United States District Court, D. Nebraska
Smith Camp Chief United States District Judge
matter is before the Court on appeal of Willmar Electric
Services Corp. (Willmar) from the judgment issued by the
United States Bankruptcy Court for the District of
Nebraska (the “Bankruptcy Court”), in
favor of Appellee Joseph K. Dailey. BK ECF No.
For the reasons stated below, the judgment of the Bankruptcy
Court will be affirmed.
March 30, 2016, Dailey filed a petition for discharge under
Chapter 7 of the Bankruptcy Code. During the pendency of the
Chapter 7 proceedings, Willmar filed an adversary action,
asserting that Dailey's debts to Willmar were not
dischargeable because they were obtained through fraudulent
and malicious representations.
Bankruptcy Court made oral findings of fact and conclusions
of law, at BK ECF No. 106, Tr. 126:3-136:15, and held that
Wilmar failed to meet its burden to prove Dailey's debt
was not dischargeable. Willmar elected to have the appeal
heard by this Court, and filed its Brief, ECF No. 8, and the
record in support of its appeal, ECF Nos. 2, 6, 11. Dailey
did not respond to Willman's Brief because Dailey's
counsel of record, Kevin J. O'Connell, was not responsive
to his client nor to the Court. O'Connell has not moved
to withdraw, yet he has failed to respond to the Court's
Order to Show Cause, ECF No. 10, and has failed to respond to
the Court's efforts to contact him directly.
O'Connell's conduct has prolonged the Court's
review of this matter and may be the subject of future
Dailey's lack of response, the Court has thoroughly
reviewed the arguments and evidence in this case. For the
reasons discussed below, the judgment of the Bankruptcy Court
will be affirmed.
Subcontract and Lien Waivers
2014, Willmar contracted with Lincoln Public Schools (LPS) to
provide labor and materials for LPS Security & Technology
Projects in schools in Lincoln, Nebraska (the “LPS
Projects”). Tr. 9, 23-24. Willmar subcontracted cabling
for the LPS Project to SequrComm, Inc
(“SequrComm”). Tr. 20, 24-25; BK ECF No. 36.
Dailey was the CEO of SequrComm during the LPS Projects.
condition to getting any payment from Willmar, SequrComm
promised to pay its suppliers. BK ECF No. 36, ¶¶
1.9, 1.10, 3.1(d); Tr. 24. Anixter, Inc. (Anixter) was
SequrComm's largest supplier for the LPS Project,
supplying over 90 percent of the materials and supplies. Tr.
(2) 135, Tr. 33. To confirm SequrComm was paying its
suppliers and materialmen, Willmar required SequrComm to sign
waivers titled “Unconditional Waiver and Release Upon
Progress Payment” (the “Lien Waivers”). BK
ECF Nos. 37-39. Dailey admitted he signed four Lien Waivers.
Each of the Lien Waivers contained this representation:
The undersigned warrants that he either has already paid or
will use the monies he receives from this progress pyment
[sic] to promptly pay in full all of his laborers,
subcontractors, materialmen and suppliers from [sic] all
work, materials, equipment or service provided for or to the
above referenced project up to the date of this waiver.
Tr. 45, 132; BK ECF Nos. 37, 38, 39, 86. Dailey understood
this language to mean that SequrComm had either
“already paid” its suppliers, Tr. 133-134, or
would use monies received from progress payments to pay its
suppliers promptly. Tr. 133, 63-65.
applied for payment on the LPS Project twice per month. For
each request for payment, SequrComm filled out Payment
Applications on an American Institute of Architects form,
completed its own Invoices, and completed the Lien Waivers.
Tr. 23, 24, 28-32; Tr. (2) 16-18. Willmar trained SequrComm
personnel to fill out the payment documents, including the
Lien Waivers. BK ECF Nos. 53, 54, 57; Tr. 49-50. The
documents' purpose was to verify the amount of labor and
supplies provided and included in the payment application.
Tr. 28-35, 43, 83-84; BK ECF Nos. 51-55, 57, 59. Willmar
asserts that the Lien Waivers were crucial because if
SequrComm refused to fill out Lien Waivers, Willmar would
have known there was a problem with SequrComm's payment
of suppliers and Willmar could have stopped making payments
to SequrComm, or paid suppliers directly, or taken other
action. Tr. 54.
and others at SequrComm knew the Lien Waivers were given to
Willmar. Tr. 141-144; Tr. (2) 16, 52, Tr. 83. Dailey and
others at SequrComm also knew the Lien Waivers had to be
signed for SequrComm to get paid. Tr. (2) 16-17, Tr. 141;
see also BK ECF No. 59 (“I have a check for
you but I am unable to send it to you until the two attached
lien waivers have been signed and emailed back to
me.”); BK ECF Nos. 53-57, 59, 65.
SequrComm Financial Problems
spring and summer of 2014, SequrComm was in serious financial
trouble. Tr. 85, 99. Cash flow had become such a problem that
on May 30, 2014, Dailey requested that Chris Armitage,
relatively new employee at SequrComm, make a $25, 000 loan to
the company to make payroll. Tr. 76-77, 99. SequrComm also
needed additional financing to pay for the large amount of
supplies anticipated for the LPS Project. Tr. 85, 86, 159. In
May or June 2014, SequrComm sought financing from its bank,
Great Western Bank (“GWB”), but was denied due to
SequrComm's failure to make payments on existing debts.
Tr. 85, 86.
was unable to pay its bills in June 2014. Tr. 76, 85.
Creditors called and wrote on a regular basis demanding
payment. Tr. 78. Armitage testified that she told Dailey of
the vendors' demands for payment, and Dailey made
decisions about which would get paid. Tr. 78, 85, 93.
SequrComm was also attempting to deal with existing debts to
GWB that were guaranteed by SequrComm's owners and
directors. Tr. 87; Tr. (2) 15, 29. Emails from May 2014 show
that SequrComm was negotiating with GWB to use the money
SequrComm received from Willmar on the LPS Project to pay
down the loans. BK ECF No. 63; Tr. 85-86, 99. Dailey was
included on at least one of the emails. BK ECF No. 63 at 2.
this time, SequrComm owed an increasingly large debt to
Anixter. There is conflicting evidence about what and when
Dailey knew about SequrComm's debt to Anixter. Dailey
explained that he was not aware of the magnitude of the debt
because he did not handle bookkeeping or finance. Tr. 134-35.
According to other SequrComm employees, Dailey oversaw
invoicing, and had “decision-making authority over
which vendors” and accounts payable were paid. See,
e.g. Tr. (2) 19-20, 39- 41, 50- 51. Armitage testified
that she spoke to Dailey frequently about Anixter. Stephen
Boggs testified that between July 7 and 10, 2014, he called
Dailey to tell him Anixter demanded payment. Tr. 119-121,
124-125. In response, Dailey told Stephen Boggs to
“knock off questions about Anixter payments.” Tr.
126. Boggs threatened to tell Willmar that SequrComm was