Wood v. Hortman, II

This order is SIGNED.

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WILLIAM T. THURMAN RNS

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF UTAH

In re: Bankruptcy No. 19-29252

BENNETT EDWARD HORTMAN, II, anxruptcy No. 19-

Debtor, Chapter 7

Honorable William T. Thurman

BROCK L. WOOD; and JACKSON

WOOD,

Plaintiffs. Adversary Proceeding No. 20-02021

VS.

BENNETT EDWARD HORTMAN, II,

Defendant.

MEMORANDUM DECISION ON DISCHARGEABILITY CLAIMS

AGAINST DEFENDANT

This action came before the Court for trial on November 19 and 20 and concluded on

November 29, 2021 (the “Trial”). At the Trial, Plaintiffs Brock L. Wood and Jackson Wood

(“Wood Cousins” or “Plaintiffs”) were represented by John W. Call of Nygaard, Coke and

Vincent, L.C.; while the Defendant, Bennett Edward Hortman, IT (“Hortman” or “Defendant” or

‘“Debtor”), was represented by Adam Ford of Ford & Crane, PLLC.

After receiving evidence and hearing the arguments of counsel at trial, along with

considering any briefs and proposed findings of fact and conclusions of law provided to the

Court, as well as a review of the record as a whole, the Court now enters the following findings

of fact and conclusions of law to accompany the Court’s judgement on the matter at hand. The

findings and conclusions set forth herein constitute the Court’s findings of fact and conclusions

of law pursuant to Rule 52 of the Federal Rules of Civil Procedure, which are made applicable to

this proceeding under Rule 7052 of the Federal Rules of Bankruptcy Procedure (the “Decision”).

To the extent any of the following findings of fact constitute conclusions of law, they are

adopted as such. To the extent any of the following conclusions of law constitute findings of fact,

they are also adopted as such.

I. JURISDICTION AND VENUE

The jurisdiction of this Court is properly invoked under 28 U.S.C. §§ 157(b) and 1334.

Plaintiffs' claims against Defendant are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A),

and may be heard and determined by this Court. The jurisdiction of this Court is not disputed and

is hereby determined to be present. The Court has similarly determined venue to be proper

pursuant to the provisions of 28 U.S.C. § 1409. The Court finds notice for considering the

Plaintiffs’ 11 U.S.C. § 523 claims at trial to be adequate and proper in all respects.

II. SUMMARY

The Plaintiffs commenced this adversary proceeding seeking a determination that their

claims against the Defendant should be determined non-dischargeable pursuant to 11 U.S.C. §§

523(a)(4) and 523(a)(6). The Plaintiffs’ main argument was that the Defendant’s actions

amounted to a conversion of the Plaintiffs’ property, and therein constituted willful and

malicious injury to the Plaintiffs under § 523(a)(6). Additionally, the Plaintiffs argue that the

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Defendant committed embezzlement and/or larceny under § 523(a)(4). Although mentioned

during the trial, the Plaintiffs did not allege claims under § 523(a)(2) in their Complaint1 and did

in fact limit their claims at the inception of the trial to only §§ 523 (a)(4) and (a)(6). Therein, the

overarching issues at hand involve the interpretation of a contract for services, how it figured in

the operations and use of cryptocurrency, and subsequently how the actions leading to the

contract’s failure may constitute reason for claims to be nondischargeable.

III. FACTS

In compiling the factual record addressed in this decision, the Court has adopted portions

of each parties’ Proposed Findings of Fact and Conclusions of Law2 and has been persuaded by

particular portions of testimony presented to the Court at trial.

A. Structure and Ownership of BET Capital, LLC

Addressed by both parties is the ownership and influence of Defendant Bennett Hortman,

II upon BET Capital, LLC (“BET”), a Utah Limited Liability Company. Although it was

stipulated as an uncontested fact in the Pre-Trial Order,3 that the Defendant was the sole owner

of BET, the testimony of Ernest Woods, Timothy Covington, as well as the Defendant, persuades

the Court that all three were owners/members at the time of consequence to the current action.

