In re Turner

• Decision Date: 04 December 1991
• Docket Number: Adv. No. 90-0257-W.,Bankruptcy No. 90-01925-W
• Parties: In re William Lee TURNER, d/b/a William Lee Turner Construction and Vickie Turner, Debtors. DISCOUNT HOME CENTER, INC., Plaintiff, v. William Lee TURNER, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Northern District of Oklahoma

134 B.R. 646 (1991)

In re William Lee TURNER, d/b/a William Lee Turner Construction and Vickie Turner, Debtors DISCOUNT HOME CENTER, INC., Plaintiff, v. William Lee TURNER, Defendant.

Bankruptcy No. 90-01925-W, Adv. No. 90-0257-W.

United States Bankruptcy Court, N.D. Oklahoma.

December 4, 1991.

Dennis J. Watson, Miami, Okl., for plaintiff.

Mary K. Holt, Tulsa, Okl., for defendant.

MEMORANDUM OPINION AND ORDER

MICKEY DAN WILSON, Bankruptcy Judge.

This adversary proceeding was submitted for decision on stipulated facts and briefs. Upon consideration thereof, the Court determines, concludes, and orders as follows.

FINDINGS OF FACT

The parties stipulate, and the Court finds, as follows:

"... That on January 15, 1990, the Defendant, William Lee Turner ("Turner"), entered into a construction contract with Randy Davis ("Davis") whereby Turner agreed to remodel a "burned-out" house for Davis and in turn receive the sum of $34,969.00.

"... That on the 5th day of February, 1990, Turner entered into an oral contract with Discount Home Center, Inc. ("Discount") whereby Discount agreed to furnish certain material to Turner to be used by Turner pursuant to the construction contract with Davis.

"... That pursuant to said contract with Discount, Turner incurred the sum of $6,604.47, plus interest accruing thereon at the rate of 21% per annum from March 31, 1990, until paid.

"... That Davis paid Turner a total of $33,600.00 pursuant to said contract.

". . . That on June 1, 1990, Discount filed a materialman's lien with the County Clerk of Ottawa County, Oklahoma, asserting a materialman's lien on the improvements constructed pursuant to said construction contract.

"... That prior to the fire which destroyed the house, the same had been occupied as a dwelling by Davis. That as of the 5th day of February, 1990, the date Discount commenced supplying material to Turner, Davis did not occupy said premises. That Davis did not return to occupy said premises as a dwelling until sometime in April of 1990.

"... That no notice to owner as set forth under the provisions of 42 O.S. § 142.1 was given to Davis by Discount," Stipulation pp. 2-3 ¶¶ 2-8.

Although the parties do not so stipulate, it is alleged in the complaint and admitted in the answer, and the Court accordingly finds, as follows:

"... That Discount initiated an action against Turner ... and Davis in the District Court of Ottawa County, Oklahoma, for judgment in personam as to Turner and to foreclose its materialmen's lien," complaint ¶ 9, answer ¶ 1.

"That on the 5th day of July, 1990, Discount obtained a Journal Entry of Judgment for the prayer sought in the District Court of Ottawa County, Oklahoma," complaint ¶ 10, answer ¶ 1.

CONCLUSIONS OF LAW

The parties stipulate, and the Court determines, that this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), 11 U.S.C. § 523(a)(4), (6).

Discount asserts that the debt of $6,604.47 plus interest, owed to Discount by Turner, is nondischargeable or excepted from discharge pursuant to 11 U.S.C. § 523(a)(4) or (6).

Discount makes no argument in furtherance of its cause under 11 U.S.C. § 523(a)(6). This cause is either abandoned or unsupported, and will not be further considered in this opinion. Discount does, however, argue in furtherance of its cause under 11 U.S.C. § 523(a)(4).

11 U.S.C. § 523(a)(4) provides that "A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny."

The statute requires, first, that there be a "debt," which in turn means liability on a claim of right to payment, 11 U.S.C. § 101(5), (12). The parties stipulate that "Turner incurred the sum of $6,604.47, plus interest ...," and appear to assume without expressly stating that such "sum" remains due and owing and is claimed by Discount. Thus there is a "debt" owed by Turner to Discount.

Discount's complaint asserted, among other things, "embezzlement," complaint p. 3 ¶ 11(c). But Discount's brief argues only "fraud or defalcation while acting in a fiduciary capacity;" and in any event the parties do not stipulate to facts necessary to support a determination of "embezzlement," in particular regarding intentional or felonious conduct, In re Wallace, 840 F.2d 762, 764-765 (10th Circ.1988); 26 AM. JUR.2D (1966) "Embezzlement" §§ 1, 19. Discount's original assertion of "embezzlement" is either abandoned or unsupported, and will not be further considered in this opinion. The Court proceeds to consider Discount's assertion of "fraud or defalcation while acting in a fiduciary capacity."

