Parsons Condominiums, LLC v. Standley

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$221.53 costs, and interest to Plaintiffs Parsons Condominiums, LLC, Kansas Condos, LLC, and Central States Development, LLC.¹In this adversary proceeding, Plaintiffs contend the judgment debt from the 2025 state court default judgment should be excepted from discharge under 11 U.S.C. §§ 523(a)(2)(A) (the fraud exception), (a)(4) (the fraud or defalcation while in a fiduciary capacity exception), and (a)(6) (the willful and malicious injury exception).²

Plaintiffs seek summary judgment, arguing the allegations in the state court petition were deemed admitted due to Defendant's default, and the state court judgment satisfies all the elements for an exception to discharge under §§ 523(a)(2)(A), (a)(4), and (a)(6). Defendant does not dispute that the state court entered the default judgment against him, but argues the judgment is insufficient to support an exception to discharge under any of those subsections of § 523(a). The default judgment does not provide a sufficient basis for this Court to find at this stage, as a matter of law, that the debt is nondischargeable. Plaintiffs have not carried their burden to show the undisputed facts meet each of the elements required to prove the debt at issue is nondischargeable. Plaintiffs' motion for summary judgment³is therefore denied. The proceeding remains set for trial, where Plaintiffs may attempt to prove their claims as set forth in the pretrial order.

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I. Uncontroverted Material Facts

Plaintiffs' motion for summary judgment sets forth only five numbered statements of uncontroverted fact. First, as to those facts Defendant does not controvert, the parties agree Plaintiffs owned a section of housing located in Parsons, Kansas. The entity McDonald Standley Property Management Company performed property management duties, apparently for those properties. And finally, a default judgment was entered on May 28, 2025, in a Sedgwick County District Court case filed by Plaintiffs against both Defendant and "McDonald Standley Investments, LLC d/b/a McDonald Standley Property Management Company," Case No. SG-2025-CV-000274. That Journal Entry of Default Judgment entered a judgment for Plaintiffs for "$282,754.64 principal; for Plaintiffs' costs in the amount of $221.55; and for interest on the judgment at the judgment rate."⁴ Defendant controverts Plaintiffs' additional statements of uncontroverted facts because they "rely entirely on allegations in the [state court] Petition" and supporting affidavit and "were never litigated, never admitted, and never reduced to findings."⁵As Plaintiffs point out, however, the allegations made in the state court petition were deemed admitted by the defendants' failure in the state court

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suit to respond.⁶In addition, a Kansas default judgment can be given preclusive effect.⁷That said, the proper way to present the state court materials would have been with an affidavit identifying and authenticating the court records, and that was not done here.⁸

Regardless, the additional details from those state court materials—few though they are—are set out here. The state court petition, filed on February 11,

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2025, alleges the entity McDonald Standley Investments, LLC d/b/a McDonald Standley Property Management Company "was responsible for managing the property and its residents" and its "duties included collecting rent, security deposits, maintaining the property, and all other tasks typical of a property management company."⁹Plaintiffs then allege they were "unable to locate substantial funds belonging" to them and that McDonald Standley Property Management Company "refuses to produce those funds."¹⁰There are only two additional paragraphs in the state court petition: stating in pertinent part that upon "information and belief, Defendants have wrongfully appropriated those funds" and the second stating "Defendants' actions constitute conversion of Plaintiffs' property."¹¹

The affidavit, presumably attached to the state court petition because it includes a case caption from the Sedgwick County District Court case, does not provide many more details. It is executed by John Foley, the owner of each of the Plaintiffs. It states the following: Mr. Foley was "unable to locate substantial funds belonging to Plaintiffs" that "were last in the possession of Defendant McDonald Standley Property Management Company;" that McDonald Standley Property Management Company was responsible for managing the property and its residents; Mr. Foley "discovered missing rent payments of approximately $180,000;"

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and Mr. Foley "became aware of $102,754.64 of paid invoices for work that was never completed" and those funds "were made out to MKN-IT-READY," a "repair company formerly owned by the mother of Kelly Standley, one of the Defendant's principals."¹²

And finally, the default judgment itself, entered on May 28, 2025, is very brief with few conclusions, summarizing only that the petition was filed, service was proper, and the defendants failed to appear or file a responsive pleading, and then concluding: "Defendants are in default, and Plaintiffs are entitled to judgment against such Defendants in the amount of $282,754.64 principal; for Plaintiffs' costs in the amount of $221.55; and for interest on the judgment at the judgment rate hereafter."¹³No additional findings or conclusions are made.

