Taxation & Estate Planning

Bankr.M.D.Fla: Probate judgment against former PR not dischargeable in bankruptcy

By Juan C. Antúnez

In re Kurzon, 399 B.R. 274 (Bankr.M.D.Fla. Apr 17, 2008)

When it comes to enforcing money judgments: bankruptcy is the last refuge of a scoundrel. But if the particular scoundrel you're trying to track down is a former personal representative who's been surcharged by your probate judge, you can tell him to wipe that smirk off his face because "no", not even bankruptcy will save him now.

In the linked-to order the bankruptcy court ruled that a $60,000 money judgment previously entered against a Chapter 7 debtor in his capacity as personal representative of his late aunt's probate estate was NOT subject to discharge. Here's why:

The Plaintiff, to prevail on its 11 U.S.C. Section 523(a)(4) fraud or defalcation nondischargeability count, must establish by a preponderance of the evidence: (i) the Debtor was acting in a fiduciary capacity; and (ii) while acting in a fiduciary capacity, he committed fraud or defalcation. In re Goodwin, 355 B.R. 337, 343 (Bankr.M.D.Fla.2006). The fiduciary relationship must exist at the time the act creating the debt was committed. Guerra v. Fernandez-Rocha (In re Fernandez-Rocha), 451 F.3d 813, 817 (11th Cir.2006).

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The Debtor was obligated to make distribution expeditiously to the Plaintiff, who was a beneficiary of the Will, pursuant to Florida Statute Section 733.602(1). The Probate Court found the Debtor failed to make distribution of $60,000.00 to the Plaintiff. He was removed as the Personal Representative as a result of such failing. His failure to make distribution to the Plaintiff of funds that were entrusted to him as the Personal Representative constitutes a defalcation of fiduciary duty. Fla. Stat. §§ 733.602(1), 733.608(1)(c), 733.609(1); Quaif, 4 F.3d at 955.

The Judgment is a final judgment on the merits rendered by a court of competent jurisdiction. The Judgment litigation and this adversary proceeding involve the same operative facts and the same parties. The Judgment issued by the Probate Court is binding in this proceeding pursuant to the doctrines of res judicata and collateral estoppel. The Judgment is entitled to preclusive effect and the Debtor is barred from challenging it. The Plaintiff has established the Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4).

The Plaintiff's documentary evidence, independently of the Judgment, establishes the Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4). The Debtor did not act in the best interests of the estate. He was required to keep the estate funds separate from his personal and business funds. Fla. Stat. § 733.602(1); Lahurd, 632 So.2d at 1104. He diverted all of the cash assets of the estate to his personal and business accounts, without the knowledge or the consent of the estate beneficiaries, and dissipated the funds for his own personal benefit. Such actions constitute defalcations of his fiduciary duty.

The Debtor concealed such diversion and dissipation through materially false and fraudulent accountings filed with the Probate Court. He failed to settle the estate and distribute the assets to the estate's beneficiaries and claimants. The Judgment Debt results from his improper conduct. The Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4). In re Valdes, 98 B.R. at 80.

Full post as published by Florida Probate Litigation Blog on February 28, 2009 (boomark / email).