Robert L Higgins

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re: : Chapter 13

Robert L. Higgins, :

Debtor. : Bankruptcy No. 16-13543-mMDc

William Workman, :

Plaintiff, :

V. : Adversary No. 16-00352-mMpDc

Robert L. Higgins, :

Defendant. :

MEMORANDUM

By: MAGDELINE D. COLEMAN, CHIEF UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION

Before the Court for consideration are two separate matters in the bankruptcy case of

Robert L. Higgins (the “Debtor” or the “Defendant”). First, is the Debtor’s objection to the

proof of claim (the “Claim Objection”) filed by William Workman (“Workman”), Second, is the

adversary action filed by Workman, seeking a determination that the Debtor’s debt to Workman

is nondischargeable (the “Nondischargeability Action”) pursuant to various sections of the

Bankruptcy Code, 11 U.S.C. §101 seq. (the “Bankruptcy Code”).

For the reasons set forth below, the Court finds that Workman does not have a valid

claim against the Debtor, and therefore will sustain the Debtor’s Claim Objection. Because

Workman does not hold a claim against the Debtor, there is no claim that can be ruled

nondischargeable, and the Court will enter judgment in favor of the Debtor in the

Nondischargeability Action.

II. PROCEDURAL BACKGROUND

The Debtor filed a voluntary bankruptcy petition under chapter 13 of the Bankruptcy

Code on May 18, 2016.' In his Schedule E/F, identifying creditors who have unsecured claims,

the Debtor listed Workman as having a claim in an unknown amount based on a “Complaint

filed in the Court of Chancery for the State of Delaware.”? The Debtor did not list the claim as

contingent, unliquidated, or disputed in his original Schedule E/F, but subsequently filed an

amended Schedule E/F listing the claim as unliquidated and disputed.?

On June 6, 2016, Workman filed a proof of claim against the Debtor (the “Workman

Proof of Claim”),* asserting an unsecured claim in the amount of $750,000.00 based on “fraud.”

On October 10, 2016, Workman followed with the initiation of the Nondischargeability Action?

against the Debtor to seek a determination that the Debtor’s alleged debt to Workman is

nondischargable pursuant to §§523(a)(2), (a)(4), (a)(6), and (a)(19) of the Bankruptcy Code.®

On November 10, 2016, the Debtor filed an Answer in the Nondischargeability Action, denying

that Workman is entitled to a finding of nondischargeability and asserting various affirmative

defenses.’

' Bankr, Docket No. 1.

2 Bankr. Docket No. 16,

3 Bankr. Docket No. 27.

4 Claim No. 7-1.

5 Adv. Pro. No. 16-00352.

6 Ady. Pro. Docket No. 1.

7 Adv. Pro. Docket No. 4.

ERIE Ag

On November 5, 2017, the Debtor filed the Claim Objection, asserting that Workman had

not attached any supporting documentation and provided “no substantiation whatsoever for the

amount claimed and makes the bald allegation of ‘fraud.’”® On November 20, 2017, Workman

responded to the Claim Objection (the “Response”’), asserting that his claim was based upon “the

Debtor’s fraudulent conduct in selling securities in an entity that the Debtor owned and

controlled, Certified Assets Management, Inc.,” and attaching various documents in support of

his claim.”

On December 14, 2017, the Court held a hearing on the Claim Objection and Response

and on January 25, 2018 entered an Order directing that they be consolidated with the

Nondischargeability Action for trial purposes because they required the determination of similar

issues. On May 14, 2018, the Court held a trial in the Nondischargeability Action and the Claim

Objection, at which the Parties each testified and various exhibits were admitted into evidence.

At the Court’s direction, the Parties each submitted post-trial briefs on August 15, 2018.'°

I. RELEVANT FACTUAL BACKGROUND!

A. Workman’s Investment in CAMI

The Debtor is the president, sole shareholder and sole director of Certified Assets

Management, Inc. (“CAMI”), a Delaware corporation.'* CAMI was formed in 2001 and was

§ Bankr. Docket No. 92.

° Bankr. Docket No. 99,

'9 Adv, Pro. Docket Nos. 33, 34.

