Marchiando, Matter of

• Decision Date: 10 January 1994
• Docket Number: No. 92-4056,92-4056
• Citation: 13 F.3d 1111
• Parties: , 25 Bankr.Ct.Dec. 155, Bankr. L. Rep. P 75,655 In the Matter of Nancy S. MARCHIANDO, Debtor-Appellee. Appeal of STATE OF ILLINOIS, DEPARTMENT OF the LOTTERY.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1111

13 F.3d 1111

62 USLW 2437, 25 Bankr.Ct.Dec. 155, Bankr.

L. Rep. P 75,655

In the Matter of Nancy S. MARCHIANDO, Debtor-Appellee.

Appeal of STATE OF ILLINOIS, DEPARTMENT OF the LOTTERY.

No. 92-4056.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 8, 1993.

Decided Jan. 10, 1994.

Mark E. Wilson (argued), Office of the Atty. Gen., Civ. Appeals Div., Chicago, IL, for appellant.

Bradley J. Waller (argued), Johnson & Waller, Sycamore, IL, for debtor-appellee.

Before POSNER, Chief Judge, and BAUER and EASTERBROOK, Circuit Judges.

POSNER, Chief Judge.

Nancy Marchiando owned a convenience store in Sycamore, Illinois. In 1983 the state licensed her under the Illinois Lottery Law, 20 ILCS 1605 et seq., to sell lottery tickets. The law provides that the proceeds of sales of lottery tickets "shall constitute a trust fund until paid to the Department," Sec. 1605/10.3, forbids the commingling of these proceeds with other funds, and makes the violation of its provisions a felony. In 1991 Marchiando declared bankruptcy, owing the state almost $17,000 for proceeds of ticket sales that she had failed to remit to it. She admitted both the debt and her failure to segregate the receipts as required by the law; as her business declined she had used the proceeds of her ticket sales to keep it afloat a little longer. No criminal or other penalty actions have as yet been instituted against her, however. The state filed an adversary complaint in the bankruptcy proceeding, seeking a declaration that the debt was not dischargeable in bankruptcy--not because the lottery law says that such a debt is not dischargeable, though it does, Sec. 1605/10.5(e), but because the Bankruptcy Code exempts from discharge any debt arising from a "defalcation while acting in a fiduciary capacity." 11 U.S.C. Sec. 523(a)(4). The bankruptcy judge disagreed that Marchiando had been acting in a fiduciary capacity within the meaning of this provision, and declared the debt dischargeable. 138 B.R. 548 (Bankr.N.D.Ill.1992). The district court affirmed, 142 B.R. 246 (N.D.Ill.1992), and the state appeals.

At some point Marchiando received a discharge of all her other debts, but we do not know whether that was before the bankruptcy judge issued his order refusing to discharge the debt to the state's lottery department or afterward. If it was before, that order was conventionally final, for there was nothing left for the bankruptcy court to do. Even if there was something left for it to do, a request for a declaration of nondischargeability is conceived as kicking off a separate adversary proceeding within the framework of the overall bankruptcy proceeding, Bankruptcy Rule 7001(6), so that an order declaring the debt either dischargeable or not is a final, appealable order. In re Riggsby, 745 F.2d 1153, 1154 (7th Cir.1984).

There is nevertheless a question of our jurisdiction. The notice of appeal was filed more than 30 days after the entry of the final order from which the state seeks to appeal, the time normally allowed for a civil appeal other than by the federal government. Under a recent amendment to the federal appellate rules, however, a district judge can create a 14-day window for the filing of a late appeal if he finds that the party seeking to appeal did not receive notice of the judgment within 21 days of its entry, no party would be prejudiced by a late appeal, and the party asking leave to take the late appeal asked for it within 7 days after he received notice of the judgment or within 180 days after the entry of judgment, whichever came sooner. Fed.R.App.P. 4(a)(6) (added in 1991). The state filed a motion, supported by affidavit, reciting compliance with the conditions of the rule--no notice within 21 days, no prejudice, request timely. The debtor did not oppose the motion, and the district judge granted it without an opinion or statement of reasons.

The new rule does not grant a district judge carte blanche to allow untimely appeals to be filed. He must make findings that the conditions prescribed by the rule have been satisfied. This requirement is important to prevent the rule from being treated by judges and litigants as purely discretionary, transforming the 30-day period for taking an appeal into a 180-day period. The judge in this case made no findings. But the omission, while unfortunate, is not fatal. The affidavit accompanying the motion for leave to file a late appeal was uncontradicted. It establishes as a matter of fact that the preconditions to the judge's exercise of discretion were satisfied. To remand for explicit findings would be pointless, because the outcome would be foreordained: given the uncontradicted affidavit, the judge would have no choice but to find that the conditions for the exercise of his discretion had been satisfied.

