Hof v. Caswell (In re Caswell)

• Citation: 605 B.R. 401
• Decision Date: 11 July 2019
• Docket Number: Adversary No. 18-02013,Case No. 18-10107
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: IN RE: Daniel P. CASWELL, Gennell D. Caswell, Debtors. Frederich Hof; Wanda Leyes; and Frederich Hof, as Trustee for the Genevieve E. Stewart Winger Revocable Living Trust, Dated December 17, 1999; Plaintiffs, v. Daniel P. Caswell, Gennell D. Caswell, Defendants.

605 B.R. 401

IN RE: Daniel P. CASWELL, Gennell D. Caswell, Debtors.Frederich Hof; Wanda Leyes; and Frederich Hof, as Trustee for the Genevieve E. Stewart Winger Revocable Living Trust, Dated December 17, 1999; Plaintiffs,

v.Daniel P. Caswell, Gennell D. Caswell, Defendants.

Case No. 18-10107

Adversary No. 18-02013

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

Signed July 11, 2019

James W. Sprouse, Jr., Sprouse Law Firm, PLLC, Raleigh, NC, Robert A. Lefkowitz, The Lefkowitz Law Firm, Winston-Salem, NC, for Plaintiffs.

Robert A. Lefkowitz, The Lefkowitz Law Firm, Winston-Salem, NC, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

BENJAMIN A. KAHN, UNITED STATES BANKRUPTCY JUDGE

This adversary proceeding is before the Court on the Plaintiff's Motion for Summary Judgment, ECF No. 42, and the Brief in Support of Plaintiff's Motion for Summary Judgment, ECF No. 43, filed by Plaintiff Frederich Hof, as Trustee for the Genevieve E. Stewart Winger Revocable Living Trust, Dated December 17, 1999 (the "Trust"). For the reasons set forth herein, Plaintiff's Motion for Summary Judgment will be granted in part and denied in part.

Jurisdiction and Authority

The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a), the United States District Court for the Middle District of North Carolina has referred this case and this proceeding to this Court by its Local Rule 83.11. This dischargeability action is both a constitutionally and statutorily core proceeding. See 28 U.S.C. § 157(b)(2)(I). The parties have consented to this Court entering final judgments on all matters raised in the pleadings. ECF No. 30. The Court has constitutional authority to enter final judgments in this adversary proceeding. Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S. Ct. 1932, 1947, 191 L.Ed.2d 911 (2015).

Procedural History

Daniel P. Caswell and Gennell D. Caswell commenced the underlying bankruptcy case by filing a voluntary petition for relief under chapter 7 on January 31, 2018. The first meeting of creditors under 11 U.S.C. § 341 was set for February 26, 2018, making April 27, 2018, the deadline for creditors to commence an action to determine the dischargeability of any debt. See 11 U.S.C. § 523(c) ; Fed. R. Bankr. P. 4007(c). On April 9, 2018, Frederich Hof and Wanda Leyes, in their individual capacities, timely filed a Complaint seeking a determination that the debt owed under the General Judgment and Supplemental Judgment described below are nondischargeable. ECF No. 1.

On May 10, 2018, the Caswells moved to dismiss the original Complaint under Federal Rule of Civil Procedure ("Civil Rule") 12(b)(6), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7012(b). The Caswells argued that Frederich Hof and Wanda Leyes, in their individual capacities, were not the proper parties in interest to maintain the dischargeability action. ECF No. 5. Two weeks later, Frederich Hof, Wanda Leyes, and Frederich Hof, as Trustee for the Trust, filed an Amended Complaint (the "Amended Complaint") as a matter of course under Civil Rule 15(a)(1)(B), made applicable here by Bankruptcy Rule 7015. ECF No. 12.

On May 29, 2018, the Caswells moved to dismiss the Amended Complaint under Civil Rules 12(b)(6) and 15(c). ECF No. 13. The Court denied the original dismissal motion as moot the following day. ECF No. 15. On July 2, 2018, the Court granted the Caswells' Motion to Dismiss the Amended Complaint as to Frederich Hof and Wanda Leyes in their individual capacities, and denied the motion as to Frederich Hof, as Trustee for the Trust. ECF No. 28.

On February 26, 2019, Plaintiff moved for summary judgment, ECF No. 42, and filed a brief in support of his motion.¹ ECF No. 43. On March 14, 2019, the Caswells moved to extend the time to respond to Plaintiff's Motion for Summary Judgment. ECF No. 44. The Court granted the Caswells' motion and extended the response deadline until March 25, 2019. ECF No. 45. The Caswells filed their Response and Brief in Opposition to Plaintiff's Motion for Summary Judgment on March 27, 2019. ECF No. 47. The Court scheduled a hearing on the Motion for Summary Judgment for April 9, 2019. ECF Nos. 48, 49. On April 8, Plaintiff filed a reply brief. ECF No. 52. At the hearing, James W. Sprouse, Jr. appeared on behalf of Plaintiff and Robert A. Lefkowitz appeared on behalf of the Caswells. Following the arguments of counsel, the Court took the matter under advisement.

