Appeal from the Ninth Circuit Bankruptcy Appellate Panel. BAP No. AZ-92-02219-MeRV. Meyers, Volinn, and Russell, Judges, Presiding.
Before: Joseph T. Sneed, John T. Noonan, Jr., and David R. Thompson, Circuit Judges. Opinion by Judge Sneed.
Debtors Byron C. and Irene Lewis appeal the bankruptcy appellate panel's order affirming the bankruptcy court's decision that the Lewises' debt to Mitchell R. Scott was nondischargeable under 11 U.S.C. § 523. The Lewises argue that their debt to Scott was dischargeable because they were not fiduciaries to Scott under Arizona law, and because they did not commit defalcation. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm.
On November 20, 1989, Byron and Irene Lewis signed a partnership agreement with Mitchell Scott to sell Indian arts and crafts under the name L&S Traders. The partnership sold goods out of two stores - a Winslow, Arizona, store which the Lewises opened in October 1989, and a Bisbee, Arizona, store which they had opened in 1987 prior to teaming up with Scott. Under the terms of the agreement, Scott invested $28,000 in the Winslow store and $5,000 in the Bisbee store. The Lewises, in turn, were to contribute their time and labor in managing the two stores. According to Scott, the partners agreed to share in half the profits.
The partnership agreement also provided that the L&S bookkeeper would provide monthly financial reports to the partners. Although the agreement identified Neil Ranstrom as the bookkeeper, the parties agree that Irene Lewis in fact filled that role. Scott, however, received no reports during the months that L&S Traders was in business. Nor did he receive an accounting for either his $5,000 investment in the Bisbee store or for the Lewises' investment of time and labor. The Lewises kept no itemized records of daily expenditures for either store and did not track the stores' merchandise. They commingled Scott's investment in L&S Traders with funds for their separate enterprise, True Grit.
The L&S venture was not successful. The Winslow and Bisbee stores shut their doors in, respectively, May and August 1990, and the Lewises filed for bankruptcy on November 28, 1989. Scott subsequently filed a complaint to determine the dischargeability of the L&S debt. The bankruptcy court granted summary judgment to Scott, and the Bankruptcy Appellate Panel ("BAP") for the Ninth Circuit affirmed. The Lewises timely appealed.
We review decisions of the BAP de novo, applying the same standard of review as did the BAP to the underlying judgment of the bankruptcy court. In re Johnston, 21 F.3d 323, 326 (9th Cir. 1994). Thus, we review the grant of summary judgment de novo, making all reasonable inferences in favor of the Lewises to determine whether there exists any genuine issue of material fact precluding judgment in Scott's favor as a matter of law. Id. ; In re Yarbrow, 150 Bankr. 233, 236 (9th Cir. BAP 1993).
A. The Lewises Were Fiduciaries Under ...