Marmic Fire & Safety Co., Inc. v. ETG Fire, LLC

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF COLORADO

Bankruptcy Judge Thomas B. McNamara

In re:

Lead Bankruptcy Case No. 24-13446 TBM

ETG FIRE, LLC, Chapter 11

(Subchapter V)

Debtor.

In re:

ETG FIRE MIDCO, LLC, Bankruptcy Case No. 24-13447 TBM

Chapter 11

Debtor. (Subchapter V)

MARMIC FIRE & SAFETY CO., INC.,

and APS FIRECO, LLC, Adv. Pro. No. 24-1225 TBM

Plaintiffs,

v.

ETG FIRE, LLC,

Defendant.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS

______________________________________________________________________

I. Introduction.

The Plaintiffs, Marmic Fire & Safety Co., Inc. (“Marmic”) and APS FireCo, LLC

(“APS”) (together, the “Plaintiffs”), initiated this Adversary Proceeding against Debtor-

Defendant, ETG Fire, LLC (“ETG Fire”), by filing a “Complaint to Determine

Dischargeability of a Debt Pursuant to 11 U.S.C. § 523.” (Docket No. 1, the

“Complaint.”)1 As the title of the Complaint suggests, the Plaintiffs seek to establish the

1 The Court uses the convention “Docket No. ___” to refer to documents filed in this Adversary

Proceeding: Marmic Fire & Safety Co., Inc. et al. v. ETG Fire, LLC, Adv. Pro. No. 24-1225 (Bankr. D.

Colo.). The Court uses the convention “ETG Docket No. __” to refer to documents filed in the main

bankruptcy case captioned: In re ETG Fire, LLC, Bank. Case No. 24-13446 (Bankr. D. Colo.) Finally,

Court uses the convention “Midco Docket No. __” to refer to documents filed in the main bankruptcy case

captioned: In re ETG Fire Midco, LLC, Bankr. Case No. 24-13447 (Bankr. D. Colo.).

existence and amount of a debt allegedly owed to them by ETG Fire as well as the

nondischargeability of such debt pursuant to 11 U.S.C. § 523(a)(6) of the Bankruptcy

Code2 as a debt for a “willful and malicious injury.” ETG Fire responded by filing

“Defendant’s Motion to Dismiss Adversary Proceeding” (Docket No. 4, the “Motion to

Dismiss”), requesting dismissal of all causes of action under Fed. R. Civ. P. 12(b)(6), as

incorporated by Fed. R. Bankr. P. 7012(b), for failure to state a claim upon which relief

can be granted. The Plaintiffs filed a “Response” to the Motion to Dismiss (Docket No.

5, the “Response”) opposing dismissal. Thereafter, ETG Fire filed a “Reply” in support

of the Motion to Dismiss. (Docket No. 7, the “Reply.”)

Accepting all the facts alleged by the Plaintiffs in the Complaint as true, and

having reviewed the Motion to Dismiss, Response, and Reply, the Court concludes that

the Plaintiffs have alleged sufficient facts to properly state claims for relief under Fed. R.

Civ. P. 12(b)(6), as incorporated by Fed. R. Bankr. P. 7012(b). Therefore, the Motion to

Dismiss must be denied.

II. Jurisdiction and Venue.

The Court has jurisdiction over this Adversary Proceeding and the Motion to

Dismiss pursuant to 28 U.S.C. § 1334. The dismissal contest is a core proceeding

under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate),

(b)(2)(B) (allowance or disallowance of claims against the estate), (b)(2)(I)

(determinations as to the dischargeability of particular debts), and (b)(2)(O) (other

proceedings affecting the liquidation of the assets of the estate or the adjustment of the

debtor-creditor relationship). Venue is proper in the Court pursuant to 28 U.S.C.

§§ 1408 and 1409. Neither the Plaintiffs nor ETG Fire has contested venue in this

Court or this Court’s jurisdiction to adjudicate the Motion to Dismiss, Response, and

Reply.

III. Procedural Background.

On June 20, 2024, ETG Fire filed for protection under Chapter 11, Subchapter V

of the Bankruptcy Code, commencing the case captioned: In re ETG Fire, LLC, Bankr.

Case No. 24-13446 TBM (Bankr. D. Colo.) (the “ETG Fire Case”). A related entity, ETG

Fire Midco, LLC (“Midco”), filed for protection under Chapter 11, Subchapter V, on the

same day, commencing the case captioned: In re ETG Fire Midco, LLC, 24-13447

(Bankr. D. Colo.) (the “Midco Case”). (ETG Docket No. 1 and Midco Docket No. 1.)3

Shortly thereafter, the Court ordered that the two main bankruptcy cases be jointly

administered, with the ETG Fire Case serving as the lead case. (ETG Docket Nos. 56

and 62 and Midco Docket Nos. 57 and 58.)

2 11 U.S.C. § 101 et seq. Unless otherwise indicated, all references to “Section” are to Sections of

the Bankruptcy Code.

3 The Court takes judicial notice of the dockets in the ETG Fire Case, the Midco Case, and the

Adversary Proceeding for purposes of describing the current procedural status. See St. Louis Baptist

Temple, Inc. v. F.D.I.C., 605 F.2d 1169, 1172 (10th Cir. 1979) (a court may sua sponte take judicial notice

of its docket)..

The Plaintiffs filed Proof of Claim No. 44-1 against ETG Fire, asserting a general

unsecured claim in the amount of “not less than $5,447,788.36” (the “Plaintiffs’ POC”).

Subsequently, ETG Fire objected to the Plaintiffs’ POC. (ETG Docket No. 229, the

“POC Objection”). ETG Fire’s POC Objection remains pending.

The ETG Fire Case and Midco Case have generated substantial disputes

(including many between the Plaintiffs and ETG Fire and Midco). ETG Fire and Midco

proposed a series of “Joint Subchapter V Plan[s] of Reorganization.” (ETG Docket Nos.

197, 244, and 295.) The most recent “Joint Subchapter V Plan of Reorganization” is

dated November 25, 2024 (the “Operative Plan”). (ETG Docket No. 295.) The Plaintiffs

and several other creditors objected to the Operative Plan. (ETG Docket Nos. 332, 342

and 346.) According to the “Ballot Report” submitted by ETG Fire and Midco, “Class 4

[of the Operative Plan] is not presently an accepting class.” (ETG Docket No. 351 at 3.)

Thus, at least at this stage, ETG Fire and Midco appear to be prosecuting the Operative

Plan on a nonconsensual basis under Section 1191(b). (ETG Docket Nos. 352 at 26

(arguing that “the [Operative] Plan complies with Section 1191(b)”); ETG Docket No.

353 at 2 (“the Debtors request that the Court confirm the Plan pursuant to 11 U.S.C. §

1191(b)”). The Operative Plan has not been confirmed.

Meanwhile, on September 30, 2024, the Plaintiffs filed the Complaint. In the

Complaint, the Plaintiffs assert eleven counts against ETG Fire: (1) misappropriation of

confidential information; (2) misappropriation of trade secrets in violation of the Defend

Trade Secrets Act, 18 U.S.C. § 1831-1839; (3) misappropriation of trade secrets in

violation of the Missouri Uniform Trade Secrets Act, Mo. Rev. Stat. § 417.450 - 417.467;

(4) tortious interference with contract; (5) tortious interference with business

expectancy; (6) aiding and abetting breach of fiduciary duty and duty of loyalty; (7)

tortious interference with contractual and legal obligations; (8) violation of the Missouri

Computer Tampering Act, Mo. Rev. Stat. § 537.525; (9) unfair competition; (10) unjust

enrichment; and (11) “objection to discharge”4 under Section 523(a)(6). In sum, through

the Complaint, the Plaintiffs are attempting to prove the amount of the debt they assert

is owed to them by the ETG Fire, as well as the nondischargeability of such debt.

ETG Fire did not answer the Complaint. Instead, ETG Fire filed the Motion to

Dismiss, seeking dismissal of all claims in the Complaint pursuant to Fed. R. Civ. P.

12(b)(6), as incorporated by Fed. R. Bankr. P. 7012(b), on the ground that the Plaintiffs

failed to state a claim upon which relief may be granted. The Plaintiffs presented the

Response and ETG Fire filed the Reply. The dispute framed by the Motion to Dismiss,

Response, and Reply is fully briefed and ready for decision.

4 Although the Plaintiffs titled their eleventh count as “objection to discharge” (which typically

suggests a claim under Section 727) the title, text and content of their eleventh count refers to Section

523(a)(6). Section 523(a)(6) is directed toward a determination of the nondischargeability of a particular

debt, not a general objection to discharge.

IV. Standard for Evaluating Motions to Dismiss Under Fed. R. Civ. P. 12(b)(6).

The Court’s analysis of the Motion to Dismiss, Response, and Reply starts with

the applicable federal rules of procedure. In this case, ETG Fire asserts that the

Complaint should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6), which is applicable

per Fed. R. Bankr. P. 7012(b). Fed. R. Civ. P. 12(b)(6) provides:

Every defense to a claim for relief in any pleading must be

asserted in the responsive pleading if one is required. But a

party may assert the following defenses by motion . . . failure

to state a claim upon which relief can be granted . . . .

When considering a motion to dismiss under Fed R. Civ. P. 12(b)(6) (as

incorporated by Fed. R. Bankr. P. 7012(b)), the Court accepts as true all well-pleaded

factual allegations in the complaint and views them in the light most favorable to the

Plaintiffs. Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir.

2013). Under the refined pleading standard articulated by the Supreme Court in

Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544

(2007), a complaint will be dismissed unless it “contain[s] sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S.

at 678 (quoting Twombly, 550 U.S. at 570). See also Kansas Penn Gaming, LLC v.

Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (referring to clarified standard under

Twombly and Iqbal as a “refined standard”).

