Moreno v. Ashworth, Civ. A. No. 3-88-2683-H.
| Decision Date | 31 January 1989 |
| Docket Number | Civ. A. No. 3-88-2683-H. |
| Citation | 102 BR 65 |
| Parties | Samuel A. MORENO, Appellant, v. Michael ASHWORTH, Trustee for Petroleum Energy Equipment Corporation, and the Official Unsecured Creditors Committee, Appellee. |
| Court | U.S. District Court — Northern District of Texas |
Michael Cooper, Dallas, Tex., for appellant.
E.P. Keiffer, Dallas, Tex., for appellee.
Before the Court is Appellant's Brief, filed November 28, 1988 and Appellee's Response, filed December 30, 1988. The standard of review to be applied by this Court in a bankruptcy appeal is set forth in 11 U.S.C. Rule 8013. That Rule provides that a bankruptcy court's findings of fact may not be set aside unless clearly erroneous. Thus, although this Court may readily overrule a bankruptcy court's interpretation of law, it must defer with respect to findings of fact that are not clearly erroneous. Matter of Leonard, 849 F.2d 974, 976 (5th Cir.1988); In re First South Savings Association, 820 F.2d 700, 711 (5th Cir. 1987).
This is an appeal from an Order of the Bankruptcy Court entered June 1, 1988, rendering judgment against Appellant, granting non-dischargeable judgments and an Order denying discharge. Appellant's brief raises two issues on appeal:
PEEC filed a bankruptcy petition on May 16, 1983. Subsequently, on December 16, 1983, the Trustee, Michael Ashworth, was appointed by order of the United States Bankruptcy Court. PEEC's President, Samuel Moreno, filed a Chapter 7 bankruptcy proceeding in May, 1985 and later the Moreno Trustee was appointed.
On September 23, 1985, Ashworth filed, as an adversary proceeding, a complaint to determine the dischargeability of debt under § 523(a)(4) of the Bankruptcy Code in the Moreno bankruptcy. Ashworth also filed an objection to the § 727 discharge of the Debtor, Moreno. The Bankruptcy Judge consolidated the two proceedings.
On November 20, 1986, an evidentiary hearing was held on the consolidated proceedings.1 At the hearing, the Judge ruled:
"I find that there was insufficient proof of the 523 allegation of Ashworth, but that comes into play under the 727 problems that we have to solve at a later date in analyzing whether to deny the discharge of Moreno . . . This is just a preliminary finding on that 523, but I have made a final finding with regard to the contract and the ownership of the contract.2
The Judge directed counsel to file an analysis concerning Moreno's discharge. Tr. at 199-201. Counsel for Ashworth asked if he could also present argument to prompt the Court's reconsideration of its preliminary finding on the § 523 issue. Tr. at 201. The Court responded that it would consider such argument. The Judge stated:
Counsel for Ashworth filed a brief covering the § 523 issue on February 26, 1988. Appeal Record, Item 57. On March 18, 1988, the Bankruptcy Judge issued a second Show Cause Order directing Moreno to show cause why the Bankruptcy Court should not enter the Order Granting the Non-Dischargeable Judgment and the Order Denying Discharge. Those signed Orders were filed on June 1, 1988 after the Judge had an opportunity to review Moreno's Case File and Moreno's Show Case Response, filed on May 2, 1988.
The first question that faces the Court is whether the Bankruptcy Judge's Findings of Fact 37-40 in his Order Denying Discharge of Bankruptcy were clearly erroneous.3 With regard to the consulting contract, the Judge held:
Known to the Bankruptcy Judge was the fact that the Consulting Agreement did not require Appellant to put in any time to be paid his monthly payment of $4,166.67. The Consulting Agreement also gave Appellant's wife 50% of the monthly payments over five years (or up to $125,000.00) if Appellant predeceased his wife (Appellee's Brief at 4 ).
On December 9, 1983, Ashworth met with the Appellant who told Ashworth that he (Appellant) had no interest in TMG or various other business entities. Appellant states in his brief (p. 8) that he actually owned 67% of the stock in TMG, as well as stock in other companies. Tr. at 18, 123. Appellant never independently notified the Trustee of the stock sale closing or the Consulting Agreement. Neither did Appellant independently offer the stock payment to the Trustee, but paid only after a temporary restraining order trapped the funds. Tr. at 36-37.
In light of these facts, the Court finds that the Bankruptcy Judge's Findings of Fact 37-40 were not clearly erroneous and that his decision to deny the discharge of bankruptcy was the correct one.
The next question to be considered by the Court is whether Findings of Fact Numbered 37, 39, 43(c), 45-48, 50-52, 54-58, 60-63 were clearly erroneous.4 In December of 1983, it became known to Ashworth that a series of PEEC ledger or accounting entries showed that several corporations or partnerships in which Moreno owned an interest or with which he had once been affiliated had either been loaned or advanced money by PEEC. Subsequent ledger entries grouped all the amounts previously advanced under an account in the name of Moreno, individually. Later, some of these ledger entries were shown as owed by the specific corporations.
The funds advanced by PEEC to the corporations were done without notes; without security; without benefit of any interest being charged (Tr. at 48); without any direct relationship with PEEC; and without any repayment. Additionally, Appellant owned 50% of one entity and 100% of the other corporation which on the final ledger, dated April 29, 1983, were shown as owing sums to PEEC.
It is Appellee's argument that these advances to the corporations were actually loans to Moreno and that Moreno was a fiduciary, being President of PEEC. He further argues, as the Bankruptcy Judge found, that at the time the Texas Business Corporation Act art. 2.02, subd. A(6) prohibited loans to officers5 and directors, and thus Moreno was guilty of fraud or defalcation in a fiduciary capacity, rendering the debt of Moreno nondischargeable.6
To paraphrase the current popular parlance, when something looks like a duck, quacks like a duck, and smells like a duck, the fact that the Court fails to see the duck waddle does not make that something any less of a duck. In this case all the evidence presented to the Bankruptcy Judge shows that Moreno is chargeable with at least defalcation. One court defined defalcation as In re Cowley, 35 B.R. 526, 529 (Bankr.D.Kan. 1983).
Accordingly, this Court concludes that the Bankruptcy Judges Findings of Fact with respect to the dischargeability issue are not clearly erroneous and that the Judge's rulings based on those findings were appropriate. The Judgment of the Bankruptcy Court is AFFIRMED.
SO ORDERED.
1 Appellant focuses on the Bankruptcy Judge's concern over whether there was adequate proof in the record to deny Moreno's...
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