Court Opinion

ID: 2757051
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:10.213097+00
Date Added: 2024-06-11T10:48:31.086053
License: Public Domain

FILED
                                                           NOV 05 2013
 1                         ORDERED PUBLISHED
                                                       SUSAN M. SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
 2                                                       O F TH E N IN TH C IR C U IT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.      WW-13-1173-DTaKu
                                   )
 7   JOHN PETER MELE,              )      Bk. No.      11-24015-MLB
                                   )
 8                  Debtor.        )      Adv. No.     12-01271-MLB
     ______________________________)
 9                                 )
     JOHN PETER MELE,              )
10                                 )
                    Appellant,     )
11                                 )
     v.                            )      O P I N I O N
12                                 )
     KIMBERLY MELE,                )
13                                 )
                    Appellee.      )
14   ______________________________)
15
                    Argued and Submitted on October 17, 2013
16                           at Seattle, Washington
17                          Filed - November 5, 2013
18             Appeal from the United States Bankruptcy Court
                   for the Western District of Washington
19
          Honorable Marc L. Barreca, Bankruptcy Judge, Presiding
20
21
     Appearances:     William F. Malaier, Esq. of Nagler & Malaier,
22                    P.S., argued for Appellant John Peter Mele;
                      Appellee Kimberly Mele argued pro se.
23
24
25   Before:   DUNN, TAYLOR, and KURTZ, Bankruptcy Judges.
26
27
28
 1   DUNN, Bankruptcy Judge:
 2
 3        Chapter 131 debtor John Peter Mele (“John”)2 appeals the
 4   bankruptcy court’s decision excepting from his discharge part of
 5   a Washington state court (“State Court”) property allocation
 6   judgment entered in marital dissolution proceedings with his
 7   former wife, Kimberly Mele (“Kimberly”), under § 523(a)(4).     We
 8   REVERSE.
 9                         I. FACTUAL BACKGROUND
10        The underlying facts in this appeal are not in dispute,3 and
11   they reflect a distressing but, unfortunately, all-too-common
12   scenario.
13        The parties were married for nineteen years.   They separated
14   in April 2007 and divorced on April 15, 2009.   They have three
15
16        1
            Unless otherwise indicated, all chapter and section
17   references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101-
     1532, and all “Rule” references are to the Federal Rules of
18   Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of
19   Civil procedure are referred to as “Civil Rules.”

20        2
            Because both of the parties retain the same surname, we
     refer to them by their first names to identify them. No
21
     disrespect is intended by their first name references.
22        3
            Our summary of the facts relies primarily on the “Facts”
23   set forth in the bankruptcy court’s Memorandum Decision
     (“Memorandum Decision”), entered on March 8, 2013, on the
24
     parties’ cross-motions for summary judgment in adversary
25   proceeding no. 12-01271-MLB (“Adversary Proceeding”), which in
     turn relied on the findings and conclusions of the State Court in
26   its oral ruling on March 17, 2009 (“Oral Findings”) and in its
27   written opinion (“Opinion”) entered on April 15, 2009, in the
     State Court marital dissolution proceeding between the parties,
28   King County Superior Court Case No. 08-3-01695-5 SEA.

                                    -2-
 1   children.
 2        Both parties are trained in the law, but different obstacles
 3   leave each of them in circumstances where they do not realize
 4   their full professional potential.     Kimberly works as a house
 5   counsel for Costco, but she has multiple sclerosis, a condition
 6   that has resulted in her being on permanent long term disability.
 7   At best, she works part time.   When Kimberly works part time, her
 8   salary is adjusted with her disability compensation.
 9        John worked at a the Ryan Swanson law firm, where he
10   ultimately became a partner.    He left the law firm to work for a
11   start-up company, Electric Hendrix.     His employment at Electric
12   Hendrix ended shortly after he was disbarred and his new employer
13   was sued successfully for copyright infringement by the family of
14   rock guitarist Jimmy Hendrix.
15        John apparently has decided that he wishes to return to
16   college to obtain credentials to become a public school teacher
17   and, ultimately, a school administrator.     In addition to
18   attending school, he works as a tutor, at seventeen dollars an
19   hour, a job he located from a sign he saw posted on the street.
20   The State Court found that John had not made any attempt to
21   locate current employment consistent with his training and
22   background and found that he was voluntarily underemployed.
23        After the parties separated, they engaged in what the State
24   Court characterized as a “collaborative process” with the
25   objective of avoiding litigation.      It did not work out that way.
26   Early in the marital dissolution proceeding, the State Court
27   entered a temporary order that stated, “Both parties are
28   restrained and enjoined from transferring, removing, encumbering,

