Estate of Jones v. Moore (In re Moore), CASE NO. 12-30150 HCD

Decision Date17 January 2014
Docket NumberPROC. NO. 12-3024,CASE NO. 12-30150 HCD
PartiesIN THE MATTER OF PAULA MOORE, DEBTOR. ESTATE OF IRIS Y. JONES, by PAUL CHOLIS, PERSONAL REPRESENTATIVE, PLAINTIFF, v. PAULA MOORE, DEFENDANT.
CourtU.S. Bankruptcy Court — Northern District of Indiana

IN THE MATTER OF PAULA MOORE, DEBTOR.
ESTATE OF IRIS Y. JONES, by PAUL CHOLIS, PERSONAL REPRESENTATIVE, PLAINTIFF,
v.
PAULA MOORE, DEFENDANT.

CASE NO. 12-30150 HCD
PROC.
NO. 12-3024

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

Dated: January 17, 2014


CHAPTER 7

Appearances:

R. William Jonas, Jr., Esq., counsel for plaintiff, Hammerschmidt, Amaral & Jonas, 137 North Michigan Street, South Bend, Indiana 46601; and

Steve Bom, Esq., counsel for defendant, 628 Boston Street, LaPorte, Indiana 46350.

MEMORANDUM OF DECISION

At South Bend, Indiana, on June 17, 2013.

Before the court are the Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(4), filed by the plaintiff Paul Cholis, Personal Representative of the Estate of Iris Y. Jones, and the Answer filed by the defendant Paula Moore, chapter 7 debtor. Trial was held on the Complaint, and post-trial briefs were submitted by the parties. The court then took the matter under advisement. For the reasons presented below, the court finds that the debt owed by Paula Moore to the Estate of Iris Y. Jones is excepted from discharge in the defendant's bankruptcy case.1

BACKGROUND

A. Procedural Background

The plaintiff in this adversary proceeding is Paul Cholis, on behalf of the Estate of Iris Y. Jones ("Mrs. Jones"), and the defendant is the daughter of Mrs. Jones and a debtor in a pending chapter 7 case.

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Mrs. Jones was diagnosed to have Alzheimer's disease in 2002. Her two daughters, Paula Moore ("Moore'' or "defendant") and Valerie Paschen ("Paschen"), cared for her until she passed away on May 3, 2010. The defendant, Mrs. Jones' older daughter, acted as attorney in fact for her mother from 2002 through 2008 and as guardian of the person for her mother for about a year longer. However, Paschen, the younger daughter, challenged her sister's conduct as attorney in fact holding power of attorney. Paschen filed a guardianship petition in state court and demanded an accounting. The St. Joseph Probate Court granted the guardianship, giving Paschen control over her mother's estate and finances and awarding Moore guardianship of the person. Because the disputes between the sisters continued after Mrs. Jones died on May 3, 2010, Cholis was appointed to replace Moore as the personal representative of Mrs. Jones' estate. Moore filed a voluntary chapter 7 bankruptcy petition on January 25, 2012, and Cholis timely filed this adversary proceeding to determine whether Moore owed a debt to her mother's estate that was excepted from Moore's discharge pursuant to 11 U.S.C. § 523(a)(4).

B. Positions of the Parties

The plaintiff claimed that the defendant was a fiduciary to her mother who breached her fiduciary duty by depleting her mother's brokerage account, taking cash from it, and depositing funds into her own personal account at Teachers Credit Union ("TCU"). Cholis alleged that the defendant converted Mrs. Jones' funds to her own use and failed to account properly for the cash withdrawn from her mother's accounts. He charged that the defendant owed her mother's estate a debt in the amount of not less than $228,121.77 for the funds improperly taken and expended. In the Complaint the plaintiff asked the court to find that the debt was nondischargeable under 11 U.S.C. § 523(a)(4) for "fraud, embezzlement or defalcation while acting in a fiduciary capacity." R. 1 at 2. Throughout the adversary proceeding, however, he focused specifically on the § 523(a)(4) ground of "defalcation while acting in a fiduciary capacity."

The defendant asserted that, when she was given a power of attorney by her mother in 2001, she was not instructed about her record-keeping responsibility and did not know to keep an accounting. Moore claimed that her mother continued to handle most of her own financial transactions or directed Moore to do

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specific tasks. In addition, no one told the daughters to restrict their mother's ability to manage her own affairs once Mrs. Jones was declared to be incompetent. Moore insisted that any negligence in her failure to keep records and accounts did not bring this action within the contemplation of § 523(a)(4). Nor did it warrant treble damages and attorney fees. She argued that she was a 50% heir to her mother's estate and that, after taking into account her 50% interest and the annual gifts to herself that were permitted under the power of attorney, she did not misappropriate any monies of the estate.

