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IT IS ORDERED as set forth below:

Date: September 2, 2021 is

Jeffery W. Cavender

U.S. Bankruptcy Court Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE: CASE NO. 19-66374-JWC

JAREIQ AHMAD JOSEF KABARA, CHAPTER 7

Debtor.

“CINQMUSICGROUP,LLC, = (asi

Plaintiff,

V. ADVERSARY PROCEEDING

JAREIQ AHMAD JOSEF KABARA and NO. 20-06009-JWC

FTR ENTERTAINMENT, LLC,

Defendants.

MEMORANDUM OPINION AND ORDER

In 2018, Cing Music Group, LLC and Jareiq Ahmad Josef Kabara entered an arrangement

in which Cinq agreed to provide funding to FTR Entertainment, LLC, a new entity of which Kabara

would be manager, to produce music recordings from four different artists. Upon completion and

delivery, Cinq would have distribution rights to the recordings. Although the parties attempted to

negotiate further terms, Cinq ultimately declined to continue funding FTR. After Cinq

discontinued funding, Kabara funded FTR personally for a while, but he eventually terminated

FTR in July 2019 without delivery of the recordings.

Cinq filed an action in California against Kabara and FTR (“Defendants”) on August 30,

2019, and Kabara filed the above-captioned bankruptcy case as an individual on October 11, 2019,

under Chapter 7 of the Bankruptcy Code.1 Cinq initiated this adversary proceeding seeking to

pierce the corporate veil to hold Kabara personally liable for FTR’s debt to Cinq, to except that

debt from Kabara’s discharge under 11 U.S.C. § 523(a), and to obtain a judgment against

Defendants for the entirety of the debt owed to Cinq, including amounts loaned and lost revenue.

Kabara filed a Motion for Summary Judgment (Doc. No. 65) seeking dismissal of the adversary

proceeding in its entirety, to which Cinq responded (Doc No. 72) (the “Response”). For the

reasons set forth below, the Motion will be GRANTED in part and DENIED in part.

I. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only if “the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a) and Fed. R. Bankr. P. 7056; see also Hairston v. Gainesville Sun Publ’g Co., 9 F.3d 913,

918-19 (11th Cir. 1993). A fact is material if it might affect the outcome of a proceeding under the

governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (U.S. 1986). A

1 Unless otherwise indicated, all statutory references contained herein will be to the Bankruptcy Code, 11 U.S.C. §

101 et seq.; all references to a Federal Rule are to the Federal Rules of Civil Procedure; and all references to a

Bankruptcy Rule are to the Federal Rules of Bankruptcy Procedure.

dispute of fact is genuine “if the evidence is such that a reasonable jury [or finder of fact] could

return a verdict for the nonmoving party.” Id.

At the summary judgment stage of a proceeding, the Court’s function is not to determine

the truth of the matter by weighing the evidence, but rather to determine if there is a genuine issue

for trial. Id. When making this determination, the Court must view the evidence in the light most

favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Rosen

v. Biscayne Yacht & Country Club, Inc., 766 F.2d 482, 484 (11th Cir. 1985). “All reasonable

doubts and inferences should be resolved in favor of the opponent.” Amey, Inc. v. Gulf Abstract

& Title, Inc., 758 F.2d 1486, 1502 (11th Cir. 1985).

The moving party bears the burden of establishing the right to summary judgment. Clark

v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991); Clark v. Union Mut. Life Ins. Co., 692

F.2d 1370, 1372 (11th Cir. 1982). The moving party must identify those evidentiary materials

listed in Federal Rule 56(c) that establish the absence of a genuine issue of material fact. Celotex

Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); see also Fed. R. Civ. P. 56(e). Where the moving

party does not bear the burden of proof at trial,

the movant may satisfy its burden in one of two ways. First, it can

put forward “affirmative evidence demonstrating that the [non-

movant] will be unable to prove its case at trial.” Second, it can

“point[ ] out to the district court that there is an absence of evidence

to support the [non-movant's] case.”

Chambers v. Real Time Resols., Inc., No. 1:17-CV-5256-TWT, 2018 WL 5113056, at *2 (N.D.

Ga. Oct. 19, 2018) (citing Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1116 (11th Cir. 1993)).

Once the moving party makes a prima facie showing that it is entitled to judgment as a

matter of law, the nonmoving party must go beyond the pleadings and demonstrate that there is a

material issue of fact that precludes summary judgment. Celotex, 477 U.S. at 324; Martin v.

Commercial Union Ins. Co., 935 F.2d 235, 238 (11th Cir. 1991). “[A] party opposing a properly

supported motion for summary judgment may not rest upon the mere allegations or denials of his

pleading, but must set forth specific facts showing that there is a genuine issue for trial.” Anderson,

477 U.S. at 248 (citations omitted). If the moving party presented affirmative evidence, then the

nonmoving party “must respond with ‘evidence sufficient to withstand a directed verdict at trial

on the material fact sought to be negated.’” Chambers, 2018 WL 5113056, at *2. If the moving

party instead pointed to an absence of evidence, then the non-moving “party must either identify

evidence ‘ignored or overlooked’ by the movant or must come forward with evidence ‘sufficient

to withstand a directed verdict motion at trial based on the alleged evidentiary deficiency.’” Id.

