Opinion
Case No.: 07-13242 (DHS), Adv. No.: 07-01756 (DHS).
February 13, 2008
Forman Holt Eliades Ravin LLC, William Waldman, Esq., Paramus, New Jersey, Counsel for Plaintiff Dennis Buttimore as Executor for the Estate of Helen C. Buttimore .
Santo J. Bonnano, Esq., Wayne, New Jersey, Counsel for Debtor Carole Wolke .
OPINION
On June 6, 2007, Dennis Buttimore as Executor for the Estate of Helen C. Buttimore (hereinafter "Plaintiff") filed a four-count adversary complaint against Carole Wolke (hereinafter "Debtor" or "Defendant") alleging, inter alia, the nondischargeability of the Defendant's $400,000.00 debt pursuant to Section 523(a)(4) of the Bankruptcy Code. On November 16, 2007, the Plaintiff moved for summary judgment arguing that no issues of material fact exist as to Section 523(a)(4)'s requirement of defalcation while acting in a fiduciary capacity and thus seeks entry of judgment in the sum of $400,000.00 plus interest. On November 27, 2007, the Defendant filed a certification in opposition to the Plaintiff's motion for summary judgment disputing various statements in the Plaintiff's statement of uncontested facts and requesting that this matter proceed to trial. On January 2, 2008, the Plaintiff replied to Defendant's certification and contended that: (i) the Defendant's prior statement in her Answer that she was her mother's fiduciary constitutes a judicial admission and is binding throughout the litigation; (ii) the Defendant failed to provide any legal or factual support against defalcation; and (iii) the Defendant's intention is irrelevant to a Section 523(a)(4) claim.
The Defendant failed to submit neither a memorandum of law reciting the legal basis for her opposition to the Plaintiff's motion for summary judgment nor a statement of why no brief is necessary. Thus, the Defendant is not in compliance with Local Bankruptcy Rule 9013-2.
For the following reasons, the Plaintiff's motion for summary judgment is granted. The Court has jurisdiction over the instant matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. Motions for summary judgment are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
Statement of Facts and Procedural History
A. Plaintiff's Statement of Undisputed Facts
Helen C. Buttimore ("Buttimore"), a resident of New Jersey, was the mother of Dennis Buttimore, Edward Buttimore, and Carole Ann Wolke. Certification of Dennis Buttimore in Support of Motion for Summary Judgment Against Defendant, Carole Ann Wolke ("Buttimore Cert."), at ¶¶ 2-3. The Debtor was a registered nurse for the past twenty-five (25) years. Id. at ¶ 5. Buttimore was an elderly widow and moved in with her daughter, the Debtor, in 1997. Id. at ¶ 6. As Buttimore's health declined in or about 2001, the Defendant was entrusted to care for her mother as the she was already living there. Id. at ¶¶ 5-6. The Plaintiff alleged that the Defendant verbally and emotionally abused her mother. Id. at ¶ 6.
Between 1997 and August 2005, the Defendant was a joint holder of two of Buttimore's bank accounts for convenience purposes since Buttimore experienced difficulty managing her finances and affairs. Id. at ¶ 7. All of the monies held in the two bank accounts at issue belonged to Buttimore. Id. at ¶ 8. Between February 2003 and July 2005, the Defendant took approximately $400,000.00 of the monies in these accounts for her personal use including a transfer to Frank Cirillo a/k/a Frank Cirell and Frank Cirilli, whom the Plaintiff contends is the Defendant's boyfriend. Id. at ¶ 4, 9. These withdrawals were without Buttimore's consent. Id. at ¶ 9.
In August 2005, the Defendant wrote a letter to the Plaintiff admitting the above stated facts. Id. at Exhibit A. In this letter, the Defendant stated that she used a portion of the money for investments that had not yet paid off and that she believed her actions equated to her receiving her share of the estate "up front." Id. at ¶ 10. Shortly thereafter, on September 26, 2005, Helen Buttimore died and the Plaintiff was appointed as Executor on October 12, 2005. Id. at ¶¶ 11-12.
On August 17, 2005, prior to Buttimore's death, the Defendant executed an affidavit in connection with the administration of Buttimore's estate in which she admitted to: (i) misappropriation of $400,000.00; (ii) personal use of the money; (iii) transfer of such money to Cirillo; and (iv) lack of Buttimore's knowledge or consent. Id. at ¶ 13. Subsequently, the Defendant also disclaimed her rights to her residuary share of Buttimore's estate and acknowledged that the affidavit was voluntary and free from duress. Id. at ¶ 13. On December 7, 2005, the Defendant executed a second affidavit voluntarily waiving her rights to any distribution from the estate. Id. at ¶ 14.
