United States District Court, D. Colorado
IN RE: CHARLES ALLEN ARNOLD, PULSEWAVE LLC, Plaintiff/Appellee,
CHARLES A. ARNOLD, Defendant/Appellant
For Charles Allen Arnold, Appellant: John Henry Schlie, Law Office of John Henry Schlie, P.C., Greenwood Village, CO.
For John R. Arnold, Soil Enhancement Technologies, LLC, Appellees: Jeffrey A. Weinman, Weinman & Associates, PC, Denver, CO; Thomas R. Rice, Rice LLC, Greenwood Village, CO.
For Pulsewave, LLC, Appellee: Dean Elliot Richardson, LEAD ATTORNEY, Moye White, LLP, Denver, CO; Jeffrey A. Weinman, Weinman & Associates, PC, Denver, CO; Thomas R. Rice, Rice LLC, Greenwood Village, CO.
OPINION AND ORDER ON APPEAL
Marcia S. Krieger, Chief United States District Judge.
THIS MATTER is before the Court on appeal from the April 3, 2013 Order and Judgment of the U.S. Bankruptcy Court for the District of Colorado, awarding damages and entering judgment in favor of the Plaintiff PulseWave LLC. The Bankruptcy Court determined that the Debtor Charles A. Arnold is not entitled to discharge pursuant to 11 U.S.C. § 727(a)(4) and that the damage award in favor of Pulsewave LLC is nondischargeable pursuant to 11 U.S.C. § 523(a)(4) and (6). In reviewing this matter, the Court has considered the designated record and written arguments of the parties, including the Debtor's Opening Brief (#10), PulseWave's Response Brief (#11) , and the Debtor's Reply Brief (#13).
Exercising jurisdiction pursuant to 28 U.S.C. § 158, with regard to the Bankruptcy Court's April 3, 2013 Order and Judgment, the Court AFFIRMS, IN PART, and REVERSES AND VACATES, IN PART.
I. PROCEDURAL BACKGROUND
In 2007, Charles A. Arnold (the Debtor) and a company in which he was the majority owner, Quantic Research Systems, Inc. (Quantic), filed for bankruptcy protection under Chapter 11. In the context of such case, the Debtor and Quantic initiated an adversary proceeding against PulseWave and others, seeking a declaratory judgment that Quantic was the legal owner of five patents. PulseWave filed a counterclaim for a declaratory judgment that it was the equitable owner of the patents. PulseWave argued that the Debtor had surreptitiously assigned the patents to Quantic and that they rightfully belonged to PulseWave. After a trial, the Bankruptcy Court found that PulseWave was the equitable owner of the patents. The Bankruptcy Court ordered the Debtor and Quantic to convey the patents back to PulseWave. They did.
Subsequently, the Debtor's bankruptcy case was converted to one under Chapter 7. Following the conversion, PulseWave, John Arnold (the Debtor's brother), and Soil Enhancement Technologies (SET) initiated an adversary proceeding against the Debtor challenging his right to obtain a discharge. PulseWave brought two claims. First, it sought a denial of discharge pursuant to 11 U.S.C. § 727(a)(4) for failure to disclose the Debtor's involvement with the Bear Mountain Company in the Debtor's bankruptcy Schedules and Statement of Financial Affairs. Second, PulseWave sought to except from discharge under 11 U.S.C. § 523(a)(4) and (6) the debt owed to it by the Debtor based on breach of fiduciary duty, fraud, civil theft, and conversion in conjunction with the previous transfer of the patents to Quantic. PulseWave also requested quantification of the Debtor's liability and entry of a money judgment.
After a bench trial, the Bankruptcy Court found in favor of PulseWave on both the denial of discharge and exception from discharge claims. It determined that the Debtor was not entitled to a discharge pursuant to § 727(a)(4)(A) because he failed to disclose his business dealings with the Bear Mountain Company in response to Question 18 of his Statement of Financial Affairs. In addition, the Bankruptcy Court determined that pursuant to § 523(a)(4) and (6), the Debtor's acts of conversion and civil theft resulted in a non-dischargeable debt. The Bankruptcy Court quantified the loss at $5, 050, 000, then trebled it and added attorney fees pursuant to Colorado's Civil Theft Statute, Colo. Rev. Stat. § 18-4-401, which resulted in a money judgment in favor of PulseWave and against the Debtor in the amount of $15, 150, 000.
II. BACKGROUND FACTS
A. The Debtor's Involvement in the Bear Mountain Company
In 1964, the Debtor acquired 57 acres of vacant land in Indian Hills, Colorado, from his uncle for $10.00. In 1978, in consideration for payment of $1.00, the Debtor quit claimed the property to the " Bear Mountain Company, " an entity for which no organizational documents exist in the record. The Debtor acted as " Executive Trustee" of the Bear Mountain Company until at least October 2002, during which time he executed several deeds of trust that encumbered title to the property. The Debtor maintains that after 1978 he had no interest in the real property, that the Bear Mountain Company is a " business trust, " and that he is not a beneficiary of the trust. He admits, however, that in ...