Opinion
Case No. 18-56909 Adv. Pro. No. 18-2155 Adv. Pro. No. 19-2013
03-27-2020
In re: NASHELY J. WILSON, Debtor. Jose J. Cabrera, Plaintiff, v. Nashely J. Wilson, Defendant. Capitol South Community Urban Redevelopment Corporation, Plaintiff, v. Nashely J. Wilson, Defendant.
Copies to: Joshua J. Brown, Attorney for Plaintiff Jose Cabrera (electronically) James H. Gordon, Attorney for Plaintiff Capitol South Urban Redevelopment Corporation (electronically) Steven D. Sundberg, Attorney for Defendant Nashely Wilson (electronically)
Chapter 7
OPINION ON COMPLAINTS TO DETERMINE DISCHARGEABILITY OF DEBTS
I. Introduction
These adversary proceedings have their genesis in a concert produced by the Chapter 7 debtor, Nashely Wilson. The manager of the concert venue, Capitol South Community Urban Redevelopment Corporation, remained unpaid after the concert, as did Jose Cabrera, a friend of Wilson's who provided her funds to cover the event's expenses in exchange for the promise of receiving his money back twofold. Capitol South and Cabrera ask that Wilson's debts to them be excepted from her bankruptcy discharge. Capitol South contends that Wilson obtained the use of the concert venue through false pretenses, a false representation, or actual fraud within the meaning of § 523(a)(2)(A) of the Bankruptcy Code. Cabrera alleges that Wilson persuaded him to lend her money using those same means and that she also willfully injured him by taking his money without intending to repay it, making her debt to him nondischargeable under both § 523(a)(2)(A) and § 523(a)(6). To prevail on a nondischargeability claim under § 523(a)(2)(A), a creditor must demonstrate that the debtor intended to defraud the creditor, and to succeed under § 523(a)(6) the creditor must show that the debtor intended to injure the creditor or the creditor's property. The plaintiffs, however, were unable to prove that Wilson had any such intent. Instead, it appears that they went unpaid because Wilson lacked the ability to pay all her debts arising from the concert after it generated little, if any, net revenue. Wilson's debts to Cabrera and Capitol South accordingly are discharged. In the end, while the plaintiffs succeeded in showing that Wilson was an inexperienced—and perhaps inept—concert promoter, they failed to demonstrate that she is a fraudster or that she acted with intent to harm them.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine these adversary proceedings under 28 U.S.C. § 1334(b) and the general order of reference entered in this district under 28 U.S.C. § 157(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(I). Because disputes over the dischargeability of debts "stem[] from the bankruptcy itself," the Court also has the constitutional authority to enter final judgments in these adversary proceedings. Hart v. S. Heritage Bank (In re Hart), 564 F. App'x 773, 776 (6th Cir. 2014) (quoting Stern v. Marshall, 564 U.S. 462, 499 (2011)).
III. Procedural History
On October 31, 2018, Wilson filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. That same day, she filed her schedules of assets and liabilities, listing on Schedule E/F an unsecured debt to Capitol South in the amount of $70,290 and an unsecured debt to Cabrera in the amount of $80,000. Wilson received a discharge under § 727 of the Bankruptcy Code. Cabrera and Capitol South, however, commenced adversary proceedings seeking to have the debts owed to them declared nondischargeable. With the agreement of the parties, the Court entered an order providing that the adversary proceedings would be tried concurrently. Doc. 8. The trial was held over the course of two days. The transcript of the first day of the trial is docketed at Doc. 17 in Adv. No. 18-2155 ("Transcript I"), and the transcript of the second day is located at Doc. 19 of the same adversary proceeding ("Transcript II"). The Court heard the testimony of Wilson, Cabrera, and Nicholas Stefanik, a representative of Capitol South. In addition, the parties stipulated to the admission into evidence of Plaintiffs' Exhibits 1 through 22, and Plaintiffs' Exhibits 23 through 25 were admitted into evidence without objection. The parties submitted proposed findings of fact and conclusions of law after the trial.
IV. Findings of Fact
Based on the evidence adduced at trial, including the documentary evidence and the testimony presented, and having considered the demeanor and credibility of the witnesses, the Court makes the findings of fact set forth below.
A. Events Leading to the Yandel Concert
Wilson, who is originally from Bolivia, is bilingual in Spanish and English, while Cabrera primarily speaks Spanish. Tr. I at 19; Tr. II at 20. Beginning around 2013, Wilson began marketing what she described as her "brand" to the Spanish-speaking community in Columbus, Ohio. She did this through a magazine known as "Hola Columbus" and a television show called "Hola TV" that included segments focused on fashion and local events of interest to the Hispanic community. Tr. II at 22. Her twin goals were "becoming the bridge between the American market and the Hispanic market" and "building a career as an entrepreneur." Id. at 23. Working toward those goals, Wilson started producing concerts in local clubs, undeterred by her lack of any education or experience that would have prepared her to handle the financial aspects of concert production. Id. at 21-23.
Wilson testified in English while Cabrera testified in Spanish through an interpreter, who not only translated his testimony, but also interpreted statements made by others so that Cabrera could understand everything that was said during the trial.
By the time Wilson met Cabrera in the summer of 2016, she had spent the past several years producing one or two concerts per year in the Columbus area. Tr. I at 140-41; Tr. II at 22. With an average attendance of around 200, those events were viewed by Wilson as successful, and they increased her confidence in her ability as a producer. Tr. II at 22. It was then that Cabrera contacted Wilson through a social media platform in order to purchase VIP tables at a Wilson-produced concert to be held in a nightclub called Euphoria. Tr. I at 140; Tr. II at 25. Wilson and Cabrera met face-to-face for the first time at the Euphoria concert. Tr. II at 14. Cabrera considered the event a success, estimating a crowd that numbered around 700 to 800 to be much higher—anywhere from 1,000 to 1,200. Tr. I at 114-15; Tr. II at 7-8, 43.
