Donham v. Walters

1 The Debtor filed a Chapter 13 case. Debts of the type described in 11 U.S.C. §
523(a)(6) (for willful and malicious injury) are not excepted from a Chapter 13 discharge
received on the completion of plan payments. § 1328(a)(2). Debts for “restitution or damages,
awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor
that caused personal injury to an individual” are excepted from a Chapter 13 discharge under §
1328(a)(4), but this cause of action has not been pled by Ms. Donham. Although it is possible
that the Debtor may seek a hardship discharge under § 1328(b), which would make § 523(a)(6)
THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
KENNETH EUGENE WALTERS, SR.,
Debtor.
___________________________________
SANDRA M. DONHAM,
Plaintiff,
v.
KENNETH EUGENE WALTERS, SR.,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 10-1356
Chapter 13
Adv. Proc. No. 10-93
MEMORANDUM OPINION
Sandra M. Donham seeks summary judgment on her adversary complaint to except a
monetary, state court judgment from the anticipated Chapter 13 discharge of Kenneth Eugene
Walters, Sr. (the “Debtor”), pursuant to 11 U.S.C. §§ 523(a)(2)(A), (4) and (6), based on the
application of res judicata.
The court will sua sponte dismiss Ms. Donham’s cause of action under § 523(a)(6),1 and, for
Dated: Monday, June 06, 2011 9:42:22 AM
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 1 of 12

applicable to this Chapter 13 case, no such hardship discharge is contemplated at this time, and
under Fed. R. Bankr. P. 4007(d), Ms. Donham would have 30 days notice to file a complaint
under 11 U.S.C. § 523(a)(6) in the event the Debtor should request hardship discharge. Thus,
the court will sua sponte dismiss Ms. Donham’s cause of action under § 523(a)(6).
-2-
the reasons stated herein, deny entry of summary judgment on her causes of action under §§
523(a)(2)(A) and (4).
I. STANDARD OF REVIEW
Summary judgment is appropriate when the matters presented to the court “show that there
is no genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056; Celotex v. Catrett, 477 U.S. 317, 322
(1986). The party moving for summary judgment has the initial burden of proving that there is no
genuine issue as to any material fact. Adickes v. S. H. Kress & Co., 398 U.S. 144, 161 (1970). Once
the moving party has met this initial burden of proof, the non-moving party must set forth specific
facts sufficient to raise a genuine issue for trial and may not rest on its pleadings or mere assertions
of disputed facts to defeat the motion. Matsushita Electric Industrial Co., Ltd., v. Zenith Radio
Corp., 475 U.S. 574, 586-87 (1986) (stating that the party opposing the motion “must do more than
simply show that there is some metaphysical doubt as to the material facts”). The mere existence
of a scintilla of evidence in support of the opposing party’s position will not be sufficient to forestall
summary judgment, but “the judge’s function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). In ruling on a motion for summary judgment, “the
evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his
favor.” Id. at 255. A fact is not “genuinely disputed” unless the factual conflict between the parties
requires a trial of the case for resolution. Finley v. Giacobbe, 79 F.3d 1285, 1291 (2d Cir. 1996) (“If
there is any evidence in the record from which a jury could draw a reasonable inference in favor of
the non-moving party on a material fact, this Court will find summary judgment is improper.”).
II. BACKGROUND
The Debtor and Ms. Donham, brother and sister, were co-attorneys in fact for their mother,
Verda I. McCombs, who died on October 6, 2006. The Debtor was also executor of her death estate.
On May 28, 2008, Ms. Donham filed an amended complaint in the Circuit Court of Marion County,
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 2 of 12

