Mele v. Mele (In re John Peter Mele)

Summarized by Joel Newell , Ballard Spahr, LLP
12 years 3 months ago

Citation:

9th Cir. BAP Case No. WW-13-1173-DTaKU

Tag(s):

Ruling:

The Ninth Circuit BAP reversed the Bankruptcy Court’s ruling in the Western District of Washington. The BAP held that the Bankruptcy Court erred as a matter of law in determined that Washington common law established as marital relationship as in the nature of an express or technical trust. Therefore, the Debtor had no fiduciary duty to former spouse to manage community property for the benefit of the marital community. The Bankruptcy Court’s decision was entered prior the U.S. Supreme Court decision in Bullock v. BankChampaign, N.C. Therefore, at minimum, the BAP was required to vacate the order and remand for further proceedings. However, the BAP determined that there was a different fundamental problem with the Bankruptcy Court’s ruling. Washington’s Revised Code states specific requirements for a trust to be created. Based on the facts of this matter, those requirements were not met by the marital relationship only; therefore, no express trust was created. The Bankruptcy Court relief on various

Procedural context:

Debtor appealed the Bankruptcy Court’s ruling that part of the State Court property allocation in the marital dissolution was excepted from discharge pursuant to 11 U.S.C. Sec. 523(a)(4). The Bankruptcy Court’s ruling was supported by the Bankruptcy Court’s interpretation that Washington common law provides that married spouses “stand in a trust relationship within one another and have fiduciary duties regarding the community property.”

Facts:

Pre-Petition, the State Court entered a temporary order enjoining both the Debtor and Debtor’s former spouse (“Spouse”) from transferring or dissipating community assets. Debtor liquidating his 401(k) in the amount of $274,000 and spent almost all the funds within 1 year’s time for his individual benefit. This was the largest community asset. The State Court’s final marital dissolution decree held that the Spouse entitled to a Property Settlement Judgment in the amount of $100,486. Debtor files for Chapter 13 relief and the Spouse commenced an adversary proceeding seeking to have the amount of the Property Settlement Judgment excepted from the Debtor’s discharge. Although not at issue in the appeal, the Bankruptcy Court determined that the Spouse’s claim was not in the form of domestic support; therefore, classified as a general non-priority unsecured claim.

Judge(s):

Dunn, Taylor, and Kurtz

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