Lam v. Lam

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 05-44314 TT
Chapter 7
RICHARD CONRAD LAM,
Debtor.
___________________________/
CAROL LAM, 	A.P. No. 05-4455 AT
Plaintiff,
vs.
RICHARD CONRAD LAM,
Defendant.
___________________________/
MEMORANDUM OF DECISION RE MOTION FOR
PARTIAL SUMMARY JUDGMENT
In 	the 	above-captioned 	adversary 	proceeding, 	Carol 	Lam
(“Carol”), the former spouse of the above-captioned debtor, Richard
Conrad Lam (“Richard”), seeks an exception from Richard’s chapter 7
bankruptcy 	discharge 	with 	respect 	to 	certain 	claims 	arising 	from
their 	dissolution 	proceeding. 	In 	the 	complaint, 	she 	asserts 	two
bases 	for 	nondischargeability: 	i.e., 	11 	U.S.C. 	§ 	523(a)(4) 	and 	11
U.S.C. 	§ 	523(a)(15). 	In 	this 	motion, 	Carol 	seeks 	partial 	summary
Signed: June 27, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 27, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-04455 Doc# 26 Filed: 06/27/06 Entered: 06/27/06 12:34:36 Page 1 of 7

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26 	1A copy of the Libbey Decision is attached as Exhibit A to
Carol’s Request for Judicial Notice, filed on May 3, 2006.
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judgment with respect to her claim under 11 U.S.C. § 523(a)(4). 	For
the reasons stated below, her motion is denied.
SUMMARY OF FACTS
In 	1999, 	a 	proceeding 	to 	dissolve 	the 	marriage 	of 	Richard 	and
Carol was commenced in state court. 	For various reasons not relevant
here, 	the 	proceeding 	progressed 	slowly. 	A 	trial 	was 	conducted 	on
February 	23 	to 	25 	and 	August 	23 	to 	24, 	2204 	before 	a 	state 	court
judge, the Honorable James H. Libbey (“Judge Libbey”), with respect
to 	various 	issues. 	On 	November 	2004, 	Judge 	Libbey 	issued 	his
decision with respect to those issues (the “Libbey Decision”). 1 	On
August 	4, 	2005, 	Richard 	filed 	a 	chapter 	7 	bankruptcy 	petition,
thereby commencing this chapter 7 bankruptcy case. 	Thereafter, Carol
filed 	this 	adversary 	proceeding, 	seeking 	nondischargeability 	of
certain claims established by the Libbey Decision.
DISCUSSION
In her motion for partial summary judgment, Carol asserts that
she is entitled to a judgment as a matter of law with respect to her
first claim for relief, under 11 U.S.C. § 523(a)(4), as a matter of
collateral estoppel. 	As a factual matter, the claim has two distinct
parts. 	First, Judge Libbey found that, after the couple separated,
during 	the 	dissolution 	proceedings, 	Richard 	converted 	$368,285 	in
community 	property 	funds 	contained 	in 	certain 	rollover 	accounts.
Second, during the couples’ marriage, Judge Libbey found that Richard
used $417,000 in community property funds to pay child support from
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2Collateral estoppel prevents the relitigation of an issue
that was already decided in a prior proceeding between the same
parties. 	However, the issue in the prior proceeding must be
identical to the issue presented currently; it must have been
actually litigated and necessarily decided in the prior proceeding;
and a final judgment on the merits must have been entered. In re
Cantrell 329 F.3d 1119, 1122 (9 th Cir. 2003).
3
a prior marriage at a time when he had separate property available to
him. 	Carol 	contends 	that 	Judge 	Libbey 	found 	that 	these 	acts 	were
breaches 	of 	fiduciary 	duty 	or 	that 	the 	Court 	should 	so 	find 	as 	a
matter of law based on Judge Libbey’s factual findings. 	As a result,
she contends that, pursuant to 11 U.S.C. § 523(a)(4), she is entitled
to 	a 	nondischargeable 	claim 	for 	$392,642--50 	percent 	of 	these 	two
amounts–-based on principles of collateral estoppel. 2
At 	the 	hearing 	on 	the 	motion, 	the 	Court 	held 	that 	the 	motion
should be denied with respect to the first factual claim. 	The Court
agreed 	that, 	in 	the 	Libbey 	Decision, 	Judge 	Libbey 	found 	that
Richard’s conversion of the Rollover Accounts was a “massive breach
of fiduciary duty.” 	However, as the Court read the Libbey Decision,
Judge Libbey concluded that no damage claim should be awarded for the
conversion. 	Instead, he treated the treated the converted funds as
a distribution of community property to Richard in deciding how the
community 	assets 	should 	be 	divided 	between 	the 	two. 	See 	Libbey
Decision, 	p. 	3, 	ll. 	14-25, 	p. 	10, 	ll. 	11-28. 	Thus, 	presumably,
Carol 	received 	an 	equivalent 	distribution 	of 	community 	property 	by
virtue of other provisions in the Libbey Decision.
