Parker v. Martin (In re Parker)

653 B.R. 765

IN RE: Deborah Faye PARKER, Debtor.

Deborah Faye PARKER, Defendant-Appellant, v. Dan Gregory MARTIN, Plaintiff-Appellee.

Case No. 1:22-cv-1388

United States District Court, E.D. Virginia, Alexandria Division

September 11, 2023

Robert Sergio Brandt, The Law Office of Robert S. Brandt, Alexandria, VA, for Appellant.

Brian Halls Richardson, Lori Dawn Thompson, Spilman Thomas & Battle, PLLC, Roanoke, VA, for Appellee.

MEMORANDUM OPINION

T. S. Ellis, III, United States District Judge

At issue in this bankruptcy appeal is whether the bankruptcy court erred in concluding that Plaintiff-Appellee Dan Gregory Martin's $150,000 state court unjust enrichment judgment against Defendant-Appellant Deborah Faye Parker is non-dischargeable in bankruptcy as a "debt . . . for . . . embezzlement." 11 U.S.C. § 523(a)(4). Parker contends on appeal that there is no record evidence to support the bankruptcy court's conclusion that Parker embezzled the money underlying Martin's judgment. The matter has been fully briefed and argued, and it is now ripe for disposition.

I.

The following facts and proceedings are derived from the record in this case:

• Defendant-Appellant Deborah Faye Parker resides in Stafford County, Virginia. Parker is the daughter of Morton H. Poindexter, Jr.

• Plaintiff-Appellee Dan Gregory Martin resides in Roanoke, Virginia. Martin is the son of Peggy L. Martin.

• Parker and Martin are not related by blood, but their parents, Morton and Peggy, cohabited for many years in Roanoke County, Virginia. Morton and Peggy never married.

• On April 13, 2004, Morton and Peggy entered into a contractual agreement. Despite never marrying, Morton and Peggy chose to label their contract a Post Marital Agreement ("PMA").¹ Notwithstanding its odd title, the PMA was in substance a contract to execute mutual and reciprocal wills. The PMA required the following procedure:

• Morton and Peggy would designate each other's children as beneficiaries of their respective estates.

• Whichever of Morton and Peggy would die first would pass their entire estate to the other.

• The surviving party would not give more than $1,500 per year to that surviving party's children.

• When the surviving party thereafter passed, two thirds of the combined estate would go to Martin, and the remaining third would go to Morton's three children per stirpes. Put differently, Parker was entitled to one ninth of the combined estate.

• The same day that Morton and Peggy executed the PMA (i.e., May 13, 2004), they also executed reciprocal and irrevocable wills that implemented the PMA's terms.

• Peggy died in April 2009, and, as the PMA required, all her assets passed to Morton. After Peggy's death, Morton transferred approximately $240,000 of his financial assets to Parker (collectively referred to as the "Funds"). Specifically, Morton made the following transfers to Parker after Peggy's death:

• Morton designated Parker as the primary beneficiary of an annuity worth $111,622 that Morton held with Symetra Financial via SunTrust Investment Services. Plaintiff's Motion for Summary Judgment at 3, Martin v. Parker, No. CL-14-702 (Va. Cir. Ct. Roanoke Cty. May 8, 2019) (hereinafter "Martin v. Parker (State Action)").²

• Morton named Parker as the beneficiary of an annuity worth $25,201 that Morton held with Transamerica Life Insurance Co. Id.

• Morton named Parker and her two brothers as beneficiaries of a life insurance policy that Morton held with the Virginia Retirement System, resulting in Parker receiving $5,014.58 upon Morton's death. Id.

• Morton added Parker as a joint holder of (i) a checking account worth $69,377.25 and (ii) a certificate of deposit worth $8,012.11 that Morton held at SunTrust Bank. Morton also gave Parker a second SunTrust certificate of deposit worth $8,026.53. Id. at 4.

• Morton died in August 2013. Martin was appointed executor of Morton's estate, as Morton's will directed.

• Parker retrieved Morton's will several days before Morton's death. While Parker was "dealing with losing [her] father," Martin called Parker and "advised her" that Morton and Peggy had executed the PMA. (R.3 at 59; R.2 at 74). When Parker read through Morton's will, she discovered that Martin had been given two thirds of Morton's estate. (R.3 at 59).

• After reading Morton's will, Parker became, in her words, "confused." Id. Specifically, Parker was uncertain whether the Funds, which Morton had transferred to Parker before his death, were (i) part of Morton's estate and thus two thirds Martin's or (ii) Parker's personal property and thus entirely Parker's. Id. at 59-60.

• According to Parker's unrebutted testimony at trial, Parker then contacted her bank and said, "I've got a will and the post-marital." Id. at 60. Parker's bankers "basically said, sorry, he—he gave you—you his money when he was alive, and [Morton's inter vivos gift] supersedes [Morton's will]." Id.

