La Monica et al v. Ravella

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
BRUCE BRENDAN RAVELLA, 	No. 10-13528
Debtor(s).
______________________________________/
PETER LAMONICA, et al.,
Plaintiff(s),
v. 	A.P. No. 10-1183
BRUCE BRENDAN RAVELLA,
Defendant(s).
_______________________________________/
Memorandum After Trial
_________________
Prior to his Chapter 13 bankruptcy filing in 2010, debtor and defendant Bruce Ravella was a
mortgage broker. In 2005, he arranged a loan to one Sramek for $450,000.00 to enable Sramek to
purchase a lot and build a residence on it. Plaintiff Peter La Monica was a very sophisticated real
estate investor who, along with his brother plaintiff Lawrence La Monica, agreed to fund more than
half of the loan. La Monica had known Ravella for at least 15 years and had participated in loans
arranged by Ravella for several years prior to 2005.
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Entered on Docket
July 21, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 10-01183 Doc# 9 Filed: 07/21/11 Entered: 07/21/11 16:20:34 Page 1 of 3

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The facts, as the court finds them, are simple. Relying only on his successful investment
history with Ravella, and asking no questions despite his high level of sophistication in real estate and
investment matters, La Monica agreed, along with his brother, to fund a large portion of the loan. It
went sour; there were delays in starting construction and the $190,000.00 withheld by Ravella and
disbursed to pay the costs of construction turned out to be $64,000.00 short of the amount needed to
complete construction. When Sramek defaulted, La Monica rejected Ravella’s advice to work with
Sramek. La Monica assumed control of the loan and foreclosed. He now claims that Ravella owes
him and his brother more than $297,000.00 and that this debt is nondischargeable pursuant to §
523(a)(2) and § 523(a)(4) of the Bankruptcy Code.1
The fraud allegations are easily dispatched. The court finds that Ravella made no false
statement to the La Monicas, nor did Ravella withhold any material fact from them with intent to
defraud them. Accordingly, any debt owed by Ravella to the La Monicas cannot be nondischargeable
pursuant to § 523(a)(2).
Ravella kept $190,000.00 of the loan proceeds in his trust account and disbursed them to
Sramek to pay the costs of construction. If Ravella had misused or misapplied any of these funds, it
would give rise to a nondischargeable debt pursuant to § 523(a)(4). However, the evidence
established that all of the funds in the trust account were fully accounted for and used properly.
The remainder of the La Monicas’ case is the argument that because Ravella was a broker he is
liable to them for breach of fiduciary duty. While that might be the case under state law, it cannot be
the basis for a nondischargeable debt under federal bankruptcy law.
State law concepts of fiduciary duty are generally inapplicable in dischargeability cases.
Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir. 1986). A California real estate licensee does not meet
the fiduciary capacity requirement of § 523(a)(4) solely based on his or her status as a real estate
1Prior to 2005, such debts were not excepted from discharge in Chapter 13 cases. This is the
first case the court has had seeking a determination of nondischargeability in a Chapter 13 case.
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Case: 10-01183 Doc# 9 Filed: 07/21/11 Entered: 07/21/11 16:20:34 Page 2 of 3

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licensee; general fiduciary obligations are not sufficient to fulfill the fiduciary capacity requirement of
§ 523(a)(4). In re Honkanen, 446 B.R. 373, 381 (9th Cir. BAP 2011). See especially In re Niles, 106
F.3d 1456, 1463 (9th Cir. 1997), in which the court found that debts incurred by a real estate broker
were nondischargeable only to the extent he violated an express trust, and not to the extent his conduct
was merely a breach of his state law fiduciary duties.
For the foregoing reasons, the court finds that plaintiffs have failed to establish that their claims
against Ravella are nondischargeable. They shall accordingly take nothing by their complaint, which
will be dismissed with prejudice. Ravella shall recover his costs of suit.
This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a) and
FRBP 7052. Counsel for Ravella shall submit an appropriate form of judgment forthwith.
Dated: July 21, 2011
SAlan Jaroslovsky
U.S. Bankruptcy Judge
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Case: 10-01183 Doc# 9 Filed: 07/21/11 Entered: 07/21/11 16:20:34 Page 3 of 3