Huntington Nat'l Bank v. Aman (In re Aman)

• Decision Date: 20 September 2013
• Docket Number: Adversary No. 11–98.,Bankruptcy No. 11–1353.
• Citation: 498 B.R. 592
• Court: U.S. Bankruptcy Court — Northern District of West Virginia
• Parties: In re John P. AMAN and Veronica J. Aman, Debtors. The Huntington National Bank, West Union Bank, and Freedom Bank, Inc., Plaintiffs, v. John P. Aman and Veronica J. Aman, Defendants.

498 B.R. 592

In re John P. AMAN and Veronica J. Aman, Debtors.The Huntington National Bank, West Union Bank, and Freedom Bank, Inc., Plaintiffs,

v.John P. Aman and Veronica J. Aman, Defendants.

Bankruptcy No. 11–1353.

Adversary No. 11–98.

United States Bankruptcy Court, N.D. West Virginia.

Sept. 20, 2013.

David Allen Barnette, Jackson & Kelly, Jill C. Bentz, W. Heney Jernigan, Dinsmore and Shohl LLP, Charleston, WV, Michael R. Proctor, Dinsmore & Shohl LLP, Morgantown, WV, Harry A. Smith, III, McNeer, Highland, McMunn and Varner, Elkins, WV, for Plaintiffs.

Thomas H. Fluharty, Clarksburg, WV, for Defendants.

MEMORANDUM OPINION

PATRICK M. FLATLEY, Bankruptcy Judge.

The Huntington National Bank (“HNB”), West Union Bank, and Freedom Bank (collectively “Plaintiffs”) seek summary judgment on their complaint to except $300,000 from John P. Aman and Veronica J. Aman's (“Debtors”) discharge under 11 U.S.C. § 523(a)(2), (4), and (6). The Plaintiffs contend that grounds exist to render this debt nondischargeable because Mr. Aman engaged in fraud, defalcation, and embezzlement over a seven-year period. The Debtors oppose summary judgment on the basis that genuine issues of material fact exist. For the reasons stated herein, the court will deny the Plaintiffs' motion for summary judgment.

I. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the movant demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A party seeking summary judgment must make a prima facie case by showing: first, the apparent absence of any genuine dispute of material fact; and second, the movant's entitlement to judgment as a matter of law on the basis of undisputed facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The movant bears the burden of proof to establish that there is no genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Demonstrating an absence of any genuine dispute as to any material fact satisfies this burden. Id. at 323, 106 S.Ct. 2548. Material facts are those necessary to establish the elements of the cause of action. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Thus, the existence of a factual dispute is material—thereby precluding summary judgment—only if the disputed fact is determinative of the outcome under applicable law. Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.1994). A movant is entitled to judgment as a matter of law if “the record as a whole could not lead a rational trier of fact to find for the non-movant.” Williams v. Griffin, 952 F.2d 820, 823 (4th Cir.1991) (citation omitted); see also Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

If the moving party shows that there is no genuine dispute of material fact, the nonmoving party must set forth specific facts that demonstrate the existence of a genuine dispute of fact for trial. Celotex Corp., 477 U.S. at 322–23, 106 S.Ct. 2548. The court is required to view the facts and draw reasonable inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at 798. However, the court's role is not “to weigh the evidence and determine the truth of the matter [but to] determine whether there is a need for a trial.” Anderson, 477 U.S. at 249–50, 106 S.Ct. 2505. Nor should the court make credibility determinations. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir.1986). If no genuine issue of material fact exists, the court has a duty to prevent claims and defenses not supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323–24, 106 S.Ct. 2548.

II. BACKGROUND

Ms. Aman had a close relationship with her great uncle, Peter L. Olean. For a number of years, Mr. Olean visited the Amans three to six nights per week. In 2000, Mr. Olean designated Mr. Aman as one of his attorneys-in-fact because of his relationship with Ms. Aman. Under the durable power of attorney, Mr. Aman had numerous powers: He had the right to, among other things, draw checks on, and withdraw all or part of Mr. Olean's savings accounts; to demand, sue for and recover for, any and all sums of money, debts, rents, royalties, accounts, insurance, interest and dividends that became due; to sell, lease, pledge, encumber, convey, transfer, assign, and dispose of property, and to make, execute, acknowledge, and deliver any instruments required to consummate such transaction; to sell, assign, cash, convert or transfer any stocks, notes, or securities; and “generally to do and perform all things necessary to carry out the powers” provided for under the durable power of attorney. Soon after Mr. Olean executed the durable power of attorney, he began noticing withdrawals from his bank accounts. Upon review of his monthly bank statements, Mr. Olean discovered that Mr. Aman was writing checks on his accounts. Mr. Olean told Mr. Aman to stop withdrawing funds from his accounts, but Mr. Aman continued writing checks in Mr. Olean's name. Although these unauthorized withdraws continued for many years, Mr. Olean did not revoke his power of attorney because of his beloved niece.