'! The facts cited herein are taken from the Complaint, the Answer, the Response, the uncontested facts in the Parties’ Joint Pre-

Trial Statement (“Joint Pre-Trial Statement”) (Bankr. Docket No. 21), the Parties’ testimony at trial, and the exhibits introduced

into evidence at the trial. While there was significant testimony and other evidence at trial on other facts the Parties deemed

relevant to their claims and defenses, the Court has cited only to those facts necessary to provide a general overview of the

relationship between the Parties and the current dispute. Because the Court views the issue of whether Workman has a claim

against the Debtor. as opposed to a claim against his wholly-owned entity, as dispositive of the resolution of the other issues

before the Court, it is unnecessary to provide a full recitation of all of the facts developed at trial.

2 Trial Transeript, 111:22 to L13:11.

engaged in the buying and selling of numismatic (collectible) coins.!? The Debtor is also the

sole member of First State Depository, LLC (“FSD”), a Delaware limited liability company. "4

FSD was formed in 2006 to provide secure, vault-like storage for rare coins and precious

metals, '°

Workman is a resident of Long Beach, California.'® Workman was introduced to the

Debtor and CAMI by a coin dealer at a Long Beach, California coin show in 2004.'7 Workman

testified that after talking to the Debtor at the coin show and “getting his take on the details,”

Workman decided to invest in CAMI.'® Workman subsequently invested in CAMI through the

purchase of three separate Secured Participations, each in the amount of $250,000.00 and

together totaling $750,000.00.'!° Workman’s first investment occurred in August of 2005, his

second in March of 2006, and his third in June of 2008.7?

Each of the Secured Participations was offered to Workman pursuant to the terms of an

Offering Circular and Subscription Agreement.”! The Offering Circular provided that the

Secured Participations represented a one-year obligation secured by numismatic coins physically

held by CAMI or its designated depositories or agents.*”_In exchange for each $250,000.00

investment, Workman was entitled to receive 12 monthly interest payments at the rate of 12%

3 Trial Transcript 111:12 to 13; Defendant’s Exhibit 5, Offering Circular at p. 6.

'4 Complaint, at (5; Plaintiff's Exhibit 5 at p. 2.

'S Trial Transcript, 120:19 to 121:4; 129:21 to 130:1.

'6 Trial Transcript, 83:10 to 83:13.

'7 Trial Transcript, 83:14 to 83:23,

'8 Trial Transcript, 85:11 to 85:21.

'9 Trial Transcript, 45:17 to 46:13.

20 Id.

*! Trial Transcript, 56:11 to 56:16; Debtor’s Exhibit 5.

Defendant’s Exhibit 5, Offering Circular at p. 4.

simple interest per annum, or $2,500.00 each, and the return of his investment at the end of one

year unless renewed for another one-year period.?>_ Workman exercised his option to extend

each of the Secured Participations beyond their one-year term.*4 The Offering Circular provided

that the Secured Participations were direct obligations of CAMI and that “Each Secured

Participation offered hereby represents an obligation of the Company secured by all collateral

pledged to the Company ratable with all other Secured Participations. Holders have full recourse

to the Company for payment of the principal of and interest on the Secured Participations.”?>

B. Workman’s Actions to Regain His Investment in CAMI

Workman testified that after he made his initial $250,000.00 investment in CAMI in

2005, he received his monthly $2,500.00 interest payments “pretty much on time.” 7° This,

combined with what Workman viewed as CAMI’s robust inventory of numismatic coins to sell

to the general public, caused him to make his second and third investments in 2006 and 2008.7’

However, Workman testified that at some point after making the third investment he became

“uneasy about the whole situation” because his interest payments became delayed and the checks

began bouncing, prompting Workman by 2010 to begin requesting that CAMI cashout or refund

his investment of principal.?® In response, the Debtor allegedly gave “a lot of excuses, and

reasons and so forth why he could not pay off those subscriptions.””? Ultimately Workman was

issued a $250,000.00 check to pay off his initial investment from 2005, but that check also

3 Defendant’s Exhibit 5, Offering Circular at p. 1.

Trial Transcript, 86:3 to 86:13.

Defendant’s Exhibit 5, Offering Circular at p. 1, 7, 10.

Trial Transcript, 89:15 to 90:1.

27 Id.

°8 Trial Transcript, 78:15 to 78:25; 90:8 to 90:13.

2° Trial Transcript, 86:17 to 86:20.

bounced.?? Workman testified that in 2012, the Debtor informed him that “he was not going to

be able to pay the interest payments for an unknown amount of time, and ... there was a mention

of a working line of credit; not with who but he made that mention. He would be able to ‘make

me whole again.’ ... And that the interest and the principals would all be brought present.”>!

