[00:00:00] Speaker 00:
Inray McKee, Derek May, Council for Appellants Laura O'Kane, and O'Kane and McKee, LLP.

[00:00:12] Speaker 02:
Well, we'll just wait a minute until everybody clears out.

[00:00:17] Speaker 02:
Council, if you would like to reserve any time for reply.

[00:00:20] Speaker 02:
There's no- I guess there is no reply on this one, is there?

[00:00:23] Speaker 02:
Yeah, I'll just- That'll be all at once, Your Honor.

[00:00:25] Speaker 02:
Thank you.

[00:00:25] Speaker 02:
Good call.

[00:00:30] Speaker 02:
You may go ahead and proceed.

[00:00:32] Speaker 03:
Good morning, Your Honors.

[00:00:33] Speaker 03:
I may please the court.

[00:00:35] Speaker 03:
I represent the appellants of Laura O'Kane and the partnership O'Kane and McKee LLP.

[00:00:43] Speaker 03:
The appellee is a former partner of O'Kane and McKee LLP.

[00:00:48] Speaker 03:
They entered into an oral partnership where there was no written agreement governing the partnerships, so California default rules regarding partnerships and their dissolution applied to this.

[00:01:02] Speaker 03:
Both of these, both appellant O'Kane and appellant

[00:01:08] Speaker 03:
mckee were licensed attorneys at all relevant points and are continue to be licensed attorneys and uh... this case centers mainly around the uh... handling of uh... receivable uh... that was earned by the partnership uh... prior to their disassociation uh... and splitting apart uh... the total receivable was around two hundred seventy thousand that was established pursuant to a settlement agreement that the partnership reached uh... with the estate

[00:01:38] Speaker 03:
And the only thing left over was to collect, have a distribution out of the estate of the receivable for the attorney's fees owed by the estate.

[00:01:51] Speaker 03:
The first, there were two distributions of those proceeds.

[00:01:54] Speaker 03:
The first was approximately 36,000 of the total 270.

[00:01:59] Speaker 03:
That was handled appropriately.

[00:02:03] Speaker 03:
It was deposited into the partnership trust account.

[00:02:08] Speaker 03:
And it was used to pay debts.

[00:02:09] Speaker 03:
There was a co-counsel that it also paid.

[00:02:13] Speaker 03:
The issue in this case becomes how the second distribution of the receivable was handled, particularly 206,000 of that remaining distribution.

[00:02:26] Speaker 03:
McKee was the one that handled the collection of that receivable.

[00:02:32] Speaker 03:
So she received a check from the estate covering that second distribution.

[00:02:37] Speaker 03:
After paying co-counsel on the matter, their portion of their fees, there's 206,000 remaining, and that was divided among, per McKee's handling of it, she divided it in half, gave half into the partnership, put it in a partnership bank account, and retained half herself.

[00:02:59] Speaker 03:
This case is mainly based on the conduct of McKee and unilaterally keeping a portion of that receivable without first depositing into the trust account.

[00:03:14] Speaker 03:
Turned mainly on this council.

[00:03:17] Speaker 01:
So if it is taking the receivable splitting it in half Keeping one half and sending the other half back to her former law partner somehow for your client to prevail in the trial before the bankruptcy judge and

[00:03:33] Speaker 01:
You'd have to say that that splitting created a false pretense.

[00:03:36] Speaker 01:
That's 2A of a 523, or there was actual fraud.

[00:03:42] Speaker 01:
It's four or six.

[00:03:44] Speaker 01:
It was willful and malicious.

[00:03:47] Speaker 01:
Your client knew she split it.

[00:03:49] Speaker 01:
She split it and gave your client half.

[00:03:51] Speaker 01:
There was no written agreement.

[00:03:53] Speaker 01:
Tell me, how did the court err in concluding, specifically, how did the court err in deciding that there was no 523-246 obligation?

[00:04:04] Speaker 01:
I mean, your client knew what she did.

[00:04:07] Speaker 03:
Yeah, my client knew what she did.

[00:04:09] Speaker 03:
And based on what my client's belief was, is she misappropriated that $103,000.

[00:04:13] Speaker 03:
It all should have been deposited into the partnership, and then the debt's paid, and then distributed out.

[00:04:22] Speaker 03:
She took more than her share.

[00:04:24] Speaker 01:
There's no partnership agreement.

[00:04:26] Speaker 01:
There was no correspondence between the parties.

[00:04:30] Speaker 01:
And she was in a situation where she did this thing.

[00:04:32] Speaker 01:
Maybe, ultimately, if there was an accounting, it might have been wrong.

[00:04:36] Speaker 01:
But we don't have that evidence.

[00:04:38] Speaker 01:
She split it between the two parties.

[00:04:40] Speaker 01:
I'm just trying to see how splitting it created any fraud.

