Court Opinion

ID: 18769
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:18:20+00
Date Added: 2024-06-11T15:04:44.653607
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT

                         ____________________

                             No. 99-50330
                           Summary Calendar
                         ____________________

IN THE MATTER OF:    HENRY W ATHERTON, III,

                           Debtor,

LAURA ELIZABETH RADCLIFFE,

                           Appellant,

                v.

HENRY W ATHERTON, III,

                           Appellee.

_________________________________________________________________

           Appeal from the United States District Court
                 for the Western District of Texas
                          (A-98-CV-796-JN)
_________________________________________________________________

                           August 25, 1999

Before KING, Chief Judge, HIGGINBOTHAM and STEWART, Circuit
Judges.

PER CURIAM:*

     Laura Radcliffe, the former wife of Henry W. Atherton III,

appeals the district court order affirming the order of the

bankruptcy court that discharged certain debts allegedly owed her

by Atherton.   She argues on appeal that these debts, which are

related to divorce proceedings between Radcliffe and Atherton,

     *
      Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
are non-dischargeable under 11 U.S.C. § 523(a)(2), (a)(4)-(6),

and (a)(15).   For the following reasons, we disagree and affirm

the order of the district court affirming the bankruptcy court’s

order.

                 I.   FACTUAL AND PROCEDURAL BACKGROUND

     Henry W. Atherton III and Elizabeth Radcliffe’s marriage

ended in divorce.     After a trial, the 303rd Judicial District

Court of Dallas County, Texas entered a divorce decree between

the two parties on June 19, 1987.

     Several portions of the divorce decree are relevant to this

appeal.   These portions relate to:     (1) mortgage payments on the

community residence, (2) an award of $30,000 plus interest to

Radcliffe resulting from a breach of “fiduciary” duty by

Atherton, (3) an award of $75,000 plus interest to Radcliffe

intended to “reasonably and fairly compensate [Radcliffe] for her

rightful share of community property and income,” (4) an award of

$25,000 plus interest to Radcliffe due to “acts of malice” by

Atherton, and (5) an award of $20,000 plus interest to Radcliffe

to compensate her for attorneys’ fees.

     The first item noted, the mortgage payments on the community

residence, needs further explanation.     In the divorce decree, the

state trial court ordered that Atherton “shall pay all mortgage

payments pending the sale of this community residence until

payments made by [Atherton] are equal to funds expended by

[Radcliffe] or until the community residence is sold, whichever

occurs first.”    Thereafter, Radcliffe obtained an Order on Motion

                                    2
for Enforcement of Prior Order from the state court on March 21,

1988 which liquidated that portion of the prior divorce decree in

the amount of $11,514.23.    Radcliffe was also awarded $100 in

attorneys’ fees relating to the enforcement order.        In addition,

Radcliffe claims that she paid $47,701.81 in mortgage payments,

that Atherton allegedly owed Radcliffe.         In all, she claims that

“$59,215.44 was part of the mortgage reimbursement due Radcliffe

under the [Divorce] Decree.”1

     Atherton is a debtor in an individual chapter 7 bankruptcy

litigation case pending in bankruptcy court.        Radcliffe brought

her action in the bankruptcy court below under 11 U.S.C. § 523

for determination of the dischargeability of the amounts

allegedly owed by Atherton.       Her complaint was a core proceeding

under § 157(2)(I).   The bankruptcy court, after analyzing

§ 523(a)(2), (a)(4), (a)(5), (a)(6), and (a)(15) of the

Bankruptcy Code and the doctrine of issue preclusion, discharged

all indebtedness owed by Atherton to Radcliffe.        The district

court, after conducting a de novo review, affirmed the bankruptcy

court’s order.   Radcliffe timely appealed.

                            II.    DISCUSSION

     We review the bankruptcy court’s findings of fact for clear

error and its conclusions of law de novo.         See Realty Portfolio,

Inc. v. Hamilton (In re Hamilton), 125 F.3d 292, 295 (5th Cir.