II. FINDINGS OF FACT

As discussed below, several material facts are disputed or unclear in the record before the

Court. The Court, however, finds the following material facts to be undisputed for purposes of the

Motion except where specifically indicated otherwise:

At some point prior to FTR’s formation, Cinq and Kabara agreed to work together to

produce recordings from four different artists, though the parties dispute who initiated the

relationship. At some point thereafter it was decided that FTR, a new entity to be owned by

Kabara, would produce the recordings, and Cinq would provide funding to FTR for the production.

FTR was formed as a limited liability company in the State of Georgia on May 11, 2018, with the

assistance of GoDigital Media Group, LLC (“GoDigital”), Cinq’s parent company. (Doc. No. 65

[Def., Ex A.]) At the time of formation, Kabara was the only member of FTR, and Kabara executed

an Operating Agreement for the LLC. On May 22, 2018, Kabara, on behalf of FTR,2 also executed

a Note to Cinq to memorialize the loan agreement to produce the records. (Doc. No. 72 [Peterson

2 Nothing in the record suggests Kabara guaranteed or otherwise agreed to be personally liable for the debt of FTR.

Decl., Ex. 1.]) The Note allowed Cinq to convert all or part of its debt to a controlling equity

interest in FTR, but it gave Cinq no equity in FTR prior to exercising the conversion right. [Id.]

On June 4, 2018, Kamal Moo was granted 50,000 Class C shares of FTR. [Def., Ex. D.] On

August 28, 2018, and February 5, 2019, FTR’s annual registration was renewed with Moo listed

as manager of FTR.

The specifics are murky, but it appears undisputed that in June of 2018 Cinq and FTR came

to some form of agreement or approval of a 5-month budget totaling $335,750. [Peterson Decl.,

Ex. 2.] The budget included specific line items for expenditures, but it is not clear from the record

whether the budget was binding, whether it was subject to change, or whether it was even required

by any document. In short, while a budget certainly existed, how the budget governed the parties’

dealings is unclear.

For the months of June through September, Kabara requested funding via email or writing,

which Cinq would review and approve. Though the exact dates are not certain, Cinq advanced

approximately $335,000 between June and September 2018. [Peterson Decl.] In September 2018,

Kabara provided financial information to Cinq and requested additional funding in October of

2018. Instead of advancing additional funds, on October 8, 2018, Jason Peterson, Manager of

Cinq and GoDigital, sent an email to FTR, including Kabara and Moo, informing of Cinq’s

decision to convert its debt to a 51% equity ownership of FTR. The email also dictated the terms

Cinq required to continue funding FTR. Although the specific date on which Cinq provided its

final advance to FTR is unclear from the record, Cinq advanced no funds after the October 8 email

from Jason Peterson. Cinq also had no equity interest in FTR prior to the October 8 email, though,

as discussed below, Kabara disputes whether Cinq’s attempt to convert its debt to equity by the

October 8 email was valid.

Although the specific circumstances after October 2018 are disputed, the parties agree they

then attempted to negotiate future funding terms for the project, but the negotiations failed. Kabara

personally paid more than $80,000 of FTR’s expenses from October 2018 to July 2019. Kabara

did not hold annual meetings for FTR, and no board of managers was selected as set out in FTR’s

Operating Agreement during the company’s existence from May 2018 to when Kabara terminated

it in July 2019. (Doc. No. 72 [Cinq Resp., Ex. B.])

The undisputed facts end there. The following material factual issues are either unclear or

disputed. First, as noted above, how the budget governed the parties’ dealings remains unclear.

The only thing certain from the record is that a budget existed. Likewise, it is disputed whether

Kabara admitted to Peterson that Kabara knew the budget was falsely deflated and would not be

sufficient to produce the agreed upon recordings and whether Kabara continued with that budget

to induce Cinq into investing additional capital to protect its initial investment. This fact from

Peterson’s Declaration is material to Cinq’s claims, but Cinq presents it as disputed in their

response to Kabara’s Statement of Material Facts. [Cinq Resp., p. 151.] Further, Kabara’s

Declaration states that he had no intent to injure or mislead Cinq and that Cinq simply made a bad

business judgment.

Next, the parties dispute whether the Note was signed by Cinq. Kabara asserts the Note

was never signed by Cinq, making Cinq’s attempt to convert its debt to equity invalid. (Doc. No.

47 [Compl., Ex. B.]) Cinq, however, presented evidence that Cinq signed the Note, [Peterson

Decl., Ex. 1], but also argues that the facts of the case would support the validity of the Note even

assuming Cinq had not signed it.

