Ratliff v. Cochise Agricultural Properties, LLC (In re Ratliff)
- Citation:
- Ratliff v. Cochise Agric. Prop., LLC (In re Ratliff), _ F.3d. _ (9th Cir. 2012) (unpublished)
- Tag(s):
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- Ruling:
- The United States Court of Appeals for the Ninth Circuit affirmed in part, reversed in part and remanded the decision of Bankruptcy Appellate Panel. Specifically, the Court affirmed the BAP’s finding that the type of fiduciary relationship required for non-dischargeability under 11 U.S.C. § 523(a)(4) did not exist between the parties; but reversed and remanded the matter to the BAP to determine whether part of the proceeds at issue were converted by the Debtors, which in turn made the related claims non-dischargeable under 11 U.S.C. § 523(a)(6).
- Procedural context:
- Appeal from the Ninth Circuit Bankruptcy Appellate Panel decision affirming in part, and reversing in part, a decision from the Bankruptcy Court determining that the payment by the Debtors of a portion of land and equipment sale proceeds to satisfy the Debtors’ loan constituted willful and malicious conversion and defalcation by a fiduciary, thus rendering it nondischargeable under 11 U.S.C. § 523(a)(4) and (a)(6).
- Facts:
- Two parties entered into a business venture together through a limited liability company, in which they improved a parcel of land previously purchased by the Debtors, and then sold the related assets at a substantial profit. The operating agreement provided that all distributions from the LLC would first be used to pay off capital contributions and then be divided equally between the members.
The bankruptcy court found that the use of the sale proceeds to pay Wells Fargo was a willful and malicious conversion and constituted defalcation by a fiduciary, thus rendering it nondischargeable under 11 U.S.C. § 523(a)(4) and (a)(6). The BAP affirmed the finding of conversion, but reversed the determination of defalcation under 11 U.S.C. § 523(a)(4).
The Ninth Circuit reversed the BAP in part, finding that the Wells Fargo loan had priority over the partner’s rights to any distributions. The BAP then remanded the case, however, to determine whether further equal distributions of funds between the partners constituted conversion by the Debtors, as the subsequent equal distribution may be inappropriate and rise to the level of conversion.
- Judge(s):
- Honorable Judge M. Margaret McKeown, Honorable Judge Richard Clifton, and Honorable Judge Jay S. Bybee
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