U.S. v. Fusion Connect Inc.

$2.1 Million FCC Penalty Debt Not Reached by Code §§523(a)(2)(A),1141(d)(6)(A)

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ADDITIONAL CASES In re: Fusion Connect, Inc., et al., Debtors; 19-11811 MEMORANDUM DECISION GRANTING DEFENDANTS’ MOTION TO DISMISS The Plaintiff, the United States of America (“Government”), commenced this adversary proceeding against the Debtor Defendants (collectively, “Fusion”) seeking a declaration that a non-compensatory civil penalty arising from the fraudulent practices of Fusion’s predecessor was not dischargeable under 11 U.S.C. §1141(d)(6)(A). Fusion moved to dismiss the complaint contending, in the main, that the cited discharge exception does not cover non-compensatory penalties even if they arise, as here, from a fraud perpetrated on consumers where the Government was not itself a victim of the fraud. (Memorandum of Law in Support of Defendants’ Motion to Dismiss Adversary Complaint, dated Feb. 20, 2020 (“Motion”) (ECF Doc. # 7); see also Corrected Reply Memorandum in Further Support of Defendants’ Motion to Dismiss Adversary Complaint, dated May 12, 2020 (“Reply”) (ECF Doc. # 15).) The Government opposed the motion to dismiss, (The United States of America’s Memorandum of Law in Opposition to Defendants’ Motion to Dismiss, dated Apr. 7, 2020 (“Opposition”) (ECF Doc. #9)), arguing that the discharge exception is not limited to the victims of a fraud and applies to any debt arising as the result of fraudulent conduct. For the reasons that follow, the motion to dismiss is granted. BACKGROUND The background discussion is derived from the Complaint of the United States of America to Determine Dischargeability of Debt and to Object to Discharge, dated January 17, 2020 (“Complaint”) (ECF Doc. # 1). The facts are undisputed and the motion to dismiss presents a straightforward question of law. Birch Communications, Inc. (“Birch”), Fusion’s predecessor, provided local exchange and telecommunications services. (Complaint

8, 41.) For years, Birch telemarketers misrepresented their identities and the purpose of their calls to consumers to induce them to switch to Birch’s services. (Id.

U.S. v. Fusion Connect Inc.

$2.1 Million FCC Penalty Debt Not Reached by Code §§523(a)(2)(A),1141(d)(6)(A)

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