More specifically, the time of consequence being the lead up, execution, and subsequent failed

performance of the service contract between Plaintiffs and BET.

1 Pl.’s Complaint, ECF No. 1.

2 Pl.’s Proposed Findings of Fact and Conclusions of Law, ECF No. 35; Def.’s Proposed

Findings of Fact and Conclusions of Law, ECF No. 38.

3 Pre-Trial Order, ECF No. 28.

3

B. Negotiation and Execution of Written Contract for Ravencoin

The allegations made by the Plaintiffs center around the execution and implementation,

or the lack thereof, of a written contract between the Plaintiffs and BET. That contract was

admitted and received and is entitled, the Cryptocurrency Mining Services Agreement (the

“Agreement”).4

1. Pre-Agreement Conversations and February 27, 2018 Conference Call

The parties agree that the lead-up to the execution of the Agreement began as a result of

the Defendant’s response to a post made by one of the Plaintiffs within a cryptocurrency interest

group on Facebook; the post therein was a solicitation for crypto-mining services, specifically

someone with a particular set of capabilities or know-how. The Defendant responded to the

Plaintiffs’ inquiry, referencing his mining company BET, and the parties set up a phone call for

the afternoon of February 27, 2018 to discuss a potential business relationship. Further, although

various terms in cryptocurrency are involved in this matter, this action can be boiled down to the

simple terms of the Agreement, and whether/how it was breached.

As a result of these initial conversations, the Defendant began to mine Ravencoin (RVN),

a form of cryptocurrency, on equipment purported to be owned solely by the Defendant within

BET’s warehouse. This was before the Agreement was signed by the parties. This “test run” was

successful enough for the Defendant to make representations to the Plaintiffs about BET’s ability

to mine RVN on the February 27, 2018 conference call. During the phone call, the parties had

negotiated to memorialize an agreement wherein BET would mine RVN for the Plaintiffs.

4 Pl.’s Exhibit No. 1.

4

2. February 28, 2018 Execution of the Agreement

The following day, February 28, 2018, the parties executed the Agreement.5 Pursuant to

the Agreement, the Plaintiffs made two separate transfers of Bitcoin (“BTC”) totaling 16 Bitcoin,

on February 28 and March 1, 2018, to a cryptocurrency wallet held solely by the Defendant, as

an individual, not BET. Additionally, the Agreement outlined that BET was to provide a list of

equipment purchased in furtherance of this contract to the Plaintiffs as an exhibit to the

Agreement, specifically Exhibit A. That list was never provided, and testimony as to why is both

muddied and unconvincing.

Later on March 1, the Defendant, on behalf of BET, converted the 16 BTC to cash, and

then made two separate deposits into BET’s bank account for the total amount of the cash value

of the 16 BTC. The Court notes, as do the parties, that any difference in value between the 16

BTC at the time of the Plaintiffs’ initial transfer to Defendant, and the Defendant’s transfer into

BET Capital’s account, was due to the market volatility of BTC.6

C. Failure under Contract

Once the cash deposit was made into the BET account, a number of transfers took place

out of the account.7 The Court finds that each transfer was in accordance with common BET

practices. BET members frequently purchased equipment via their personal credit cards or other

lines of credit. Therein, the transfers that the Plaintiffs point to would actually seem to be in line

with routine reimbursements by BET to its members for company expenditures. Importantly,

5 Pl.’s Exhibit No. 1.

6 Representations by each party point to 16 BTC at time of Plaintiffs’ transfer being valued at

$169,395.93; while the deposit into BET Capital’s account was $169,322.16.

7 See Pl.’s Exhibit No. 4.

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there is nothing in the plain language of the Agreement that states, or even implies, that the

Plaintiffs’ payment to BET could not be used for ordinary expenses like labor or overhead, such

as electricity (a large expense for crypto-mining operations). Additionally, a number of “round

number” transfers by BET were either attributed to employees’ wages, or to private contractors

performing services for BET. Another example of ordinary expenses that were not prohibited,

neither explicitly nor implicitly, by the Agreement.

