Reiter v. Napoli (In Re Napoli)Reiter v. Napoli (In Re Napoli)
MEMORANDUM OPINION
The only issue remaining for decision in this case is plaintiff’s claim that the defendant’s debt to him is not dischargeable pursuant to
FINDINGS OF FACT
1. During 1985, the defendant/debtor, Andrew Napoli, (“Napoli”) was operating a business in New Jersey known as Capri Motor Sales, (“Capri”). Capri was in the business of buying and selling used cars.
2. In approximately June of 1985, Napo-li made the plaintiff, Sidney Reiter, (“Reiter”) a partner in Capri for $20,000.00. Reiter paid cash for the partnership.
3. The partnership was evidenced by a handwritten receipt, executed by Napoli, stating in its entirety
“Received from Sid Reiter $20,000 dollars, for partnership in sales of Capri Motors Used Cars from 5/1/85.”
No other partnership agreement, documents, papers or contracts werе ever executed by Napoli or Reiter.
4. Reiter testified that Napoli contributed approximately $10,000.00 in cash and inventory to the partnership as well as his knowledge of the used car business. (N.T. 10/8/86 pp. 15-16). Reiter himself had little or no knowledge related to used car sales.
5. Reiter further testified that he and Napoli agreed to divide profits and losses of Capri for the first year of the partnership on a 40-60 basis and thereafter on a 50-50 basis. Reiter stated that the reason for the unequal division for thе first year was that Napoli knew the business and he did not. (N.T. p. 16). No evidence was presented as to any discussion or agreement about how assets were to be distributed in the event of dissolution.
6. During the period of the partnership, approximately Mаy to August, 1985, the partnership had net profits of $6,713.00. See Plaintiffs Exhibit 2. During that same period, Reiter and Napoli drew $4,800.00 each from the business. During the existence of the partnership, Napoli had superior access to the checkbook and other assets of Capri.
7. In approximately August, 1985, Na-poli unilaterally decided to dissolve the partnership. As of the date of dissolution, Napoli calculated the value of the assets of the partnership as $25,853.00, including six vehicles valued at $7,393.00 and $18,460.00 in cash. Reiter testifiеd that he does not dispute the value which Napoli assigned to the partnership assets. (N.T. p. 20).
8.Napoli calculated Reiter’s 40% share of the assets to be $10,341.00. He subtracted from that amount $1,343.00 which he calculated to be money in excess of thаt which Reiter had been entitled to draw as cash from the profits of the business. See Plaintiffs Exhibit 2. 1 After subtracting an additional unexplained $30.00, Napoli gave Reiter a check in the amount of $8,968.00.
9. Reiter did not cash the check immediately, instead commencing suit against Napoli in the district court for the Eastern District of Pennsylvania. There is no evidence in the record related to the results of the district court suit or the ultimate disposition of Napoli’s check. 2
10. On April 7, 1986, Napoli filed a bankruptcy petition under chaрter 7 of the Bankruptcy Code. On October 8, 1986, a trial was held before former Chief Judge Goldhaber on Reiter’s complaint seeking to have Napoli’s discharge denied pursuant to
CONCLUSIONS OF LAW
1.
for fraud or defalcation while acting in a fiduciary caрacity, embezzlement or larceny.
The only issue Reiter has pursued in this case involves a claim of Napoli’s fraud or defalcation while acting in a fiduciary capacity.
2. Pursuant to New Jersey law, partners do not stand in a fiduciary relationship to each other within the meaning of
3. Even if Napoli owed Reiter a fiduciary duty by virtue of their partnership, Reiter has not carried his burden of establishing fraud or defalcation by Napoli in connection with a debt owed by Napoli to Reiter so as tо make that debt nondis-chargeable.
4. The record does not contain sufficient evidence to establish that Napoli misused or otherwise converted assets of Capri during the period of the partnership.
5. The record does not contain sufficient evidence to establish that Napoli misrepresented the value of partnership assets upon dissolution to Reiter’s detriment.