[00:04:46] Speaker 03:
You're right.

[00:04:47] Speaker 03:
Your Honor, I'm not arguing there was fraud under 82.

[00:04:50] Speaker 03:
I didn't appeal on that matter.

[00:04:52] Speaker 03:
It's mainly the A4, the partnership.

[00:04:55] Speaker 03:
It creates certain trust responsibilities and accounting responsibilities, but also you can't misappropriate business opportunities outside of the partnership.

[00:05:06] Speaker 03:
It's a trust relationship.

[00:05:10] Speaker 02:
But it was a non-functioning partnership who had not been functioning for at least two years by that time, correct?

[00:05:15] Speaker 02:
Correct.

[00:05:16] Speaker 03:
relinquish them of their fiduciary obligations to the partnership.

[00:05:19] Speaker 02:
And I think there's a difference here between whatever fiduciary obligations there were and the requisite intent to establish the non-dischargeability of a debt under 523A4.

[00:05:30] Speaker 02:
That's really what you're arguing, correct?

[00:05:32] Speaker 03:
Yeah, Bullock was the main case that the court relied upon.

[00:05:35] Speaker 03:
And I talked about Bullock at length in the case, because that is mainly.

[00:05:40] Speaker 02:
And in your briefing, you indicated that it was different standards.

[00:05:48] Speaker 02:
But when we're talking about the Bullock determination, aren't we really talking about a factual finding?

[00:05:56] Speaker 03:
The Bullock determination, it was mainly

[00:06:02] Speaker 03:
It was a different violation in Bullock.

[00:06:04] Speaker 02:
No, but I mean, it's the requisite intent, right?

[00:06:08] Speaker 02:
That's what we take from Bullock.

[00:06:09] Speaker 02:
I mean, you can analogize to the facts in Bullock, and I understand the fairly lengthy part of your brief.

[00:06:13] Speaker 02:
But really, the bankruptcy court had to ascertain, based upon the testimony, whether the debtor had that requisite intent and concluded that she did not.

[00:06:29] Speaker 03:
added an additional intent.

[00:06:34] Speaker 03:
The reason Bullock doesn't apply is in Bullock, it was a fiduciary obligation not involving misappropriation of trust assets.

[00:06:49] Speaker 03:
In fact, the trust was repaid in full.

[00:06:51] Speaker 03:
It was a self-dealing transaction.

[00:06:54] Speaker 03:
In our case, if it was just pure self-dealing and the

[00:07:01] Speaker 03:
Partnership was not harmed all the partnerships deaths were repaid in Bullock.

[00:07:05] Speaker 03:
It was repayment of all the insurance company loans Then yeah Bullock would be spot-on the partnership lost Was unable to pay those debts because how do we know that?

[00:07:22] Speaker 00:
she asked on numerous occasions for an accounting from Miss O'Kane and she never received anything that ever established there was any money owed in addition to what she deposited.

[00:07:35] Speaker 03:
The loan was still outstanding from the mother?

[00:07:38] Speaker 00:
I appreciate that, but then in your brief, you said, well, if you credited the loan, then she could keep $78,000.

[00:07:43] Speaker 00:
And later in your brief, you said under A6, she should have returned all 103,000.

[00:07:47] Speaker 00:
So I'm not clear that you understand what the facts were that were before her.

[00:07:54] Speaker 00:
And the debt was one that was non-dischargeable with regard to Ms.

[00:07:58] Speaker 00:
O'Keefe.

[00:07:59] Speaker 00:
She couldn't be personally liable for it.

[00:08:01] Speaker 00:
It was limited to the property, which was the real estate they owned that she didn't have an exemption in.

[00:08:07] Speaker 00:
So I'm not clear that the mother's ever been paid, that Ms.

[00:08:11] Speaker 00:
O'Kane's ever proved that she paid the debt, or OM has ever paid the debt.

[00:08:15] Speaker 00:
This is hypothetical, isn't it?

[00:08:18] Speaker 00:
And that's the problem with this case.

[00:08:20] Speaker 00:
It's all hypothetical.

[00:08:22] Speaker 03:
I disagree with the fact that she was not aware that the money should have been deposited into the partnership.

[00:08:30] Speaker 03:
There were emails from her saying she's not going to do it.

[00:08:34] Speaker 00:
There were demands that were made, but what she asked for is, tell me what is owed so I can determine how much and why it's legitimate.

[00:08:42] Speaker 00:
And she never got response to that, did she?

[00:08:46] Speaker 03:
I think that was after the fact she sent emails like that, and she used that to justify keeping the 103,000.

[00:08:53] Speaker 03:
Yes.

[00:08:55] Speaker 00:
But ultimately, at trial, you had the ability to prove.

[00:08:58] Speaker 00:
We told her exactly what was owed and what.

[00:09:01] Speaker 00:
And those numbers were never produced, were they?