Under the “refined standard,” a claim is considered “plausible” when the

complaint contains facts which allow the Court “to draw a reasonable inference that the

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (quoting

Twombly, 550 U.S. at 570). “Plausible” does not mean “probable,” although the plaintiff

must show that its entitlement to relief is more than speculative. Id.; Twombly, 550 U.S.

at 555. If the allegations in a complaint “are so general that they encompass a wide

swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims

across the line from conceivable to plausible.” Kansas Penn, 656 F.3d at 1215. Put

another way, “the complaint must give the Court reason to believe that this plaintiff has

a reasonable likelihood of mustering factual support for these claims.” Ridge at Red

Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).

“The nature and specificity of the allegations required to state a plausible claim

will vary based on context.” Kansas Penn, 656 F.3d at 1215; see also Iqbal, 556 U.S. at

679 (“Determining whether a complaint states a plausible claim for relief will . . . be a

context-specific task that requires the reviewing court to draw on its judicial experience

and common sense.”). Thus, the Tenth Circuit has held that “the Twombly/Iqbal

standard is ‘a middle ground between heightened fact pleading, which is expressly

rejected, and allowing complaints that are no more than labels and conclusions or a

formulaic recitation of the elements of a cause of action, which the Court stated will not

do.’” Khalik v. United Airlines, 671 F.3d 1188, 1191 (10th Cir. 2012) (citing Robbins v.

Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)) (internal quotation marks and

citations omitted in Khalik).

The Court is bound to accept only factual allegations as true and will not give

deference to legal conclusions. “Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at

578. As a result, courts often begin their analysis by identifying allegations that are no

more than conclusions and, therefore, not entitled to the “assumption of truth.” Id. at

679. Legal conclusions must be supported by well-pleaded factual allegations, which

can be assumed as true and evaluated as to whether they plausibly give rise to the

requested relief. Id. This process is a context-specific task which depends on the

elements of a particular claim and requires the Court to draw upon its judicial

experience and common sense. Burnett, 706 F.3d at 1236 (quoting Iqbal, 556 U.S. at

679). Careful evaluation is necessary both to ensure that a defendant is sufficiently

able to prepare his defense and to avoid “ginning up the costly machinery associated

with our civil discovery regime on the basis of a largely groundless claim.” Kansas

Penn, 656 F.3d at 1215 (internal quotation omitted).

Ultimately, the critical question is: “assum[ing] the truth of all well-pleaded facts

. . . and draw[ing] all reasonable inferences therefrom in the light most favorable to the

plaintiffs,” whether the compliant “raise[s] a right to relief above the speculative level.’”

Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quoting

Twombly, 550 U.S. at 555). It is a low threshold. “[G]ranting [a] motion to dismiss is a

harsh remedy which must be cautiously studied, not only to effectuate the spirit of the

liberal rules of pleading but also to protect the interests of justice.” Dias, 567 F.3d at

1178 (quoting Duran v. Carris, 238 F.3d 1268, 1270 (10th Cir. 2001)). Thus, “a well-

pleaded complaint may proceed even if it strikes a savvy judge that actual proof of

those facts is improbable, and ‘that a recovery is very remote and unlikely.’” Twombly,

550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, (1974)).

V. Summary of Factual Allegations in Complaint.

The factual allegations of the Complaint (which must be accepted as true) may

be summarized as follows:

A. Allegations Regarding Plaintiffs, Operations, and Confidential Information.

Marmic is a Missouri corporation with operations throughout the United States.

(Compl. ¶ 9.) APS is a limited liability company organized under the laws of the State of

Oklahoma with operations throughout the United States. (Compl. ¶ 10.) Marmic

acquired APS on or about October 23, 2021, and APS remains a wholly-owned

subsidiary of Marmic. (Compl. ¶ 11.) Marmic operates a full-service fire protection

business, providing retail, medical, commercial, and industrial companies with hazard

analysis, fire and personal safety products, fire suppression installations, and inspection

services conforming to mandates from the Occupational Safety and Health

Administration, government codes, and National Fire Protection Association standard.

(Compl. ¶ 18.) APS provides inspection, design, and project services in the fire-

protection industry as well as products and services relating to fire protection, including

without limitation fire alarms, fire sprinklers, fire extinguishers, kitchen hood fire

systems, and special hazard fire systems. (Compl. ¶ 19.)

The Plaintiffs’ relationships, technical know-how, and customer goodwill are the

result of The Plaintiffs’ substantial investment and effort over extensive periods of time,

and constitute business assets of significant and substantial value. (Compl. ¶ 21.) The

Plaintiffs entrust their goodwill and their customers’ preferences to a team of sales

professionals who manage their relationships with key accounts and serve as Plaintiffs’

face during their employment. (Compl. ¶¶ 20-21.) The Plaintiffs’ sales representatives

and management employees have access to confidential, proprietary, and valuable

information about Plaintiffs’ business, including bidding information; customer

preferences and anticipated projects; CAD graphics; floor plans; business plans; market

research and forecasts; marketing and advertising plans, techniques, and budgets;

pricing strategies; cost sheets; supplier information; and product specifications, designs,

inventions and techniques. (Compl. ¶ 22.) The Plaintiffs compensate their employees

in exchange for their service to the Plaintiffs. (Compl. ¶ 20.)

To protect their confidential information from disclosure to third parties, including

competitors, the Plaintiffs enacted company-wide policies, including a Confidential

Company Information Policy. Under that policy, confidential information about the

Plaintiffs’ business, “including but not limited to information regarding Company

finances, pricing, products and new product development, software and computer

programs, marketing strategies, suppliers and customers and potential customers” must

be kept confidential. Further, such confidential information must not be disclosed to the

Plaintiffs’ competitors. In addition, under the Confidential Company Information Policy,

“any employee who improperly copies, removes (whether physically or electronically),

uses or discloses confidential information to anyone outside of the Company may be

subject to disciplinary action up to and including termination.” (Compl. ¶ 24.) In

addition, the Plaintiffs’ Employee Code of Conduct requires employees to “comply with

any federal, state or local laws” and to “show integrity and professionalism in the

workplace,” and provides that employees are expected to prevent potential conflicts of

interest by “avoid[ing] any personal, financial or other interests that might impact their

capability or willingness to perform their job duties, or alter their decisions.” (Compl. ¶

25.) The Plaintiffs’ Employee Code of Conduct notifies employees that Plaintiffs “may

take legal action in cases of corruption, theft, embezzlement or other unlawful behavior.”

(Compl. ¶ 26.) The Plaintiffs further protect their confidential information by maintaining

all confidential information on Plaintiffs’ secure and password-protected network and by

requiring each employee to use unique login credentials to access information stored on

Plaintiffs’ computer network and systems. For sales-focused employees, the Plaintiffs

maintain cloud-based databases of customer and sales information that can be

accessed only by a limited set of employees who have a business need to access such

information. (Compl. ¶ 27.)

B. Allegations Regarding ETG Fire.

ETG Fire is a direct competitor of the Plaintiffs. (Compl. ¶ 3.) ETG Fire was

established in 2013 by its Founder and former President, Chris Vanderstokker

(“Vanderstokker”). (Compl. ¶¶ 2-3.) Vanderstokker sold ETG Fire to Erdoni, LLC

(“Erdoni”), pursuant to a Unit Purchase and Sale Agreement dated January 19, 2022

(the “PSA”). (Compl. ¶ 4.) Following Erdoni’s purchase of ETG, Christopher

Czarnowski (“Czarnowski”) became the Chief Executive Officer of ETG Fire, and

Vanderstokker remained employed by ETG Fire in a sales and consulting role. (Compl.

¶ 5.)

C. Allegations Regarding Certain of Plaintiffs’ Employees and Their

Employment Contracts.

APS hired Tyler Aebersold (“Aebersold”) in October 2013. Following Marmic’s

acquisition of APS in 2021, Aebersold worked on behalf of both the Plaintiffs. When he

was hired by APS in 2013, Aebersold signed an employment agreement that contained

certain restrictive covenants. (Compl. ¶ 34.) On or about November 17, 2021,

Aebersold signed a Confidentiality Agreement and Agreement Not to Compete with

Marmic (the “Aebersold Agreement”). (Compl. ¶ 30.) The Aebersold Agreement

provided:

Whereas, it is agreed that the Employee, during the period of

employment with Employer and for a period of 36 months

following the termination of Employee’s employment with the

Employer will not either directly or indirectly call upon, solicit,

divert or take away or attempt to solicit, divert or take away

any of the customers, business or patrons of the Employer

upon whom the Employee called or solicited or catered or

became acquainted with while employed with the Employer.

It is furthermore agreed that during the term of Employee’s

employment and for a period of 36 months after the

termination of employment, the Employee will not participate

directly or indirectly, personally or as the agent or Employee

of another, in the ownership, management, operation or

control of any business similar to the type of business

conducted by the Employer at the time of the termination of

this Agreement within a 100-mile radius of any location

owned by Joplin Fire Protection Co., Inc. or Marmic Fire &

Safety, Inc.

(Compl. ¶ 31.) The Aebersold Agreement further provided:

Employee further agrees that the information gained by

Employee in promoting Employer’s business including, by

way of illustration and without limitations, the names and

addresses of the customers of the Employer and the

marketing methods are confidential information and

Employee shall not disclose to any parties such information

during the period of his employment or for a period of 36

months thereafter.

(Compl. ¶ 32.) Finally, the Aebersold Agreement stated:

Employee also agrees, during Employee’s engagement with

Employer and for a period of one (1) year after my

employment ends for any reason, not to directly or indirectly,

solicit, recruit, hire or otherwise interfere with the

employment of Employer’s employees.

Aebersold voluntarily resigned from his employment relationship with the

Plaintiffs, effective on May 9, 2023. (Compl. ¶¶ 28, 95.) At the time of his resignation

from employment with the Plaintiffs, Aebersold held the role of Sales Manager. (Compl.

¶ 28.) As Sales Manager, Aebersold was responsible for working directly with and

developing and maintaining goodwill with Plaintiffs’ customers, including customers

focused on special fire hazard protection systems, which are fire protection system

designed to protect a highly sensitive or valuable asset or to provide fire protection in

areas where fire-sprinkler use is not a viable option. (Compl. ¶ 29.)

