Summary
The United States Bankruptcy Court for the District of Colorado granted Plaintiffs’ motion for default judgment against Michael Evan Caruso. The court held that Caruso’s civil theft of funds belonging to William Caruso and Partners, LLC was nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6), and awarded $870,576.90 in trebled damages. The court deferred determination of attorney fees pending a supplemental filing and did not enter final judgment until resolving that issue.
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Practice areas
Questions Presented
- Whether default judgment should be entered after the debtor failed to answer or otherwise defend the adversary complaint.
- Whether the admitted allegations established a valid Colorado civil-theft claim based on unauthorized use and misrepresentation concerning WCP funds.
- Whether the civil-theft claim was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) for false pretenses, false representation, or actual fraud.
- Whether the civil-theft claim was excepted from discharge under 11 U.S.C. § 523(a)(4) for embezzlement.
- Whether the civil-theft claim was excepted from discharge under 11 U.S.C. § 523(a)(6) for willful and malicious injury.
- What damages and attorney fees were established on the default record, including whether WCP and Young were entitled to treble damages and claimed attorney fees.
Holdings
- Default judgment may be entered under Rule 55(b)(2) when the defendant has defaulted, but default does not automatically entitle the plaintiff to judgment; the court must determine whether the admitted facts establish a legitimate basis for relief.
- The admitted facts established that Caruso committed civil theft under Colorado law by knowingly using WCP's funds without authorization and by making false representations that the expenditures were legitimate business expenses, with the intent to permanently deprive Plaintiffs of the funds' use or benefit.
- The civil-theft debt was nondischargeable under § 523(a)(2)(A) because Caruso obtained the benefit of WCP funds through false representations made with intent to deceive, on which Plaintiffs justifiably relied and suffered damages.
- The civil-theft debt was nondischargeable under § 523(a)(4) as a debt arising from embezzlement because Caruso lawfully obtained temporary access to WCP funds but later appropriated them for unauthorized personal use with intent to permanently deprive Plaintiffs of their benefit.
- The civil-theft debt was nondischargeable under § 523(a)(6) because Caruso intentionally used WCP funds knowing he was unauthorized to do so, intended to deprive Plaintiffs of the funds, and thereby caused a wrongful and malicious injury.
- WCP established actual damages of $290,192.30 and was entitled to treble damages of $870,576.90 under Colorado's civil-theft statute, but could not recover both the actual damages and the trebled amount as separate principal damages.
- Young did not establish entitlement to attorney fees incurred in unrelated post-petition litigation or damages for alleged devaluation of his WCP interest; only attorney fees incurred in connection with the civil-theft claim remained potentially recoverable upon proper application and documentation.
Key quotations
“A party is not entitled to a default judgment as a matter of right; rather, the entry of a default judgment is entrusted to the sound judicial discretion of the court.” (Analysis § A)
“Willfulness “takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.”” (Analysis § B.3)
“Plaintiffs’ claim in the principal amount of $870,576.90, is excepted from Caruso’s discharge pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).” (Conclusion)
Factual background
Before Caruso filed bankruptcy, Caruso, his wife, and Stephen Young formed William Caruso and Partners, LLC. Young initially authorized Caruso to use the company's credit card temporarily for necessities, but Caruso continued making unauthorized personal purchases with company funds and had apparently done so as early as 2020. Plaintiffs alleged that Caruso misrepresented the purchases as legitimate business expenses, causing more than $200,000 in unauthorized charges and a total of $290,192.30 in misappropriated funds and credit-card charges. Young and the company also incurred other claimed expenses, including attorney fees, but the court found that most of Young's claimed post-petition litigation fees and alleged business devaluation damages were not recoverable on the civil-theft claim.
Procedural history
Caruso commenced a Chapter 7 bankruptcy case on February 20, 2025. Plaintiffs filed this adversary proceeding on June 20, 2025; Caruso failed to answer, and the clerk entered default. The court previously determined that default judgment as to liability was appropriate but ordered supplementation concerning damages. After reviewing the supplement, the court granted the motion, determined that $870,576.90 was nondischargeable, allowed Plaintiffs to supplement their request for attorney fees, and deferred entry of final judgment until the fee issue was resolved.
Remand instructions
No remand. Plaintiffs must file, by June 9, 2026, a supplement documenting attorney fees incurred in connection with Caruso's theft of WCP funds, including invoices, time sheets, and other supporting documentation. The court will not enter final judgment until ruling on the attorney-fee component.