Court Opinion

ID: 9373962
Source: CourtListenerOpinion
Date Created: 2023-02-22 16:10:48.212384+00
Date Added: 2024-06-11T17:16:49.878381
License: Public Domain

FILED
                                                                                APR 22 2022
                          NOT FOR PUBLICATION                               SUSAN M. SPRAUL, CLERK
                                                                              U.S. BKCY. APP. PANEL
                                                                              OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

 In re:                                              BAP No. NV-21-1198-TLG
 ANDREW B. PLATT and RUTH ANN
 PLATT,                                              Bk. No. 2:19-bk-17282-BTB
              Debtors.
                                                     Adv. No. 2:19-bk-01125-BTB
 ANDREW B. PLATT,
              Appellant,
 v.                                                  MEMORANDUM∗
 WOODS & ERICKSON LLP,
              Appellee.

               Appeal from the United States Bankruptcy Court
                          for the District of Nevada
                Bruce T. Beesley, Bankruptcy Judge, Presiding

Before: TAYLOR, LAFFERTY, and GAN, Bankruptcy Judges.

                                 INTRODUCTION

      Appellant Andrew B. Platt appeals the bankruptcy court’s judgment

against him finding a debt of $166,735 to his former law firm to be non-

      ∗  This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
dischargeable under 11 U. S. C. § 523(a)(4).1 We VACATE and REMAND

for additional action as required by this memorandum.

                                   DISCUSSION

      Prepetition, Platt was an associate and, as of January 1, 2016, an

alleged partner at the law firm of Woods & Erickson, LLP, a Nevada

Limited Liability Partnership (the “Firm”). During his tenure, he took

payments for legal services where the Firm claims the payments were its

assets. He also allegedly usurped Firm business opportunities and took

other tangible and intangible assets and opportunities from the Firm. These

activities occurred both before and after January 1, 2016.

      Once the Firm discovered the activities, it ousted Platt and sued him

in state court, seeking recovery of actual and punitive damages. Platt

eventually filed a chapter 7 bankruptcy case; the Firm then removed the

state court action to the bankruptcy court, creating adversary proceeding

number 19-01122 (the “State Court Action”). It also initiated a separate

nondischargeability action seeking a judgment under, as relevant for this

appeal, § 523(a)(4). The complaint, as relevant to this appeal, requests

recovery based on alleged breach of fiduciary duty.

      As the matter proceeded towards trial, the bankruptcy court made

two related rulings. First, it refused to consolidate the two adversary

      1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
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proceedings. Second, mere days before trial, it refused to allow amendment

of the complaint to include a § 523(a)(6) conversion claim or to allow a

§ 523(a)(4) claim based on larceny to be a basis for recovery. There is little

to nothing in the record to explain either the bankruptcy court’s analysis in

making these rulings or how they impacted the trial.

      After a six-day trial, the bankruptcy court entered a short judgment

containing cursory findings. It determined that Platt was a partner of the

Firm for part of his tenure, that he acted with the state of mind required for

larceny, and that $166,735 was nondischargeable. This number equates to

amounts allegedly taken when an associate ($31, 815) and as an alleged

partner ($134,920).

      On appeal, this procedural record and the dearth of findings renders

us incapable of answering critical issues, including whether the order on

appeal is final.

      As to finality, both parties to the appeal argue that the State Court

Action was not mooted by the judgment and that the exact amount of the

nondischargeable judgment remains to be resolved. To the extent that the

bankruptcy court liquidated any portion of the nondischargeable

judgment, Platt argues error, saying that the bankruptcy court’s intention

in refusing to consolidate was to reserve the liquidation of the amount of

the nondischargeable claim entirely to the state court. The Firm asserts that

the bankruptcy court appropriately liquidated a portion of the claim

through its trial but intended, notwithstanding the language of the

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judgment, to allow augmentation of the judgment through a final

determination in the State Court Action (which has since been remanded).

Under either view, questions arise as to the finality of the judgment and

our jurisdiction on appeal.