Shortly after the Agreement was executed, there was a massive spike in the difficulty and

cost of mining RVN, due in most part to the coin being listed on an exchange. Each party

represented that RVN’s absence from a crypto-exchange was of paramount importance for

entering into the Agreement in the first place, and the coin’s inclusion onto an exchange

increased the mining difficulty far beyond the parties’ expectations.

In the days following the execution of the Agreement, and the subsequent spike in

difficulty for mining RVN, the parties did discuss possible terms of a settlement to the

Agreement. Although general terms were discussed, nothing near an agreement was ever made.

The most specific settlement offer is contained in an April 9, 2018 email from Plaintiff Brock

Wood to BET, requesting 16 BTC for settlement of the Agreement, even going so far as to

represent that this request was a “haircut” due to the diminished value of BTC at the time.8

Nonetheless, the parties continued under the Agreement as it was executed on February

28, 2018, until BET wound down and closed shop sometime in the Summer of 2018. In that

interim, the Defendant had left Utah to begin to work as a salesman in an attempt to both raise

funds for BET and provide for his own family. The Defendant discussed this leaving with the

8 Pl.’s Exhibit No. 5.

6

Plaintiffs during the settlement discussions, instructing them to continue negotiations with his

attorney, Mr. Ford. In leaving the state, the Defendant left the operations and decision-making

for BET solely in the hands of Ernest Lee Woods, a co-member of BET. During this period,

several business decisions were made by Mr. Woods, including the liquidation of certain coins

mined, whether it be RVN or Ethereum or Bitcoin, to pay the bills of BET. The Court is

persuaded by the testimony that the business decisions made during this time were in furtherance

of BET’s ultimate goal, which was to stay in business. Nevertheless, Mr. Woods found it

necessary to close shop, without consulting the Defendant or Mr. Timothy Covington, another

co-member of BET. As such, BET as a functioning business in large part ceased. Although

performance under the Agreement was not due until September of 2019, the contract had all but

ended with BET’s closing down shop. In closing down, Mr. Woods cleared out the company’s

warehouse and sought to return/turnover, liquidate and hold certain equipment that was in BET’s

possession. This entailed Mr. Woods bringing some of BET’s equipment to his own home to

hold. BET never returned any equipment, or even paid or transferred anything for that matter,

back to the Plaintiffs. The value and subsequent cash derived from the initial BTC payments

from Plaintiffs to BET was completely consumed in payment for personal services, purchase of

equipment etc., and other expenses in furtherance of the Agreement.

D. Post-Failure Posturing

The Plaintiffs brought suit against BET and three John Does in Utah state court on

September 9, 2018. Default Judgment was entered against BET Capital, LLC on March 22,

2019. After an evidentiary hearing, the state court entered a judgment for $169,395.93 on April

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11, 2019 in favor of the Plaintiffs, the cash dollar value of the original BTC transfers to BET.9

On October 28, 2019, Plaintiffs amended their state action to include both Ernest Lee Woods and

Bennett E. Hortman, II as individual defendants in their lawsuit against BET.10 Subsequently on

December 19, 2019, counsel for Debtor filed notice in state court of the Debtor’s petition for

protection under Chapter 7 of the Bankruptcy Code filed on the very same day.11 Interestingly,

the notice states: “This matter is stayed [. . .] as to Defendants Bennett Hortman and BET

Capital, LLC (owned solely by Hortman), pursuant to the automatic stay of bankruptcy.” The

Court notes that this is a fairly extraordinary statement by the Defendant, as no stay had been

issued by this court as to BET.

Additionally taking place in the post-failure timeframe of the Agreement, it is

uncontroverted that the equipment that is attributed to be in furtherance of the Agreement was

disposed of by Ernest Lee Woods’ delivery of the equipment to his Chapter 7 Trustee within his

own individual bankruptcy case. The equipment was never returned or turned over to the

Plaintiffs. Further, it is unsettling that BET never produced the list of equipment, as had been

agreed to be provided in Exhibit A of the Agreement. Clearly, the business dealings between the

Plaintiffs and BET appear to be inadequate and lacking in detail, which likely contributed to the

fallout between the Plaintiffs and BET. It is impossible to identify any equipment that could be

defined as “property” under Section 523(a)(6), let alone the value of such property to compute

possible damages for claims of nondischargeability.