6. The plaintiff has not demonstrated fraud or defalcation as required under
DISCUSSION
As I stated recently in
In re Salamone,
provides for the nondischargeаbility of any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” Collier explains thatsection 523(a)(4) creates an exception based on (1) fraud or defalcation while acting in a fiduciary capacity or (2) embezzlement or larceny while not acting in a fiduciary capacity. 3 Collier on Bankruptcy 523.14 (15th ed. 1987) (“Collier”). Accord, In re Kapnison,65 B.R. 221 (Bankr.D.N.M.1986); In re Talcott,29 B.R. 874 (Bankr.D.Kan.1983). Under the former ground, it is well established that the requirement that the debtor be acting in a fiduciary capacity refers to express trusts and not trusts ex maleficio which may be imposed due to the very wrongful act out of which the debt arose. In re Lane,76 B.R. 1016 , 1022 (Bankr.E.D.Pa.1987); In re Kapnison; In re Gould,65 B.R. 87 (Bankr.N.D.N.Y.1986); In re Kwiat,62 B.R. 818 (Bankr.D.Mass.1986); 3 Collier ¶ 523.14[1] at 523-93 to 523-96.
Thus, the existence of a fiduciary relationship in the form of an express trust is a prerequisite to a determination of non-dis-chargeability for fraud or defalcation under
In 1844, the Supreme Court of the United States narrowly defined the concept of fiduciary as it related to the Bankruptcy Act and that narrow definition has been carried over into
“In almost all the commercial transactions of the country, confidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the [Bankruptcy Act]. The act speaks of technical trusts, and not those which the law implies from contract.” (emphasis added).
Chapman v. Forsyth,
At least two courts have held that no provision of the Uniform Partnership Law (adopted in New Jersey) creates the type of technical or express trust required to find the fiduciary relationship necessary as a prerequisite to a determination of non-dischargeability under
I recognize, however, that in some cases an express or technical trust can be imposed on рartners by virtue of common law. See Lindley v. General Electric. In Lindley the Ninth Circuit held that the requisite fiduciary relationship between partners arose not under California statutory law which provided:
[e]very 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;
but rather under California common law stating:
[p]artners are trustees for each other, and in all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his co-partner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.
Lindley at 796. With regard to the California statutory provision, the court stated:
under this statute, the trust arises only when the partner derives profits without consent of the partnership; it is the sort of trust ex maleficio not included within the purview of§ 523(a)(4) .
In New Jersey the courts have imposed a fiduciary duty on partners only for limited purposes analogous to the California statutory language, thus creating trusts among partners
ex maleficio
not subject to
I thus cannot conclude that New Jersey common law creates a general fiduciary relationship for partners for all purposes simply by virtue of the partnership relationship. Napoli did not owe Reiter any fiduciary duty by virtue of an express or technical trust. Consequently, Reiter can have no claim that Napoli’s debt to him is nondischargeable based on fraud or defalcation pursuant to
Even if I did find that Napoli stood in a fiduciary relationship tо Reiter, I could not grant the relief requested here based on the evidence. Under
For the reasons stated above, an appropriate order shall be entered providing for judgment in favor of the defendant.
Notes
. The figures provided show that Napoli calculated Reiter's 40% of the net profit as $2,685.00. He subtracted this amount from the $4,800.00 actually drawn, leaving a net overdraft of $2,115.00. Napoli then credited Reiter with his own overdraft of $772.00, thus creating the $1,343.00 figure.
. Although a district court order apparently granting partial summary judgment in favor of Reiter in the amount of $8,968.00 is аttached as an exhibit to the complaint, neither the complaint nor the exhibit was introduced into the record.
See In re Augkenbaugh,
. An order of discharge, pursuant to
. Although Judge Goldhaber conducted the relevant trial, the parties have consented to my making findings of fact and conclusions of law based on the record.
See
Bankr.Rule 9028 incorporating Fed.R.Civ.Pro. 63.
See also Arrow-Hart, Inc.
v.
Philip Carey Co.,
. I decline to find that a broader fiduciary relationship among partners exists in New Jersey based on dicta alone found in Stark and elsewhere.
. I do not pass on whether the debt at issue might be nondischargeable under some other provision of
. Reiter’s testimony that he did not dispute Na-poli’s valuation of the assets upon dissolution and the absence of any testimony whatsoever that assets were misapproрriated suggests that Reiter’s only dispute was premised upon receiving 40% of the assets rather than 50%. Additionally, the evidence established that the partners invested approximately $30,000.00 in the partnership and earned $6,713.00 in profits. Distributions of $25,853.00 upon dissolution and $9,600.00 prior to dissolution is not significantly inconsistent with the partnership’s investment and income. Thus, I cannot infer that Napoli converted partnership assets for his own use.