In re Michael Depinna And Karen Depinna

• Decision Date: 24 March 2011
• Docket Number: Adversary No. 09–3088.,Bankruptcy No. 09–31938 (LMW).
• Citation: 450 B.R. 337
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re Michael DEPINNA and Karen DePinna, Debtors.Mary Schepperley and Mary Dykas, Plaintiffsv.Michael DePinna and Karen DePinna, Defendants.

450 B.R. 337

In re Michael DEPINNA and Karen DePinna, Debtors.Mary Schepperley and Mary Dykas, Plaintiffs

v.Michael DePinna and Karen DePinna, Defendants.

Bankruptcy No. 09–31938 (LMW).

Adversary No. 09–3088.

United States Bankruptcy Court, D. Connecticut.

March 24, 2011.

Charles F. Brower, Esq., Marcus G. Organschi, Esq., Robert A. D'Andrea, Esq., Brower, Organschi & D'Andrea, LLP, Torrington, CT, Attorneys for Plaintiffs.Anthony R. Minchella, Esq., Minchella & Associates, LLC, Middlebury, CT, Attorney for Defendants/Debtors.

MEMORANDUM OF DECISION

LORRAINE MURPHY WEIL, Chief Judge.

The matter before the court is the above-referenced plaintiffs' ¹ Amended Complaint (ECF No. 16, the “Amended Complaint”) ² against the Debtors alleging that a certain state-court judgment (the “State Court Judgment”) in the approximate amount of $196,520.00 is nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4).³ This court has jurisdiction over this proceeding as a core proceeding under 28 U.S.C. §§ 157 and 1334 and that certain Order dated September 21, 1984 of this District (Daly, C.J.).⁴

This memorandum constitutes the findings of fact and conclusion of law required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

I. BACKGROUNDA. Chapter 13 Case

The Debtors commenced this Chapter 13 case by a petition filed on July 17, 2009. Contemporaneously with the filing of the petition, the Debtors filed their schedules and statement of financial affairs. ( See Case ECF No. 1.) On their schedules, the Debtors listed the following assets: joint title to a single family home at 30 North Mark Drive, Oxford, CT (the “House”) with a stated value of $451,000.00; joint title to a time share at “Las Olas Beach Club” with a stated value of $9,000.00; and personal property (some joint, some not) with a stated aggregate value of $130,211.00. ( See id.)

On their schedules, among other secured claims the Debtors listed: a first mortgage on the House in favor of Countrywide Home Loans (“Countrywide”) in the amount of $305,512.00 (the “Countrywide First Mortgage”); a second mortgage (the “Countrywide Second Mortgage”, collectively with the Countrywide First Mortgage, the “Countrywide Mortgages”) on the House in favor of Countrywide in the amount of $97,042.00; a “3rd [m]ortgage” (the “Valley Bank Subordinated Mortgage”) on the House in favor of Valley Bank in the amount of $38,000.00; and a judicial lien (listed as undisputed, the “Judgment Lien”) securing the State Court Judgment in the amount of $196,000.00 (listed as unsecured to the extent of $185,554.00). ( See Case ECF No. 1.) The Debtors also listed joint unsecured priority claims (none disputed) in the amount of $50,000.00. ( See id.) The Debtors further listed general unsecured claims (some joint and some not and none disputed) in the aggregate amount of $83,895.00. ( See id.) The Debtors claimed various exemptions in property, including an exemption under 11 U.S.C. §§ 522(b) and 522(d)(1) with respect to the House. ( See id.) On their Schedule I (Current Income of Individual Debtors), (a) Michael listed his occupation as an “Electrical Engineer” who had been employed by Conveyco for six years as of the petition date,⁵ (b) Karen stated that she had been employed by “The Hartford” in some unspecified position for eight years as of the petition date,⁶ and (c) the Debtors aver (as of the petition date) aggregate net monthly take home pay in the amount of $8,668.00. ( See Case ECF No. 1.) On their Schedule J (Current Expenses of Individual Debtors), the Debtors aver average aggregate monthly expenses in the amount of $6,873.00. ( See id.) At least from the time of the Debtors' marriage, Karen's autistic son (19 years old as of the petition date) from a prior marriage lived with the Debtors. ( See id; see also ECF No. 57 at 39:11–19 (Karen's testimony).)

On September 2, 2009, the Debtors amended their Schedule F to include additional “Joint Business Debt” in the aggregate amount of $39,841.29. ( See Case ECF No. 29.) On October 27, 2009, after notice and a hearing (and without objection) an order entered avoiding the Judgment Lien pursuant to 11 U.S.C. § 522(f). ( See Case ECF Nos. 28, 36.) Nevertheless, on or about November 13, 2009, the Chapter 13 trustee (the “Trustee”) filed a proof of secured claim in the name of the Plaintiffs in the amount of $196,000.00 with respect to the Judgment Lien. ( See Claims Register (Claim No. 24–1).) The Plaintiffs did not file their own proof of claim. ( See Claims Register.) The Trustee also filed a proof of secured claim in the amount of $3,000.00 in the name of Valley Bank for “mortgage arrearage” (presumably with respect to the Valley Bank Subordinated Mortgage). ( See Claims Register (Claim No. 23–1).)