Buttimore's will distributed the residuary estate equally amongst her three children. Id. at ¶ 15. But for the Defendant's prior use of $400,000.00, the estate would have totaled $844,115.94 with each child receiving $281,371.98. Id. at ¶ 17. By taking $400,000.00, the Defendant received $118,628.05 more than she was entitled to exclusive of interest and fees. Id. at ¶¶ 18-20. On July 21, 2006, Dennis Buttimore, as Executor of his mother's estate, commenced an action in Superior Court of New Jersey, Law Division, Passaic County, Docket Number L3387-06, against the Defendant for fraud, breach of fiduciary duty, conversion, constructive trust, and accounting. Certification of William Waldman in Support of Motion for Summary Judgment Against Defendant, Carole Ann Wolke ("Waldman Cert."), at Exhibit A. As of the date of the instant motion, such complaint was still pending. Id.
B. Defendant's Disputed and Additional Facts
In her certification, the Defendant disagreed with several of the facts stated above. First, she stated that Frank Cirillo was a friend, not a boyfriend. Certification of Carole Wolke ("Wolke Cert."), at ¶ 2. Second, she contended that she neither mistreated her mother nor acted as her mother's fiduciary. Rather, she claims she was a daughter caring for her mother. Id. Third, the Defendant argued that her motivation for using the money was for investment purposes and that "misappropriation" is an improper characterization. Id.
The Defendant submitted a letter she had written to her brother, Dennis Buttimore, dated August 2005, in which she detailed the difficulties she faced that led to her use of the $400,000.00. Id., Exhibit A. In this letter, she contends that she alone cared for her mother for eight years with no help from her brothers. Id. She further explained that she invested in a movie about Mario Lonza using the proceeds from her home mortgage, lottery winnings, and money from her mother's accounts that she believed represented her share up front. Id.
The Defendant claimed she was executed the disclaimer under duress due to her threatened prosecution by her brothers. Id. at ¶ 3. The disclaimer, executed at the office of Steven Veltri, Esq., a friend of Edward Buttimore, also relinquished the Defendant's right to be the executor of her mother's will. Id. at ¶ 5. The Defendant asserts that she executed the disclaimer without the presence or assistance of counsel and did so because she was "trying to do the right thing." Id. at ¶ 5. Furthermore, she contends that she signed the affidavit on the condition that her brothers would not seek further remuneration, but admits, she has no supporting documentation of this contention. Id. at ¶ 5. She maintains that she did not intend to steal or embezzle any of her mother's money, but believed she was making an investment in the hopes of increasing its value based on Cirillo's statements. Id. at ¶ 6.
Discussion
A. Summary Judgment Standard
A court may grant summary judgment under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. At the summary judgment stage, the role of the court "is not to weigh evidence, but to determine whether there is a genuine issue for trial." Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The court must construe facts and inferences in a light most favorable to the non-moving party. See Am. Marine Rail NJ, LLC v. City of Bayonne, 289 F. Supp. 2d 569, 578 (D.N.J. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). "Only evidence admissible at trial may be used to test a summary judgment motion. Thus, evidence whose foundation is deficient must be excluded from consideration." Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989) (citations omitted).
The moving party must make an initial showing that there is no genuine issue of material fact. See Knauss, 289 F. Supp. 2d at 549 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The burden then shifts to the non-moving party to "`make a showing sufficient to establish the existence of [every] element essential to the party's case, and on which that party will bear the burden of proof at trial.'" Cardenas v. Massey, 269 F.3d 251, 254-55 (3d Cir. 2001) (questioned on other grounds) (quoting Celotex Corp., 477 U.S. at 322). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). An issue of fact is "genuine" if a reasonable juror could return a verdict for the non-moving party. See id. at 248. Furthermore, a material fact is determined by the substantive law at issue. See Crane v. Yurick, 287 F. Supp. 2d 553, 556 (D.N.J. 2003) (citing Anderson, 477 U.S. at 248). A fact is "material" if it might affect the outcome of the suit under governing law. Id. Disputes over irrelevant or unnecessary facts are insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 248 (citation omitted).
