Young, In re, 94-2245

• Citation: 91 F.3d 1367
• Decision Date: 26 July 1996
• Docket Number: No. 94-2245,94-2245
• Parties: 36 Collier Bankr.Cas.2d 699, 29 Bankr.Ct.Dec. 539, 13 Colo. Bankr. Ct. Rep. 259 In re Robert J. YOUNG and Donna M. Young, Debtors. FOWLER BROTHERS, Plaintiff-Appellee, v. Robert J. YOUNG and Donna M. Young, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1367

91 F.3d 1367

36 Collier Bankr.Cas.2d 699, 29 Bankr.Ct.Dec. 539,

13 Colo. Bankr. Ct. Rep. 259

In re Robert J. YOUNG and Donna M. Young, Debtors.

FOWLER BROTHERS, Plaintiff-Appellee, v. Robert J. YOUNG and Donna M. Young, Defendants-Appellants.

No. 94-2245.

United States Court of Appeals,

Tenth Circuit.

July 26, 1996.

Craig S. Trenton, Craig Trenton & Associates, Salt Lake City, Utah, for Defendants-Appellants.

Jeffrey J. Buckels, Albuquerque, New Mexico, for Plaintiffs-Appellees.

Before HENRY, McWILLIAMS, Circuit Judges, and KERN, ¹ District Judge.

HENRY, Circuit Judge.

This is an appeal from the lower courts' holdings that a debt owed by defendant-appellant Robert J. Young to plaintiff-appellee Fowler Brothers is nondischargeable in Mr. Young's Chapter 7 bankruptcy proceeding. Fowler Brothers filed an adversary proceeding in the U.S. Bankruptcy Court in the District of New Mexico on October 26, 1992 to determine if a state court judgment that it had obtained against Mr. Young ² was dischargeable in Mr. Young's Chapter 7 bankruptcy proceeding. The bankruptcy court ruled that the portion of Mr. Young's debt that was evidenced by a promissory note, $16,892.82 plus interest, was nondischargeable. Mr. Young appealed the bankruptcy court's decision to the U.S. District Court for the District of New Mexico. The district court affirmed, granted Fowler Brothers' motion to strike Mr. Young's reply brief, and denied Mr. Young's request for oral argument. Mr. Young now appeals, claiming that the district court erred in three ways: first, he claims that it erred in affirming the bankruptcy court's finding that a portion of Mr. Young's debt was nondischargeable; second, he argues that it erred in granting Fowler Brothers' motion to strike his reply brief; and third, he claims that it erred in denying him oral argument.

We exercise jurisdiction pursuant to 28 U.S.C. § 158(d). We remand the case for the bankruptcy court to make a factual finding as to whether Mr. Young intended to deceive Fowler Brothers when he made misrepresentations to it. If he so intended, his debt to Fowler Brothers as evidenced by the promissory note would be nondischargeable under 11 U.S.C. § 523(a)(2)(A). We affirm the district court's grant of Fowler Brothers' motion to strike Mr. Young's reply brief because it was untimely under Federal Rule of Appellate Procedure 31. Finally, we affirm the district court's denial of oral argument for Mr. Young under Bankruptcy Rule 8012 because "the facts and legal arguments [were] adequately presented in the briefs and record and the decisional process would not [have been] significantly aided by oral argument." Bankr.R. 8012. We review the factual findings of the bankruptcy court for clear error and the legal findings of the bankruptcy court and of the district court de novo. Yeates v. Yeates (In re Yeates), 807 F.2d 874, 876-77 (10th Cir.1986).

I. BACKGROUND

Mr. Young, an attorney in New Mexico, represented Fowler Brothers, a construction partnership, in the 1970s and 1980s. Mr. Young also operated a real estate development business at that time. In the late 1970s, Fowler Brothers began doing construction projects for Mr. Young. Mr. Young paid for Fowler Brothers' construction work at a reduced rate, and his payments were often deferred. During this period, Mr. Young and Fowler Brothers had an unwritten financial arrangement under which monies they owed one another for construction and legal services would be credited to or deducted from one another's account. This arrangement existed for over ten years. Mr. Young never advised the partners of Fowler Brothers, Ray and Floyd Fowler, at the time this arrangement was made or at any other time that they should talk to another attorney about this arrangement. Further, Mr. Young never talked to them about conflicts that might arise between him and the Fowlers as a result of the agreement for exchanging services, nor did he advise them to speak to another attorney about such potential conflicts.

In 1981, Mr. Young executed a promissory note in favor of the Fowlers in the amount of $16,892.82, which represented the amount Mr. Young owed them for construction services over and above what they owed him for legal services as of the date of the note. Mr. Young did not suggest to the Fowlers that they consult with another lawyer concerning the note at the time of its making, or in the course of the 1980s when the statute of limitations was running on the note.

In 1989, when Ray Fowler asked Mr. Young for a document showing the amount that Mr. Young owed the Fowlers, Mr. Young would not execute such a document. ³ The Fowlers then filed suit in New Mexico state district court against Mr. Young for the amount of the promissory note and other monies due on the account, totaling over $100,000, plus interest and punitive damages. As a defense, Mr. Young asserted that the statute of limitations barred Fowler Brothers' claims. The parties settled for $105,000 and reduced the settlement to a judgment. Mr. Young subsequently declared bankruptcy, after which Ray Fowler filed a complaint against Mr. Young with the New Mexico Disciplinary Board. The Disciplinary Board "found insufficient evidence to support any allegations that Mr. Young ha[d] violated the [New Mexico] Rules of Professional Conduct." Aplt's App. at 26.