Additionally, whether Kabara followed certain corporate formalities and terms of the FTR

Operating Agreement is disputed. Cinq argues Kabara failed to abide by the Operating Agreement

in failing to appoint a board of managers. In contrast, Kabara presented evidence that he had been

in the process of selecting a board but did not have time to do so since the company operated for

less than a year. [Def., Ex. E.] As the foregoing discussion suggests, the Court finds that numerous

material facts remain in dispute for trial, though only for some of Cinq’s claims. The Court now

turns to each claim and analyzes whether the disputed and undisputed facts support Kabara’s

request for summary judgment.

III. LEGAL ANALYSIS

a. Count IV - Piercing the Corporate Veil

Kabara first requests summary judgment on Count IV—piercing the corporate veil of FTR.

Kabara asserts that the facts of this case do not support piercing the corporate veil, and that Kabara

should not be held personally responsible for FTR’s liabilities. Cinq counters that it presented

enough evidence to take the issue to trial and that this inquiry is inherently an issue for the finder

of fact.

The concept that corporations are legally distinct from their shareholders, directors,

officers, and employees is no less true when the corporation is wholly owned by a single individual.

Ralls Corp. v. Huerfano River Wind, LLC, 27 F. Supp. 3d 1303, 1328–29 (N.D. Ga. 2014).

Incorporation shields members from personal liability unless some legal reason exists to pierce the

corporate veil, an action that courts should take with great caution. Id. To disregard the corporate

form in Georgia, “it is necessary to show that the shareholders disregarded the corporate entity and

made it a mere instrumentality for the transaction of their own affairs; that there is such unity of

interest and ownership that the separate personalities of the corporation and the owners no longer

exist.” Baillie Lumber Co. v. Thompson, 279 Ga. 288, 289–90 (2005). The purpose of this theory

is to remedy injustices which arise because a party has over-extended his privilege in the use of a

corporate entity to defeat justice, to perpetuate fraud, or to evade contractual or tort responsibility.

Id. at 290. The plaintiff must prove “that the defendant disregarded the separateness of legal

entities by commingling on an interchangeable or joint basis or confusing the otherwise separate

properties, records or control.” Id.; see also Ralls Corp., 27 F. Supp. at 1329 (“[T]he plaintiff

must generally establish evidence of fraud, abuse of the corporate form, commingling of assets or

corporate insolvency at the time of the transaction.”).

In support of the Motion, Kabara specifically argues that his exercise of unilateral control

over FTR is not sufficient reason to find he disregarded the corporate form, as FTR was a single

member LLC operating appropriately under Georgia law. Furthermore, Kabara addresses the

allegations that he commingled his personal funds and those of FTR, arguing that Cinq failed to

produce evidence of commingling and that all expenditures to develop the artists were subject to

FTR’s discretion. Kabara also disputes Cinq’s reliance on the initial budget because Kabara

provided FTR’s financial statements to Cinq, and Cinq continued funding FTR with knowledge of

the transactions it now disputes.

Kabara also argues that the Note is not a legally enforceable agreement because it was not

executed by Cinq. Because the Note was not enforceable, Kabara asserts that Cinq’s conversion

of its debt to 51% equity was not valid, and thus Kabara owed no duties to Cinq. Kabara argues

that even if the Note were valid, Kabara’s failure to consult Cinq on how to spend the loaned funds

is not a reason to pierce the corporate veil as Cinq failed to define and establish the specific

framework in which to conduct business. Further, Kabara notes that Cinq cannot show damages

after the equity conversion because all funding and disbursements took place beforehand. For these

reasons, Kabara asserts Cinq failed to show sufficient facts to support piercing the corporate veil

to hold Kabara personally liable.

Cinq responds that a material issue of fact necessarily exists when commingling corporate

and personal assets is alleged, and that summary judgment should not be granted unless no

evidence of commingling is presented whatsoever. Cinq cites case law stating that disregard of

the corporate form is a fact intensive inquiry that is generally left to the factfinder to decide. Cinq

contends issues of material fact exist as to whether Kabara failed to abide the corporate form. Cinq

lists several allegations it contends support the finding that Kabara failed to observe corporate

formalities:

1. Kabara did not follow the terms of the Operating Agreement by failing to hold

annual meetings;

2. Kabara did not identify all managers in the Operating Agreement though both

Kabara and Kamal Moo acted as managers;

3. Kabara did not identify Kamal Moo as a member or amend the Operating

Agreement to reflect his membership;

4. Kabara did not select a board of managers;

5. Kabara did not abide the Operating Agreement in dissolving the LLC by failing to

liquidate assets as required;

6. Kabara did not file a tax return for FTR in 2018 despite there being multiple

members which triggers the requirement to file a tax return;

7. Kabara paid for non-business expenses from the funds advanced by Cinq even

though those expenditures were not in the budget or approved by Cinq;3

3 As set forth in Section III.d below, the only evidence Cinq points to in support of this allegation is the Declaration

of G. Tyler Wright, a certified public accountant, who discloses in his expert report that Cinq directed him to assume

any expenses that do not fit within the specific line items of the budget are non-business expenses. [Cinq Resp., Ex.

E, p. 8]. From the Court’s perspective, this assumption renders any conclusion as to the purpose of any such

expenses pure speculation.