APS hired Gary Holmes in January 2015. On or about February 25, 2016,

Holmes signed an “Employee Confidential Information, Non-Solicitation and

Noncompete Agreement” (the “Holmes Agreement”) with APS. Holmes worked for APS

in the Tulsa County, Oklahoma area at the time he signed the Holmes Agreement and

through the date of his voluntary resignation from employment on August 23, 2022.

(Compl. ¶¶ 37 and 57.)

Paragraph 3 of Holmes Agreement states, among other things, that Holmes

“understands and agrees that the confidential business and customer information of

[the] Company is a valuable business asset belonging to the Company and [Holmes]

will not, during the term of this Agreement or any time hereafter, directly or indirectly,

copy, disseminate, or make use of such information for any purpose unrelated to

Company’s business, and will keep the same in the strictest of confidence.” Paragraph

3 further outlines examples of “confidential information,” and states that Holmes may “at

no time, in any fashion, form, or manner directly or indirectly use, divulge or disclose

such information to any third party without first obtaining the express written consent of

the Company.” Paragraph 3 of Holmes Agreement requires Holmes to “immediately

return to Company any and all of Company’s records, sales, materials, samples, forms,

documents, vendor materials, sales records and all other property and documents of

any nature whatsoever.” (Compl. ¶ 38.) The Holmes Agreement also states that “upon

[Holmes’] separation from employment,” Holmes may not

for any reason . . . directly or indirectly, personally or through

any other person or business, seek to cause any other

employees or independent representatives of Company to

terminate their relationships with Company and will not,

directly or indirectly, assist any other person or entity in

seeking to do so.

(Compl. ¶ 39.) Finally, Paragraph 5 of Holmes Agreement prohibits Holmes from

“[d]irectly solicit[ing] the Established Customers of the Company or of Company’s

related entities.” (Compl. ¶ 40.)

At the time of his separation from the Plaintiffs on August 23, 2022, Holmes held

the role of Director, Special Hazard & Alarm Systems. (Compl. ¶ 35.) As Director,

Special Hazard & Alarm Systems, Holmes had access to the Plaintiffs’ confidential

information and trade secrets. Furthermore, he led and oversaw the Plaintiffs’ special

fire hazard protection business. He held a significant leadership role that required him

to exercise business judgment on behalf of the Plaintiffs with respect to the special fire

hazard protection business and that placed him in a position to develop close

relationships with, and influence over, the Plaintiffs’ employees and customers. (Compl.

¶ 36.)

APS hired Lynn Mullin in August 1998. (Compl. ¶ 41.) On or about December 8,

2016, Mullin signed an “Employee Confidential Information, Non-Solicitation and

Noncompete Agreement” (the “Mullin Agreement”) with APS. (Compl. ¶ 43.) The terms

of the Mullin Agreement are virtually identical to the Holmes Agreement. (Compl. ¶¶ 44-

46.) In March 2023, Mullin submitted her voluntary resignation to Plaintiffs. Mullin’s

resignation took effect in April 2023. (Compl. ¶ 92.) At the time of her separation, Mullin

held the role of Project Sales Manager, focusing on the Plaintiffs’ special fire hazard

protection business. (Compl. ¶ 41.) In her role as Project Sales Manager, Mullin had

access to the Plaintiffs’ confidential information and trade secrets. Furthermore, Mullin’s

work for the Plaintiffs in its special fire hazard protection business division provided her

with significant access to the Plaintiffs’ customer relationships and confidential

information about those customers. This access provided Mullin with an opportunity to

develop close relationships with, and influence over, the Plaintiffs’ customers. (Compl.

¶ 42.)

APS hired Catesa Smith in November of 2005. (Compl. ¶ 47.) On or about

December 10, 2014, Smith signed an “Oklahoma Employee Confidential Information,

Non-Solicitation, and Non-Compete Agreement” (“the Smith Agreement”). (Compl. ¶

49.) The terms of the Smith Agreement are similar to the Holmes Agreement. (Compl.

¶ 50-52.) Smith worked for the Plaintiffs in the Tulsa County, Oklahoma area at the

time she signed the Smith Agreement and through the date of her voluntary resignation

from employment in August 2023. (Compl. ¶ 49.)

D. Allegations Regarding Conspiracies Between ETG Fire, Aebersold, Holmes,

and Mullin While Aebersold, Holmes, and Mullin Were Employed by

Plaintiffs.

Between August 2022 and August 2023, ETG Fire raided a large group of

employees working for Plaintiffs, including in Plaintiffs’ special fire hazard protection

business division. (Compl. ¶ 53.) In addition to raiding Plaintiffs’ employee base, ETG

Fire engaged in efforts to obtain and use Plaintiffs’ confidential information and trade

secrets so that ETG could divert customer projects and relationships from Plaintiffs to

ETG Fire. (Compl. ¶ 54.)

At the time of ETG Fire’s sale to Erdoni during January 2022, Marmic employed

Aebersold, Holmes, Mullin, Smith, Joshua Westphal (“Westphal”), Joseph Smothermon

(“Smothermon”), and other employees, in or near Tulsa, Oklahoma. In the course of

their employment for Plaintiffs, Aebersold and Mullin prepared bids for the Plaintiffs to

submit to customers, using Plaintiffs’ proprietary cost sheets and other trade secrets

and confidential information, including Plaintiffs’ relationship with the customer and the

customer’s preferences, pricing strategies, supplier and vendor information and costs,

and product specifications, designs, and techniques. (Compl. ¶ 64.) The bids

constitute confidential and competitively valuable information that rises to the level of

trade secret. (Compl. ¶ 64.)

Prior to the conclusion of Holmes’ employment with the Plaintiffs in August 2022,

he began performing services for ETG Fire, including carrying out efforts to divert

Plaintiffs’ customers to ETG Fire. (Compl. ¶ 57.) Holmes also emailed Plaintiffs’

documents, including a third-party consulting report titled “Handbook,” from his APS

FireCo email to his personal email. (Compl. ¶ 79.) Holmes began officially working for

ETG Fire as its Chief Operations Officer shortly after his separation from the Plaintiffs.

(Compl. ¶¶ 57, 79.)

Prior to the date on which Holmes’ voluntarily ended his employment with

Plaintiffs, Vanderstokker, Troy Kinder (ETG Fire’s Chief Information Officer) (“Kinder”),

Holmes, Aebersold, Mullin, and employees of ETG Fire worked together to pursue the

diversion of business from Plaintiffs to ETG Fire, including by preparing bids for

customer projects on behalf of ETG Fire that had solicited bids from Plaintiffs — not

from ETG Fire. Pursuant to this scheme, Mullin and Aebersold would prepare bids for

Plaintiffs’ customers on Plaintiffs’ letterhead and send them to Vanderstokker and

Kinder to be signed and submitted to customers on behalf of ETG Fire. (Compl. ¶¶ 58

and 62) Aebersold regularly communicated with Holmes and Vanderstokker, and

Aebersold discussed ETG Fire’s projects with the ETG Fire’s customers, answered

customer questions, and prepared revised bids. (Compl. ¶ 63.)

While Holmes, Aebersold, and Mullin remained employed with Plaintiffs, they

engaged in a process they called “ETG-izing” the bids (meaning, to put the Plaintiffs’

customer bids on ETG Fire letterhead). Vanderstokker and Kinder would share the

“ETG-ized” bids with Plaintiffs’ customers in an effort to divert the projects to ETG Fire,

and they and multiple other officers of ETG Fire knowingly encouraged, aided, and

abetted Holmes’, Aebersold’s, and Mullin’s diversion of Plaintiffs’ customers to ETG Fire

as well as their use of Platiniffs’ propriety and confidential information and trade secrets.

(Compl. ¶¶ 59, 60, 61, 64, 65, 67, 68-77.)

Aebersold, Mullin, Holmes, Vanderstokker, Kinder, and other employees of ETG

Fire knew that ETG Fire was not authorized by Plaintiffs to receive bids that were

prepared by Plaintiffs’ employees for Plaintiffs’ customers, and furthermore knew that

they were not authorized to use those bids in order to prepare a lower-priced bid on

behalf of ETG Fire. (Compl. ¶ 66.) Holmes, Mullin, and Aebersold took the foregoing

actions with the goal of diverting clients and business opportunities from the Plaintiffs to

ETG Fire prior to their separation from Plaintiffs, so that Holmes, Mullin, and Aebersold

(along with other of Plaintiffs’ employees that thereafter worked for ETG Fire) would

have an established pipeline of commission-generating business upon their arrival at

ETG Fire. (Compl ¶ 56.) ETG Fire’s actions were undertaken with the encouragement,

assistance, and direction of its Czarnowski, Vanderstokker, Kinder, and other high-

ranking officers and employees of ETG Fire. At the highest level of the company, ETG

Fire was fully aware and supportive of the scheme spearheaded by Czarnowski,

Vanderstokker, and other ETG Fire employees. (Compl. ¶ 55.) ETG Fire subsequently

won certain customer bids that it was competing with the Plaintiffs to win. (Compl. ¶ 61.)

E. Allegations Regarding Continuation of the Conspiracies Between ETG Fire,

Aebersold, Holmes, and Mullin After They Resigned from Their Positions

With Plaintiffs.

After Holmes resigned from his position with the Plaintiffs in August 2022, he

began working for ETG Fire. (Compl. ¶ 78.) Thereafter, ETG Fire and Holmes

continued to conspire and work with Mullin and Aebersold, who were both still

employees of Plaintiffs, to divert customers and business opportunities from Plaintiffs to

ETG Fire and to misappropriate trade secrets including proprietary design drawings;

project files for Plaintiffs’ customer projects and bids, including CAD graphics, floor

plans, cost sheets, purchase orders, warranty letters, billing requests, job proposals,

and project checklists owned by Plaintiffs; quotes Mullin had provided to Plaintiffs’

customers, detailed information about Plaintiffs’ projects, safety data sheets, plant

layouts, and correspondence with Plaintiffs’ customers. (Compl. ¶¶ 80, 81, 83, 112-

137.)

