Bruinsma v. Wigger (In re Wigger)

• Decision Date: 04 December 2018
• Docket Number: Adversary Proceeding No. 16-80049,Case No. BG 15-06752
• Citation: 595 B.R. 236
• Parties: IN RE: George R. WIGGER, Debtor. Thomas A. Bruinsma, Chapter 7 Trustee for Kevin Mark Wigger, Plaintiff, v. George R. Wigger, Defendant. George R. Wigger, Counter-Plaintiff, v. Kevin Mark Wigger, Counter-Defendant.
• Court: U.S. Bankruptcy Court — Western District of Michigan

595 B.R. 236

IN RE: George R. WIGGER, Debtor.

Thomas A. Bruinsma, Chapter 7 Trustee for Kevin Mark Wigger, Plaintiff,

v.George R. Wigger, Defendant.

George R. Wigger, Counter-Plaintiff,

v.Kevin Mark Wigger, Counter-Defendant.

Case No. BG 15-06752

Adversary Proceeding No. 16-80049

United States Bankruptcy Court, W.D. Michigan.

Signed December 4, 2018

Jacqueline M. Appleman, Esq. and Harold E. Nelson, Esq., attorneys for Thomas A. Bruinsma, Chapter 7 Trustee for Kevin M. Wigger, the Plaintiff.

Cody H. Knight, Esq., attorney for George R. Wigger, the Debtor, Defendant and Counter-Plaintiff.

Kevin M. Wigger, pro se Counter-Defendant.

OPINION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

James W. Boyd, United States Bankruptcy Judge

I. INTRODUCTION and JURISDICTION.

This adversary proceeding arises from allegations that George Wigger embezzled or converted funds from his father, Kevin Wigger, acting pursuant to a durable power of attorney while Kevin was incarcerated.¹ Kevin sued George in the Muskegon County Circuit Court and obtained a $64,812.52 judgment against George for statutory conversion. Shortly thereafter, George filed a voluntary chapter 7 petition in this court. Kevin, the original plaintiff in this adversary proceeding, filed a pro se complaint asserting that the judgment debt be should excepted from George's discharge and requesting additional nondischargeable damages beyond those awarded under the state court judgment.

The matter is currently before the court on cross motions for summary judgment. Kevin filed his motion for summary judgment on March 1, 2017 (AP Dkt. No. 116), and George filed a cross motion for summary judgment on May 18, 2017 (AP Dkt. No. 120). After the motions were filed, but prior to the scheduled hearing, Kevin Wigger filed his own chapter 7 bankruptcy case. Thomas A. Bruinsma was appointed as the trustee in Kevin's case, and was substituted as the Plaintiff in this adversary proceeding (see AP Dkt. No. 139).² On March 30, 2018, the Trustee filed a supplemental memorandum of law in support of Kevin's motion for summary judgment.

Kevin's motion for summary judgment, as adopted by the Trustee in his supplemental briefing,³ asserts that the state court judgment debt should be nondischargeable pursuant to § 523(a)(4) and § 523(a)(6) of the Bankruptcy Code.⁴ This argument is based, at least in part, on the collateral estoppel effect of the state court judgment. The Trustee also asserts that George made additional wrongful withdrawals totaling $18,575.00, which were only discovered by Kevin after the conclusion of the state court bench trial. The Trustee's supplemental brief argues that George is indebted to Kevin for these additional withdrawals, which were not included in the prior state court judgment, and that this debt should also be excepted from George's discharge under § 523(a)(4) and (6).

The Defendant's motion for summary judgment asserts that the Plaintiff has failed to establish the requisite elements of his § 523(a)(4) and (6) causes of action. The Defendant also argues that the Plaintiff's claims for additional damages, beyond those included in the state court judgment, are barred by the doctrine of res judicata. Finally, the Defendant suggests that the Plaintiff is not entitled to equitable relief, including a nondischargeability determination, because of Kevin's "unclean hands."

A hearing on the motions for summary judgment was held before this court on May 10, 2018. After the hearing, each party submitted a supplemental brief.⁵ The court subsequently ordered the Defendant to provide additional documentation from the state court record. The Defendant filed those supplemental documents on August 23, 2018.⁶

The court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. The bankruptcy case and all related proceedings have been referred to this court for decision. 28 U.S.C. § 157(a) ; L. Civ. R. 83.2(a) (W.D. Mich.). This nondischargeable debt action is a statutory core proceeding. 28 U.S.C. § 157(b)(2)(I). The court has authority to enter a final order in this adversary proceeding.

II. FACTUAL BACKGROUND.

Many of the facts that are material to this adversary proceeding were previously established in state court litigation. They are primarily set forth in the state court's Opinion and Order after Bench Trial and Opinion and Order regarding Summary Disposition Motions, which both parties have incorporated as part of the summary judgment record before this court.⁷ Those undisputed material facts are summarized below.

