Capuccio v. Capuccio (In re Capuccio)

• Decision Date: 16 September 2016
• Docket Number: ADV No. 16-1053-JDL,Case No. 16-10604-JDL
• Parties: In re: Elena Marie Capuccio, Debtor. Anthony Capuccio, Plaintiff, v. Elena Marie Capuccio, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Western District of Oklahoma

558 B.R. 461

In re: Elena Marie Capuccio, Debtor.Anthony Capuccio, Plaintiff,

v.Elena Marie Capuccio, Defendant.

Case No. 16-10604-JDL

ADV No. 16-1053-JDL

United States Bankruptcy Court, W.D. Oklahoma.

Signed September 16, 2016

Edward W. Dzialo, Jr., Godlove, Mayhall, Dzialo, Dutcher & Erwin, Lawton, OK, for Plaintiff.

T. Matthew Smith, Oklahoma City, OK, for Defendant.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO DISMISS

Janice D. Loyd

, U.S. Bankruptcy Judge

I. Introduction

This adversary proceeding arises from a family dispute regarding management of the estate of an incapacitated woman, Anna Marie Capuccio (“Mother”). The plaintiff is Anthony Cappuccio (the “Plaintiff”) who is the son of Mother, and her current court-appointed guardian. The Defendant is Elena Marie Capuccio (the “Debtor”), the debtor in the underlying bankruptcy case. The Debtor served as Mother's primary caregiver and manager of Mother's finances before the state court removed her and appointed the Plaintiff as Mother's guardian in 2014. The Plaintiff claims that during the period of the Debtor's management of Mother's finances she breached her fiduciary duties by utilizing Mother's funds for Debtor's own use and benefit and that this breach constituted fraud and a defalcation under 11 U.S.C. § 523(a)(2) and (4)

, rendering the resulting debt non-dischargeable.

This matter comes before the Court upon the Plaintiffs Amended Motion to Dismiss Counterclaim (the “Motion”) [Doc. 8] and the Defendant's Objection to Plaintiff's Motion to Dismiss Counterclaim (the “Objection ”) [Doc. 13]. In the Motion , filed pursuant to Federal Rules of Civil Procedure 12(b)(6)

, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b), Plaintiff, as court-appointed guardian of his mother, requests that the Counterclaim filed by Debtor in the adversary proceeding be dismissed. The Plaintiff contends that the Counterclaim fails to state a claim upon which relief can be granted on the basis that (1) the Debtor is barred from seeking recovery of damages because of her failure to assert the same as a compulsory counterclaim in pre-bankruptcy state court litigation, (2) her claim for damages asserted in her Counterclaim is contrary to her testimony at the first meeting of creditors and (3) this Court lacks jurisdiction to hear this adversary. Pursuant to Federal Rule of Bankruptcy Procedure 7052, the Court makes the following findings of fact and conclusions of law which support its determination that Plaintiffs Motion should be denied.

II. Background

Plaintiff and Debtor are brother and sister. From 2004 through July 2014, Debtor was the primary caregiver of her Mother, and as her Mother became more aged Debtor handled her Mother's personal, business and financial affairs. Mother was diagnosed by her primary care physician with dementia “well before December 21, 2005”. [Affidavit of Dr. Pamela Barry-Duguid, Doc. 1, Ex. 2]. In early 2009, Mother executed a durable power of attorney which granted the Debtor broad powers to handle Mother's financial affairs. In 2014 a dispute arose between Plaintiff and Debtor as to the management of their Mother's affairs. Plaintiff filed action in the District Court of Comanche County to have himself appointed as guardian, and on November 14, 2014, with the Debtor's consent, he was granted letters of guardianship. Thereafter, Plaintiff brought suit against the Debtor in the District Court of Comanche County, alleging that the Debtor had breached her fiduciary duties by misappropriating in excess of $300,000.00 from Mother's accounts for the Debtor's own use and benefit. [Doc. 1]. After having filed an Answer in state District Court, on February 26, 2016, Debtor filed a petition for relief under Chapter 13 of the U.S. Bankruptcy Code.

On May 9, 2016, Plaintiff filed this adversary proceeding seeking to bar Debtor's discharge as to the approximately $300,000.00 based upon fraud under § 523(a)(2)

and defalcation in a fiduciary relationship under § 523(a)(4). On June 9, 2016, Debtor filed her Answer and Counterclaim in which she essentially denied all the material allegations of the Plaintiff's Complaint. In her Counterclaim, Debtor asserted, among other things, that from May 2008 to July 2014 she was the only family member involved in the care of her Mother; that loans her Mother made to her grandson were done with Mother's full knowledge and approval; that conveyances and other expenditures of Mother's funds were made with Mother's approval or pursuant to a durable power of attorney executed by Mother in 2009; that in 2013 Plaintiff stated his opinion that mother should be placed in a 24-hour care facility; that with debtor's consent Plaintiff had himself appointed a guardian for his Mother; and after reviewing the financial records Plaintiff asserted that the Debtor had wrongfully taken $150,000.00 from Mother. By way of relief in her Counterclaim, Debtor asserted that she had not been compensated for her care of Mother from May 2008 to July 2014, that the reasonable value of the services she rendered to Mother was $105,524.00 and that she was entitled to recover the same on the basis of quantum merit. [Doc 4].

