In re Pavelka

• Citation: 79 BR 228
• Decision Date: 22 October 1987
• Docket Number: Adv. No. 86-0619.,Bankruptcy No. 86-01050 T
• Parties: In re Natalie S. PAVELKA, Debtor. Richard R. RUMCHAKS, Administrator of the Estate of Bernice Sanders, deceased, Plaintiff, v. Natalie S. PAVELKA, Defendant-Debtor, and James R. Leonard, Defendant-Trustee.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

79 B.R. 228 (1987)

In re Natalie S. PAVELKA, Debtor.

Richard R. RUMCHAKS, Administrator of the Estate of Bernice Sanders, deceased, Plaintiff, v. Natalie S. PAVELKA, Defendant-Debtor, and James R. Leonard, Defendant-Trustee.

Bankruptcy No. 86-01050 T, Adv. No. 86-0619.

United States Bankruptcy Court, E.D. Pennsylvania.

October 22, 1987.

Barry A. Solodky, Blakinger, Byler, Thomas & Chillas, Lancaster, Pa., for plaintiff.

Patricia A. Kotchek, Zimmerman, Pfannebecker & Nuffort, Lancaster, Pa., for defendant.

James R. Leonard, Jr., Lancaster, Pa., Trustee.

MEMORANDUM AND OPINION

THOMAS M. TWARDOWSKI, Bankruptcy Judge.

We now address a motion for partial¹ summary judgment on this complaint to determine dischargeability pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6). We deny the motion because the pleadings highlight genuine issues of material fact regarding the intent of the debtor and an underlying agreement creating a special relationship between the parties.

Plaintiff, Richard R. Rumchaks ("plaintiff") is the administrator of the estate of Bernice Sanders, deceased ("Sanders"). Defendant-debtor,² Natalie S. Pavelka ("debtor"), filed for relief under chapter 7 on March 3, 1986.

The parties agree to the following bare details. During 1981, Sanders moved to Florida and funds were put into a joint account in the name of Sanders and the debtor. These joint accounts were a "mechanism" by which debtor could assist Sanders with the administration of her funds. Their subsequent relationship involved transfers of money and personal property, culminating in late 1982 when plaintiff³ filed a civil action in a Florida state court for the sum of Twenty One Thousand ($21,000.00) Dollars, representing Sanders' funds used to purchase a trailer titled in debtor's name ("Settlement I"). In December of 1983, plaintiff⁴ filed a separate state court action seeking recovery of funds and/or property allegedly converted by debtor. In settlement of this lawsuit, debtor executed a promissory note ("note") in the amount of Sixteen Thousand ($16,000.00) Dollars, payable in monthly installments of One Hundred Ninety-Four and 13/100 ($194.13) Dollars ("Settlement II"). Debtor soon defaulted.⁵

We cannot overlook the fact that plaintiff has not supported his response with the required affidavits,⁶ as a result of which it falls short of the requirements in Rule 56(e).⁷ In many cases we would be tempted to end our analysis and grant the motion. But we are well aware that plaintiff is in the unenviable position of representing a woman no longer able to submit an affidavit.⁸ We do have the power, however, to continue our analysis. Rule 56(f) provides:

(f) When Affidavits are Unavailable. Should it appear from the affidavits of a party opposing the motion that he cannot for reasons stated present by affidavit facts essential to justify his opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.

Fed.R.Civ.P. 56(f) (emphasis added).

We continue our analysis because we are persuaded that the words "if appropriate" in Rule 56(e) mean that a "... court cannot automatically grant a movant's summary judgment motion when the opposing party fails to comply with the requirements ... it is incumbent upon the court to review the materials submitted in support of the motion to determine if they establish the absence of a genuine issue of fact, even if no opposing evidence is offered." Murray v. Day (In re Day), 4 B.R. 750, 753, appeal dismissed, 633 F.2d 217 and sub nom In re Day, 633 F.2d 214, citing Advisory Committee Note to the 1963 Amendments to Rule 56.

The issue before us is complicated but narrow: whether, considering the existence of the previous out-of-court settlement of a lawsuit based on the facts underlying the case sub judice, the facts present sufficient evidence of fraud, false pretenses, false representation, fiduciary defalcation, larceny, embezzlement or willful or malicious injury to support the entry of summary judgment?