After Holmes began working for ETG Fire, he solicited Plaintiffs’ employees,

including Aebersold, Mullin, and Westphal, to work for ETG Fire. (Compl. ¶¶ 83-87.)

Holmes did so with Czarnowski’s assistance and blessing. Indeed, Czarnowski sent

Aebersold and Mullin each a laptop in February 2023, while they were still employed

with Plaintiffs, to faciliate their misappropriation and misuse of Plaintiff’s confidential and

proprietary information and trade secrets. (Compl. ¶¶ 88-94.)

ETG Fire paid both Aebersold and Mullin commissions for bids they prepared for

ETG Fire and helped win for ETG Fire while they was still employed by Plaintiffs.

(Compl. ¶¶ 96-97.) Holmes was aware that these activities violated his contractual

obligations, along with those Aebersold and Mullin owed to the Plaintiffs. (Compl. ¶ 82.)

And ETG knew that its conduct breached Aebersold’s, Mullin’s, Holmes’, and Smith’s

duties and contractual obligations owed to Plaintiffs. (Compl. ¶ 139.) ETG Fire injured

the Plaintiffs by willfully and maliciously undertaking their scheme to misappropriate

Plaintiffs’ conidential and trade secret information, and to use that information to

wrongfully solicit Plaintiffs’ customers to do businss with ETG Fire to the detriment of

Plaintiffs. (Compl. ¶ 212.) ETG Fire’s actions, through its agents, were deliberate,

intentional, and premediated, and ETG intended to inflict harm on the Plaintiffs’

business. (Compl. ¶¶ 213 and 214.)

F. Allegations Regarding Conspiracy Between ETG Fire and Smith.

While employed with Plaintiffs, Smith was privy to confidential information and/or

trade secrets, including national account pricing, related to Plaintiffs’ bid in a request for

proposal (“RFP”) for an established customer. (Compl. ¶ 99.) In December 2022,

Smith forwarded the documents related to the RFP from her APS email to her personal

email. She also emailed Holmes with an Excel spreadsheet identifying prospective

customers for ETG Fire. Over 50 of the entries on the spreadsheet are active

customers of Plaintiffs and Established Customers under the Smith Agreement.

Holmes responded to the email, attaching a revised spreadsheet and information

regarding salary, sales projections, and revenue estimates if she joined ETG Fire.

(Compl. ¶¶ 100-102.)

Smith remained employed with the Plaintiffs until she resigned from her position

on August 22, 2023. (Compl. ¶ 104.) She then became employed by ETG Fire, where

she worked to solicit at least three of the Plaintiffs’ established customers, including the

customer to whom the Plaintiffs submitted a bid in connection with the RFP. In late

2023, Smith and Czarnowski communicated regarding efforts to solicit the business of

the Plaintifs’ established customers. ETG Fire continues to utilize confidential

information and/or trade secrets taken by Smith to solicit and perform business. (Compl.

¶¶ 103-111.)

VI. The Motion to Dismiss and Response.

A. ETG Fire’s Arguments in Favor of Dismissal of the Complaint.

Like a three leaf Shamrock, ETG Fire seeks dismissal of all claims in the

Complaint on three related but independent grounds. First, ETG Fire contends that

Section 523(a) “only exempts from discharge debts against individual debtors and not

corporate debtors” in Subchapter V. (Mot. at 5.) Second, ETG Fire argues that even if

Section 523(a) applies to exempt from discharge debts of corporate debtors, the

Plaintiffs fail to state a claim under Section 523(a)(6) because Section 523(a)(6)

requires a showing tha ETG Fire acted with a culpable state of mind, and the allegations

in the Complaint show, at most, that individuals other than ETG Fire acted with the

requisite state of mind. Third, ETG Fire contends that the claims are improperly brought

in the Complaint and must be dealt with in the claims objection process (i.e., the

Plaintiffs’ POC and ETG Fire’s POC Objection) rather than in an adversary proceeding.

B. The Plaintiffs’ Arguments Against Dismissal of the Complaint.

The Plaintiffs disagree with ETG Fire’s reading of statutes which govern the

applicabilty of Section 523(a) to the debts of corporate debtors in Subchapter V, and

contend that Section 523(a) does apply to except from discharge certain debts of

corporate debtors in Subchapter V cases. The Plaintiffs also disagree with the ETG

Fire’s contention that the Plaintiffs fail in the Complaint to state a claim for relief that is

plausible on its face. The Plaintiffs assert that the Complaint adequately alleges ETG

Fire’s improper intent under Section 523(a)(6). Further, the Plaintiffs take issue with the

notion that, by filing the Complaint, they are attempting to circumvent the claims

process, noting that the issue of nondischargeability is one which must be addressed

through an adversary proceeding.

VII. Legal Analysis.

A. General Framework for Evaluation of Section 523(a) Claims.

In the Complaint, the Plaintiffs assert that ETG Fire is indebted to them as a

result of its alleged wrongful conduct. The Plaintiffs further contend that the debt arising

from ETG Fire’s misconduct is nondischargeable under 11 U.S.C. § 523(a)(6). The

Plaintiffs bear the burden of establishing nondischargeability of a particular debt under

Section 523(a) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279,

286-87 (1991) (“requiring the creditor to establish by a preponderance of the evidence

that his claim is not dischargeable reflects a fair balance between these conflicting

interests.”); Houston v. Munoz (In re Munoz), 536 B.R. 879, 884 (Bankr. D. Colo. 2015)

(requiring creditor to prove Section 523(a) claims by a preponderance of the evidence).

Additionally, exceptions to discharge under Section 523(a) “are to be narrowly

construed, and because of the fresh start objectives of bankruptcy, doubt is to be

resolved in the debtor’s favor.” Bellco 1st Fed. Credit Union v. Kaspar (In re Kaspar),

125 F.3d 1358, 1361 (10th Cir. 1997). See also Sawaged v. Sawaged (In re Sawaged),

2011 WL 880464, at *3 (Bankr. D. Colo. Mar. 15, 2011) (same).

The term “debt” is defined in Section 101(12) as “liability on a claim.” And, under

Section 101(5), a “claim” means a “right to payment, whether or not such right is

reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,

disputed, undisputed, legal, equitable, secured, or unsecured . . . .” 11 U.S.C.

§ 101(5)(A).

Section 523(a) nondischargeability claims all require a two-part analysis. First,

“the bankruptcy court must determine the validity of the debt under applicable law.”

Hatfield v. Thompson (In re Thompson), 555 B.R. 1, 8 (10th Cir. BAP 2016). See also

Lang v. Lang (In re Lang), 293 B.R. 501, 513 (10th Cir. BAP 2003). This is referred to

as the “claim on the debt” component. Thompson, 555 B.R. at 8. The claim on the debt

component is decided based upon applicable non-bankruptcy law. See Grogan, 498

U.S. at 283 (“The validity of a creditor’s claim is determined by rules of state law.”); New

Mexico Department of Workforce Solutions v. Beebe (In re Beebe), 2016 WL 4945454,

at *6 (Bankr. D.N.M. Sept. 14, 2016) (“Whether a debt exists is determined by looking to

applicable law, frequently state law. To establish the claim on the debt under

§ 523(a)(2)(A), the claimant must establish that the debtor is liable on an enforceable

obligation under applicable non-bankruptcy law, nothing more nor less.”) Second, if

there is a valid debt, “the bankruptcy court must determine the dischargeability of that

debt under Section 523.” Id. See also Lang, 293 B.R. at 513 (“bankruptcy law controls

with respect to the determination of nondischargeability”). This is referred to as the

“dischargeability” component. Thompson, 555 B.R. at 8.

So, generally, the Court’s first step in determining whether a plaintiff has stated a

claim under Section 523(a)(6) is evaluating whether the facts pled in support of each

claim for relief suffice to state a claim, based upon applicable non-bankruptcy law, for

which the defendant may be liable, or indebted to the plaintiff. The next step requires

the Court to determine whether the plaintiff has pled facts that could support a

determination that any such debt is nondischargeable, based on bankruptcy law.

In this case, ETG Fire does not contest that the Complaint stated sufficient facts

to satisfy the “claim on the debt’” component; instead, their arguments for dismissal

relate solely to the second component: dischargeability — that is, ETG Fire contends

that under the Bankruptcy Code, the debts of corporate debtors, including those in

Subchapter V, cannot be deemed nondischargeable under Section 523(a).5 ETG Fire

further contends that the Plaintiffs cannot state a claim under Section 523(a)(6) because

the acts of which the Plaintiffs complain are the acts of third parties (ETG Fire’s

management and employees), which cannot be imputed to ETG Fire. As such, ETG

Fire asserts that it cannot be found to have acted with the requisite intent necessary to

find any alleged debt nondischargeable. Finally, ETG Fire argues that Plaintiffs are

limited to the claims allowance and disallowance process and cannot pursue an

adversary proceeding to establish debt.

Given ETG Fire’s discrete dischargeability arguments in the Motion to Dismiss,

the Court assumes (without finally deciding) that ETG Fire has alleged sufficient facts to

state a claim for relief with respect to the debt component. Thus, the Court will confine

its analysis only to the issues raised by ETG on the dischargeability component.

B. Section 523(a) Is Applicable to Debts of Corporate Debtors in

Subchapter V Cases.

About six years ago, Congress made a significant addition to Chapter 11 of the

Bankruptcy Code: the Small Business Reorganization Act of 2019 (the “SBRA”).6 The

SBRA (commonly referred to as “Subchapter V”), was designed to streamline the

reorganization and rehabilitation process for small business debtors. Substantively, the

SBRA lowered the Chapter 11 bar for confirmation of a plan of reorganization by

permitting confirmation even if all classes of creditors reject the proposed plan and by

eliminating the so-called “absolute priority rule.” Procedurally, Congress simplified

some of the more cumbersome aspects of standard Chapter 11 cases by eliminating

unsecured creditors’ committees and disclosure statements. Suffice it to say that the

SBRA offers many potential advantages for qualifying Chapter 11 debtors.

