Halapio et al v. Finau

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-1-	MEMORANDUM DECISION
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re: 	)
)
SAVIO RODNEY HALAPIO and, 	)
SOANA TAAKE TUILOKOMANA HALAPIO,)
)
)
)
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Debtors. 	)
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SAVIO RODNEY HALAPIO and, 	)
SOANA TAAKE TUILOKOMANA HALAPIO,)
)
Plaintiffs, 	)
)
vs. 	)
)
MARIE FINAU, 	)
)
Defendant. 	)
)
Case No. 	04-30907 TEC7
Chapter 7
Adv. No. 05-3253 TC
Date: 	June 14, 2005
Time: 	9:30 a.m.
Ctrm: 	Hon. Thomas E. Carlson
235 Pine Street
San Francisco, CA
MEMORANDUM DECISION
This action came to trial on June 14, 2005. 	Linnea N. Willis
appeared for creditor Maria Finau (Finau). 	Howard L. Hibbard
appeared for debtors Savio and Soana Halapio (Debtors). 	Upon due
consideration, and for the reasons stated below, I hereby determine
that Finau has a $20,000 interest in the real property at
1279 Carlton Avenue, Menlo Park, California, but decline to award
Signed and Filed: June 23, 2005
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 24, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 1 of 8

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-2-	MEMORANDUM DECISION
the additional damages sought by Finau.
FACTS
In July 2002, Debtors had seven children and had recently been
evicted from their home. 	They wanted to buy a house, but their
credit history made it impossible to do so directly. 	They
approached a number of relatives, offering a $10,000 interest to
anyone who would let Debtors use the relative’s credit to enable
Debtors to buy a house. 	Finau, who is a cousin of Soana Halapio,
agreed to do so.
The arrangement agreed upon was as follows. 	Finau would buy
the house in her name. 	Debtors would supply the down payment and
make all mortgage and tax payments. 	At some time, Debtors would
arrange to refinance or sell the property. 	At that point, Finau
would transfer title and would be paid the promised $10,000.
Debtors would receive title if the transaction was a refinance, and
would receive the proceeds in excess of $10,000 if the transaction
was a sale.
The arrangement was not completed as described above for
several reasons.
First, Finau did not qualify for the needed loan. 	Debtor
Savio Halapio, a licensed real estate salesperson, sent Finau the
loan application forms to complete, which she did. 	Real Loans, the
loan broker Savio was using, advised him that Finau did not qualify
for a large enough loan. 	Someone at Real Loans then suggested that
Real Loans could arrange a loan by creating a false loan
application. 	Savio went along with the scheme and obtained the
needed loans in the name of Finau. 	There is no evidence that Finau
knew about the scheme.
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 2 of 8

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-3-	MEMORANDUM DECISION
Second, Savio submitted offers and loan applications regarding
two properties. 	He did so because he needed a house quickly and
did not know whether either would be accepted. 	He closed both
transactions because he would suffer certain monetary penalties if
he did not. 	It is not clear the extent to which he described these
details to Finau, who ended up signing two secured promissory notes
and purchasing two properties. 	The two properties are: 1279
Carlton Avenue, Menlo Park; and 1324 Modoc Avenue, Menlo Park.
Third, shortly after the purchase of the two properties
closed, Savio caused Finau to transfer title to both properties to
Debtors via grant deeds. 	There is no evidence that Savio explained
to Finau the significance of the deeds he caused Finau to sign.
Savio had acted as Finau’s broker in the purchase of both
properties and received commissions for his services regarding both
properties.
Fourth, Debtors did not make the required mortgage and tax
payments. 	The Modoc Avenue property was lost in a non-judicial
foreclosure sale. 	The lender has not attempted to collect any
deficiency. 	The Carlton Avenue property went into default, but has
not yet been sold in foreclosure. 	A consensual sale is pending,
but has not closed because of a lis pendens recorded regarding
Finau’s claims.
Fifth, Debtors filed a chapter 13 case sometime prior to April
2004 in an effort to save the properties. 	Because Finau was the
borrower on the two properties, her name appeared on a credit
report as having filed a bankruptcy. 	Finau was working for the
Redwood City government as a probationary employee in April 2004.
In her employment application, she stated she had never filed
bankruptcy.
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 3 of 8

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-4-	MEMORANDUM DECISION
When the credit report noted above was brought to the attention of
the City, Finau was fired. 	Although Finau and Debtors wrote
letters explaining the loan transaction and stating that Finau had
not filed a bankruptcy petition, Finau was not reinstated. 	Finau
found a new job four months later at a higher salary. 	She lost
approximately $15,000 in lost wages during her four months of
involuntary unemployment.
Sixth, Debtors filed the current chapter 7 case on
April 2, 2004. 	It is undisputed that Finau had neither formal
notice nor actual knowledge of the bankruptcy before the deadline
for filing a complaint to determine dischargeability. 	It is also
undisputed that this is a no-asset case in which the trustee made
no distributions to general unsecured creditors.
In this action, Finau seeks a monetary award against Debtors
and a determination that Debtors’ liability is excepted from
discharge pursuant to section 523 of the Bankruptcy Code. 	Finau
filed a related action in state court, and recorded a lis pendens
regarding the Carlton Avenue property in connection with that
action. 	The state-court action has not yet gone to trial.
DISCUSSION
Loss of Employment and Injury to Credit
Finau first seeks damages for her lost employment and for
injury to her credit rating resulting from the unfortunate events
described above. 	I decline to make any award to Finau on these
claims. 	With respect to the alleged injury to her credit rating, I
find that Finau failed to submit sufficient evidence of damages.
With respect to Finau’s claim for lost employment, I find that
Finau’s losing her job was not a legally foreseeable consequence of
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 4 of 8