9 Pl.’s Exhibit No. 6.

10 Pl.’s Exhibit No. 8.

11 Pl.’s Exhibit No. 9.

8

E. Procedural Posture and Trial

The current adversary proceeding was brought by Plaintiffs on March 18, 2020. An

Amended Order Governing Scheduling and Preliminary Matters was entered on May 29, 2020,

and remained in effect throughout the current proceeding.12 Further, the Court entered the Pre-

Trial Order on September 3, 2021.13 Additionally, a Motion in Limine was filed by the Plaintiffs

on September 24, 2021, and subsequently denied on November 19, 2021.

Following the conclusion of a three-day trial on November 29, 2021, the Court took the

matter under advisement until the entry of this Decision.

IV. DISCUSSION

The Plaintiffs contend that their claims against the Defendant should be determined to be

non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(4) and 523(a)(6). To reiterate, the scope of

the Plaintiffs’ claims were specifically narrowed to the aforementioned sections at trial.

In beginning the Court’s discussion, it is imperative to note the evidentiary standard for

Section 523 nondischargeability actions. Plaintiffs in Section 523 actions need prove each

element of their claim “by preponderance of the evidence.”14 Therein, the Court reviews the

Plaintiffs’ allegations and arguments under this standard, and will only hold a debt to be

nondischargeable upon showing that the Debtor’s actions violated either § 523(a)(4) or §

523(a)(6) by preponderance of the evidence.

12 ECF No. 10.

13 ECF No. 28.

14 See Grogan v. Garner, 498 U.S. 279 (1991).

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A. 11 U.S.C. § 523(a)(4)

To begin, § 523(a)(4) provides that a debtor may not receive a discharge from any debt

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

the Plaintiffs here successfully prove their claim by the preponderance of the evidence against

Debtor for fraud or defalcation in a fiduciary capacity, embezzlement, and/or larceny, then their

claim is nondischargeable under the applicable provisions.

1. Fraud or Defalcation While Acting in a Fiduciary Capacity

The first possible prong of § 523(a)(4) analyzed by the Court is for “fraud or defalcation

while acting in a fiduciary capacity.” Therefore, the Plaintiffs have to establish the following two

elements to prevent the discharge of Mr. Hortman’s debt: (a) a fiduciary relationship between

Mr. Hortman and the Plaintiffs, and (b) fraud or defalcation committed by Mr. Hortman in the

course of that fiduciary relationship. The Court analyzes this prong of § 523(a)(4) via those two

elements below. However, the Court struggles to find either has been proved by preponderance

of the evidence.

a. Fiduciary Capacity

For purposes of § 523(a)(4), the question of whether a fiduciary relationship is present is

a matter of federal law.15 However, “state law is relevant to this inquiry,” and the Tenth Circuit

requires the Court “must find that the money or property on which the debt at issue was based

was entrusted to the debtor.”16 Essentially, the fiduciary relationship must be shown to exist prior

15 Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1371 (10th Cir. 1997) (internal citations

omitted).

16 Id.

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to the creation of the debt in controversy.17 “Neither a general fiduciary duty of confidence, trust,

loyalty, and good faith nor an inequality between the parties’ knowledge or bargaining power is

sufficient to establish a fiduciary relationship for purposes of dischargeability.”18 Rather, an

“express or technical trust must be present for a fiduciary relationship to exist under

§523(a)(4).”19 Importantly here, ordinary commercial relationships do not usually qualify under

this provision.20

Upon review of the facts, the Court simply cannot find the existence of a fiduciary

relationship in the context of this ordinary—albeit, unordinary industry—commercial

relationship. The Plaintiffs’ claim arises solely out of the Agreement, and upon careful reading of

the Agreement, as well as the testimony presented to the Court, the Court finds it clear that no

such fiduciary relationship arose out of the ordinary commercial relationship created by the