5 The Court recognizes that ETG Fire disputed the amount and validity of the Plaintiffs’ POC

through the POC Objection. That issue is preserved. However, ETG Fire has not attacked the amount

and validity of ETG Fire’s alleged debt to the Plaintiffs in the Motion to Dismiss.

6 Pub L. No. 116-54, 133 Stat. 1079 (mainly codified at 11 U.S.C. §§ 1181-1195).

ETG Fire elected to proceed under Subchapter V to secure such advantages.

But, since the SBRA is still fairly new, there are some uncertainties. Both the Plaintiffs

and ETG Fire recognize that there exists a split of legal authority regarding whether the

Section 523(a) nondischargeability provisions (such as Section 523(a)(6)) apply to

corporate debtors, including limited liability companies,7 in Subchapter V cases where

the proposed reorganization is nonconsensual.

“If a debtor’s bankruptcy plan is confirmed as a consensual plan under § 1191(a),

the dischargeability of its debts is governed by § 1141(d).” Avion Funding, L.L.C. v.

GFS Indus., L.L.C. (In the Matter of GFS Indus., L.L.C.), 99 F.4th 223, 227 (5th Cir.

2024).8 The upshot is that a corporate entity successfully achieving confirmation of a

consensual reorganization plan under Section 1191(a) may discharge almost all its

debts irespective of the Section 523(a) nondischargeability provisions.9

In the Motion to Dismiss, ETG Fire stated: “it is not clear whether the [Operative]

Plan will be confirmed under Section 1191(a) or 1191(b).” (Mot. at 7.) However, later,

ETG Fire acknowledged that it is attempting to obtain confirmation of the Operative Plan

on a nonconsensual basis under Section 1191(b). (ETG Docket No. 351 at 3 (per the

“Ballot Report” submitted by ETG Fire and Midco, “Class 4 [of the Operative Plan] is not

presently an accepting class.”); ETG Docket No. 352 at 26 (arguing that “the [Operative]

7 Limited liability companies are included within the definition of “corporation” in the Bankruptcy

Code. 11 U.S.C. § 101(9)(a).

8 Section 114(d)(1) states:

Except as otherwise provided in this subsection, in the plan, or in the

order confirming the plan, the confirmation of a plan —

(A) discharges the debtor from any debt that arose before the

date of such confirmation, and any debt of a kind specified in

section 502(g), 502(h), or 502(i) of this title, whether or not —

(i) a proof of the claim based on such debt is filed or

deemed filed under section 501 of this title;

(ii) such claim is allowed under section 502 of this title;

or

(iii) the holder of such claim has accepted the plan; and

(B) terminates all rights and interests of equity security holders

and general partners provided for by the plan.

9 There is a narrow exception. Section 1141(d)(6) states:

Notwithstanding paragraph (1), the confirmation of a plan does not

discharge a debtor that is a corporation from any debt —

(A) of a kind specified in paragraph (2)(A) or (2)(B) of section

523(a) that is owed to a domestic governmental unit, or owed to

a person as the result of an action filed under subchapter III of

chapter 37 of title 31 or any similar State statute; or

(B) for a tax or customs duty with respect to which the debtor —

(i) made a fraudulent return; or

(ii) willfully attempted in any manner to evade or to

defeat such tax or such customs duty.

This exception is targeted toward debt owed to “governmental unit[s]” – not general unsecured debt.

Plan complies with Section 1191(b)”); ETG Docket No. 353 at 2 (“the Debtors request

that the Court confirm the Plan pursuant to 11 U.S.C. § 1191(b)”).) The Operative Plan

has not been confirmed.

Based on the foregoing, for purposes of the Court’s decision, the Court assumes

that ETG Fire is attempting to secure confirmation of the Operative Plan on a

nonconsensual basis under Section 1191(b). ETG Fire asserts that the Section 523(a)

nondischargeability provisions (such as Section 523(a)(6)) do not apply to corporate

debtors (such as itself), in nonconsensual Subchapter V cases. The Plaintiffs disagree.

The disagreement between ETG Fire and the Plaintiffs is mirrored in Subchapter

V caselaw. The disagreement arises mainly from differing interpretations of the

interplay between the text of Section 1192(2) and the preamble of Section 523(a).

Section 1192(2), which specifically governs discharge in the context of

nonconsensual Subchapter V reorganization, states:

If the plan of the debtor is confirmed [non-consensually]

under section 1191(b) of this title, as soon as practicable

after completion by the debtor of all payments due within the

first 3 years of the plan, or such longer period not to exceed

5 years as the court may fix, unless the court approves a

written waiver of discharge executed by the debtor after the

order for relief under this chapter, the court shall grant the

debtor a discharge of all debts provided in section

1141(d)(1)(A) of this title, and all other debts allowed under

section 503 of this title and provided for in the plan, except

any debt —

(1) on which the last payment is due after the first 3

years of the plan, or such other time not to exceed 5

years fixed by the court; or

(2) of the kind specified in section 523(a) of this title.

(emphasis added). Notably, Section 1192(2) makes no distinction between individual

and corporate debtors — it applies to both. So, to simplify, individual and corporate

Subchapter V debtors may discharge “all debts provided in Section 1141(d)(1)(A)

“except any debt . . . of the kind specified in section 523(a).”

But there is a rub: the cross-reference to Section 523(a). Section 523(a)

provides: “A discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) of

this title does not discharge an individual debtor” from a list of 20 specified categories of

debts10 (and subparts), including, under Section 523(a)(6), for “any debt . . . for willful

10 Section 523(a) current contains 20 enumerated subsections. 11 U.S.C. § 523(a)(1)-(20).

However, some caselaw states that there are 21 Section 523(a) categories. The slight discrepancy may

and malicious injury by the debtor to another entity or to the property of another entity.”

Recall that the Plaintiffs are seeking nondischargeability under Section 523(a)(6).

As ETG Fire correctly argues, most bankruptcy courts construing Sections

1192(2) and 523(a) have concluded — based mainly on the preable to Section 523(a)

as well as policy considerations — that the 20 categories (and subparts) of

nondischargeable debt under Section 523(a) apply only to individual Subchapter V

debtors. Put another way, such bankruptcy courts believe creditors simply may not

pursue nondischargeability under any of the Section 523(a) categories against

corporate Subchapter V debtors. See, e.g., Spring v. Davidson (In re Davidson), 2025

WL 511226 (Bankr. N.D. Fla. Feb. 14, 2025); Chicago & Vicinity Laborers’ Dist. Council

Pension Plan v. R&W Clark Constr., Inc. (In re R&W Clark Constr., Inc.), 656 B.R. 628

(Bankr. N.D. Ill. 2024), rev’d, 2024 WL 4789403 (N.D. Ill. Nov. 14, 2024); Nutrien Ag

Sols., Inc. v. Hall (In re Hall), 651 B.R. 62 (M.D. Fla. 2023); BenShot, LLC v. 2 Monkey

Trading, LLC (In re 2 Monkey Trading, LLC), 650 B.R. 521 (M.D. Fla. 2023) (appeal

pending); Avion Funding, LLC v. GFS Indus., LLC (In re GFS Indus., LLC), 647 B.R.

337 (Bankr. W.D. Tex. 2022), rev’d, 99 F.4th 223 (5th Cir. 2024); Jennings v. Lapeer

Aviation, Inc. (In re Lapeer Aviation, Inc.), 2022 WL 1110072 (E.D. Mich. Apr. 13, 2022);

Catt v. Rtech Fabrications, LLC (In re Rtech Fabrications, LLC), 635 B.R. 559 (Bankr.

D. Idaho 2021); Cantwell-Cleary Co., Inc. v. Cleary Packaging, LLC (In re Cleary

Packaging, LLC), 630 B.R. 466 (Bankr. D. Md. 2021), rev’d, 36 F.4th 509 (4th Cir.

2022); Gaske v. Satellite Rests., Inc. (In re Satellite Rests., Inc.), 626 B.R. 871 (Bankr.

D. Md. 2021). The Bankruptcy Appellate Panel of the Ninth Circuit agrees: Lafferty v.

Off-Spec Sols., LLC (In re Off-Spec Sols., LLC), 651 B.R. 862 (9th Cir. BAP 2023).

But, save for Off-Spec. Solutions, 651 B.R. 862, the analysis used by most

bankruptcy courts has not fared well on appeal. The only two Circuit Courts of Appeal

to have addressed the issue have decided, uniformly, as a matter of statutory

interpretation, that the discharge of both individual and corporate Subchapter V debtors

under Section 1192(2) is subject to the discharge limitations contained in the Section

523(a) categories. See Avion Funding v. GFS Indus., LLC (In re GFS Indus., LLC), 99

F.4th 223, 228 (5th Cir. 2024) (plain language of Section 1192(2) “subjects both

corporate and individual Subchapter V debtors to the categories of debt discharge

exceptions listed in Section exceptions listed in § 523(a).”); Cantwell Cleary Co., Inc. v.

Cleary Packaging, LLC (In re Cleary Packaging, LLC), 36 F.4th 509, 517 (4th Cir. 2022)

(“all Subchapter V debtors are textually subject to the discharge limitations, not just

individual Subchapter V debtors.”) (emphasis in original). And the only District Court

appellate decision on the topic concurs. Chicago & Vicinity Laborers’ Dist. Council

Pension Plan v. R&W Clark Constr., Inc. (In re R&W Clark Constr., Inc.), 2024 WL

4789403, at *7 (N.D. Ill. Nov. 14, 2024) (“Congress made a choice to change

bankruptcy proceedings for small business debtors and chose to treat individual and

corporate debtors the same. To hold that § 523(a) only applies to individuals

discharging debt under § 1192 ignores the purposeful change Congress made to the

be because some of the Section 523(a) subparts contain their own subparts. But, the exact number of

nondischargeability provisions is not particularly germane to this dispute.

statutory language.”). Two recent bankruptcy decisions also have followed along.

