Lee v. Line (In re Line)
| Decision Date | 20 January 2022 |
| Docket Number | 20-90855,Adv. 21-09002 |
| Parties | In Re KATHLEEN LINE, Debtor. v. KATHLEEN LINE, Defendant. JORDAN LEE, ZOE LEE, and CAMDEN LEE, Plaintiffs, |
| Court | U.S. Bankruptcy Court — Central District of Illinois |
Before the Court is a motion for summary judgment filed by the Plaintiffs seeking judgment that a debt owed to them by the Debtor should be excepted from her discharge. Because there are no material issues of fact in dispute and the Plaintiffs have established their entitlement to a judgment in their favor as a matter of law, the motion for summary judgment will be granted. The $190, 000 debt plus prejudgment interest and costs owed by the Debtor to the Plaintiffs will be excepted from the Debtor's discharge.
Kathleen Line ("Debtor") filed her voluntary petition under Chapter 7 on October 20, 2020. On her schedules, she listed Camden Lee, Zoe Lee, and Jordan Lee as unsecured creditors to whom she owed $285, 383 by reason of the entry of a civil judgment. In her Statement of Financial Affairs, the Debtor disclosed involvement in litigation related to the probate estate of Sandra Kay Lee pending in the circuit court of Kankakee County, Illinois. She also disclosed that, in the several weeks before filing, funds in her bank accounts at Midland States Bank and Municipal Trust and Savings Bank had been garnished by Camden Lee, Zoe Lee, and Jordan Lee.
Jordan Lee, Zoe Lee, and Camden Lee ("Plaintiffs") timely filed their complaint to determine dischargeability of the debt owed to them. In their complaint, the Plaintiffs alleged that they are the surviving children of Sandra Lee who died in 2005. Prior to her death, Sandra Lee executed a will that included a testamentary trust for the benefit of her children; the Debtor was named as the trustee of the Sandra K. Lee Trust ("Trust"). The Plaintiffs further alleged that, in her capacity as trustee, the Debtor received $190, 000 from the executor of Sandra Lee's estate and that the Debtor deposited the $190, 000 into her personal bank accounts, thereby commingling the Trust funds with her own funds. The Debtor also allegedly received Social Security benefits for the Plaintiffs for a number of years. According to the Plaintiffs, the Debtor has never accounted for any of the funds that she received as trustee or as representative payee for the Social Security benefits.
Sometime in 2014, the Plaintiffs apparently filed a petition in their mother's probate estate seeking an accounting from the Debtor of the funds that she had received on their behalf.[1] On September 14, 2014, the state court entered an order requiring the Debtor to provide an accounting of "all financial matters in [her] control" by October 23, 2014. The Debtor apparently likewise petitioned the state court to require the executor of the Sandra Lee estate, Jennifer Mansberger, to file an accounting of all funds collected by the estate. The executor was also ordered to file an accounting by October 23, 2014.
According to the Plaintiffs, the Debtor never filed an accounting but did file a report saying that she had spent $180, 000 of the Trust funds on a new house and for the purchase of a vehicle. The Plaintiffs further alleged that, on September 24, 2015 the state court found the Debtor in contempt for her failure to comply with the order requiring her to provide an accounting. Later, after further hearing, the Debtor was removed as trustee of the Trust. The Debtor appealed. The Appellate Court of Illinois, Third District, subsequently affirmed the Debtor's duty to account to the Plaintiffs and her removal as trustee but reversed the contempt finding due to procedural errors. See In re Estate of Lee, 2017 IL App (3d) 150651.
The complaint asserted that, after remand and further proceedings, the state court entered a final order on February 26, 2020. That order, a copy of which was attached to the complaint, included specific findings that the Debtor had failed to provide "any adequate accounting of the monies" she received, that she commingled Trust funds by placing the funds "in her and her husband's bank accounts," and that she "illegally converted . . . the funds of the trust and used said funds improperly for her own benefit." After making the findings, the circuit court entered judgement in favor of the Plaintiffs and against the Debtor for $190, 000 plus prejudgment interest and court costs.