Buried in the briefs are two issues confused by the parties. The first is the scope of our review on summary judgment. It is axiomatic that summary judgment is such a drastic⁹ remedy that evidence must be viewed in the light most favorable to the party opposing the motion.¹⁰ The court may grant summary judgment only if, using these guidelines, no genuine issue of material fact remains for trial.¹¹

The critical issue in this case is whether the note provides dispositive evidence for summary judgment. This precise issue was raised in our district. Wilmington Trust Company v. Behr (In re Behr), 42 B.R. 922 (Bankr.E.D.Pa.1984). Wilmington Trust sued the Behrs in state court, claiming that they had deposited worthless checks and converted funds. The attorneys stipulated to entry of judgment in favor of Wilmington Trust. Defendants filed their bankruptcy case when they were unable to make the stipulated payments. Id. at 924. The court rejected the argument that summary judgment should be granted because the state complaint and stipulation were "sufficiently probative" of the defendants' intentional conversion. Id. We note, as did the Behr court, that the instant stipulation did not "... contain any admission by the defendants of intentional or willful wrongdoing on their part ..."¹²Id. at 926. Thus, we find that the note in this case is not dispositive on the issue of defendant's intent.

Behr does not address the question of whether we can look at the transactions underlying the note to assist in determining whether summary judgment should be granted. We have that power, however, by virtue of the scope of summary judgment: we must determine whether "... the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue to any material fact ..." Fed.R.Civ.P. 56(c). Plaintiff has not cited any authority for the proposition that we must be limited to a review of the note itself on summary judgment¹³ and we have found no such limitation in the case law. There is a dearth of case law on the specific question of whether we may factor the events underlying the settlement into our determination of summary judgment. The cases cited by the parties discuss the propriety of such an inquiry during the trial of the adversary complaint. See e.g., Greenberg v. Schools, 711 F.2d 152, 153 (11th Cir.1983); Capital Ins. Agency v. Carneal (In re Carneal), 33 B.R. 922 (E.D. Va.1983). This lack of precedent is no doubt a result of the clear language of Rule 56(f), which requires a broad inquiry on summary judgment that includes transactions underlying state court settlements. Accord, Southern Federal Savings & Loan v. Fellows (In re Fellows), 22 B.R. 40, 42 (Bankr.E.D.Va.1982).

We also query whether any "taint" from the conduct underlying settlement I may spread to settlement II, thus requiring us to review both transactions together. See generally, Munafo v. Kovacs (In re Kovacs), 42 B.R. 1, 2 (Bankr.D.Mass.1982). If, for example, debtor had also defaulted on settlement I, the pattern of defaults might be circumstantial evidence of her state of mind.

This leads to the second issue raised by the cases in the briefs: our ability to review at trial the facts giving rise to the note. Clearly, we need not rule now on the scope of our inquiry at trial, except to note that the parties will be given ample opportunity to state any evidentiary objections on the record.

Ascertaining the existence of a material fact requires that we develop the perimeters of the law to which these facts are to be applied. Proof that § 523(a)(2)(A) fraud, false pretenses or false representations have occurred will require proof of moral turpitude or intentional wrong.¹⁴ Conibear v. Alspach (In re Alspach), 76 B.R. 499, 501 (E.D.Pa.1987), Volk of Philadelphia, Inc. v. Gelfand (In re Gelfand), 47 B.R. 876, 879, 12 C.B.C.2d 682, 685 (Bankr. E.D.Pa.1985).

The threshold issue for proving § 523(a)(4) fraud or defalcation is identifying the existence of a fiduciary relationship. Greyhound Lines Inc. v. Fains (In re Fains), 37 B.R. 539, 541 (Bankr.E.D.Pa. 1984). This fiduciary relationship embodies an express trust, Drinker, Biddle & Reath v. Bacher (In re Bacher), 47 B.R. 825, 829 (Bankr.E.D.Pa.1985), which can be created by consensual agreement. See e.g., Wilmington Trust Co. v. Martin (In re Martin), 35 B.R. 982, 985 (Bankr.E.D.Pa.1984) Fiduciary "(d)efalcation includes the failure of a fiduciary to account for money he received in his fiduciary capacity." Bellity v. Wolfington (In re Wolfington), 48 B.R. 920, 923 (Bankr.E.D.Pa.1985) No specific intent is necessary to find § 523(a)(4) fraud or defalcation. Carlisle Cashway, Inc. v. Johnson, 691 F.2d 249, 254 (6th Cir.1982) (interpreting similar provisions in § 17(a)(4) of the Act); In re Martin, 35 B.R. 982, 989.

We have previously found that embezzlement is "... the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come." In re Fains, 37 B.R. 539, 543, citing 3 Collier on Bankruptcy, para. 523.14(3), p. 523-107 (11th ed. 1983). Embezzlement differs from larceny "... in the fact that the original taking of the property was lawful, or with (the) consent of the owner, while in larceny the felonious intent must have existed at the time of the taking." Homemakers, Inc. v. Salamone (In re Salamone), 78 B.R. 74, 77 (E.D.Pa.1987) citing 3 Collier on Bankruptcy para. 523.24(a), at 523-98.

Plaintiff also alleges that debtor converted funds. If the debtor lacked the conscious intent to violate Sanders' rights, debtor committed only a technical conversion and the debt will be dischargeable. In re Behr, 42 B.R. 922, 925. However, if the debtor had willful and malicious intent, the claim will...