476 B.R. 254
Bankr. C.D. Cal.2012Background
- Adversary proceeding in bankruptcy court to determine dischargeability of debt under 11 U.S.C. §§ 523(a)(4) and (a)(6) and to object to discharge under § 727.
- Harold Pemstein filed the complaint; Martin Pemstein and Diana Pemstein are defendants; proceedings include trial on Nov 30, 2011 and Apr 10, 2012.
- Martin and Diana filed a Chapter 11 petition for HMS Properties; Harold and Martin were brothers and business partners prior to bankruptcy.
- Harold obtained a California Superior Court judgment against Martin on Jan 5, 2010 for $696,218.03 related to breach of duty in rent collection.
- Joint Pretrial Order stipulates the parties were 50% owners of HMS Properties and the 2010 judgment is final with res judicata effect.
- The court ultimately grants judgment to Martin and Diana, denying all of Harold’s claims for nondischargeability and dischargeability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| §523(a)(4) defalcation f iduciary | Pemstein | Pemstein | Denied; no proven defalcation |
| §523(a)(6) willful/malicious injury | Pemstein | Pemstein | Denied; no willful/malicious injury proven |
| §727(a)(2)(A) concealment of assets | Pemstein | Pemstein | Denied; no concealment proven |
| §727(a)(3) failure to keep records | Pemstein | Pemstein | Denied; records inadequacy not shown |
Key Cases Cited
- In re Stanifer, 236 B.R. 709 (9th Cir.BAP 1999) (defalcation standard and fiduciary capacity analysis)
- In re Lewis, 97 F.3d 1182 (9th Cir.1996) (defalcation defined as misappropriation or failure to account)
- In re Niles, 106 F.3d 1456 (9th Cir.1997) (limits defalcation to funds entrusted and not accounted for)
- In re Hemmeter, 242 F.3d 1186 (9th Cir.2001) (defalcation may occur without fraudulent intent)
- Landis v. Scott, 32 Pa. (8 Casey) 495 (Pa. 1859) (fiduciary’s accountability for rents; limited applicability)
- Hughes v. Lawson, 122 F.3d 1237 (9th Cir.1997) (elements of § 727(a)(2)(A) require disposition and intent within one year)
- Petralia v. Jercich, 238 F.3d 1202 (9th Cir.2001) (willful injury standard; substantial certainty and purpose to injure)
- In re Cox, 41 F.3d 1294 (9th Cir.1994) (predecessor standard for prima facie case under § 727(a)(3))