After the Euphoria concert, Cabrera and Wilson began meeting at clubs and various other venues for social gatherings with friends and family members, including Cabrera's now ex-wife, Fabiola Alvarez. Tr. I at 141-42, 145; Tr. II at 8, 25. According to Cabrera, "there are very few of us Latinos here in Columbus, and so those that are here, we try to get together with each other and do things together . . . . And I would say that all of us know each other in those places." Tr. I at 143. Wilson used the affectionate nickname "Juancito" for Cabrera, and she endeared herself not only to him, but to Alvarez as well. Tr. I at 142, 147. Over time, Cabrera developed a relationship with Wilson that he considered a friendship. Tr. I at 141-43, 150, 152; Tr. II at 9, 14. He even came to trust Wilson enough to lend her $1,000 on one occasion and an undisclosed amount on another. Id. at 142, 157. She paid him back in a timely fashion both times, increasing his trust in her. Id.; Tr. II at 9.
Buoyed by her earlier success producing relatively small events, Wilson became determined to produce a concert on a much larger scale. She ultimately decided on the singer Yandel, whom she describes as "one of the most well-known artists in the Hispanic community" and "the Justin Bieber of the Latin community." Tr. II at 24. Yandel agreed to appear for a concert in Columbus on May 20, 2017. Wilson's research revealed that Yandel had "performed in many different places" and that he had "filled out different venues [with] thousands of people[.]" Id. at 28. Based on the size of the crowds that Yandel had drawn in other cities, Wilson believed that his concert in Columbus would draw an audience of no less than 5,000. Id. at 24, 33-34. In a development that could only have encouraged her optimism, several corporate sponsors—Musicon, Corona, Modelo, El Manantial, and La Michoacana Market—collectively provided her a total of $43,500 of sponsorship dollars in exchange for advertising during the concert. Tr. I at 20-24.
Despite the financial boost those funds provided, Wilson still needed additional capital to cover the concert's up-front costs. For one thing, sponsorship dollars were Wilson's primary source of income, and she would have needed to use some of those funds for living expenses. Id. at 20-21. For another, Yandel's flat performance fee alone was $50,000, and thousands of dollars more were needed to pay for flights and hotels rooms for the musician and his entourage in addition to all the other concert-related expenses. Tr. II at 69-72. Wilson originally planned to obtain the additional funding from "Fadi," a local restaurateur who had provided her with funds in connection with an earlier event that she had produced. Id. at 31-32. Cabrera was aware of this potential infusion of cash from Fadi and offered to provide funds for the Yandel concert himself if Fadi decided not to do so. Id. at 32. After Fadi ultimately declined to fund the concert, Wilson recalled Cabrera's offer and reached out to him by phone. Id. During the call, she made Cabrera aware of the sponsorships she had obtained and told him how confident she was that the Yandel concert would be a success. Tr. II at 9. She also told him that she needed $40,000 within two days for the concert to take place. Tr. I at 149; Tr. II at 14-15. Cabrera said he would try to raise the money she needed. He then asked Alvarez to help with the funding, and she agreed to participate. Tr. I at 149-50. So too did a friend of Cabrera's, Sergio Flores. Id.
The terms of the funding that Cabrera arranged were memorialized in an agreement dated March 28, 2017 (the "Cabrera Agreement"), which stated:
Investment agreement by and between Jose J. Cabrera, Fabiola Alvarez, and [Nashely] Wilson DBA Hola TV, LLC.
Mr. Jose J. Cabrera and Ms. Fabiola Alvarez deposited $40,000 (forty thousand and 00/100) as investing amount for the Yandel concert event taking place May 20th, 2017 at the Columbus Commons. In return, they will receive the full amount of $40,000 (forty thousand and 00/100) back plus 50% of all revenue after
expenses, totaled at $80,000 (eighty thousand and 00/100), by June 30th, 2017.Ex. 20.
Complying with the agreement, Cabrera provided Wilson $40,000 in two separate installments: (i) a $24,000 check written by Flores; and (ii) a $16,000 check comprised of $6,000 from Cabrera and $10,000 from Alvarez. Tr. I at 150-51; Tr. II at 6-7; Ex. 15. The Cabrera Agreement made clear that the amount being contributed by Cabrera, Alvarez, and Flores was to be used "for the Yandel concert." Ex. 20. Consistent with that requirement, the $16,000 contributed by Cabrera and Alvarez was deposited into one of Wilson's bank accounts on March 28, 2017, and this very amount was then wired to an entity known as Live Nation on behalf of Yandel that same day. Ex. 3 at 13-14. No evidence was offered by the plaintiffs demonstrating how Wilson used the $24,000 contributed by Flores. Nor did they present evidence suggesting that any of the funds Wilson received under the Cabrera Agreement were used for anything other than the Yandel concert.
Under the terms of the Cabrera Agreement, Wilson agreed to return to Cabrera and Alvarez the $40,000 she received while also paying them "50% of all revenue after expenses," estimated to be an additional $40,000, within 40 days after the concert. Ex. 20. With a minimum ticket price of $35 and a price of $65 for VIP tickets, Tr. I at 64, ticket sales of 5,000 would have generated more than $175,000 of gross revenue. Given this, Wilson's estimate that "50% of all revenue after expenses" would equal $40,000 was not completely unreasonable, and her intentions "were always to pay back" Cabrera. Tr. II at 73.
