Ponce v. Csigi (In re Csigi)

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In re: MARYLIN FELIPE CSIGI, Debtor.

VILLA PONCE, TRUSTEE OF THE FILOMENA D. FELIPE TRUST, DATED JANUARY 25, 2014, Plaintiff, v. MARYLIN FELIPE CSIGI, Defendant.

No. 21-00222

Adv. Pro. No. 21-90012

United States Bankruptcy Court, D. Hawaii

December 9, 2022

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON NONDISCHARGEABILITY CLAIMS

Robert J. Faris, United States Bankruptcy Judge.

Plaintiff Villia Ponce and defendant Marylin Felipe Csigi are sisters Marylin^[1] was the trustee of her mother's trust. A state court ruled that Marylin breached her fiduciary duties as trustee and misappropriated trust assets, removed Marylin as trustee, appointed Villia as successor trustee and ruled that the amount for which Marylin would be surcharged would be decided after a trial. Marlin filed this bankruptcy case before the state court held the trial. Villia now asks this court to determine the amount of Marylin's liability to the trust and to rule that the debt is not dischargeable in bankruptcy.

The trial in this adversary proceeding took place on November 1 2, 4, and 8, 2022. Mark M. Murakami and Nicholas K. Ernst represented Villia and Ofir Raviv and Frank Cioffi represented Marylin.

I. FINDINGS OF FACT

A. The Parties

Filomena D. Felipe ("Mother") was born on November 28, 1923. She had eleven children with her husband (who predeceased her). Her children are Corazon, Norma, Dionisio, Lolita, Melita, Remigio, Villia, Marylin, Andrea, Roger, and Imelda.

To say that Villia, Marylin, and their siblings have a dysfunctional relationship would be a gross understatement. Their loathing for each other was obvious at trial and tainted every witness' credibility. Most of the witnesses insisted on airing grievances against one another that have nothing to do with the legal issues presented in this case.

B. Mother's Initial Care and Estate Plan

Mother suffered a stroke in 2005. She became wheelchair-bound and required assistance with most activities of daily life. Despite her condition, she continued to live in her own home in Kailua for several years under the care of her son Remigio.

In March 2013, Marylin and some of her siblings decided that Remigio was not caring for Mother properly. Marylin and her cousin's wife then removed Mother from Mother's Kailua home. Until the end of the year, Mother spent alternate months in the homes of Melita and Marylin. Around January 2014, Mother moved into Marylin's house and stayed there for the rest of her life.

Marylin provided excellent care for Mother's physical and mental well-being. Mother lived a long life and was healthy considering her age and disability. Providing this care imposed a significant physical, psychological, and (for a time) financial burden on Marylin and her husband and children.

When Mother moved into Marylin's house, Mother's only assets were her Kailua house and a small amount of money in a bank account. Her income consisted of a modest Social Security benefit and some rents from her house.^[2]

On January 25, 2014, Mother signed a set of estate planning documents. These included a revocable living trust and instruments transferring her Kailua house and other assets into the trust. She named herself "primary trustee" of the trust and Marylin and Corazon co-successor trustees of the trust. She declared that "[m]y successor trustee(s) are to serve without compensation, unless compensation is agreed upon by all of the remainder beneficiaries of this trust. However, all expenses of any type incurred by my successor trustee(s) in carrying out duties under this trust shall be paid for from the trust." She also designated herself as the "primary beneficiary" of the trust and provided that "[a]s long as I shall live, I will have the exclusive right to the use and benefit of the income and the assets of this trust." She authorized the successor trustee(s) "to make gifts from this trust to third parties or to the successor trustee(s) as individual(s) as determined in the sole discretion of the successor trustee(s)," provided that the gifts complied with certain tax laws.

Only a few months later, on May 14, 2014, Mother amended her estate plan. She resigned as primary trustee of her trust and designated Marylin as the sole successor trustee, with Corazon as alternate successor trustee in case Marylin was unable or unwilling to serve. All other provisions of the trust remained the same.

C. Mother's Mental Condition in 2014

By the spring of 2014, Mother's mental capabilities had begun to decline.