8. Kabara personally paid FTR’s expenses; and

9. Kabara unilaterally terminated FTR without notifying Cinq, who was a member at

that time.

Cinq argues evidence exists that Kabara abused the corporate form and that piercing the corporate

veil is generally an issue for the finder of fact. Accordingly, Cinq requests the Court deny the

Motion.

The Court finds that genuine issues of material fact exist regarding Cinq’s claim to

disregard the corporate form in Count IV thus precluding entry of summary judgment on this issue.

First, Kabara did not dispute that Kamal Moo was a member of FTR from June 2018. This

undisputed fact contradicts Kabara’s assertions in the Motion that as a single member LLC, certain

actions taken do not show an abuse of the corporate form, such as disregarding the terms of the

Operating Agreement or unilaterally terminating FTR. Further, some evidence exists that Kabara

failed to amend the Operating Agreement to reflect Moo’s interest in FTR. Controversy also

surrounds whether Kabara’s failure to select a board of managers or to hold an annual meeting was

improper conduct, considering the evidence that operations ceased within one year and that Kabara

was actively searching for managers. Finally, Cinq presented evidence that Kabara used personal

funds for FTR’s operations and evidence of an initial, five-month budget to which the parties

agreed. Evidence of the initial budget and deviation from that budget, if the parties agreed that no

deviations were permitted, could support a finding of fraud or commingling that could support a

veil-piercing claim. See Nat Katz & Assocs., Ltd. v. Barber, 255 Ga. App. 207, 209, (2002)

(“Resolution of this issue generally is left to the factfinder.”); Clark v. Cauthen, 239 Ga. App. 226,

228, 520 S.E.2d 477, 480 (1999) (“[P]iercing the corporate veil is a jury issue unless no evidence

exists that would be ‘sufficient to justify disregarding the corporate form.’ Therefore, the grant of

summary judgment . . . would be authorized only if no evidence exists” to support the required

inference). Based on the record before it, the Court simply cannot conclude that no evidence exists

to support the veil-piercing claim. Accordingly, summary judgment as to Cinq’s veil-piercing

claim in Count IV is denied.

b. Count II - 11 U.S.C. § 523(a)(4)

Kabara also seeks summary judgment on Count II because he was not acting in a fiduciary

capacity under § 523(a)(4). Section 523(a)(4) excepts from discharge any debt of an individual

debtor “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”

To show fraud or defalcation while acting in a fiduciary capacity, “a party must demonstrate that

(1) the debtor held a position as a fiduciary; (2) the claim arose while acting in a fiduciary capacity;

and (3) the conduct rose to the level of a defalcation.” Ga. Lottery Corp. v. Owens (Matter of

Owens), 599 B.R. 388, 393 (Bankr. N.D. Ga. 2019) (Drake, J.). The first prong, whether a debtor

held a position as a fiduciary, is a more difficult task than usually believed by plaintiffs. It is a

question of federal law, Blashke v. Standard (In re Standard), 123 B.R. 444, 453 (Bankr. N.D. Ga.

1991) (citing In re Angelle, 610 F.2d 1335, 1341 (5th Cir. 1980)), and federal courts have

consistently construed “fiduciary” narrowly for purposes of nondischargeability since at least

1844. See, e.g., Chapman v. Forsyth, 43 U.S. (2 How.) 202, 208 (1844) (“The act speaks of

technical trusts, and not those which the law implies from the contract.”); Guerra v. Fernandez-

Rocha (In re Fernandez-Rocha), 451 F.3d 813, 816 (11th Cir. 2006) (“[t]he Supreme Court has

consistently held that the term ‘fiduciary’ is not to be construed expansively” (citing Quaif v.

Johnson, 4 F.3d 950, 953 (11th Cir.1993))); In re Standard, 123 B.R. at 451-53 (Bankr. N.D. Ga.

1991) (discussing history of narrow construction of “fiduciary” under § 523(a)(4)). “It is well

established that a creditor who seeks a determination that its debt is excepted from discharge

pursuant to § 523(a)(4) must prove the existence of an express or technical trust and not merely

the existence and breach of a fiduciary duty.” Infinity Grp. LLC v. Lucas (In re Lucas), 477 B.R.

236, 242 (Bankr. M.D. Ala. 2012); see also Quaif, 4 F.3d at 953; Kern v. Taylor (In re Taylor),

551 B.R. 506, 519 (Bankr. M.D. Ala. 2016) (“A fiduciary relationship under § 523(a)(4) requires

the existence of a trust.”). Not just any trust will do. “It is not enough that, by the very act of

wrongdoing out of which the contested debt arose, the bankrupt has become chargeable as a trustee

ex maleficio. He must have been a trustee before the wrong and without reference thereto.” Davis

v. Aetna Acceptance Co., 293 U.S. 328, 333 (1934). “Accordingly, ‘constructive’ or ‘resulting’

trusts, which generally serve as a remedy for some dereliction of duty in a confidential relationship,

do not fall within the § 523(a)(4) exception ‘because the act which created the debt simultaneously

created the trust relationship.’” In re Fernandez-Rocha, 451 F.3d. at 816. Instead, an express or

technical trust must exist before any breach of duty. See Quaif, 4 F.3d at 953. Express trusts

generally are voluntary trusts created by contract, id., and “must generally be in writing and must

express the parties’ intent to create a trust, specifically define the trust property, and name both a

beneficiary and a trustee.” In re Taylor, 551 B.R. at 519.

