Martin v. Jurgens (In re Jurgens)

Decision Date30 July 2020
Docket Number Adv. No. 16-00009,Case No. 15-60592-7,Adv. No. 16-00032
Citation620 B.R. 115
Parties IN RE: Brenda K. JURGENS, Debtor. Gary Martin, Plaintiff, v. Brenda K. Jurgens, Defendant. Gary Martin, Plaintiff, v. Brenda K. Jurgens and First American Title Company of Montana, Defendants.
CourtU.S. Bankruptcy Court — District of Montana

Charles Edward Hansberry, Jenny M. Jourdonnais, Hansberry & Jourdonnais, PLLC, Missoula, MT, for Plaintiff.

Edward A. Murphy, Murphy Law Offices, PLLC, Benjamin P. Hursh, Crowley Fleck, PLLP, Missoula, MT, Kenneth K. Lay, Crowley Fleck PLLP, Helena, MT, for Defendants.

MEMORANDUM OF DECISION

TERRY L. MYERS, U.S. BANKRUPTCY JUDGE

INTRODUCTION

On June 30, 2015, Brenda K. Jurgens ("Debtor" or "Defendant") filed a voluntary chapter 13 petition commencing Case No. 15-60592.1 At the time of the petition, Debtor was in litigation with her brother, Gary Martin ("Martin" or "Plaintiff"), which is described more completely below. On November 5, 2015, the bankruptcy case was converted to chapter 7. Doc. Nos. 124, 125.2

Martin and Debtor are two of three children of Alice Jean Martin ("Alice") and John William ("Billy") Martin. Both parents are deceased. Alice died on June 23, 2012. Debtor was the Personal Representative of Alice's Estate and, prior to Alice's death, Debtor held Alice's power of attorney. In 2014, Debtor filed a petition to probate Alice's will in Midland County, Texas (the "Probate Case"), and, in 2015, Martin filed a civil action against Debtor ancillary to the Probate Case (the "Texas Litigation").3 The Probate Case and the Texas Litigation were pending when Debtor filed her 2015 bankruptcy petition. See Doc. No. 21 at 6–7, 15, 26.

On October 8, 2015, the Court granted relief from the § 362(a) stay in order to continue the Texas Litigation. Doc. No. 85. The Court noted that this litigation involved "state law causes of action for breach of fiduciary duties, conversion, fraud and fraud by non-disclosure, and civil theft liability[.]" Id. at 3. It further noted that "Debtor retains whatever claims, defenses and remedies which she may have against [Martin] in [that] nonbankruptcy forum." Id. at 4. Further, consistent with the language of the stay relief motion, which conceded that if granted "the stay remains in effect with respect to enforcement of any judgment against Debtor or estate property," the Court held "Movants4 will have to seek further relief from this Court before enforcing any judgment they might obtain in Texas." Id. As noted, the case was converted to chapter 7 a month later, in November 2015.

On February 9, 2016, Martin filed a complaint against Debtor and First American Title Company of Montana, Inc. ("FATCO"), commencing Adv. No. 16-00009, which seeks declaratory relief and the imposition of a constructive trust and equitable lien on Debtor's claimed homestead exemption in real property located at 748 Bumpy Lane, Victor, Ravalli County, Montana (the "Property").5 Martin also objected to Debtor's claimed exemption in the Property. See Doc. No. 174.6

On May 20, 2016, Martin filed a complaint against Debtor commencing a second adversary proceeding, Adv. No. 16-00032. It seeks to deny Debtor's discharge under § 727 and to determine the dischargeability of Martin's claims under § 523(a)(4).

The Texas Litigation concluded with entry of an Amended Final Judgment, as discussed in greater detail below.7 Martin then moved for summary judgment in both adversary proceedings. Debtor, as Defendant in each action, opposes those motions. The instant Decision resolves both summary judgment motions.8 It will be entered of record in each adversary proceeding along with appropriate orders.

JURISDICTION

Plaintiff's complaint in Adv. No. 16-00009 affirmatively asserts this Court has jurisdiction under 28 U.S.C. §§ 1334 and that it is a core proceeding under 28 U.S.C. § 157(b). Adv. Doc. No. 1 at 2; see also Fed. R. Bankr. P. 7008. Defendant withdrew her earlier objections to this Court's jurisdiction in Adv. No. 16-00009 and expressly consented to entry of final judgment by this Court. Adv. Doc. No. 100.

Plaintiff's complaint in Adv. No. 16-00032, made the same affirmative assertions of this Court's jurisdiction, and Plaintiff and Defendant agreed at pretrial conference that the Court has such jurisdiction over Adv. No. 16-00032 as it deals with core matters under 28 U.S.C. § 157(b). Adv. Doc. No. 1 at 2; Adv. Doc. No. 40.