When the record permits only one finding, the court of appeals can make the finding itself, without remand to the district court. Pelfresne v. Village of Williams Bay, 917 F.2d 1017, 1022 (7th Cir.1990); Avery v. Homewood City Bd. of Education, 674 F.2d 337, 341 n. 5 (5th Cir.1982); 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure Sec. 2577, pp. 699-702 (1971); cf. Levin v. Mississippi River Fuel Corp., 386 U.S. 162, 169-70, 87 S.Ct. 927, 931-32, 17 L.Ed.2d 834 (1967). We are mindful that the Supreme Court held in Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 713-14, 106 S.Ct. 1527, 1529-30, 89 L.Ed.2d 739 (1986), that an appellate court cannot make its own findings of fact; if the findings of fact made by the district court are clearly erroneous, the proper course is to remand. All that this means, however, is that if the district court has failed to do its job of finding the facts properly, the court of appeals cannot, in the interest of judicial economy, take over the district court's role and make its own findings of fact to avoid the delay that remanding the case would cause. That is different from a case such as this in which the record allows no dispute over the facts. For then by making the finding itself the court of appeals is not taking away any of the authority of the district court. It is only a finding on a disputed fact that Icicle reserves to the district court, Kungys v. United States, 485 U.S. 759, 775 n. 10, 108 S.Ct. 1537, 1548 n. 10, 99 L.Ed.2d 839 (1988) (plurality opinion); Pelfresne v. Village of Williams Bay, supra, 917 F.2d at 1022, and there are no disputed facts here.

Parties cannot confer jurisdiction by consent, so Marchiando's failure to contest the state's affidavit would not have prevented the district judge from holding a hearing to determine the truth of the facts attested to in it. But the judge was not required, in the absence of any suspicious circumstances, to hold a hearing. The danger of collusive conferral of appellate jurisdiction is slight; for why should the party that won below give his opponent a shot at reversal? The state's affidavit was of course sworn, and contains no implausibilities such as would or should alert a judge to the likelihood that the affidavit was perjured or otherwise false or inaccurate.

The findings required by the statute are a prerequisite to the exercise of the district court's discretion to permit a late appeal, not a substitute for that exercise. But we know that the district court wanted to exercise its discretion in favor of the appellant. The only question is whether he had the power, which depended on the satisfaction of the statutory prerequisites. But it is uncontested that they were satisfied. We may turn then to the merits.

Bankruptcy is both a creditor's remedy and a debtor's right. The discharge of the bankrupt's debts is an essential feature of the second function; it is what enables the bankrupt to get a "fresh start." It is also, depending on the bankrupt's future income prospects, a potentially great harm to creditors. When the bankrupt is a trustee and the creditor a beneficiary of the trust, the balance has been deemed to incline against discharge. Nondischarge becomes another token of the law's imposition of the highest standard of loyalty and care on trustees. In a trust relationship the settlor and beneficiary repose "trust" in a literal sense in the trustee, and the abuse of that trust is considered a serious wrong.

The high standard of loyalty and care that the law imposes on trustees is encapsulated in the term "fiduciary duty." Once it entered the law's bank of concepts, it became available for use in situations that, while not involving trusts in a formal sense, seemed to call for the imposition of the same high standard. Restatement (Second) of Trusts Sec. 2, comment b (1959). So a lawyer is deemed the fiduciary of his client, even if he does not manage a fund entrusted to him by the client, Maksym v. Loesch, 937 F.2d 1237, 1241-42 (7th Cir.1991), and a managing partner is a fiduciary of the limited partners, corresponding to shareholders of a corporation, although again there is no trust in the conventional sense. In re Bennett, 989 F.2d 779, 790 (5th Cir.1993); see also In re Short, 818 F.2d 693 (9th Cir.1987); In re Davis, 3 F.3d 113, 116 (5th Cir.1993). Bennett, Short and Davis held that the defalcation by the fiduciaries involved in those cases was, by virtue of section 523(a)(4), nondischargeable in bankruptcy. Yet a further extension of the fiduciary concept--the use of the concept of "constructive trust" (where "constructive" bears its usual legal meaning of "no") to impose the fiduciary duty of a trustee on a person who is not a trustee--has been held not to come within the reach of section 523(a)(4). Davis v. Aetna Acceptance Co., 293 U.S. 328, 333,...