2 Ms. Donham’s demand was for repayment of $36,182.93, which represented one-half of
the amount of the alleged loans.
3 On June 29, 2010, the Debtor filed his Chapter 13 bankruptcy case. In his proposed
Chapter 13 plan, the Debtor proposes to sell several parcels of real property and use the proceeds
to pay the full amount of Ms. Donham’s judgment lien. As of March 2011, the Debtor had sold
some of that property and has distributed $45,594.67 in sale proceeds to Ms. Donham.
-3-
West Virginia, alleging that the Debtor mismanaged the assets of Ms. McCombs, liquidated her
assets without a valid reason, converted her assets to his own use, violated his fiduciary duties, failed
to provide an accounting, and failed to fully repay loans made to him by Ms. McCombs. 	Ms.
Donham requested an accounting, the repayment of $72,365.86 in loans made by Ms. McCombs to
the Debtor,2 punitive damages as a result of the Debtor’s breach of his fiduciary duties, costs,
expenses, and attorney’s fees.
On January 14, 2009, the Circuit Court of Marion County held a jury trial on Ms. Donham’s
amended complaint. On February 2, 2009, the court entered its Judgment Order reciting that, after
the issues were tried and the Court instructed the jury on the applicable law, the jury rendered a
verdict for Ms. Donham in the amount of $100,000, comprised of $85,000 in compensatory damages
and $15,000 in punitive damages. No specific findings or explanation accompanied the jury verdict,
and the verdict did not separate the Debtor’s liability based on his actions individually, as attorney
in fact for Ms. McCombs, or as executor of Ms. McCombs’s estate.3
III. DISCUSSION
Ms. Donham contends that the general jury verdict awarding her damages is res judicata
regarding all issues of material fact regarding her claim under 11 U.S.C. § 523(a)(2)(A) that the
Debtor obtained money, property or services by false pretenses, false representation, or actual fraud,
and to her claim under § 523(a)(4) that the Debtor committed fraud or defalcation while acting in
a fiduciary capacity.
The “[p]reclusion doctrine encompasses two strands: res judicata and collateral estoppel. Res
judicata, or claim preclusion, bars the relitigation of any claims that were or could have been raised
in a prior proceeding between the same parties.” Sartin v. Macik, 535 F.3d 284, 287 (4th Cir. 2008).
Collateral estoppel or issue preclusion, in contrast, bars litigation of an issue of fact or law actually
litigated and resolved in a valid court determination essential to the prior judgment. 	Taylor v.
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 3 of 12

-4-
Sturgell, 553 U.S. 880, 892 (2008).
In Ms. Donham’s motion for summary judgment she argues that her state court judgment
is “res judicata on all issues of material fact”; thus, the motion is unclear as to whether she is
asserting claim or issue preclusion. As stated by Taylor, however, in a broad sense, the term “res
judicata” can encompass both doctrines. Id. (“The preclusive effect of a judgment is defined by
claim preclusion and issue preclusion, which are collectively referred to as ‘res judicata.’”). The
court will therefore address Ms. Donham’s motion for summary judgment under both preclusion
doctrines.
A. 	Claim Preclusion
Ms. Donham contends that the judgment entered on the causes of action alleged in her
Marion County amended complaint conclusively establishes her entitlement to summary judgment
on her bankruptcy causes of action under 11 U.S.C. §§ 523(a)(2)(A) and (4).
The Full Faith and Credit Act, 28 U.S.C. § 1738, “requires federal courts to ‘give the same
preclusive effect to a state-court judgment as another court of that State would give.’” Exxon Mobil
Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 293 (2005) (citation omitted); see also Duncan v.
Duncan (In re Duncan), 448 F.3d 725, 728 (4 th Cir. 2006) (same). Before a West Virginia court
gives preclusive effect to claims adjudicated by another court, three elements must be satisfied:
First, there must have been a final adjudication on the merits in the prior action by
a court having jurisdiction of the proceedings. Second, the two actions must involve
either the same parties or persons in privity with those same parties. Third, the cause
of action identified for resolution in the subsequent proceeding either must be
identical to the cause of action determined in the prior action or must be such that it
could have been resolved, had it been presented, in the prior action.
Syllabus Pt. 4, Blake v. Charleston Area Med. Ctr., 498 S.E.2d 41 (W. Va. 1997); see also Porter
v. McPherson, 479 S.E.2d 668, 676 (W. Va. 1996) (“‘Under the doctrine of res judicata, a judgment
on the merits in a prior suit bars a second suit involving the same parties or their privies based on
the same cause of action.’”) (quoting Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 326 n.5
(1979)).
Here, the two causes of action alleged by Ms. Donham under 11 U.S.C. §§ 523(a)(2)(A) and
(4) to except debts from a bankruptcy discharge were not pled in her amended complaint in the
Circuit Court of Marion County. 	Indeed, causes of action to except debts from a bankruptcy
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 4 of 12