In arguing that he did not commit a defalcation while acting in a fiduciary capacity, Kabara

asserts that all funds were distributed to FTR prior to Cinq’s conversion of its debt to equity.

Although Kabara disputes the Note’s and the equity conversion’s validity, Kabara argues that even

if the conversion were valid, the funds were distributed prior to the existence of any possible

fiduciary capacity. Accordingly, Kabara asserts Cinq can show no damages occurred during the

existence of a fiduciary capacity based on the funds loaned, and the only alleged action after

conversion, the termination of FTR, caused Cinq no harm.

Cinq responds that Kabara’s argument that the Note was not a binding agreement is

incorrect. First, they contend Cinq in fact signed the Note. Second, even if the Note were not

signed by Cinq, the contract would be enforceable, as Georgia law defines a contract broadly.

Because Kabara, the party to be charged, signed the Note and Cinq accepted, an enforceable

contract between the parties existed, which Kabara breached.

Cinq also argues that disputed questions of fact exist surrounding the claim for

nondischargeability under § 523(a)(4). Cinq asserts that it was aware of FTR’s Operating

Agreement and believed Kabara and FTR were abiding by that agreement. Cinq argues that

Kabara owed a duty as manager of FTR to the other members of the LLC. As of October 2018,

Cinq asserts it became a member of FTR through the equity conversion. Therefore, Cinq contends

that a question of fact exists regarding whether Kabara’s failure to abide the terms of the Operating

Agreement breached his duties to Cinq, making summary judgment inappropriate.

Having fully considered the arguments of both parties, the Court finds that no fiduciary

capacity exists to support a nondischargeability claim under § 523(a)(4) as a matter of law. First,

“[t]he fiduciary obligation owed to a limited liability company by its manager does not satisfy ‘the

strict test for determining fiduciary status under Section 523(a)(4).’” Lenox Pines, LLC v. Smith

(In re Smith), Nos. 17-67324-LRC; 18-05005-LRC, 2021 WL 1234245, at *9 (Bankr. N.D. Ga.

Mar. 31, 2021) (Craig, J.); see also Tarpon Point, LLC v. Wheelus (In re Wheelus), Nos. 07-30114-

JDW; 07-3022, 2008 WL 372470, at *3 (Bankr. M.D. Ga. Feb. 11, 2008) (finding that duties

imposed on managers of LLCs by Georgia statutes are not “fiduciary obligations and cannot be

the basis for a fiduciary defalcation claim.”). Therefore, Kabara was not acting in a fiduciary

capacity as required under § 523(a)(4) as manager of FTR with Cinq as a member based on that

relationship alone.

Oddly enough, Cinq cites case law reiterating the rule that managers do not meet the strict

criteria under § 523(a)(4) but provides no legal authority in rebuttal. Cinq instead asserts an issue

of fact exists whether Kabara breached a duty to Cinq by failing to abide by the Operating

Agreement. See Hinton v. Blocker (In re Blocker), Nos. 18-69243-BEM, 19-5117-BEM, 2020

WL 247311, at *7 (Bankr. N.D. Ga. Jan. 15, 2020) (Ellis-Monro, J.) (“[I]n Georgia any fiduciary

duties that a member of an LLC has may be modified or eliminated (with a few exceptions) by the

operating agreement.”). Cinq, however, failed to show any terms in the Operating Agreement that

would establish “the type of trust-like duties necessary to meet the strict standard for fiduciary

capacity under § 523(a)(4).” Id. Therefore, the Operating Agreement does not explicitly elevate

the relationship between Kabara as manager and Cinq as a member to one with a fiduciary capacity

under § 523(a)(4).

Second, no evidence has been presented of a written agreement meeting the strict criteria

to establish an express trust between the parties. The Note, even if its validity were undisputed,

and the Distribution Agreement do not establish any fiduciary capacity in Kabara. In both

instruments, the intent to create such a relationship is not clear or explicit from the terms and

nowhere is the trust property specifically defined. See Oak Street Funding, LLC v. Brown (In re

Brown), 399 B.R. 44, 46 (Bankr. N.D. Ind. 2008) (“The ‘fiduciary capacity’ required by §

523(a)(4) requires something more than a debtor-creditor relationship.”); Wagner v. Abood (In re

Abood), 172 B.R. 166, 167 (Bankr. D.R.I. 1994) (holding licensing agreement must still meet

characteristics of express trust and go beyond ordinary debtor-creditor relationship). Therefore,

the Note and the Distribution Agreement similarly do not satisfy the strict criteria under § 523(a)(4)

for finding a fiduciary capacity existed. Because Cinq failed to present evidence that Kabara

committed a defalcation while acting in a fiduciary capacity, and Cinq does not allege

embezzlement or larceny, the Court will grant summary judgment in favor of Kabara as to Cinq’s

claims under § 523(a)(4) in Count II.

