{"id":490,"date":"2011-03-13T23:31:26","date_gmt":"2011-03-13T23:31:26","guid":{"rendered":"http:\/\/fresnolawyerblog.com\/?p=490"},"modified":"2011-03-13T23:31:26","modified_gmt":"2011-03-13T23:31:26","slug":"in-re-honkanen-%e2%80%93-bankruptcy-court-holds-that-real-estate-broker%e2%80%99s-breach-of-fiduciary-obligation-is-dischargeable","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=490","title":{"rendered":"In re Honkanen \u2013 Bankruptcy Court Holds that Real Estate Broker\u2019s Breach of Fiduciary Obligation is Dischargeable"},"content":{"rendered":"

A new decision has made an important change concerning he liability of real estate brokers in the context of a bankruptcy.\u00a0 Specifically, the decision in In re Honkanen<\/strong>, 2011 DJDAR 3358 (9th Cir. Bankruptcy Appellate Panel March 4, 2011) holds that a real estate broker can obtain a discharge from a state court finding of breach of fiduciary duties if the finding was based on the debtor\u2019s status as a broker.<\/p>\n

In other words, state law holds that a broker owes fiduciary duties to his client.\u00a0 Bankruptcy law holds that certain debts arising out of a breach of fiduciary duties are not dischargeable in bankruptcy.\u00a0 The Honkanen <\/strong>court stepped into the intersection of these rules and held that the broker\u2019s breach of fiduciary duties is a dischargeable debt because the broker was not acting as a trustee.\u00a0 This represents a change in existing precedent.<\/p>\n

Here are the facts.\u00a0 \u201cHonkanen had acted as Archer’s real estate broker[.]\u00a0 After the transaction was not consummated, Archer sued Honkanen in state court accusing Honkanen of performing her real estate licensee duties negligently and of intentionally breaching her fiduciary duty to Archer.\u201d<\/p>\n

According to the lawsuit, \u201cThe alleged breach consisted of Honkanen making intentional misrepresentations to Archer concerning the real estate purchase agreement and the insufficiency of Archer’s performance, in addition to failing to disclose the deficiency in Archer’s performance . . . Archer also accused Honkanen of breaching her fiduciary duty of loyalty to Archer, the buyer, by acting in the interest of the seller rather than in Archer’s, interest.\u201d<\/p>\n

The result was in favor of the client.\u00a0 \u201cThe jury awarded Archer damages in the amount of $356,000 for negligent and intentional breach of Honkanen’s fiduciary duty to Archer.\u201d<\/p>\n

Ms. Honkanen later filed for bankruptcy.\u00a0 The client filed an adversary complaint seeking to hold that the debt was not dischargeable<\/a>.\u00a0 Based on prior case law (which was favorable to the creditor), \u201cthe only evidence admitted at trial was the original state court complaint, the state court judgment, and the state court jury instructions.\u201d<\/p>\n

Under prior law, this would have been sufficient to support a finding of non-dischargeability<\/a>.\u00a0 However, the appellate court made a break with published precedent, explaining that, \u201cThe broad definition of fiduciary under nonbankruptcy law \u2013 a relationship involving trust, confidence, and good faith \u2013 is inapplicable the dischargeability context.\u201d<\/p>\n

\"Asian<\/a><\/p>\n

Instead, the Honkanen <\/strong>court stated that in the bankruptcy context, \u201cthe Ninth Circuit has adopted a narrow definition of \u2018fiduciary.\u2019 To fit within \u00a7 523 (a) (4), the fiduciary relationship must be one arising from an express or technical trust that was imposed before, and without reference to, the wrongdoing that caused the debt as opposed to a trust ex maleficio<\/a>, constructively imposed because of the act of wrongdoing from which the debt arose.\u201d<\/p>\n

In other words, for the debt to be non-dischargeable<\/a>, \u201cthe applicable state law must clearly define fiduciary duties and identify trust property . . . The mere fact that state law puts two parties in a fiduciary-like relationship does not necessarily mean it is a fiduciary relationship within 11 U.S.C. \u00a7 523 (a)(4).\u201d<\/p>\n

The Honkanen <\/strong>court then found a change in the law.\u00a0 \u201cIn Cantrell<\/em>, 329 F.3d 1119<\/a> (2003), the Ninth Circuit decided an issue of first impression and interpreted California corporate law to conclude that while officers and directors of a corporation are imbued with the fiduciary duties of an agent and certain duties of a trustee, they are not trustees with respect to corporate assets and, therefore, are not fiduciaries within the meaning of \u00a7 523(a)(4).\u201d<\/p>\n

To this end, non-dischargeability for breach of fiduciary obligations requires an express finding of a trust.\u00a0 \u201cIn Cantrell<\/em>, Cal-Micro, the plaintiff, contended that under California law a corporate officer is a statutory trustee with respect to corporate assets but the court rejected that contention because the cases relied upon by Cal-Micro merely held that officers owe fiduciary duties in their capacity as agents of a corporation \u2013 but failed to hold the officers are trustees of an express, technical, or statutory trust with respect to corporate assets<\/strong>.\u201d<\/p>\n

Here is an important point of law<\/strong>.\u00a0 \u201cA director of a corporation acts in a fiduciary capacity and the law does not allow him to secure any personal advantage as against the corporation or its stockholders.\u00a0 However, speaking, the relationship is not one of trust, but of agency.\u201d<\/p>\n

Therefore, the law did not support a holding of non-dischargeability.\u00a0 \u201cBased on the requirements set forth in Cantrell, a California real estate licensee does not meet the fiduciary capacity requirement of \u00a7 523(a) (4) solely based on his or her status as a real estate licensee.\u00a0 General fiduciary obligations are not sufficient to fulfill the fiduciary capacity requirement in the absence of a statutory, express, or technical trust<\/strong>.\u201d<\/p>\n

The decision affirms that fiduciary obligations \u2013 and the results arising from such a relationship \u2013 are often case-specific.<\/p>\n

In re Honkanen<\/strong>, 2011 DJDAR 3358 (9th Cir. Bankruptcy Appellate Panel March 4, 2011)<\/p>\n","protected":false},"excerpt":{"rendered":"

A new decision has made an important change concerning he liability of real estate brokers in the context of a bankruptcy.\u00a0 Specifically, the decision in In re Honkanen, 2011 DJDAR 3358 (9th Cir. Bankruptcy Appellate Panel March 4, 2011) holds that a real estate broker can obtain a discharge from a state court finding of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,8],"tags":[],"class_list":["post-490","post","type-post","status-publish","format-standard","hentry","category-case-law","category-real-property"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/490"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=490"}],"version-history":[{"count":1,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/490\/revisions"}],"predecessor-version":[{"id":492,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/490\/revisions\/492"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}