Standing Up For What's Right

Pamela objected to the amended accounting and eventually entered into a settlement agreement with James whereby James agreed to resign as personal representative, Pamela would become successor personal representative, and she would receive a final distribution of $60,000 from the estate to be paid by Nov. 8, 2006.

We're certain that our readers won't be shocked by what happened next: James failed to comply with the settlement agreement, forcing Pamela to file an emergency petition to remove him as personal representative in December of 2006.

The court had allowed James' counsel to withdraw, and James did not appear at the hearing on that motion. The probate court entered an order granting Pamela's emergency petition. Specifically, the order found that James had breached the settlement agreement, removed him as personal representative and directed him to immediately turn over all estate assets to Pamela as successor personal representative.

The order also entered judgment in Pamela's favor against James for $60,000.

As the new personal representative, Pamela soon learned of the extent of James' damage to the estate: No estate assets remained. Pamela initiated collection actions against James, who never paid any portion of his debt to her.

And then James' final coup: In May of 2007, he filed for Chapter 7 bankruptcy protection listing Doris and Pamela as creditors of an "unknown" amount, as well as additional unsecured debt of about $12,000.

Pamela instituted proceedings in the bankruptcy court against James seeking to have the judgment debt deemed non-dischargeable due to James' fraud or defalcation while acting as a fiduciary. James and Pamela disagreed as to whether the judgment should be entitled to preclusive effect.

The bankruptcy court essentially told James: Oh no you don't!

More specifically, the court's opinion focuses on 11 U.S.C. Section 524(a)(4), which is the section providing that a discharge in bankruptcy does not discharge an individual from any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny."

The court stated that, as personal representative of Doris' estate, James was a fiduciary subject to the fiduciary standards of care under Florida law. James' dissipation, commingling, false statements to the court and failure to distribute the estate assets to a beneficiary clearly constituted a breach of those duties and thus a defalcation under bankruptcy law. Therefore, James could not get his debt to Pamela discharged by filing for bankruptcy protection.

Moreover, the bankruptcy court held that the judgment was a final order on the merits and was therefore entitled to preclusive effect pursuant to the doctrines of collateral estoppel and res judicata. In other words, James could not challenge in the bankruptcy proceedings the $60,000 judgment against him in the probate proceedings.

We doubt that Pamela is sitting on a hot stove waiting for James finally to pay her the $60,000.

But, given the fact that she has been restored to the status of judgment debtor, she will have all the rights and remedies accompanying that status. She will, for example, be able to garnish James' wages.

We hope that Pamela uses the legal system to ensure that justice, now ordered, is actually carried out.

Correction

In the Feb. 25, 2009, Wealth Watch e-letter by Anne Field, "The New Sexy," Bank of New York Mellon's total assets were incorrectly stated.

The article has been corrected online and now reads: "Case in point: Bank of New York Mellon. Total private client assets 'before all hell broke loose' were $162 billion, according to Fernandez, managing director. Although that money took a hit (Fernandez won't say by how much) total assets are now $158 billion because of the inflow of new accounts."