Caudill v. Anderson (In re Anderson)

In re: CALLI W. ANDERSON, Debtor.

ALFRED R. CAUDILL, Plaintiff, v. CALLI W. ANDERSON, Defendant.

Case No. 15-60637

Adv. P. No. 15-06044

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA LYNCHBURG DIVISION

February 18, 2016

Chapter 7

MEMORANDUM DECISION

Before the Court are the plaintiff's and the debtor's cross-motions for summary judgment. The Court held a continued hearing on December 3, 2015, at which the parties agreed, as they have throughout this adversary proceeding, that a trial on the merits would be unnecessary and fruitless, and again urged the Court to issue a ruling on the record and arguments before it. At the close of the December 3, 2015 hearing, the Court took the matter under advisement and directed the parties to file briefs. The parties have filed their respective briefs. After considering the record and the arguments of counsel, the Court will grant summary judgment in favor of the debtor.

FINDINGS OF FACT

Except for one point, the core facts are undisputed. The plaintiff, Alfred R. Caudill ("Caudill" or "plaintiff"), granted a power of attorney to the debtor, Calli W. Anderson ("Anderson" or "debtor"), on August 7, 2012. A short while later Caudill handed Anderson $31,750 in cash so that she could assist him in managing his financial affairs. The parties shared a joint bank account, but Anderson never deposited Caudill's money, storing it in her home safe. The record does not reflect that Caudill ever asked Anderson to deposit the funds, nor why he chose to hand over a substantial sum in cash instead of depositing the money in their shared account. Anderson paid some of Caudill's bills, but their relationship soured when she failed to make timely payments on some of his bills. Caudill revoked the power of attorney on May 21, 2013, and asked Anderson to return his cash and other personal effects. Anderson kept no records of how she spent Caudill's money. Thus Anderson did not have an exact count of how much of the cash remained; however she estimated that the sum totaled at least $15,000.

Anderson put Caudill's belongings in a plaid bag and drove to his house. Although she could see through the front door that Caudill was home, Anderson did not attempt to engage him in conversation. Instead, Anderson placed the bag on Caudill's porch and hurried back to her car, where she waited until he retrieved the bag. Anderson then drove away. It is here that the parties' accounts diverge on a critical point. Anderson claims that she placed Caudill's money in the bag she left on his porch, while Caudill insists there was no money inside when he inspected the bag.

Caudill filed a Warrant-in-Debt against Anderson in the Campbell County General District Court for the jurisdictional limit of $25,000, asserting claims for conversion and breach of fiduciary duty. The general district court denied his request and entered judgment for Anderson. Caudill appealed. The Campbell County Circuit Court, the Honorable John T. Cook, Judge, reversed and entered judgment against Anderson for $25,000 after finding her testimony about returning Caudill's money to be "wholly incredible." ECF Doc. No. 30 at 6-7. Judge Cook issued his decision after "weighing . . . the facts in the case," and describing the matter as both a "credibility case" and a "factual case." Id. at 6. In his December 22, 2014 ruling from thebench, Judge Cook added, "I find . . . there were purposes that this money was held and given to [Anderson] just like there wasn't a power of attorney, that this was held outside the power of attorney. People can do that and that's the way it was done." Id. at 7.

Anderson filed her petition seeking relief under Chapter 7 of the Bankruptcy Code on April 7, 2015. Caudill initiated this adversary proceeding on June 19, 2015. According to Caudill, Anderson's debt to him was nondischargeable because it arose from fraud or defalcation while acting in a fiduciary capacity or embezzlement pursuant to section 523(a)(4), and under principles of res judicata and collateral estoppel. Anderson filed an answer admitting most of the underlying facts but denying that this debt should be excepted from discharge.

On August 28, 2015, Caudill moved to amend his complaint to add a claim for willful or malicious injury to his property pursuant to section 523(a)(6). On the same day Caudill filed a motion for summary judgment and a supporting memorandum on both counts based on collateral estoppel. Anderson filed a response in opposition to summary judgement on the section 523(a)(4) claim, and reserved her right to respond to the section 523(a)(6) claim should the Court allow Caudill leave to amend his complaint. The Court held a hearing on the pending motions on October 15, 2015. At the conclusion of this hearing, the Court (1) granted Caudill leave to amend, (2) denied Caudill's motion for summary judgment pursuant to section 523(a)(4),¹ and (3) gave notice that it was considering granting summary judgment in favor of Anderson² on thefraud and defalcation while acting in a fiduciary capacity claim sua sponte pursuant to Rule 56(f) of the Federal Rules of Civil Procedure.³ See ECF Doc. No. 33 (Order memorializing bench ruling).