II. DISCUSSION

A. The Dischargeability of Mr. Young's Debt

Neither the bankruptcy court's order nor the district court's order specified upon which subsection of 11 U.S.C. § 523(a) those courts relied in finding Mr. Young's debt to Fowler Brothers, as evidenced by the promissory note at issue, nondischargeable. Fowler Brothers argues that two subsections, § 523(a)(2)(A) and (a)(4), prevent the discharge of this debt. See Aple's Br. at 12. We hold that the former, but not the latter, subsection may prevent Mr. Young from discharging his debt represented by his promissory note to Fowler Brothers. ⁴ However, in the absence of factual findings by the bankruptcy court required for us to determine whether § 523(a)(2)(A) is satisfied in this case, we must remand the case for further factual findings.

1. 11 U.S.C. § 523(a)(4)

, Exception to discharge for "fraud or defalcation

while acting in a fiduciary capacity"

11 U.S.C. § 523(a)(4) prevents a Chapter 7 discharge from discharging "an individual debtor from any debt ... for fraud or defalcation while acting in a fiduciary capacity." 11 U.S.C. § 523(a)(4) (emphasis added). Therefore, under § 523(a)(4), Fowler Brothers had to establish the following two elements to prevent the discharge of Mr. Young's debt: a fiduciary relationship between Fowler Brothers and Mr. Young and fraud or defalcation committed by Mr. Young in the course of that fiduciary relationship. We review de novo whether Fowler Brothers has established these elements. Because we conclude that Fowler Brothers cannot establish the first element, § 523(a)(4) does not prevent Mr. Young from discharging the debt that he owed to Fowler Brothers.

For purposes of § 523(a)(4), Mr. Young and Fowler Brothers did not have a fiduciary relationship. The existence of a fiduciary relationship under § 523(a)(4) is determined under federal law. See Carlisle Cashway, Inc. v. Johnson (In re Johnson), 691 F.2d 249, 251 & n. 2 (6th Cir.1982) (analyzing § 17(a)(4) of the Bankruptcy Act, § 523(a)(4)'s predecessor); Ball v. McDowell (In re McDowell), 162 B.R. 136, 139 (Bankr. N.D.Ohio 1993) (analyzing 11 U.S.C. § 523(a)(4)); Ducey v. Doherty (In re Ducey), 160 B.R. 465, 469 (Bankr.D.N.H.1993) (analyzing 11 U.S.C. § 523(a)(4)); Gore v. Kressner (In re Kressner), 155 B.R. 68, 73 (Bankr.S.D.N.Y.1993) (analyzing 11 U.S.C. § 523(a)(4)); Neal v. United States (In re Neal), 156 B.R. 529, 533 (N.D.Tex.1993) (analyzing 11 U.S.C. § 523(a)(4)); Purcell v. Janikowski (In re Janikowski), 60 B.R. 784, 788 (Bankr.N.D.Ill.1986) (analyzing 11 U.S.C. § 523(a)(4)). However, state law is relevant to this inquiry. In re Johnson, 691 F.2d at 251; In re McDowell, 162 B.R. at 139; In re Ducey, 160 B.R. at 469; In re Kressner, 155 B.R. at 73; Clarendon National Ins. Co. v. Barrett (In re Barrett), 156 B.R. 529, 533 (Bankr.N.D.Tex.1993); In re Janikowski, 60 B.R. at 788. Under this circuit's federal bankruptcy case law, to find that a fiduciary relationship existed under § 523(a)(4), the court must find that the money or property on which the debt at issue was based was entrusted to the debtor. See Allen v. Romero (In re Romero), 535 F.2d 618, 621 (10th Cir.1976) (interpreting "fiduciary capacity" as used in § 17(a)(4) of the Bankruptcy Act, § 523(a)(4)'s predecessor, to require a relationship "of trust or confidence, which ... arises whenever one's property is placed in the custody of another"); Van De Water v. Van De Water (In re Van De Water), 180 B.R. 283, 289-90 (Bankr.D.N.M.1995) (explaining that in cases where discharge has been denied under § 523(a)(4) for breach of fiduciary obligations, "the debtor had been entrusted with property of another and then abused that trust"). Thus, an express or technical trust must be present for a fiduciary relationship to exist under § 523(a)(4). In re Romero, 535 F.2d at 621 (interpreting § 17(a)(4) of the Bankruptcy Act to apply only to technical trusts); Evans v. Pollard (In re Evans), 161 B.R. 474, 477 (9th Cir.BAP 1993) (limiting "fiduciary capacity" as used in § 523(a)(4) to " 'express or technical trust relationships' " (citation omitted)); Kayes v. Klippel (In re Klippel), 183 B.R. 252, 259 (Bankr.D.Kan.1995) ("In this circuit, 11 U.S.C. § 523(a)(4) applies only to a fiduciary relationship arising from a technical or express trust...."); In re Van De Water, 180 B.R. at 289 (requiring a fiduciary relationship under § 523(a)(4) to "arise from an express or technical trust"); Kartchner v. Kudla (In re Kudla), 105 B.R. 985, 990 (Bankr.D.Colo.1989) ("In bankruptcy, the meaning of fiduciary is limited in application to an express or...