Sometime in 2012, Workman retained counsel to investigate his issues with CAMI and

the Debtor,*” and in December of that year he filed a Complaint against CAMI in the Superior

Court of the State of Delaware (the “Delaware Superior Court Action’”).*? In the Delaware

Superior Court Action, Workman alleged claims for breach of contract and a “debt action”

against CAMI based on its failure to repay his investments.** Workman testified that only

CAMI was named as a defendant in the Delaware Superior Court Action because CAMI was

“the sole caretaker of my subscriptions” as the issuer of those investments.*° On February 25,

2013, Workman obtained a judgment against CAMI in the Delaware Superior Court Action in

the amount of $750,000.00 plus statutory interest (the “Delaware Superior Court Judgment”).°*°

Workman testified that after obtaining the Delaware Superior Court Judgment, his

counsel began investigating whether “there was a way to pierce the corporate veil,” and during

the course of that investigation Workman became aware of litigation (the “IDB Litigation”)

initiated against CAMI and FSD by Israel Discount Bank of New York (“IDB”) in the Court of

3° Trial Transcript, 86:19 to 86:22; 90:13 to 90:15.

3! Trial Transcript, 90:16 to 90:24.

32 Trial Transcript, 91:15 to 90:23.

8 Trial Transcript, 91:24 to 93:4.

4 Defendant’s Exhibit 3.

35 Trial Transcript, 92:5 to 92:10.

36 Joint Pre-Trial Statement, at 45.

Chancery of the State of Delaware (the “Delaware Court of Chancery”).77 Workman testified

that, based on his review of the Delaware Court of Chancery’s May 29, 2013 Memorandum

Opinion finding in favor of IDB,*® he learned that “the assets of CAMI had been funneled over

to use as collateral for the Israel Bank loan/credit line.”*? This revelation caused Workman to

conclude that, contrary to his understanding that his investments in CAMI through the Secured

Participations would always be secured by a first priority lien in the numismatic coins inventory

CAMI used the investments to purchase, “it became evident that Mr. Higgins was going to use

the money for other purposes such as using the coins as collateral for his loan/credit line with

Israel Bank,”*°

On May 6, 2016, Workman filed a Complaint in the Delaware Court of Chancery (the

“Delaware Veil Piercing Litigation”) against the Debtor, CAMI, FSD, and another of the

Debtor’s entities, Certified Assets Management International, LLC, seeking, inter alia, to pierce

the corporate veil of CAMI and obtain a judgment against the Debtor in the amount of the

Delaware Superior Court Judgment and for fraudulent transfers.*! Less than two weeks later, on

May 18, 2016, the Debtor filed his bankruptcy petition, staying the Delaware Veil Piercing

Litigation.

IV. DISCUSSION

A. Should the Court Pierce the Corporate Veil of CAMI?

Workman has asserted a claim against the Debtor for $750,000.00, based on the

investments Workman made in CAMI and the Delaware Superior Court Judgment he obtained

37 Trial Transcript, 92:11 to 93:16,

38 Plaintiff's Exhibit 5.

Trial Transcript, 94:12 to 94:23.

4 Trial Transcript, 47:1 to 47:18. See also 49:25 to 50:24; 51:23 to 52:5.

Complaint, at €8.

against CAMI. Before the Debtor filed for bankruptcy protection, Workman sought a finding

from the Delaware Court of Chancery that CAMI’s veil should be pierced and the Debtor should

be held liable for CAMI’s debt to Workman. The Delaware Veil Piercing Litigation was stayed

by the Debtor’s bankruptcy petition and there has been no finding as of yet that the Debtor is

responsible for CAMI’s debts. Therefore in order for Workman to hold a claim against the

Debtor, and in turn whether any such claim is or is not discharged, depends on this Court finding

that CAMI’s veil should be pierced such that Workman can look to the Debtor for recovery of

the Delaware Superior Court Judgment and his investments in CAMI.

The Court must first determine what law applies. In most instances bankruptcy courts

rely on the rule observed by federal district courts hearing diversity cases and use the choice of

law rules of the forum state. Jn re Eagle Enters., Inc., 223 B.R. 290, 292 (Bankr. E.D, Pa. 1998).

In Pennsylvania, the forum state here, questions relating to the internal affairs of corporations are

decided in accordance with the law of the place of incorporation. Forcine Concrete & Constr.

