Plaintiffs are a Company majority owned by Debtor-Defendant and the company’s principal Investor. The Company sought a determination of dischargeability based on embezzlement and willful and malicious injury; the Investor sought a determination of dischargeability based on fraud. The Court found the Investor failed to prove fraud because she could not show she reasonably relied on fraudulent representations by Debtor-Defendant when deciding to invest in the company. The Court found the Company failed to prove willful and malicious injury where the conduct at issue was not in the nature of an intentional tort but rather consisted of poor business judgment.
            The Court found the Company did prove embezzlement when Debtor-Defendant had lawful possession and control over Company funds, when the Company funds were transferred directly to Debtor-Defendant or a separate business that he controlled, and when he began paying himself and his other business substantial sums of money from the Company in contravention of the operating agreement immediately after a large infusion of funds from the Investor.
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