However, even if material facts remain disputed, summary judgment may be proper if, after all inferences are drawn in the non-moving party's favor, the moving party is entitled to judgment as a matter of law. Id. at 248-50. Such a judgment is appropriate "as a matter of law" when the non-moving party has failed to make an adequate showing on an essential element of his or her case, as to which he or she bears the burden of proof. See Celotex Corp., 477 U.S. at 322-23. When one party moves the court for summary judgment, Federal Rules of Civil Procedure 54(c) and 56, taken together, permit the court to enter summary judgment on behalf of the non-movant, even if the non-movant has not filed a cross-motion for summary judgment. See Peiffer v. Lebanon Sch. Dist., 673 F. Supp. 147, 151-52 (M.D. Pa. 1987) (citation omitted). Conversely, a court must deny a motion for summary judgment when a genuine issue of material fact remains to be tried or where the moving party is not entitled to a judgment as a matter of law.
B. Section 523(a)(4) — Nondischargeability
Exceptions to discharge are "strictly construed against creditors and liberally interpreted in favor of debtors." Int'l Fidelity Ins. Co. v. Marques (In re Marques), 358 B.R. 188, 193 (Bankr. E.D. Pa. 2006). This strict construction furthers the central purpose of the Bankruptcy Code "to relieve debtors from the weight of oppressive indebtedness and provide them with a fresh start." Id. (citing Ins. Co. of Am. v. Cohn (In re Cohn), 54 F.3d 1108, 1113 (3d Cir. 1995)). Thus, the burden of proving nondischargeability is on the party objecting to the discharge. Therefore, it is the Plaintiff who must prove all of the elements of Section 523(a)(4) by a preponderance of the evidence. Id. (citing Grogan v. Garner, 498 U.S. 279, 288-89 (1991)).
Section 523(a)(4) provides the following:
(a) A discharge under section 727 . . . of this title does not discharge an individual from any debt.
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.
11 U.S.C. § 523(a)(4) (2007). Under the "defalcation while acting in a fiduciary capacity" prong, a plaintiff must prove that:
(1) there was a pre-existing fiduciary relationship between debtor and the creditor; (2) debtor acted in violation of that relationship; and (3) the creditor suffered an economic loss as a consequence.
Pa. Lawyers Fund for Client Security v. Baillie (In re Baillie), 368 B.R 458, 469 (Bankr. W.D. Pa. 2007) (citing Commonwealth Land Title Co. v. Blaszak (In re Blaszak), 397 F.3d 386, 390 (6th Cir. 2005)).
In the instant matter, the third element is clear; Buttimore and her estate suffered a loss of $400,000.00 due to the Defendant's actions. Further, if the Plaintiff is able to bear its burden on the fiduciary relationship element, then it is clear that the Defendant's actions constitute a violation of such relationship by her personal use of her mother's monies. Thus, the crux of this adversary proceeding is whether a fiduciary relationship existed between the Debtor and her mother and whether the Debtor's conduct constituted a defalcation. Here, the Debtor admitted in her answer to the adversary complaint that she was a fiduciary of her mother and also admitted in a later affidavit that she committed a defalcation. Notwithstanding these admissions, the Court will analyze the merits of the Plaintiff's Section 523(a)(4) claim.
1. Fiduciary Duty
Although the Defendant admitted in her answer that she owed a fiduciary duty to her mother, she later denied such role in her opposition to the instant motion. Traditionally, a fiduciary is one in a relationship of confidence, trust, and good faith. However, courts have found this definition to be too broad for the purposes of the bankruptcy laws. See Mercedes-Benz Credit Corp. v. Carretta (In re Carretta), 219 B.R. 66, 69 (Bankr. D.N.J. 1998) (citation omitted). Courts have limited the definition of a fiduciary for Section 523(a)(4) purposes to situations where "[t]he fiduciary (debtor) . . . hold[s] an express or technical trust on behalf of the beneficiary (creditor)." Int'l Fidelity Ins. Co. v. Marques (In re Marques), 358 B.R. 188, 194 (Bankr. E.D. Pa. 2006) (citing Harris v. Dawley (In re Dawley), 312 B.R. 765, 777 (Bankr. E.D. Pa. 2004)). In addition, the fiduciary relationship "must have existed prior to or independent of the particular transaction from which the debt arose. The debt must be due to the fiduciary acting in that capacity." Id. (citing Pa. Manufacturers' Assoc. Ins. Co. v. Desiderio (In re Desiderio), 213 B.R. 99, 102-03 (Bankr. E.D. Pa. 1997)); see In re Carretta, 219 B.R. at 69 ("[T]he Trustee's duties must be independent of any contractual obligation between the parties and must be imposed prior to, rather than by virtue of, any claim of misappropriation." (citation omitted)). Thus, implied or constructive trusts and trusts ex maleficio do not impose fiduciary relationships within the context of Section 523(a)(4). In re Carretta, 219 B.R. at 69 (citation omitted).