Agreement. As such, the Plaintiffs’ § 523(a)(4) claim fails the first available prong, for fraud or

defalcation while acting in a fiduciary capacity, prior to even addressing any allegations of fraud

or defalcation.

b. Fraud or Defalcation

Although unnecessary due to the foregoing subsection on fiduciary capacity, the Court

continues its analysis of the first prong of § 523(a)(4). Thus, assuming the Court had found the

17 See id. (citations omitted).

18 Id. at 1372 (citations omitted); see also Upshur v. Briscoe, 138 U.S. 365, 375 (1891) (“Within

the meaning of the exception in the bankruptcy act, a debt is not created by a person while acting

in a ‘fiduciary character,’ merely because it is created under circumstances in which trust or

confidence is reposed in the debtor, in the popular sense of those terms.”).

19 See Fowler Bros., 91 F.3d at 1371 (citations omitted).

20 See Barenberg v. Burton (In re Burton), 2010 WL 3422584, at *5 (B.A.P. 10th Cir. 2010); see

also Holaday v. Seay (In re Seay), 215 B.R. 780 (B.A.P. 10th Cir. 1997).

11

existence of a fiduciary relationship, the Plaintiffs would need now establish the Debtor

committed fraud or defalcation in that fiduciary capacity. However, similar to the preceding, the

Court finds that the Debtor did not commit fraud or defalcation in their failure under the contract.

2. Embezzlement

The Court now turns to the Plaintiffs’ embezzlement claims under § 523(a)(4). “For

purposes of § 523(a)(4), embezzlement is the fraudulent appropriation of property by a person to

whom such property has been entrusted or into whose hands it has lawfully come.21 It is

hornbook law that the elements required to prove embezzlement are: (1) the entrustment, (2) of

property (3) of another (4) that is misappropriated (used or consumed for a purpose other than for

which it was entrusted), (5) with fraudulent intent.22 Important to note is that embezzlement

requires animus furandi, or the intention to steal.23 In addition, embezzlement requires fraud in

fact, involving moral turpitude or intentional wrong, rather than implied or constructive fraud.24

In applying these rules to the instant, the Plaintiffs’ embezzlement claim fails. Although

slightly related, the Court sees the Plaintiffs’ embezzlement claim as twofold; one alleges the

embezzlement of funds paid under the contract, the other alleges the embezzlement of equipment

and/or cryptocurrency arising under the contract. Both fail.

21 Ingram v. Nelson (In re Nelson), Adv. No. 13-2478, 2014 WL 1347031, at *4 (Bankr. D. Utah

Apr. 4, 2014).

22 See, e.g., Yaping Lin v. Pacheco (In re Pacheco), Adv. No. 19-2076, 2021 Bankr. LEXIS

3442, at *26 (Bankr. D. Utah Dec. 16, 2021); Jordan Credit Union v. Turley (In re Turley), Adv.

No. 10-2004, 2012 WL 369275, at *6 (Bankr. D. Utah Feb. 3, 2012); In re Musgrave, 2011 WL

312843, at *5 (B.A.P. 10th Cir. 2011).

23 See In re Pacheco, 2021 Bankr. LEXIS 3442, at *26.

24 See In re Nelson, 2014 WL 1347031, at *4.

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Beginning with the allegations of embezzlement of funds paid under the Agreement, the

Court finds all but one element of embezzlement absent. There was no entrustment of the funds

to the Debtor, the funds were part of a bargain. The funds do represent property for purposes of

embezzlement. The property was not that of the Plaintiffs, it belonged to the Debtor upon

executing the Agreement. The funds were not misappropriated, there was no precise allocation of

the funds stipulated to within the Agreement, and therefore BET was well within its rights to use

the funds to pay wages and overhead, as well as to purchase equipment. Lastly, fraudulent intent

was absent. No evidence presented show the Debtor had an intent to steal. However, the Debtor’s

counsel pointed out how the funds from the transferred BTC were all within the Debtor’s

personal account, by necessity of how cryptocurrency wallets worked at the time, and the parties

stipulated to the fact that every penny was transferred into BET’s account. If Debtor had an

intent to steal, convincing evidence was needed which the Court cannot find here.

