Larsen v. Larsen (In re Larsen)

In re: Lemar Larsen aka Lemar Howard Larsen, Debtor.

Patricia Larsen, Plaintiff, v. Lemar Larsen, Defendant.

Case No. 1-16-42589-nhl

Adv. Pro. No. 1-16-01116-nhl

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

Entered: August 17, 2018

August 16, 2018

Chapter 7

DECISION AFTER TRIAL

Appearances:

Michael D. Siegel

Siegel & Siegel PC

One Penn Plaza

Suite 2414

New York, NY 10119

Attorney for Plaintiff

Michael F. Kanzer

Michael F Kanzer & Associates PC

2214 Kimball Street

Basement Level

Brooklyn, NY 11234

Attorney for Defendant

NANCY HERSHEY LORD UNITED STATES BANKRUPTCY JUDGE

Before the Court is an adversary proceeding commenced by plaintiff Patricia Larsen ("Patricia") seeking a determination that her pre-petition judgment in the amount of $36,257.20 against her nephew, Lemar Larsen, the debtor and defendant herein (the "Debtor"), is nondischargeable pursuant to 11 U.S.C. § 523(a)(4).¹ Patricia's judgment is based on an unpaid claim for funeral expenses against the estate of Howard Larsen, of which the Debtor served as administrator. She alleges here that the Debtor's knowing failure to pay the claim despite the availability of estate assets constituted defalcation, and that the resulting debt is therefore exempt from discharge under the Code.

The Court held a trial on this matter after denying Patricia's motion for summary judgment. As explained fully below, the Court finds that Patricia has failed to establish by a preponderance of the evidence that the debt arose from the Debtor's defalcation while acting in a fiduciary capacity. Consequently, the Debtor's liability to Patricia falls within his discharge.

Jurisdiction

This Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and 157(b)(1), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (I). The following are the Court's findings of fact and conclusions of law to the extent required by Rule 52 of the Federal Rules of Civil Procedure, as made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

Relevant Procedural History

On June 28, 2016, Patricia commenced the instant adversary proceeding by filing a complaint seeking relief under § 523(a)(4). Compl., ECF No. 1. After the Debtor filed hisamended answer, Am. Answer, ECF No. 11, the Court entered a pre-trial scheduling order, Sched. Order, ECF No. 13. Prior to the deadline set by that order for dispositive motions, Patricia filed a motion for summary judgment. Summ. J. Mot., ECF No. 18. There, Patricia asserted that the Debtor was collaterally estopped from defending against this nondischargeability action in light of a Surrogate's Court decision, later reduced to a judgment by the New York County Civil Court, that directed the Debtor to pay Patricia the amount of her claim against the decedent's estate. Id. Patricia argued that because the decision found that the Debtor was a fiduciary by virtue of his status as administrator, and that he failed to pay a valid claim, there was no issue left for trial. See id.

The Court denied Patricia's summary judgment motion at a hearing held on May 2, 2017. See Order Denying Mot., ECF No. 24. At that hearing, the Court explained that the Surrogate's Court's decision made no finding with respect to, nor even made mention of, the Debtor's state of mind in failing to pay the claim, and that therefore the decision alone did not entitle Patricia to summary judgment in this action. See Ke v. Wang, 628 Fed. App'x 10, 12 (2d Cir. 2015). This Court made no further findings at that time.

The matter proceeded to trial, which was held over the course of a single day. See July 14 Tr., ECF No. 31. The parties stipulated that all exhibits would be admitted into evidence. Id. at 13:10-12. Patricia's case in chief consisted solely of her own testimony. See id. at 14-38. The Debtor's case was comprised of his own testimony, as well as that of Howard Larsen's step-daughter, Renee Harris, and the Debtor's ex-girlfriend, Ronniesha Thomas. See id. at 38-79. The parties submitted post-trial briefs in lieu of closing argument, see id. at 80; ECF Nos. 27-30, and the matter was subsequently marked submitted.

Facts

Howard Larsen, the Debtor's father and Patricia's brother, died intestate on May 8, 2006. Pl.'s Ex. A; July 14 Tr. 62, ECF No. 31. According to the Debtor's testimony, on that same day, Patricia began making funeral and burial arrangements. See July 14 Tr. 38, ECF No. 31. By May 10, 2006, she had purchased two spaces in a crypt in Woodlawn Cemetery—one for her brother, Howard, and the other for her and Howard's mother, Beulah Larsen. See Def.'s Ex. A; July 14 Tr. 17, 23, ECF No. 31. The price of the two spaces totaled $18,485. Def.'s Ex. A. Patricia also paid $8,559.10 to Benta's Funeral Home for Howard's funeral expenses. See Pl.'s Ex. B.

