In re Spector

• Decision Date: 29 November 1991
• Docket Number: Bankruptcy No. 91-10073S,Adv. No. 91-0275S.
• Parties: In re Henry Z. SPECTOR t/a Spector Construction Company and Monica S. Spector, Debtors. James B. ROLLEY and David M. Salkowski, Plaintiffs, v. Henry Z. SPECTOR and Monica S. Spector, Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

133 B.R. 733 (1991)

In re Henry Z. SPECTOR t/a Spector Construction Company and Monica S. Spector, Debtors.

James B. ROLLEY and David M. Salkowski, Plaintiffs, v. Henry Z. SPECTOR and Monica S. Spector, Defendants.

Bankruptcy No. 91-10073S, Adv. No. 91-0275S.

United States Bankruptcy Court, E.D. Pennsylvania.

November 29, 1991.

John L. Jenkins, Philadelphia, Pa., for debtors.

Kenneth F. Carobus, Philadelphia, Pa., Trustee.

David L. Narkiewicz, Lansdale, Pa., for plaintiffs.

Frederic Baker, Philadelphia, Pa., U.S. Trustee.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION

We herein consider, at some length, whether a general partner, vis-a-vis his other partners, "acts in a fiduciary capacity" within the meaning of those terms in 11 U.S.C. § 523(a)(4) of the Bankruptcy Code under Pennsylvania law. We answer the question in the negative, although we do conclude that the debt in issue may be, in part, non-dischargeable on the grounds of embezzlement, under a different aspect of § 523(a)(4), or conversion pursuant to 11 U.S.C. § 523(a)(6).

B. PROCEDURAL SETTING: A DECISION ON A F.R.CIV.P. 41(b) MOTION

The instant proceeding came before us in the rather unusual posture of a Motion ("the Motion") of HENRY Z. SPECTOR ("the Defendant") and MONICA S. SPECTOR ("the Wife") (collectively the Defendant and the Wife are referenced as "the Debtors") for judgment in their favor on all claims asserted in this proceeding challenging their discharge and dischargeability of their indebtedness to JAMES B. ROLLEY ("Rolley") and DAVID M. SALKOWSKI ("Salkowski") (collectively Rolley and Salkowski are referenced as "the Plaintiffs") under Bankruptcy Rule 7041 and Federal Rule of Civil Procedure ("F.R.Civ.P.") 41(b). F.R.Civ.P. 41(b) provides, in pertinent part, as follows:

. . . After the plaintiff, in an action tried by the court without a jury, has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. The court as trier of the facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence. If the court renders judgment on the merits against the plaintiff, the court shall make findings as provided in Rule 52(a).

The Motion was filed, at the close of a third day of testimony, and was granted from the bench as to the Wife. The decision as to the Wife was memorialized as part of an Order of August 23, 1991, setting the dates for the parties to make post-trial submissions. In a colloquy with the parties at the close of the trial, the court expressed some concern under precisely what Bankruptcy Code sections the Plaintiffs were proceeding. In a letter of October 2, 1991, drafted after the parties' submissions on the Motion were completed, the Plaintiffs agreed to withdraw any challenge to the Defendant's discharge, pursuant to 11 U.S.C. § 727(a), and urged this court to concentrate solely upon their challenges to dischargeability based upon 11 U.S.C. §§ 523(a)(4) and 523(a)(6). These Code sections provide as follows:

§ 523. Exceptions to discharge

(a) A discharge under section 727, 1143, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

. . . . .

(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;

. . . . .

(6) for willful and malicious injury by the debtor to another entity or to the property of another entity; . . .

F.R.Civ.P. 41(b) is a useful device when, as here, the court has serious questions regarding the merit of a plaintiff's claim on any basis. See In re Fitzgerald, 73 B.R. 923, 929 (Bankr.E.D.Pa.1987); and In re Woerner, 66 B.R. 964, 971, 977 (Bankr. E.D.Pa.1986), aff'd, C.A. No. 86-7324 (E.D.Pa. April 23, 1987). Its usefulness becomes considerably less apparent, when, as here, the court concludes that at least certain claims of the plaintiff might have merit, and hence the entire proceeding cannot be dismissed under the strict standards of F.R.Civ.P. 41(b), which require a conclusion that the plaintiff "has shown no right to relief." Then, it becomes a vehicle for piecemeal litigation and delay.¹

Since we are able to narrow the issues, and restrict the Plaintiffs to a claim of no more than $20,000 against the Defendant under the embezzlement prong of § 523(a)(4) and possibly § 523(a)(6), we believe that F.R.Civ.P. 41(b) mandates that we "make findings as provided in Rule 52(a)." We also believe that this narrowing of the issues should spur a final settlement resolution of the controversy. If the parties are unable to do this on their own, we have scheduled a settlement conference before the Honorable Judith H. Wizmur of the District of New Jersey to attempt to accomplish this purpose.

