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Conspiracy for Fraud Can Except Debts from Discharge in Separate Bankruptcy Cases

By Alexander Beeby posted 09-26-2021 01:27 PM

  
BANKRUPTCY BULLETIN
Contributing Editor: Alexander J. Beeby, Larkin Hoffman Daly & Lindgren Ltd.

In Madison Resource Funding Corp. v. Marsh (In re Marsh), 629 B.R. 473 (B.A.P. 8th Cir. July 21, 2021), the BAP affirmed two separate dischargeability decisions: Madison Resource Funding Corp. v. Marsh (In re (Jerry) Marsh), Adv. 16-03127, 2021 WL 457675, slip op. (Bankr. D. Minn. Jan. 25, 2021) (Fisher, J.), and Madison Resource Funding Corp. v. Marsh (In re (Robert) Marsh), Adv. 18-04198, 2021 WL 373251, slip op. (Bankr. D. Minn. Jan. 25, 2021) (Fisher, J.). The brothers’ debts were ruled nondischargeable, under 11 U.S.C. § 523(a)(2)(A), for arising from their conspiracy to obtain funding from the creditor fraudulently.

The debtors, who are brothers, owned and operated two separate staffing agencies, which also had a sub-vendor relationship with each other. The debtors did not disclose this relationship to the creditor, which provides payroll and billing services for staffing companies. After a dispute between a customer and one of the staffing agencies, the other staffing agency defaulted on its obligations to the creditor, which triggered one of the brother’s personal guaranty.

In the bankruptcy court proceedings, Judge Fisher determined (1) that one brother’s debt to the creditor was excepted from discharge after finding that the debt arose from a fraudulent misrepresentation regarding the relationship between the staffing agency and its customer and (2) that the other brother’s debt was also excepted from discharge due to the brother’s conspiratory participation in this fraud. The BAP held that sufficient evidence supported Judge Fisher’s findings and decision.

Co-Editors in Chief
Alexander J. Beeby, Larkin Hoffman Daly & Lindgren Ltd.
Kesha Tanabe, Tanabe Law

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