Appeal from the United States Bankruptcy Court for the Central District of California Bk. No. LA 09-29930 SB Hon. Samuel L. Bufford, Bankruptcy Judge, Presiding.
SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on March 16, 2011 at Pasadena, California
Before: DUNN, KIRSCHER, and PAPPAS Bankruptcy Judges.
The bankruptcy court determined that a finding by a Colorado trial court that debtor had not breached a fiduciary duty to Appellant when he failed to account to Appellant for proceeds of a loan precluded Appellant from obtaining a nondischargeability judgment against the Appellee under § 523(a)(4)*fn2 based on the debtor's alleged defalcation while acting in a fiduciary capacity. We AFFIRM.
In 2001, Matthew Zuckerman asked his friend, Leonard G. Gordon, with whom Mr. Zuckerman also had done business over a period of more than ten years, to help him get out of a financial crisis. Mr. Gordon agreed, and the parties entered into three agreements ("Agreements"), the collective objective of which was to access for Mr. Zuckerman's benefit equity in real property in Woody Creek, Colorado ("Colorado Property"), in which Mr. Zuckerman and his family had lived for years.
The Colorado Property was owned by HyperPanel University, Inc. ("HyperPanel"), a Nevada corporation wholly owned by Mr. Zuckerman. At the time the Agreements were executed, the Colorado Property had an appraised value of between $1,650,000 and $1,710,000. The Colorado Property was encumbered by a first position deed of trust in favor of Intermountain Marketing and Finance, Inc. ("Intermountain") in the amount of $950,000. Intermountain also was a Nevada corporation wholly owned by Mr. Zuckerman.
The documents which comprised the Agreements included an Assumption of Controls Agreement dated September 30, 2001, an Agreement dated October 10, 2001 ("October 2001 Agreement"), and a Power of Attorney and Indemnification ("POA") dated October 10, 2001.
The parties to the Assumption of Controls Agreement were Mr. Zuckerman and Commercial Scientific Corporation ("ComSci"), which appears to be a company in which Mr. Gordon had an unspecified interest. The Assumption of Controls Agreement defines ComSci as the "Contractor," and states that it concerns certain fiduciary, professional services, and surrogacy required of ComSci's Leonard G. Gordon . . . in furtherance of the existing and continuing active and hands-on development of, and the tactical operation of a series [sic] projects and business opportunities that may, from time to time, involve the capital assets of and the professional man-hours of [Mr. Zuckerman].
Mr. Zuckerman and his affiliates are collectively referred to as the "Client." Mr. Gordon signed the Assumption of Controls Agreement on behalf of ComSci.
The Assumption of Controls Agreement was drafted by the parties without the assistance of counsel. Mr. Zuckerman's purpose in entering the Assumption of Controls Agreement is set forth in paragraph II.1., which provides:
[The Client] owns, controls, operates and provides services to certain real properties, cash receivables, securities and other valuable and potentially valuable tangible and intangible assets (collectively hereinafter referred to as the "Assets"), all of which are in need of new and more cohesive resident long-term executive management and of fiduciary an [sic] investment advisory services. The Client is also desirous of seeing the subject Assets to be, in-part [sic], proactively deployed in technology-driven financial markets hedge fund type trading as a way to realize higher yielding returns. One of these opportunities uses highly reputed market-timing technologies that share the objectives of short-term higher risk oriented "day trader" trading. This system of technologies and its in-market uses requires specialized knowledge, and related techniques and know-how that Gordon is uniquely and specifically qualified to provide.
The amorphous arrangement between the parties is identified in paragraph III of the Assumption of Controls Agreement, which is entitled "Specific Work Programs." This paragraph provides that Mr. Gordon had chosen, subject to the continuing mandate of Mr. Zuckerman, as his first work program "to act immediately to arrange the refinancing of certain real estate owned by an affiliated corporation." Paragraph IV.2. required Mr. Gordon to "proactively take direct possession of the proceeds of the real estate's refinancing in order to satisfy a number of overdue financial obligations that presently offer a severe threat to the financial stability of the Assets." The Assumption of Controls Agreement contemplates that Mr. Gordon would need to contribute his own direct capital contributions in addition to his "specialized ...