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#2209 signed 4-8-96





IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

In Re:

STUART H. CAMPBELL,

DEBTOR(S).

NO. 91-40336-7

CHAPTER 7

BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, and BOATMEN'S TRUST CO.,

PLAINTIFF(S),

v.

STUART H. CAMPBELL,

DEFENDANT(S).

ADV. NO. 92-7175

MEMORANDUM OF DECISION

This proceeding is before the Court for resolution of legal issues concerning a state court judgment. Plaintiffs Boatmen's First National Bank of Kansas City and Boatmen's Trust Co., (the Bank) appear by counsel Brian T. Fenimore of Lathrop & Norquist of Kansas City, Missouri. The defendant-debtor appears by counsel Winton A. Winter, Jr., of Stevens & Brand of Lawrence, Kansas. The Court has reviewed the relevant pleadings and is now ready to rule.

FACTS

The following facts are not disputed. At least until sometime in 1990, the Bank (or its predecessor banks) and the debtor were co-trustees of a trust of which the debtor's mother was the grantor and beneficiary. The debtor and his sister were remaindermen of the trust.

The debtor filed a chapter 7 petition in February 1991. The case was noticed as a no-asset case, and the debtor's discharge was granted in July 1991. The trustee later discovered assets and a claims bar date was set. After that date had passed, in a Missouri state court, the debtor's mother sued the debtor and the Bank over their management of her trust during the years before the debtor's bankruptcy. The Bank asserted a cross-claim against the debtor for contribution or indemnification. The debtor then amended his bankruptcy schedules to show contingent obligations to his mother and the Bank. The Clerk of the Court sent them a notice of dates for objecting to discharge or dischargeability and for filing proofs of claim. The Bank filed this proceeding, seeking a determination that the debtor's obligation on the cross-claim was nondischargeable. The parties agreed to litigate their dispute in the Missouri court, and this proceeding was stayed pending the outcome of that suit.

In the Missouri suit, the debtor's mother dismissed her claim against him, but obtained a judgment against the Bank for $503,407. The Bank obtained a judgment for the same amount on its cross-claim against the debtor. The Missouri court found the Bank had breached its fiduciary duties to the debtor's mother, and continued to do so at a time when the debtor was planning to file bankruptcy, by: (1) letting the debtor liquidate the trust's good investments so he could borrow money from the trust for himself and for real estate limited partnerships he was involved in; and (2) allowing the trust to buy the debtor's own interests in the real estate limited partnerships. The Bank allowed this activity to continue even after the commercial side of the Bank had informed the trust side that it was having significant problems with personal loans to the debtor. It did not disclose this conflict of interest to the debtor's mother. The Bank also failed to investigate and report to the debtor's mother the true value of the trust's investments in the limited partnerships. The court, of course, also concluded the debtor had breached his fiduciary duties as co-trustee. After discussing at length how both the Bank and the debtor had breached their fiduciary duties to the debtor's mother, the court without discussion awarded judgment for the Bank on its cross-claim against the debtor for the full amount of the judgment awarded against it in favor of the debtor's mother.

DISCUSSION AND CONCLUSIONS

The Bank contends that collateral estoppel (issue preclusion) makes its judgment against the debtor nondischargeable under §523(a)(4), or alternatively, that the debt arose after the debtor filed for bankruptcy and so was not covered by his discharge. The debtor argues that he owed no fiduciary duty to the Bank, and that the debt was a prepetition claim against him. The Court concludes it need not determine whether the debt arose pre- or postpetition because it is nondischargeable in either event.

Section 523(a)(4) excepts from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity." There can be no doubt in this case that the state court imposed liability on the debtor because of his fraud or defalcation while acting in a fiduciary capacity. The debtor argues the debt is nevertheless dischargeable because he was a fiduciary for his mother, not for the Bank. Because the Bank had argued at a hearing that its judgment against the debtor was independent of the judgment the Bank owed the debtor's mother, the debtor's argument had increased appeal. However, whether the debtor's obligation to the Bank is more accurately described as contribution or indemnification, the obligation does depend on the Bank's obligation to the debtor's mother. This is simply what contribution and indemnification are, a right to recover from one party some or all of a loss to another. Whether the Bank correctly understands this is ultimately irrelevant to the question before the Court, namely whether the Bank's judgment against the debtor is based on the debtor's breach of a fiduciary duty. The answer must be yes.

Based on the debtor's breach of his fiduciary duties to his mother, the state court found he would have to contribute as a joint tortfeasor, one who had joined the Bank in harming his mother, or as an equitable non-contractual indemnitor, one who should not be unjustly enriched by the wrongs committed. See O'Neal v. Southwest Missouri Bank (In re Broadview Lumber Co.), 168 B.R. 941, 967 (Bankr.W.D.Mo. 1994); Missouri Pacific Railroad Co. v. Whitehead & Kales Co., 566 S.W.2d 466, 469 (Mo. 1994); Campbell Sixty-Six Express, Inc. v. Empire Bank (In re Campbell Sixty-Six Express), 94 B.R. 1014, 1017 (Bankr.W.D.Mo. 1988). Whichever theory the state court applied, the Bank's judgment arose from the debtor's breach of fiduciary duty. The literal language of §523(a)(4) does not explicitly require the debtor to have been a fiduciary of the creditor, just that the debt arose from acts performed as a fiduciary. The debtor has not cited, nor has the Court found, a case like this one, involving a debt based on a trustee's breach of fiduciary duties owed to someone other than the creditor. The Court concludes the literal meaning of the statute controls and covers the debtor's obligation to the Bank.

If the Bank's judgment is a postpetition debt, the question of its dischargeability is much easier. Pursuant to §727(b), the debtor's discharge simply did not reach such a debt.

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.

Dated at Topeka, Kansas, this ____ day of April, 1996.













_________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE







IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS











In Re: )

)

STUART H. CAMPBELL, ) NO. 91-40336-7

) CHAPTER 7

DEBTOR(S). )

)

BOATMEN'S FIRST NATIONAL )

BANK OF KANSAS CITY, and )

BOATMEN'S TRUST CO., )

)

PLAINTIFF(S), )

v. ) ADV. NO. 92-7175

)

STUART H. CAMPBELL, )

)

DEFENDANT(S). )

JUDGMENT ON DECISION

This proceeding was before the Court for resolution of legal issues concerning a state court judgment. Plaintiffs Boatmen's First National Bank of Kansas City and Boatmen's Trust Co., (the Bank) appeared by counsel Brian T. Fenimore of Lathrop & Norquist of Kansas City, Missouri. The defendant-debtor appeared by counsel Winton A. Winter, Jr., of Stevens & Brand of Lawrence, Kansas. The Court reviewed the relevant pleadings and issued its Memorandum of Decision resolving the parties' dispute.

For the reasons stated in that Memorandum, judgment is hereby entered declaring that the debtor's obligation to the Bank was not discharged.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of April, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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