ST. LOUIS, Mo. (CN) - A Tennesse lodge can pursue debt-collection efforts against a Red Hat Society member and her husband, who together threw an extravagant fling for the group at the hotel and skipped town without paying the $60,000 bill, the 8th Circuit ruled.
Larry Treadwell and his wife Carole, who is alternatively identified in the opinion as "Queen of the Red Hat Society's Dixie Ladybugs Chapter," formed Memory Travel in 2003, and two years later organized the Gatlinburg Spring Fling, a social event drawing more than 300 society members to the Glenstone Lodge in Gatlinburg, Tenn.
From the perspective of the lodge, the fling, which included, "a luau with hula dancers, a sock hop with band, a fashion show, an Elvis impersonator, cloggers, and 'Jimmy Buffet style' entertainment," was initially judged a success, the opinion says.
The only issue the venue had during the weekend was the Treadwells themselves, who paid an initial deposit of $250 upon their arrival, but then dodged subsequent requests to pay the balance owed, even as the hotel provided them with room keys to distribute to the Red Hat guests as they arrived.
Based on accounts given in both civil and bankruptcy court, Carole Treadwell realized she had significantly undercharged the Redhatters for the event and that Memory Travel would be unable to pay for the fling.
Despite this, Treadwill still thought she had one out: covering the shortfall by encouraging Redhatters to prepay for future Memory Travel events. When that solution didn't come to fruition, "the Treadwells left without checking out, leaving a note or notifying anyone of their departure and without settling the bill, which exceeded $60,000," the opinion says.
The cat-and-mouse game continued for several more days, after which time Treadwell wired the lodge $15,000, and then sent a $20,000 check bearing what she ultimately admitted was a forgery of her husband's signature.
When the lodge attempted to deposit the check, it learned that she had already stopped payment on it.
Glenstone won a $153,000 judgment against the Treadwells in Tennessee state court and filed a lien on their home in Branson, Mo. With foreclosure imminent, the Treadwells filed for Chapter 7 bankruptcy.
Glenstone argued in bankruptcy court that the debt was nondischargeable, but the court disagreed, noting that "Glenstone waived the contract's prepayment provisions and opined Glenstone 'had many opportunities to protect itself, but for whatever reason, it did not.'"
A bankruptcy appeals court later reinstated Carole Treadwell's debt, but affirmed the discharge of debt for her husband, finding that the court could not impute Carole's fraud to Larry.
But the federal appeals panel reversed the finding as to Larry on March 9.
Writing for the three-judge panel, Chief Judge William Riley said the bankruptcy appellate court did not sufficiently delve into the facts.
Riley held that the previous panel "should have instructed the bankruptcy court to decide in the first instance whether the Treadwells were partners and, if so, whether Larry knew or should have known of Carole's fraud."
"Although the Treadwells testified Larry was not a partner in Memory Travel and did not know about Carole's fraud, a reasonable trier of fact may find the Treadwells' self-serving testimony incredible and may draw the inference the Treadwells were dissembling to hide the truth," Riley wrote.
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