Christopher Class & Aluminum, Inc. v. Premier Glass Servs., LLC (In re Premier Glass

Servs., LLC), 661 B.R. 939, 943 (N.D. Ill. 2024) (“This court finds the circuit courts’

analyses persuasive.”); Ivanov v. Van’s Aircraft, Inc. (In re Van’s Aircraft, Inc.), 2024 WL

2947601, at *6 (Bankr. D. Or. Jun. 11, 2024) (holding that “[b]ecause the meaning of

Section 1192(2) is clear both in isolation and when considering the other Code sections

. . . . I am persuaded that the courts of appeals’ decisions [Cleary Packaging and GF

Industries] are correct”; implicitly rejecting Off-Spec. Solutions; and predicting that the

Ninth Circuit “would likely agree with the Fourth and Fifth Circuits”).

With due respect to the various Bankruptcy Courts who have ruled otherwise,

this Court finds the traditional statutory analysis employed by the Fourth Circuit Court of

Appeals (in Cleary Packaging, 36 F.4th 509) and the Fifth Circuit Court of Appeals (in

GF Industries, 99 F.4th 223) far more compelling and persuasive. See also Synergetic

Oil Tools, Inc. v. Revelant Holdings, LLC (In re Revelant Holdings LLC), Case No. 21-

CV-2213 (D. Colo. Mar. 28, 2023) (unpublished) (“The Court finds the Fourt Circuit’s

analysis persuasive and reverses and remands the case back to the Bankruptcy Court

to reanalyze the issue in light of In re Cleary Packaging, LLC, 36 F.4th 509, 518 (4th

Cir. 2022)).

In Cleary Packaging, the appellate court engaged in a thoughtful and thorough

analysis of Sections 523(a), 1192(2), and 1141(d), and determined that “all Subchapter

V debtors are textually subject to the discharge limitations, not just individual

Subchapter V debtors.” 36 F.4th at 517 (emphassis in original). The Cleary Packaging

panel explained its rationale:

§ 1192(2) provides for granting debtors a discharge of all

debts, subject to stated exceptions. For the purpose of

Subchapter V, the term “debtor” was defined during the

relevant time period to mean “a person engaged in

commercial or business activities” that has debt of not more

than $7.5 million. 11 U.S.C. § 1182(1) (2020) (emphasis

added). “[P]erson” is in turn defined to include both

individuals and corporations, see id. § 101(41), and

“corporation[s]” include limited liability companies, id.

§ 101(9)(A). We thus conclude that § 1192(2) provides for

the discharge of debts for both individual and corporate

debtors.

Still, even though § 1192(2) applies to both individual and

corporate debtors, the question remains whether the

exception to such discharges — based on § 1192(2)’s

reference to § 523(a) — applies to both individuals and

corporations or to only individuals. And that question arises

because the introductory language in § 523(a) limits its

discharge exceptions to individual debtors. Specifically,

§ 523(a) provides that § 1192, along with five other

discharge sections of the Bankruptcy Code, “does not

discharge an individual debtor” from a list of 21 specified

debts, including “any debt ... for willful and malicious

injury,”11 U.S.C. § 523(a)(6) (emphasis added), implying

that corporations are not subject to the discharge

exceptions.

To address the question, we begin by focusing on § 1192(2)

as the provision specifically governing discharges in a

Subchapter V proceeding and on the scope of its

incorporation of § 523(a). Section 1192(2) excepts from

discharge “any debt . . . of the kind specified in section

523(a).” 11 U.S.C. § 1192(2) (emphasis added). The

section’s use of the word “debt” is, we believe, decisive, as it

does not lend itself to encompass the “kind” of debtors

discussed in the language of § 523(a). This is confirmed yet

more clearly by the phrase modifying “debt”— i.e., “of the

kind.” Thus, the combination of the terms “debt” and “of the

kind” indicates that Congress intended to reference only the

list of non-dischargeable debts found in § 523(a) . . . . In

short, while § 523(a) does provide that discharges under

various sections, including § 1192 discharges, do not

“discharge an individual debtor from any debt” of the kind

listed, § 1192(2)’s cross-reference to § 523(a) does not refer

to any kind of debtor addressed by § 523(a) but rather to a

kind of debt listed in § 523(a). By referring to the kind of

debt listed in § 523(a), Congress used a shorthand to avoid

listing all 21 types of debts, which would indeed have

expanded the one-page section to add several additional

pages to the U.S. Code. Thus, we conclude that the debtors

covered by the discharge language of § 1192(2) — i.e., both

individual and corporate debtors — remain subject to the 21

kinds of debt listed in § 523(a).

We add — to the extent that one might find tension between

the language of § 523(a) addressing individual debtors and

the language of § 1192(2) addressing both individual and

corporate debtors — that the more specific provision should

govern over the more general. . . . Thus, while § 523(a)

references numerous discharge provisions of the Bankruptcy

Code, § 1192(2) is the more specific, addressing only

Subchapter V discharges.

Id. at 514-15 (internal citations omitted; emphasis in original). The court went on to

explain that “[t]he context of § 1192(2) within the Bankruptcy Code and the Bankruptcy

Code’s structure further supported” its conclusion that the debts of corporate debtors

may be excepted from discharge under Section 523(a). Id. at 515-17.

The Fifth Circuit Court of Appeals agreed with the Cleary Packaging court in GFS

Industries, 99 F.4th 223, ruling that the plain language of Section 1192(2) “subjects both

corporate and individual Subchapter V debtors to the categories of debt discharge

exceptions listed in Section exceptions listed in § 523(a).” Id. at 228 (citing Cleary, 36

F.4th at 515) and echoing that the Cleary court’s conclusion was bolstered by reading

Section 1192 within the larger context of the Bankruptcy Code. Id. at 230-231.

But, ETG Fire suggests that the Fourth and Fifth Circuits are wrong and, instead,

the Court should adopt the approach used by the Ninth Circuit Bankruptcy Appellate

Panel: Off-Spec Solutions, 651 B.R. 862. In Off-Spec Solutions, the appellate panel

reasoned:

Section 523(a) unambiguously applies only to individual

debtors. The reference in § 1192 to debts “of the kind

specified in section 523(a)” can reasonably be construed to

mean the list of debts, but nothing in § 1192 obviates the

express limitation in the preamble of § 523(a) or otherwise

expands its scope to corporate debtors . . . .

Moreover, as part of the Small Business Reorganization Act

of 2019 (“SBRA”), Congress amended § 523(a) to add §

1192 to the list of discharge provisions to which it applies.

Interpreting § 1192 to extract from § 523(a) only the list of

nondischargeable debts, without its limitation to individuals,

would render the amendment surplusage . . . .

If § 1192 makes the debts specified in § 523(a)

nondischargeable to all debtors, the concurrent amendment

to § 523(a) has no meaning . . . .

Off-Spec Solutions, 651 B.R. at 867 (internal citations omitted). The Off-Spec Solutions

court, concluded, therefore:

Based on the language and context of the stuates, we

believe that the better intperetation is that § 1192 reiterates

§ 523(a)’s application to debtors under subchapter V, and

§ 523(a) limits its applicability to individuals.

Id.

Again, ETG Fire urges the Court to adopt the Off-Spec Solutions approach and

thereby determine that, as a matter of law, the Plaintiffs cannot state a claim under

Section 523(a)(6) to establish that any debt that might be owed by ETG Fire to the

Plaintiffs is nondischargeable. As the GFS Industries court observed, “the issue is a

close and interesting one.” 99 F.4th at 226 n.1. However, while the Off-Spec Solutions

decision is well-written and makes some important points, the Court, having reviewed

the arguments of the parties and the case law, finds the analysis and determination of

the Cleary Packaging and GFS Industries courts to be far more compelling and

persuasive than that of the Off-Spec Solutions court.

In particular, the Court agrees with the Cleary Packaging appellate panel’s

conclusion that Section 1192(2), the more specific provision of the Bankruptcy Code

which addresses both individual and corporate debtors, should govern over the more

general preamble of Section 523(a), which does not refer to the kind of debt which is

excepted from discharge. Cleary, 36 F.4th at 515; GFS Indus., 99 F.4th at 228. As a

matter of plain language statutory inyterpretation, the Court assesses that when Section

1192(2) refers to “any debt . . . of the kind specified in section 523(a)” that phrase is

referring to the 20 categories (and subparts) of debt listed in Section 523(a) — nothing

more or less.

This Court has conducted its own exhaustive and independent statutory

interpretation of Sections 1192(2), 523(a), and 1141(d). However, the Court arrived at

the exact same place as the Fourth and Fifth Circuits. The legal analysis set forth in

Cleary Packaging, 36 F.4th 509, and in GFS Industries, 99 F.4th 223, is so clear and

compelling that, as a matter of judicial humility, the Court refrains from restating the

same thing again. Instead, the Court simply endorses those decisions. See also

Revelant Holdings, Case No. 21-CV-2213 (D. Colo. Mar. 28, 2023) (Sweeney, D.J.)

(unpublished) (“The Court finds the Fourt Circuit’s analysis persuasive and reverses and

remands the case back to the Bankruptcy Court to reanalyze the issue in light of In re

Cleary Packaging, LLC, 36 F.4th 509, 518 (4th Cir. 2022); Robert J. Lundy, Applicability

of Discharge Exceptions to Corporate Debtors in Subchapter V: A “Death Blow” to

Rescuing Small Businesses, 17 J. BUS. ENTREPRENEURSHIP & LAW 1, 29 (Fall 2023 /

Spring 2024) (“The legal analysis, rooted in rudimentary statutory analysis, supports

excluding the § 523(a) debts from discharge for corporate debtors in Subchapter V”; but

arguing as a matter of policy that Subchapter V should be amended so that Subchapter

V corporate debtors will not be subject to Section 523(a) nondischargeability actions). It

is not this Court’s place to second guess Congress and certainly not to construe the

Bankruptcy Code so as to impose policies which this Court might prefer but which

Congress did not adopt.

Accordingly, the Court rejects ETG Fire’s contention that, as a matter of law, the

Plaintiffs cannot state a claim for relief under Section 523(a)(6) against ETG Fire.

C. The Plaintiffs Adequately Alleged ETG Fire’s Intent to Cause Willful and

Malicious Injury.

