Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_05-ap-03253/USCOURTS-canb-3_05-ap-03253-0/pdf.json

Parties Involved:
Savio Rodney Halapio
Plaintiff
Soana Taake Tuilokomana Halapio
Plaintiff
Marie Finau
Defendant

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MEMORANDUM DECISION -1-

UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re: )

 )

SAVIO RODNEY HALAPIO and, )

SOANA TAAKE TUILOKOMANA HALAPIO,)

 )

 )

 )

 )

Debtors. ) )

SAVIO RODNEY HALAPIO and, )

SOANA TAAKE TUILOKOMANA HALAPIO,)

 )

Plaintiffs, )

 )

vs. )

 )

MARIE FINAU, )

 )

Defendant. ) )

Case No. 04-30907 TEC7

Chapter 7

Adv. No. 05-3253 TC

Date: June 14, 2005 

Time: 9:30 a.m.

Ctrm: Hon. Thomas E. Carlson

 235 Pine Street

 San Francisco, CA

MEMORANDUM DECISION

This action came to trial on June 14, 2005. Linnea N. Willis

appeared for creditor Maria Finau (Finau). Howard L. Hibbard

appeared for debtors Savio and Soana Halapio (Debtors). Upon due

consideration, and for the reasons stated below, I hereby determine

that Finau has a $20,000 interest in the real property at 

1279 Carlton Avenue, Menlo Park, California, but decline to award 

Signed and Filed: June 23, 2005

________________________________________

THOMAS E. CARLSON

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

June 24, 2005

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 1 of 8 
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MEMORANDUM DECISION -2-

the additional damages sought by Finau.

FACTS

In July 2002, Debtors had seven children and had recently been

evicted from their home. They wanted to buy a house, but their

credit history made it impossible to do so directly. They

approached a number of relatives, offering a $10,000 interest to

anyone who would let Debtors use the relative’s credit to enable

Debtors to buy a house. Finau, who is a cousin of Soana Halapio,

agreed to do so. 

The arrangement agreed upon was as follows. Finau would buy

the house in her name. Debtors would supply the down payment and

make all mortgage and tax payments. At some time, Debtors would

arrange to refinance or sell the property. At that point, Finau

would transfer title and would be paid the promised $10,000. 

Debtors would receive title if the transaction was a refinance, and

would receive the proceeds in excess of $10,000 if the transaction

was a sale.

The arrangement was not completed as described above for

several reasons.

First, Finau did not qualify for the needed loan. Debtor

Savio Halapio, a licensed real estate salesperson, sent Finau the

loan application forms to complete, which she did. Real Loans, the

loan broker Savio was using, advised him that Finau did not qualify

for a large enough loan. Someone at Real Loans then suggested that

Real Loans could arrange a loan by creating a false loan

application. Savio went along with the scheme and obtained the

needed loans in the name of Finau. There is no evidence that Finau

knew about the scheme. 

Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 2 of 8 
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MEMORANDUM DECISION -3-

Second, Savio submitted offers and loan applications regarding

two properties. He did so because he needed a house quickly and

did not know whether either would be accepted. He closed both

transactions because he would suffer certain monetary penalties if

he did not. It is not clear the extent to which he described these

details to Finau, who ended up signing two secured promissory notes

and purchasing two properties. The two properties are: 1279

Carlton Avenue, Menlo Park; and 1324 Modoc Avenue, Menlo Park. 

Third, shortly after the purchase of the two properties

closed, Savio caused Finau to transfer title to both properties to

Debtors via grant deeds. There is no evidence that Savio explained

to Finau the significance of the deeds he caused Finau to sign. 

Savio had acted as Finau’s broker in the purchase of both

properties and received commissions for his services regarding both

properties.

Fourth, Debtors did not make the required mortgage and tax

payments. The Modoc Avenue property was lost in a non-judicial

foreclosure sale. The lender has not attempted to collect any

deficiency. The Carlton Avenue property went into default, but has

not yet been sold in foreclosure. A consensual sale is pending,

but has not closed because of a lis pendens recorded regarding

Finau’s claims.

Fifth, Debtors filed a chapter 13 case sometime prior to April

2004 in an effort to save the properties. Because Finau was the

borrower on the two properties, her name appeared on a credit

report as having filed a bankruptcy. Finau was working for the

Redwood City government as a probationary employee in April 2004. 

In her employment application, she stated she had never filed

bankruptcy.

Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 3 of 8 
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MEMORANDUM DECISION -4-

When the credit report noted above was brought to the attention of

the City, Finau was fired. Although Finau and Debtors wrote

letters explaining the loan transaction and stating that Finau had

not filed a bankruptcy petition, Finau was not reinstated. Finau

found a new job four months later at a higher salary. She lost

approximately $15,000 in lost wages during her four months of

involuntary unemployment. 