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-5-	MEMORANDUM DECISION
any of the Debtors’ acts. 	Furthermore, any such liability that I
might impose on that claim could be held nondischargeable only
under section 523(a)(6) as willful and malicious injury. 	There is
no evidence that Debtors subjectively intended to injure Finau.
The required malice could be inferred only if Debtors subjectively
knew that injury would necessarily result from their acts.
Carrillo v. Su (In re Su), 290 F.3d 1140 (9 th Cir. 2002). 	I find
that Debtors had no such knowledge.
Loss of Real Property
Finau next contends that Savio tricked her into conveying the
two properties to Debtors and that she should be awarded the full
value of those properties. 	This claim is persuasive in part and
unpersuasive in part.
Finau has no claim to the full value of the properties,
because the parties agreed she would hold bare legal title and that
she would have an equitable interest of only $10,000 in each
property. 	Debtors, who paid whatever down payment was made and
promised to pay the mortgage and taxes, were the beneficial owners
of any remaining equity in the properties.
Debtors acknowledge that they currently owe Finau $20,000 for
her interests in the two properties.
I determine that this $20,000 obligation is nondischargeable
as to Savio under section 523(a)(4). 	In acting as broker for Finau
in the purchase of the properties, Savio had a fiduciary duty to
take care that she received her full interest in each property. 	By
taking title to the properties from Finau shortly after the
purchase without giving Finau a lien to preserve her $10,000
interest in each property, Savio deprived Finau of any sure way to
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 5 of 8

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-6-	MEMORANDUM DECISION
preserve the property interest she was supposed to enjoy. 	This is
something that Savio, acting as a broker for Finau in the
transaction in which Finau obtained her interest, could not do
without the clearest of warnings to Finau. 	Although I do not
believe that Savio intended to defraud Finau, I believe that he
misapplied property he had been entrusted to handle in a fiduciary
capacity. 	That misapplication was a defalcation by a fiduciary
within the meaning of section 523(a)(4). 	There is no basis to hold
the debt nondischargeable as against Soana Halapio.
I further determine that the Carlton Avenue property was
impressed with a resulting trust from the moment that property was
conveyed from Finau to Debtors, for the purpose of paying Finau her
$20,000 property interest. 	This is so because both parties
intended that Finau enjoy a $20,000 interest in the two properties,
because Savio while acting as a fiduciary was directly responsible
for the failure to preserve that interest, and because Savio would
otherwise benefit to Finau’s detriment. 	Under the resulting trust,
Debtors never owned the first $20,000 of equity in that property.
Thus, such value is not subject to any homestead exemption, and
full title to the property may not be conveyed by Debtors without
first paying that interest, except upon the written consent of
Finau or order of this court. 	Because the interest was payable
only upon sale or refinance, neither of which has yet occurred,
there is no interest now due on the $20,000 sum.
Possible Deficiency Claim
Finau also seeks to recover from Debtors the full amount of
both promissory notes, on the theory that she is liable to repay
them. 	This argument is unpersuasive. 	The lender on the Modoc
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 6 of 8

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-7-	MEMORANDUM DECISION
Avenue property completed a non-judicial foreclosure, and the
evidence indicates that the lender on the Carlton Avenue property
will also proceed via non-judicial foreclosure. 	The circumstances
in which a lender can obtain any monetary relief after a non-
judicial foreclosure are extremely limited. 	If that comes to pass,
Finau can seek to amend this judgment on the basis of evidence that
could not have been presented at this trial.
**END OF MEMORANDUM**
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 7 of 8

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Court Service List
Howard L. Hibbard
Law Offices of Howard L. Hibbard
22693 Hesperian Blvd. #210
Hayward, CA 94541
Linnea N. Willis
Law Offices of Linnea N. Willis
25930 Kay Ave, Suite #209
Hayward, CA 94545-2600
Linnea N. Willis
Law Offices of Linnea N. Willis
7677 Oakport Street, suite 1050
Oakland, CA 94621
E. Lynn Schoenmann
800 Powell Street
San Francisco, CA 94108
Office of the U.S. Trustee
235 Pine Street, Suite 700
San Francisco, CA 94104
Case: 05-03253 Doc# 15 Filed: 06/23/05 Entered: 06/24/05 10:07:03 Page 8 of 8