In re Marcet

• Decision Date: 26 September 2006
• Docket Number: Bankruptcy No. 04 B 38599.,Adversary No. 05 A 00488.
• Citation: 352 B.R. 462
• Parties: In re Thomas A. MARCET, Debtor. Estate of George Smith, Plaintiff, v. Thomas A. Marcet, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

352 B.R. 462

In re Thomas A. MARCET, Debtor.

Estate of George Smith, Plaintiff, v. Thomas A. Marcet, Defendant.

Bankruptcy No. 04 B 38599.

Adversary No. 05 A 00488.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

September 26, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Elizabeth A. Bates, Esq., Huck Bouma PC, Wheaton, IL, for Debtors.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the amended complaint filed by Yvonne Torrez, Administrator of the Estate of George Smith (the "Plaintiff'), which seeks to except a debt allegedly owed by Thomas A. Marcet (the "Debtor") from discharge pursuant to 11 U.S.C. § 523(a)(4). For the reasons set forth herein, the Court grants judgment in favor of the Debtor and finds that the debt is discharged. The Court denies the Plaintiffs motion for directed findings under Federal Rule of Bankruptcy Procedure 7052.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(1).

II. FACTS AND BACKGROUND

The Debtor is the nephew by marriage of George Smith ("Smith"), who died on March 30, 2002. The Debtor knew Smith for over twenty years and shared common interests in hunting, target shooting, and woodworking. The Debtor is a certified public accountant. He is not an attorney. The Debtor prepared Smith's and his wife's income tax returns for twenty years prior to Smith's death. The Debtor would go to their house and prepare the returns. According to the Debtor, Smith's tax returns were not complicated. The only documents that Smith provided to the Debtor to prepare the returns were W-2 forms and 1099 statements. The Debtor did not become familiar with Smith's assets and the value thereof by preparing the tax returns. However, he did learn of the existence of several accounts owned by Smith because of the 1099 statements. During the twenty years that the Debtor knew Smith, he never provided Smith with any financial advice, he did not control Smith's finances, and he did not have knowledge of Smith's financial information except what Smith provided to him to prepare the tax returns.

In October 2001, before Smith died, he placed the Debtor as a joint tenant on his money market account number 1110026093477 at Bank One, N.A. (the "Account"). (Plaintiff Ex. No. 1; Debtor Ex. No. 3.) Both Smith and the Debtor signed the agreement that established the joint tenancy for the Account. (Id.) In pertinent part, the joint tenancy agreement on the signature card read as follows:

We agree that any funds in our account(s) may be paid upon the request or order of any person signing this card whether the other or others be living or not. We intend to and do hereby create a joint tenancy with rights of survivorship. Each signer appoints each other signer to be his or her irrevocable attorney, to make deposits to this account(s), to endorse for cash or deposit any checks or other items whether payable to one of the signers alone or with others, and to receive and receipt for all or any funds all without obligation to the Bank to inquire into the source or application of funds....

(Id.) In October 2001, Smith had three other accounts at Bank One-a checking account and two certificates of deposit accounts. (Debtor Ex. Nos. 1, 2, & 4.) The Debtor was not a joint tenant or a signatory on any of these three accounts. (Debtor Ex. Nos. 2 & 4.) From October 2001, until his death on March 30, 2002, Smith continued to write checks on the Account.

It is undisputed that from the period December 7, 2001 through July 26, 2002, the Debtor issued checks drawn on the Account totaling $23,177.41 in order to pay Smith's monthly bills. In addition, from December 13, 2001 through April 4, 2002, the Debtor received or withdrew $170,931.45 from the Account. (Plaintiff Ex. Nos. 3-9, 11-16, & 17; Debtor Ex. No. 6.) Specifically, the following checks were issued or withdrawals were made from the Account during that period: (1) on December 13, 2001, Smith issued a check payable to the Debtor in the sum of $7,500.00; (2) on December 13, 2001, the Debtor withdrew $10,200.00; (3) on December 13, 2001, the Debtor withdrew the sum of $10,000.00; (4) on December 19, 2001, the Debtor withdrew $3,500.00; (5) on January 10, 2002, the Debtor withdrew $7,000.00; (6) on January 29, 2002, the Debtor withdrew $4,000.00; (7) on February 6, 2002, the Debtor withdrew $10,000.00; (8) on February 19, 2002, the Debtor withdrew $10,000.00; (9) on February 27, 2002, the Debtor withdrew $15,000.00; (10) on March 9, 2002, the Debtor withdrew $5,000.00; (11) on March 22, 2002, the Debtor withdrew $10,000.00; (12) on March 29, 2002, Smith issued a check payable to the Debtor in the amount of $3,000.00; and (13) on April 4, 2002, the Debtor withdrew $75,731.45. (Id.) This final withdrawal by the Debtor cleared out the Account. (Plaintiff Ex. No. 17; Debtor Ex. No. 6.) The total sum of $170,931.45 was either withdrawn by the Debtor or given to him by Smith and then deposited into the Debtor's personal bank account at the Northern Trust Bank. (Plaintiff Ex. No. 18.) According to the Debtor, he used the funds to pay his bills and Smith's bills. The monthly bank statements for the Account were sent to Smith. The Debtor did not receive any of the monthly Account statements while Smith was alive.