At the time she obtained the funding from Cabrera, Wilson had already entered into an agreement with Capitol South, the manager of a park in downtown Columbus known as the Columbus Commons, to use the park as the concert venue. Ex. 1; Tr. I at 124-26. Wilson chose Capitol South because the Commons had the capacity to hold the thousands of concertgoers Wilson was anticipating. Tr. I at 27, 61-62. Upon receipt of Wilson's application to use the Commons, Stefanik, who was Capitol South's event manager, reached out to her to discuss the logistics of the event. Id. at 136. During their initial discussions, Wilson informed Stefanik that she had produced several concerts in smaller venues. Id. Stefanik recognized that a concert held at the Commons "would be a step up, but it seemed like the prerequisite foundational skills were there from [their] initial conversations." Id. at 137. Following these discussions, Wilson and Capitol South entered into a license agreement in January 2017 for the use of the Commons four months later on May 20, 2017 (the "Capitol South Agreement"). Ex. 1 at 1. The Capitol South Agreement required Wilson to make an initial deposit of $2,000, which Wilson paid. Tr. I at 127. In addition to requiring the deposit, the Capitol South Agreement also imposed future obligations on Wilson, including the obligation to obtain insurance for the event and to pay a percentage of the amount due Capitol South no later than five days before the concert, with the balance due within 14 days following the event. Ex. 1 at 1. Capitol South and Wilson ultimately agreed that the amount she would need to pay before the concert was $20,000. Tr. I at 127.
With the venue and funding secured, Wilson promoted the concert in various ways. She gave an estimated 50 to 100 tickets to a disk jockey known as "DJ Juan" in exchange for his assistance in promoting the concert and provided 50 complementary tickets to a radio station, La Mega 103.1, that also helped promote the concert. Id. at 28-29. Wilson sold tickets for the Yandel concert through Eventbrite and the La Michoacana Market. Id. at 30.
At some point after Wilson obtained the funding from Cabrera, it became evident that ticket sales were falling far below her expectations. Concerned about the pace of ticket sales in the days leading up to the concert, she redoubled her promotional efforts, driving to other major cities around Ohio in an attempt to bring in concertgoers from outside of Columbus. Id. at 75-76. And yet, the day before the event, only about 239 tickets had been sold by Eventbrite and Michoacana combined. Ex. 18; Tr. I at 91. Around 100 of those tickets were sold through Michoacana, generating roughly $3,500 a few days before the concert. Id. at 31-32. Eventbrite sold the remaining 139 tickets, providing Wilson with proceeds of $7,403 starting in March 2017 and continuing up to a couple of days before the concert. Id. at 38; Exs. 18, 23. In total, the proceeds of ticket sales before the concert were approximately $10,900.
In the meantime, Capitol South was asking Wilson for the $20,000 that was due no later than five days before the concert. Tr. I at 82, 127-28. Rather than paying Capitol South, Wilson instead paid other concert-related expenses using the proceeds of pre-concert ticket sales, sponsorship funds, and the funding she had received from Cabrera and Alvarez. Wilson authorized funds to be deposited from one of her bank accounts into an account maintained by her brother so that he could take care of the logistics of paying certain expenses, including approximately $8,300 for hotel rooms for Yandel and his team and $1,100 for the portable restrooms that were going to be installed at the Commons for the event. Id. at 32-33, 72-73. An unnamed friend of Wilson's used a credit card to cover the approximately $15,000 cost of airfare for Yandel and his retinue. Tr. II at 54, 58-59. An individual named Carlos Rodriguez lent Wilson $10,000 to pay for other expenses related to the concert, and she also used between $5,000 and $5,500 of her own savings to pay for still other expenses. Id. at 32, 47-48, 57-58. Any portion of Yandel's $50,000 appearance fee that had not yet been paid would have been paid at this point. Although only $41,000 of the $50,000 is readily identifiable in Wilson's bank statements as having been paid, the entire fee must have been paid, because Yandel would not have performed if his up-front appearance fee had not been paid in full before the concert. Id. at 69-71.
Likewise, Capitol South would not have made the Commons available to Wilson on the day of the concert if it had not received a check for the $20,000 that was then due. Tr. I at 128. On the morning of the concert, therefore, Wilson issued a check to Capitol South in the amount of $20,000. Ex. 2; Tr. I at 52-53, 127. Because the balance in her bank accounts on an aggregate basis was close to zero or even negative at that point, Wilson almost certainly knew when she issued the check that the account lacked sufficient funds to cover it. Tr. I at 60-61. But no evidence suggests that Wilson represented to Capitol South that the account contained sufficient funds. And because it was inconceivable to Wilson that Yandel would not draw thousands to his concert, she was still anticipating an influx of ticket buyers at the door. She accordingly issued the check the morning of the concert with the expectation that the proceeds of ticket sales later in the day would be enough for her to deposit the funds needed to cover the check after the concert. Id. at 61-62; Tr. II at 30. But it was not to be.
B. The Concert's Financial Failure
Despite Wilson's last-ditch efforts to salvage the concert, her prediction that Yandel would bring in at least 5,000 concertgoers ultimately turned out to be high by several thousand people. Cabrera estimated the crowd at "between 1,500 to 1,800 people in addition to the 30 VIP tables that were full." Tr. I at 153. But Cabrera appears to have overestimated the size of the crowd by several hundred people, just as he did with the Euphoria concert. The size of the crowd was more likely in line with the 1,000 to 1,500 range estimated by Wilson. Id. at 69. On top of that, only a portion of those in attendance had actually paid for tickets purchased through Eventbrite or Michoacana. About 150 of the concertgoers used complementary tickets that Wilson had given away to promote the concert. And, exploiting her failure to use ticket scanners, several hundred more used counterfeit tickets, the proceeds of which did not make their way to Wilson. Id. at 64-65.
The precise number of tickets actually purchased from Wilson at the gate is uncertain, but appears to have been around 250. Id. at 91. This number of tickets would have generated gross proceeds of only $8,750 (250 times $35 per ticket). Wilson also sold alcohol at the concert, but the only evidence presented regarding the amount of cash generated by alcohol sales is that Cabrera purchased $700 of alcohol for his friends and family. Although additional alcohol was purchased, no evidence was offered that would provide a basis for placing a dollar amount on purchases other than those made by Cabrera. Id. at 64; Tr. II at 16-18, 42. In total, then, the evidence establishes that tickets purchased at the gate and the sale of alcohol generated gross proceeds of approximately $9,450.