     1
       We note that $11,514.23 plus $100 plus $47,701.81 equals
$59,316.04, not $59,215.44. However, because we conclude infra
that the bankruptcy court did not err in concluding that this
debt was dischargeable, any discrepancy is immaterial.

                                     3
1997).   A finding of fact is clearly erroneous “only if,

considering all the evidence, we are left with the definite and

firm conviction that a mistake has been made.”    Young v. National

Union Fire Ins. Co. (In re Young), 995 F.2d 547, 548 (5th Cir.

1993).   Where, as here, the district court has affirmed the

bankruptcy court’s findings, “[s]trict application of this

standard is particularly appropriate.”     Id.

     Radcliffe argues that various components of Atherton’s debt

to Radcliffe that are evidenced by the divorce decree and two

subsequent orders of the 303rd District Court of Dallas County,

Texas are non-dischargeable under several subsections of 11

U.S.C. § 523(a).    Specifically, Radcliffe points to § 523(a)(2),

(a)(4)-(a)(6), and (a)(15).    We follow the same order as the

bankruptcy court.   First, we consider the application of

§ 523(a)(4) to the $30,000 breach of fiduciary duty award.

Second, we analyze whether the $75,000 and $25,000 are rendered

non-dischargeable under § 523(a)(2) or (a)(6).    Finally, we

consider whether any of the debts are non-dischargeable under §

523(a)(5) or (a)(15).

                        A.   Section 523(a)(4)

     Section 523(a)(4) of the Bankruptcy Code excepts from

discharge any debt “for fraud or defalcation while acting in a

fiduciary capacity, embezzlement, or larceny.”    11 U.S.C.

§ 523(a)(4).   Radcliffe argues that because the state court

divorce decree states that the relationship between Atherton and

herself was “fiduciary in nature,” and because the state court

                                   4
premised its award of $30,000 on its finding that Atherton

“breached a fiduciary duty to” her, § 523(a)(4) should apply to

bar the dischargeability of the $30,000 debt.

       We agree with the bankruptcy court’s resolution of this

issue.    As that court noted, “it is well settled federal

bankruptcy law that for a debt to be found non-dischargeable

under 11 U.S.C. § 523(a)(4), the trust for which the debtor is a

fiduciary must be an express or technical trust.”    See Texas

Lottery Comm’n v. Tran, 151 F.3d 339, 342 (5th Cir. 1998) (“Under

§ 523(a)(4), ‘fiduciary’ is limited to instances involving

express or technical trusts.”) (citing Chapman v. Forsyth, 43

U.S. (2 How.) 202 (1844)).    Thus, a fiduciary-type relationship

stemming from a constructive trust fails to satisfy § 523(a)(4).

See id.

       Whether a trust gives rise to the kinds of fiduciary

obligations referred to in § 523(a)(4) is a question of federal

law.    See Angelle v. Reed (In re Angelle), 610 F.2d 1335, 1341

(5th Cir. 1980).    Thus, a state court’s statement that a

relationship is “fiduciary in nature” is not determinative.      See

id.    Indeed, we have noted that the concept of fiduciary as that

term is used in § 523(a)(4) “is narrower than it is under the

general common law.”    Tran, 151 F.3d at 342.

       With this framework in mind, we conclude that Radcliffe has

failed to prove the existence of a fiduciary relationship under

§ 523(a)(4).    It is true, as Radcliffe argues, that “[t]he

relationship of husband and wife ordinarily is a fiduciary

                                  5
relationship.”    Bohn v. Bohn, 420 S.W.2d 165, 170 (Tex. Civ.

App.--Houston [1st Dist.] 1967, writ dism’d).    However, in Bohn,

the Texas Court of Civil Appeals made clear that any trust

resulting from such a relationship was constructive in nature:

“An unfair transaction between a confider and a confidant or

fiduciary, at least where the confidence is induced by a

fiduciary relationship between the parties, gives rise to a

constructive trust in respect of any unjust enrichment of the

confidant or fiduciary.”     Id. (internal quotation marks omitted).