-5-
discharge cannot be pled until a debtor files a bankruptcy case. The Debtor did not file bankruptcy
until after the Marion County jury rendered its verdict.
Consequently, the doctrine of claim preclusion does not apply to Ms. Donham’s adversary
complaint to except her Marion County judgment from the Debtor’s anticipated discharge under 11
U.S.C. §§ 523(a)(2)(A) or (4). See, e.g., Brown v. Felsen, 442 U.S. 127, 138 (1979) (“[T]he mere
fact that a conscientious creditor has previously reduced his claim to judgment should not bar further
inquiry into the true nature of the debt.”); Pahlavi v. Ansari (In re Ansari), 113 F.3d 17, 23 (4th Cir.
1997) (“Pahlavi’s claim in the bankruptcy court – that Ansari’s debt to him is nondischargeable –
is certainly different from Pahlavi’s claim in state court – that Ansari defrauded Pahlavi and
breached fiduciary duties owed to Pahlavi.”); 	Ngo v. Webb (In re Webb), 08-743, 2009 Bankr.
LEXIS 591 at *7 (Bankr. N.D.W. Va. March 31, 2009) (stating that “[s]tate-court judgments do not
have claim preclusive effects in the context of a § 523 action.”).
B. 	Issue Preclusion
Ms. Donham asserts that the general verdict rendered by the Marion County jury on her
amended complaint conclusively establishes all issues of material fact necessary to grant her relief
from the Debtor’s discharge under 11 U.S.C. §§ 523(a)(2)(A) or (4).
Issue preclusion “is designed to foreclose relitigation of issues in a second suit which have
actually been litigated in the earlier suit even though there may be a difference in the cause of action
between the parties of the first and second suit.” Syllabus Pt. 2, Conley v. Spillers, 301 S.E.2d 216
(W. Va. 1983). Like claim preclusion, issue preclusion also requires “that the first judgment be
rendered on the merits and be a final judgment by a court having competent jurisdiction over the
subject matter and the parties.” Id. at Syllabus Pt. 3. More specifically, an issue is precluded from
relitigation when: “(1) The issue previously decided is identical to the one presented in the action
in question; (2) there is a final adjudication on the merits of the prior action; (3) the party against
whom the doctrine is invoked was a party or in privity with a party to a prior action; and (4) the
party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the
prior action.” Syllabus Pt. 1, State v. Miller, 459 S.E.2d 114 (W. Va. 1995); see also Wilson v.
Wilson (In re Wilson), Nos. 06-5, 06-34, 2007 Bankr. LEXIS 1866 at *10 (Bankr. N.D.W. Va. June
6, 2007) (same).
Here, a final adjudication exists as to the merits of Ms. Donham’s Marion County action, the
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 5 of 12

-6-
Debtor was the party defendant in that action, and the Debtor had a full and fair opportunity to
litigate the merits of Ms. Donham’s amended complaint in the Marion County action inasmuch as
he was able, by counsel, to defend Ms. Donham’s cause of action before a jury trial on the merits
of Ms. Donham’s amended complaint. Thus, the only factor remaining is whether any of the issues
previously decided by the jury in the Marion County action are identical to the issues presented in
Ms. Donham’s complaint to except the amount of the Marion County judgment from the Debtor’s
discharge.
1. 	Section 523(a)(2)(A) – False Pretenses, False Representations or Actual Fraud
Ms. Donham states that the Marion County judgement conclusively establishes that: (1) the
Debtor obtained money and property from his mother by diverting assets to himself while acting in
a fiduciary capacity; (2) the Debtor made misleading, misrepresenting and false statements to Ms.
Donham to prevent her from exercising her powers as co-attorney in fact; (3) the Debtor never
complied with Ms. Donham’s request for an accounting until after she sued him in Marion County;
and (4) the Marion County jury heard the evidence, was instructed as to the applicable law, and
rendered a verdict against the Debtor.
Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge any debt “for money
. . . to the extent obtained, by – (A) false pretenses, a false representation, or actual fraud . . . .” Not
all debts incurred as a result of fraud fall within this exception to discharge; rather, this exception
only includes those “debts in which the debtor used fraudulent means to obtain money . . . .”
Nunnery v. Rountree (In re Rountree), 478 F.3d 215, 219 (4th Cir. 2007). However, “[o]nce it is
established that specific money or property has been obtained by fraud . . . ‘any debt’ arising
therefrom is excepted from discharge,” id. at 222 (citing Cohen v. De La Cruz, 523 U.S. 213, 218,
(1998)), “including . . . attorney’s fees, and other relief that may exceed the value obtained by the
debtor.” Cohen, 523 U.S. at 223. The intent of § 523(a)(2) is “to protect creditors who were tricked
by debtors into loaning them money or giving them property, services, or credit through fraudulent
means.” Rountree, 478 F.3d at 219-20.
For purposes of making a non-dischargeability determination, the terms “false pretenses,”
“false representation,” and “actual fraud” are to be interpreted according to the common
understanding of those terms at the time § 523(a)(2)(A) was enacted. E.g., Field v. Mans, 516 U.S.
59, 69 (1995) (“The operative terms in § 523(a)(2)(A) . . . carry the acquired meaning of terms of
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 6 of 12