                                      -3-
 1   concealing or in any way disposing of any property except in the
 2   usual course of business or for the necessities of life . . . .”
 3        John had approximately $274,000 in a 401(k) account
 4   (“401(k)”) from his years of service at Ryan Swanson, which was
 5   the marital community’s largest asset.   During the early stages
 6   of the marital dissolution proceeding, he liquidated the 401(k)
 7   and spent almost all of the funds in a year’s time.   In its Oral
 8   Findings, the State Court made the following findings, confirmed
 9   in the Opinion, regarding the dissipation of the 401(k) funds:
10        The evidence is unclear to this court how he [John]
          spent that money, but it is clear that he did not spend
11        that money to support the community. Without
          employment except for the tutoring, he has still been
12        able to purchase a 2008 Nissan SUV, a new I-phone,
          spend hundreds per month on comic books and related
13        expenses.
               At some point early in this process, he
14        unilaterally stopped paying . . . child support and any
          support for the community.
15
16   Oral Findings, at p.6.   During this same period, he withdrew
17   $30,000 from community funds, which he spent for his own
18   purposes.   Opinion, at p.7.
19        Following a nine-day trial, the State Court entered a Decree
20   of Dissolution (“Decree”) of John and Kimberly’s marriage.     The
21   Decree included detailed analyses and calculations as to the
22   parties’ separate and community property.   As the bankruptcy
23   court noted, net community assets totaled $584,147, and the State
24   Court ascribed $250,002 of the net community assets to Kimberly
25   and $334,145 of the net community assets to John.   However,
26   consistent with the State Court’s Oral Findings, $274,607 of
27   funds “inappropriately withdrawn from the community [401(k)] and
28   spent by [John]” were treated as a “pre-distribution” to him.

                                     -4-
 1   Memorandum Decision, at p.3.   Accordingly, the 401(k) funds that
 2   John appropriated for his own use constituted approximately 82%
 3   of the net community assets ascribed to him.4    Id.
 4        Kimberly was allocated less of the net community assets
 5   ($250,002) than John ($334,145) in the State Court’s accounting,
 6   but the State Court ultimately determined in the Decree that
 7   Kimberly was entitled to 60% of the net community assets.
 8   Accordingly, the State Court entered a property settlement
 9   judgment (“Property Settlement Judgment”) in favor of Kimberly
10   and against John in the amount of $100,486.     Memorandum Decision,
11   at p.4.
12        John filed his chapter 13 petition on December 5, 2011.
13   Kimberly filed a claim in John’s bankruptcy case totaling
14   $208,953.06, $135,746.38, including accrued interest, from the
15   unpaid Property Settlement Judgment, and $73,206.20 for
16   attorney’s fees awarded against John in the marital dissolution
17   proceeding.   Kimberly initiated the Adversary Proceeding on
18   March 30, 2012, seeking to have portions of her claim excepted
19   from John’s discharge under §§ 523(a)(2)(A), (a)(4), (a)(5),
20   (a)(6), and (a)(15).   On May 11, 2012, Kimberly filed an amended
21   complaint (“Amended Complaint”) in the Adversary Proceeding
22   limiting her exception to discharge claims against John to
23   §§ 523(a)(4) and (a)(5).
24        John filed an objection to Kimberly’s claim in his main
25   case, and the bankruptcy court ultimately determined that no
26
27        4
            $274,607 (401(k) funds spent by John) ÷ $334,145 (net
28   community assets ascribed to John) = .8218, or 82.18%.

                                     -5-
 1   portion of Kimberly’s claim constituted a “domestic support
 2   obligation” for purposes of § 101(14A).    On May 24, 2012, the
 3   bankruptcy court entered an order disallowing Kimberly’s claim as
 4   a priority claim under § 507(a)(1)(A), but allowing it as a
 5   nonpriority general unsecured claim.    This order has not been
 6   appealed.
 7        John subsequently moved for summary judgment on both of the
 8   remaining claims stated in the Amended Complaint.    Kimberly
 9   cross-moved for summary judgment on her § 523(a)(4) claim and
10   withdrew the § 523(a)(5) claim based on the bankruptcy court’s
11   ruling on John’s objection to her claim.
12        After considering the parties’ memoranda and declarations in
13   support of their opposing motions and after hearing oral argument
14   on February 15, 2013, the bankruptcy court granted and denied in
15   part both of the parties’ motions.    The bankruptcy court
16   concluded that under Washington common law, married spouses
17   “stand in a trust relationship with one another and have
18   fiduciary duties to manage community property for the benefit of
19   the community interest.”   Memorandum Decision, at p.8.   The
20   bankruptcy court further concluded that John had fiduciary
21   obligations to Kimberly when he liquidated and spent the 401(k)
22   funds.   The bankruptcy court found that John’s “bad acts” in
23   dealing with the 401(k) funds constituted a defalcation for
24   purposes of § 523(a)(4) in that he breached the marital trust
25   relationship with Kimberly and breached his fiduciary duty to the
26   marital community.   Memorandum Decision, at p.9.
27        However, since the $274,607 401(k) funds represented only
28   82.18% of the net community assets initially ascribed by the

