In re Bilter

Decision Date30 March 2009
Docket NumberBankruptcy No. 05-37702-DOT.,Adversary No. 07-03118-DOT.
Citation413 B.R. 290
CourtU.S. Bankruptcy Court — Eastern District of Virginia
PartiesIn re Frederick J. BILTER, Jr., Debtor. Delia B. Halstead, Plaintiff, v. Frederick J. Bilter, Jr. and Nancy S. Bilter, Defendants.

James E. Kane, Gregory Kaplan, PLC, Richmond, VA, for Plaintiff.

Teddy J. Midkiff, Goff & Midkiff, PLLC, Chesterfield, VA, Brett Alexander Zwerdling, Zwerdling, Oppleman & Adams, Richmond, VA, for Defendants.


DOUGLAS O. TICE JR., Chief Judge.

Debtor Fredrick J. Bilter Jr. filed an individual chapter 13 petition in this court on September 1, 2005, and voluntarily converted his case to chapter 7 on July 16, 2007. On September 10, 2007, Plaintiff Delia B. Halstead filed this multi-count adversary proceeding against debtor and his wife Nancy S. Bilter.

The complaint in this adversary proceeding alleges that 1) debtor Frederick Bilter breached a fiduciary duty, 2) Nancy S. Bilter aided and abetted debtor's breach of fiduciary duty, 3) debtor converted Delia Halstead's property, 4) Nancy S. Bilter aided and abetted the conversion, and 5) the Bilters engaged in a civil conspiracy. The complaint was subsequently amended to add allegations that Nancy Bilter converted Delia Halstead's property and that debtor aided and abetted that conversion. Halstead requests an award of $40,000.00 in actual damages, interest from May 6, 2001, and $350,000.00 in punitive damages. Further, she asks that those awards be excepted from debtor's discharge pursuant to § 523(a)(4) and (6) of the Bankruptcy Code.

Trial was held on May 29, 2008, at which time the court granted Nancy Bilter's motion for summary judgment, dismissing the claims against her for lack of subject matter jurisdiction. The court also denied debtor's motion for summary judgment because there still remained questions of material fact. Subsequently, plaintiff filed a motion to reconsider the order granting summary judgment as to defendant Nancy Bilter. That motion is considered in this opinion.

After further briefing by the parties, the court heard final argument on July 8, 2008. The court then ruled from the bench that plaintiff's request for punitive damages would be denied and that the § 523(a)(6) count of the complaint (willful and malicious injury) would be dismissed. The court took under advisement the § 523(a)(4) count (breach of fiduciary duty). Plaintiff's post-trial brief asks for judgment against defendants in the amount of $44,000.00 plus interest at the legal rate from November 14, 2000. The brief makes no request and presents no argument for punitive damages.

Subsequently, the court requested the parties to brief the issue raised by defendants' statute of limitations affirmative defense.

Jurisdiction of the court in this matter is based upon 28 U.S.C. § 1334 and Rule 7001 of the Federal Rules of Bankruptcy Procedure.


Debtor's parents, Frederick Bilter Sr. and his wife Anna A. Bilter, had three children, Frederick Jr., Delia Halstead and Alexander Bilter. In 1996 Anna became ill; she and Frederick Sr. moved in with plaintiff Delia Halstead. Based in part upon a disagreement between plaintiff and Frederick Sr., in 1997 Anna and Frederick Sr. moved out of plaintiff's residence and began residing with Frederick and Nancy Bilter.

On November 25, 1997, Frederick Sr. deposited funds with Signet Bank, N.A. Upon receipt of the funds, Signet issued three $15,000.00 certificates of deposit. The owners of the certificates were listed as follows:

a. CDA No. 070412054530022Frederick Bilter Sr., Anna Bilter, and Alexander Bilter

b. CDA No. 070412054530014Frederick Bilter Sr., Anna Bilter, and Delia Halstead

c. CDA No. 070412054530006Frederick Bilter Sr., Anna Bilter, and Frederick Bilter Jr.

In September 1998 the certificates of deposit listed above matured. The funds from the certificates were augmented by additional funds derived from the sale of the Bilter Sr. residence and then rolled over into three new certificates of deposit issued by Wachovia Bank. The owners of those certificates were listed as follows:

a. CDA No. 070412060119103Frederick Bilter Jr. and Alexander Bilter b. CDA No. 070412060119107Frederick Bilter Jr. and Delia Halstead

c. CDA No. 070412060119111Frederick Bilter Jr. and Nancy Bilter

The second series of certificates of deposit matured on September 8, 2000. At maturity, each certificate had a value of $40,000.00.

