Wallace v. Crawford (In re Meyers), Bankruptcy No. 10–50090.

• Decision Date: 14 November 2012
• Docket Number: Bankruptcy No. 10–50090.,Adversary No. 11–5040.
• Citation: 483 B.R. 89
• Court: U.S. Bankruptcy Court — Western District of North Carolina
• Parties: In re Maudie Lail MEYERS, Debtor. Hugh Wallace, Plaintiff, v. Barrett Crawford, Trustee for the Bankruptcy Estate of Maudie Lail Meyers, and Union Central Life Insurance Company, Defendants.

483 B.R. 89

In re Maudie Lail MEYERS, Debtor.Hugh Wallace, Plaintiff,

v.Barrett Crawford, Trustee for the Bankruptcy Estate of Maudie Lail Meyers, and Union Central Life Insurance Company, Defendants.

Bankruptcy No. 10–50090.

Adversary No. 11–5040.

United States Bankruptcy Court,

W.D. North Carolina,

Wilkesboro Division.

Nov. 14, 2012.

David R. Badger. David R. Badger, P.A., Mark A. Michael, Mark A. Michael Attorney at Law, Charlotte, NC, for Plaintiff.

Jessica V. Shaddock, John W. Taylor, John W. Taylor P.C., Charlotte, NC, for Defendants.

MEMORANDUM OPINION: (1) GRANTING PLAINTIFF'S MOTION FOR REHEARING; (2) GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, nee JUDGMENT ON THE PLEADINGS, AND (3) DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

J. CRAIG WHITLEY, Bankruptcy Judge.

This action seeks to determine entitlement to $2,000,000 of term life insurance proceeds following the death of the named insured, as more particularly described below. Both the Plaintiff Hugh Wallace (“Wallace”) and the remaining Defendant, Barrett Crawford, Chapter 7 Trustee for Maudie Lail Meyers (“Trustee”) profess to be, or stand in the shoes of, the legal beneficiary under the policy.

Most recently in the action, the Trustee filed a Motion for Judgment on the Pleadings. Wallace responded with a Motion for Summary Judgment. A hearing on these motions was held on March 15, 2012 and the matter was taken under advisement. On March 22, 2012, I announced a decision in favor of the Trustee and called upon his counsel to draft a proposed order consistent with his pleadings and brief and to circulate it for comments by his opponent.

After receiving the draft, Wallace file a document in the cause entitled “Objections to Proposed Memorandum Opinion, Request for Findings of Fact and Request for Rehearing. Upon Wallace's suggestion that there was newly discovered evidence which should be considered, a hearing on that motion was held on June 7, 2012.

At the two hearings, John W. Taylor, Jessica V. Shaddock, and Barrett L. Crawford appeared on behalf of the Trustee. David R. Badger, Mark A. Michael, and Arathi P. Nobles appeared on behalf of Wallace.

Having considered the parties' motions, affidavits, and briefs, I conclude that Wallace's request for rehearing should be GRANTED and the record reopened to include additional undisputed facts. However, having done so, I conclude that Trustee's Motion, now effectively a motion for summary judgment, should be GRANTED and Wallace's Motion for Summary Judgment should be DENIED.

STATEMENT OF FACTS

On or about August 23, 2007, James Meyers purchased a renewable term life insurance contract from Union Central Life Insurance Company (“Union Central”), identified as Policy No. T000075725 in the face amount of $2,000,000 (the “Policy”) insuring his own life. Under the Policy, James Meyers was the named owner as well as the insured. James Meyers designated his grandmother, Maudie Meyers, as the beneficiary. At the time he purchased the Policy and at all times thereafter James Meyers was unmarried. He had no children or other dependents.

The Policy provided: “OWNERSHIP. While the insured is living, you have all rights in this policy.... You may exercise the following rights while the insured is living: (1) the right to assign the policy; (2) the right to change the owner or beneficiary; (3) the right to terminate this policy.” Under the section titled “DEFINITIONS”the Policy provided that a reference therein to “you” or “your” means the owner of the policy.

The Policy further provided that premium payments were payable on or before their annual due date, which was August 23rd. If, however, a premium was not paid on or before the due date, the policy provided a thirty-one (31) day grace period. If a premium was not paid during the thirty-one day grace period, the Policy would lapse. On the other hand, the Policy automatically renewed for an additional term at the end of the term period if premium payments were not in default, the policy was in force on that date and the renewal premium was paid within the thirty-one day grace period.

The Policy further provided that it could be reinstated at any time within five years after a lapse subject to the insurability of the insured and payment of all overdue premiums plus interest. The Policy was “subject to the laws of the state where the application is signed.” At the time the application was signed, James Meyers was a resident of North Carolina.

On April 29, 2009, Union Central wrote James Meyers to advise that the Policy had been cancelled for nonpayment of premiums and to outline how he could reinstate the Policy.¹ On June 16, 2009, James Meyers applied for reinstatement of the same.