Although the dischargeability of a debt under Section 523(a)(4) is a question of federal law, state law has bearing in determining whether an express or technical trust relationship exists. See In re Marques, 358 B.R. at 194 (citation omitted); State of New Jersey v. Kaczynski (In re Kaczynski), 188 B.R. 770, 773 (Bankr. D.N.J. 1995) (citation omitted). An express trust requires: "(1) a declaration of trust; (2) a clearly defined trust res; and (3) an intent to create a trust relationship." In re Kaczynski, 188 B.R. at 774 (citing Windsor v. Librandi (In re Librandi), 183 B.R. 379, 382 (M.D. Pa. 1995)). An express trust may be created in writing, orally, or based on circumstantial evidence. Mugno v. Casale, No. 96-6228, 1997 U.S. Dist. LEXIS 3867, at *24-25 (E.D. Pa. 1997). A technical trust is not as clearly defined. Instead it is one that arises out of state statutory or common law. In re Kaczynski, 188 B.R. at 774 (citation omitted); In re Librandi, 183 B.R. at 383-83 (citation omitted).
In the instant motion, the Plaintiff relied upon cases from other districts that are factually similar to the case at bar. Specifically, the first case cited by the Plaintiff, Johnson v. Thompson (In re Thompson), 234 B.R. 820 (Bankr. M.D. Ala. 1998), held that even without a formal trust, the defendant was acting in a fiduciary capacity to his aunt because he was made a co-signor to an account of money solely to be used to provide for the nursing home and care for his aunt. Id. at 822. The second case, Pratt v. Pratt (In re Pratt), No. 00-12905, 2001 Bankr. LEXIS 595, at * (Bankr. D.N.H. April 26, 2001), held that defendant was a fiduciary to her imprisoned father by serving as a joint account owner. Id. at *5. In each of these cases an underlying state court judgment against the defendant existed. In the within matter, a state court action is currently pending, but no judgment has been entered to date.
The Mugno case is particularly instructive to the case at hand as it is within the Third Circuit and relies upon New Jersey law. In that case, Mugno and Casale were sisters and the sole heirs of their mother, Catherine Santocroce. Mugno, 1997 U.S. Dist. LEXIS at *2. Prior to her death in 1989, the mother sold her residence, invested a portion of the proceeds in two certificates of deposit (CDs), and gave $30,000.00 to Mugno, purportedly to satisfy a pre-existing debt between the two. Id. Following the maturation of the CDs, Santocroce and Mugno met with a financial advisor who recommended that Santacroce turn the proceeds of the CDs over to Mugno for deposit into her personal account and to open a mutual fund account using $60,000.00 of the total accrued. Id. at *3. This money was to be used by Mugno to pay for Santocroce's expenses including rent, utilities, telephone, health insurance, and pharmacy. Id. Approximately nine months after these accounts were created, Santocroce died intestate and Mugno was appointed administrator of the estate. Id. Mugno gave Casale $11,800.00 from these accounts by exercising a previously granted power of authority. Id.
In May 1990, Mugno and her husband purchased property for $137,000 using a portion of the Santocroce accounts. Casale filed a complaint against Mugno for wrongful control of $130,000 of the assets of Santocroce's estate. Mugno argued that the $130,000 was a gift. The New Jersey state court entered judgment in favor of Casale and the estate of Santocroce and found that the CD money was not a gift to Mugno but rather entrusted to Mugno to invest on behalf of her mother. Thereafter, Mugno filed for chapter 7 bankruptcy relief and Casale filed an adversary complaint to determine nondischargeability pursuant to, inter alia, Section 523(a)(4). Casale filed a summary judgment motion which the Bankruptcy Court granted relying upon the underlying state court judgment.
Mugno appealed to the District Court arguing that the Bankruptcy Court erred in determining that Mugno was Santocroce's fiduciary based on an express trust theory. The District Court articulated that an express trust may be created by writing, orally, or by circumstance and that even though the underlying judgment did not specifically find an express trust, all of the necessary elements were established. Id. at *25-26. The state court "concluded that Santacroce turned over money to Mrs. Mugno to be handled by her, to be invested by her or held by her, to be used for her mother's needs as they arose," and further found that portions of the money were immediately used for the benefit of the mother, thus confirming that the money was held in trust. Id. at *26-27. The District Court affirmed the Bankruptcy Court's decision.