Now onto the Plaintiffs’ claim that the Debtor embezzled the equipment and/or

cryptocurrency. The evidence presented requires this claim too must fail. As the Court sees it,

this property was not the sort susceptible to embezzlement. The property belonged to BET, up

until BET failed to perform under the Agreement. At that point, the Plaintiffs were entitled to

receive the property as a sort of makeweight under the contract. The failure of BET to do so is

troubling but is not embezzlement. The Court finds most of all there was no entrustment, nor was

there any fraudulent intent. Had the Debtor intended to steal the property, he most likely would

not have allowed Mr. Woods to retain possession of the property, let alone deliver it to the

trustee in his own bankruptcy case. Similarly, the Court is not persuaded that the Debtor has

embezzled cryptocurrency. In constructing the argument on behalf of Plaintiffs, seeing as they

have not produced sufficient evidence trial, the Court finds the first three elements may have

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been satisfied in regard to any RVN mined on BET machines. However, there was no evidence

at trial that any RVN was misappropriated nor was there any evidence that the Debtor had

fraudulent intent in any appropriation of the RVN or cryptocurrency plausibly tied to the

Plaintiffs.

3. Larceny

The Plaintiffs also alleged larceny under § 523(a)(4). The Tenth Circuit adheres to the

common-law definition of larceny.25 Under § 523(a)(4), larceny is the “felonious stealing, taking

and carrying, leading, riding, or driving away another’s personal property, with intent to convert

it or to deprive the owner thereof.”26 The difference between larceny and embezzlement is that,

“with embezzlement, the debtor initially acquires the property lawfully whereas, with larceny,

the property is unlawfully obtained.”27

Here, the Plaintiffs’ larceny claim may be swiftly dealt with by the fact that no property

was ever unlawfully acquired. The property that Plaintiffs claim was subject to larceny was all

lawfully in BET’s possession, be it the equipment or cryptocurrency. Further, assuming that was

not the case, there was insufficient evidence presented that the Debtor, himself, intended to

convert the equipment or deprive the owners of the equipment. Actually, there was testimony at

trial that negotiations for a settlement involving the equipment were made, up until the Debtor

left to reassume his job as an out-of-state salesman. Additionally, there is insufficient evidence

that the Debtor ever stole, took, carried, led, rode, or drove any of the property alleged to have

25 Hand v. United States, 227 F.2d 794, 795 (10th Cir. 1955).

26 Utah Behavior Servs. v. Bringhurst (In re Bringhurst), 569 B.R. 814, 823 (Bankr. D. Utah

2017) (quoting United States v. Smith, 156 F.3d 1046, 1056 (10th Cir. 1998)).

27 In re Bringhurst, 569 B.R. at 823 (quoting Wonjoog Kim v. Hyungkeun Sun, 535 B.R. 358, 367

(B.A.P. 10th Cir. 2015)).

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been subject to larceny. As such, the Plaintiffs’ larceny claim fails, and consequently the entirety

of the Plaintiffs’ § 523(a)(4) claim categorically fails.

B. 11 U.S.C. § 523(a)(6)

Under Section 523(a)(6), a debt arising from the “willful and malicious injury by the

debtor to another entity or to the property of another entity” is to be excepted from discharge.

Generally, this section was drafted with the purpose of precluding a debt arising from the

debtor’s tortious conduct from discharge.28 Here, the Plaintiffs wish to bar the Defendant’s

discharge due to the Defendant’s alleged willful conversion of the Plaintiffs’ property. The

Plaintiffs in their briefings correctly note that § 523(a)(6) does not include “conversion” in its

statutory language, but courts have outlined that “willful and malicious injury was intended to

include willful and malicious conversion.”29 Further, “conversion is generally defined as a

wrongfully assumed dominion over personal property by one person to the exclusion of

possession by the owner and in repudiation of the owner’s rights.”30 As such, the allegation of

conversion could plausibly satisfy the requirements of § 523(a)(6).

