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Werner v. Hofmann

United States Court of Appeals, Eighth Circuit
Sep 30, 1993
5 F.3d 1170 (8th Cir. 1993)

Summary

holding that failure to return the correct number of cattle upon termination of a dairy cattle lease did not constitute a willful and malicious injury under § 523 in the absence of evidence that the discrepancy resulted from a deliberate attempt to cause financial harm

Summary of this case from Van Daele Bros., Inc. v. Thoms (In re Thoms)

Opinion

No. 93-2008ND.

Submitted September 24, 1993.

Decided September 30, 1993.

Daniel J. Chapman, Bismarck, ND, argued, for appellants.

Lawrence P. Kropp, Jamestown, ND, argued, for appellees.

Appeal from the United States District Court for the District of North Dakota.

Before FAGG, BOWMAN, and LOKEN, Circuit Judges.


This dispute arises from a dairy cattle lease agreement between Harlan and Mary Werner and Willis D. and Bonnie L. Hofmann. When the Werners terminated the lease, the Hofmanns in North Dakota state court on theories of fraud, conversion, and breach of contract. The state court made no findings concerning fraud or conversion, but ruled in the Werners' favor on contract grounds and awarded a $33,247 judgment. The Hofmanns then filed a Chapter 7 bankruptcy petition and the Werners objected to discharge of the judgment debt on grounds of fraud, embezzlement, larceny, and willful and malicious injury. See 11 U.S.C. § 523(a)(4), (a)(6) (1988). The bankruptcy court held the debt was dischargeable, Werner v. Hofmann (In re Hofmann), 144 B.R. 459 (Bankr.D.N.D. 1992), and the district court affirmed. We agree with the district court that no error of fact or law appears in the bankruptcy court's decision.

The statutory exceptions to discharge in bankruptcy are narrowly construed, and the creditor opposing discharge must prove the debt falls within an exception to discharge. Belfry v. Cardozo (In re Belfry), 862 F.2d 661, 662 (8th Cir. 1988). The Werners first invoke § 523(a)(4), which excepts from discharge a debt arising from the debtor's "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." Finding the agreement between the Werners and the Hofmanns did not create a fiduciary relationship, the bankruptcy court correctly held that the fraud or defalcation exception did not apply. See Barclays Am./Business Credit, Inc. v. Long (In re Long), 774 F.2d 875, 878-79 (8th Cir. 1985) (to apply § 523(a)(4) fraud or defalcation exception, fiduciary capacity must arise from express trust, not constructive trust or mere contractual relationship). The embezzlement exception requires that the debtor improperly used the creditor's property before complying with some obligation to the creditor. Belfry, 862 F.2d at 663. Here, the lease agreement did not call for the Hofmanns to segregate or refrain from using the Werners' cattle. Also, the bankruptcy court's finding that the disagreement over the number of cattle to be returned to the Werners was due to "many years of inaccurate cattle herd counts and the lack of [an] independent herd inventory" is not clearly erroneous. Thus, the bankruptcy court properly ruled that the Hofmanns' noncompliance with the specific terms of the lease agreement was a dischargeable breach of contract, not a nondischargeable embezzlement. See id. We also agree with the bankruptcy court that the larceny exception could not apply because the Hofmann's original possession of the cattle was lawful. See, e.g., Rech v. Burgess (In re Burgess), 106 B.R. 612, 622 (Bankr.D.Neb. 1989).

The Werners also contend § 523(a)(6) prevents discharge of the judgment because the Hofmanns committed willful and malicious conversion of the Werners' cattle. The bankruptcy court's finding that the cattle count discrepancies resulted from carelessness and poor recordkeeping, instead of a deliberate attempt by the Hofmanns to deceive or cause the Werners financial harm, is not clearly erroneous. Thus, § 523(a)(6) does not prevent discharge. See Long, 774 F.2d at 881.

Accordingly we affirm.


Summaries of

Werner v. Hofmann

United States Court of Appeals, Eighth Circuit
Sep 30, 1993
5 F.3d 1170 (8th Cir. 1993)

holding that failure to return the correct number of cattle upon termination of a dairy cattle lease did not constitute a willful and malicious injury under § 523 in the absence of evidence that the discrepancy resulted from a deliberate attempt to cause financial harm

Summary of this case from Van Daele Bros., Inc. v. Thoms (In re Thoms)

holding that larceny exception could not apply because the debtors' original possession of cattle was lawful

Summary of this case from Treadwell v. Glenstone Lodge, Inc. (In re Treadwell)

determining status of cash proceeds of livestock, from duties prescribed by parties' lease agreement

Summary of this case from In re Scott

noting that a fiduciary relationship does not arise from a mere contractual relationship

Summary of this case from Hunter v. Philpott

noting that embezzlement cannot be established merely by showing that property is missing because missing property could be the result of the debtor's failure to comply with his contract and not embezzlement

Summary of this case from Louisiana Marine Towing, LLC v. Bertrand (In re Bertrand)

noting that embezzlement cannot be established merely by showing that property is missing because missing property could be the result of the debtor's failure to comply with his contract and not embezzlement

Summary of this case from In re Bertrand

In Werner v. Hofmann, 5 F.3d 1170, 1172 (8th Cir.1993), the court considered whether the debtors' failure to return the correct number of cattle upon termination of a dairy cattle lease constituted willful and malicious injury under § 523(a)(6). It upheld the bankruptcy court's finding that the cattle count discrepancy resulted from poor recordkeeping rather than a deliberate attempt to cause financial harm. Id.; see In re Hofmann, 144 B.R. 459, 465 (Bankr.D.N.D.1992) (finding the financial harm was “simply the result of sloppy inventory records, and a flexible, but not particularly practical, business relationship.”), aff'd 5 F.3d 1170 (8th Cir.1993).

Summary of this case from Van Daele Bros., Inc. v. Thoms (In re Thoms)

stating "statutory exceptions to discharge in bankruptcy are narrowly construed"

Summary of this case from In Matter of Foral

stating creditor must establish the debtor improperly used the creditor's property before complying with some obligation to the creditor

Summary of this case from In the Matter of Lettington
Case details for

Werner v. Hofmann

Case Details

Full title:HARLAN WERNER; MARY WERNER, APPELLANTS, v. WILLIS D. HOFMANN; BONNIE L…

Court:United States Court of Appeals, Eighth Circuit

Date published: Sep 30, 1993

Citations

5 F.3d 1170 (8th Cir. 1993)

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