                                     -6-
 1   State Court to John in the Decree, the bankruptcy court found
 2   that only 82.18% of the net community assets ascribed to John
 3   were “tainted” by his defalcation.     Memorandum Decision, at p.
 4   10.   Accordingly, the bankruptcy court excepted only 82.18% of
 5   the Property Settlement Judgment amount, or $82,579.39, plus
 6   interest, from John’s chapter 13 discharge under § 523(a)(4).
 7   Memorandum Decision at p.11.    The bankruptcy court entered an
 8   agreed form of order (“Order”) granting in part and denying in
 9   part the parties’ respective cross-motions for summary judgment
10   on March 26, 2013.
11         John filed a timely Notice of Appeal of the Order on
12   April 9, 2013.    Kimberly did not file a cross-appeal.
13                             II. JURISDICTION
14         The bankruptcy court had jurisdiction under 28 U.S.C.
15   §§ 1334 and 157(b)(1) and (b)(2)(I).     We have jurisdiction under
16   28 U.S.C. § 158.
17                                III. ISSUES
18         1.   Did the bankruptcy court apply the appropriate intent
19   standard in concluding that John had committed a “defalcation” to
20   except a portion of John’s debt to Kimberly from discharge under
21   § 523(a)(4)?5
22         2.   Did the bankruptcy court err in concluding that under
23   Washington common law, the marital relationship is in the nature
24
25
           5
            This issue was not raised by John but was discussed by
26   Kimberly in light of the decision of the Supreme Court in Bullock
27   v. BankChampaign, N.A., 133 S. Ct. 1754 (2013), issued after the
     bankruptcy court had issued its Memorandum Decision and entered
28   the Order.

                                      -7-
 1   of an “express” or “technical” trust, making spouses fiduciaries
 2   with respect to one another so long as the marital relationship
 3   continues for purposes of exception to discharge claims under
 4   § 523(a)(4)?6
 5                           IV. STANDARDS OF REVIEW
 6        We review a bankruptcy court’s legal conclusions, including
 7   its interpretation of provisions of the Bankruptcy Code and state
 8   law, de novo.    Roberts v. Erhard (In re Roberts), 331 B.R. 876,
 9   880 (9th Cir. BAP 2005), aff’d, 241 F. App’x 420 (9th Cir. 2007).
10   Likewise, we review de novo a bankruptcy court’s decision to
11   grant in whole or in part summary judgment.       Marciano v. Fahs (In
12   re Marciano), 459 B.R. 27, 35 (9th Cir. BAP 2011), aff’d, 708
13   F.3d 1123 (9th Cir. 2013).    De novo review requires that we
14   consider a matter anew, as if no decision had been rendered
15   previously.     United States v. Silverman, 861 F.2d 571, 576 (9th
16   Cir. 1988); B-Real, LLC v. Chaussee (In re Chaussee), 399 B.R.
17   225, 229 (9th Cir. BAP 2008).
18                                V. DISCUSSION
19        The record reflects that John’s conduct in liquidating and
20   spending the 401(k) funds entirely for himself without any
21
22        6
            Kimberly raises a further issue in her brief, arguing that
23   John breached fiduciary duties under ERISA to manage the 401(k)
     funds for the benefit of the marital community. This issue was
24
     not raised before, and not considered by, the bankruptcy court.
25   Our review does not indicate that the factual or legal issues
     implicated by this argument were adequately addressed in the
26   bankruptcy court record. Accordingly, it is not appropriate for
27   this Panel to consider this issue on appeal. See, e.g., Lowery
     v. Channel Communications, Inc. (In re Cellular 101, Inc.), 539
28   F.3d 1150, 1156 (9th Cir. 2008).