“For an injury to be ‘willful,’ there must be a deliberate or intentional injury, not merely

‘a deliberate or intentional act that leads to injury.’”31 “A willful injury may be established by

direct evidence that the debtor acted with the specific intent to harm a creditor or the creditor’s

property, or by indirect evidence that the debtor desired to cause the injury or believed the injury

28 See Caprice Capital, LLC v. Ford (In re Ford), Adv. No. 18-2155, 2021 Bankr. LEXIS 2997,

at *35 (Bankr. D. Utah Oct. 29, 2021).

29 In re Auto Outlet, Inc., 71 B.R. 674, 676 (Bankr. D. Utah 1987).

30 Id.

31 In re Judge, 630 B.R. 338, 344 (B.A.P. 10th Cir. 2021) (citing to First Am. Title Ins. Co. v.

Smith (In re Smith), 618 B.R. 901, 912 (B.A.P. 10th Cir. 2020)).

15

was substantially certain to occur.”32 Essentially, “to constitute a willful act under § 523(a)(6),

the debtor must desire to cause the consequences of his act or believe that the consequences are

substantially certain to result from it.”33 As to the “malicious” element for § 523(a)(6), the Tenth

Circuit BAP best outlined the element in its In re Johns decision:

Malicious injury requires a wrongful act done without just cause or excuse by a

debtor who intended the resulting injury. . . . The requisite intent may be

established by either direct or indirect evidence. Intent of willful injury can be

demonstrated indirectly by evidence of both the debtor's knowledge of the

creditor's rights and the debtor's knowledge that the particularized injury will

result from its conduct.34

Applying this interpretation of willful and malicious injury, the Court finds that the

Plaintiffs have failed to establish that the Debtor’s conduct was willful and malicious by

preponderance of the evidence. The Court has considered the totality of the circumstances in its

review of the facts presented, and the evidence shows that Mr. Hortman and his fellow members

at BET fully intended to perform under the Agreement when it was executed. Further, the

evidence shows that the Debtor made numerous efforts in preparation and in furtherance of the

Agreement.

A lengthy amount of time at trial was devoted to BET’s bank statements and analyzing

various expenditures, wherein the Court sees nothing more than ordinary small business

transactions albeit in the cryptocurrency world. BET made payments reimbursing its members,

or affiliated parties, for equipment purchases in furtherance of the Agreement. Although the

equipment was never turned over to the Plaintiffs upon BET’s failure to perform, the Court finds

32 In re Smith, 618 B.R. at 912.

33 Panalis v. Moore (In re Moore), 357 F.3d 1125, 1129 (10th Cir. 2004) (quoting Kawaauhau v.

Geiger, 523 U.S. 57, 61 (1998)).

34 In re Johns, 397 B.R. 544, 548 (B.A.P. 10th Cir. 2008).

16

it difficult to see that the failure to return the equipment was willful and malicious. When the

Debtor left the operations for his out-of-state sales job, Mr. Woods was left in charge of the

warehouse with the equipment. No evidence presented at trial points to the Debtor’s intent for

the Plaintiffs to never receive the equipment, and it was certainly not the Debtor’s willful act for

the property to be turned over in Mr. Woods’ bankruptcy. An unfortunate result from

objectionable business judgment, but nothing rising to the level of willful and malicious.