On or about June 2006, Kevin Wigger granted his son George a Durable Power of Attorney to manage Kevin's finances and assets. (See Opinion after Trial, at 3.) At that time, Kevin Wigger was incarcerated in the Muskegon County Jail. (Id.) The Durable Power of Attorney (sometimes referred to herein as the "DPOA") gives George broad authority to "act in, manage, and conduct" all of Kevin's affairs, "as [his] agent" for Kevin's "use and benefit." (Debtor's Supplemental Brief, Exh. A; Trustee's Second Supplemental Brief, Exh. 3.) The DPOA specifically authorizes George to undertake fourteen different categories of actions on Kevin's behalf, including buying and selling property, and making "deposits or investments in or withdrawals from, any account, holding, or interest" which Kevin had or acquired "in any banking, trust, or investment institution." (Id. at 1-2.)

The Defendant has suggested that Kevin executed the DPOA because he wanted to hide his assets from the State of Michigan during his incarceration. In support of this assertion, the Defendant points to a statement in the Opinion after Trial, wherein the court notes that "Kevin is not a sympathetic figure, with his criminal past and motivation to keep his money situation hidden from federal and state authorities." (Opinion after Trial, at 14.) The Defendant also offered a sworn declaration, stating that his father, Kevin, told him "that he wanted to hide his assets from the State of Michigan." (Debtor's Supplemental Brief, Exh. F.) The Trustee disputes this allegation, pointing out that the state court also found that Kevin's criminal conviction was not relevant to the issues before it. (Opinion after Trial, at 2.)

In August 2012, George wrote a letter to Kevin stating that he used the DPOA to "borrow" $14,500 from Kevin in July 2007 to "get [his] house." (Opinion on Summary Disposition, at 1; Opinion after Trial, at 10.) George apologized for doing this and promised to pay Kevin back. (Id.) The letter caused Kevin to investigate. (Opinion on Summary Disposition, at 1.) According to Kevin, his investigation revealed that George had made numerous withdrawals from Kevin's IRA account for his own personal use. (Id. at 1-2.)

Kevin filed a complaint against George and George's wife, Alyssa, in the Muskegon County Circuit Court. The Fourth Amended Complaint contained counts for fraudulent conversion, breach of contract, fraud, and constructive trust. (See Debtor's Supplemental Brief, Exh. B.) It alleged that George's improper withdrawals from the IRA account began on April 2, 2007 and continued through August 12, 2010 and that the total amount of the withdrawals was $51,200. (Id. at 4-9.)

Motions for summary disposition were filed, and on June 4, 2015, the state court issued its Opinion on Summary Disposition. The state court dismissed the breach of contract count, because it found that no contract existed between Kevin and George. (Opinion on Summary Disposition, at 10.) It dismissed the fraud count because it concluded that the elements of fraud were not established, in part because Kevin "willingly gave George access to the money." (Id. at 12.) It also dismissed the constructive trust count, finding that imposition of a constructive trust was "an equitable remedy," not an "independent cause of action." (Id. at 13.) However, the state court denied George's motion as to the fraudulent conversion count. It also partially granted Kevin's cross motion for conversion of $14,500, based on George's admission in his August 2012 letter that he had withdrawn this amount from the IRA. The court declined to enter judgment immediately, finding instead that trial testimony would be required to "characterize the nature of the judgment" and "consider Kevin's request for derivative damages." (Id. at 13.)

A trial was held in the state court on June 24, 25, 30, and July 9, 2015. On July 16, 2015, the state court entered its Opinion and Order after Bench Trial. The state court opinion begins by noting some of the difficulties the parties and the court had encountered as a result of Kevin's decision to represent himself in the litigation while incarcerated. (Opinion after Trial, at 1-2.) For example, the court explained that Kevin had contacted court staff after conclusion of the trial but prior to entry of the opinion, to advise the court that he had "finally received" additional bank records subpoenaed during trial. (Id. at 1.) The court stated its belief that it had handled the subpoena issues raised by Kevin, and the overall scheduling of the trial, in a way that "fulfilled its obligations to him." (Id. at 2.) The court further explained that Kevin had "represented himself well," although it noted that his decision to proceed without counsel had "hindered him at certain points," particularly with respect to the subpoena issues. (Id.)

The state court opinion goes on to indicate that, as of the time of trial, the only remaining count of Kevin's complaint was entitled "fraudulent conversion." (Id. at 5.) Although Kevin's complaint used the term "embezzlement" in several contexts, the court declined to construe the complaint as directly alleging a separate embezzlement count. (Id. at 5-6.) However, because the complaint included a citation to Mich. Comp. Laws § 600.2919a, the court construed the complaint as including a claim for "statutory conversion." (Id.) In its findings and conclusions, the state court opinion uses the terms embezzled and...