                                       -8-
 1   benefit to the marital community was both irresponsible and
 2   reprehensible.    The question in this appeal is whether that
 3   conduct supports an exception to his chapter 13 discharge
 4   consistent with the specific provisions of § 523(a)(4).
 5   1.   Generally Applicable Standards in Exception to Discharge
 6   Litigation
 7         One of the major policy objectives of the Bankruptcy Code is
 8   to provide the “honest but unfortunate” debtor with a fresh
 9   start.   Bugna v. McArthur (In re Bugna), 33 F.3d 1054, 1059 (9th
10   Cir. 1994), citing Grogan v. Garner, 498 U.S. 279, 286-87 (1991).
11   Accordingly, the discharge provisions of the Bankruptcy Code are
12   interpreted liberally in favor of debtors.    In re Bugna, 33 F.3d
13   at 1059.   “[E]xceptions to discharge ‘should be confined to those
14   plainly expressed.’”    Kawaauhau v. Geiger, 523 U.S. 57, 62
15   (1998), quoting Gleason v. Thaw, 236 U.S. 558, 562 (1915).      “In
16   determining whether a particular debt falls within one of the
17   exceptions of section 523, the statute should be strictly
18   construed against the objecting creditor and liberally in favor
19   of the debtor.”    4 Collier on Bankruptcy ¶ 523.05 (Alan N.
20   Resnick & Henry J. Sommer eds., 16th ed. 2013).    Generally, a
21   creditor seeking to except a debt from the debtor’s discharge
22   bears the burden of proof to establish by a preponderance of the
23   evidence all of the elements of the statutory exception to
24   discharge upon which the creditor relies.    See Grogan v. Garner,
25   498 U.S. 279 (1991).
26   2.   Section 523(a)(4) Elements and Standards
27         Section 523(a)(4) provides that:
28         (a) A discharge under section 727 . . . or 1328(b) of

                                      -9-
 1        this title does not discharge an individual debtor from
          any debt – . . . (4) for fraud or defalcation while
 2        acting in a fiduciary capacity, embezzlement, or
          larceny . . . .
 3
 4   A debt is excepted from discharge under § 523(a)(4) where “1) an
 5   express trust existed, 2) the debt was caused by fraud or
 6   defalcation, and 3) the debtor acted as a fiduciary to the
 7   creditor at the time the debt was created.”   Otto v. Niles (In re
 8   Niles), 106 F.3d 1456, 1459 (9th Cir. 1997), quoting Klingman v.
 9   Levinson, 831 F.2d 1292, 1295 (7th Cir. 1987).   “Case law makes
10   clear that the broad, general definition of fiduciary – a
11   relationship involving confidence, trust and good faith – is
12   inapplicable in the context of exception to a bankruptcy
13   discharge.”   Utnehmer v. Crull (In re Utnehmer), ___ B.R. ___,
14   ___, 2013 WL 5573198, at *5 (9th Cir. BAP 2013), citing Ragsdale
15   v. Haller, 780 F.2d 794, 796 (9th Cir. 1986).
16        The question as to whether the debtor is or was a
17   “fiduciary” for purposes of a claim under § 523(a)(4) is governed
18   by federal law.   Cal-Micro, Inc. v. Cantrell (In re Cantrell),
19   329 F.3d 1119, 1125 (9th Cir. 2003), citing Lee-Benner v. Gergely
20   (In re Gergely), 110 F.3d 1448, 1450 (9th Cir. 1997).    “[T]he
21   fiduciary relationship must be one arising from an express or
22   technical trust that was imposed before and without reference to
23   the wrongdoing that caused the debt.”   Lewis v. Scott (In re
24   Lewis), 97 F.3d 1182, 1185 (9th Cir. 1996), citing Ragsdale, 780
25   F.2d at 796; Davis v. Aetna Accept. Co., 293 U.S. 328, 333
26   (1934).   We consult state law to determine whether the requisite
27   trust relationship exists.   In re Cantrell, 329 F.3d at 1125,
28   citing In re Lewis, 97 F.3d at 1185, and Ragsdale, 780 F.2d at

                                    -10-
 1   796.
 2   3.   The Intent Standard in Light of the Supreme Court’s Bullock
 3   Decision
 4          Before we address the issues as to whether the marital
 5   relationship under Washington law satisfies the “express” or
 6   “technical” trust and fiduciary elements of a § 523(a)(4)
 7   exception to discharge claim, we note a change in the law that
 8   occurred after the bankruptcy court issued its Memorandum
 9   Decision with important implications in this appeal.
10          In May 2013, the Supreme Court decided Bullock v.
11   BankChampaign, N.A., 133 S. Ct. 1754 (2013).    The Bullock
12   decision effectively overruled the line of Ninth Circuit
13   authority culminating in In re Lewis, 97 F.3d at 1186-87, holding
14   that a debtor who failed to account to a creditor to whom he or
15   she owed a fiduciary duty need not have a particular state of
16   mind or bad intent to be subject to an exception to discharge for
17   a “defalcation” under § 523(a)(4).     The Supreme Court held that
18   the term “defalcation:”
19          includes a culpable state of mind requirement akin to
            that which accompanies application of the other terms
20          in the same statutory phrase. We describe that state
            of mind as one involving knowledge of, or gross
21          recklessness in respect to, the improper nature of the
            relevant fiduciary behavior.
22
23   Bullock, 133 S. Ct. at 1757.
24          In the State Court case, after describing some of John’s
25   personal purchases during the year period in which he dissipated
26   the 401(k) funds, which included a 2008 Nissan SUV, a new I-
27   phone, and comic books and related expenses, the State Court
28   found that John did not spend the 401(k) funds to support the