In 2001, Mr. Aman joined HNB as its senior treasury management officer. Sometime during Mr. Aman's employment with HNB, Mr. Olean loaned Mr. Aman stock certificates for 5,335 shares of Merck and 17,206 shares of Mylan Laboratories. Mr. Olean loaned him the stock certificates as collateral to borrow from HNB. During Mr. Aman's employment with HNB, twelve HNB loans were taken out in Mr. Olean's name; Mr. Olean signed three of the loans,¹ and Mr. Aman signed nine in his capacity as Mr. Olean's power of attorney. At least eight of the HNB's loans were collateralized with Mr. Olean's Merck and Mylan stock. All of HNB's loans were paid in full.

In 2005, Mr. Aman left HNB to join West Union Bank as its senior vice president of its Clarksburg, West Virginia branch office. During the first two years there, Mr. Aman took out twenty-nine loans in the name of Mr. Olean and signed each one as “John Aman P.O.A.” The loan documents indicate that the purpose of the loans were to “pay off Huntington Bank,” “to pay contractor,” and for the “renewal of loan.” The vast majority of the West Union Bank loans were unsecured; the few loans that were secured were collateralized by a “Pete Dye Membership Certificate.” Mr. Olean was not aware of these loans until 2009. All of the West Union Bank loans were paid in full.

On or about May 15 and May 17, 2007, Mr. Aman took out two loans in the name of Mr. Olean from Freedom Bank in the amounts of $245,054.89 and $114,313.36—a total of $359,368.25. The loan documents reflect that Mr. Olean was the borrower and Mr. Aman signed as “John Aman P.O.A.” The stated purpose of the loans was “debt consolidation.” Both loans were collateralized by Mr. Olean's stock: 17,208 shares of Mylan Laboratories stock and 6,335 shares of Merck stock. A few days after Mr. Aman took out these loans, Mr. Olean revoked Mr. Aman's power of attorney. By 2009, both of the Freedom Bank loans were in default. Freedom Bank sold the collateral and applied the proceeds to the outstanding debt obligation; the proceeds, however, did not satisfy the outstanding obligation. Freedom Bank notified Mr. Olean by letter that he should contact the bank to make arrangements to pay the $55,444 deficiency.

In 2010, Mr. Olean filed a lawsuit against the Plaintiffs in the Circuit Court of Monongalia County, West Virginia. He brought four causes of action against the banks: fraud, negligence, conversion, and vicarious liability. The Plaintiffs each filed a third-party complaint against Mr. Aman. HNB and West Union Bank's third-party complaint asserted the same two-counts: first, for contribution from Mr. Aman if the banks were held liable to Mr. Olean; and second, they alleged that Mr. Aman fraudulently misrepresented his authority under his durable power of attorney, they relied upon his misrepresentations by approving the loans, they were damaged by having to defend Mr. Olean's lawsuit, and any potential judgment against them was sustained as a proximate consequence of Mr. Aman's fraudulent misrepresentations. Freedom Bank's third-party complaint, without the same specificity as HNB and West Union Bank, also asserted causes of action for fraud and contribution if Freedom Bank was held liable to Mr. Olean.

During the state court proceeding, the Plaintiffs deposed the Debtors. Mr. Aman asserted his Fifth Amendment privilege in response to questions relating to the money he borrowed from the Plaintiffs in his capacity as Mr. Olean's power of attorney. Ms. Aman similarly asserted her spousal privilege in response relating to her husband's loans from the Plaintiffs. On July 27, 2011, while the state court proceeding was pending, the Debtors filed for bankruptcy relief under Chapter 13 of the Bankruptcy Code. On October 7, 2011, the Plaintiffs filed this adversary proceeding and also individually filed proofs of claim in the Debtors' bankruptcy case. This adversary proceeding was stayed to permit the resolution of the state court proceeding above. The Plaintiffs ultimately settled with Mr. Olean for $300,000 and each obtained a default judgment against Mr. Aman: HNB was awarded $108,333.33; West Union Bank was awarded $108,333.34; and Freedom Bank was awarded $83,333.33. ²

On February 26, 2013, this court held a pretrial conference and subsequently entered a scheduling order whereby the parties were provided with sixty days for discovery. The court held another pretrial hearing on June 10, 2013, where the parties indicated that discovery was complete and they were ready to file dispositive motions. The motion for summary judgment before the court relies on four depositions that were developed in the ...