In the Motion to Dismiss, ETG Fire argues, next, that the Plaintiffs have not

stated a claim for “willful and malicious injury” under Section 523(a)(6) because the

allegations stated by the Plaintiffs in the Complaint do not suffice to show willful and

malicious injury by the debtor. More specifically, ETG Fire argues, the Plaintiffs’

allegations amount to an attempt to hold ETG Fire liable based on the improper

imputation of the intent of ETG Fire’s management and employees (all co-defendants

in non-bankruptcy litigation pending in Oklahoma state court and Missouri federal

court) to ETG Fire, and on theories of secondary liability which are inapplicable in the

Section 523(a)(6) context. The Plaintiffs disagree, contending that ETG Fire’s intent

can be derived from the intent of ETG Fire’s agents, such that ETG’s agents’ intent can

be imputed to ETG Fire in a nondischargeability case.

1. General Inquiry Under Section 523(a)(6).

Section 523(a)(6) excepts from a debtor’s discharge any debt “for willful and

malicious injury by the debtor to another entity or to the property of another entity.” As

the text of the statute makes plain, nondischargeability under Section 523(a)(6)

requires both a “willful injury” and a “malicious injury.” Panalis v. Moore (In re Moore),

357 F.3d 1125, 1129 (10th Cir. 2004) (“Without proof of both [willful and malicious

injury], an objection to discharge under [Section 523(a)(6)] must fail.”) (emphasis in

original); Glencove Holdings, LLC v. Bloom (In re Bloom), 2022 WL 2679049, at *7

(10th Cir. Jul. 12, 2022) (unpublished) (“to determine nondischargeability under §

523(a)(6) we must review whether Mr. Bloom caused both a willful and malicious

injury”). Stated differently, Section 523(a)(6) “requires proof of two distinct elements —

the injury must be both ‘willful’ and ‘malicious.’ Analyzing and applying ‘willful’ and

‘malicious’ separately is the better approach.” First Am. Title Ins. Co. v. Smith (In re

Smith), 618 B.R. 901, 912 (10th Cir. BAP 2020) (emphasis in original).

According to the Supreme Court, to satisfy the willful injury part of Section

523(a)(6), a plaintiff must prove “a deliberate or intentional injury, not merely a

deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61

(1998) (emphasis in original). The focus is whether the debtor acted with the “actual

intent to cause injury.” Id. “Willful” injury is a higher standard than “‘reckless’ or

‘negligent’” injury. Id. Thus, “debts arising [merely] from recklessly or negligently

inflicted injuries do not fall within the compass of § 523(a)(6).” Id. at 64. Explaining

further, the Supreme Court observed that:

[T]he (a)(6) formulation triggers in the lawyer’s mind the

category “intentional torts,” as distinguished from negligent

or reckless torts. Intentional torts generally require the actor

to intend “the consequences of an act,” not simply “the act

itself.”

Id. at 61-62 (emphasis in original).

To establish a willful injury, a creditor may use “direct evidence that the debtor

acted with the specific intent to harm a creditor or the creditor’s property, or . . . indirect

evidence that the debtor desired to cause the injury or believed the injury was

substantially certain to occur.” Smith, 618 B.R. at 912. See also Moore, 357 F.3d at

1129 (“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.’”) (ellipses and brackets in original); Cocoma v. Nigam (In re

Nigam), 780 Fed. Appx. 559, 563 (10th Cir. 2019) (unpublished table decision)

(reaffirming Moore formulation of willful injury); Via Christi Reg’l Med. Ctr. v. Englehart

(In re Englehart), 229 F.3d 1163, at *3 (10th Cir. 2020) (unpublished) (Ҥ 523(a)(6) turns

on the state of mind of the debtor, who must have wished to cause injury or at least

believed it was substantially certain to occur”). It is a subjective standard. Smith, 618

B.R. at 912. Per appellate precedent, “indirect evidence that the debtor desired to

cause the injury or believed the injury was substantially certain to occur” satisfies the

Section 523(a)(6) “willful injury” requirement. Moore, 357 F.3d at 1129; Longley, 235

B.R. at 657; Smith, 618 B.R. at 912; Mitsubishi Motors Credit of Am., Inc. v Longley (In

re Longley), 235 B.R. 651, 657 (10th Cir. BAP 1999). The Tenth Circuit has referred to

such principle as “subjective substantial certainty” which “extends the scope of intent

well beyond the compass of evil motive, without extending it to so far as to include

consequences entirely outside the actor’s ken . . . .” Englehart, 229 F.3d 1163, at *3

(quoting RESTATEMENT (2D) OF TORTS § 8A (ALI 1965) with approval: “A has no desire to

injure C, but knows that his act is substantially certain to do so. C is injured by [A’s act].

A is subject to liability to C for an intentional tort.”).

The standard for “malicious” injury is different than “willful” injury. Something

else is required. But what? The most recent binding appellate decision on Section

523(a)(6) puts it this way:

[M]alicious injury requires “evidence of the debtor’s motives.”

In re Smith, 618 B.R. 901, 919 (B.A.P. 10th Cir. 2020)

(quotation marks omitted). To be malicious, the debtor must

have “acted with a culpable state of mind vis-à-vis the actual

injury caused the creditor.” Id. (quotation marks omitted).

The malicious injury requires that the action be “wrongful

and without just cause or excuse.” Id.

Bloom, 2022 WL 2679049, at *7. See also Smith, 618 B.R. at 919. The Tenth Circuit

also explained:

[P]ersonal animus is not a requirement for malicious injury.

Smith, 618 B.R. at 919 (describing the requirements for

malicious injury); see also Ball v. A.O. Smith Corp., 451 F.3d

66, 69 (2d Cir. 2006) (explaining malicious injury means

“wrongful and without just cause or excuse, even in the

absence of personal hatred, spite, or ill-will (quoting In re

Stelluti, 94 F.3d 84, 87 (2d Cir. 1996)).

Bloom, 2022 WL 2679049, at *7. So, malice can be shown if the injury was wrongful

and inflicted “without just cause or excuse.” Wagner, 492 B.R. at 55 (emphasis omitted);

Steward Software Co., LLC v. Kopcho (In re Kopcho), 2014 WL 3933657, at *6 (Bankr.

D. Colo. Aug. 12, 2014) (same). In assessing the presence or absence of “malicious

injury,” the totality of the circumstances must be examined. Dorr, Bentley & Pecha,

CPA’s, P.C. v. Pasek (In re Pasek), 983 F.2d 1524, 1527 (10th Cir. 1993) (stating that

“all the surrounding circumstances, including any justification or excuse offered by the

debtor, are relevant to determine whether the debtor acted with a culpable state of mind”

under Section 523(a)(6)); Smith, 618 B.R. at 919-20 (quoting Pasek’s “all the

surrounding circumstances” language; and examining “the totality of the circumstances

. . . to determine if a wrongful state of mind was present” and whether the debtor

committed malicious injury).

2. ETG Fire’s Argument.

In the Motion to Dismiss and Reply, ETG Fire focuses on intent and asserts that

the actions and intentions of third parties (i.e., the management and employees of a

company) cannot ever be imputed to any corporate debtor under Section 523(a)(6). In

particular, ETG Fire contends that because Section 523(a)(6) “specifically require[] acts

and/or intent ‘by the debtor,’ dischargeability cannot be based on imputed conduct.” In

support of this contention, ETG Fire points to the United States Supreme Court’s

decision in Bartenwerfer v. Buckley, 598 U.S. 69 (2023).

In Bartenwerfer, the Supreme Court ruled that a debt incurred on the basis of

misrepresentations made by the debtor’s husband, who was also her business partner,

in connection with the sale of a home the debtor and her husband had remodeled as a

business venture, was a “debt for money obtained by false pretenses, a false

representation, or actual fraud” within the meaning of Section 523(a)(2)(A), such that

the debt could be excepted from the debtor’s discharge. The Supreme Court held:

“Written in the passive voice, § 523(a)(2)(A) turns on how the money was obtained, not

who committed fraud to obtain it.” Id. at 670. In short, the Supreme Court ruled that

because the debt arose from a sale obtained through fraudulent representations, it was

a “debt for money . . . obtained by . . . false pretenses, a false representation, or actual

fraud,” even though the debtor herself had not made the misrepresentations, the debt

was excepted from discharge under Section 523(a)(2)(A).

ETG Fire argues that Section 523(a)(6), unlike Section 523(a)(2), requires

conduct and intent “by the debtor” to establish nondischargeability. ETG Fire further

contends that any debt it might owe to the Plaintiffs cannot, as a matter of law, be

deemed nondischargeable because the acts alleged in the Complaint are not acts of

ETG Fire, but rather of third parties (i.e., the management and employees of ETG Fire),

and that such acts may not be imputed to the Debtor. (See Reply at 13, citing In re

Sharp, 2024 WL 2819674, at *3 (Bankr. N.D. Ohio Jun 3, 2024).)

Contrary to ETG Fire’s position, the Fourth and Fifth Circuits, this court, and

several other courts, have determined that the debts of corporate debtors in Subchapter

V cases may be excepted from discharge pursuant to Section 523(a)(6) and therefore

have implicitly assumed that a corporate debtor may have the requisite intent to

establish nondischargebility of its debts. See Cleary, 36 F.4th at 509 (finding that debts

of Subchapter V corporate debtors may be determined to be nondischargeable under

Section 523(a)(6) and remanding case for further proceedings); GFS Indus., 99 F.4th at

223 (agreeing with Cleary and remanding for further proceedings); Premier Glass, 661

B.R. 939 (concluding that the language of section 1192(2) is clear and that plaintiff

seeking to except a corporate debtor’s debt from discharge under Section 523(a)(6) had

stated a claim such that a motion to dismiss should be denied pursuant to Rule 12(b));

Van’s Aircraft, 2024 WL 2947601, at *6 (declining to dismiss Section 523(a)(6) claim

against corporate Subchapter V debtor). However, no courts seem to have answered

the question of how a corporate debtor’s intent may be established under Section

523(a).