The requisite Findings of Fact and Conclusions of Law contemplated by F.R.Civ.P. 52(a) follow.

C. FINDINGS OF FACT

1. The Debtors filed the underlying joint Chapter 7 bankruptcy petition on January 7, 1991. The main bankruptcy case remains open only due to the continued pendency of this proceeding. Except for a few uncontested motions by other creditors to obtain relief from the automatic stay to proceed to foreclose upon other properties of the Debtors not involved in this proceeding and of which they had little present concern, the case has been uneventful.

2. On January 18, 1991, the Clerk of the Bankruptcy Court directed a notice to the creditors which, inter alia, set a deadline of April 15, 1991, for filing objections to the discharge of the Debtors and/or filing any complaint to determine dischargeability under 11 U.S.C. § 523(c).

3. On April 15, 1991, the Plaintiffs commenced this adversary action by filing a pleading entitled "Complaint . . . objecting to Dischargeability." It is the only such proceeding instituted in connection with this case. In their Complaint, the Plaintiffs asserted objections to dischargeability of the Debtors' indebtedness to them, pursuant to 11 U.S.C. §§ 523(a)(2), (a)(4), (a)(6), and possibly to the Debtors' discharge under 11 U.S.C. § 727(a). The Plaintiffs based their claims principally upon allegations that were contained in a yet-untried action, the Complaint in which is attached as an Exhibit to this Complaint, which had been filed in the Philadelphia Court of Common Pleas ("the CCP") against the Defendant, JOHN J. KONTRA, JR. ("Kontra"), MALCOLM ANTELL ("Antell"), ANDREW KLEEMAN ("Kleeman") and his corporate entity, MICHAEL MAENER, and FRANCIS DECEMBRINO ("Decembrino").

4. The trial of this proceeding commenced briefly on July 30, 1991, when two witnesses were before the court. The bulk of the trial was conducted in the late afternoon and evening of August 21, 1991, and it was completed on August 22, 1991.

5. At the close of Plaintiffs' case, the Debtors made the Motion orally. As is indicated supra, this court granted the motion as to the Wife, and thereby dismissed her from the case. However, as to the Defendant, the parties were instructed to submit proposed findings of facts and conclusions of law relevant to the Motion by September 3, 1991 (the Defendant), and September 16, 1991 (the Plaintiffs). These deadlines were ultimately extended, by agreements of the parties, to September 9, 1991, and September 30, 1991, respectively.

6. The substance of the Complaint arose from a partnership formed on June 1, 1988, by the Plaintiffs, the Defendant, Decembrino, and Kontra, known as 2nd Street Associates ("Associates"). Associates was to purchase and develop properties located at 770 South Second Street ("the 770 Property") and at 801 South Second Street ("the 801 Property"), which are located proximately to the fashionable South Street area of Philadelphia.

7. Pursuant to Paragraph 9 of the Partnership Agreement of June 1, 1988, which formed Associates ("the Agreement"), Spector and Kontra were appointed managing partners. As managing partners, Spector and Kontra were granted the authority to execute and deliver, inter alia, the following documents on behalf of Associates:

(a) A contract with Spector Construction Company, Inc. ("Spector Co."), an entity owned by the Defendant, to rehabilitate the 770 and 801 Properties;

(b) Sales agreements to purchase the Properties;

(c) Construction loans on behalf of Associates and of the partners as individuals;

(d) Mortgage notes on behalf of Associates and of the partners as individuals pertaining to the Properties.

8. Kontra's role as managing partner involved handling zoning matters and neighborhood relations as well as overseeing general administrative and tax matters. Additionally, Kontra and his wife individually signed the loan documents, since Antell, the proposed lender, required more security for the proposed construction loans than the other partners could provide.

9. The Defendant's role as a managing partner arose from his position as general contractor who would actually make the renovations of the 770 and 801 Properties. The Defendant was responsible for providing the general carpentry, dry wall and painting, as well as for overseeing the subcontractors, who provided, inter alia, the electrical, plumbing, and HVAC work. Among his duties as general contractor, the Defendant was responsible for purchasing building materials and supplies, as well as for paying the subcontractors for their work. The Defendant had participated in this capacity in several past successful ventures, at least one of which also involved Kontra.

10. The Plaintiffs and Decembrino each made an initial capital contribution of $16,000.00, resulting in total initial capital of $48,000.00. The parties proposed to borrow the total additional sum of $850,000.00 from Antell, and expend the total sum of $898,000.00 together with any additional capital that might be necessary to...