, ” advances
money to automobile dealerships. Auto dealers use this money
to purchase cars at auction or by trade-in. A
“floor-planned” vehicle is a vehicle bought with
a floor-plan lender's advance funds. A dealer sells a
floor-planned vehicle “out of trust” when it
sells the vehicle but fails to repay the floor-plan
Michelle Staggs owned an auto dealer incorporated as Alabama
Direct Auto, LLC. Alabama Direct operated much like a typical
auto dealer, and it engaged Westlake as well as several other
financiers to provide floor-plan advances. Westlake provided
Alabama Direct with a $500, 000 line of credit, and Alabama
Direct authorized Westlake to automatically debit any
necessary payments on that line of credit from Alabama
Direct's checking account. Ms. Staggs personally
guaranteed the line of credit with Westlake.
exchange for granting the line of credit, Westlake took
security interests in its floor-planned vehicles, earned
interest, and charged certain fees to Alabama Direct while
the floor- planned vehicles sat on Alabama Direct's lot
unsold. Westlake also kept titles to the floor-planned
vehicles until their pay off.
required Alabama Direct to pay off Westlake's title lien
within seven days of a vehicle's sale, or within 24 hours
of Alabama Direct's receipt of sale proceeds, whichever
event occurred first. Finally, Westlake required Alabama
Direct to attach a $100 “reserve” to each
floor-planned vehicle, with that $100 held in trust for
Westlake in the event Alabama Direct defaulted on the line of
Financial Services, a parent or affiliate of Westlake
Flooring, ran a similar operation for consumer financing.
Alabama Direct maintained a relationship with Westlake
Financial for consumer financing to purchasers of its
floor-planned vehicles. Alabama Direct's agreement with
Westlake Financial required it to repurchase a
consumer-financing contract if the consumer failed
to make his or her first payment on the contract.
Alabama Direct's Sales Operations
appeal, the most critical facts are those involving Ms.
Staggs's involvement in Alabama Direct's sales
operations, and, more specifically, in Alabama Direct's
relationship with Westlake. Ms. Staggs delegated virtually
all of the responsibility for running Alabama Direct to other
employees. Most notably, she retained Wes Staggs, her
husband, as general manager. Indeed, Ms. Staggs appears to
have purchased Alabama Direct for the sole purpose of
ensuring her husband's continued employment. Wes Staggs
had been Alabama Direct's general manager under the
company's previous owner. As general manager, Wes Staggs