3. Actions and Intentions “of the Debtor”.

ETG Fire construes the case law holding that the conduct of others cannot be

imputed to a debtor for purposes of Section 523(a)(6) far too broadly. While the Court

agrees that the acts of one natural person may not be imputed to another natural

person for purposes of Section 523(a)(6) (a point on which ETG Fire and the Plaintiffs

agree),11 ETG Fire’s contention that a corporate debtor’s acts and intent cannot be

determined by reference to the acts of its management and employees is simply not

supported by case law. And, taken to its logical extreme, what ETG Fire is really

suggesting is the wrongheaded proposition that corporations cannot have intent at all.

Because they are not natural persons, corporate entities, such as ETG Fire, “act

only through ‘the instrumentality of their officers or other duly authorized agents.’” Secs.

Inv. Prot. Corp. v. Bernard L. Madoff Inv. Secs., LLC, 650 B.R. 24, 35 (Bankr. S.D.N.Y.

2023) (quoting John Lofts, LLC v. Meridian Cap. Grp., LLC (In re 45 John Lofts, LLC),

599 B.R. 730, 743 (Bankr. S.D.N.Y. 2019)). As such, an agent’s knowledge and acts

may properly be imputed to a corporate defendant. Id. at 35-36 (citing John Lofts, 599

B.R. at 743). See also Knox v. 1st Sec. Bank of Utah, 206 F.2d 823, 826 (10th Cir.

1953) (“It is, of course, true that a corporation can act only through its officers and

agents and that knowledge of the officers is generally imputed to the corporation.”); In re

Stat-Tech Secs. Litig., 905 F. Supp. 1416, 1422 (D. Colo. 1995) (“Generally, the acts

and knowledge of an agent are imputed to the principal. Because a corporation can act

only through its agents, the rule is that the actions of corporate officers and directors are

attributable to the corporate entity.”); Am. Int’l Grp., Inc. v. Greenburg (In re Am. Int’l

Grp. Inc., Consol. Derivative Litig.), 976 A.2d 872. 889-90 (Del. Ch. 2009) (noting that “a

corporation must act through its human agents” and stating that “the agents' actions are

the actions of the corporation itself”); Satellite Fin. Planning Grp. v. 1st Nat’l Bank of

11 ETG Fire points to Sharp, 2024 WL 2819674, and myriad other cases, to support the proposition

that the conduct of others cannot be imputed to a debtor for purposes of § 523(a)(6). Sharp does support

this contention, but only with respect to imputing the intention of one natural debtor to another natural

person. And ETG Fire is correct in concluding that the Sharp court construes Bartenwerfer to mean that

a faultless individual cannot be held liable for another’s debt absent a special relationship. However, the

debtor in Sharp was a natural person (not a corporate entity), so the issue of whether and how a

corporate entity’s conduct and intentions are to be determined was not at issue in Sharp. In fact, none of

the case law that ETG Fire cited addresses the corporate issue. This issue also generally does not arise

in a standard Chapter 11 reorganization.

Wilmington, 633 F. Supp. 386, 400 (D. Del. 1986) (“Knowledge and action of a

corporation’s agent ordinarily are imputed to the corporation when the agent acts on the

corporation’s behalf.”); Lumbermens Mut. Cas. Co. v. Thornton, 92 S.W. 3d. 259, 270

(Mo. Ct. App. 2002) (“normally, the acts of a corporation's agent are imputable to its

principal”) (citing Miller v. Ernst & Young, 938 S.W.2d 313, 315 (Mo. Ct. App. 1997));

Webb Agency, Inc. v. Com. Std. Ins. Co., 333 F. Supp. 966, 968 (E.D. Mo. 1971)

(“agent's malice is imputable to the corporation, making the latter liable for malicious,

willful, or criminal torts of its agents or employees within the scope of their employment”)

(citing State on Inf. of Taylor v. Am. Ins. Co., 200 S.W.2d 1 (Mo. 1946); State ex rel.

United Factories, Inc., v. Hostetter, 126 S.W.2d 1173 (Mo. 1939); Simmons v. Kroger

Grocery & Baking Co., 104 S.W.2d 357 (Mo. 1937); 19 Am.Jur.2d Corporations § 1428;

19 C.J.S. Corporations § 1263, and other authority). Cf. Meitav Dash Provident Funds

& Pension Ltd. v. Spirit AeroSystems Holdings, Inc., 79 F.4th 1209, 1217 (10th Cir.

2023) (determining, in securities fraud action, that scienter can be imputed to a

corporation where an official intentionally or recklessly approves a false statement to the

public).

The same reasoning applies in the bankruptcy context. For example, in

Drivetrain, LLC v. DDE Partners, LLC (In re Cyber Litigation, Inc.), 2023 WL 6938144

(Bankr. D. Del. Oct. 19, 2023), the court put it this way:

It is generally accepted that, in connection with a fraudulent

conveyance claim, “[t]he only relevant intent is that of the

debtor.” Where the debtor is an individual, this analysis is

straightforward; the individual's intent controls. Where the

debtor is a corporation or other legal entity, however, the

enquiry becomes more nuanced. Entities cannot

themselves actually form an intent. Rather, as an extension

of the general principle that entities can only act through

their officers, directors, or agents, an entity's intent is

determined by imputing the intent of its agents.

. . . .

[T]he Third Circuit explained, “. . . a corporation can speak

and act only through its agents and so must be accountable

for any acts committed by one of its agents within his actual

or apparent scope of authority and while transacting

corporate business.” Thus, in the fraudulent conveyance

context, so long as a corporation's agent had the requisite

fraudulent intent when it caused the corporation to carry out

the transaction, that intent is imputed to the corporation.

Id. at *7-8.

Based on such principles, the Court concludes that, for purposes of Section

523(a)(6), a corporate entity’s intent may be determined by imputing to the entity the

acts and intentions of the corporate entity’s management and senior employees, acting

within the scope of such agents’ employment, in the entity’s interest. If it were

otherwise, no corporation could ever be convicted of a crime requiring intent or held

liable for tortious misconduct requiring intent. Than cannot be. See Bolsa Res., Inc. v.

Martin Res., Inc., 2014 WL 4882132, at *9 (D. Colo. Aug. 28, 2014) (on default

judgment, factual allegations were sufficient to establish that corporate defendant

(Salzburg Holdings, LLC) had engaged in tortious interference with business relations, a

claim requiring intent); People v. Am. Health Care, Inc., 591 P.2d 1343 (Colo. App.

1979) (affirming conviction of corporate entity for theft, a crime requiring intent).

In this case, the Plaintiffs made numerous factual allegations (which must be

accepted as true) showing that Vanderstokker and Czarnowski, both executives and

officers of ETG Fire acting in the scope of their employment, engaged in numerous

shenanigans. For example, they allegedly knowingly encouraged, aided, abetted, and

participated in a scheme to divert the Plaintiffs’ customers to ETG Fire and to use the

Plaintiffs’ propriety and confidential information and trade secrets for the benefit of ETG

Fire to the detriment of the Plaintiffs’ business. The Plaintiffs’ factual allegations that

officers and executives of ETG Fire (as well as numerous senior employees of ETG

Fire) acted with such intention suffice to state a basis for finding that ETG Fire, through

its agents, had knowledge of the Plaintiffs’ rights and engaged in conduct violative of

such rights since they knew that such actions would cause particularized “willful and

malicious injury” to the Plaintiffs. Under the circumstances, the Court finds that the

Plaintiffs have stated a claim for relief under Section 523(a)(6).

D. The Complaint Need not Be Dismissed in Favor of the Claims Allowance

Process.

In the Motion to Dismiss, ETG Fire asserts that the Complaint should be

dismissed because ETG Fire has objected to the Plaintiffs’ claims in the ETG Case and

initiated the claims allowance and disallowance process pursuant to Fed. R. Bankr. P.

3003.

Under Fed. R. 7001(f),12 “a proceeding to determine whether a debt is

dischargeable” is an adversary proceeding governed by the rules in Part VII of the

Federal Rules of Bankruptcy Procedure, rather than Rule 3003. As explained

previously, Section 523(a) nondischargeability claims all require a two-part analysis.

First, “the bankruptcy court must determine the validity of the debt under applicable

law.” Thompson, 555 B.R. at 8. See also Lang, 293 B.R. at 513. This is referred to as

the “claim on the debt” component. Thompson, 555 B.R. at 8. The claim on the debt

component is decided based upon applicable non-bankruptcy law. See Grogan, 498

U.S. at 283. Second, if there is a valid debt, “the bankruptcy court must determine the

12 Formerly, Fed. R. Bankr. P. 7001(6).

dischargeability of that debt under Section 523.” Lang, 293 B.R. at 513. This is referred

to as the “dischargeability” component. Thompson, 555 B.R. at 8.

So, determining the amount of a debt (the “claim on the debt” component) is

central (even required) in a Section 523(a) nondischargeability action. That the debt

may be in dispute (and subject to a claims objection) is certainly not a basis for

dismissing a nondischargeability adversary proceeding.

Nothwithstanding, judicial efficiency suggests that since ETG Fire contests the

validity and amount of the Plaintiffs’ claims in this Adversary Proceeding as well as in

the claims allowance and disalloawance process (through the POC Objection), such

issues might best be joined together for trial. As the Plaintiffs note, Fed. R. Civ. P. 42(a)

(made applicable to these proceedings by Fed. R. Bankr. P. 7042 and 9014(c)) may

also allow for the consolidation of actions that involve common questions of law or fact

such that the matters may be joined for hearing or trial. In any event, ETG Fire’s

argument does not warrant dismissal of the Complaint.

Vill. Conclusion and Order.

For the foregoing reasons, the Motion to Dismiss is DENIED pursuant to Fed. R.

Civ. P. 12(b)(6), as incorporated by Fed. R. Bankr. P. 7012(b). ETG Fire shall file a

pleading responsive to the Complaint within 14 days, consistent with Fed. Bankr. P.

7012(a)(6)(A).

Dated this 17" day of March, 2025.

BY THE COURT:

Ama he Wh ware

Cs

Thomas B. McNamara/

United States Bankruptcy Judge

28