[CLBS] 523(a)(4) case out of state - allocating payments on state court judgment to dischargeable & nondischareable portions

[Holly Roark]

I have a case out of state, so this does not involve any of you! I filed a
523(a)(4) action against a chapter 13 debtor (with other claims under 523 as
well, but the (a)(4) claim is the one I'd like to pick your brains about).
(These numbers are made up for simplicity.) My client has a state court
judgment for $500K. $100K of that was awarded as attorneys' fees for breach
of fiduciary duty by debtor/defendant. To pay the judgment, a real property
was sold. From the sale of the real property, my client was paid $410K,
leaving $90K (plus interest) owed to my client. The defendant later filed a
Chapter 13 bankruptcy, and the plan was confirmed. This $90K is the subject
of our 523(a)(4) case, and our theory is that since $100K of the judgment
was for breach of fiduciary duty, this issue is res judicata in the
bankruptcy court, and the $90K plus interest still owed to my client is that
portion of the judgment that was awarded as attorneys' fees with a specific
finding of breach of fiduciary duty. 

 

How would you argue that the remaining $90K to be paid to plaintiff IS in
fact that portion of the judgment that was due to the breach of fiduciary
duty? [My client paid her attorney, so no fees are presently owed by my
client directly to her attorney, but in my opinion she should still be
reimbursed by Debtor/defendant per the original judgment and per the finding
of the breach of fiduciary duty.] I am preparing my summary judgment motion
and it occurred to me that the judge may ask why he should not construe the
remaining $90K of the judgment to be part of the dischargeable portion of
the judgment, rather that the nondischargeable portion? I don't have an
answer other than that's what we think should happen. That's not going to
cut it. Any thoughts? 

 

Best regards,

HOLLY ROARK

Attorney at Law 

Certified Bankruptcy Specialist -

By the State Bar of California Board of Legal Specialization

 

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