Romero, In re
| Decision Date | 11 May 1976 |
| Docket Number | No. 75-1360,75-1360 |
| Citation | 535 F.2d 618 |
| Parties | Jose Leon ROMERO, aka Joe L. Romero, aka Buddy Romero, et al., Bankrupts. Norman ALLEN and Herbert Ashcroft, Plaintiffs-Appellees, v. Jose Leon ROMERO, aka Joe L. Romero, aka Buddy Romero, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
William S. Dixon, of Rodey, Dickason, Sloan, Akin & Robb, P. A., Albuquerque, N. M., for plaintiffs-appellees.
Charles G. Berry, of Marchiondo & Berry, P. A., Albuquerque, N. M., for defendants-appellants.
Before SETH, BARRETT and DOYLE, Circuit Judges.
Jose Leon Romero (Romero), 1 and DeLeon Construction Company, Inc., (DeLeon), appeal from an order of the District Court dismissing an appeal from a judgment of $54,708.30 entered against them by the Bankruptcy Court, which found that this judgment, in favor of Allen, is a nondischargeable debt under § 17(a)(2), (4) of the Bankruptcy Act, 11 U.S.C.A. § 35.
Romero, on behalf of DeLeon, contracted with Norman Allen and Ashcroft Realty (Allen) on October 20, 1972, for the construction of three four-plexes. Romero agreed to build the units for $39,900 each. The buildings were to be completed within 120 days of notification from Allen to begin construction. Additional terms provided that Romero was to pay "2 construction points and interest on the construction loan including but not limited to permits, insurance, etc., any additional points charged for construction delays will also be paid by Contractor", and that "In the event that Norman Allen or Ashcroft Realty has claims made against them for failure to deliver these buildings according to agreements made with purchasers Buddy Romero and DeLeon Construction will hold Norman Allen and Ashcroft Realty free and clear and will assume all legal and other costs so as to correct the situation". (R., Vol. II, at 168).
Construction began November 4, 1972. Romero and Allen agreed that funds would be advanced to Romero so that he could meet his obligations to sub-contractors, materialmen and laborers, and pursuant thereto Allen made several disbursements to Romero. About two months after the construction had begun, Allen learned that liens had been filed on the four-plexes. Allen then made inquiry of Romero in order to determine whether the laborers, materialmen and sub-contractors had been paid with the monies he advanced. Allen testified that Romero told him that advances made had been applied to meet those obligations. Allen then agreed to make further advances on Romero's assurance that the funds would be used to pay the sub-contractors, materialmen and laborers. As evidence of this understanding Allen introduced a letter which he delivered to Romero:
Additional problems developed during the construction. Romero asked Allen for an extension of time for completion. Allen granted a conditional extension of 45 days and shortly thereafter he proposed that any future advances to Romero be deposited to an escrow account to insure payment to the materialmen, sub-contractors and laborers. Romero refused to accede to the proposed escrow arrangement. Further attempts were made by Allen to gain assurance that all interested parties were being paid and that construction was timely proceeding. He demanded Romero's records of disbursements to all who had performed work or furnished materials on the project. Allen reviewed the lists of disbursement and demanded that they be documented. When Romero failed to provide such documentation, a court order was obtained requiring that he make his books available. An audit of Romero's books then revealed that there remained unpaid a substantial sum due to materialmen, laborers and sub-contractors. Shortly after the audit, Romero was discharged as contractor by Allen, and another was hired to complete the project.
Romero's testimony disclosed that he did not maintain separate bank accounts for each job, and that it was impossible for him to determine if the moneys advanced by Allen were disbursed to the materialmen, laborers, and sub-contractors on the four-plexes; that the itemized lists of disbursements were not capable of being documented; and that the sole purpose of the false itemized lists of disbursements was to gain additional advances from Allen.
Findings of Fact and Conclusions of Law were made and Judgment was entered by the Bankruptcy Court following trial in favor of Allen in amount of $54,708.30. This amount was declared to be nondischargeable in bankruptcy. Appeal was taken to the District Court, which was dismissed with prejudice. This appeal followed.
The following issues are presented: (1) whether the undischargeable judgment of $54,708.30 is supported by the evidence; (2) whether the District Court erred in denying Romero's motions for diminution of the record, hearing on the merits, to temporarily suspend the time for filing of brief, for oral argument, and in dismissing Romero's appeal with prejudice.
The Bankruptcy Court found that the actions of Romero "constitute the obtaining of money by false pretenses or false representations, fraud, misappropriation and defalcation of trust monies by one acting in a fiduciary capacity and willful and malicious conversion of the property of another". (R., Vol. I at 93). These three findings rendered Romero's debt to Allen nondischargeable under § 17(a)(2) and (4) of the Bankruptcy Act. 11 U.S.C.A., supra.
Any one of the three grounds of exception from discharge by the Bankruptcy Court render a debt nondischargeable. We deem it necessary to consider only whether the debt is nondischargeable under § 17(a)(4) of the Bankruptcy Act, supra. 2 In order to hold the debt nondischargeable under § 17(a)(4), supra, we must be convinced that the conduct of Romero constituted fraud and that the fraud was perpetrated while Romero was acting in a fiduciary capacity.
" Fiduciary capacity" as used in § 17(a)(4), supra, has been held to connote the idea of trust or confidence, which relationship arises whenever one's property is placed in the custody of another. Hamby v. St. Paul Mercury Indemnity Company, 217 F.2d 78 (4th Cir. 1954); cf. Arnold v. Employers Insurance of Wausau, 465 F.2d 354 (10th Cir. 1972); In Re Grissom, 345 F.Supp. 316 (D.Colo.1972). It is also generally recognized that the exception under § 17(a)(4) applies only to technical trusts and not those which the law implies from a contract. See Remington on Bankruptcy, § 3364 and cases cited. Further, the fiduciary relationship must be shown to exist prior to the creation of the debt in controversy. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934).