Here, although there is no state court judgment, the facts are still similar to the Mugno case. Buttimore entrusted control over her money to her daughter, Carole Ann Wolke, by creating a joint account to better facilitate the payment of Buttimore's needs and care. See In re Librandi, 183 B.R. at 384 (demonstrating the creditor's entrustment of funds to the debtor whereby the debtor exercised control constituted a trust res). These are the same set of facts that led the Mugno court to find that an express trust had been established and thus a fiduciary relationship existed. Here, it is clear the requisite elements of an express trust exist between Buttimore and the Debtor based on the circumstances and their actions. Thus, a fiduciary relationship exists between Helen Buttimore and the Defendant. 2. Defalcation
The Bankruptcy Code does not define the term "defalcation." See Chao v. Rizzi, No. 06-711, 2007 U.S. Dist. LEXIS 57773, at *7 (W.D. Pa. August 8, 2007). Black's Law Dictionary defines defalcation as "loosely, the failure to meet an obligation, a non-fraudulent default." Id. at *8 (citing BLACK'S LAW DICTIONARY 448 (8th ed. 2004)). Varying interpretations exist amongst the Circuits. Id. As noted by the Chao court, the Fourth Circuit relied upon Black's Law Dictionary to find that defalcation includes negligence or innocent mistake. Id. (citing Rwanda v. Uwimana, 274 F.3d 806, 811 (4th Cir. 2001)). The definition used by the First Circuit includes extreme recklessness. Id. (citing In re Bayliss, 313 F.3d 9, 17-20 (1st Cir. 2002)). The Third Circuit has not yet provided a definition for defalcation. See id. at *8. However, the Chao court, found that defalcation requires "some showing of affirmative misconduct. . . ." Chao, 2007 U.S. Dist. LEXIS at *9 (relying upon the unpublished opinion in Silver Care Ctr. v. Parks, No. 05-37154, 2007 Bankr. Lexis 2373, at *51 (Bankr. D.N.J. July 10, 2007)). While affirmative misconduct is necessary, intent is not required to establish defalcation. Id. at *10 n. 7. "Defalcation is evaluated by an objective standard and no element of intent or bad faith need be shown." Brown v. Colangelo (In re Colangelo), 206 B.R. 78, 85 (Bankr. M.D. Pa. 1996) (citation omitted).
Notwithstanding the Defendant's admission of defalcation, there is a clear showing here that the Defendant used monies belonging to her mother, without Buttimore's knowledge or consent, to make investments that have not yet proven fruitful and the debt at issue arose from such actions. See id. at *10 ("[T]he debt at issue must have arisen from that defalcation."). Affirmative misconduct exists here, but this Court does not find fraudulent nor criminal intent under the facts herein. That said, this Court has no doubt the Debtor's conduct constitutes a defalcation under Section 523(a)(4).
Conclusion
The Defendant and her mother, Helen Buttimore, had a pre-existing fiduciary relationship. The Defendant violated such relationship by using monies from the jointly held accounts that subsequently led to an economic loss suffered by Helen Buttimore and her estate. The Defendant committed defalcation while acting in a fiduciary capacity. Her debt owed to the estate of Helen Buttimore is deemed nondischargeable pursuant to Section 523(a)(4). For the reasons articulated above, the Plaintiff's motion for summary judgment is hereby granted. An Order in conformance with this Opinion has been entered by the Court and a copy is attached hereto.
NOTICE OF JUDGMENT OR ORDER Pursuant to Fed.R.Bankr.P. 9022
Please be advised that on February 13, 2008, the court entered the following judgment or order on the court's docket in the above-captioned case:
Document Number: 17 — 11
Opinion (related document:[11] Motion For Summary Judgment RE: for entry of an Order granting summary judgment in favor of Plaintiff, Dennis Buttimore as Executor for the Estate of Helen C. Buttimore and against Defendant, Carole Wolke filed by Plaintiff Dennis Buttimore as Executor for the Estate of Helen C. Buttimore). The following parties were served: Plaintiff, Plaintiff's Attorney, Defendant, Defendant's Attorney. Signed on 2/13/2008 (zlh.)
Parties may review the order by accessing it through PACER or the court's electronic case filing system (CM/ECF). Public terminals for viewing are also available at the courthouse in each vicinage.