• Parker thereafter had a conversation with Symetra, the issuer of the largest annuity Parker had been given. At the end of that conversation, Parker concluded that the money in the Symetra annuity was hers. Parker also called the issuer of Morton's life insurance policy to ascertain whether she was entitled to receive the benefit of that policy. After that conversation, Parker concluded that the benefit of that policy belonged to her as the named beneficiary. Finally, Parker spoke to SunTrust Bank to determine if she had lawful possession of Morton's accounts there. After that conversation, too, Parker concluded the SunTrust accounts were legally hers.

• Martin objected and told Parker that two thirds of the Funds—approximately $150,000—were rightfully his, but Parker refused to hand them over.

• Parker then collected the benefit of the annuities and policies and liquidated the three SunTrust accounts. On May 13, 2014, Martin sued Parker for his share of the Funds in the Circuit Court for Roanoke County, Virginia (the "State Court"). See Complaint, Martin v. Parker (State Action).

• Martin's lawsuit in the State Court dragged on for years. Martin's Second Amended Complaint in that suit, filed on October 2, 2017, pleaded one count of breach of contract and one count of unjust enrichment.³ Martin alleged that Morton breached the PMA when he gave Parker the Funds. Martin further alleged that, but for Morton's breach, two thirds of the Funds would have gone to Martin, and consequently, Martin alleged, Parker was liable to Martin in that amount. See Second Amended Complaint ¶¶ 22-25, Martin v. Parker (State Action). Martin also alleged that Morton's transfer to Parker was wrongful and Parker had therefore been unjustly enriched. Id. at ¶¶ 27-28.

• Importantly, Martin's Second Amended Complaint only alleged that Morton's transfers were wrongful. Martin's lawsuit did not allege that Parker's liquidation of the Funds was independently wrongful or that the Funds were the property of Morton's estate despite Morton's prior transfer. Instead, Martin alleged that Parker had reaped the fruits of Morton's breach of the PMA.

• On September 10, 2019, more than five years after Martin's lawsuit was first filed, Martin prevailed on summary judgment. Specifically, the State Court entered a judgment finding Parker liable for $151,501, Martin's damages but for Morton's breach of the PMA (the "Roanoke Judgment"). Parker noticed her appeal to the Supreme Court of Virginia on October 7, 2019, but that appeal was never prosecuted, and Parker's notice of appeal expired on March 1, 2021. See Expired Notice of Appeal, Martin v. Parker (State Action). Parker has never made any payment to Martin on the judgment against her.

• Parker filed for Chapter 7 bankruptcy on December 24, 2021. (R.3 at 53, 110). On May 16, 2022, Martin filed a claim in Parker's bankruptcy in the amount of the Roanoke Judgment, plus interest. See Claim 3-1, In re Parker, No. 21-12073 (Bankr. E.D. Va.).

• Seeking to collect on the Roanoke Judgment in full, Martin initiated an adversary proceeding in Parker's bankruptcy on March 28, 2022. (R.1 at 9). Martin argued that the judgment (i.e., a debt that Parker owed to Martin) was not dischargeable in bankruptcy because (i) Parker's debt was incurred by fraudulent misrepresentations or actual fraud; (ii) Parker's debt was the result of her fraud or defalcation, embezzlement, or larceny; and/or (iii) Parker's debt was for willful and malicious injury. See 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6).

• The adversary matter proceeded through discovery and eventually came before the bank-ruptcy court for a bench trial on November 22, 2022. At trial, Parker took the stand and testified that, after speaking to her bankers, she concluded that the Funds were legally hers.⁴

• After trial, the bankruptcy court issued Findings of Fact and Conclusions of Law. Record on Appeal, Vol. 2, at 72 (Dkt. 3-3) (hereinafter "R.2"). The bankruptcy court found that Parker liquidated the Funds after she was advised by her financial institutions that she could do so "because she was a joint account holder on each of [her father's] accounts." (R.2 at 75). In the bankruptcy court's view, "[t]here was no evidence presented . . . that any of the financial institutions were aware of the contents" of Morton's will or of the PMA. Id.

• As a matter of law, the bankruptcy court found for Parker on every count of Martin's complaint but one.⁵ Specifically, the bankruptcy court found for Martin on Count II of his complaint by holding that the Roanoke Judgment constituted a non-dischargeable "debt . . . for . . . embezzlement." 11 U.S.C. § 523(a). The bankruptcy court defined "embezzlement" as "the fraudulent appropriation of property by a person to whom such property has been entrusted" and noted that embezzlement required "a showing of wrongful intent." (R.2 at 81). The bankruptcy court then found that Parker "came into possession of the funds lawfully, from the financial institutions, as a joint account holder," id. at 84, and then embezzled them when she "refused to turn

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