We shall proceed to determine, from the record before us, whether Romero acted in a fiduciary capacity in his dealings as a general contractor with Allen. New Mexico has enacted a comprehensive scheme for the issuance of licenses to those engaged in the construction industry. §§ 67-35-1 through 67-35-67 N.M.S.A. (1953). § 67-35-26 provides for the revocation or suspension of a license on the ground of:
G. diversion of funds or property received for prosecution or completion of a specific contract, or for a specified purpose in the prosecution or completion of any contract, obligation or purpose;
The Supreme Court of New Mexico has stated that the purpose of the Act is to provide "a comprehensive method for the licensing and control of contractors in order to protect the public from either irresponsible or incompetent contractors". Peck v. Ives, 84 N.M. 62, 499 P.2d 684 (1972). In our view, § 67-35-26, supra, clearly imposes a fiduciary duty upon contractors who have been advanced money pursuant to construction contracts.
It is undisputed that Romero was advanced $49,950 by Allen. By virtue thereof, Romero stood in a fiduciary capacity toward Allen. Romero was under a duty to assure that money advanced to him was applied in payment for materials and labor relating to the four-plexes. That Romero was acting in a fiduciary capacity imposed by law, rather than one implied by law, is evidenced by the fact that his obligation not to divert advances is imposed by statute. The fiduciary capacity in which Romero was acting accordingly existed independent of any express understanding he had with Allen governing the same obligation. Obtaining a state license by a contractor is a prerequisite to entering the construction industry in New Mexico; accordingly, the obligation and duties imposed under § 67-35-26, supra, were binding upon Romero prior to any dealings he had with Allen. We hold that the Bankruptcy Court's finding that Romero was acting in a fiduciary capacity within the meaning of § 17(a)(4), supra, is not clearly erroneous. Arnold, supra.
One issue remains involving § 17(a)(4), supra, i. e., whether the debt involved herein was created by fraud, embezzlement, misappropriation or defalcation on the part of Romero. We hold that the debt was created by Romero's fraud.
In order to maintain an action for fraud these elements must be established: that there was a false misrepresentation of a material fact, knowledge of its falsity when made, intent to deceive and reliance thereon with resulting damages. Pacific Royalty Company v. Williams, 227 F.2d 49 (10th Cir. 1955). The following facts reflected by the record demonstrate that these elements were met: that the money advanced by Allen was to be used to pay for all work, labor and materials and that at the time the advances were made all materialmen, laborers and subcontractors were not paid; that Romero knew these representations were false when made inasmuch as he subsequently admitted that there were numerous unpaid bills on the Allen four-plexes; that the representations were made for the sole purpose of obtaining additional funds from Allen; and that Allen advanced money to Romero on the representations that the funds advanced were being used to pay...
To continue reading
Request your trial
-
In re Diaz
... ... credit ... obtained by ... actual fraud". Thus, an additional $5,000.00 must be eliminated from the nondischargeable debt determined today. See In re Romero, 535 F.2d 618 (10th Cir.1976). Likewise, the award of multiple damages under the Texas Deceptive Trade Practices Act cannot be included. Each of these components of the damages awarded under the state court judgment represents damages for something other than actual pecuniary loss suffered by the ... ...
-
In re Guy
... ... "Fiduciary capacity" as used in § 523, supra, has been held to connote the idea of trust or confidence, which relationship arises whenever one\'s property is placed in the custody of another. In re Romero", 535 F.2d 618 (10th Cir.1976). Furthermore, the fiduciary relationship must be shown to exist prior to the creation of the debt in controversy. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934); In re Romero, supra ... The fiduciary relationship referred to in \xC2" ... ...
-
In re Moran
... ... 96. See Carlisle Cashway, 691 F.2d at 253 (citing Pedrazzini, 644 F.2d 756; Angelle, 610 F.2d 1335; Devaney v. Dloogoff (In re Dloogoff), 600 F.2d 166 (8th Cir.1979); Schlecht v. Thornton (In re Thornton), 544 F.2d 1005 (9th Cir.1976)) (emphasis added). But see Allen v. Romero ... ...
-
Gonzales v. Sun Life Ins. Co. (In re Furr's Supermarkets, Inc.)
... ... [485 B.R. 717] Berres v. Bruning (In re Bruning), 143 B.R. 253, 256 (D.Colo.1992). Technical trusts arise as a result of defined obligations imposed upon a debtor by state or federal statute. Cundy v. Woods (In re Woods), 284 B.R. 282, 288 (D.Colo.2001)(citing In re Romero, 535 F.2d 618, 622 (10th Cir.1976)). For a state statute to create an express or technical trust ... the statute must define the trust res, establish trustee duties, and impose the trust prior to any wrongdoing creating the obligation. Tway v. Tway (In re Tway), 161 B.R. 274, 279 ... ...
-
Jennifer Liotta, Erisa Fiduciaries in Bankruptcy: Preserving Individual Liability for Defalcation and Fraud Debts Under 11 U.s.c. Sec. 523(a)(4)
...or express trust requirement includes formal trust agreements and trust-type obligations imposed by law); Allen v. Romero (In re Romero), 535 F.2d 618, 621 (10th Cir. 1976) (holding technical trusts or those imposed by law meet threshold requirement of Davis). 48 See, e.g., Horejs v. Steele......