      “Finality for purposes of jurisdiction over ‘as of right’ appeals under

28 U.S.C. § 158(a)(1) in adversary proceedings does not differ from finality

in ordinary federal civil actions under 28 U.S.C. § 1291.” Belli v. Temkin (In

re Belli), 268 B.R. 851, 855 (9th Cir. BAP 2001) (citations omitted). Thus, we

typically lack jurisdiction in an appeal from a merely interlocutory order.

      Remand is appropriate to allow the bankruptcy court to clarify the

situation. Is this judgment the final word as to the existence and amount of

the nondischargeable judgment? If so, how can this position be reconciled

with the decisions to deny consolidation of the two adversary proceedings

and to remand the State Court Action?

      We also note that if finality were the only cause for question, we

would suggest that the bankruptcy court consider certification of the

matter as appropriate for interlocutory review under Civil Rule 54(b)

(applicable via Rule 7054). But other areas of concern arise given the

confusing procedural history and lack of clear findings.

      First, we cannot tell whether the bankruptcy court found

nondischargeability based on breach of fiduciary duty or larceny or both. If

it found larceny, then we cannot square this with its apparent

determination before trial that larceny would not be a basis for

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nondischargeability. And if breach of fiduciary duty, we cannot discern

how this supports the entire amount of the nondischargeable claim that, at

least facially, appears to include moneys taken when Platt was not a

partner. The bankruptcy court should clarify the basis of its

nondischargeability decision. And if based on larceny, it should explain

how this determination squares with its pre-trial determination that

larceny could not be a basis for a nondischargeability determination, or it

should reconsider its decision regarding litigation of claims based on

larceny if a legally appropriate basis for doing so exists.

      Further, as to breach of fiduciary duty, we lack findings that

adequately reflect the court’s reasoning. The record supports a

determination that Platt was a partner at some point in time. But a debt is

nondischargeable as a defalcation in a fiduciary capacity only if a

partnership under Nevada law is tantamount to an express or statutory

trust. True, Nevada statutory law provides that the duties of partners rise

to the level of an express or statutory trust, at least as of July 1, 2006 (See

Nev. Rev. Stat. (“NRS”) § 87.4314). NRS § 87.4336 provides in relevant part:

      2.    A partner’s duty of loyalty to the partnership and the
            other partners is limited to the following:

      (a)   To account to the partnership and hold as trustee for it
            any property, profit or benefit derived by the partner in
            the conduct and winding up of the partnership business
            or derived from a use by the partner of partnership

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            property, including the appropriation of a partnership
            opportunity[.]

      But because the section applies only to partnerships formed on or

after July 1, 2006, it is critical that the bankruptcy court clarify whether the

partnership with Platt is the original Firm partnership formed in 1995 or a

new partnership formed as of January 1, 2016. And if it is the former, then

it is important for the bankruptcy court to explain how an express or

statutory trust arises notwithstanding the inapplicability of NRS § 87.4336.

      The bankruptcy court also failed to explain how the state of mind

required by Bullock v. BankChampaign, N.A., 569 U.S. 267, 269 (2013), was

evidenced. For a debt to be nondischargeable under § 523(a)(4) as a

defalcation, the debtor must possess “a culpable state of mind,” which the

Supreme Court described as “one involving knowledge of, or gross

recklessness in respect to, the improper nature of the relevant fiduciary

behavior.” Id. The reference to larceny may be intended to fill this state of

mind lacuna in the record, but we cannot be certain. The bankruptcy court

should fill the gap on remand.

      In addition, there are questions as to the calculation of the amount of

the nondischargeable debt. Facially, we can discern that it reflects simple

addition of two numbers that were in evidence. But there were other

numbers in evidence, and, depending on the partnership finding, there

may have been appropriate deductions or other offsets. Clarification on

remand is necessary.

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      We acknowledge that we can affirm for any reason supported by the

record, but here the lack of findings and the discord between the

procedural record and the judgment give us too little to go on. Clarity must

be provided by the trial court.

      Finally, we acknowledge that the judge handling the matter through

trial is now retired. We remand to a fresh set of eyes. This is unfortunate,

but we see no alternative. But to be clear, on remand the new judge has all

latitude consistent with due process and applicable law to bring the

required clarity to the case.

                                CONCLUSION

      Based on the foregoing, we VACATE and REMAND for further

action consistent with this memorandum.

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