Opinion
Case No. 8:21-bk-02272-CPM Adv. Proc. No. 8:21-ap-00266-CPM
2023-03-09
IN RE: Ilias H. ANTONIOU, Debtor. Gustavo Romero, Plaintiff v. Ilias H. Antoniou, Defendant.
David Smith, Law Office of David W. Smith, PL, Sarasota, FL, for Plaintiff. M. Eric Barksdale, Law Office of M. Eric Barksdale, P.A., Land O' Lakes, FL, for Defendant.
David Smith, Law Office of David W. Smith, PL, Sarasota, FL, for Plaintiff. M. Eric Barksdale, Law Office of M. Eric Barksdale, P.A., Land O' Lakes, FL, for Defendant. ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF THE DEFENDANT Catherine Peek McEwen, United States Bankruptcy Judge
Under Florida law, a manager of a limited liability company owes the company and its members certain fiduciary duties imposed by statute, including a duty to hold in trust for the company and its members any profit derived from the appropriation of a company opportunity. Because these duties do not involve the creation of an express or technical trust, they are insufficient to establish that a manager of a Florida limited liability company serves in a "fiduciary capacity" for purposes of determining whether a particular debt can be excepted from discharge under § 523(a)(4) of the Bankruptcy Code.
11 U.S.C. § 523(a)(4) (excepting from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny").
This proceeding came on for hearing on October 7, 2022, for consideration of the Plaintiff's Motion for Summary Judgment (the "Motion") (Doc. No. 29). The Motion seeks summary judgment that the Defendant/Debtor owes the Plaintiff a debt that is nondischargeable under § 523(a)(4) because the debt was allegedly incurred through fraud or defalcation while the Defendant served in a fiduciary capacity as a manager of a Florida limited liability company.
Id.
More specifically, the Motion asserts that between January 29, 2019, and August 9, 2019, the Plaintiff owned 50 percent of Air Titans, LLC ("Air Titans") and served together with the Defendant as managers of that company. The Motion further states that Air Titans engaged exclusively in air conditioning work and that the Defendant, while serving as a manager of Air Titans, engaged in air conditioning work on the side that could have otherwise been performed by Air Titans. In addition, the Defendant is alleged to have then deposited the proceeds of that side work into a bank account—about which the Plaintiff was unaware—that the Defendant used for personal expenses.
In support of the Motion, the Plaintiff relies on section 605 of the Florida Statutes. Under this statute, a manager of a limited liability company ("LLC") owes "fiduciary duties of loyalty and care" that require, among other things, "[a]ccounting to the limited liability company and holding as trustee for it any property, profit, or benefit derived by the manager or member, . . . [f]rom the appropriation of a company opportunity."
Fla. Stat. § 605.04091(1), (2)(a)(3) (2019). Under this statute, duties of loyalty and care are owed by "[e]ach manager of a manager-managed limited liability company and member of a member-managed limited liability company." For purposes of this order, the Court uses "manager" to refer to an individual who manages an LLC as either as manager or managing member.
Id.
The Plaintiff also relies on Wright v. Menendez, a 1989 decision from the Southern District of Florida involving a proceeding under § 523(a)(4) brought by a creditor of a dissolved corporation against debtors who were former directors of the corporation. The court there considered a Florida statute that (i) caused corporate directors, upon dissolution of the corporation, to "constitute a board of trustees for any property owned or acquired by the dissolved corporation . . . ," (ii) required them to "apply the property or interest therein to the payment of any corporate debts, liabilities, or obligations known to them . . . ," and (iii) required them to "continue as trustees of the property of the dissolved corporation as long as it holds of record in, to, or upon real property or for a period of three years after dissolution, whichever shall be longer."
Wright vs. Menendez (In re Menendez), 107 B.R. 789 (Bankr. S.D. Fla. 1989).
Fla. Stat. § 607.301 (1987).
Applying § 523(a)(4) to that statute, the Wright court recognized that the term "fiduciary capacity" requires an express or technical trust. The court then noted that the statutory duty of directors of a dissolved corporation "specifically provides for the creation of a trust with a res consisting of the dissolved corporation's property or proceeds derived therefrom and imposes a duty upon the trustees to distribute the proceeds of the corporate assets to the creditors of the corporation." Further, the court ruled that although a directive requiring segregation of trust funds is not a mandatory element for an express or technical trust for purposes of § 523(a)(4), the statute at issue "contemplates a trust consisting solely of property of the dissolved corporation," even if it does not use the word "segregation." Consequently, the court found that the debtors in that case, while serving as the sole officers, directors, and shareholders of a dissolved corporation, acted in n a "fiduciary capacity" as that term is used in § 523(a)(4).