Some of the notes kept by her primary care physician, Dr. Marina Badua, say that Mother suffered from senile dementia and confusion as early as September 2013. But other notes taken by Dr. Badua during this period do not mention dementia. And Dr. Badua also wrote a series of letters that give an inconsistent account of Mother's mental condition. On January 21, 2014, Dr. Badua provided a letter detailing that Mother "now is 90 years old and becoming forgetful, confused, and disoriented at this time and I feel that she is no longer mentally competent to manage her personal and financial affairs." Only two days later (and two days before Mother signed the January 2014 estate planning documents), Marylin brought Mother to Dr. Badua who then provided a letter saying that Mother "is oriented to time, place and person." A few months later, on May 8, 2014 (shortly before Mother changed her estate plan), Dr. Badua wrote that Mother "is oriented to time, place and person and found to be mentally competent to make decisions on her own." Dr. Badua's later notes from 2015, 2017, and 2018, however, consistently indicate that Mother suffered from dementia.

Dr. Badua's notes in the medical record are more reliable than her letters. Dr. Badua probably wrote the second and third letters at the request or one or more of the siblings for the specific purpose of validating the estate planning documents that Mother signed shortly after Dr. Badua wrote those letters. In contrast, Dr. Badua probably wrote the notes in the medical record for her own use in caring for Mother, and not at anyone else's request or suggestion.

Mother's estate planning documents, including the amendment, were prepared by an experienced attorney who spoke fluent Ilocano and met with Mother privately. (Ilocano was Mother's native language; her English language skills were limited.) He found her to be competent and wrote a letter to this effect to Melita, the holder of Mother's previous power of attorney.

Considering all of the evidence and the surrounding circumstances, I find that, during the spring of 2014, Mother's mental condition had begun to deteriorate but she was able to make rational decisions on her own behalf.After 2014, Mother's mental condition continued to deteriorate. Marylin knew of this decline; she spent nearly every waking hour with Mother and was attentive to her needs, so she could not have missed the signs of Mother's decline. Mother and Marylin knew that Mother was completely dependent on Marylin for care, and that this knowledge combined with Mother's decreasing mental faculties created a risk that Marylin could exercise undue influence over Mother.

D. Marylin's Knowledge of her Role and Duties as Trustee

Marylin knew that Mother had executed an estate plan in January 2014 and amended it in May 2014. Marylin drove Mother to the attorney's office for the appointments and knew their purpose. Further, Marylin probably asked Dr. Badua to write the two letters about Mother's mental state in order to cement the validity of the January 2014 estate plan and the May 2014 amendment.

Marylin may not initially have known all of the contents of the trust and other documents, because the attorney met privately with Mother and did not talk to Marylin about the estate plan at the time. There can be no dispute, though, that Marylin knew and accepted that she was the trustee of the trust. In 2014, she (in her capacity as trustee of Mother's trust) sued her brother Remigio to evict him from Mother's Kailua home. The court entered a writ of possession on October 3, 2014, and a money judgment in favor of the trust and against Remigio on November 20, 2014. The court documents make it plain that Marylin was acting as trustee of the trust.

Marylin insists that she did not know what the trust agreement provided and did not know the duties of a trustee. She said that she thought the trust was like a "POA," or power of attorney. Marylin never asked anyone for a copy of the trust and never attempted to learn her duties as trustee even though she knew she was the trustee.

E. Sale of Mother's Home and Marylin's Use of the Proceeds

Marylin and most of her siblings eventually agreed that Mother's house should be sold. The sale closed on April 8, 2016. Acting in her capacity as trustee of Mother's trust, Marylin signed the closing documents and received the net proceeds of $873,739.00. Based on the escrow officer's advice, Marylin opened a bank account for the trust and deposited the sale proceeds in it. She spent these funds in the following ways:

1. Payment of Living Expenses for Mother and Marylin's Family.

Before the sale of Mother's house closed, Marylin paid Mother's living expenses with a combination of Mother's Social Security benefits, the personal funds of Marylin and her husband, and perhaps rental proceeds from Mother's house (although one of her sisters may have received and kept some or all of the rental proceeds).

After the sale closed, Marylin used some of the proceeds to pay daily living expenses for Mother, Marylin, and Marylin's husband and children, and to reimburse herself for such expenses that Marylin had paid out of her own pocket before the sale closed. It is impossible to...