                                     -11-
 1   marital community or to pay child support.   The State Court’s
 2   Oral Findings and written Opinion express implicit disapproval of
 3   John’s actions in spending the 401(k) funds for his personal use.
 4   However, the State Court did not make any specific findings as to
 5   John’s mental state in dissipating the 401(k) funds.   In the
 6   Memorandum Decision, the bankruptcy court concluded, consistent
 7   with the State Court determinations, that John had
 8   inappropriately withdrawn the 401(k) funds from the community and
 9   spent them.   The bankruptcy court further concluded that John’s
10   “bad acts” were the “most significant component” in the State
11   Court’s decision to impose the Property Settlement Judgment.     The
12   bankruptcy court’s ultimate conclusion was that John had
13   committed a defalcation for purposes of § 523(a)(4) that
14   supported the decision to except a portion of the Property
15   Settlement Judgment from his chapter 13 discharge.   However, it
16   expressly relied on the In re Lewis defalcation standards in
17   reaching that conclusion.
18        The bankruptcy court did not have the opportunity to address
19   the enhanced intent standard adopted by the Supreme Court in
20   Bullock in concluding that John had committed a defalcation,
21   resulting in an exception to his discharge under § 523(a)(4) for
22   a portion of the Property Settlement Judgment.   Accordingly, at
23   the very least, we are required to vacate the Order and remand
24   this matter for further proceedings to address the Bullock intent
25   standard.
26   4.   Washington Law and the “Express” or “Technical” Trust
27   Requirement
28        However, we ultimately determine that there is a more

                                    -12-
 1   fundamental problem with the bankruptcy court’s analysis in the
 2   Memorandum Decision supporting the Order that requires reversal.
 3   We conclude that Washington common law does not make marriage an
 4   “express” or “technical” trust relationship that necessarily
 5   makes married spouses fiduciaries of the marital community for
 6   purposes of the exception to discharge provisions of § 523(a)(4).
 7        In determining whether the requisite trust relationship
 8   exists for an exception to discharge under § 523(a)(4), we look
 9   to state law.   Honkanen v. Hopper (In re Honkanen), 446 B.R. 373,
10   379 (9th Cir. BAP 2011).   The bankruptcy court determined that
11   married spouses stand in a trust relationship to one another
12   without specifying the nature of their relationship as an
13   “express” or “technical” trust.
14        Under Washington law, the requirements for creating a trust
15   are established by statute.   Revised Code of Washington (“RCW”)
16   § 11.98.008, entitled “Trust creation – Methods,” states:
17        A trust may be created by:
               (1) Transfer of property to another person as
18        trustee during the trustor’s lifetime or by will or
          other disposition taking effect upon the trustor’s
19        death;
               (2) Declaration by the owner of property that the
20        owner holds identifiable property as trustee; or
               (3) Exercise of a power of appointment in favor of
21        a trustee. (Emphasis added.)
22   RCW § 11.98.011, entitled “Trust creation – Requirements,” states
23   among other provisions that, “A trust is created only if: . . .
24   (b) the trustor indicates an intention to create the trust.”
25   (Emphasis added.)   Finally, RCW § 11.98.014, entitled “Trust
26   creation – Oral trusts,” provides that, “Except as required by a
27   statute other than this title, a trust need not be evidenced by a
28   trust instrument, but the creation of an oral trust and its terms

                                    -13-
 1   may be established only by clear, cogent, and convincing
 2   evidence.”   (Emphasis added.)   Existence of a marital
 3   relationship in Washington simply does not, of itself, satisfy
 4   any of the highlighted statutory requirements for the
 5   establishment of an express trust under Washington law.    See,
 6   e.g., Smith v. Fitch, 25 Wash. 2d 619, 626-27, 171 P.2d 682, 686
 7   (Wash. 1946).   Accordingly, we conclude as a matter of law that
 8   the marital community of the parties, when they were married
 9   spouses, did not constitute an express trust relationship for
10   purposes of § 523(a)(4).
11        The issue then becomes whether the relationship between
12   married spouses is appropriately characterized as a “technical”
13   trust relationship.   As opposed to an “express” trust, created by
14   the covenants of the parties, a “technical” trust is a trust
15   imposed by law.   In re Lewis, 97 F.3d at 1185-86; 4 Collier on
16   Bankruptcy ¶ 523.10[1][d] (Alan N. Resnick & Henry J. Sommer
17   eds., 16th ed. 2013).   There is Ninth Circuit authority for the
18   proposition that whether a technical trust exists can be
19   determined with reference to a state’s statute and/or common law.
20   See, e.g., Lewis v. Short (In re Short), 818 F.2d 693, 695-96
21   (9th Cir. 1987); Ragsdale, 780 F.2d at 796-97.
22        Recognizing that there was no case authority directly on
23   point, the bankruptcy court in its Memorandum Decision cited Lam
24   v. Lam (In re Lam), 364 B.R. 379 (Bankr. N.D. Cal. 2007), for the
25   proposition that in California, married spouses are “fiduciaries”
26   for purposes of satisfying the elements of a § 523(a)(4) claim.
27   However, also as recognized by the bankruptcy court, in
28   California, the fiduciary relationship between spouses is