II. Procedural History

On September 4, 2025, Defendant filed a pro se Chapter 7 petition. In his supporting Schedules, Defendant disclosed a 100% interest in three different limited liability companies: MSI PWCA LLC, McDonald Standley Foundation LLC, and MKN-IT REDY LLC.¹⁴Defendant also disclosed a claim of $52,800 for wages he alleges were owed him and never paid and a claim of $102,754.64 owed to him by

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Kansas Condos LLC, Parsons Condominium LLC, and Prairie West Condominium

LLC.¹⁵

Then in his disclosure of claims against him, Defendant disclosed a claim of $82,754.64 from a lawsuit from Central States Development LLC,¹⁶and claims of $100,000 from a lawsuit from Kansas Condos LLC¹⁷and Parsons Condominiums LLC.¹⁸In his Statement of Financial Affairs, Defendant disclosed the Sedgwick County lawsuit against him, Case No. SG-2025-CV-00274, indicating it was pending. As to Central States Development LLC, Defendant added he "[n]ever did any work" for that entity.¹⁹As to Parsons Condominiums, LLC, Defendant stated:

"My former company operated properties, putting all money back into those properties by direction of the owner. Owner now wanting to get money from me he knows went into his property [sic throughout]."²⁰And finally, as to Kansas Condos LLC, Defendant stated: "Owner told me to put his profit into the condos to fix them up for renting, now he wants that money back."²¹

On December 2, 2025, Plaintiffs Parsons Condominiums, LLC, Kansas Condos, LLC, and Central States Development, LLC, filed a complaint, initiating their adversary proceeding against Defendant. The complaint states three claims

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asserting nondischargeability, under § 523(a)(2)(A), § 523(a)(4), and § 523(a)(6). Plaintiffs have now filed the motion for summary judgment currently under consideration, and Defendant responded. A pretrial order has been entered, and the proceeding is set for trial pending the decision on this motion. On March 6, 2026, Defendant received a discharge in his Chapter 7 case.

III. Summary Judgment Standards

Summary judgment is appropriate where the movant shows there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law.²²In ruling on a motion for summary judgment, the court must draw all reasonable inferences from the record in favor of the non-moving party.²³Summary judgment is not a "disfavored procedural shortcut;" rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."²⁴

When assessing a motion for summary judgment, the movant bears the burden to demonstrate there is no genuine dispute as to material facts,²⁵and also

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has the burden to prove entitlement to judgment as a matter of law.²⁶The non- moving party can avoid summary judgment if it identifies specific evidence that demonstrates there is a genuine dispute of material fact for trial, or if the undisputed facts do not establish a sufficient legal basis to grant the movant judgment as a matter of law.²⁷ If a party that bears the burden of persuasion at trial does not come forward with sufficient evidence on an essential element of its prima facie case, all issues concerning all other elements of the claim and any defenses become immaterial.²⁸

The rules and procedure for summary judgment motions, as relevant here, are set forth in Fed. R. Civ. P. 56(c) and D. Kan. LBR 7056.1. Each statement of fact must be supported by citation to materials in the record and be "presented by affidavit, declaration under penalty of perjury, and/or through the use of relevant portions of pleadings, depositions, answers to interrogatories and responses to requests for admissions."²⁹To controvert a fact, the respondent must also "refer

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with particularity to those portions of the record on which the opposing party relies."³⁰

Defendant's pro se status does not relieve him of the responsibility to follow these procedural requirements.³¹Because Defendant is pro se, Plaintiffs were required to serve and file a "Noice to Pro Se Litigant Who Opposes a Motion for Summary Judgment" together with their motion for summary judgment.³²Plaintiffs failed to file this Notice, but again, because Plaintiffs' motion states an insufficient basis for a nondischargeability finding as a matter of law in other ways, the procedural deficiency is immaterial.

