Double Bogey LP v. Enea, No. 13-15809 (9th Cir. 2015)
Annotate this CaseAppian was created by the Enea brothers, who were its only shareholders and officers. Appian managed real estate development projects, including Monticello, of which Appian was a General Partner, and Monterrosa, of which Appian was the Managing Member. Double Bogey invested approximately $4 million in Monticello as its Limited Partner, and $1 million in Monterrosa as a non-managing member. Double Bogey never recovered any of its investment in Monterrosa and did not receive profits from either investment. After Appian failed to provide an accounting of its investments, Double Bogey filed suit. The Eneas and Appian separately filed for Chapter 7 bankruptcy. Double Bogey brought an adversary proceeding, claiming that: Appian was Double Bogey’s fiduciary with respect to the investments; Appian was liable for lost principal and profits; the liabilities were created by Appian’s “defalcation;” and the Eneas were also liable for such non-dischargeable debt either because of their own defalcation or as alter egos of Appian. Liabilities created by a fiduciary’s defalcation are not dischargeable in bankruptcy under Bankruptcy Code Section 523(a)(4). The bankruptcy court rejected the claims. The Ninth Circuit affirmed, agreeing that merely finding the Eneas were alter egos of Appian under California law was insufficient to hold that they were Double Bogey's “fiduciaries” under Section 523(a)(4).
Court Description: Bankruptcy. The panel affirmed the district court’s affirmance of the bankruptcy court’s judgment in a creditor’s adversary proceeding claiming that a debt was not dischargeable in bankruptcy under 11 U.S.C. § 523(a)(4) because it was a debt for fraud or defalcation by a fiduciary. The panel held that a finding that the debtors, who owned and operated a fiduciary corporation, were the corporation’s alter egos under California law was insufficient to show that they therefore also were fiduciaries of the creditor under § 523(a)(4).
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