In the days following Howard's death, the Debtor and Patricia had at least two conversations about how his funeral and burial would be handled and paid for. See July 14 Tr. 38-42, ECF No. 31. The first, on May 10, 2006, the same day that Patricia bought the two crypt spaces, occurred over a car speakerphone while the Debtor and his then-girlfriend, Thomas, were driving between Connecticut, where the Debtor lived at the time, and New York, the location of a co-op that his father owned. See July 14 Tr. 39, 52, 76-77, ECF No. 31. According to the Debtor, during this conversation he expressed an intent to have his father cremated; Patricia, on the other hand, advocated for the use of the crypt space. See id. at 42-43, 45. The second conversation occurred the next day when the Debtor and Harris, his step-sister, met Patricia at the funeral home. See id. at 41. The Debtor left each of these conversations under the impression that Patricia would be paying for "everything," and that she did not want to be reimbursed. See id. at 41-42. Thomas, who overheard the first conversation in the car, testified that she was left with a similar impression.² See id. at 77.

On May 18, 2006, the Debtor executed and filed a petition for letters of administration of his father's estate. Pl.'s Ex. A; see July 14 Tr. 50. On the petition, the Debtor's address appears as 62 Haddad Road, Waterbury, Connecticut. Pl.'s Ex. A, at 2. On the final page, just above the Debtor's signature, is an "Oath of Administrator," which reads,

I am over eighteen (18) years of age and A CITIZEN OF THE UNITED STATES; and I will well, faithfully and honestly discharge the duties of Administrator of the goods, chattels and credits of said decedent according to law. I am not ineligible to receive letters and will duly account for all moneys and other property that will come into my hands.

Id. at 6 (emphasis in original). The Debtor is not an attorney, and was not represented in any matter before the Surrogate's Court. See id. at 60. When asked about this petition, the Debtor explained that he did not fully understand "what Surrogate Court was," and that he did not read the forms, but simply followed the instructions provided by the Surrogate's Court clerk. July 14 Tr. 51, 60. The Surrogate's Court granted the petition on May 25, 2006. Id. at 1.

On June 16, 2006, Patricia executed a verified claim (the "Claim") against the decedent's estate in the amount of $27,697.10, for, as the Claim read, "[p]ayment of funeral, burial costs, church fees, acknowledgement cards and stamps. His Mom's money for bills. (Beulah Larsen)." Pl.'s Ex. C. The Claim was sent to the Debtor by certified mail on the same date, and, according to a delivery receipt, received by the Debtor on June 20, 2006. See id. The Debtor testified that he had not seen the Claim, and that the signature on the delivery receipt was not his. See July 14 Tr. 51, ECF No. 31.

The Debtor did not pay the Claim in the months that followed. However, on or around January 22, 2007, he executed and filed with the Surrogate's Court a petition to amend the letters of administration. See Pl.'s Ex. D. The petition to amend, on which the Debtor again listed his address as 62 Haddad Road in Connecticut, reflects an increased valuation of Howard's co-op.Id. Around this time, though exactly when was never disclosed, the Debtor sold the co-op and placed the sale proceeds into a bank account that he opened for the estate. See July 14 Tr. 18-19, 48-49, ECF No. 31.

Around May of 2007, Patricia filed an application with the Surrogate's Court to compel the account of Howard's estate. See Pl.'s Ex. D; Pl.'s Ex. E. The application was granted at a hearing on May 1, 2007, and on May 22, 2007, the Surrogate's Court issued an order directing the Debtor to file an "account of his proceedings as administrator of said estate, together with a petition for its judicial settlement." Pl.'s Ex. D. The Debtor never filed an accounting, and claimed that he was unaware that he was required to do so. See July 14 Tr. 59-60, ECF No. 31.

On or around May 29, 2007, the Debtor wrote a letter to Stuart Salles, Patricia's lawyer at the time, offering to pay $18,145 to Patricia as reimbursement for funeral and burial costs. See Pl.'s Ex. C; Def.'s Ex. B. The letter contests having to reimburse the cost of a crypt space for Patricia's mother, noting that repayment for that expense "was never discussed." Pl.'s Ex. C; Def.'s Ex. B. The letter also accuses Patricia of taking $5,000 in traveler's checks from Howard's co-op. See Pl.'s Ex. C; Def.'s Ex. B. The Debtor testified that he wrote this letter in response to one from Salles requesting reimbursement. See July 14 Tr. 45, ECF No. 31.

One month after writing this letter, the Debtor moved from 62 Haddad Road to 383 Bunker Hill Avenue in Connecticut. See id. at 53-54. He purchased the Bunker Hill property with "money from [his] father's estate," and lived there for approximately the next two years. Id. at 54-55. The Debtor never informed the Surrogate's Court of his move, and claimed that he was...