IV. Analysis A. Jurisdiction, Venue, and Burden of Proof

The Court has jurisdiction over this nondischargeability adversary proceeding as a core proceeding arising under title 11,³³and venue is proper.³⁴

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Exceptions to discharge are to be narrowly construed, with doubt being resolved in the debtor's favor.³⁵The creditor seeking to except a debt from discharge bears the burden of proving each element of its claim by a preponderance of the evidence.³⁶

B. Nondischargeability in General

Plaintiffs argue the state court default judgment meets the elements of false pretenses and fraud under § 523(a)(2)(A), fraud or defalcation while acting in a fiduciary capacity under § 523(a)(4), and willful and malicious injury under § 523(a)(6).

1. False Pretenses and Fraud Under § 523(a)(2)(A), a debtor cannot discharge debt "(2) for money . . . to the extent obtained by — (A) false pretenses, a false representation, or actual fraud." A plaintiff creditor can sustain a claim under this subsection by proving any one of these three categories: false pretenses, a false representation, or actual fraud. While the specific requirements of each may differ, a shared requirement of all three is the debtor's intent to defraud a creditor.³⁷

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Plaintiffs' claim under § 523(a)(2)(A) is based on false pretenses or actual fraud. False pretenses are implied misrepresentations intended to create and foster a false impression, and this may include conduct and material omissions, as opposed to express misrepresentations.³⁸Courts have defined false pretenses as

"any series of events, when considered collectively, that create a contrived and misleading understanding of a transaction, in which a creditor is wrongfully induced to extend money or property to the debtor."³⁹

Plaintiffs also allege their claim satisfies the actual fraud standard of subsection (a)(2)(A).⁴⁰Actual fraud occurs "when a debtor intentionally engages in a scheme to deprive or cheat another of property or a legal right."⁴¹It is different from

"implied" fraud, or fraud "in law," which describe acts of deception that "may exist without the imputation of bad faith or immorality."⁴²Anything that counts as

"fraud" and is done with fraudulent intent is "actual fraud."⁴³ Plaintiffs have not carried their burden to show either false pretenses or actual fraud under § 523(a)(2)(A). Even if the Court adopts in total Plaintiffs' statement of uncontroverted facts, there are simply no facts alleged which would show Defendant individually engaged in false pretenses or actual fraud. There is

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nothing to show Defendant's intent to deceive Plaintiffs: the petition itself alleges only that the property management company was responsible for collecting rent and managing the properties at issue, that Plaintiffs could not locate their funds, and that the property management company refused to produce the funds. The petition then states that Plaintiffs believed both Defendant and the property management company "wrongfully appropriated" the money at issue, and that Defendant and the property management company committed a "conversion" of Plaintiffs' property. The affidavit adds that the money was last in the possession of the property management company and that some of the money was for missing rent and some was for invoices paid for work never completed by a different entity, a company formerly owned by Defendant's mother. And all the default judgment does is award judgment; it makes no factual findings other than regarding service of process and Defendant's failure to appear or respond.

Plaintiffs argue these things show "concealment and deception regarding the handling and disposition of collected rents and deposits" and that Defendant "has admitted to obtaining and misappropriating" the funds.⁴⁴But a "wrongful appropriation"—as plead in the state court petition—is not the same thing as false pretenses or actual fraud. At most, the state court complaint pleads a claim for conversion. In Kansas, "[c]onversion is the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another to the

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exclusion of the other's rights."⁴⁵Although a claim for conversion is an intentional tort,⁴⁶as the Kansas Supreme Court has stated, "[t]he intent required is simply to use or dispose of the goods."⁴⁷

A claim for conversion is not the same thing as a claim for fraud. Even if the state court petition had plead a claim for fraud, to contrast, in Kansas a claim for fraud requires a showing of: "[1] an untrue statement of fact, [2] known to be untrue by the party making it, [3] made with the intent to deceive or with reckless disregard for the truth, [4] upon which another party justifiably relies and [5] acts to his or her detriment."⁴⁸Importantly, a claim for fraud in Kansas can be proven without proof of intent to deceive or defraud—it can be proven by the lesser

"reckless disregard for the truth."

Further, the state court documents are unclear about Defendant's individual actions and intent, or even his connection to the property management company at

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issue. The state court petition concerns "McDonald Standley Investments, LLC d/b/a McDonald Standley Property Management Company." In Defendant's supporting Schedules to his bankruptcy petition, Defendant disclosed a 100% interest in three different limited liability companies: MSI PWCA LLC, McDonald Standley Foundation LLC, and MKN-IT REDY LLC. Although presumably Defendant is related in some way to the entity in the state court petition, his connection to the property management company is neither alleged, nor established.