In their prayer for relief, the Plaintiffs asked that all of their claims against the Debtor for breach of fiduciary duty-both those described in the complaint and "any and all other breaches"-be excepted from her discharge. They also asked that the Debtor be ordered to account for the funds she received from the Trust.
The Debtor answered the complaint by admitting many of the allegations made therein. She denied, however, that she had failed and refused to account for the funds she received as trustee and denied that she had continued to fail to account to the Plaintiffs. She also denied that she had been found to have converted the assets of the Trust. The Debtor denied that her conduct constituted defalcation as a fiduciary.
The Plaintiffs have now filed their motion for summary judgment. In the motion, they again allege that the Debtor was named as the trustee of the Trust after the death of Sandra Lee; a copy of the will creating the Trust was attached as an exhibit. They also again allege that the Debtor received $190, 000 from the executor of the estate of Sandra Lee and that the Debtor deposited that money into her own personal accounts, thereby commingling the funds with her own assets and treating the funds as her own. The Plaintiffs complain that the Debtor never accounted to them for the use of the Trust funds and failed to comply with the terms of the state court order entered on September 14, 2014, requiring her to account for all funds she received on their behalf. They say that the Debtor filed a document with the state court wherein she admitted to using the funds for the purchase of a new home and vehicle, but the state court found the document to be legally insufficient to constitute an accounting. The Debtor was held in contempt for her failure to account.
In their motion for summary judgment, the Plaintiffs further allege that, after the Debtor appealed the state court order finding her in contempt, the Illinois appellate court affirmed the trial court's findings that the Debtor was required to account to the Plaintiffs and that she was properly removed as trustee due to her failure to do so. The appellate court reversed the finding of contempt due to procedural errors. After remand, a final judgment was entered on February 26, 2020, in favor of the Plaintiffs and against the Debtor for $190, 000 plus prejudgment interest and court costs; that judgment was not appealed by the Debtor. The judgment was based on specific findings that the Debtor had failed to provide a proper accounting, had commingled the Trust funds by placing them in her own bank accounts, and had illegally converted the funds and used them for her own purposes. Copies of all relevant state court orders and transcripts from several of the hearings were included as exhibits with the motion for summary judgment.
The final judgment order also specifically adopted the findings made by the state court when it orally announced its decision on January 23, 2020. The transcript of that hearing discloses that the state court had specifically reviewed and considered the testimony of the Debtor at several hearings during which she attempted to justify her expenditure of the Trust funds. The state court found that the Debtor's total lack of records, bank statements, or other paperwork to support her claimed expenditures evidenced that she had violated her duties to the Plaintiffs. The court found that she had not presented "a single verifiable" expense and that the claimed expenses she listed were either "guesses or estimates." The state court criticized the Debtor for her attempt to use United States Department of Agriculture ("USDA") guidelines related to the average cost of raising a child as a basis for claiming that the funds had been properly spent; the court found that such efforts were "without merit." Likewise, the state court found some of the Debtor's claimed expenses, such as repairs to Jordan Lee's truck and tuition for Zoe Lee, to be duplicates of expenses actually paid by the executor as shown on the executor's accounting; the Debtor's lack of receipts or canceled checks for the expenditures resulted in all doubts being resolved against the Debtor. The Plaintiffs argue that, based on the principles of collateral estoppel, the state court record is sufficient to support the entry of summary judgment in their favor.
The Debtor responded to the motion for summary judgment by admitting most of the facts set forth by the Plaintiffs. She quibbles with their assertion that she "ignored" the state court order to account; the state court judge did not use that term. She also says that she admitted to using $108, 000 of the Trust funds to pay mortgage interest on a home she purchased rather than the $180, 000 the Plaintiffs claimed that she used to buy the house. She quotes the state court judge as saying that it was "difficult to say what money was spent on the new house." In her response, the Debtor lists additional facts consisting largely of parts of her testimony before the state court wherein she insisted that, although she had limited or no records of her expenditures, she recalled several specific expenditures she had made for each of the Plaintiffs over the years. She also claimed to have met the needs of the Plaintiffs over the...
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