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

> United States Bankruptcy Court, D. Colorado · March 20, 2025

URL: https://www.frixlaw.com/law-library/cases/10827864

## Case

- **Court:** United States Bankruptcy Court, D. Colorado
- **Decided:** March 20, 2025
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10827864

## How later opinions describe it (automated extraction)

- affirming conviction of corporate entity for theft, a crime requiring intent
- noting that “a corporation must act through its human agents” and stating that “the agents’ actions are the actions of the corporation itself”

## Opinion text

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.

CORRECTED 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

 This “Corrected Memorandum Opinion and Order Denying Motion to Dismiss” is substantively
identical to the “Memorandum Opinion and Order Denying Motion to Dismiss” (Docket Nos. 10 and 11)
entered March 17, 2025. However, that document was based on a corrupted electronic file with
numerous spelling and other errors. This filing corrects such errors.
“Complaint.”)1 As the title of the Complaint suggests, the Plaintiffs seek to establish the
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

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.).

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

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.

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)..
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.
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.

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 standards.
(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 systems
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 (“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 Fire 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 Plaintiffs’ proprietary 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 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 facilitate 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 Fire 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’ confidential and trade secret information, and to use that
information to wrongfully solicit Plaintiffs’ customers to do business with ETG Fire to the
detriment of Plaintiffs. (Compl. ¶ 212.) ETG Fire’s actions, through its agents, were
deliberate, intentional, and premediated, and ETG Fire 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 Plaintiffs’ 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 that 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
applicability 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, its argument for dismissal relates
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 Fire 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

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).
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.

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 irrespective of the Section 523(a) nondischargeability provisions.9

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.
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]
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

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

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
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.
(“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
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
GFS 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
Fourth 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 (emphasis 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 statutes, we
believe that the better interpretation 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 interpretation, 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 Fourth 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.

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.
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
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. That 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 Fire 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

12 Formerly, Fed. R. Bankr. P. 7001(6).
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
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.
Notwithstanding, 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 disallowance 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 20" day of March, 2025.
BY THE COURT:

Cc :
Thomas B. McNamara/
United States Bankruptcy Judge

28

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10827864. Public record. Not legal advice.