IN RE ALEXANDER

• Decision Date: 30 March 2010
• Docket Number: Bankruptcy No. 07-16808.,Adversary No. 07-01451.
• Citation: Danvers Sav. Bank v. Alesander (In re Alexander), 427 B.R. 183 (Bankr. Mass. 2010)
• Parties: In re Maxyne ALEXANDER, Debtor. Danvers Savings Bank, Plaintiff v. Maxyne Alexander, Defendant
• Court: U.S. Bankruptcy Court — District of Massachusetts

427 B.R. 183

In re Maxyne ALEXANDER, Debtor Danvers Savings Bank, Plaintiff v. Maxyne Alexander, Defendant

Bankruptcy No. 07-16808. Adversary No. 07-01451.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

March 30, 2010.

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Carlo Cellai, Lauren Jacoby, Cellai Law Offices, P.C., Boston, MA, for Plaintiff.

William J. Cintolo, Cosgrove, Eisenberg & Kiley, Boston, MA, William H. Harris, Zwicker & Associates, P.C., Andover, MA, for Defendant.

MEMORANDUM OF DECISION

FRANK J. BAILEY, Bankruptcy Judge.

I. Overview

Danvers Savings Bank ("Danvers") filed this adversary proceeding in the bankruptcy case of Maxyne Alexander ("Maxyne" or "the Defendant") to determine the dischargeability of Maxyne's judgment debt to Danvers arising from losses sustained by Danvers' predecessor in interest in June of 2000. The losses arose from a check kiting scheme carried out by Maxyne's adult daughter Karen Alexander, allegedly in concert with Maxyne herself, on a bank account in the name of Aquamarine Construction Supply, Inc., a corporation owned by Karen. Danvers contends that its judgment debt should be excepted from discharge on each of four separate statutory grounds, 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6).¹ After a two-day trial, the court now makes the following findings of fact and rulings of law and holds that Maxyne's debt to Danvers is not excepted from discharge.

II. Facts

The facts relevant to this proceeding involve three principal players: Revere Federal Savings Bank ("Revere Federal"), a local bank with branches in Chelsea and Revere, Massachusetts, that subsequent to all relevant events merged with Danvers; Karen Alexander, Maxyne's adult daughter, whose history of credit problems stretches back to the 1980s; and Maxyne, Karen's mother. On June 22, 2000, Revere Federal discovered its exposure to losses on a checking account in the name of Aquamarine Construction Supply, Inc. ("Aquamarine"). This exposure resulted from Revere Federal's issuance of bank checks and money orders against an artificial account balance created by a series of nonsufficient funds checks ("NSF checks") deposited by Karen into the Aquamarine checking account at Revere Federal.

Aquamarine was a Massachusetts corporation of which Karen was at all relevant times the sole owner, officer, and director. Maxyne, a highly educated woman with significant business experience, testified that she worked as a marketing consultant for Aquamarine, though the time she could devote to her daughter's business was limited by the full-time job she held as a horticulturalist at The Home Depot. Additionally, Karen had bestowed on her mother a power of attorney that authorized Maxyne to run the affairs of Aquamarine. This power included authority to sign checks on Aquamarine's behalf.

The relationship between Aquamarine and Revere Federal grew out of a telephone call from Tom Medaglia, an accountant serving the Chelsea area, to David Boudreau, a commercial loan officer at Revere Federal. Medaglia, who from time to time provided Revere Federal with leads regarding potential customers, recommended Karen as a customer with a potentially significant business account. Boudreau instructed Susan McLaughlin, a business development officer for Revere Federal who worked out of the Chelsea branch, to contact Karen about moving her accounts to Revere Federal. McLaughlin placed a call to Karen, and the two set up an appointment to meet the following day.

On or about June 13, 2000, McLaughlin traveled to Aquamarine's office in Chelsea where the two discussed Revere Federal's products and services. Maxyne was not present for any portion of this meeting. Karen told McLaughlin that she was interested in moving the Aquamarine account because she was dissatisfied with the holds that her current bank, Cooperative Bank ("Cooperative"), was placing on checks deposited into the account.²

During the meeting, Karen disclosed to McLaughlin that she had a negative record, or "file," with the National Check Protection Service ("NCPS"). McLaughlin explained that NCPS is a nationwide service that supports financial institutions by providing, upon the institution's request, reports about the checking histories of potential customers, especially whether they have a record of depositing NSF checks. Karen explained to McLaughlin that her NCPS file was negative because of checks deposited into her account which were subsequently returned for nonsufficient funds. According to McLaughlin, Revere Federal would ordinarily refuse to open an account for a potential customer with a negative NCPS file. McLaughlin, however, moved forward with establishing an account for Aquamarine because she trusted Karen as a referral from Medaglia and because Karen told McLaughlin that her mother, Maxyne, would be the primary controller on the account. McLaughlin told Karen that she could not finish opening the account until her mother provided the bank with her own signature and information.