                                      -14-
 1   established by statute.    See California Family Code (“Cal. Fam.
 2   Code”) §§ 721, 1100(e) and 1101(a).7      There are no comparable
 3
          7
 4            Cal. Fam. Code § 721 provides:
 5        (a) Subject to subdivision (b), either husband or wife may
 6   enter into any transaction with the other, or with any other
     person, respecting property, which either might if unmarried.
 7        (b) . . . [I]n transactions between themselves, a husband
     and wife are subject to the general rules governing fiduciary
 8   relationships which control the actions of persons occupying
 9   confidential relations with each other. This confidential
     relationship imposes a duty of the highest good faith and fair
10   dealing on each spouse, and neither shall take any unfair
     advantage of the other. This confidential relationship is a
11
     fiduciary relationship subject to the same rights and duties of
12   nonmarital business partners, as provided in Sections 16403,
     16404, and 16503 of the Corporations Code, including, but not
13   limited to, the following:
14             (1) Providing each spouse access at all times to
          any books kept regarding a transaction for the purposes
15        of inspection and copying.
               (2) Rendering upon request, true and full
16
          information of all things affecting any transaction
17        which concerns the community property. Nothing in this
          section is intended to impose a duty for either spouse
18        to keep detailed books and records of community
19        property transactions.
               (3) Accounting to the spouse, and holding as a
20        trustee, any benefit or profit derived from any
          transaction by one spouse without the consent of the
21        other spouse which concerns the community property.
22
     Cal. Fam. Code § 1100(e) provides:
23
          (e) Each spouse shall act with respect to the other
24
          spouse in the management and control of the community
25        assets and liabilities in accordance with the general
          rules governing fiduciary relationships which control
26        the actions of persons having relationships of personal
27        confidence as specified in Section 721, until such time
          as the assets and liabilities have been divided by the
28                                                      (continued...)

                                     -15-
 1   provisions under Washington statutes to establish the marital
 2   relationship as an express trust or fiduciary relationship.
 3        The bankruptcy court also cited In re Short, 818 F.2d 693
 4   (9th Cir. 1987), for the propositions that the trust relationship
 5   established by Washington law for partners in a partnership
 6   extended to joint venturers in a real property development joint
 7   venture, and “the Washington courts have also expanded the duties
 8   of partners beyond those required by the literal language of the
 9   state statute.”    Id. at 695.     Accordingly, even though Revised
10   Code of Washington (“RCW”) § 26.16.030,8 which states provisions
11
          7
12         (...continued)
          parties or by a court. This duty includes the
13        obligation to make full disclosure to the other spouse
14        of all material facts and information regarding the
          existence, characterization, and valuation of all
15        assets in which the community has or may have an
16        interest and debts for which the community is or may be
          liable, and to provide equal access to all information,
17        records, and books that pertain to the value and
          character of those assets and debts, upon request.
18
19   Cal. Fam. Code § 1101(a) further provides:

20        (a) A spouse has a claim against the other spouse for
          any breach of the fiduciary duty that results in
21
          impairment to the claimant spouse’s present undivided
22        one-half interest in the community estate, including,
          but not limited to, a single transaction or a pattern
23        or series of transactions, which transaction or
24        transactions have caused or will cause a detrimental
          impact to the claimant spouse’s undivided one-half
25        interest in the community estate.
26        8
              RCW 26.16.030 provides:
27
     Community property defined - Management and control.
28                                                      (continued...)

                                        -16-
 1
 2
          8
           (...continued)
 3
     Property not acquired or owned, as prescribed in RCW 26.16.010
 4   and 26.16.020, acquired after marriage or after registration of a
     state registered domestic partnership by either domestic partner
 5   or either husband or wife or both, is community property. Either
 6   spouse or either domestic partner, acting alone, may manage and
     control community property, with a like power of disposition as
 7   the acting spouse or domestic partner has over his or her
     separate property, except:
 8
 9   (1) Neither person shall devise or bequeath by will more than
     one-half of the community property.
10
     (2) Neither person shall give community property without the
11
     express or implied consent of the other.
12
     (3) Neither person shall sell, convey, or encumber the community
13   real property without the other spouse or other domestic partner
14   joining in the execution of the deed or other instrument by which
     the real estate is sold, conveyed, or encumbered, and such deed
15   or other instrument must be acknowledged by both spouses or both
     domestic partners.
16
17   (4) Neither person shall purchase or contract to purchase
     community real property without the other spouse or other
18   domestic partner joining in the transaction of purchase or in the
19   execution of the contract to purchase.