Further, Texas law imposes no “trust-like duties” on Atherton

that are essential to a finding of non-dischargeability under

§ 523(a)(4).     See Tran, 151 F.3d at 342-43 (stating that “to meet

the requirements of § 523(a)(4), a statutory trust must (1)

include a definable res and (2) impose ‘trust-like’ duties”);

Angelle, 610 F.2d at 1341.    We therefore affirm on this issue.

                    B. Section 523(a)(2) and (a)(6)

     Radcliffe next argues that the $75,000 award intended to

compensate her “for the denial of her rightful share of community

property and income,” and the $25,000 award for “acts of malice”

are non-dischargeable under § 523(a)(2), (a)(4), and (a)(6).

     Radcliffe does not assert the breach of any fiduciary duty

other than that between spouses; we therefore conclude, for the

same reasons as discussed above, that the bankruptcy court

properly determined that § 523(a)(4) does not bar the discharge

of these debts.

     We therefore concentrate on § 523(a)(2) and (a)(6).    These

                                   6
provisions provide that a discharge does not discharge an

individual debtor from any debt–

     (2) for money, property, services, or an extension,
     renewal, or refinancing of credit, to the extent
     obtained by–
          (A) false pretenses, a false representation,
          or actual fraud, other than a statement
          respecting the debtor’s or an insider’s
          financial statement; [or]

. . . .

     (6) for willful and malicious injury by the debtor to
     another entity or to the property of another entity.

     We consider § 523(a)(6) first.    In support of her argument

that § 523(a)(6) applies to bar discharge of the debts, Radcliffe

relies on several findings by the state trial court.

Specifically, Radcliffe relies on the state court’s findings

that:   (1) $270,298 was transferred to Paradigm Financial Group,

Inc., (2) these funds were under the sole control and management

of Atherton, (3) the transfer during the divorce “was done to

deny [Radcliffe] . . . her rightful share of community property

and income,” and (4) these were “acts of malice.”

     Radcliffe argues that the bankruptcy court erred in failing

to give preclusive effect to these findings.   According to

Radcliffe, the state court findings are (1) essential to the

issues in the present proceeding; (2) the result of actual

litigation; and (3) necessary to the resulting state court

judgment.   See Tober Saifer Shoe Co. v. Allman (In re Allman),

735 F.2d 863, 864-65 (5th Cir. 1984) (setting forth requirements

for factual findings to be given preclusive effect).   We agree

with Atherton, however, that we cannot give preclusive effect to

                                   7
these findings because the state court did not make “specific,

subordinate, factual findings on the identical dischargeability

issue in question,” and because “the facts supporting the court’s

findings are [not] discernable from that court’s record.”       Dennis

v. Dennis (In re Dennis), 25 F.3d 274, 278 (5th Cir. 1994).      As

the bankruptcy court recognized, Radcliffe, for whatever reason,

failed to introduce the record of the divorce court proceedings

in this litigation.

     Further, as the bankruptcy court noted, because the word

“‘willful’ in (a)(6) modifies the word ‘injury,’ . . .

nondischargeability takes a deliberate or intentional injury,

not merely a deliberate or intentional act that leads to injury.”

Kawaauhau v. Geiger, 118 S. Ct. 974, 977 (1998).    The state

court’s finding of “acts of malice” does not necessarily satisfy

this definition.   Under Texas law, the definition of “malice” is

much broader than the intentional injury required by Kawaauhau.

See Lone Star Ford, Inc. v. Hill, 879 S.W.2d 116, 122 (Tex. App.-

-Houston [14th Dist.] 1994) (defining malice as “ill will, bad or

evil motive, or such gross indifference to or reckless disregard

of the rights of others as to amount to a willful or wanton act”)

(emphasis added) (internal quotation marks omitted); Likover v.