And finally, even if Plaintiffs' § 523(a)(2)(A) claim did not fail based on the failure to show Defendant's intent to deceive, a claim under § 523(a)(2)(A) also requires a showing of justifiable reliance.⁴⁹Justifiable reliance is a subjective standard that focuses on "the qualities and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than [applying] a community standard of conduct to all cases."⁵⁰Again, there is no basis from which

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the Court could conclude Plaintiffs had carried their burden of proof on this element.⁵¹Plaintiffs do not address this factor at all. There is no basis upon which the Court could find the elements of a § 523(a)(2)(A) claim based on the state court petition, affidavit, or default judgment. Plaintiffs have not demonstrated they are entitled to judgment as a matter of law on their claim for nondischargeability under § 523(a)(2)(A).

2. Fraud or Defalcation While Acting in a Fiduciary Capacity Under § 523(a)(4), a debtor cannot discharge debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." Under this subsection, Plaintiffs must establish both a fiduciary relationship and fraud or defalcation committed in the course of that fiduciary relationship.⁵² The existence of a fiduciary relationship is "determined under federal law,"

although "state law is relevant to this inquiry."⁵³In the Tenth Circuit, "to find that a fiduciary relationship existed under § 523(a)(4), the court must find that the money or property on which the debt at issue was based was entrusted to the debtor."⁵⁴An "express or technical trust must be present" and "[n]either a general fiduciary duty of confidence, trust, loyalty, and good faith, . . . nor an inequality

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between the parties' knowledge or bargaining power . . . is sufficient to establish a fiduciary relationship for purposes of dischargeability."⁵⁵ Here, Plaintiffs argue Defendant was "acting in a fiduciary capacity in managing the properties on behalf of Plaintiffs," "assumed trust like and fiduciary obligations to safeguard and account for the funds," and then misappropriated the funds.⁵⁶But there is no basis in the state court petition, affidavit, or default judgment for those conclusions. As discussed above, there is nothing from which the Court could find fraud. And regarding a fiduciary relationship, the petition itself alleges only that the property management company was responsible for collecting rent and managing the properties at issue, but that is insufficient to conclude an express or technical trust was established between Plaintiffs and Defendant. There are no facts alleged in the statement of uncontroverted facts from which the Court could find anything more than a general business relationship between the parties. Plaintiffs have not demonstrated they are entitled to judgment as a matter of law on their claim for nondischargeability under § 523(a)(4).

3. Willful and Malicious Injury Section 523(a)(6) excepts debts for "willful and malicious injury by the debtor." This type of injury is akin to intentional torts,⁵⁷and negligent or reckless

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conduct is insufficient.⁵⁸Proof of both a willful act and a malicious injury are required to establish the claim.⁵⁹"For an injury to be 'willful,' there must be a deliberate or intentional injury, not merely 'a deliberate or intentional act that leads to injury.'"⁶⁰"For an injury to be 'malicious,' 'evidence of the debtor's motives, including any claimed justification or excuse, must be examined to determine whether the requisite 'malice' in addition to 'willfulness' is present.'"⁶¹Malicious behavior is both intentional and wrongful.⁶²

Here, Plaintiffs state, without elaboration, that Defendant's

"misappropriation of the funds was willful and malicious, injuring Plaintiffs' property rights without just cause or excuse."⁶³Plaintiffs do not attempt to show a deliberate or intentional injury by Defendant or any evidence of Defendant's motives or malice. As noted above, the only fact that could be established by the state court petition is wrongful appropriation. As a result, neither the willful nor malicious elements can be presumed from the underlying state court petition and

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default judgment. Plaintiffs have not demonstrated they are entitled to judgment as a matter of law on their claim for nondischargeability under § 523(a)(6).

V. Conclusion

The summary judgment record demonstrates Plaintiffs failed to carry their burden entitling them to judgment as a matter of law on their claim for nondischargeability under § 523(a)(2)(A), § 523(a)(4), or § 523(a)(6), even if the Court considers the underlying state court petition, affidavit, and default judgment. Plaintiffs' motion for summary judgment⁶⁴is denied.

This proceeding remains set for trial on August 25, 2026, at 1:30 p.m.

It is so ordered.

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