Co. v. Manning Equip. Sales & Serv., 426 B.R. 520, 525 (E.D. Pa. 2010) (citing 15 Pa. Cons.

Stat. §4145(a)). As CAMI is a Delaware corporation, the internal affairs doctrine dictates that

Delaware law applies to determine whether CAMI’s veil should be pierced to hold the Debtor

liable for its debts. See, e.g., Ritchie Capital Mgmt., L.L.C. v. Coventry First LLC, 2007 U.S.

Dist. LEXIS 51081, at *14-16 (S.D.N.Y. July 17, 2007) (applying Delaware law to determine

veil-piercing claim against Delaware limited liability company).

1. Standard for Veil Piercing Under Delaware Law

Piercing the corporate veil under Delaware law is a difficult task. Midland Interiors, Inc.

v. Burleigh, 2006 Del. Ch. LEXIS 220, at *9 (Del. Ch. Dec. 19, 2006) (citing Harco Nat’l Ins.

Co. v. Green Farms, Inc., 1989 Del. Ch. LEXIS 114, at *4 (Del. Ch. Sept. 19, 1989)). Delaware

law requires that a party seeking to do so must prove it is warranted with evidence “at least

somewhat greater than merely a preponderance of the evidence standard.” Brown v. GE Capital

Corp. (In re Foxmeyer Corp.), 290 B.R. 229, 237 (Bankr. D. Del. Mar. 7, 2003).

Absent compelling cause, a court will not disregard the corporate form or otherwise

disturb the legal attributes, such as limited liability, of a Delaware corporation. Midland, 2006

Del. Ch. LEXIS 220, at *9. A Delaware court will only pierce the corporate veil in order to

prevent fraud, illegality, or injustice, or the adverse effects thereof. Foxmeyer, 290 B.R. at 236

(Bankr. D. Del. Mar. 7, 2003) (quoting U.S. v. Del Campo Baking Mfg. Co., 345 F.Supp. 1371,

1378 (D. Del. 1972)). Furthermore, the fraud or similar injustice that must be demonstrated in

order to pierce a corporate veil under Delaware law must be found in the defendant’s use of the

corporate form; i.e¢., the injustice must be more than the breach of contract or other wrong

alleged. Foxmeyer, 290 B.R. at 236 (citing Outokumpu Eng’g Enters., Inc. v. Kvaerner

Enviropower, Inc., 685 A.2d 724, 729 (Del. Super. Ct. 1996)); MicroStrategy Inc. v. Acacia

Research Corp., 2010 WL 5550455, at *11 (Del. Ch. Dec. 30, 2010) (veil-piercing requires

proof that some fraud or injustice would be perpetrated through misuse of the corporate form).

Delaware courts have only been persuaded to pierce the corporate veil after substantial

consideration of the shareholder-owner’s disregard of the separate corporate fiction and the

degree of injustice impressed on the litigants by recognition of the corporate form. Midland,

2006 Del. Ch. LEXIS 220, at *9-10. Therefore the evaluation of corporate formalities must be

performed in conjunction with consideration of any fraudulent action committed under the guise

of the corporate form. /d. at *10-11.

Specific facts a court may consider when being asked to disregard the corporate form

include: (1) whether the company was adequately capitalized for the undertaking; (2) whether

the company was solvent; (3) whether corporate formalities were observed; (4) whether the

dominant shareholder siphoned company funds; and (5) whether, in general, the company simply

functioned as a facade for the dominant shareholder. MicroStrategy, 2010 WL 5550455, at *11.

A decision to disregard the corporate entity generally results not from a single factor, but rather

some combination of them combined with the presence of some overall injustice or unfairness.

Id.

2. Collateral Estoppel Is Inapplicable to Workman’s Veil Piercing

Theory

Before turning to whether Workman met his evidentiary burden at trial to establish that

CAMI’s veil should be pierced, the Court must first address Workman’s contention that the

findings of the Delaware Court of Chancery in its Memorandum Opinion in the IDB Litigation

serve as collateral estoppel with respect to some or all of the requirements that need to be met to

pierce CAMI’s corporate veil.”

Collateral estoppel prohibits the relitigation of issues that have been adjudicated in a prior

lawsuit and applies in discharge proceedings in bankruptcy court. See, e.g., Wolstein v.