The Court took the second factual contention under submission.
At the hearing, the Court noted that, in the Libbey Decision, Judge
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3The Libbey Decision does not make it clear whether Richard
paid the child support before or after the couple separated.
However, since spouses have a fiduciary duty to each other during
marriage as well as after separation and during a dissolution
proceedng, this ambiguity does not affect the outcome of this
issue. 	See Cal. Fam. Code § 1100(e).
4
Libbey ordered Richard to reimburse the community for the $417,000 of
community property used to pay child support for his children from a
prior 	marriage: 	i.e., 	either 	one-half 	of 	the 	amount 	if 	using 	his
separate property to reimburse the community or the whole amount if
using 	community 	property. 	However, 	Judge 	Libbey 	did 	not 	expressly
hold 	that 	Richard’s 	use 	of 	community 	property 	to 	pay 	the 	child
support constituted a breach of fiduciary duty. 	See Libbey Decision,
p. 10, 34-37. 	Nevertheless, if spouses have a fiduciary duty to each
other with respect to community property during their marriage, prior
to separation, and if Richard’s use of community property to pay the
child support under these circumstances constituted a breach of that
duty, 	Carol 	would 	still 	be 	entitled 	to 	partial 	summary 	judgment 	on
this claim as a matter of collateral estoppel.
Richard 	conceded 	that 	spouses 	have 	a 	fiduciary 	duty 	to 	each
other during marriage with respect to community property. 3 	However,
he 	contended 	that 	his 	use 	of 	community 	property 	to 	pay 	the 	child
support when he had separate property available was not a breach of
that 	duty. 	He 	contended 	that, 	in 	awarding 	Carol 	a 	claim 	based 	on
these 	payments, 	Judge 	Libbey 	applied 	the 	wrong 	standard. 	He
contended 	that 	the 	statutory 	prohibition 	was 	the 	use 	of 	community
property to pay support for children from a prior marriage when one
has separate income, not separate property available.
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26 4The Court presumes that, if Richard did have nonexempt
separate income available, his use of community property to make
the payments would constitute a breach of fiduciary duty. 	However,
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Section 	1100(e) 	of 	the 	California 	Family 	Code 	provides 	that
spouses 	have 	a 	fiduciary 	duty 	with 	respect 	to 	control 	of 	the
community assets during marriage. 	Cal. Fam. Code § 1100(e); see also
In 	re 	Reuling, 	23 	Cal. 	App. 	4 th 	1428, 	1437 	(1994)(fiduciary 	duty
applies 	during 	marriage). 	A 	spouse 	has 	a 	claim 	for 	breach 	of
fiduciary 	duty 	against 	the 	other 	spouse 	based 	on 	any 	impairment 	in
the 	claiming 	spouse’s 	share 	of 	the 	community 	property. 	Cal. 	Fam.
Code § 1100(a).
Section 915(b) of the California Family Code provides that:
If 	property 	in 	the 	community 	estate 	is 	applied
to 	the 	satisfaction 	of 	a 	child 	or 	spousal
support obligation of a married person that does
not 	arise 	out 	of 	the 	marriage, 	at 	a 	time 	when
nonexempt 	separate 	income 	of 	the 	person 	is
available but is not applied to the satisfaction
of 	the 	obligation, 	the 	community 	estate 	is
entitled to reimbursement from the person in the
amount 	of 	separate 	income, 	not 	exceeding 	the
property in the community estate so applied.
Cal. 	Fam. 	Code 	§ 	915(b). 	If 	no 	separate 	income 	was 	available, 	the
community is not entitled to any reimbursement for such expenditures.
See 	In 	re 	Williams, 	213 	Cal. 	App. 	3 rd 	1239, 	1244 	(1989). 	As 	noted
above, 	the 	Libbey 	Decision 	did 	not 	make 	a 	finding 	that 	Richard 	had
nonexempt 	separate 	income 	available 	at 	the 	time 	he 	used 	community
property to pay support for his children from a prior marriage. 	No
evidence 	as 	to 	that 	factual 	issue 	has 	been 	presented 	in 	connection
with this motion. 	Therefore, Carol’s request for summary judgment on
this portion of the claim must also fail. 4
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it makes no decision on this issue at this time.
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CONCLUSION
Carol’s motion for partial summary judgment, granting judgment
in her favor on her claim for relief under 11 U.S.C. § 523(a)(4) is
hereby 	denied. 	Richard 	is 	directed 	to 	submit 	a 	proposed 	form 	of
order in accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Chris D. Kuhner
Kornfield, Paul & Nyberg, P.C.
1999 Harrison St., Ste. 2675
Oakland, CA 94612
Richard C. Lam
1470 Creekside Drive, Unit 6
Walnut Creek, CA94596
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