[00:09:06] Speaker 03:
They were produced in claims.

[00:09:09] Speaker 03:
The bankruptcy court claims that were filed, what was owed, the partnership filed claims.

[00:09:14] Speaker 03:
They were produced.

[00:09:15] Speaker 03:
There's evidence.

[00:09:18] Speaker 03:
She disagrees that that was owed.

[00:09:19] Speaker 00:
And I guess the bankruptcy court didn't find it very compelling, because it didn't find that she did anything with the intent to harm the partnership, either by retaining the funds or by not contributing the money to O'Kane.

[00:09:39] Speaker 03:
I think the issue really here is that she unilaterally determined that.

[00:09:45] Speaker 03:
Everything should have gone into the partnership.

[00:09:47] Speaker 03:
then there wouldn't be any argument.

[00:09:48] Speaker 03:
Everything should have gone into the partnership, but there were still debts to be paid.

[00:09:51] Speaker 03:
Right.

[00:09:52] Speaker 03:
Well, everything goes into the partnership as a matter of course, like it did in the first distribution.

[00:09:57] Speaker 02:
And then they distributed it out.

[00:09:58] Speaker 02:
That's because she knew that there were things to pay.

[00:10:00] Speaker 02:
And I believe the testimony was that she exercised control over the account of O&M's bank account to use that money to make those payments.

[00:10:08] Speaker 02:
So I mean, that's a different situation that was known to her.

[00:10:12] Speaker 02:
And she seems to have acted in conformity with her obligations.

[00:10:15] Speaker 02:
suggesting that the decision on the second part was a reasoned decision as the bankruptcy court eventually concluded.

[00:10:24] Speaker 00:
Not to mention the fact that after the money was deposited into the Oman account, Ms.

[00:10:30] Speaker 00:
O'Kane withdrew the money and took it into her personal account.

[00:10:33] Speaker 00:
So how is it any different if that's where the money ended up with Ms.

[00:10:38] Speaker 00:
O'Kane versus the other half ended up with Ms.

[00:10:41] Speaker 00:
McKee?

[00:10:43] Speaker 03:
Ms.

[00:10:44] Speaker 03:
O'Kane, I believe I covered this in the statement of facts, Ms.

[00:10:47] Speaker 03:
O'Kane was owed money for the wind down and applied that money there.

[00:10:56] Speaker 01:
Let's take that, that there was money owed.

[00:11:00] Speaker 01:
You've got a little over four minutes, four and a half minutes left, and if you could focus on this.

[00:11:05] Speaker 01:
We're dealing with 523 issues, and you say four is the primary one you're looking at.

[00:11:11] Speaker 01:
The court resolved those by making factual findings.

[00:11:15] Speaker 01:
As a result, for your client to prevail, you need to show that the trial court made a clear error.

[00:11:21] Speaker 01:
Please, for me, focus on, let me know, what is the clear error that the trial court committed?

[00:11:28] Speaker 03:
When you look at the court's ruling, when discussing the facts, they talk about the loan to the mother-in-law, or my client's mother, when discussing A2,

[00:11:44] Speaker 03:
But when they come to talk about the amounts that the partnership owes under A4, that loan is not discussed at all, completely disregarded.

[00:11:56] Speaker 03:
In one part of the ruling, the court acknowledges that loan existed and remained outstanding.

[00:12:01] Speaker 03:
I point that out in my brief.

[00:12:04] Speaker 03:
And then when it comes to A4 and discussing the debts of the partnership,

[00:12:09] Speaker 03:
There's no discussion on that loan, whether it was paid or whether it was due or owing.

[00:12:13] Speaker 01:
And so that results in fraud or defalcation while acting in a fiduciary capacity embezzlement or larceny?

[00:12:23] Speaker 03:
Right, because she took a distribution ahead of the creditors of the partnership.

[00:12:27] Speaker 03:
knowingly.

[00:12:28] Speaker 03:
I mean, that was a written obligation.

[00:12:31] Speaker 01:
Did she know all of that?

[00:12:32] Speaker 01:
I mean, there was unfortunately poor communication between these two parties.

[00:12:40] Speaker 01:
And she split the money.

[00:12:43] Speaker 01:
And maybe she split it wrong.

[00:12:47] Speaker 01:
But that mistake, I'm trying to figure out how that resulted in fraud or embezzlement.

[00:12:56] Speaker 03:
The partnership was left with one partner taking money that was never deposited into the account and to deal with liabilities all with Ms.

[00:13:08] Speaker 03:
O'Kane's half of that amount, which led to an unequal distribution of the partners.

[00:13:13] Speaker 03:
The default rules say that it should be equally divided after the debts are paid.

[00:13:18] Speaker 02:
Was there a demand made afterwards, specific?

[00:13:21] Speaker 03:
Several demands and she was sued.