Docteroff (In re Docteroff), 133 F.3d 210, 214 (d Cir. 1997) (citing Grogan v. Garner, 498 U.S.

279, 284-85 n.11 (1991); In re McNallen, 62 F.3d 619, 624 (4" Cir. 1995)). For a party to be

estopped from relitigating an issue, the following elements must be present: (1) the issue sought

to be precluded must be the same as the one involved in the prior action; (2) the issue must have

been actually litigated; (3) the issue must have been determined by a valid and final judgment;

and (4) the determination must have been essential to the prior judgment. /d. (citing In re Ross,

602 F.2d 604, 608 (3d Cir. 1979) and Restatement (Second) Judgments §27 (1982)).

® Plaintiffs Exhibit 5.

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At trial, Workman contended that the Delaware Court of Chancery made a finding in the

IDB Litigation that “there is overlap” between the Debtor, FSD, and CAMI.*?- Workman pointed

to Vice Chancellor Parson’s statement in the Memorandum Opinion that the Debtor “is an

unscrupulous businessman who used his businesses, First State Depository and CAMI, to move

around assets in the equivalent of a three-card monte scheme to serve defendants and without

regard to Israel Discount Bank’s rights.”** In his Post-Trial Brief, Workman did not elaborate on

this argument. Instead, he argued the Memorandum Opinion established that the Debtor and

CAMI colluded with its lender to use straw borrowers to obtain financing in excess of lending

caps that IDB imposed, and that the Delaware Court of Chancery “was highly critical of [the

Debtor] for having engaged in this collusive conduct as well as his actions in barring IDB from

conducting an audit of coins and bullion that were supposed to be stored at [FSD], an entity that

was solely owned and managed by [the Debtor].”*°

The Debtor argued at trial that the application of collateral estoppel is not appropriate

because the Debtor was not a party to the IDB Litigation and the Delaware Court of Chancery

did not determine that he was personally liable for the debts of CAMI or FSD.*° The Debtor

repeats this argument in his Post-Trial Brief.4” In response Workman argued at trial and in his

Post-Trial Brief that the principle of collateral estoppel can bar relitigation both by parties in the

prior action and those in privity to the parties, and that the Debtor stands in privity with CAMI

and FSD.“

*® Trial Transcript, 33:1} to 33:6.

44 Trial Transcript, 36:11 to 37:23; Plaintiff's Exhibit 5 at p.3 n.2.

45 Plaintiff's Post-Trial Brief, at p. 7-8.

4 Trial Transcript, 32:5 to 32:11; 33:9 to 33:18.

47 Defendant’s Post-Trial Brief, at p. 48-49.

48 Tyial Transcript, 34:18 to 34:25.

1]

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The Court finds Workman has not established that the application of collateral estoppel is

warranted to bar relitigation of any issue in this action. It is not clear to the Court what facts or

issues Workman is even arguing are subject to collateral estoppel and how those facts or issues

establish any element of Workman’s veil piercing claim. While Workman referenced collateral

estoppel both at trial and in his Post-Trial Brief, he did so fleetingly and without the precision

required for this Court to find that the doctrine applies.

At trial it was the Court’s understanding that Workman intended to argue that the

Memorandum Opinion barred relitigation of some aspect of his veil piercing theory in the

present action.” At trial, however, Workman cited only to a lone observation of the Vice

Chancellor, contained in a footnote of the Memorandum Opinion regarding the state of CAMI’s

and FSD’s records, that the Debtor was “an unscrupulous businessman who used his businesses,

FSD and CAMI, to move around assets in the equivalent of a three-card monte scheme to serve

Defendants’ ends and without regard to IDB’s rights.”°° Surprisingly, in his Post-Trial Brief

Workman did not again mention this observation, let alone explain its importance to his veil-

piercing argument. Workman did not explain, for example, whether and why the cited portion of

the Memorandum Opinion constitutes a finding to which the Debtor is bound that CAMI’s

corporate formalities were not observed, that the Debtor siphoned CAMI’s funds, or that CAMI

simply functioned as a fagade for the Debtor.

Nor has the Debtor established any of the elements of collateral estoppel are met by any

particular finding of the Delaware Court of Chancery. He has made no argument that the Vice

Chancellor made a finding in the IDB Litigation that is the same that must be proven here, that

Trial Transcript, 37:18 to 37:23.

*° Plaintiff's Exhibit 5, at p.3 n.2.

