Memorandum of Decision Re: Fraud

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re HOWARD and EUNICE BAE,                                                       No. 92-13306      Debtors. ___________________________/ EUN SOO PARK and BONG SUN PARK,      Plaintiffs,    v.                                                                                                   A.P. No. 93-1057 HOWARD and EUNICE BAE,      Defendants. ______________________________/
Memorandum of Decision
   This adversary proceeding arises out of the 1989 sale of three laundry businesses by debtor and defendant Howard Bae to plaintiffs Eun Soo Park and Bong Sun Park. In this action, the Parks seek to have their claim against Bae declared nondischargeable due to his alleged fraud.    This case is unusual because of the nature of the misrepresentation upon which the Parks base their case. Before the sale, Bae gave the Parks extensive information concerning the gross income of the laundries and their associated expenses, all of which was truthful, accurate, and complete. However, the Parks argue that the price they agreed to pay was too high. They assert that because Bae was a part-time real estate salesman, he owed them a fiduciary duty which he breached by selling the businesses for more than they were worth.      The Parks claim that Bae's debt to them is nondischargeable due to his defalcation in a fiduciary capacity pursuant to section 523(a)(4) of the Bankruptcy Code. However, in order for a debt to be nondischargeable under section 523(a)(4), there must be an express trust. Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir.1986); In re Pedrazzini, 644 F.2d 756 (9th Cir.1981). Breach of a fiduciary duty under state law is not the same thing as defalcation in a fiduciary capacity under section 523(a)(4). In re Karlin, 103 B.R. 236, 238 (9th Cir. BAP 1989). As the court noted in In re Hooper, 112 B.R. 1009, 1013-14 (9th Cir.BAP 1990), in affirming dismissal of a claim under section 523(a)(4) against a real estate broker:
           Apart from any possible fiduciary capacity            arising from a real estate-broker relationship,            there is no indication that the requisite express            trust relationship existed. There is no evidence            that [the debtor] ever held any money or documents            in trust for [the plaintiff]. The mere fact that            [the plaintiff] may have employed [the debtor] to            counsel her with respect to investment matters is            not sufficient to create the requisite fiduciary            capacity under the narrow standard discussed            above.      The Parks' fall-back position is that the debt is nondischargeable under section 532(a)(2) based on Bae's implicit representation, based on his asking price, that the businesses were worth that much. The court finds no authority for the proposition that the bargained-for price can itself be a fraudulent statement. It is conceivable that fraud might be found in a hypothetical case where the facts indicated taking advantage of someone with a diminished capacity, but the evidence in this case does not come anywhere near establishing such circumstances. The Parks were not inexperienced babes in the business woods, but experienced business people who had owned at least two other businesses, including a laundry. While their command of English was limited, they had available two very well educated adult children whom they could consult if they needed. The evidence established no sort of overreaching which could turn the purchase price itself into a false statement.      Even if the court accepted the purchase price as a false statement, the evidence negated any hint of fraudulent intent. Bae was selling the businesses primarily because he had had a recent operation and was no longer able to meet the physical demands of running the laundries. The Parks' cash down payment did little more than pay outstanding debt; Bae was looking to the notes he took back from the Parks for income. He had every motive for seeing the Parks succeed, and none to cheat them. After one of the laundries suffered serious losses due the large 1989 earthquake, Bae even offered to forgive part of what the Parks owed him in order to assist them in keeping the businesses going. There is no evidence of any fraudulent intent on Bae's part.      For the foregoing reasons, judgment will be entered in favor of the Baes and declaring that the Parks take nothing by their complaint. The Baes shall recover their costs of suit.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for the Baes shall submit an appropriate form of judgment forthwith.
Dated: February 7, 1994                                                                                                  _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy