NORTHERN DISTRICT OF CALIFORNIA
FAWZI AL-RUWAISHED and ELLEN ROCK, No. 00-12615
DAWN S. BAKER,
v. A.P. No. 01-1013
FAWZI AL-RUWAISHED and ELLEN ROCK,
Memorandum of Decision
In the spring of 2000, plaintiff Dawn Baker was the on-site sales agent for a residential real
estate subdivision. She was also in contract to buy one of the homes. Debtor Fawzi Al-Ruwaished was
interested in purchasing one of the homes, but could not afford an outright purchase. Dawn and Fawzi
entered into a written "Equity Share Agreement" whereby they would purchase the home at Dawn's
favorable purchase price and commission credit. For finance purposes, the property had to be originally
deeded to Fawzi and his wife. The parties agreed that as soon as escrow closed Dawn would pay Fawzi
$21,900.00, less a credit of $6,580.00, and Fawzi would place Dawn on record title as a 50% owner.
Thereafter, Dawn would make payment on a second deed of trust and Fawzi would pay the first. The
property was to be sold in three years and the profits shared.
As soon as the sale escrow closed, the relations between Fawzi and Dawn fell apart. Fawzi
decided that Dawn had failed to pay him as agreed, so he was free to repudiate the agreement and own
the home free and clear of any claim by Dawn, even though he had purchased the property at her special
price and with her credits. Dawn took the position that she had always been ready to pay the money as
agreed, and that she did not do so only because Fawzi refused to give her a deed. She filed a lawsuit
against Fawzi and recorded a lis pendens
. On November 9, 2000, Fawzi and his wife filed a Chapter 7
In this adversary proceeding, Dawn seeks a declaration that she has a nondischargeable claim
against Fawzi for fraud and breach of fiduciary duty. She seeks a money judgment or a declaration that
she is a 50% owner of the property. Fawzi denies any wrongdoing, and alleges that his bankruptcy
discharge has erased Dawn's interest in the property.
Dawn did not prove that Fawzi ever intended to defraud her. She correctly argues that the
equity share agreement made them partners and created a fiduciary relationship, but has not shown any
sort of defalcation. Mere breach of a partnership agreement does not create a nondischargeable debt
under § 523(a)(4); there must be misappropriation of partnership property. In re Niles
, 106 F.3d 1464,
Cir. 1997). Since the property has not gone anywhere, nor is there any evidence that Fawzi
encumbered it or otherwise alienated it, there has been no defalcation.
Fawzi argues that once this court decides there is no nondischargeable debt it must dismiss the
case. However, there is another dischargeability issue: the effect of Fawzi's discharge on the joint
venture he and Dawn created to purchase the property. Fawzi is wrong in arguing that his bankruptcy
discharge transmuted equitable ownership of the property from the joint venture to him.
Equitable remedies arising out of a debtor-creditor relationship are barred by the bankruptcy
discharge in cases where monetary relief is an alternative remedy. However, some sorts of equitable
remedies may be imposed outside the debtor-creditor relationship and are not affected by the discharge.
In re Golden Triangle Capital, Inc., 171 B.R. 79, 82 (9th Cir.BAP 1994). These may include resulting
trusts, partition, and deed reformation. 2 Collier on Bankruptcy (15th Ed. Rev.) ¶ 101.05, p.
101-36.1. Where there is a claim that a trust arises out of intended ownership rights in property, the
person claiming the ownership rights does not do so as a creditor and is not barred by the discharge.
In this case, Fawzi is acting like he had a contract to sell an interest in his property to Dawn. If
that were so, then his obligation to perform might be discharged. However, what actually happened is
that Fawzi and Dawn created a joint venture for the purchase and eventual resale of the property. The
property is in fact owned by the joint venture. This claim does not arise out of a debtor-creditor
relationship and accordingly is not barred by Fawzi's discharge.
For the foregoing reasons, the court will enter judgment as follows:
1. Dawn will take nothing on her claims that Fawzi owes her a debt which is nondischargeable
pursuant to § 523(a)(2) or § 523(a)(4) of the Bankruptcy Code.
2. The court will decree that, notwithstanding record title, the real property at 316 Toscana
Circle, Cloverdale, California, is in fact owned by the joint venture created by Fawzi and Dawn.
3. Fawzi and his wife shall be ordered to execute a grant deed to a 50% ownership in said
property to Dawn, as a tenant in common, in a form acceptable to Dawn, and shall be directed to
deposit said deed with their attorney, who shall deliver the deed to Dawn when Dawn has paid to said
attorney, in trust, in cash or certified funds, the sum of $14,923.00. (1)
4. Failure of either side to comply with paragraph 3 shall not affect the decree in paragraph 2.
4. Each side shall bear its own attorneys' fees and costs.
5. The obligations created in paragraph 3 shall be enforced by way of contempt proceedings in
this court. Any other disputes arising out of the equity share agreement shall be freely enforceable in
state court, except that no money judgment may be entered against Fawzi arising out of any act prior to
his bankruptcy filing.
This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and
FRBP 7052. Counsel for Dawn shall submit an appropriate form of judgment forthwith.
Dated: July 16, 2001 ___________________________
U.S. Bankruptcy Judge
1. This sum constitutes the $21,900.00 Dawn was to pay after the close of escrow, plus 13
monthly payments of $161.00 each on the second deed of trust, less a $6,570.00 credit for closing costs
per the agreement, and less $2,500.00 for a bounced check which Fawzi gave to Dawn which the
parties agreed could be deducted from Dawn's contribution. If Fawzi has not actually made the
payments on the second, Dawn may make the payments directly to the lender. No interest will be added
to Dawn's obligations. Either side may seek modification if he or she believes the court's mathematical
calculation to be in