[00:13:23] Speaker 02:
Where is that?

[00:13:24] Speaker 02:
Okay.

[00:13:25] Speaker 02:
The testimony at trial, at least from Ms.

[00:13:27] Speaker 02:
McGee, was she didn't know the specifics.

[00:13:34] Speaker 02:
She stated that she wasn't convinced that the $50,000 was ever going to be a collectible based upon prior loans from Ms.

[00:13:41] Speaker 02:
McCain's mother.

[00:13:42] Speaker 02:
There's testimony also that she reached out and said,

[00:13:48] Speaker 02:
If I owe tell me what I owe and I'll pay so what in the record was the reaching out and saying here's the spreadsheet Here's the calculation.

[00:13:58] Speaker 02:
This is where it where it where it is the amount owed.

[00:14:02] Speaker 03:
I Mean she was sued for For when was she sued?

[00:14:07] Speaker 03:
He was sued by the mother-in-law's the mother-in-law for collection of the debt Her and the partnership and put it put it into chronological relationship to the distribution, please

[00:14:18] Speaker 03:
So after the distribution was made and the debts of the partnership weren't paid, a lawsuit was filed.

[00:14:25] Speaker 02:
How long?

[00:14:28] Speaker 03:
I'm not sure.

[00:14:29] Speaker 01:
It wasn't immediately.

[00:14:34] Speaker 01:
Maybe there's an argument that she needs to pay more than half back and that maybe she owes money.

[00:14:41] Speaker 01:
That's different than what embezzlement or the definition of embezzlement or fraud.

[00:14:46] Speaker 01:
She may have made a mistake and she may have owed money.

[00:14:51] Speaker 01:
She may have breached a contract, but that's not necessarily fraud or embezzlement.

[00:15:00] Speaker 03:
Yes, Your Honor, but she had a chance after she realized that there were debts to return some of that money to the partnership, and she willfully did not.

[00:15:09] Speaker 01:
But that embezzlement, isn't it decided at the time you take the money?

[00:15:13] Speaker 01:
I mean, if she learns later that maybe she owes more than she gave to the other side, that that's just sort of a garden variety debt and not an embezzlement claim?

[00:15:27] Speaker 03:
That's almost like saying I didn't know I'd been embezzled from my employer, but now that my employer is saying it's embezzlement, it's not embezzlement anymore.

[00:15:34] Speaker 01:
At that time, it was a factual question of whether she thought the 50-50 split would make sense or be appropriate.

[00:15:41] Speaker 01:
There's no partnership agreement.

[00:15:43] Speaker 01:
There was no communications between the parties of any meaningful sort.

[00:15:48] Speaker 03:
I'm just saying after the fact, everybody will try to say it was a mistake.

[00:15:51] Speaker 03:
OK.

[00:15:51] Speaker 01:
All right.

[00:15:52] Speaker 01:
Well, and so that's a factual question.

[00:15:55] Speaker 01:
And we have a trial court that answered that question and said it wasn't.

[00:16:02] Speaker 01:
So what you're saying is that looking at those facts that you've presented, that that is a clear error.

[00:16:09] Speaker 03:
I say the clear error was not acknowledging the written debt in discussing the 523A as actual debts of the partnership that were firm.

[00:16:20] Speaker 00:
Doesn't that just result in a $25,000 liability and not a $103,000 liability?

[00:16:26] Speaker 00:
Potentially.

[00:16:28] Speaker 00:
But that's what's so unclear about the client's position.

[00:16:31] Speaker 00:
It just varies from circumstance to circumstance.

[00:16:34] Speaker 00:
There's no real proof.

[00:16:35] Speaker 00:
There's no real evidence.

[00:16:37] Speaker 00:
It's just, you owe me the money.

[00:16:39] Speaker 00:
Give me all the money.

[00:16:42] Speaker 00:
Isn't that the answer here?

[00:16:44] Speaker 00:
She wants $103,000 back.

[00:16:46] Speaker 00:
She wants the other half of the distribution, irrespective of whether she can prove it's owed or not.

[00:16:51] Speaker 03:
The partnership needs it back, yes.

[00:16:54] Speaker 03:
And the partnership can pay its liabilities.

[00:16:55] Speaker 03:
If there's stuff left, she gets it back.

[00:16:59] Speaker 00:
I think you're over time, but I appreciate it.

[00:17:02] Speaker 00:
Thank you.

[00:17:02] Speaker 02:
Thank you very much.

[00:17:03] Speaker 02:
All right.

[00:17:04] Speaker 02:
With that, the matter will be submitted.

[00:17:05] Speaker 02:
And again, we'll try to get out something as quickly as possible.

[00:17:08] Speaker 02:
Thank you very much, Councilman.

[00:17:11] Speaker 02:
Madam Clerk, will you call the third matter?