c. Count I – 11 U.S.C. § 523(a)(2)

Kabara next argues that Cinq has not presented evidence to support its claim for exception

to discharge under § 523(a)(2) in Count I such that summary judgment should be granted. Section

523(a)(2)(A) excepts from discharge debts “(2) for money, property, services, or an extension,

renewal, or refinancing of credit, to the extent obtained by-- (A) false pretenses, a false

representation, or actual fraud, other than a statement respecting the debtor's or an insider's

financial condition.” 11 U.S.C. § 523(a)(2)(A). To except a debt from discharge under this section,

Cinq must prove the following elements: “the debtor made a false statement with the purpose and

intention of deceiving the creditor; the creditor relied on such false statement; the creditor's

reliance on the false statement was justifiably founded; and the creditor sustained damage as a

result of the false statement.” Fuller v. Johannessen (In re Johannessen), 76 F.3d 347, 350 (11th

Cir. 1996); see also Washington v. Robinson-Vinegar (In re Robinson-Vinegar), 561 B.R. 562,

566 (Bankr. N.D. Ga. 2016) (Baisier, J.); Old Republic Nat’l Title Ins. Co. v. Presley (In re

Presley), 490 B.R. 633, 638–39 (Bankr. N.D. Ga. 2013) (Diehl, J.).

Furthermore, as decisions in this district have noted regarding false pretenses,

This exception to dischargeability addresses deceit or artifice rooted

“in a specific intent to mislead, trick, or cheat another person or

entity,” and the intent to deceive may be shown using circumstantial

evidence in relation to the totality of a situation. Beyond affirmative

misrepresentation, fraud may consist in intentional silence or

concealment of a material fact.

In re Robinson-Vinegar, 561 B.R. at 566. “[A] failure to fulfill a promise is not sufficient.”

Blosser v. Boggus (In re Boggus), 479 B.R. 147, 155 (Bankr. N.D. Ga. 2012) (Brizendine, J.); see

also Invest Atlanta Reg’l Ctr., LLC v. Smith (In re Smith), 578 B.R. 866, 876 (Bankr. N.D. Ga.

2017) (Baisier, J.). The debtor must have entered the agreement either knowing the debtor could

not, or did not intend, to perform. Boggus, 479 B.R. at 155.

Finally, the Supreme Court in Huskey International Electronics, Inc. v. Ritz, 578 U.S. 882,

136 S. Ct. 1581 (2016) defined “actual fraud” for the purposes of § 523(a)(2)(A). The Court

construed the terms in the section “to contain the ‘elements that the common law has defined them

to include’” and found:

“Actual fraud” has two parts: actual and fraud. The word “actual”

has a simple meaning in the context of common-law fraud: It

denotes any fraud that “involv[es] moral turpitude or intentional

wrong.” “Actual” fraud stands in contrast to “implied” fraud or

fraud “in law,” which describe acts of deception that “may exist

without the imputation of bad faith or immorality.” Thus, anything

that counts as “fraud” and is done with wrongful intent is “actual

fraud.”

136 S. Ct. at 1586 (citations omitted). “A claim for actual fraud is broader than a claim for false

representation. Actual fraud ‘consists of any deceit, artifice, trick, or design involving direct and

active operation of the mind, used to circumvent or cheat another.’” Veazey v. Sutton (In re

Sutton), 550 B.R. 917, 922 (Bankr. N.D. Ga. 2016) (Hagenau, J.) (citing FDS Nat’l Bank v. Alam

(In re Alam), 314 B.R. 834, 840 (Bankr. N.D. Ga. 2004) (Bonapfel, J.)).

Kabara asserts Cinq cannot point to any specific false statement made by Kabara prior to

the request and distribution of funds in June through August of 2018 and that the proposed budget

was FTR’s best estimate of future costs, which is not a false representation. Kabara contends he

provided financial statements to Cinq and was transparent with Cinq. Cinq chose to continue

working with FTR and attempted negotiating a new budget even after the financial statements were

provided in September 2018. Kabara argues that Cinq could not rely to its detriment on Kabara’s

representations as they had access to FTR’s finances and expenditures and had the opportunity to

question that information. That the project went over budget does not prove Kabara made any false

representation or had the intent to defraud Cinq. Therefore, Kabara argues Cinq has not provided

evidence of any false statements, any intent to defraud, any specific act or statement that was

intentionally false or misleading, reliance, or damages. Accordingly, Kabara requests the Court

grant summary judgment.