FACTS9

A. The Probate Case and the Texas Litigation

The parties' mother, Alice, passed away on June 23, 2012. Prior to her passing, Defendant held a power of attorney for Alice, and after her passing Defendant was appointed personal representative of her estate. On March 19, 2014, Defendant filed an application for probate, commencing the Probate Case in Midland County, Texas. Martin contested the purported will in the Probate Case.

In the Probate Case, the court entered an agreed order on December 5, 2014, executed by both parties and their counsel, and by Greg Martin, the parties' brother. Adv. Doc. No. 52-2 ("Agreed Order"). It required Defendant to provide "all property, estate and financial records of John William (Billy)[10 ] and Alice Martin, from August 1, 2008 to the present date including without limitation the following categories of documents[.]" Id. at 1. It then listed a comprehensive, non-exclusive list of records and documents including those concerning: property of the estates that had come into Defendant's possession as executor or in any other capacity; disposition of such property; debts of the estate that had been paid or were still owing; property remaining in her possession; distributive transfers of assets or property by Defendant through pay on death accounts or other accounts; all powers of attorney; life insurance policies; transfers of estate property made to Defendant or to Greg Martin, or to any other person; and documents and records regarding inventories of estate assets. Id. at 1–2.

The Agreed Order also required a mediation within 90 days; set various other deadlines; ordered Defendant to comply with an accounting demand related to Billy Martin's estate by November 22, 2014; and required Defendant's compliance with the ordered document production by January 2, 2015. Id.

On March 4, 2015, Martin commenced the Texas Litigation, a civil action ancillary to the Probate Case. His petition alleged Defendant committed fraud, breach of fiduciary duty, conversion, and civil theft, and in addition to seeking damages for such actions, Martin sought any equitable relief the court deemed appropriate. Adv. Doc. No. 52-5.

On June 16, 2015, the Texas court entered a Contempt Order finding Defendant in contempt of court for failure to comply with the Agreed Order. Adv. Doc. No. 52-3. The court assessed a $1,000 fine and sentenced Defendant to 30 days incarceration but withheld that sentence on the condition that she produce full and complete copies of personal depository accounts by June 19, 2015, and comply with all other production under the Agreed Order and under a February 19, 2015 request by Martin for production of documents and records.

On February 24, 2016, the Texas court entered another Contempt Order, Adv. Doc. No. 52-4, following a contempt hearing on January 28, 2016.11 It found Defendant in contempt for failure to comply with the Agreed Order "and all of the other Court's orders regarding the production of discovery." Id. It imposed a $2,500 fine to be paid to Martin before February 17, 2016, and it required Defendant to fully comply with all orders and rulings including production of bank documents by February 17, 2016. Id.

1. The Terminating Sanctions

On June 28, 2017, the Texas court entered its "[Proposed] Order Granting Plaintiff Gary Martin's Motion for Terminating Sanctions and Entry of Default Judgment Against Defendant Brenda Jurgens." Adv. Doc. No. 52-7.12 The court found "Defendant has exhibited a long history of discovery abuse in this action" and detailed a chronology of such abuse spanning from 2014 to 2017. Id. at 2–6. The court then found and held that Defendant had not fully complied with its orders for production; abused her position as a fiduciary under the power of attorney and as executor of the estates of Billy and Alice Martin; misappropriated funds that would have become part of Alice's estate and other Estate funds to the detriment of Martin and other heirs and beneficiaries; committed fraud and fraud by non-disclosure by making false representations as to the assets of Alice and of the estates of Alice and Billy Martin; misappropriated property, including funds, of Alice and those estates "with the intent to deprive others, including [Martin], of that property[;]" converted and misappropriated substantial assets of Alice and those estates to her own use and enjoyment "including, but not limited to, improving, maintaining and disposing of liens of Defendants [sic ] former real property located in Ravalli County, Montana;" that as a result of such fraud and misappropriation she was unjustly enriched and "[i]t would be inequitable for Defendant to retain any portion of her claimed homestead exemption that resulted from his [sic ] misappropriation of funds[;]" and, finally, that "throughout this and the ancillary probate action, Defendant has engaged in systematic effort to thwart the discovery process and flagrantly abuse the judicial process with false statements and repeated failures to comply with the Texas Rules of Civil Procedure" which justified "[t]he imposition of sanctions pursuant to T.R.C.P. 215[.]" Id. at 6–7.

The court then outlined over several additional pages the reasons for imposing such sanctions, and explained that such sanctions had a direct relationship to Defendant's "offensive conduct," "dilatory and obfuscatory tactics," "false and misleading statements" and "other misrepresentations," ultimately concluding that "[t]he imposition of death penalty sanctions is directly in relation to Defendant's misconduct" and...

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