Factual Background

Ms. Genevieve E. Stewart Winger ("Ms. Winger") established the Trust on December 17, 1999. ECF No. 42-5 at 17, Ex. 19. Toward the end of her life, Ms. Winger moved in with her daughter, Ms. Caswell, and her daughter's husband, Mr. Caswell. ECF No. 42-2 at 36, Ex. 4; ECF No. 42-4 at 37, Ex. 14. Ms. Winger suffered from a number of serious health issues while living with the Caswells. ECF No. 42-5 at 18, Ex. 19. Ms. Winger died on October 15, 2012, leaving four beneficiaries of the Trust——Frederich Hof, Wanda Leyes, Deborah Lynn Winger, and Gennell D. Caswell.² Id. at 17-18. Ms. Caswell assumed the role of trustee of the Trust prior to Ms. Winger's death and, with the involvement of Mr. Caswell, administered the Trust. Id.

In September 2014, Frederich Hof and Wanda Leyes, in their individual capacities, (the "State Court Plaintiffs") sued the Caswells in the Circuit Court for the State of Oregon (the "State Court"), asserting five claims for relief: (1) remove trustee, require accounting; (2) undue influence; (3) unjust enrichment; (4) breach of fiduciary duty; and (5) intentional interference with a prospective inheritance. See Pet. & Compl. Case No. 14CV13762 (the "Original State Court Complaint"), ECF No. 42-2 at 24-28, Ex. 3B.

Ms. Caswell responded to the Original State Court Complaint by moving for dismissal, ECF No. 42-2 at 29-38, Ex. 4, and Mr. Caswell filed a "Motion to Remove Daniel P. Caswell," alleging that he "had no responsibility what so ever [sic] to the Genevieve E. Stewart-Winger Revocable Living Trust or any assets." Id. at 39-46, Ex. 5. The State Court denied both motions, ECF No. 42-3 at 1, Ex. 6, and Ms. Caswell and Mr. Caswell each filed answers to the Original State Court Complaint, Id. at ECF No. 42-3 at 4-13, Exs. 7, 8. The State Court Plaintiffs then moved to add a sixth claim for relief for surcharge, ECF No. 42-4 at 1-29, Exs. 11-13, and the Caswells moved to void the Trust. Id. at 30-42, Ex. 14. The State Court held a hearing on both motions on April 7 at which counsel for the State Court Plaintiffs appeared and the Caswells appeared telephonically. Id. at 43-46, Ex. 15. The State Court denied the motion to void the Trust, Id., and granted the amendment. ECF No. 42-5 at 1-4, Ex. 16.

The State Court Plaintiffs filed an amended petition and complaint, see Am. Pet. & Compl. Case No. 15PB00594 (formerly 14-CV-13762) (the "Amended State Court Complaint"), ECF No. 42-5 at 5-12, Ex. 17, and the Caswells responded shortly thereafter. Id. at 13-16, Ex. 18. Following a two-day trial, the State Court entered judgment on June 1, 2017, in favor of the State Court Plaintiffs on four of the six claims for relief: (1) remove trustee, require accounting; (2) undue influence; (3) breach of fiduciary duty; and (4) surcharge. See id. at 17-23, Ex. 19. The State Court set forth its findings of fact and conclusions of law in the General Judgment and Money Award ("General Judgment"), entered on October 19, 2017. Id. The General Judgment, in relevant part, provides:

Because of the nature of Mrs. Caswell's role as Trustee of the Trust, and Mr. Caswell's involvement in Trust activities, the Caswells both were required to exercise undivided loyalty to the Trust, and the Trust's beneficiaries, and to exercise care and skill as persons with ordinary prudence would in administering a trust.

As for the First Claim for Relief, [Ms. Caswell] did not administer the Trust in good faith in accordance with its terms, and it is proper to remove her as Trustee of the Trust.

In regard to the Sixth Claim for Relief, for Surcharge, the evidence established the Caswells breached their obligations to the Trust in the following ways:

a. By failing to keep, or at any point provide, an accounting of the disposition of $341,141.03 of the Trust's $458,791.14 in funds and/or assets;

b. By intentionally and in bad faith creating an artificial line of credit in order to defalcate large sums of money from the Trust's accounts to Mr. Caswell's business, which was done for Mr. and Mrs. Caswell's own benefit and which constitutes a serious breach of Trust duties;

c. By ignoring legal advice about how to administer the Trust properly;

d. By not researching what would constitute a reasonable compensation for providing for Ms. Winger's care;

e. By not sharing with the beneficiaries any of the financial decisions the Caswells made on behalf of the Trust as Mrs. Caswell had been advised by counsel to do;

f. By allowing the withdrawal of $18,257.65 from the Trust with no credible explanation as to what the withdrawals were for, some of which withdrawn [sic] during a time Ms. Winger was in respite care and could not have made the transactions herself. These withdrawals were not consistent with Ms. Winger's past habits, and she did not have the capacity to authorize or make the transactions;

g. By Mrs. Caswell withdrawing $10,000.00 from the Trust and paying it to herself as a gift from Ms. Winger without a credible explanation;

h. By generally abusing their discretion in exercising Trust obligations;

i. By intentionally, carelessly, and in bad faith defalcating Trust assets;

The evidence also established Ms. Winger shared a confidential relationship with the Caswells, and the presence of several suspicious circumstances surrounding that relationship. Ms. Winger was completely dependent on the Caswells to both care for her and

...