Cinq responds that Kabara is not entitled to summary judgment because genuine issues of

material fact exist as to whether Kabara committed acts sufficient to except its debt from discharge

under § 523(a)(2)(A). Cinq submitted Jason Peterson’s Declaration, which provides evidence that

Kabara submitted a budget to Cinq knowing it to be false, that Cinq relied on this false budget to

fund FTR, and that Kabara admitted to understating the budget with the intent to entice Cinq into

funding FTR and investing additional capital to avoid loss. Cinq relies on this declaration to show

a question of fact exists as to whether Kabara’s conduct meets the criteria to establish false

representation, false pretenses, or actual fraud under this subsection.

The Court agrees with Cinq and finds that genuine issues of material fact surround Cinq’s

claims under § 523(a)(2)(A). The Court reiterates that its function at this stage is not to weigh the

evidence, but to determine whether a genuine issue exists for trial in the light most favorable to

Cinq as the nonmoving party. Adickes, 398 U.S. at 157. First, Cinq and Kabara disagree on which

party initiated the relationship, casting doubt on the exact circumstances that induced the parties

into entering the contract, and the parties further disagree on whether the Note which governs the

parties’ arrangement was properly executed. Glaringly, the circumstances surrounding the budget

and Kabara’s expenses appear to be disputed. Cinq presented Peterson’s Declaration in which

Peterson states that Kabara later admitted to him that Kabara knew the budget was falsely deflated

and would not be sufficient to produce the agreed upon recordings, but that Kabara continued with

that budget to induce Cinq into investing additional capital to protect its initial investment. On the

other hand, Kabara argues that the proposed budget was his best estimate for the required funding

to produce the recordings and, in his own Declaration, states that he had no intent to injure or

mislead Cinq. Further, how the budget governed the parties’ dealings, i.e. whether the budget and

the line items therein were binding without toleration for deviation or whether Kabara had

flexibility to spend the funds as he claims, remains unclear.

Additionally, Kabara disputes Cinq’s reliance on the proposed budget, as Kabara provided

Cinq with financial statements during the course of the venture. The exact nature of the financial

statements and what information they contained is disputed. Thus, some conflict remains as to

whether Cinq was aware of the potentially improper expenses and proceeded with funding

nonetheless. Genuine issues of material fact exist as to what representations were made in

negotiating the initial budget, what Kabara’s intent or knowledge was regarding the sufficiency of

the funds at the time of entering the contract, how the budget governed the parties’ dealings, and

whether Cinq justifiably relied on the initial budget in continuing funding. Accordingly, the Court

denies summary judgment as to Cinq’s claims under § 523(a)(2) in Count I.

d. Count III - 11 U.S.C. § 523(a)(6)

Kabara finally argues that Cinq failed to present any evidence to support a claim for

exception to discharge under § 523(a)(6), making summary judgment appropriate as to Count III.

Section 523(a)(6) excepts debts from discharge “for willful and malicious injury by the debtor to

another entity or to the property of another entity.” “To show ‘willfulness,’ a plaintiff must make

‘a showing of an intentional or deliberate act, which is not done merely in reckless disregard of

the rights of another.’” Maxfield v. Jennings (In re Jennings), 670 F.3d 1329, 1334 (11th Cir.

2012) (citing Hope v. Walker (In re Walker), 48 F.3d 1161, 1163 (11th Cir.1995)); see also Wells

Fargo Bank, N.A. v. Sutton (In re Sutton), 557 B.R. 831, 836 (Bankr. N.D. Ga. 2016) (Ellis-Monro,

J.) (citing Kawaauhau v. Geiger, 523 U.S. 57, 61–62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)) (“An

injury is willful when the injury itself was ‘deliberate or intentional’ and not merely the result of

an intentional act that resulted in injury.”). This standard requires a debtor to commit “an

intentional act the purpose of which is to cause injury or which is substantially certain to cause

injury.” 670 F.3d at 1334. The Eleventh Circuit has defined “malicious” as “wrongful and without

just cause or excessive even in the absence of personal hatred, spite or ill-will.” Id. (citing In re

Walker, 48 F.3d at 1164). “[S]pecific intent to harm another is not necessary” to establish malice.

Id. Both willfulness and maliciousness must be shown. Id.

Kabara argues that Cinq has not pointed to any specific act which was willful or malicious

with the intent to injure Cinq nor any actual damages resulting from a specific act. Asserting again

that the Note, and therefore the conversion to equity, was invalid, Kabara claims that as sole

member of FTR, he was within his right to unilaterally terminate the company. Kabara took this

action due to lack of funding. Kabara argues Cinq has not shown any damages resulting from the

termination. Furthermore, Kabara argues that an intentional tort must also be shown where a

malicious breach of contract claim is made under § 523(a)(6) and that Cinq failed to identify any

intentional tort in the Complaint.

Cinq responds that genuine issues of material fact exist as to its claim under this section.

Cinq alleges that Kabara breached the terms of the Operating Agreement and that Kabara misused

or commingled funds of FTR, arguing that unlawful conversion and misuse of funds

accompanying breach of contract claims may rise to willful and malicious injury under § 523(a)(6).

