Morris v. Contreras

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
JOSEPH DANIEL CONTRERAS, No. 05-10013
Debtor(s).
______________________________________/
BRYANT L. MORRIS,
Plaintiff(s),
v. A.P. No. 05-1033
JOSEPH DANIEL CONTRERAS,
Defendant(s).
_______________________________________/
Memorandum on Motion for Summary Judgment
_________________
Debtor Joseph Contreras is the husband of Mary Elizabeth Contreras, who was convicted of
embezzling over $1 million from plaintiff Bryant Morris. Although it is without question that the debt is
nondischargeable as to the Contreras’ marital community pursuant to § 524(a)(3) of the Bankruptcy
Code, Morris also seeks a determination that the debt is nondischargeable as to Joseph personally.
Morris does not allege a wrongful act by Joseph, but argues that Mary’s wrongdoing must be imputed to
him.
Entered on Docket
October 31, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-01033 Doc# 19 Filed: 10/31/05 Entered: 10/31/05 15:47:27 Page 1 of 3

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The marital relationship is not sufficient to impute one spouse’s wrongdoing to the other, even if
the innocent spouse participated in the other’s business, may have had reason to suspect the wrongful
conduct, and may have enjoyed the benefits of that conduct. A debt is dischargeable unless the filing
spouse knowingly participated in the wrongful conduct or was the business partner of the spouse and
liability is imputed under agency law. In re Tsurukawa, 258 B.R. 192, 196 (9th Cir.BAP 2001).
Since there is no evidence of knowing participation before the court, the debt is dischargeable
unless the spouses were business partners and agency principles apply to impute the fraud to the innocent
spouse. Id., at 198. A business partnership may be established by relevant evidence, regardless of how
the husband and wife categorized their relationship. In re Tsurukawa, 287 B.R. 515, 520-21 (9th Cir.
BAP 2002).
The evidence before the court establishes that Joseph and Mary were partners in a business
known as Diamond J & M Ranch. However, there is an element missing from Morris’ case. His motion
alleges only that Mary worked for him for 17 years and that the stolen funds were used to fund the ranch.
There is no evidence that the embezzlements were made in the course of the ranch’s business. To the
extent that the embezzlements were made in the course of business of the ranch, they are
nondischargeable as to both spouses under principles of agency law. See Tsurukawa II, at 521; Cal.
Corp. Code § 15013. However, if the embezzlements were made outside the ranch’s business, then
judgment against Joseph is not proper. The fact that both husband and wife were partners in a business
does not make them vicariously liable for the non-business debts of the other. Under Tsurukowa I, the
mere fact that the proceeds of embezzlement were used to fund the ranch does not make the debt
nondischargeable as to the innocent spouse.
The court feels compelled to point out that Joseph is hardly getting away scott free from the
consequences of his wife’s actions, even if her thefts are not imputed to him. As the court has noted
above, all community property (not just Mary’s half) including the ranch is liable for Morris’ claim
Case: 05-01033 Doc# 19 Filed: 10/31/05 Entered: 10/31/05 15:47:27 Page 2 of 3

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1If that is all Morris seeks, he may have summary judgment declaring all of the community assets
liable for his claim, now and in the future. As the court understands the motion, however, it seeks
Joseph’s personal liability and therefore cannot be granted.
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regardless of Joseph’s lack of wrongdoing.1 Failing any evidence that Mary’s embezzlement was in the
course of the ranch’s business, there is no basis in the law for the court to compound Joseph’s troubles
by declaring him personally and forever liable for his wife’s crimes.
For the foregoing reasons, Morris’ motion for summary judgment will be denied. Counsel for
Joseph shall submit an appropriate form of order.
Dated: October 31, 2005
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 05-01033 Doc# 19 Filed: 10/31/05 Entered: 10/31/05 15:47:27 Page 3 of 3