The following day, on or about June 14, 2000, Karen arrived at Revere Federal's Chelsea branch at the end of business hours and asked McLaughlin to open the account at that time because she and her mother were leaving for Puerto Rico the next day. McLaughlin again told Karen that she could not open the account until her mother came to the branch and completed her part of the account-opening process. At Karen's request, McLaughlin placed a call to Maxyne at The Home Depot. This telephone call constituted Revere Federal's first contact with Maxyne. McLaughlin explained to Maxyne that she could not honor Karen's request to open the Aquamarine account without Maxyne's information and signature. After speaking with Maxyne, however, McLaughlin opened the account, expecting that Maxyne would eventually come to the branch to offer her identification and signature.

McLaughlin testified, however, that before she took Maxyne's information and opened the account, Maxyne gave her instructions regarding Karen's involvement with the account. Maxyne's instructions, as McLaughlin's recounted them, were as follows: "that Karen was to under no circumstances be able to write checks, that Maxyne would be handling the account, that Karen could make deposits; however, she would have limited access to the writing of any checks and signing on any of the checks."³

McLaughlin also testified that Maxyne explained to her that "Karen was not very good at handling her banking accounts, and that Maxyne did not want her to have access to the checks." At trial, Maxyne testified that even though she maintained joint bank accounts with her daughter, she knew that her daughter had problems relating to her credit and passing nonsufficient funds checks.

Following the telephone call to Maxyne, Karen presented McLaughlin with a $10,000 check for deposit, and McLaughlin deposited it into the newly-created account. This check, which was signed by Maxyne but otherwise written in someone else's handwriting, was ultimately returned for nonsufficient funds.

On or around June 19, 2000,⁴ Karen and her mother visited the Chelsea branch and met with Kathleen Pendleton, a vice president of Revere Federal and manager of the Chelsea branch who was handling the Aquamarine account while McLaughlin was away for a few days on vacation. Prior to McLaughlin's departure, McLaughlin asked Pendleton to complete the paperwork on the Aquamarine account, including by obtaining Maxyne's identification and signature. McLaughlin left Pendleton the account file, which included account signature cards and McLaughlin's notation that Karen was not to sign checks on the account without her mother's written or verbal consent.

At trial, Pendleton offered testimony regarding her June 19 meeting with Karen and Maxyne. Pendleton testified that at the meeting, she obtained Maxyne's signature on the account signature card and a copy of Maxyne's driver's license. Additionally, Pendleton testified that while both Karen and Maxyne were at her desk, Karen or Maxyne—she could not remember which it was—presented her with three checks for deposit. These three checks totaled $260,000 and were drawn on an account at Cooperative in the name of Aquamarine/Daisy Supply LLC ("ADS"). Maxyne testified that she wrote and signed each of the three checks. Pendleton deposited the checks, adding $260,000 to the $10,000 that ostensibly was already in the Aquamarine account. In contravention of Revere Federal's usual policy for new accounts, Pendleton did not place a hold on the deposited funds but instead made the $260,000 immediately available for withdrawal from the account. At Karen's request, Pendleton then issued from the account a bank check in the amount of $81,081, made payable to Frank I. Rounds Company, a creditor of Aquamarine.⁵ The three ADS checks totaling $260,000 were ultimately returned for nonsufficient funds.

Before Pendleton issued the $81,081 check that Karen requested, Pendleton was shown a printout from Cooperative that indicated that the balance of the ADS account at Cooperative (the account on which the three deposited checks had been drawn) was approximately $466,000 on that morning that the three checks were presented for deposit at Revere Federal (the "Cooperative Statement"). The Cooperative Statement bore a date and time stamp indicating that it was only a few hours old at the time of its presentation to Pendleton. The Cooperative Statement was false⁶; other evidence in the record demonstrates that there was no more than $730.14 in the account on that morning. No evidence has been presented as to how the statement was obtained or whether it was fabricated or tampered with before presentation to Pendleton. Pendleton testified that the Cooperative Statement was presented to her by Maxyne; Maxyne maintains that Karen presented it. The evidence is inconclusive on this point. Pendleton testified...