Cinq asserts they have produced evidence that Kabara knowingly presented a falsely deflated

budget to Cinq to induce its investment in FTR with the intent that Cinq would be forced to invest

additional capital to protect its investment. Further, Cinq contends that evidence in the record

shows Kabara did not use the funds for legitimate purposes associated with Kabara’s obligation to

produce and market recordings. Therefore, Cinq argues that summary judgment should not be

granted.

The Court finds Cinq failed to produce evidence to support exception of its debt from

discharge under § 523(a)(6). As an initial matter, the Court agrees with Cinq that conversion may

at times support exception of a debt from discharge under § 523(a)(6). Gen. Ret. Sys. of Detroit v.

Farr (In re Farr), Nos. 14-73606-WLH, 16-5325-WLH, 2018 WL 1577934, at *5 (Bankr. N.D.

Ga. 2018) (Hagenau, J.); see also Selma Dev., LLC v. Landon (In re Landon), Nos. 18-11292, 19-

01001, 2020 WL 1584483, at *9 (Bankr. S.D. Ga. Mar. 31, 2020) (“[U]nlawful conversion and

misuse of funds have accompanied breach of contract claims that rise to willful and malicious

injury under section 523(a)(6).”). “For a conversion debt to be deemed nondischargeable, the

creditor must show the debtor not only intended the conversion but also the debtor knew a transfer

of the property was wrongful and certain to cause financial harm to the creditor.” Farr, 2018 WL

1577934 at *5. The Court nonetheless finds Cinq failed to submit sufficient evidence to establish

genuine issues of material fact to require a trial of the § 523(a)(6) claim. First, Cinq relies on the

Peterson Declaration to establish Kabara acted with a specific intent or substantial certainty that

his actions would harm Cinq. In his Declaration, Peterson states Kabara admitted

that he always knew the budget initially agreed to by Cinq and FTR

was not enough to produce and market the audio and video

recordings as promised by Mr. Kabara. He told me that his intent

was to “lock Cinq in” – by having Cinq invest the initial amount in

FTR and then, when Mr. Kabara and FTR ran out of money, Cinq

would invest additional funds so that Cinq would not lose its initial

investment.

[Peterson Decl., p. 5.]. This statement simply establishes that Kabara had the intent to obtain

further funds from Cinq. It does not state Kabara desired the injury giving rise to the debt, that he

acted with the specific intent to injure Cinq, or that Kabara knew injury was substantially certain

to result based on his representations. See Bankers Healthcare Grp., LLC v. Moss (In re Moss),

598 B.R. 508, 519 (Bankr. N.D. Ga. 2019) (Ellis-Monro, J.). Indeed, Kabara presented evidence

that he used the funds in a customary way for the music industry to produce the recordings as

promised. [Kabara Decl.] He further claims that he had no intent to injure Cinq, that he personally

invested his funds towards sustaining the venture, and that, at some point, he offered Cinq four

recordings from each artist. [Id.] See Davis v. Arellano (In re Arellano), 574 B.R. 251, 259 (Bankr.

D.N.M. 2017) (finding defendant did not act willfully because in paying for personal expenses,

defendant was trying to make company successful, working on little income, and spending

corporate funds due to lack of other funds). Nothing in the record suggests Kabara intended

anything other than completing production of the recordings. Therefore, Cinq failed to show

Kabara acted with the requisite intent for a finding of willfulness under this section.4

Moreover, Cinq failed to point to a specific, malicious act to support its claim under §

523(a)(6). In addition to willfulness, Cinq must also show Kabara knowingly committed some

wrongful act. Jennings, 670 F.3d at 1334; Farr, 2018 WL 1577934, at *5. To establish Kabara

acted wrongfully, the only evidence Cinq points to is Wright’s expert report in which FTR’s and

Kabara’s accounts are listed and analyzed, with some expenses categorized as outside the scope

of the initial budget. However, Wright’s expert report states that he “was asked to assume any

transaction in a category that was not included in the June 2018 Budget would not be deemed a

business expense of FTR.” [Cinq Resp., Ex. E, p. 8]. Wright’s designation of an expense as

business versus personal is based solely on the above assumption. Assumptions are not facts and

cannot support a finding that the expenses categorized in the report were improper or personal.

4 See also Strategic Funding Source, Inc, v. Dodge (In re Dodge), 623 B.R. 663, 670 (Bankr. N.D. Ga. 2020)

(Bonapfel, J.) (holding that allegations that debtor entered agreement with intent not to use proceeds for business

purposes or repay debt and that debtor made false statements to induce transfer of funds were insufficient to state

claim for willful and malicious injury to property).

Because no evidence of a willful and malicious injury was presented, the Court will grant summary

judgment in favor of Kabara on Count III. Accordingly, it is hereby

ORDERED that the Motion for Summary Judgment is GRANTED in part and DENIED

in part. Summary Judgment in favor of Defendants is hereby GRANTED as to Counts II and III.

The Motion for Summary Judgment as to Counts I and IV is DENIED.

The Clerk’s Office is directed to serve a copy of this Order upon Cinq, Cinq’s Counsel,

Defendants, Defendants’ counsel, and any other party in interest in the above-captioned adversary

proceeding.

END OF DOCUMENT