Wilson used proceeds from tickets sold at the gate and alcohol sales to cover various expenses that had to be paid the day of the concert, including the per-diem expenses of Yandel's team and the costs of providing a disk jockey, bartenders, and security personnel, all of which would have totaled $7,300 if the per-diem expenses for Yandel were the $2,800 budgeted by Wilson. Tr. I at 63-69. Given that the per-diem expenses were closer to $3,500, id. at 63, the total expenses the day of the concert were at least $8,000. With gross proceeds of $9,450 and same-day expenses of at least $8,000, the net profit generated the day of the concert was at most $1,450.
Wilson's net profit was perhaps closer to zero. When Yandel's manager asked Wilson to pay the per-diem expenses immediately before the artist went on stage, she "started collecting all the money that was at the door," then "counted everything around behind the stage," and "started counting cash to him, because [she] just needed the event to go through." Id. at 63. She does not "remember who [she] gave cash to" and it "all got out of hand." Id. at 63. Her method of paying other expenses later that evening was equally shambolic: "I had a lot of people, like the bartenders and securities, done with their work and they were all coming up to me for payments, so I started pulling out money from the door or the alcohol to start paying everybody that worked the night of the event." Tr. II at 44. Given the haphazard manner in which Wilson distributed cash the day of the concert in order to pay the event's expenses, her net profit may have been less than the amount the Court calculated above, and it very likely was zero or close to it.
Capitol South points to Exhibit 19, a document entitled "Yandel Concert," as a basis for finding that her expenses both before and after the concert were only $86,400 (the $95,400 set forth in the document minus the $9,000 that Capitol South contends was not ultimately paid to Yandel). No evidence was presented establishing the date on which the document was prepared, but at trial the document was consistently described as a "budget." Tr. I at 67-69. By definition, a budget is a pre-event estimate of expenses, not a tally of expenses actually paid.
Wilson's recollection is that she had no cash left at the end of the day. Tr. I at 63. Although the plaintiffs posit that Wilson walked away from the concert with close to $20,000 of cash that she never deposited into any of her bank accounts, there is simply no evidence supporting that contention.
C. Events Occurring After the Concert
Several days after the concert, the $20,000 check that Wilson issued to Capitol South was returned for insufficient funds. Ex. 2; Tr. I at 129. Upon the check's return, Capitol South reached out to Wilson with a request that she pay the amount due under the Capitol South Agreement, but she failed to respond. Exs. 7, 8, 9; Tr. I at 130-31. Instead, like a gambler trying to recoup her losses by doubling down, Wilson planned to pay the outstanding expenses from the Yandel concert using the proceeds of another concert: "I said maybe if I do the next event, I will be able to cover what I owe for the one that I just did." Tr. II at 39; see also id. at 48, 53.
Capitol South contends that the insurance policy that was required to be in place for the concert to go forward never became effective because the check Wilson issued to the insurance agency also was returned for insufficient funds. Emails among Wilson, Capitol South, and the representative of the insurance agency show only that Wilson attempted to pay for the insurance with cash, but that the payment was refused and that she then issued the agency a check. Ex. 11. Regarding the purported return of the check, Stefanik ambiguously testified that "we had received verification after the fact that I believe a check was received." Tr. I at 129. In other words, the evidence shows only that "a check was received," but does not establish that the check was returned for insufficient funds. There also is no documentary evidence in the record establishing that the insurance check was returned for insufficient funds.
Rodriguez, who had lent Wilson $10,000 for expenses related to the Yandel concert, gave her a cashier's check in the amount of $25,000 about a week after the concert for the purpose of producing a large-scale concert by the artist Daddy Yankee. Id. at 48-51, 56-60; Ex. 25. Wilson deposited the check into her bank account and withdrew the funds in cash that same day. At some point, she gave Rodriguez $10,000 of his own money back as payment for the $10,000 he had lent her for the Yandel concert. Tr. II at 58. She then paid the remaining $15,000 that she received from Rodriguez to the unidentified friend who had previously used a credit card to cover the costs of airfare for Yandel and his team. Id. at 53, 58-59. Wilson did not advise Rodriguez that she was going to use his $25,000 in this manner rather than for the Daddy Yankee concert. In other words, she may have convinced Rodriguez to give her the $25,000 by misrepresenting how she was going to use the money. But that does not mean that she misled Cabrera about the use of his money. To the contrary, there is no evidence that she used the funds she received from Cabrera, Alvarez, or Flores for anything other than the Yandel concert, and there is direct evidence that she in fact used $16,000 of those funds to pay Live Nation for Yandel's appearance.
Other than the income generated by sales of concert tickets and alcohol, sponsors were Wilson's only source of income in 2017. Tr. I at 20-21. She deposited that income into several bank accounts and used the same accounts to pay both her business and personal expenses, including meals and other daily living expenses. Tr. II at 67-68. Shortly after the concert, Wilson visited Miami with Alvarez, who did not yet know that Wilson was unable to repay her and Cabrera. Tr. I at 147, 154; Tr. II at 37. The expenses associated with the trip, however, were minimal. Wilson's flight was inexpensive, her mother paid for her ticket, and she stayed with a friend during the trip. Tr. I at 114; Tr. II at 37. At Alvarez's suggestion, they took a day trip from Miami to the Bahamas via ferry, but the ferry ticket cost only about $50, and Wilson's only other expense that day was $10 for lunch. Tr. II at 38. In an attempt to reestablish her "brand," Wilson also attended several fashion events in New York and Los Angeles to which she was invited because of her prior involvement with Hola TV. Tr. I at 108-12; Tr. II at 34-36, 79-81. But all her expenses were covered other than airfare, which was paid for by her mother. Tr. II at 35-36. Although Wilson sometimes wore relatively expensive clothing during the fashion events, the clothes were provided by her sponsors, and she typically was required to return them. Tr. I at 113; Tr. II at 36-37.
