In Re Byron C. Lewis Irene Lewis, Debtors. Byron C. Lewis Irene Lewis v. Mitchell R. Scott

Debtors Byron C. and Irene Lewis appeal the bankruptcy appellate panel’s order affirming the bankruptcy court’s decision that the Lewises’ debt to Mitchell R. Scott was nondischargeable under 11 U.S.C. § 523 . The Lewises argue that their debt to Scott was dischargeable because they were not fiduciaries to Scott under Arizona law, and because they did not commit defalcation. We have jurisdiction under 28 U.S.C. § 158 (d), and we affirm.

I.

BACKGROUND

On November 20, 1989, Byron and Irene Lewis signed a partnership agreement with Mitchell Scott to sell Indian arts and crafts under the name L & S Traders. The partnership sold goods out of two stores — a Win-slow, Arizona, store which the Lewises opened in October 1989, and a Bisbee, Arizona, store which they had opened in 1987 prior to teaming up with Scott. Under the terms of the agreement, Scott invested $28,-000 in the Winslow store and $5,000 in the Bisbee store. The Lewises, in turn, were to contribute their time and labor in managing the two stores. According to Scott, the partners agreed to share in half the profits.

The partnership agreement also provided that the L & S bookkeeper would provide monthly financial reports…