On December 1, 2001, at the suggestion of his sister Eileen, a nurse, the Debtor prepared and Smith executed a general power of attorney that named the Debtor as attorney-in-fact for Smith. (Plaintiff Ex. No. 2.) Subsequently, on February 10, 2002, again at Eileen's suggestion, the Debtor prepared a Will for Smith from a form he obtained on the internet. (Plaintiff Ex. No. 10.) The Will named the Debtor as executor. (Id.) In addition, the Debtor was a witness to the document. (Id.) Pursuant to his Will, Smith bequeathed his tools and matchbook collection to the Debtor. (Id.) Smith's real property and the residuary of his estate was bequeathed to his surviving daughter, Yvonne Torrez, who is the Plaintiff in this matter. (Id.)

The Plaintiff filed the instant adversary proceeding on February 7, 2005. An amended complaint was filed on July 7, 2005. Therein, the Plaintiff alleges that the Debtor committed defalcation while acting in the capacity of a fiduciary to Smith. Specifically, the Plaintiff contends that the Debtor caused Smith to place the Debtor's name on his Account at Bank One for the sole purpose of managing Smith's day-to-day financial affairs. As a result, according to the Plaintiff, a technical trust was created with respect to the funds in the Account. Additionally, the Plaintiff maintains that when the Debtor drafted the power of attorney, which named the Debtor Smith's attorney-in-fact, a technical trust was created with respect to the funds in the Account. Moreover, the Plaintiff argues that when the Debtor drafted Smith's Will, he was acting in the capacity as Smith's attorney, and, thus, owed Smith a fiduciary duty. The Plaintiff asserts that the Debtor allegedly converted $170,937.45 from the joint Account. The Plaintiff alleges that the Debtor committed defalcation while acting in a fiduciary capacity when he converted the funds from the Account. Based on these allegations, the Plaintiff seeks to have the debt found to be non-dischargeable pursuant to 11 U.S.C. § 523(a)(4). The Debtor denies that he was in a fiduciary relationship with Smith and denies that his actions are tantamount to defalcation.

A trial was held in this matter on June 9, 2006. The Debtor was the only witness who testified.¹ The Court finds that the Debtor was a credible witness. It is significant to note that the Plaintiff called no other witness to support her theories or views of this matter. The Plaintiff made a motion for directed findings under Federal Rule of Bankruptcy Procedure 7052, which incorporates by reference Federal Rule of Civil Procedure 52(c). The Court reserved ruling on the motion until the close of all of the evidence.

III. APPLICABLE STANDARDS

A. Exceptions to the Discharge of a Debt

The main purpose of a discharge in bankruptcy is to give a debtor a fresh start. See Vill. of San Jose v. McWilliams, 284 F.3d 785, 790 (7th Cir.2002). The party seeking to establish an exception to the discharge of a debt bears the burden of proof. Selfreliance Fed Credit Union v. Harasymiw (In re Harasymiw), 895 F.2d 1170, 1172 (7th Cir.1990); Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 961 (Bankr.N.D.Ill.1995). The United States Supreme Court has held that the burden of proof required to establish an exception to discharge is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); see also In re McFarland, 84 F.3d 943, 946 (7th Cir.1996); In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994). Exceptions to discharge are to be construed strictly against a creditor and liberally in favor of a debtor. In re Morris, 223 F.3d 548, 552 (7th Cir.2000); Kolodziej v. Reines (In re Reines), 142 F.3d 970, 972-73 (7th Cir.1998); Goldberg Secs. v. Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir.1992); In re Zarzynski, 771 F.2d 304, 306 (7th Cir.1985). "The statute is narrowly construed so as not to undermine the Code's purpose of giving the honest but unfortunate debtor a fresh start." Park Nat'l Bank & Trust of Chi. v. Paul (In re Paul), 266 B.R. 686, 693 (Bankr.N.D.Ill.2001).

B. 11 § 523(a)(4)

Section 523 of the Bankruptcy Code enumerates specific, limited exceptions to the dischargeability of debts. Section 523(a)(4) provides as follows:

(a) A discharge under section 727 ... does not discharge an individual debtor from any debt —

(4) for fraud or defalcation while acting in a fiduciary capacity,...