A few weeks after the Yandel concert, Wilson contacted Cabrera and Alvarez to arrange a meeting. Tr. I at 153. At the meeting, Wilson raised the idea of their providing funding for the concert she hoped to promote next. Id. at 154. They declined to do so and inquired about the funds they had expected to receive from the Yandel concert. Based on Wilson's response, Cabrera's understanding was that he and Alvarez would only be receiving their initial $40,000 back. He also understood that she would begin repaying them starting the next week and that she intended to use funds she anticipated receiving from sponsors for the new concert she was planning. Id. at 154-55. Cabrera contacted Wilson a few days later and, hoping to be able to confirm that any check she gave him would be honored, asked her to meet him at Chase Bank before it closed. Id. at 155-56. Wilson ultimately was late for the meeting and, once Cabrera reached her, asked to meet in the parking lot of a Sam's Club instead of at the bank. Id. at 157. Cabrera met her at the Sam's Club after the bank had closed, and Wilson gave him a check for $25,000. Id. At the time Wilson gave Cabrera the check, she knew that the account on which it was drawn lacked sufficient funds for the check to be honored. Id. at 120. It is even possible that she delayed meeting Cabrera and changed the meeting place so Cabrera could not determine that the check would not be honored at that point. But no evidence was presented showing that Wilson represented to Cabrera when she gave him the check that the account on which it was drawn contained sufficient funds. And Wilson issued the check believing that she would be able to deposit new sponsorship dollars into the account within the next few days so that the check would be honored: "I was expecting the money to be there, because I was doing everything I could to organize—to come up with the next event." Id. at 120; see also Tr. II at 75-77. The sums she hoped to receive from sponsors would have been for advertising at the next concert and thus were not funds that she would have been required to repay. Tr. II at 78.
The concert that Wilson planned to produce in order to earn money to repay her debts from the Yandel concert never happened. This was due at least in part to her inability to obtain sponsors for the event. Id. at 26-27, 39, 78. For this Wilson blames comments made about her on social media to the effect that she had engaged in fraud—negative publicity that began around the time she issued the $25,000 check to Cabrera. Id. at 26-27, 78-79. Regardless of the reason, Wilson was no longer able to generate income as a concert producer.
Cabrera sued Wilson in state court for $80,000 and obtained a default judgment against her. Tr. I at 115; Tr. II at 7. Capitol South also obtained a default judgment against Wilson in an amount exceeding $70,000 for treble damages plus attorneys' fees. Ex. 10; Tr. I at 131-32.
A tax return was prepared on Wilson's behalf in October 2018 for the calendar year ending December 31, 2017. Ex. 6. Apparently trying to call Wilson's credibility into question, Capitol South contends that Wilson "failed to declare at least $60,000 in income" on that return. Doc. 26 at 7. In calculating that number, however, Capitol South included funds she was obligated to repay. But funds that must be repaid typically are not considered taxable income. Wilson was obligated to repay the funds received from Cabrera regardless of the revenue generated by the Yandel concert, and she demonstrated her intent to do so by testifying to her attempts to obtain funds from sponsors that she would have used to repay Cabrera. Cabrera, of course, intended to seek repayment. Thus, there is no basis to conclude that the income reflected on Wilson's 2017 income tax return was understated. Nor does the tax return call Wilson's credibility into question for any other reason.
See Milenbach v. Comm'r, 318 F.3d 924, 930 (9th Cir. 2003) ("A loan is generally not taxable income because the receipt of the loan is offset by the obligation to repay the loan. For this rule to apply . . . the loan must be an 'existing, unconditional, and legally enforceable obligation for the payment of a principal sum' [and there also must be] 'an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment[.]'") (citations omitted).
Wilson filed her bankruptcy case in October 2018. As of the date of the filing, she was living with her mother and making only about $1,000 a month as a server at a restaurant. Tr. I at 117. She never recovered the approximately $5,000 of her own savings that she used to pay expenses related to the Yandel concert. Id. at 118-19, 154; Tr. II at 32, 40, 47-48, 60-61.
D. Wilson's Ability to Pay
In order to establish that Wilson had the ability to pay them, the plaintiffs submitted copies of certain bank records through September 2017. Based on the records provided, an analysis of Wilson's total deposits and expenses reveals the following information:
The data provided in this table is a compilation of all account deposits and debits (reflecting payment of expenses by Wilson) over the time period covered by the bank account statements introduced as exhibits by the plaintiffs.
| Account | Total Deposits | Total Withdrawals |
|---|---|---|
| # 8232 | 60,357.57 | 35,501.57 |
| # 9769 | 40,071.74 | 32,389.22 |
| # 0189 | 27,822.54 | 44,820.37 |
| # 9683 | 2,950.00 | 2,800.00 |
| # 2731 | 5,420.00 | 5,595.00 |
| # 3298 | 2,008.66 | 40,317.30 |
| Total | $138,630.51 | $161,423.46 |
The information summarized above incorporates all deposits and withdrawals reflected in (i) the five bank accounts Wilson used for both her personal and business expenses and (ii) her brother's bank account insofar as the deposits to and withdrawals from that account relate to the Yandel concert. As the chart reflects, over the course of several months leading up to and following the Yandel concert, Wilson's total expenses exceeded her total deposits by over $20,000. Wilson's ability to remain afloat despite this untenable financial situation was made possible only by her banks' willingness to cover a number of account overdrafts.
Bank accounts ending in # 8232, # 9769, # 0189, # 9683 and # 2731.
Bank account ending in # 3298.
The chart does not list the cash obtained from ticket sales at the gate ("Gate Sales") and amounts paid in cash to various parties on the day of the concert ("Gate Expenses"). Wilson testified that she used Gate Sales to pay the following Gate Expenses in cash on the day of the Yandel concert: $3,500 for Yandel's per diems; $1,000 for a disk jockey; $2,000 for security; and $1,500 for bartenders. Because the Court knows from Wilson's testimony that she paid Gate Expenses using Gate Sales, the Gate Sales must have generated at least $8,000 in cash. While these amounts are gleaned from Wilson's testimony rather than from the bank accounts, they still must be added to the total sums of Wilson's deposits and expenses to convey a more accurate picture of her overall financial position. Given the account information contained in the bank statements—as well as the testimony regarding Gate Sales and Gate Expenses—the Court concludes that she did not have the ability to pay Cabrera and Capitol South while also paying her other debts.
