In re Robert E. SHORT and Dolores J. Short.
David E. LEWIS and Susan Lewis, husband and wife, Plaintiffs-Appellees,
v.
Robert E. SHORT and Dolores J. Short, husband and wife,
Defendants-Appellants.
No. 85-3720.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Nov. 3, 1986.
Decided June 2, 1987.
John L. Orlandini, Tacoma, Washington, for defendants-appellants.
Joseph P. Jackowski, Tacoma, Washington, for plaintiffs-appellees.
Appeal from the United States District Court for the Western District of Washington.
Before SKOPIL, FLETCHER and POOLE, Circuit Judges.
SKOPIL, Circuit Judge:
This is an appeal from a district court order affirming a bankruptcy court's decision that a debtor was acting in a fiduciary capacity resulting in the non-dischargeability of a debt to a joint venturer. We affirm.
FACTS AND PROCEEDINGS BELOW
In 1973 Robert and Dolores Short, David and Susan Lewis, and John and Sigrid McQuaid entered into a joint venture for developing real property. Pursuant to a written agreement, Robert Short handled the affairs of the joint venture. Section 2 of the joint venture agreement provided:
Robert E. Short shall assume responsibility for overseeing the property and ensuring that all taxes, debt services, and other expenses are paid on a timely basis. He will maintain books of account showing all expenditures on account on the properties or in connection with them. Additionally, he will lease the properties as required. He is solely responsible for the satisfactory construction of all duplex buildings.
After the sale of the last duplex, all profits were available for distribution. Although the joint venture was profitable, the Lewises received no portion of the proceeds or profits. The Shorts allegedly took the payments which belonged to the joint venture and spent them on personal living expenses.
Eventually, John McQuaid contacted Robert Short and threatened to sue him and report him to the IRS. Robert Short transferred $20,000 on the following day to McQuaid from the joint venture assets. Short admits that this amount included a portion of the Lewises' share of the joint venture because McQuaid was entitled only to approximately $9,000.
Thereafter, the Shorts filed a voluntary petition for relief under Chapter 11 and later converted it to a Chapter 7 proceeding. The Lewises filed a complaint in bankruptcy court to determine the dischargeability of the debt owed them by the Shorts. The bankruptcy court found the debt to be nondischargeable under 11 U.S.C. Sec. 523(a)(4) (1982). After a hearing on the issue of damages, the bankruptcy court awarded the Lewises $10,000 plus interest, costs, and attorney's fees.
The district court affirmed. The Shorts timely appealed.
DISCUSSION
Debts which arise from "fraud or defalcation while [the debtor was] acting in a fiduciary capacity" are nondischargeable in bankruptcy. 11 U.S.C. Sec. 523(a)(4). The bankruptcy court held that Robert Short's misconduct in managing the joint venture profits was a "defalcation" and that Short was acting in a fiduciary capacity under section 523(a)(4) at the time. See In re Barwick,
Short's arguments are not persuasive and fail to address current law. Because the broad general definition of fiduciary--a relationship involving confidence, trust, and good faith--is inapplicable in the dischargeability context, ordinary commercial relationships are excluded from the reach of section 523(a)(4). In re Schultz,
In Haller, we applied California statutory and case law to determine that partners under California law are fiduciaries under section 523(a)(4). We held that the partnership debt was non-dischargeable. Haller,
Furthermore, we reasoned that "[i]f state law makes clear that a partner necessarily is a trustee over partnership assets for all purposes, then that partner is a fiduciary within the narrow meaning of Sec. 523(a)(4)." Haller,
In language identical to the California statute in Haller, the Washington statute provides in pertinent part:
Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.
R.C.W. Sec. 25.04.210(1) (1969). As the California courts, the Washington courts have also expanded the duties of partners beyond those required by the literal language of the state statute. In Washington,
[i]t is the universal rule that partners are required to exercise the utmost good faith toward each other, and, where an accounting is had, it is the duty of a partner who manages, conducts, or operates a partnership business, to render complete and accurate accounts of all of the partnership business. This rule is grounded upon the theory that the managing partner is acting as a trustee for his firm.
In re Wilson's Estate,
In this case, Short, as the joint venturer in charge of joint venture affairs, was in the same position as a managing partner. Under the joint venture agreement and Washington law, Short had a duty to act as trustee for the affairs of the joint venture. He controlled the construction of the duplexes, their sale, and the distribution of the resulting profits. Short was responsible for paying the taxes and other expenses, maintaining the books, and leasing the properties. Under Washington's partnership law and section 523(a)(4), Short was a fiduciary for the joint venture when he committed the defalcation.
AFFIRMED.