Wright, 107 B.R. at 791-92.
Id. at 792.
Regarding the requirement of a segregated res, the Eleventh Circuit recently opined in the context of a trust account under the Perishable Agricultural Commodities Act (PACA) that "fiduciary capacity" under § 523(a)(4) requires, among other things, a relationship defined by "sufficient trust-like duties imposed on the trustee with respect to the trust res and beneficiaries to create a 'technical trust,' with the strongest indicia of a technical trust being the duty to segregate trust assets and the duty to refrain from using trust assets for a non-trust purpose." Spring Valley Produce, Inc. v. Forrest (In re Forrest) 47 F.4th 1229, 1234 (11th Cir. 2022) (produce buyers subject to PACA, who are not required to hold trust assets in a segregated account, do not serve in a "fiduciary capacity" for purposes of § 523(a)(4)).
Wright, 107 B.R. at 792 (emphasis added).
Id.
Because the proceeding in Wright dealt with significantly different circumstances, i.e., distribution of a corporation's assets following dissolution under a differently worded statute, it is distinguishable from the current case. Moreover, the statute relied upon in that proceeding was repealed, and new corporate laws took effect in 1990.
Fisch v. Sadler (In re Sadler), 2007 WL 4199598, *3, n.1 (Bankr. N.D. Fla. Nov. 26, 2007).
A more recent decision by the Hon. James S. Moody, Jr., Hemenway v. Bartoletta, is closer on point because it deals with an earlier version of the same statute cited by the Plaintiff here, with nearly identical statutory language. Finding that the fiduciary duties imposed by statute upon a managing member of a Florida LLC do not involve the administration of an express trust or control of a segregated res which would evidence a technical trust, he concluded that those duties do not support a claim for relief under § 523(a)(4).
Hemenway v. Bartoletta, 2012 WL 4513073 (M.D. Fla. Oct. 2, 2012).
See Fla. Stat. § 608.4225(1)(a) (2010) (the duty of loyalty of a manager or managing member requires them to "hold as trustee for the limited liability company any property, profit, or benefit derived from a use by [such. member] of limited liability company property, including the appropriation of a limited liability company opportunity.").
Id. Accord Venus v. Esfahani (In re Esfahani), 2010 WL 3959607, *3 (Bankr. M.D. Fla. Sept. 22, 2010) (although Fla. Stat. § 608.4225 imposes certain fiduciary duties, it does not establish any type of express or technical trust as required by § 523(a)(4)); Curreli v. Lawrence (In re Lawrence), 2009 WL 3486063, *4 (Bankr. M.D. Fla. Oct. 28, 2009) (debtor's statutory duties as managing member of LLC do not constitute the level of fiduciary duty required by § 523(a)(4)); Abraham Bar-Am v. Grosman (In re Grosman), 2007 WL 1526701, *16 (Bankr. M.D. Fla. May 22, 2007) (type of fiduciary duties specified for managing members of an LLC under § 608.4225, Fla. Stat., "does not create the extraordinary level of fiduciary duty needed to make debt nondischargeable under section 523(a)(4)."). See also Sadler, 2007 WL 4199598, at *2 (citations omitted) (the general definition of "fiduciary" as requiring "good faith, care, and loyalty" has been deemed too broad for purposes of § 523(a)(4), which requires the existence of an express or technical trust).
For these reasons and for the reasons stated orally and recorded in open court that shall constitute the decision of the Court, the Court finds and concludes that even if, arguendo, the Defendant breached his duty of loyalty to Air Trans while serving as a managing member of that company by usurping company opportunities, such conduct did not occur while he served in a "fiduciary capacity" for purposes of § 523(a)(4). Therefore, I further find and conclude it is appropriate to grant summary judgment in favor of the Defendant, the non-moving party.
See Bullock v. BankChampaign, 569 U.S. 267, 273-74, 133 S.Ct. 1754, 185 L.Ed.2d 922 (2013) (citations omitted) (describing the state of mind necessary for conduct to rise to the level of "fraud or defalcation" under § 523(a)(4) and noting that exceptions to discharge should be confined to those plainly expressed). Having found a lack of "fiduciary capacity" under the applicable statute, this Court need not decide if the Defendant's conduct constituted "fraud or defalcation."
See Rule 56(f)(1), Fed. R. Civ. P., applicable here through Rule 7056, Fed. R. Bankr. P.
Accordingly,
ORDERED that the Motion is denied, and the Court will enter a separate judgment in favor of the Defendant.
ORDERED.