472 B.R. 907
Bankr. D.N.D.2012Background
- In December 2001 Aslakson and Debtor formed NCAB, an ND LLC, to own, manage, and sell pre-owned vehicles.
- They executed a Partnership Agreement appointing Debtor as Managing Partner with broad discretionary authority and limited personal liability for good-faith acts.
- NCAB relied on Debtor’s reports and Vetter’s financial statements to assess profitability; Aslakson provided collateral and shared ownership but mostly relied on Debtor for day-to-day operations.
- NCAB incurred substantial debt to Frandsen Bank, including a revolving line of credit and floor plan loans, secured by NCAB’s vehicle inventory with personal guaranties from Aslakson and Debtor.
- Beginning fall 2005, Debtor admitted selling vehicles off the floor plan and failing to remit proceeds to the bank; by 2006 NCAB ceased operations with substantial unpaid debt.
- Aslakson sought to except the NCAB debt from discharge under 523(a)(2)(A) and 523(a)(4), arguing fraud/defalcation by Debtor, but the court denied relief and dismissed the claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debt is nondischargeable under 523(a)(2)(A) | Aslakson contends Debtor’s fraud (selling off floor plan) induced the loan, making the debt obtained by fraud. | Debtor argues no pre-discharge fraud occurred at loan inception; the bank loan was NCAB’s, with guaranties by Aslakson. | Not established; no threshold showing that Debtor obtained money by fraud. |
| Whether elements of 523(a)(2)(A) are satisfied | Aslakson asserts fraudulent omissions caused losses proximate to the debt. | Debtor contends no intentional misrepresentation at inception and no proven reliance. | Not satisfied; failure to remit floor-plan proceeds did not prove fraud at inception or justifiable reliance. |
| Whether Debtor had a fiduciary relationship under 523(a)(4) | Aslakson argues the Partnership Agreement created a fiduciary relation. | No express/technical trust; partnership management discretionary and not a fiduciary relation under 523(a)(4). | No fiduciary relationship cognizable under 523(a)(4); claim fails. |
| Whether 523(a)(4) claim can be sustained via constructive/technical trusts | Aslakson relies on partnership terms to imply trust duties. | Partnership Agreement does not impose trust duties; constructive trust not applicable for 523(a)(4). | Not established; 523(a)(4) claim fails. |
Key Cases Cited
- In re Long, 774 F.2d 875 (8th Cir. 1985) (fiduciary meaning under 523(a)(4) limited to express/technical trusts)
- Hunter v. Philpott, 373 F.3d 873 (8th Cir. 2004) (fiduciary scope does not extend to broad, general fiduciary concepts)
- In re Cantrell, 329 F.3d 1119 (9th Cir. 2003) (express trust required; ongoing duties not implied from general financing)
- In re Glen, 639 F.3d 530 (8th Cir. 2011) (to prove 523(a)(2)(A) obtainment must be at the time of misrepresentation)