Further, the Court finds that the Debtor made efforts with his personal machines to ensure

BET’s performance under the contract was feasible, although the Plaintiffs allege this was for

some nefarious purpose. The Court finds the Defendant’s testimony on that point credible. The

Plaintiffs’ contention that this conduct was evidence of wrongdoing is not persuasive. Further,

the Debtor began his research on his own machines prior to entering into the Agreement. The

Court finds the Defendant’s, as well as the other BET members’, testimony credible and

convincing, in that it was common practice to mine cryptocurrency for personal gain on personal

computers alongside company computers mining for clients. As the Court sees it, there is nothing

nefarious in such a business practice. No evidence presented at trial outlines how this research

injured the Plaintiffs; and even under the Plaintiffs’ misinterpretation of the Agreement,

insufficient evidence was presented how this research was willful and malicious. Again, the

Plaintiffs’ lack of understanding of this business arrangement, or how businesses in this industry

operated, is not the fault of the Debtor.

The discussion above outlines a persistent issue with the Plaintiffs’ arguments. The

Agreement as is, presents only an end-goal, and had another interpretation been the goal of the

Plaintiffs then perhaps they should have bargained for such.

17

In addition to the foregoing, under § 523(a)(6), there must be a showing of willful and

malicious injury by the debtor to another or to the property of another. The Court cannot find that

willful and malicious conduct causing injury to the Plaintiffs, occurred here.

The only real possibility for the Plaintiffs to prevail under this section would be to show

willful and malicious injury to the Plaintiffs’ property. As discussed prior, a major problem with

the Plaintiffs’ case is the lack of a clear description or list of the equipment procured in

furtherance of the Agreement, as was to be identified in Exhibit A. Following the execution of

the Agreement, BET was to provide the list as Exhibit A to the Agreement within forty-five

days; however, BET failed to do so. At trial, evidence was presented that backed the notion that

equipment was purchased in furtherance of the Agreement; however, no evidence or testimony

conclusively outlined the exact equipment, or any list of such, purchased in furtherance of the

Agreement.35 Based on similar testimony at trial, Plaintiffs may have made further requests for

the Exhibit A list, and the list may have even been created and simply never provided, but no

convincing evidence or testimony to either contention was ever produced at trial. Accordingly,

the Court fails to find there was any injury to property belonging to the Plaintiffs.

In addition, § 523(a)(6) states the property must be “property of another entity.” Here,

although the parties casually referred to the computer equipment as the Plaintiffs’ equipment, the

Plaintiffs had no ownership in the actual equipment. At best, they had only a security interest in

whatever equipment BET procured in order to perform under the Agreement.

Had the property Plaintiffs ascribe ownership to been specifically identified and clearly

owned by Plaintiffs, and if BET had subsequently converted it somehow, the Plaintiffs would

35 Pl.’s Exhibit No. 4.

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have had a better case under this section. Conversion as a cause of action is possible, in regard to

secured property of another being held by a debtor; but again, the Court cannot find any

identifiable property that could be either owned by the Plaintiffs or secured in their favor. The

soured relationship between BET and Plaintiffs is due in large part to both parties’ negligence

throughout their business deal. However, mere negligence does not measure up to willful and

malicious conduct.

V. CONCLUSION

There was seemingly a breach of contract by BET, specifically in its failure to turnover

equipment to the Plaintiffs upon BET’s failure to perform under the Agreement, as well as the

defaulted noted in the state court judgment. However, the Court cannot find or conclude that the

Defendant committed fraud or defalcation while acting in a fiduciary capacity, embezzlement,

or larceny under 11 U.S.C. § 523(a)(4), nor committed willful and malicious injury to the

Plaintiffs or their property under 11 U.S.C. § 523(a)(6).

A separate judgment accompanies this Memorandum Decision.

-----------------------------------END OF DOCUMENT-------------------------------------

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SERVICE LIST

Service of the foregoing MEMORANDUM DECISION AFTER TRIAL shall be made

on the following parties through the CM/ECF system:

• John W. Call – attorneys@ncvlaw.com ; john@ncvlaw.com

• Adam D. Ford – adam.ford@fordcranelaw.com

• Stephen W. Rupp – rupptrustee@mbt-law.com

By U.S. Mail: In addition to the parties of record receiving notice through the CM/ECF system,

the following parties should be served notice pursuant to Fed. R. Civ. P. 5(b).

Bennett Edward Hortman, II

157 E 300 N

Spanish Fork, UT 84660

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