V. Legal Analysis
A. The Intent Requirement
To prevail on a nondischargeability complaint under § 523(a)(2)(A), a creditor must demonstrate that the debtor intended to defraud the creditor, and to succeed under § 523(a)(6) the creditor must show that the debtor intended to injure the creditor or the creditor's property. See Duley v. Thompson (In re Thompson), 528 B.R. 721, 740 (Bankr. S.D. Ohio 2015). The creditor must prove the element of intent by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). If the creditor fails to do so, then the other elements required to establish nondischargeability under each subsection need not be addressed. See Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 283 (6th Cir. 1998). That is the case here. As explained below, Cabrera and Capitol South have failed to prove by a preponderance of the evidence that Wilson had the requisite intent—either to defraud or to injure—required to establish a basis for nondischargeability under either § 523(a)(2)(A) or § 523(a)(6).
B. The Requirement of Intent Under § 523(a)(2)(A)
Section 523(a)(2)(A) provides as follows:
(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
11 U.S.C. § 523(a)(2)(A). Because § 523(a)(2)(A) is "phrased in the disjunctive," a creditor need only prove one of the "three distinct categories of debtor misconduct" to render a debt nondischargeable: false representation, false pretenses, or actual fraud. Schafer v. Rapp (In re Rapp), 375 B.R. 421, 433 (Bankr. S.D. Ohio 2007). A false representation involves an actual, express misrepresentation. See id. False pretenses, on the other hand, involve implied misrepresentations or conduct that attempts to create a false impression. See id. A debt arising from a false representation or from false pretenses is nondischargeable if the creditor establishes, among other things, that "the debtor intended to deceive the creditor." Rembert, 141 F.3d at 280. Actual fraud more broadly consists of "any deceit, artifice, trick, or design involving direct and active operation of the mind, used to circumvent and cheat another." Mellon Bank, N.A. v. Vitanovich (In re Vitanovich), 259 B.R. 873, 877 (B.A.P. 6th Cir. 2001) (quoting McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir. 2000)). Although actual fraud does not necessarily involve a representation, "wrongful intent" must exist for there to be a finding of actual fraud. Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581, 1586 (2016).(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.
In Rembert, the Sixth Circuit held in the context of a credit card transaction that "the representation . . . is not that [the debtor] has an ability to repay the debt; it is that he has an intention to repay." Rembert, 141 F.3d at 281 (quoting Anastas v. Am. Sav. Bank (In re Anastas), 94 F.3d 1280, 1285 (9th Cir. 1996)). Just so when a debtor enters into a contract—the representation made by the debtor is that she intends to perform under the contract. And "the appropriate time to measure the intent of a debtor not to perform a contract is at the moment of its formation." Webb v. Isaacson (In re Isaacson), 478 B.R. 763, 775 (Bankr. E.D. Va. 2012). That is, the debtor's "intent at the time the debt is incurred is critical in proving fraud." Vitanovich, 259 B.R. at 877.
The standard for determining the debtor's intent is subjective, and the issue therefore is "whether the debtor subjectively intended to repay the debt." Rembert, 141 F.3d at 281. A debtor who intends to repay a debt using anticipated future income still has an intent to repay notwithstanding significant uncertainty surrounding the receipt of the income. For example, the Sixth Circuit held in Rembert that the debtor's conduct "was entirely consistent with a subjective intent to repay" even though her basis for believing she could repay her debts was her anticipation that she "would win enough money" from gambling. Id. at 282. And the Sixth Circuit so held despite finding that the debtor's expectations likely were unreasonable: "The fact that Rembert later admitted that it probably was not reasonable to believe that she would win enough money to repay . . . does not indicate a subjective intent not to repay her debts in this case." Id.; see also Hall v. Jackson (In re Jackson), 348 B.R. 595, 599 (Bankr. M.D. Ga. 2006) ("A debtor's honest belief that a debt would be repaid in the future, even if in hindsight found to have been very unrealistic, negates any fraudulent intent.") (quoting 4 Collier on Bankruptcy ¶ 523.08[1][d] (15th ed. rev. 2006)).
Debtors, of course, "have an incentive to make self-serving statements and will rarely admit an intent not to repay." Rembert, 141 F.3d. at 282. Thus, a "debtor's intention—or lack thereof—must be ascertained by the totality of the circumstances." Id. Among other things, a court may consider events occurring after the debt was incurred. For although the intent to defraud must have existed at the time the debt was incurred, "the debtor's subsequent conduct may help to shed light on the debtor's state of mind at [that] time." Risk v. Hunter (In re Hunter), 535 B.R. 203, 213 (Bankr. N.D. Ohio 2015).
Of course, even if the debtor intended to repay the debt, grounds for nondischargeability will still exist if the debtor misled the creditor in some other way. See In re Haden, No. C 98-3011 FMS, 1998 WL 822997, at *3 (N.D. Cal. Nov. 17, 1998) (holding that the debtor obtained a loan through fraud despite intending to repay the loan because the debtor "misrepresented the degree of risk involved in lending the money"). Ultimately, for a debt to be held nondischargeable under § 523(a)(2)(A), the evidence taken collectively must "lead[] to the conclusion that it is more probable than not that the debtor had requisite fraudulent intent." Rembert, 141 F.3d at 282 (quoting Chase Manhattan Bank v. Murphy (In re Murphy), 190 B.R. 327, 334 (Bankr. N.D. Ill. 1995)).
C. The Requirement of Intent Under § 523(a)(6)
Under § 523(a)(6), an individual debtor is not discharged from any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." 11 U.S.C. § 523(a)(6). For an injury to be "willful," the debtor must have desired to cause the consequences of her conduct or believed that the consequences were substantially certain to result from it. See Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir. 1999) (citing Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998)). In other words, because the word "willful" modifies the word "injury," "nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau, 523 U.S. at 61.