A month later, on July 14, 2009, James Meyers filed his chapter 7 bankruptcy case in this bankruptcy court. James Ward was appointed as Chapter 7 trustee for James Meyers' estate (“Ward”) and served in that capacity at all relevant times thereto.

On July 14, 2009, James Meyers' bankruptcy date, Maudie Meyers was still the beneficiary under the Policy, no changes to the designation of beneficiary having been made since its purchase.

James Meyers did not disclose the Policy in his bankruptcy schedules; nor did he claim an exemption in it. No amendment was ever made by James Meyers to his bankruptcy schedules to either disclose the Policy or to claim any exemption therein.

On August 7, 2009, Union Central reinstated the Policy.

Wallace was listed as an unsecured creditor on Schedule F of James Meyers' bankruptcy petition. As such, he received notice of the filing of James Meyers' bankruptcy case. The first meeting of creditors was conducted on August 17, 2009. James Meyers did not mention the Policy to the Trustee at the creditors' meeting. However, one week later, on August 24, 2009, James Meyers executed and submitted a change of beneficiary form to Union Central ostensibly changing the beneficiary under the Policy from Maudie Meyers to Wallace. The only explanation in this record for making that change is the elliptical statement in the form stating that the relationship of Wallace to James Meyers was “debt coverage.”

Upon receipt, Union Central accepted the change of beneficiary and changed its records to show Wallace as the beneficiary under the Policy. James Meyers' bankruptcy case was still open at the time.

On January 28, 2010, Maudie Meyers filed the current bankruptcy case in this judicial district under Chapter 11; Bankruptcy Case No. 10–50090. On March 30, 2010, Maudie Meyers converted her case to Chapter 7. The Trustee was appointed to administer her bankruptcy estate.

On June 22, 2010, or 145 days after Maudie Meyers filed bankruptcy, James Meyers committed suicide. As a result of his death, the Policy matured. The $2,000,000 of death benefits became payable to the lawful beneficiary.

STATEMENT OF POSITIONS

Wallace maintains that at the time of James Meyers' death, he was the lawful beneficiary under the Policy pursuant to the change of beneficiary executed by James Meyers while his personal bankruptcy was pending. Wallace argues that the right to change the beneficiary on the Policy did not become property of James Meyers' bankruptcy estate, and James Meyers retained the right to change the beneficiary after he filed bankruptcy.

The Trustee believes just the opposite. All of James Meyers' ownership interests in the Policy became property of his bankruptcy estate when he filed Chapter 7. These interests included the right, as owner, to change the beneficiary under the Policy. Under the Trustee's theory, after James Meyers filed Chapter 7, only Ward, his bankruptcy trustee, could change the beneficiary. James Meyers' attempt to change the beneficiary from Maudie Meyers to Wallace, made a week after his creditors meeting and while his Chapter 7 case was pending, was null and void under North Carolina law as well as under Section 541 of the Bankruptcy Code. Thus, Maudie Meyers was still the beneficiary at the time that James Meyers passed away and the Policy matured. Therefore, the Trustee contends, Maudie Meyers' bankruptcy estate is entitled to the Policy proceeds as property acquired within 180 days after the filing of her bankruptcy petition under Section 541(a)(5).

DISCUSSION

I. Plaintiff's Request For Rehearing And To Augment The Record Should Be Granted.

Wallace's request for rehearing is founded upon what he describes as a post-hearing discovery of evidence. Specifically, at the latest hearing Wallace's counsel described how, apparently through a copying error, the Union Central notice dated April 28, 2009 to James Meyers (suggesting that the Policy had been cancelled and advising him of how he might reinstate the same policy) was not included in materials which counsel received from the insurer.

I take counsel at his word, and on the strength of that omission elected to rehear the Motions. On the same basis, I believe the record should be reopened in order that the April 28, 2009 notice be included, together with the June 16, 2009 application for reinstatement and the August 7, 2009 policy reinstatement.

The Trustee has argued against such an inquiry under his June 5, 2012 brief, citing Rules 59 and 60 of the Federal Rules of Civil Procedure. The Trustee points out that the affidavit of Bryan Setzler which Wallace originally filed in support of his Motion for Summary Judgment on March 6, 2012, states “[o]n July 31, 2009, Union Central received a payment of $1,528.50 to reinstate policy number T000075725. Without this payment the policy had lapsed and would have no proceeds to pay to any beneficiary.” Affidavit of J. Bryan Setzler, Docket No. 45, filed on March 6, 2012. Setzler was the insurance agent for both James Meyers and Hugh Wallace. Trustee points out that Setzler was communicating and cooperating with Wallace and his counsel during the preparation of the summary judgment motion. Since the Setzler Affidavit (which Plaintiff presumably had a...