In re: Jerzy Adas and Teresa Szmacinska-Adas Zenon Rutkowski v. Jerzy Adas

09 B 26595, 09 A 01045

Debtor/Defendant had a successful remodeling and construction business. He and Plaintiff, a salaried and less-successful tool and die designer, became close friends. When Plaintiff sold his home and found himself with some extra cash, they agreed to invest in new construction. Defendant chose the location, acted as the general contractor and arranged for construction financing. Plaintiff put up the money and his name alone was on the title and loan. The house was completed just in time for the real estate market to crash. The bank foreclosed and got a deficiency judgment against Plaintiff, who asked Defendant where all the money had gone. Defendant could only account for about three-quarters of the funds. Plaintiff sought a finding that Defendant's debt was nondischargeable under 523(a)(2) and (a)(4). Following a multi-day trial, the parties briefed the issues and Plaintiff dropped the 523(a)(2) count. HELD: The parties had a fiduciary relationship because of the difference in knowledge and power which gave Defendant a position of ascendancy over Plaintiff. The debt was caused by Defendant's defalcation while acting in a fiduciary capacity, and is nondischargeable pursuant to 523(a)(4)

Thursday, March 7, 2013