The Court scheduled a continued hearing for December 3, 2015. Prior to this hearing, Anderson answered the amended complaint and Caudill filed a memorandum in opposition to the Court's granting summary judgment in favor of Anderson on the count for fraud or defalcation while acting in a fiduciary capacity. At the December 3, 2015 hearing, the Court heard summary judgment arguments pursuant to section 523(a)(4), including embezzlement. The parties again reaffirmed their opinion that a trial would be pointless and that the Court had before it all facts necessary to issue a ruling on the merits. Counsel for Anderson explained that he did not file a response to Caudill's motion for summary judgment on the section 523(a)(6) count because he believed it was still not properly before the Court, Caudill having moved for summary judgment prior to receiving leave to amend. The Court acknowledged this point, but did not require Caudill to refile his motion for summary judgment and set deadlines for filing any necessary pleadings. At the conclusion of the December 3, 2015 hearing, the Court took the matter under advisement.

After the December 3, 2015 hearing, Anderson filed a response in opposition to Caudill's motion for summary judgment on the section 523(a)(6) count along with her own cross-motion for summary judgment. ECF Doc. No. 40. In turn, Caudill filed his response in opposition. ECF Doc. No. 41.

Caudill argues that that the "only conclusion that can be drawn is that [Anderson] simply kept Mr. Caudill's money." ECF Doc. No. 41 at 3. Caudill insists that Anderson's conduct shows that she intended to injure him because she (1) kept no records, (2) stored the cash in her home safe instead of the joint bank account, (3) refused to meet with him when returning his effects, and (4) lied about returning the money. ECF Doc. No. 41 at 5. To Caudill, the state court ruling and the debtor's failure to account allow this Court to find both intent to defraud and intent to inflict a willful and malicious injury. Id. at 3, 5.

In her defense, Anderson argues that the state court judgment is an ordinary money judgment and nothing more. Relying on Judge Cook's bench ruling that the cash was held outside of the power of attorney, Anderson maintains that the requisite fiduciary capacity is lacking and that Caudill's request for relief under this portion of section 523(a)(4) must be denied. Anderson further stresses that Caudill did not allege larceny or embezzlement in his state court complaint and that Judge Cook made no findings as to either. In her cross-motion for summary judgment pursuant to section 523(a)(6), Anderson argues that the plaintiff has not shown that she "actually intended harm," or that she "intended the consequences of her act . . . even if the court finds that the Defendant acted intentionally." ECF Doc. No. 40 at 4. As a result, Anderson argues that Caudill's claim must fail because he has been unable to produce a satisfactory showing of willfulness or malice, and no reasonable jury could conclude otherwise.

The state court judgment is the debt that is before this Court. Although the state court judgment order states that Caudill "has proven by a preponderance of the evidence that he is entitled to the relief sought," it does not contain any additional findings.⁴ ECF Doc. No. 5. To date, what happened to the money remains a mystery.

JURISDICTION

The Court has jurisdiction over Anderson's bankruptcy case by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a), the delegation made to this Court by Order of Reference from the District Court entered on December 6, 1994, and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. Through this adversary proceeding in Anderson's bankruptcy case, Caudill seeks to except the debt Anderson owes him from her chapter 7 discharge pursuant to sections 523(a)(4) and (a)(6) of the Bankruptcy Code. This matter is a "core" bankruptcy proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I).

ANALYSIS

(a) Summary judgment

Summary judgment is proper when there is "no genuine issue as to any material fact and . . . the movant is entitled to judgment as a matter of law." News & Observer Publ'g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010) (quoting Fed. R. Civ. P. 56(c)(2)). A material fact is any one which may "affect the outcome of the case," and a genuine issue exists as to any material fact "when the evidence would allow any reasonable juror to return a verdict for the nonmoving party." Id.; see also In re Prof'l Coatings (N.A.), Inc., 210 B.R. 66, 73 (Bankr. E.D. Va. 1997) (explaining "nonexistence of a genuine issue of a material fact" is examined by preponderance of the evidence) (quoting ...