楊清泉 - KEEPING LAWSUIT SETTLEMENT PROCEEDS NOT BREACH OF FIDUCIARY DUTY PART 2

The 8th Circuit Bankruptcy Appellate Panel reversed, finding that the Arkansas statue did not create the requisite fiduciary relationship, and that the debtor was not guilty of embezzlement within the meaning of Section 523(a)(4). Arvest asserted that the debtor embezzled the settlement proceeds that were “entrusted” to her by reason of the mortgage assignment provision and the Arkansas Code. The bankruptcy court did not reach this issue having ruled that the debtor breached her fiduciary duty. The BAP found that there was no embezzlement because the settlement proceeds were not Miscellaneous Proceeds; the debtor’s failure to remit money to Arvest was not embezzlement.

“One cannot embezzle one’s own property,” the court said. Isn’t this the Wisdom of Solomon? “Therefore, documents assigning to a secured creditor proceeds that are part of the creditor’s collateral are simply agreements in which the debtor retains the funds, subject to a security interest.”

Arvest loaned money to the debtor to enable her to purchase her home. The loan was secured by an interest in her home. That interest included any recovery defined as Miscellaneous Proceeds. “The assignment provision merely served as a collection device for Miscellaneous Proceeds, funds owned by Ms. Nail that she was contractually obligated to remit to Arvest. Thus, even if the settlement proceeds were Miscellaneous Proceeds, as we are assuming without deciding, Ms. Nail’s alleged failure to comply with the assignment provision was a dischargeable breach of contract, not a nondischargeable embezzlement.”

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.