Sixth, Debtors filed the current chapter 7 case on 

April 2, 2004. It is undisputed that Finau had neither formal

notice nor actual knowledge of the bankruptcy before the deadline

for filing a complaint to determine dischargeability. It is also

undisputed that this is a no-asset case in which the trustee made

no distributions to general unsecured creditors. 

In this action, Finau seeks a monetary award against Debtors

and a determination that Debtors’ liability is excepted from

discharge pursuant to section 523 of the Bankruptcy Code. Finau

filed a related action in state court, and recorded a lis pendens

regarding the Carlton Avenue property in connection with that

action. The state-court action has not yet gone to trial.

DISCUSSION

Loss of Employment and Injury to Credit

Finau first seeks damages for her lost employment and for

injury to her credit rating resulting from the unfortunate events

described above. I decline to make any award to Finau on these

claims. With respect to the alleged injury to her credit rating, I

find that Finau failed to submit sufficient evidence of damages. 

With respect to Finau’s claim for lost employment, I find that

Finau’s losing her job was not a legally foreseeable consequence of

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MEMORANDUM DECISION -5-

any of the Debtors’ acts. Furthermore, any such liability that I

might impose on that claim could be held nondischargeable only

under section 523(a)(6) as willful and malicious injury. There is

no evidence that Debtors subjectively intended to injure Finau. 

The required malice could be inferred only if Debtors subjectively

knew that injury would necessarily result from their acts. 

Carrillo v. Su (In re Su), 290 F.3d 1140 (9th Cir. 2002). I find

that Debtors had no such knowledge.

Loss of Real Property

Finau next contends that Savio tricked her into conveying the

two properties to Debtors and that she should be awarded the full

value of those properties. This claim is persuasive in part and

unpersuasive in part. 

Finau has no claim to the full value of the properties,

because the parties agreed she would hold bare legal title and that

she would have an equitable interest of only $10,000 in each

property. Debtors, who paid whatever down payment was made and

promised to pay the mortgage and taxes, were the beneficial owners

of any remaining equity in the properties.

Debtors acknowledge that they currently owe Finau $20,000 for

her interests in the two properties. 

 I determine that this $20,000 obligation is nondischargeable

as to Savio under section 523(a)(4). In acting as broker for Finau

in the purchase of the properties, Savio had a fiduciary duty to

take care that she received her full interest in each property. By

taking title to the properties from Finau shortly after the

purchase without giving Finau a lien to preserve her $10,000

interest in each property, Savio deprived Finau of any sure way to

Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 5 of 8 
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MEMORANDUM DECISION -6-

preserve the property interest she was supposed to enjoy. This is

something that Savio, acting as a broker for Finau in the

transaction in which Finau obtained her interest, could not do

without the clearest of warnings to Finau. Although I do not

believe that Savio intended to defraud Finau, I believe that he

misapplied property he had been entrusted to handle in a fiduciary

capacity. That misapplication was a defalcation by a fiduciary

within the meaning of section 523(a)(4). There is no basis to hold

the debt nondischargeable as against Soana Halapio.

I further determine that the Carlton Avenue property was

impressed with a resulting trust from the moment that property was

conveyed from Finau to Debtors, for the purpose of paying Finau her

$20,000 property interest. This is so because both parties

intended that Finau enjoy a $20,000 interest in the two properties,

because Savio while acting as a fiduciary was directly responsible

for the failure to preserve that interest, and because Savio would

otherwise benefit to Finau’s detriment. Under the resulting trust,

Debtors never owned the first $20,000 of equity in that property. 

Thus, such value is not subject to any homestead exemption, and

full title to the property may not be conveyed by Debtors without

first paying that interest, except upon the written consent of

Finau or order of this court. Because the interest was payable

only upon sale or refinance, neither of which has yet occurred,

there is no interest now due on the $20,000 sum.

Possible Deficiency Claim

Finau also seeks to recover from Debtors the full amount of

both promissory notes, on the theory that she is liable to repay

them. This argument is unpersuasive. The lender on the Modoc

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MEMORANDUM DECISION -7-

Avenue property completed a non-judicial foreclosure, and the

evidence indicates that the lender on the Carlton Avenue property

will also proceed via non-judicial foreclosure. The circumstances

in which a lender can obtain any monetary relief after a nonjudicial foreclosure are extremely limited. If that comes to pass,

Finau can seek to amend this judgment on the basis of evidence that

could not have been presented at this trial.

**END OF MEMORANDUM**

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-8-

Court Service List

Howard L. Hibbard

Law Offices of Howard L. Hibbard

22693 Hesperian Blvd. #210

Hayward, CA 94541 

Linnea N. Willis

Law Offices of Linnea N. Willis

25930 Kay Ave, Suite #209

Hayward, CA 94545-2600

Linnea N. Willis

Law Offices of Linnea N. Willis

7677 Oakport Street, suite 1050

Oakland, CA 94621

E. Lynn Schoenmann

800 Powell Street

San Francisco, CA 94108 

Office of the U.S. Trustee

235 Pine Street, Suite 700

San Francisco, CA 94104

Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 8 of 8