The terms "fraud or defalcation" are both qualified by the phrase "while acting in a fiduciary capacity," 3 Collier on Bankruptcy (15th ed. 1991) ¶ 523.14c p. 523-106. There is no need to consider whether debtor has committed "fraud or defalcation" unless it is first determined that debtor was "acting in a fiduciary capacity."

Discount asserts that a "fiduciary capacity" arises under 42 O.S. §§ 152, 153. Those statutes currently provide in pertinent part as follows:

§ 152. Proceeds of building or remodeling contracts, . . . as trust funds for payment of lienable claims

(1) The amount payable under any building or remodeling contract shall, upon receipt by any contractor or subcontractor, be held as trust funds for the payment of all lienable claims due and owing or to become due and owing by such contractors or subcontractors by reason of such building or remodeling contract.

. . . . .

§ 153. Payment of lienable claims

(1) The trust funds created under Section 152 of this title shall be applied to the payment of said valid lienable claims and no portion thereof shall be used for any other purpose until all lienable claims due and owing or to become due and owing shall have been paid.

(2) Any person willfully and knowingly appropriating such trust funds to a use not permitted by subsection (1) of this section, upon conviction, shall be guilty of embezzlement and shall be punished by imprisonment in the State Penitentiary for a period not to exceed five (5) years or by a fine not to exceed Ten Thousand Dollars ($10,000.00), or by both such imprisonment and fine.

. . . . .

(4) The existence of such trust funds shall not prohibit the filing or enforcement of a labor, mechanic or materialmen\'s lien against the affected real property by any lien claimant, nor shall the filing of such a lien release the holder of such funds from the obligations created under this section or Section 152 of this title.

Of course, these State statutes have no direct applicability in Federal bankruptcy matters. The issue is whether the arrangement prescribed by 42 O.S. §§ 152, 153 should be recognized as a "fiduciary capacity" within the meaning of 11 U.S.C. § 523(a)(4).

The issue must be solved by applying some legal standard; but whose law supplies the standard is not clear. The relation between non-bankruptcy law such as 42 O.S. §§ 152, 153 and bankruptcy law in 11 U.S.C. § 523(a)(4) is defined by such vague formulae as the following: "the question of fiduciary status ... is one of federal law, but state law is an important factor in determining when a trust relationship exists," In re Black, 787 F.2d 503, 506 (10th Cir.1986). Apparently both State and Federal law must be consulted, and somehow accommodated, to determine whether a given relationship is or is not a "fiduciary capacity" for purposes of 11 U.S.C. § 523(a)(4).

The Court of Appeals of this Circuit has recently summarized Oklahoma law on the subject of what makes a "fiduciary relationship," as follows:

Oklahoma courts have not given a precise definition of a fiduciary relationship, see MidAmerica Federal Sav. & Loan Ass\'n v. Shearson/American Exp., Inc., 886 F.2d 1249, 1257 (10th Cir.1989), but have held that the relationship arises whenever

there is confidence reposed on one side and resulting domination and influence on the other.... The relationship springs from an attitude of trust and confidence and is based on some form of agreement, either expressed or implied, from which it can be said the minds have been met to create a mutual obligation.

Lowrance v. Patton, 710 P.2d 108, 112 (Okla.1985) (citations omitted). See also MidAmerica Federal Sav. & Loan Ass\'n, 886 F.2d at 1257 (quoting Lowrance). Another Oklahoma court described the relationship as occurring "`when the circumstances make it certain the parties do not deal on equal terms, but on the one side there is an overmastering influence, or, on the other, weakness, dependence, or trust, justifiably reposed; in both an unfair advantage is possible.\'" In re Estate of Beal, 769 P.2d 150, 155 (Okla.1989) (quoting In re Null\'s Estate, 302 Pa. 64, 153 A. 137 (1937)).

Oklahoma courts have never applied these general principles to a manufacturer-dealer contract; however, the same courts have held that fiduciary relationships are not limited to any specific legal relationship. See In re Estate of Beal, 769 P.2d at 155 ("`equity will never bind itself to any hard and fast definition of the phrase `confidential relation\'\'") (quoting Egr v. Egr, 131 P.2d 198 (Or. 1942)); Lowrance, 710 P.2d at 111 (no "bounds to the facts and circumstances out of which a fiduciary relationship may spring"). Instead, fiduciary duties may arise anytime the facts and circumstances surrounding a relationship "would allow a reasonably prudent person to repose confidence in another person." In re Estate of Beal, 769 P.2d at 155. Therefore, ... we must conclude that Oklahoma courts would recognize a fiduciary relationship arising out of a manufacturer-dealer contract if the transaction involved the facts and circumstances indicative of the imposition of trust and confidence.

Certainly, most contracts involve a degree of the factors indicative of reposed trust and confidence. For example, all contracts ultimately involve mutual intent, and many

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