353_B.R._738,_2006_Bankr._LEXIS_2953,_

353_B.R._738,_2006_Bankr._LEXIS_2953,_ - 1 of 1 DOCUMENT In...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
In re PHILLIP A. ROMANO, Debtor; KEVIN J. FARLEY, and ALLSTATE CARTING, INC., Plaintiffs v. PHILLIP A. ROMANO, Defendant; In re DIANNE M. ROMANO, Debtor; KEVIN J. FARLEY, and ALLSTATE CARTING, INC., Plaintiffs v. DIANNE M. ROMANO, Defendant Chapter 7, Case No. 04-11263-JNF, Adv. P. No. 04-1129, Chapter 7, Case No. 05- 16880-RS, Adv. P. No. 05-1546 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MAS- SACHUSETTS 353 B.R. 738 ; 2006 Bankr. LEXIS 2953 October 30, 2006, Decided CASE SUMMARY: PROCEDURAL POSTURE: Creditor, a 50 percent shareholder of a company, filed complaints against Chapter 7 debtors, the president and other 50 percent shareholder of the company and his wife, seeking a determination that a debt owed to him or to the company by debtors was nondischargeable pursuant to 11 U.S.C.S. § 523(a)(2) and § 523(a)(4). OVERVIEW: Creditor, an accountant, invested in the husband's company and became a 50 percent shareholder and controller. Debtors continued their practice of paying personal expenses from the company's account. In finding no liab- ility under § 523(a)(4) for defalcation while acting in a fiduciary capacity, the court held that no express trust existed with respect to the husband's fiduciary duty to creditor and that the husband did not hold a position of ascendancy over creditor because creditor, as controller, had a duty to exert his authority to obtain appropriate controls over the com- pany's finances. The court also held that the wife owed no fiduciary duties to the company or to creditor because she was not an officer or shareholder of the company. The court did hold that debtors were liable under § 523(a)(4) for em- bezzlement because the husband, with his wife's assistance, systematically and dramatically increased the level of with- drawals from the company's bank accounts. The court held that, while the husband was entitled to the reasonable value of his services, he was not entitled to dramatically increase his compensation in a thinly disguised attempt to recoup his capital contributions. OUTCOME: Although the court held that creditor failed to establish that the conduct of debtors warranted a finding of fraud or defalcation while acting in a fiduciary capacity, the court also held that the evidence established that debtors embezzled funds belonging to the company. CORE TERMS: shareholder, owed, insolvent, salary, savings, fiduciary capacity, embezzlement, fiduciary, mortgage, stock, escrow, escrow account, defalcation, contributed, fraudulent, homestead, dump, fiduciary duty, cash flow, check- ing account, false representations, bank account, repayment, accounts receivable, fiduciary relationship, outstanding, ex- emption, partner, couple, individually LexisNexis(R) Headnotes [HN1] A closely held corporation resembles a partnership. Shareholders of closely held corporations owe one another the same duty of utmost good faith and loyalty in the operation of the enterprise that partners owe to each other. Fidu-
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 23

353_B.R._738,_2006_Bankr._LEXIS_2953,_ - 1 of 1 DOCUMENT In...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online