The U.S. Court of Appeals for the Fifth Circuit held that a corporate fiduciary who exercises substantial control over a limited partnership managed by a corporation can owe fiduciary obligations to the partnership itself.
David Harwood was a Director and the Chief Operating Officer of B&W Finance Co., Inc., which was the sole general partner of FNFS, Ltd., a limited partnership engaged in consumer lending operations. Mr. Harwood, who managed B&W's daily affairs, exercised substantial control over FNFS, and withdrew more than $800,000 of FNFS funds as personal loans that he allegedly neglected to properly record. The B&W board terminated Mr. Harwood, who filed for Chapter 7 bankruptcy, and B&W challenged Mr. Harwood's ability to discharge his debts to FNFS because he accrued this debt through defalcation while acting as a fiduciary.
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