D. Cabrera Has Not Shown That Wilson Intended to Defraud or Injure Him.
Having considered the totality of the circumstances, the Court finds by a preponderance of the evidence that Wilson intended at the time she signed the Cabrera Agreement to comply with her obligations under the agreement. Those obligations were threefold: (1) use the $40,000 she received under the Cabrera Agreement for the Yandel concert; (2) return the $40,000 after the concert; and (3) pay Cabrera and Alvarez "50% of all revenue after expenses," which was estimated to be an additional $40,000. Ex. 20. The representation that Wilson made when she signed the Cabrera Agreement was that she would do all that, and the evidence establishes that she intended to do so. Indeed, she used the funds contributed by Cabrera to pay a portion of Yandel's appearance fee, and she failed to return his money only because she ultimately was unable to do so. She would have known that failing to honor her obligations to Cabrera would tarnish her reputation in the Hispanic community, thereby hindering her goals of becoming an entrepreneur who served that community. Given all this, it is unlikely that Wilson entered into the Cabrera Agreement intending not to keep her promises.
Cabrera makes several arguments against this commonsense conclusion, none of them convincing. He first contends that Wilson's description of his funding as an "investment" means that she did not intend to repay him. Cabrera Proposed Findings (Doc. 22 in Adv. Pro. No. 18-2155) at 15-18. This argument is not well taken. The evidence shows that Wilson intended to return the funds she received from Cabrera regardless of the outcome of the Yandel concert. Indeed, despite the financial failure of the concert, she advised Cabrera that she would repay him using the sponsorship funds that she hoped to receive in the future. The only reason she did not repay him is that her sponsors declined to fund a future concert promoted by Wilson after she began receiving negative publicity as a result of the failed Yandel concert.
Moreover, there is simply no evidence that Cabrera, who himself described his deal with Wilson as an investment, Tr. II at 10, was led to believe that he would double his money regardless of the amount of net profits Wilson derived from the Yandel concert. Under the terms of the Cabrera Agreement, which expressly states that it is an "investment agreement," Wilson agreed to pay Cabrera and the others "50% of all revenue after expenses," estimated to be $40,000. Ex. 20. And there is no evidence that Wilson represented to Cabrera either expressly or impliedly that she would pay that $40,000 using a source of funds other than the "revenue after expenses" from the Yandel concert. The fact that Wilson chose to pay other creditors and not Cabrera in no way indicates that she did not intend to pay him half of the concert's net revenue. After all, the amount equal to 50% of revenue after expenses could have been calculated only after Wilson paid all her other expenses associated with the concert. Finally, although it turned out that Wilson was not up to the task of bringing in the number of concertgoers needed to generate the net revenue she and Cabrera expected, there is no evidence that she failed to put forth her best efforts. To the contrary, having invested about $5,000 of her own money—and with her reputation on the line—she undertook every effort she knew to take in order to make the Yandel concert a success. Although her expectations for the Yandel concert proved to be unrealistic, they were no more unreasonable than those of the gambler in Rembert.
Cabrera next argues that Wilson used a "classic scammer technique" to defraud him through false pretenses. Cabrera Proposed Findings at 16. He points to their frequent meetings, their mutual introductions to family members, Wilson's use of a term of endearment for him, the prior borrowings she timely repaid, and her urgent request for money to fund the Yandel concert. Id. at 13-15. Whatever that was, none of it amounts to false pretenses, false representation, or actual fraud under the circumstances of this case. Wilson was confident that the Yandel concert would be successful enough to not only repay Cabrera but also to double his money, and she did not mislead Cabrera about the degree of risk involved or anything else related to the concert. Cabrera testified that Wilson told him and Alvarez that "she would need between 1,500 to 2,000 in order for us to come out with gains." Tr. I at 153. That range is curiously close to the number Cabrera estimates actually attended the concert, and in light of Wilson's belief that the Yandel concert would draw at least 5,000 concertgoers, it seems unlikely that she would have so advised Cabrera. And even if Cabrera's recollection in this regard is accurate, his testimony would establish only that Wilson believed that he would have some gains if the concertgoers numbered 1,5000 to 2,000, not that she told him that he would double his money at that crowd size. Because Wilson did not mislead Cabrera about the risk involved, and given that Wilson always intended to fulfill her obligations to Cabrera, her efforts to persuade him to fund the concert did not constitute false pretenses or any other form of fraud.
Trying a different tack, Cabrera contends that Wilson exhibited fraudulent intent when she attempted to repay him using a $25,000 check drawn on an account that she knew did not yet contain sufficient funds to cover it. Cabrera Proposed Findings at 11-13. It is well established, however, that the issuance of a check in and of itself is not a representation that the account on which it is drawn contains sufficient funds for the check to be honored. See Williams v. United States, 458 U.S. 279, 284 (1982); Stewart v. E. Tenn. Title Ins. Agency, Inc. (In re Union Sec. Mortg. Co.), 25 F.3d 338, 341 (6th Cir. 1994) ("Since a check does not make any representation, it cannot make any misrepresentation."). Furthermore, because the issuance of a check does not involve a representation, it also does not constitute a false pretense. See Goldberg Sec., Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524-25 (7th Cir. 1992) (holding that the issuance of a bad check does not establish that the issuer engaged in false pretenses).
To establish a false representation or pretense in this context, Cabrera would need to show that Wilson represented to him that funds were available in her account to satisfy the check. See 119th & Halsted Currency Exch. v. Blake-Ware (In re Blake-Ware), 155 B.R. 476, 477 (Bankr. N.D. Ill. 1993) (holding that the debtor had made a false representation for purposes of § 523(a)(2)(A) by answering in the affirmative when the creditor asked her if funds were available in her account). But there is no evidence that Wilson represented at the time she issued the check that the account on which it was drawn contained sufficient funds. Also, Wilson, who had received tens of thousands of dollars from sponsors in exchange for advertising in connection with the Yandel concert, gave Cabrera the $25,000 check anticipating that she would soon receive funds for her next concert from companies that had previously provided her with sponsorship dollars, and she planned to deposit those funds into her account so that the check would be honored.