20   (5) Neither person shall create a security interest other than a
     purchase money security interest as defined in RCW 62A.9-107 in,
21   or sell, community household goods, furnishings, or appliances,
22   or a community mobile home unless the other spouse or other
     domestic partner joins in executing the security agreement or
23   bill of sale, if any.
24
     (6) Neither person shall acquire, purchase, sell, convey, or
25   encumber the assets, including real estate, or the good will of a
     business where both spouses or both domestic partners participate
26   in its management without the consent of the other: PROVIDED,
27   That where only one spouse or one domestic partner participates
     in such management the participating spouse or participating
28                                                      (continued...)

                                   -17-
 1   for the management and control of community property during
 2   marriage, does not specify that the relationship between spouses
 3   is a “trust” or “fiduciary” relationship, the bankruptcy court
 4   concluded that Washington courts have “expanded the duties of
 5   [spouses] beyond those required by the literal language of the
 6   state statute.”   Memorandum Decision, at p.7; citing, with
 7   modification as noted, In re Short, 818 F.2d at 695.
 8        The bankruptcy court then quoted from various Washington
 9   court decisions to the effect that the relationship between
10   married spouses is a relationship of trust imposing fiduciary
11   duties to one another and to the marital community.    See, e.g.,
12   In re Marriage of Chumbley, 150 Wash. 2d 1, 9, 74 P.3d 129, 133
13   (Wash. 2003) (“A spouse is required to act in good faith when
14   managing community property, and a disposition of community funds
15   is within the scope of a spouse’s authority to act alone only if
16   he or she acts ‘in the community interest.’”), quoting Schweitzer
17   v. Schweitzer, 81 Wash. App. 589, 597, 915 P.2d 575, 579-80
18   (Wash. Ct. App. 1996); Peters v. Skalman, 27 Wash. App. 247, 251,
19   617 P.2d 448, 452 (Wash. Ct. App. 1980) (Community property “is a
20   special form of partnership with the spouses not only owing each
21   other the highest fiduciary duties, but also with the husband
22   (and since 1972 the wife) charged with the statutory duty to
23   manage and control community assets for the benefit of the
24
          8
25         (...continued)
     domestic partner may, in the ordinary course of such business,
26   acquire, purchase, sell, convey or encumber the assets, including
27   real estate, or the good will of the business without the consent
     of the nonparticipating spouse or nonparticipating domestic
28   partner.

                                    -18-
 1   community.”); In the Marriage of Hadley, 88 Wash. 2d 649, 665,
 2   565 P.2d 790, 799 (Wash. 1977) (Horowitz, A.J., dissenting) (“The
 3   relationship between a husband and wife after marriage is not and
 4   is not expected to be an arm’s length relationship.       That
 5   relationship is one of trust and confidence in which the managing
 6   husband stands in a fiduciary relationship to his wife.”); and In
 7   the Marriage of Funk, 2007 WL 4112210, at *4 (Wash. Ct. App. Nov.
 8   20, 2007) (unpublished) (“The management and control of community
 9   property belongs to both spouses.      RCW 26.16.030.   Each spouse
10   stands in a relationship of trust to the other and, even after
11   separation, owes a fiduciary duty to manage and preserve the
12   community assets for the benefit of the community.”), citing
13   Peters v. Skalman, 27 Wash. App. at 251, 617 P.2d at 452.
14        Notably, in none of the cited Washington court authorities
15   was the nature of the marital relationship an issue on appeal.
16   Chumbley and Schweitzer concerned community versus separate
17   property issues.    Peters v. Skalman was an adverse possession
18   case.    Hadley and Funk presented issues as to appropriate
19   property divisions in the marital dissolution context.
20   Accordingly, the quoted statements from Washington decisions
21   relied on by the bankruptcy court to establish the fiduciary
22   nature of the marital relationship appear to be no more than
23   dicta.    In addition, the colorful earlier era decision of the
24   Washington Supreme Court in Marston v. Rue, 92 Wash. 129, 159 P.
25   111 (Wash. 1916), cited by Kimberly in Appellee’s Brief,
26   concerned the husband’s suit to recover a motor car from the
27   party who bought it from his wife.      The wife had sold it out from
28   under the husband’s mistress, who was “flaunting herself

