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

Sun Oct 31 19:27:36 MDT 2021

FYI:

In re Gerwer, 253 BR 66,71 (B.A.P. 9th Cir. 2000):

"In any event, the Estate Distribution does not constitute a voluntary
payment by Gerwer for which he could direct allocation.
<https://protect-us.mimecast.com/s/2sFXCjRKg8fjjB2JiWpRAj?domain=scholar.google.com
cation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006> Custer, 88
B.R. at 575; see also
<https://protect-us.mimecast.com/s/_h-KCkRLj7fnnK70UV0wAK?domain=scholar.google.com
cation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006> Brunswick
Corp. v. Hays, 93 Cal. Rptr. 635, 16 Cal.App.3d 134 (1971) (Civil 71
<https://protect-us.mimecast.com/s/lj1iClYgk7IooVyKHyvsOw?domain=scholar.google.com
cation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006#p71> *71
<https://protect-us.mimecast.com/s/lj1iClYgk7IooVyKHyvsOw?domain=scholar.google.com
cation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006#p71>  Code
section 1479 does not allow debtor to direct application of payment where
payment was not "voluntary performance" by debtor). In this case, the
payment was made in a bankruptcy liquidation by a trustee. We have held that
a payment made in a bankruptcy case is involuntary: "Thus, the majority of
courts have found that payment in the context of a judicial proceeding,
including bankruptcy, should be treated as involuntary."
<https://protect-us.mimecast.com/s/VQ7DCmZj0yU55gZYf9tWA7?domain=scholar.google.com
tion+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006> Stanmock, 103
B.R. at 234; see also
<https://protect-us.mimecast.com/s/gMBZCn5kmOfGGPzLfmmj_t?domain=scholar.google.com
cation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006> United States
v. Technical Knockout Graphics, Inc. (In re Technical Knockout Graphics,
Inc.), 833 F.2d 797 (9th Cir.1987) (post-petition payments by a debtor in
bankruptcy were not "voluntary" and debtor could not direct allocation;
creditor was entitled as it "sees fit");
<https://protect-us.mimecast.com/s/Yn8iCo2lnyHXXgMGcoBJFW?domain=scholar.google.com
ation+of+payment%22+%22dischargeable%22&hl=en&as_sdt=200006> United States
v. Condel, Inc. (In re Condel, Inc.), 91 B.R. 79, 82 (9th Cir. BAP 1988)
(same)."

Best regards,

HOLLY ROARK

Attorney at Law 

Certified Bankruptcy Specialist -

By the State Bar of California Board of Legal Specialization

ROARK LAW OFFICES

950 Bannock Street | 11th Floor | Boise, Idaho 83702

Phone:  (208) 536-3638 Fax: (310) 553-2601

E-mail:  holly at roarklawboise.com 

*This communication does not create an attorney-client relationship.

Unless you have signed a retainer agreement with Roark Law Offices, this 

communication may not be private or privileged.

-----Original Message-----
From: CLBS <clbs-bounces at admws.idaho.gov> On Behalf Of Holly Roark
Sent: Tuesday, October 26, 2021 5:56 PM
To: clbs at admws.idaho.gov
Subject: [CLBS] 523(a)(4) case out of state - allocating payments on state
court judgment to dischargeable & nondischareable portions

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

ROARK LAW OFFICES

950 Bannock Street | 11th Floor | Boise, Idaho 83702

Phone:  (208) 536-3638 (Texting is great! Regular business hours only,

please.)

Fax: (310) 553-2601

E-mail:   < <mailto:holly at roarklawboise.com> mailto:holly at roarklawboise.com>
<mailto:holly at roarklawboise.com> holly at roarklawboise.com 

*This communication does not create an attorney-client relationship.

Unless you have signed a retainer agreement with Roark Law Offices, this 

communication may not be private or privileged.

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