C. Factual Background

The underlying facts are in large part undisputed. On August 8, 2001, Mrs. Jones executed two documents with the investment brokerage firm A.G. Edwards & Sons, Inc.: "Full Trading Authorization with Privileges to Withdraw Money and/or Securities and Commodities" and "Durable Power of Attorney" (together, "Authorization").2 Pl. Ex. 4.1. Working with the investment adviser Edward Patzer, Mrs. Jones named her older daughter Paula Moore as agent or attorney in fact with authority to conduct transactions on behalf of Mrs. Jones. The Authorization stated: "This Agreement establishes a fiduciary relationship between you [Mrs. Jones] and the Authorized Agent [Moore], who may act only in your interest." Id. The execution was witnessed by Edward Patzer and Denice Barrett.

On August 31, 2001, Mrs. Jones executed a General Durable Power of Attorney ("POA"), appointing her older daughter Paula Moore to serve as her Agent and her younger daughter Valerie Paschen to serve as Alternate Agent if Moore was unable or unwilling to serve. See Pl. Ex. 1. She also executed a Last Will and Testament ("Will") and a Revocable Living Trust Agreement ("Trust"), both of which stated her desire that her daughters would share equally in her estate.3 See R. 2, 3. Moore was named as Mrs.

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Jones' personal representative and as trustee of her Trust, and Paschen was named the substitute or successor personal representative and trustee. The documents were prepared by an attorney.

Mrs. Jones suffered from dementia. By 2002, the disease was severe enough that she was diagnosed as having Alzheimer's, was treated by medication, and needed assistance with her financial matters. The defendant already had been appointed as attorney in fact, with the power to handle her mother's financial affairs. The major portion of Mrs. Jones' financial holdings was held in her brokerage account at A. G. Edwards. Mrs. Jones set up an automatic withdrawal of $1,200.00 from that account which was deposited monthly into a checking account at 1st Source Bank. That bank account also received monthly deposits of her pension and social security checks. From the 1st Source Bank account she paid her living expenses and bills. See Pl. Ex. 5 (1st Source Bank monthly statements, cashed checks). Two other accounts were located at TCU: One listed joint ownership, with Mrs. Jones as the primary owner and Paula Moore as the second owner ("the Jones Account"). See Pl. Ex. 6 (monthly statements, 2002-08). The other listed the defendant as the primary owner and included Mrs. Jones' name ("the Moore Account"). See Pl. Ex. 7 (monthly statements 2003-08).

The defendant's sister, Valerie Paschen, initiated a state court guardianship proceeding in October 2008 after she discovered that the value of her mother's assets in the A.G. Edwards account had decreased. Paschen sought an accounting from the defendant as her mother's attorney in fact. Moore defended against her sister's allegations, first in the state court guardianship and probate proceedings and now in this bankruptcy case, which was filed on January 25, 2012.4

When Mrs. Jones died on May 3, 2010, Paula Moore first served as the duly appointed personal representative of the decedent's estate, as Mrs. Jones' Will directed. However, because of the contentious disagreements between the sisters, the St. Joseph Probate Court appointed Paul Cholis to be the personal

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representative of Mrs. Jones' estate on September 28, 2010. See Pl. Ex. 14. In that capacity, he filed the Complaint that initiated this adversary proceeding. See R. 1. The Complaint alleged that the defendant Paula Moore, while serving as power of attorney for her mother Iris Jones, misappropriated her mother's funds and directed them to her personal benefit and to the benefit of her husband, in violation of 11 U.S.C. § 523(a)(4). It asked the court to find Moore's debt to the Jones estate nondischargeable for "fraud, embezzlement or defalcation while acting in a fiduciary capacity." See id. ¶ 5. It also claimed entitlement to treble damages under Indiana Code § 34-24-3-1. See id. ¶ 6. The defendant denied the essential allegations of the Complaint.

In the parties' jointly submitted Pretrial Order, the plaintiff more specifically alleged that, in the period from May 2002 through May 2009, the defendant breached her fiduciary duty by converting her mother's funds to her own use or by failing to account properly for cash withdrawn from Mrs. Jones' accounts. See R. 10, ¶ C.6. The plaintiff asserted that the defendant drew checks on an account of A.G. Edwards in an amount of at least $300,000.00; that she withdrew cash of at least $73,845.77 from the TCU account5; made money orders payable to her husband; and paid her household and personal bills and expenses with money from her mother's accounts. See id. He asserted that the debt...

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