In re Barwick
| Decision Date | 08 November 1982 |
| Docket Number | Adv. No. 82-0002-R.,Bankruptcy No. 81-01736-R |
| Citation | 24 BR 703 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Gregory Bernard BARWICK, Irene Hearn Barwick, Debtors. Sarah Pauline MERRYWELL, Plaintiff, v. Gregory Bernard BARWICK and Irene Hearn Barwick, Defendants. |
Bruce A. Clark, Jr., Hopewell, Va., for plaintiff.
Timothy J. Hauler, Colonial Heights, Va., for defendants.
This matter comes on upon the filing by Sarah Pauline Merrywell (Merrywell) to determine the dischargeability of a debt owed her by Gregory B. Barwick and Irene H. Barwick, the debtors herein. After hearing and upon the submission of briefs this Court makes the following determination.
In 1976 Mrs. Merrywell's husband was ill and incapacitated. Mrs. Merrywell, who had little or no experience in financial matters, needed financial advice and the local chapter of the Veteran of Foreign Wars referred one of its service officers, Gregory Barwick, to her for assistance. Mr. Barwick advised Mrs. Merrywell concerning her finances and investments both during the period of her husband's illness and the period immediately following his death.
In order to facilitate handling her finances Mrs. Merrywell testified that at Mr. Barwick's request she granted him a power of attorney. Mrs. Merrywell and her husband accumulated approximately 240 war bonds during their marriage and Mr. Barwick suggested that she liquidate the bonds and put the funds in certificates of deposit. She testified that with Mr. Barwick's assistance she went to the Federal Reserve Bank in Richmond and cashed in the bonds. She said she called Mr. Barwick once she received a check for the proceeds of the bonds and Mr. Barwick took the check and represented to her he would place the funds in certificates of deposit. Merrywell never saw the certificates; however, twice Mr. Barwick gave her $600 which he told her was interest the bonds had accrued.
In early 1979, after her husband's death, Mrs. Merrywell decided to move to Alaska to live with her son. She testified she asked Mr. Barwick at that time to give her all of the papers he was keeping for her including the certificates of deposit. He delivered the papers, but failed to tell Mrs. Merrywell that no certificates of deposit were among the papers. After sorting through the papers and discovering the certificates of deposit were not there she called Mr. Barwick. Mr. Barwick told her that he had used the certificates as collateral for a business deal which had soured and that he had lost the entire amount of the collateral. Shortly thereafter, as Mrs. Merrywell was preparing to leave for Alaska, Mr. Barwick executed a promissory note in favor of Mrs. Merrywell for $20,000 on account of the monies he had lost. Jenny Merrywell, Mrs. Merrywell's daughter-in-law, was present at the meeting between Mrs. Merrywell and Mr. Barwick at which time Mr. Barwick told Mrs. Merrywell he had used the certificates as collateral on an unauthorized project and had forfeited the money. She corroborated Mrs. Merrywell's testimony that Mr. Barwick then executed a promissory note at that time.
Mr. Barwick's testimony at trial deviated sharply from Mrs. Merrywell's testimony. Mr. Barwick testified that Mrs. Merrywell obtained $45,000 from the liquidation of the war bonds. He said that she received the funds by check and deposited those funds in her account at the Bank of Southside Virginia. Subsequently, prior to February 1, 1978 she transferred $45,000 to Barwick for Barwick to put in his name in his own bank. Barwick said this transfer was a guise to avoid inheritance taxes. Mr. Barwick further testified that he received the $20,000 from Mrs. Merrywell as a loan and that he returned all the other monies which she had asked him to put in his bank account. He testified that he used the $20,000 loan as an investment in a business venture with an individual named Marion Stroud. Stroud filed a bankruptcy petition for his business and Mr. Barwick lost this investment.
It appears clear that Mr. Barwick either used his power of attorney to obtain access to Mrs. Merrywell's funds or deposited her funds to his own accounts. Without permission he obtained $20,000 of her money and invested in a business venture with Marion Stroud. Although he may have intended to repay Merrywell from the earnings of the business, the business soured and he was unable to repay her. This Court finds unworthy of belief Mr. Barwick's testimony that Mrs. Merrywell transferred funds to him to avoid estate taxation and authorized his personal use of the funds.
In her two count complaint, Mrs. Merrywell alleges first Mr. Barwick engaged in a fraud upon her to induce her to entrust $20,000 to him. Second, she alleges that Mr. Barwick committed embezzlement, fraud and defalcation while acting in a fiduciary capacity.
11 U.S.C. § 523(a)(4) provides in pertinent part "that a discharge ... does not discharge an individual debtor from any debt ... (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny ...." A debtor, therefore, may not discharge in bankruptcy a debt based on fraud or defalcation which arose while he was acting in a fiduciary capacity, or embezzlement or larceny whether or not he was acting in a fiduciary capacity. See Collier on Bankruptcy, ¶ 523.14 (15th ed. 1981). This Court must construe the word "fiduciary" narrowly in terms of a technical or express trust rather than an implied one. In re Lilly, 1 B.R. 773, 774 (Bkrtcy.Md. 1980). The trust must have existed independent and prior to the incident which created the debt. In re Murphy, 9 B.R. 167, 173 (Bkrtcy.E.D.Va.1981). A trust imposed ex maleficio is insufficient to give rise to the existence of a fiduciary relationship for the purposes of bankruptcy law. In re Paley, 8 B.R. 466, 469 (Bkrtcy.E.D.N.Y.1981). See also, Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934); Central Hanover Bank & Trust Co. v. Herbst, 93 F.2d 510, 511 (2nd Cir. 1937). "It is the character of the debt relationship and not its form that determines whether a fiduciary `trust' relationship exists." Paley at 469.
Although the concept of fiduciary is a question of federal law, state law plays an important role in determining whether a case involves an expressed trust. In re Angelle, 610 F.2d 1335, 1341 (5th Cir.1980).1 Courts routinely conclude that technical trustees act in a fidiciary capacity within the meaning of 11 U.S.C. § 523(a)(4). Collier at ¶ 523.14. Virginia courts also conclude that persons acting under powers of attorney are technical trustees and serve in a fiduciary relationship to their principals. Creasy v. Henderson, 210 Va. 744, 173 S.E.2d 823, 828 (1970). See also, Broaddus v. Gresham, 181 Va. 725, 26 S.E.2d 33 (1943). Mr. Barwick not only advised and counseled Merrywell regarding her general financial matters, but he also obtained a general power of attorney to deal with Mrs. Merrywell's assets. It is clear that the grant of a power of attorney created an express trust through which Mr. Barwick and Mrs. Merrywell entered into a fiduciary relationship.
Mrs....
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