                                     -19-
 1   intolerably” in the vehicle.    Id. at 130, 159 P. at 112.   The
 2   decision has plenty to say about the Marstons’ marriage but
 3   nothing that could be characterized as dispositive about the
 4   nature of the marital relationship.
 5        We recognize the intuitive appeal of the bankruptcy court’s
 6   conclusion that marriage establishes a trust relationship between
 7   spouses that entails the imposition of fiduciary duties.
 8   However, in the absence of a Washington statute that
 9   characterizes marriage as a trust relationship or that describes
10   the obligations of spouses in managing and disposing of community
11   property as fiduciary in nature, we do not see how the incidental
12   characterizations of the marital relationship and its obligations
13   in Washington common law decisions, upon which the bankruptcy
14   court relied for its conclusion, constitute more than generalized
15   descriptions of fiduciary duty that do not meet the “express” or
16   “technical” trust standard required as an element of a
17   § 523(a)(4) claim.    See Ragsdale, 780 F.2d at 796 (“The broad,
18   general definition of fiduciary – a relationship involving
19   confidence, trust and good faith – is inapplicable in the
20   dischargeability context.”).
21        In addition, Kimberly’s assertion of a § 523(a)(4) claim in
22   this case cuts against the scheme of the Bankruptcy Code.       If
23   John had sought protection under chapter 7, the Property
24   Settlement Judgment would be excepted from his discharge under
25   § 523(a)(15).9    In seeking relief under chapter 13, John is
26
27        9
              Section 523(a)(15) provides that:
28                                                        (continued...)

                                     -20-
 1   attempting to take advantage of the shrunken “superdischarge”
 2   available only in chapter 1310.       Debts arising from marital
 3   property settlement obligations are dischargeable in chapter 13,
 4   as they are not in chapter 7.       “‘[T]he dischargeability of debts
 5   in chapter 13 that are not dischargeable in chapter 7 represents
 6   a policy judgment that [it] is preferable for debtors to attempt
 7   to pay such debts to the best of their abilities over three years
 8   rather than for those debtors to have those debts hanging over
 9   their heads indefinitely, perhaps for the rest of their lives.’”
10   Pa. Pub. Welfare Dept. v. Davenport, 495 U.S. 552, 563 (1990),
11
12
             9
           (...continued)
13        (a) A discharge under section 727 . . . of this title does
14   not discharge an individual debtor from any debt – . . . (15) to
     a . . . former spouse . . . of the debtor and not of the kind
15   described in paragraph 5 [a domestic support obligation] that is
16   incurred by the debtor in the course of a divorce or separation
     or in connection with a separation agreement, divorce decree or
17   other order of a court of record . . . .
18           10
                  Section 1328(a)(2) in relevant part currently provides
19   that:

20        [A]s soon as practicable after completion by the debtor
          of all payments under the plan, . . . the court shall
21        grant the debtor a discharge of all debts provided for
22        by the plan . . . except any debt – . . . (2) of the
          kind specified in section 507(a)(8)(C) or in paragraph
23        (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of
          section 523(a); . . . .
24
25   Prior to enactment of the Bankruptcy Abuse Prevention and
     Consumer protection Act of 2005, Pub. L. 109-8, April 20, 2005,
26   119 Stat. 23, the list of exclusions from discharge included in
27   § 1328(a)(2) was much more limited, i.e., “except any debt – (2)
     of the kind specified in paragraph (5), (8), or (9) of Section
28   523(a) of this title.”

                                         -21-
 1   quoting 5 Collier on Bankruptcy ¶ 1328.01[1][c] (15th ed. 1986).
 2        While the bankruptcy court’s decision to except a portion of
 3   the Property Settlement Judgment from John’s chapter 13 discharge
 4   pursuant to § 523(a)(4) as a defalcation of his fiduciary duties
 5   to the marital community between him and Kimberly may be
 6   defensible as a matter of policy, it appears “to override the
 7   balance Congress struck in crafting the appropriate discharge
 8   exceptions for Chapter 7 and Chapter 13 debtors.”   Davenport, 495
 9   U.S. at 563.   It is generally the prerogative of Congress rather
10   than individual bankruptcy courts to make such policy choices.
11
12                              V. CONCLUSION
13        Based on the foregoing analysis and discussion of
14   § 523(a)(4) and relevant authorities, we conclude that the
15   bankruptcy court erred as a matter of law in determining that
16   Washington common law established the marital relationship as in
17   the nature of an express or technical trust, imposing fiduciary
18   duties on spouses to manage community property for the benefit of
19   the marital community during marriage, for purposes of
20   establishing the elements of a § 523(a)(4) claim.   Accordingly,
21   we REVERSE.
22
23
24
25
26
27
28

                                    -22-