12

the parties in the IDB Litigation actually litigated that issue, or that the finding was essential to

the judgment in the IDB Litigation. Instead, Workman focused both at trial and in his Post-Trial

Brief on the privity between the Debtor and CAMI, which, even if true, satisfies just one of the

several requirements for collateral estoppel to apply. Moreover, the Court finds Workman’s

argument in his Post-Trial Brief that the Memorandum Decision established the Debtor’s and

CAMI’s fraudulent collusion with their lender to be suggestive (at best) of the “overlap”

Workman argues exists between the Debtor and CAMI which would warrant piercing CAMI’s

corporate veil. Workman has pointed this Court to no findings by the Delaware Court of

Chancery that the Debtor used the corporate form of CAMI to perpetrate an injustice or fraud,

that corporate formalities were not observed, that CAMI served only as a facade for the Debtor,

or anything else that serves to collaterally estop the Debtor in this litigation.

In sum, Workman has not met his burden of establishing that all elements of collateral

estoppel are met with respect to any particular finding in the IDB Litigation that would bind the

Debtor to that finding for purposes of whether CAMI’s corporate veil should be pierced.

3. Workman Failed to Establish that CAMI’s Veil Should be Pierced

As discussed above, in order to establish that CAMI’s corporate veil should be pierced to

render the Debtor liable for CAMI’s debt to Workman, Workman was required to prove that the

Debtor abused the corporate form to commit fraud or some similar injustice, and that it was his

misuse of the corporate form, as opposed to a breach of contract or some other basis for liability,

that was the genesis of the wrong inflicted on Workman. The Court finds that Workman has

failed to do so.

First, the Debtor provided uncontroverted testimony that CAMI observed corporate

formalities as a Delaware corporation. The Debtor testified that CAM] was formed in August of

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2001 with two shareholders: the Debtor and Donald Ketterling.*' A third shareholder, Carl

Herzinger, was subsequently added.°* At some point between 2008 and 2010, the Debtor

became CAMI’s sole shareholder.** At the time of its formation, CAMI had three officers: the

Debtor served as president, Donald Ketterling served as vice president, and Carl Herzinger

served as secretary and treasurer. At the time of trial the Debtor was CAMI’s sole shareholder,

officer and director.°> The Debtor testified that between the time of its formation and the time it

ceased operations in March of 2012, CAMI held annual shareholder meetings and board

meetings for which minutes were kept.*° At trial Workman testified that he did not believe

CAMI was a “legitimate corporation” because the corporation did not keep board minutes, but

when pressed on his basis for that assertion Workman could only speculate: “I’ve never been

offered to have them shown to me. I’ve never seen them. I have no idea if there’s any existence

of any real corporate minutes or anything related to that.”°’ This speculation is insufficient to

establish that CAMI failed keep corporate minutes as required of a Delaware corporation.

Rather, in the face of contrary testimony from the Debtor, Workman did not offer any evidence

that CAMI failed to observe corporate formalities in its formation, governance, structure or

record-keeping.

Second, the testimony and other evidence at trial supports the conclusion that CAMI,

whatever the flaws in its business model, was not simply a sham or a facade for the Debtor. In

Trial Transcript, 112:1 to 112:21,

3 Trial Transcript. 11:12 to 11 1:18.

Trial Transcript, 12:22: 113:1.

Trial Transcript, 113:2 to 113:11.

°° Trial Transcript, 113:21 to 114:4.

Trial Transcript, 77:18 to 77:23.

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addition to observing the corporate formalities discussed above, Workman himself testified as to

CAMI’s business model and inventory. Workman testified that CAMI bought and sold rare

coins for a profit, and attended every Long Beach coin show, held three times a year, since

2004.°8 The Debtor testified regarding CAMI’s employees, its business model, and the financing

CAMI sought and obtained as the business model grew.°? Workman also testified as to the high

quality of CAMI’s coin and bullion inventory, stating that it was “very impressive at first in

2005, 2006, 2007. There would be several million dollars’ worth of inventory there and rare

coins.”©° Workman further testified that even after making his initial $250,000.00 investment in

CAMI in 2006, he continually monitored CAMI’s inventory and felt that there was good

inventory to sell and CAMI “appeared to be doing a reasonably good business which inspired me

to buy the second subscription there in 2006 ... and subsequently the last subscription in

2008."°' Based on the testimony at trial the Court concludes that CAMI, rather than serving as a

shell for the Debtor to perpetrate a fraud, bought and sold inventory consistent with its business

model.®* It was not until “2014 or so” that Workman noticed that CAMI’s inventory had

deteriorated at the Long Beach coin show.®? Nonetheless, Workman confirmed that between

March |, 2006 and March 16, 2012, he received interest payments from CAMI totaling at least

$367,500.00. The Court finds credible the Debtor’s testimony that market conditions

%8 Trial Transcript, 84:1 to 85:3.