Sunflower Terrace II, Ltd., 696 S.W.2d 468, 475 (Tex. App.--

Houston [1st Dist.] 1985, no writ) (same).   the issue considered

by the state divorce court, then, does not “encompass[] the same

prima facie elements as the bankruptcy issue.”     In re Dennis, 25
F.3d at 278.   In the end, we agree with the bankruptcy court that

                                 8
“[t]he finding of malice by the State Court is simply not

specific enough to allow this Court to conclude that the finding

was in fact supported by the record and necessarily tried or that

the Debtor acted with the intent to injure [Radcliffe].”

     Similarly, the bankruptcy court did not err in concluding

that § 523(a)(2) does not apply.       Radcliffe’s argument with

respect to the actual fraud exception is essentially the same as

her argument relating to § 523(a)(6); she claims that the state

court’s factual findings relating to Atherton’s transaction with

Paradigm Financial Group, Inc. “clearly conclude[] that Atherton

participated in actual fraud.”

     To prove actual fraud under § 523(a)(2), Radcliffe must

prove that:   “(1) the debtor made representations; (2) at the

time they were made the debtor knew they were false; (3) the

debtor made the representations with the intention and purpose to

deceive [Radcliffe]; (4) that [Radcliffe] relied on such

representations; and (5) that [Radcliffe] sustained losses as a

proximate result of the representations.”       Recoveredge L.P. v.

Pentecost, 44 F.3d 1284, 1293 (5th Cir. 1995) (internal quotation

marks and footnote omitted); see Bank of Louisiana v. Bercier (In

re Bercier), 934 F.2d 689, 692 (5th Cir. 1991).

     Despite Radcliffe’s protestations to the contrary, we agree

with the bankruptcy court that the state divorce decree does not

evidence any factual findings relating to the existence of a

knowingly false statement by Atherton made to deceive Radcliffe,

much less that Radcliffe relied on, and sustained losses because

                                   9
of, that statement.   Radcliffe introduced no evidence on this

point except for the state divorce decree; we therefore find no

merit to her claim that § 523(a)(2) bars discharge of any debt

owed her by Atherton.

                        C.    Section 523(a)(5)

     “Section 523(a)(5) exempts from discharge any debt owed to a

former spouse or child for alimony, maintenance, or support.”

Joseph v. O’Toole (In re Joseph), 16 F.3d 86, 87 (5th Cir. 1994).

Radcliffe argues on appeal that $59,215.44 allegedly owed her by

Atherton relating to mortgage payments made on community property

should be found to be non-dischargeable under this exception.

     We disagree.   First, we note that only $11,614.23 of this

alleged debt is identifiable--$11,514.23 as the amount awarded to

Radcliffe by reason of Atherton’s failure to pay the mortgage

payments that he was ordered to pay by the state court and $100

in attorneys’ fees.   The remainder, $47,101.81 according to

Radcliffe, is not “in connection with a . . . divorce decree or

other order of a court of record,” and therefore does not fall

within the § 523(a)(5) exception.       11 U.S.C. § 523(a)(5) (stating

that to be non-dischargeable, debt must be in connection with

court order or decree).      Rather, it is simply the amount that

Radcliffe claims to be owed in additional mortgage payments and

other expenses paid by her on foreclosure of the community

property.   We agree with the bankruptcy court that “there is

simply no basis whatsoever for this Court to conclude that

[Atherton] has a § 523(a)(5) type obligation to pay [Radcliffe]

                                   10
$47,701.81.”

     We are also unconvinced by Radcliffe’s argument that any of

the remainder of the debt relating to the mortgage payments is

non-dischargeable under § 523(a)(5).    As the bankruptcy court and

Atherton’s appellate brief note, the specifics of Radcliffe’s

argument on this point are unclear.    Radcliffe implies that the

state divorce decree characterized this debt as spousal support.

As Atherton points out, however, “[w]hether a particular

obligation constitutes alimony, maintenance, or support within

the meaning of [§ 523(a)(5)] is a matter of federal bankruptcy

law, not state law.”    Joseph, 16 F.3d at 87 (internal quotation

marks omitted).

