September 30, 2021, District of New Hampshire – Plaintiffs M&M Electrical Supply Company, Inc. (M&M) and Consolidated Electrical Distributors, Inc. (CED) brought actual fraud, fraudulent intent, and several other claims against Defendant David R Blais, a former president of a company named, DRB Electric, Inc.
By way of background, Plaintiff M&M sold certain supplies to DRB on credit and Plaintiff CED entered into a credit agreement with DRB. Defendant personally guaranteed DRB’s obligations to M&M and CED. After a few months, DRB and later Blais filed Chapter 7 petitions. DRB continued to pay weekly salary to Blais until DRB filed for the bankruptcy petition.
The Plaintiffs urged the Court to find that Blais took DRB on a borrowing binge and ran it to an unsustainable level of debt. The Plaintiffs argued that Defendant used the borrowed funds to siphon off ever-increasing amounts from DRB for his own benefit. The Plaintiffs further accused Defendant of siphoning off funds with no intention of repaying the debts and use bankruptcy to discharge the debts and give himself a clean slate.
The Court held that the evidence did not paint the picture of intentional or reckless behavior as alleged by the Plaintiffs. Instead, it painted a picture of a small business owner attempting to manage his business through some cash flow difficulties. The Court stated that the Plaintiffs did not prove that Blais orchestrated transfers from DRB to himself (or for his benefit) with the actual intent to defraud the Plaintiffs. The Court also concluded that the Plaintiffs may have proved desperation by Blais, but they did not put on credible direct evidence of fraud. Further, the Court found that even if DRB had reduced his compensation to Defendant, it may still have failed for multiple reasons, including underperforming projects. The Court entered judgment in favor of Defendant.
In re Blais, 2021 Bankr. LEXIS 2703, 2021 WL 4483099