Trial Transcript, 132:9 to 133:24.

© Trial Transcript, 88:10 to 88:13.

Trial Transcript, 89:15 to 90:1.

© Trial Transcript, 158:13 to 159:4.

Trial Transcript, 91:6 to 91:14.

“4 Trial Transcript, 104:3 to 104:13.

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contributed to CAMI’s downfall, but at the time of each of Workman’s investments CAMI had

the resources and the intention to repay those investments upon their original maturity dates.©

The sum of the testimony and evidence at trial leads the Court to the conclusion that

while CAMI ultimately was a failed enterprise fueled by problematic business decisions, it was a

legitimate corporate entity, not a sham or a facade for the Debtor. The evidence instead suggests

that Workman made a series of investments in CAMI, received some return on those

investments, but did not come close to recovering what he was entitled to under the Subscription

Agreements with CAMI. Upon the slowing of his interest payments and learning of CAMI’s

relationship with and misfeasance with respect to IDB, Workman surmised that CAMI must have

been a farce from the start, and sought to turn his contractual claims against that entity into

claims against the Debtor.®° Reviewing the totality of the evidence, Workman has not

established that CAMI was presented as or used as a corporation for no purpose other than to

perpetrate a fraud or injustice against him that warrants piercing its veil. Workman clearly is the

unfortunate victim of a failed investment with a company the Debtor owned and managed, but

because he cannot establish that piercing the entity’s veil is proper under Delaware law, any

claim he might have against CAMI cannot be converted to a claim against the Debtor.

B. Workman Does Not Have a Claim Against the Debtor

Workman holds the Delaware Superior Court Judgment against CAMI, not the Debtor.

Likewise, any claim he has in connection with his investment in CAMI is against CAMI, not the

Debtor. Because Workman has failed to establish that CAMI’s corporate veil should be pierced

Trial Transcript, [14:5 to 114:9; 165:3 to 166:8; 168:4 to 168:25.

Trial Transcript, 57:8 to 57:21; 94:2 to 94:24; 100:14 to 102:12; 109:2 to 110:8.

16

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to permit his claims against CAMI to be asserted against the Debtor, he does not have a claim

against the Debtor nor is he entitled to a determination of nondischargeability.°’

V. CONCLUSION

For the reasons discussed above, this Court will (1) enter judgment in favor of the Debtor

in the Nondischargeability Action, and (ii) sustain the Debtor’s Claim Objection. An Order

consistent with this Memorandum will be entered.

Dated: August 20, 2019 □□ gtne

MAGDELINE D. COLEMAN

CHIEF UNITED STATES BANKRUPTCY JUDGE

Robert J. Lohr, I, Esquire

Lohr and Associates, Ltd.

1246 West Chester Pike, Suite 312

West Chester, PA 19382

Michael G. Busenkell, Esquire

Gellert Scali Busenkell & Brown LLC.

1201 N. Orange Street, Suite 300

Wilmington, DE 19801

William C. Miller, Esquire

Chapter 13 Trustee

P.O. Box 1229

Philadelphia, PA 19105

United States Trustee

Custom House

200 Chestnut Street, Suite 502

Philadelphia, PA 19106-2912

87 See, e.g., Skinner v, Skinner (In re Skinner), 519 B.R. 613, 622 (Bankr. E.D. Pa. 2014), aff'd, 532 B.R. 599 (E.D. Pa. 2015),

aff'd 636 Fed. Appx. 868 (3d Cir. 2016) (finding plaintiff lacked standing to assert nondischargeability claim where he failed to

establish a right to payment that would render him a creditor); Tropicana Casino & Resort v. August (In re August), 448 B.R.

331, 346-47 (Bankr. E.D. Pa. 2010) (citing supporting caselaw in finding that the plaintiff first had to establish a valid claim

against the debtor in order to prevail under §§523(a)(2) or 523(a)(6)).

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