     Instead, the debt can only be found to be non-dischargeable

under the support exception if “the award itself reflects a

balancing of the parties’ financial needs.”    Id. at 88.

Radcliffe did not introduce any evidence, other than the divorce

decree, relating to the parties’ financial needs.    Atherton,

however, did introduce evidence relating to Radcliffe’s and his

earning potential, physical condition, and educational

background.    The bankruptcy court, after considering this

evidence, concluded that no part of this debt constituted a

support award.    We will not disturb this finding, as it is amply

supported by the record.    See id. (stating that bankruptcy court

should consider, inter alia, the parties’ earning power, relative

business opportunities, educational background, and physical

                                 11
condition to determine whether an award constitutes support).2

                        D.   Section 523(a)(15)

     Lastly, Radcliffe challenges the bankruptcy court’s

conclusion that no debts owed Radcliffe by Atherton are non-

dischargeable under § 523(a)(15).       Under that provision, a

discharge does not discharge any debt:

     not of the kind described in paragraph (5) that is
     incurred by the debtor in the course of a divorce or
     separation or in connection with a separation
     agreement, divorce decree or other order of a court of
     record, a determination made in accordance with State
     or territorial law by a governmental unit unless–
               (A) the debtor does not have the ability
          to pay such debt from income or property of
          the debtor not reasonably necessary to be
          expended for the maintenance or support of
          the debtor or a dependent of the debtor and,
          if the debtor is engaged in a business, for
          the payment of expenditures necessary for the
          continuation, preservation, and operation of
          such a business; or
               (B) discharging such debt would result
          in a benefit to the debtor that outweighs the
          detrimental consequences to a spouse, a
          former spouse, or child of the debtor[.]

11 U.S.C. § 523(a)(15).      Radcliffe has the initial burden of

proof to show that § 523(a)(15) is applicable to the debt in

question; the burden then shifts to Atherton to prove that one of

the exceptions apply.     See Gamble v. Gamble (In re Gamble), 143
F.3d 223, 226 (5th Cir. 1998).      A bankruptcy court’s finding that

     2
       Radcliffe also appears to claim that the $20,000 award
based on attorneys’ fees is non-dischargeable under § 523(a)(5).
We note that the state court awarded the attorneys’ fees “to
effect an equitable distribution of the estate of the parties,”
not as a support award. In any event, this claim fails for the
same reason as the award based on the mortgage payments. The
bankruptcy court’s finding that, based on the O’Toole factors,
the attorneys’ fees award did not reflect a balancing of the
parties’ financial needs is amply supported by the record.

                                   12
a debtor has proven that one of the exceptions applies is factual

in nature; we can only reverse such a finding for clear error.

See id.

     The bankruptcy court concluded that Radcliffe had fulfilled

her initial burden of showing that § 523(a)(15) facially applied

to the debts in question, other than the $47,101.81 amount

allegedly owed for additional mortgage expenses.     After reviewing

the record, the bankruptcy court then found that Atherton had met

his burden of proving that he is unable to pay the debts from his

disposable income and property.

     We need not decide whether Radcliffe has met her initial

burden with respect to the $47,101.81 amount or any of the other

debts.    It is clear from our independent review of the record

that the bankruptcy court’s factual finding that Atherton lacks

the ability to pay the debts is not clearly erroneous.     As the

bankruptcy court noted, Atherton is unemployed, has no house, no

car, no insurance, and no savings.     We therefore hold that the

bankruptcy court was not clearly in error in determining that

Atherton lacks an ability to pay the debts, and thus that

§ 523(a)(15) does not bar dischargeability of the debts.     See id.

                          III.   CONCLUSION

     For the foregoing reasons, we AFFIRM the order of the

district court affirming the bankruptcy court’s order discharging

all debts owed by Atherton to Radcliffe.

                                  13