According to Cabrera, Wilson's plans to pay him using funds she anticipated receiving from sponsors, as well as her use of Rodriguez's $25,000 to pay other creditors, means that Wilson was engaging in a Ponzi scheme. Cabrera Proposed Findings at 13, 16. This argument misses the mark. A Ponzi scheme is a "fraudulent investment arrangement under which an entity makes payments to investors from monies received from new investors rather than from profits generated by legitimate business operations." Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 629 (Bankr. S.D. Ohio 2006). But Wilson's corporate sponsors were not investors; they provided her funds in exchange for advertising, not to be repaid. And although Wilson used Rodriguez's money to pay back earlier creditors (including Rodriguez himself), there is no evidence that she used the funds received from Cabrera to pay creditors from an earlier event or for anything else other than expenses related to the Yandel concert.
Cabrera also relies on what he describes as Wilson's "record of costly spending," including traveling "luxuriously and internationally," to argue that Wilson did not intend to repay him. Cabrera Proposed Findings at 9. Here, Cabrera misconstrues the record. Besides paying for meals and other daily living expenses, all Wilson did was take several trips within the United States and a single day trip to the Bahamas. Most of the expenses were paid for by her mother or her fashion sponsors, and the expenses that Wilson herself paid were minimal. In short, Wilson's post-concert personal expenditures may well have been ill advised. But they were not so extravagant as to suggest that Wilson lacked the intent to repay her debts at the time she incurred them. In light of all the foregoing, the Court finds by a preponderance of the evidence that the debt Wilson incurred when she signed the Cabrera Agreement did not arise from false pretenses, false representation, or actual fraud.
Cabrera refers to § 523(a)(6) in passing, and in cursory fashion he suggests that Wilson would have had a "substantial certainty" that her actions would injure him. Cabrera Proposed Findings at 2, 6, 18. Under § 523(a)(6), an individual debtor is not discharged from any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." 11 U.S.C. § 523(a)(6). In order to conclude that Wilson willfully injured Cabrera, the Court would need to find that she intended to injure him or that she was substantially certain that her actions would cause him injury. But such a finding is not warranted here. To the contrary, the evidence shows that Wilson intended to comply with the Cabrera Agreement. Her prior experience producing concerts, her research suggesting a Yandel concert would draw 5,000 concertgoers in Columbus, and her success in obtaining thousands of dollars of sponsorship funds, together gave her good reason to believe that she could fulfill her obligations under the Cabrera Agreement. The Court therefore cannot find that Wilson intended to injure Cabrera or that she was substantially certain that her conduct would do so.
E. Capitol South Also Has Failed to Establish Wilson's Fraudulent Intent.
Having considered the totality of the circumstances, the Court finds by a preponderance of the evidence that Wilson intended at the time she signed the Capitol South Agreement to comply with her obligations under the agreement. Indeed, Capitol South does not even argue that Wilson lacked the intent to fulfill her obligations at the time she entered into the agreement. Instead, Capitol South focuses on the moment four months later when Wilson issued it a check that ultimately was returned for insufficient funds, and it also points to her issuance of a check for insurance coverage that also was allegedly returned for insufficient funds. Capitol South Proposed Findings (Doc. 26 in Adv. Pro. No. 19-2013) at 11-12. As already discussed in connection with the arguments made by Cabrera, the issuance of a check is not a representation that the account on which it is drawn contains sufficient funds for the check to be honored, and the issuance of a check alone therefore does not constitute false pretenses or a false representation. Again, to have any chance of prevailing in this context, Capitol South needed to show that Wilson represented to it that funds were available in her account sufficient for the check to be honored at the moment she issued it. There is, however, no evidence that Wilson expressly or impliedly made any such representation to Capitol South, nor is there evidence that Wilson misled Capitol South in any other way. Further, Wilson issued the check to Capitol South anticipating that the proceeds of ticket sales at the gate would allow her to deposit the funds needed to cover the check after the Yandel concert. With respect to the check Wilson issued to the insurance agency, there is no testimonial or documentary evidence establishing that it in fact was returned for insufficient funds. For all these reasons, neither the issuance of the check to Capitol South nor the issuance of the check to the insurance agency provides a basis for declaring Wilson's debt to Capitol South nondischargeable.
Capitol South tries to make out a case of actual fraud based on its allegations that Wilson (1) deposited Eventbrite proceeds into her brother's account, (2) failed to deposit a purported $20,000 of Gate Sales into her own accounts, (3) used Rodriguez's $25,000 to pay back a friend and Rodriguez himself but not Capitol South, and (4) filed an allegedly fraudulent 2017 federal tax return. Capitol South Proposed Findings at 12-13. Most of this is inaccurate, and none of it demonstrates that Wilson engaged in actual fraud as to Capitol South. As the Court found above, Wilson permitted funds to be deposited into an account maintained by her brother so that he could take care of the logistics of paying certain expenses related to the Yandel concert. As to the $20,000 of alleged Gate Sales, there is no evidence that the Yandel concert produced anywhere near that amount of gross—let alone net—proceeds. Wilson's decision to use Rodriguez's $25,000 to repay Rodriguez and an unnamed friend the amounts she owed them from the Yandel concert do not amount to fraud as to Capitol South. Finally, because the plaintiffs failed to establish that Wilson understated her income on her 2017 federal tax return, the return provides no reason to question Wilson's credibility.
VI. Conclusion
For the foregoing reasons, the Court concludes that Wilson is entitled to a judgment in her favor providing that her debts to Cabrera and Capitol South are not excepted from discharge under either § 523(a)(2)(a) or § 523(a)(6) of the Bankruptcy Code. A judgment in accordance with this opinion will be entered separately.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
John E. Hoffman, Jr.
United States Bankruptcy Judge
Dated: March 27, 2020
Copies to: Joshua J. Brown, Attorney for Plaintiff Jose Cabrera (electronically) James H. Gordon, Attorney for Plaintiff Capitol South Urban Redevelopment Corporation (electronically) Steven D. Sundberg, Attorney for Defendant Nashely Wilson (electronically)