Mele v. Mele (In Re Mele)
501 B.R. 357
| 9th Cir. BAP | 2013Background
- Married 19 years, separated 2007, divorced 2009; three children.
- State court dissolved marriage and allocated net community assets; $274,607 of 401(k) funds were deemed pre-distribution to John and spent.
- State court found John dissipated community funds for his own use and did not support the community.
- Property settlement awarded Kimberly $100,486 (60% of net community assets after 401(k) dissipation) and John $334,145.
- John filed Chapter 13; Kimberly’s claim included a portion as to be excepted from discharge under § 523(a)(4) and § 523(a)(5).
- Bankruptcy court held 82.18% of the tainted assets (related to the 401(k) dissipation) constituted defalcation under § 523(a)(4) and excepted that portion from discharge; on appeal, the panel reverses on the grounds that Washington law does not create an express/technical trust for purposes of § 523(a)(4).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Washington law creates an express/technical trust for §523(a)(4). | Mele argues Washington recognizes a fiduciary trust between spouses. | Mele asserts Washington law imposes such a trust for the marital relationship. | Washington does not recognize an express/technical trust for §523(a)(4). |
| Whether the defalcation standard requires Bullock’s intent standard. | Bullock requires a culpable state of mind; Lewis may be insufficient. | Bullock applies, so intent is required for defalcation. | Remand to apply Bullock’s enhanced intent standard. |
Key Cases Cited
- Cantrell v. Cal-Micro, Inc., 329 F.3d 1119 (9th Cir. 2003) (defines fiduciary status for § 523(a)(4) and reliance on state law for trust relationships)
- In re Lewis, 97 F.3d 1182 (9th Cir. 1996) (recognizes a limited, express/technical trust standard; informs scope of fiduciary duty)
- Ragsdale v. Haller, 780 F.2d 794 (9th Cir. 1986) (limits broad fiduciary definition in dischargeability context)
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013) (holds defalcation requires culpable mental state (enhanced intent))
- Lam v. Lam, 364 B.R. 379 (Bankr. N.D. Cal. 2007) (discusses fiduciary relationship in California context (state-law basis))