Appeal from the United States Bankruptcy Court for the Eastern District of Oklahoma Bankr. No. 95-71149 Chapter 7
Before Clark, Robinson, and Matheson, Bankruptcy Judges.
The opinion of the court was delivered by: Clark, Bankruptcy Judge
Antlers Roof-Truss & Builders Supply ("Antlers") has appealed an order of the United States Bankruptcy Court for the Eastern District of Oklahoma determining that certain debts owed by Allen Jerry Storie and Kathleen Helleckson Storie (collectively, the "Debtors") to Antlers and four other entities (collectively, the "Plaintiffs") are dischargeable in the Debtors' chapter 7 bankruptcy case. *fn1 For the reasons set forth below, we REVERSE the order of the Bankruptcy Court as it applies to Antlers and REMAND this case to the Bankruptcy Court for further proceedings consistent with this opinion.
The facts are undisputed. The individual Debtors, doing business as Driftwood Construction & Supply, reside in Oklahoma. Although they were not licenced contractors, they agreed to construct eight hog barns in Arkansas. Antlers and the other Plaintiffs are materialmen and suppliers who furnished services and materials to the Debtors to construct the hog barns. The Plaintiffs' claims against the Debtors are in the total amount of $258,785, which includes Antlers's claim of $90,869.
The Debtors received $1,688,394 for the construction of the hog barns, but Antlers and the other Plaintiffs were not paid from the proceeds. The Debtors thereafter filed a petition seeking relief under chapter 7 of the Bankruptcy Code.
The Plaintiffs commenced an adversary proceeding in the Bankruptcy Court seeking an order that each of the debts owed by the Debtors to them was not dischargeable pursuant to section 523(a)(4) of the Bankruptcy Code. According to the Plaintiffs, their respective debts were the result of the Debtors' "defalcation" while acting in a fiduciary capacity as contractors under Oklahoma law. See 11 U.S.C. § 523(a)(4); 42 Okla. Stat. Ann. §§ 152(1) & 153(1). The Plaintiffs did not allege that the Debtors had engaged in fraud, embezzlement or larceny. See 11 U.S.C. § 523(a)(4).
The Debtors responded that the debts owed to the Plaintiffs were dischargeable because they had not engaged in any intentional wrongdoing. Rather, they had simply underestimated their construction bid and were not paid for overruns incurred and, therefore, they were not able to pay Antlers or the other Plaintiffs.
At trial, the Debtors accounted for all but approximately $16,000 of the proceeds that they had received from construction of the hog barns. Part of that accounting revealed that the Debtors had paid themselves a salary in the approximate amount of $31,000 from the hog barn proceeds.
After the trial, the Bankruptcy Court entered an "Order Determining Debt Dischargeable." *fn2 The Bankruptcy Court concluded that since there was no evidence of moral dereliction or intentional wrong there was no "defalcation" as required under section 523(a)(4), and ...