On September 4, 2009, the Debtors filed a “1st Amended Chapter 13 Plan.” ( See Case ECF No. 31, the “Plan.”) Among other things, the Plan proposes to make monthly payments to the Trustee in the amount of $1,193.00 for 60 months. ( See id.) The Plan proposes distributions to priority and secured creditors. ( See id.) The Plan proposes to treat the State Court Judgment debt as a general unsecured claim. ( See id.; see also Case ECF No. 36.) Unless the “estate is found to be solvent,” the Plan proposes that no distributions be made to the class of the holders of general unsecured claims. ( See Case ECF No. 31 at 2.) Confirmation proceedings in respect of the Plan have been continued on several occasions and, as of the date hereof, remain pending.⁷

B. Adversary Proceeding

This adversary proceeding was commenced by the filing of the Original Complaint on October 18, 2009. The Amended Complaint was filed on December 4, 2009. Very broadly put, the Amended Complaint alleges that the State Court Judgment debt is nondischargeable under 11 U.S.C. § 523 because the judgment arose out of a scheme by the Debtors to use Mother's money to build a new home ( i.e., the House) for themselves and/or otherwise to misappropriate Mother's money under the pretext of building an apartment (the “Apartment”) in the House for Mother. The Debtors' “Answer and Affirmative Defenses” was filed on December 31, 2009. ( See ECF No. 29.) The “Answer and Affirmative Defenses” alleged two affirmative defenses: that the Plaintiffs' claims “are barred by the doctrine of collateral estoppel, as the issues have been actually litigated and finally determined by the Connecticut Superior Court,” (ECF No. 29 at 5); and that Plaintiffs' claims “fail to state a claim upon which relief can be granted,” ( id.). The Plaintiffs filed a “Reply to Affirmative Defenses” denying the referenced affirmative defenses. ( See ECF No. 31.)

The Amended Complaint came on for trial (the “Trial”) on February 9, 2010. By stipulation of the parties, transcripts of the S.C. Trial (as hereafter defined) and exhibits admitted into evidence at the S.C. Trial were admitted into evidence at the Trial. ( See ECF No. 57 at 6–7.) ⁸ The parties also agreed that certain documents would be admitted post-trial: a further decision (ECF No. 46 (attached “Order” dated March 16, 2009, the “Interest Order”)) ⁹ by the Superior Court awarding prejudgment interest on the State Court Judgment in the amount of $16,520.00; a subsequent decision (ECF No. 61 (attachment), the “Stay Decision”) of the Superior Court granting the Plaintiffs partial relief from the state-law automatic stay pending appeal; and a transcript of Mother's deposition testimony taken on September 25, 2008 in connection with the Superior Court action (the “State Court Action”) ( see ECF No. 71).

Both sides introduced additional exhibits into evidence at the Trial by stipulation. ( See ECF No. 57 at 6.) ¹⁰ The Debtors testified for themselves at the Trial, and Mother testified for the Plaintiffs. At the conclusion of the Trial, the court took the matter under advisement subject to supplementation of the record (as aforesaid) and post-trial briefing. Post-trial briefing ¹¹ and supplementation is complete and the matter is ripe for written disposition.¹²

II. FACTS

Mother was born on March 3, 1936. ( See ECF No. 16 at 1; ECF No. 29 at 1.) Mother had a stroke in May of 2004. ( See ECF No. 57 at 63:4 (Mother's testimony).) The stroke left Mother with some physical impairments to her left side and some memory issues. ( See 11/19/08 S.C. Tr. at 122:10–15 (Mother's testimony).) After a brief stay in the hospital and in a rehabilitation facility ( see id. at 112:11–17 (Mother's testimony)), in July of 2004 Mother took up residence at Sunrise Assisted Living (“Sunrise”) in West Babylon, New York ( see ECF No. 57 at 63:5 (Mother's testimony); see id. at 112:18 (Mother's testimony)). Mother's son John Kier (“Brother”) selected Sunrise and installed Mother there. ( See ECF No. 57 at 87:23 (Karen's testimony).) Mother testified at the Trial that she “loved” it at Sunrise. ( See ECF No. 57 at 68:18–19 (Mother's testimony).) However, Mother testified at the S.C. Trial that she had become tired of communal living. ( See 11/19/08 S.C. Tr. at 125:7–10 (Mother's testimony).) Karen also testified at the S.C. Trial that Mother was unhappy at Sunrise because she was so much younger than the rest of the residents. ( See 11/21/08 S.C. Tr. at 8:18–25 (Karen's testimony).)

For five months prior to having the stroke, Mother lived with Brother in Long Island, New York at his house. ( See 11/19/08 S.C. Tr. at 107:8–10, 108:21–22 (Mother's testimony).) Prior to that, Mother lived by herself in a house in West Babylon; she sold her house in late 2003. ( See id. at 82:14–27 (Mother's testimony).) While Mother was living with Brother, she, Brother and his wife discussed a plan to build an apartment for Mother in the lower (split) level of his house. ( See id. at 109:2–110:1 (Mother's testimony).) Until she had the stroke, Mother still was working full time as a recreational therapist at a nursing home. ( See id. at 107:16–108:20 (Mother's testimony).)

Mother...