Frederick Sr. died on August 8, 1999. Anna Bilter died on May 6, 2001. On November 14, 2000, Frederick Jr. made a deposit to Wachovia in the amount of $150,000.00. The deposit consisted of the funds from the three certificates of deposit plus funds from Frederick Jr.'s savings account in the amount of approximately $18,000.00. Wachovia then issued a single certificate of deposit in the amount of $150,000.00 payable to Frederick Bilter Jr. and Nancy Bilter. Thus, $132,000.00 of the certificate represented funds from the Bilter Sr. estate that had been originally denoted for the three children of Frederick Sr. and Anna Bilter. The interest earned on the $150,000.00 certificate of deposit was automatically deposited to a separate Wachovia account in the name of Nancy Bilter. Over the course of the term of the $150,000.00 certificate, an aggregate amount of $33,024.56 in interest was deposited to the separate account.

At all times after the deaths of both Frederick Bilter Sr. and Anna Bilter, their three children were owners in equal shares of $132,000.00 included in the November 2000 $150,000.00 certificate of deposit. Each share was thus worth $44,000.00. Additionally, each child was entitled to a proportionate share of the interest earned on $132,000.00, which was approximately $29,040.00.1 Upon termination of the certificate, one third share of principal and interest was thus worth $53,680.00 ($44,000.00 plus $9,680.00).

On or about March 2000, Frederick Jr. purchased one half of the stock in O.S.A., Inc. John Andruzzi ("Andruzzi") was the president of O.S.A. and owned the other fifty percent of the stock. The primary business of O.S.A. was to operate a gas/service station. On May 29, 2003, Fredrick and Andruzzi borrowed $100,000.00 from Wachovia on behalf of O.S.A. Fredrick pledged the $150,000.00 certificate as collateral for the loan. On March 22, 2004, Wachovia foreclosed upon the entire value of the $150,000.00 certificate.

Prior to Frederick Jr.'s bankruptcy filing on September 1, 2005, plaintiff was not aware of the foregoing history of the deposit certificates of cash from her parents' estates or that her father had entrusted the sums described to Frederick Jr. In his bankruptcy schedules, Frederick Jr. acknowledged his debt to plaintiff and to his brother Alexander in the amount of $50,000.00 each by listing them as unsecured creditors. Plaintiff was not aware of the full circumstances, including the nature of Frederick Jr.'s use and disposition of the cash, before Frederick, Jr. testified at his § 341 meeting of creditors on October 20, 2005. Plaintiff's failure to learn of these circumstances previously was not attributable to her failure to exercise due diligence.

These findings of fact are supplemented by additional findings of fact set forth below.


Statute of Limitations Affirmative Defense.

Defendants pled the statute of limitations as defenses in their answers, an issue neither party addressed in their initial briefs. After inquiry by the court, the parties filed supplemental written argument covering this affirmative defense. After considering the parties' submissions, the court concludes that the Virginia statutes of limitations are not a bar to plaintiff's claims.

The Virginia statutory scheme presents several possibilities under the facts of the present case.

1) Va.Code § 8.01-248 provides a two year statute of limitations for personal actions for which no other limitation is provided. Va.Code § 8.01-230 provides that a cause of action accrues and the limitation period begins to run from the date the injury is sustained. Virginia case law recognizes that the limitations period may be tolled if the defendant intentionally misleads the plaintiff who is unaware of the wrongful act; however, the limitations period is tolled only until the plaintiff could reasonable have discovered the injury and will not be tolled where the plaintiff failed to make reasonable inquiry. Resolution Trust Corp. v. Walde, 856 F.Supp. 281, 286, 289 (E.D.Va.1994).

2) Va.Code § 8.01-243(A) requires that actions for damages from fraud shall be brought within two years after accrual of the cause. Va.Code § 8.01-249(1) provides that a cause of action for fraud does not begin to accrue until the fraud is "discovered or by the exercise of due diligence reasonably should have been discovered." See STB Mktg. Corp. v. Zolfaghari, 240 Va. 140, 144, 393 S.E.2d 394, 397 (1990) (exercise of due diligence means "such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances ... depending on the relative facts of the special case") (quoting Black's Law Dictionary 411 (rev. 5th ed.1979)).

3) Va.Code § 8.01-243(B) provides that actions for "injury to property ... shall be brought within five years after the cause of action accrues."

4) Virginia's Uniform Trust Code § 55-550.05(C) provides a five year limitations period for a trust beneficiary to bring a judicial proceeding against a trustee for breach of trust. The time period runs from the "first to occur of: 1. The removal, resignation, or death of the trustee; 2. The termination of the beneficiary's interest in the trust; or 3. The termination of the trust." Paragraph D of the statute further requires...

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    ...F.3d at 270-71). More recently, Chief Judge Tice expounded upon the Fourth Circuit's ruling in Strack. Halstead v. Bilter (In re Bilter), 413 B.R. 290, 304-07 (Bankr. E.D. Va. 2009).The court must first determine whether [the debtor] owed a fiduciary duty to plaintiff. While federal law det......
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