As stated in the Introduction above, Plaintiff seeks dismissal of the Counterclaim on three bases: (1) Debtor's failure to assert her compulsory Counterclaim in the state court litigation; (2) Debtors testimony at her § 341 examination establishes that she has no claim for relief; and (3) this court lacks jurisdiction to entertain this adversary proceeding. As jurisdiction is paramount, the Court will deal with the last issue first.

III. Jurisdiction

1. Jurisdiction of the Compulsory Counterclaim.

This Court has subject matter jurisdiction over this adversary proceeding to determine the dischargeability of a debt pursuant to 28 U.S.C. §§ 157

and 1334 and the General Order of reference in this district, Rule 81.4 of the Local Rules for the United States District Court for the Western District of Oklahoma. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

The Counterclaim arises out of the very set of transactions upon which the dischargeability action is based. If the Court finds that if there is an obligation due to the Plaintiff, whether the obligation is dischargeable or not, this Court cannot make a complete determination of what is owed by the Debtor to Plaintiff without ruling on the Counterclaim. This is all the more true where in the present case the Plaintiff's claim far exceeds the claim of the Debtor's Counterclaim, thus making the Counterclaim a mere set-off to the Plaintiff's claim. Therefore, the mere filing of the Counterclaim does not convert the dischargeability action into a non-core or a “ Stern v. Marshall

” proceeding.¹

2. Plaintiff's Consent to the Courts Jurisdiction.

Even if it could have been argued that this Court lacked jurisdiction to adjudicate the Counterclaim, Plaintiff has consented to jurisdiction both expressly and implicitly. A bankruptcy court otherwise lacking adjudicatory power may nevertheless enter final judgment with the express or implied consent of the parties. Wellness International Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015)

. In this case, Plaintiff executed a Jury Trial and Jurisdictional Acknowledgments and Consents by which he expressly consented to this Court's exercise of jurisdiction to the extent of a final entry of judgment in the case.² [Doc. 10]. “The key inquiry is whether the ‘litigant or counsel was made aware of the need for consent and the right to refuse it, and still voluntarily appeared to try the case’ before the non-Article III adjudicator.” Id. (quoting Roell v. Withrow, 538 U.S. 580, 588, n. 5, 123 S.Ct. 1696, 155 L.Ed.2d 775 (2003) ). Having consented in writing to the jurisdiction of the court, there is no automatic right to withdraw such consent. In re Kingsley Capital Inc. , 423 B.R. 344, 352 (10th Cir. BAP 2010) (“[W]e do agree that withdrawal of § 157(c)(2) consent does require both a motion and a showing of good cause, neither of which was present here.”) (quoting Carter v. Sea Land Services, Inc. , 816 F.2d 1018 (5th Cir. 1987) stating “once a right, even a fundamental right, is knowingly and voluntarily waived, a party has no constitutional right to recant at will.”). No such attempt to withdraw consent has been filed by the Plaintiff, nor has good cause been shown to support any withdrawal.

Further, Plaintiff filed a Proof of Claim in this proceeding for the same amount sought in the adversary. [Claim 4-1]. “A creditor who files a proof of claim in a bankruptcy case submits to the bankruptcy court's equitable jurisdiction for determination not only of the claim itself, but also any counterclaim or defense that must necessarily be resolved in the claims allowance process.” Stern, 131 S.Ct. at 2607–08, 2616–18

. Courts have also extended this principle to counterclaims filed by a defendant in an adversary proceeding where resolution of the claims and counterclaims could not be resolved without determining the merits of the creditor's claim. See e.g. In re Allegro Law LLC, 545 B.R. 675, 698 (Bankr. M. D. Ala. 2016). In short, by Plaintiff's express and implied consent, this Court has jurisdiction over this adversary proceeding, including Debtor's Counterclaim.

3. Whether Mother's Pending Guardianship Proceeding Precludes the Bankruptcy Court from Exercising Jurisdiction .

Plaintiff argues this Court lacks jurisdiction to entertain the Debtor's Counterclaim because Oklahoma state statutes pertaining to guardianship grant exclusive jurisdiction to the court in which the guardianship petition is filed. 30 O.S. § 1–113

; 30 O.S. § 1–114. A reading of those statutes makes clear that such jurisdiction is exclusive as to specific matters such as (1) “the need for a guardian or other order and (2) how the estate of the ward shall be managed, expended or distributed to or for the use of the ward or...