-7-
art. They are common-law terms, and . . . they imply elements that the common law has defined
them to include.”). What Congress meant when it used the terms can be derived from the generally
shared common law, as set forth in Restatement (Second) of Torts (1976), which was published
shortly before Congress passed the 1978 Bankruptcy Code. Field, 516 U.S. at 70-73. See also
Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 134 (4th Cir. 1999) (“[W]e will follow the
Supreme Court’s lead and look to the Restatement to determine the elements required to prove that
claim.”). 	To define “actual fraud” the Supreme Court looked to 	the definition of “fraudulent
misrepresentation” under the Restatement, which defines the tort as:
One who fraudulently makes a misrepresentation of fact, opinion, intention, or law
for the purpose of inducing another to act or to refrain from action in reliance upon
it, is subject to liability to the other in deceit for pecuniary loss caused to him by his
justifiable reliance upon the misrepresentation.
Restatement (Second) of Torts § 525 (1976).
Thus, under the Restatement, “a plaintiff must prove four elements: (1) a fraudulent
misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the
plaintiff; and (4) the plaintiff's justifiable reliance on the misrepresentation.” Biondo, 180 F.3d at
134. 	Regarding a debtor’s misstatement of intention, it is only “fraudulent if he does not have that
intention at the time he makes the representation.” Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st
Cir. 1997) (quoting Restatement (Second) of Torts § 530(1) (1976)).
In this case, no specific findings of fact or conclusions of law were entered by the Circuit
Court of Marion County; rather, the jury entered a verdict in favor of Ms. Donham on her amended
complaint. The causes of action alleged in the amended complaint were not specifically enumerated,
but the amended complaint contained allegations that the Debtor: mismanaged the funds of Ms.
McCombs, liquidated her assets without reason, converted her property, violated his fiduciary duties,
failed to provide Ms. Donham with an accounting, and did not fully repay loans.
Ms. Donham also included portions from a transcript of a hearing before the Circuit Court
of Marion County. In the transcript, the Debtor testified about a 1997 loan for $25,000, stating that
he remembered paying Ms. McCombs back for several months, and then Ms. McCombs told him
that he need not bother because he took care of her all the time. For a $30,000 loan made in 2000,
the loan’s duration was until such time as the Debtor could sell a home he was building. The Debtor
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 7 of 12

-8-
stated that he did not remember the home he was working on in 2000 and did not keep any records
of the loan. For a $9,000 loan made in 1986, the Debtor stated that Ms. McCombs later told him that
he did not need to pay her back.
Importantly, the Marion County amended complaint did not contain any allegation that the
Debtor made a fraudulent misrepresentation, and no similar finding was made by the jury. The
mismanagement of Ms. McCombs funds, the liquidation of her assets without reason, the conversion
of her property, the violation of the Debtor’s fiduciary duties, the failure to provide Ms. Donham
with an accounting, and the non-repayment of loans could all be accomplished without the Debtor
fraudulently misrepresenting his intention at the time he undertook the wrongful acts. Moreover,
no indication exists in the record on summary judgment regarding Ms. McCombs or Ms. Donham’s
justifiable reliance on the purported fraudulent misrepresentations of the Debtor.
Accordingly, based on the record on summary judgment, the court cannot conclude that the
Marion 	County 	judgment 	conclusively 	establishes 	that 	the 	Debtor 	made 	a 	fraudulent
misrepresentation that induced either Ms. McCombs or Ms. Donham to act or refrain from acting,
that caused harm to Ms. McCombs or Ms. Donham, or that Ms. McCombs or Ms. Donham
justifiably relied on the alleged fraudulent misrepresentation.
2. 	Section 523(a)(4) – Fraud or Defalcation While Acting in a Fiduciary Capacity
Ms. Donham asserts that the Debtor was acting in a fiduciary capacity as an attorney in fact
for Ms. McCombs and executor of Ms. McCombs’s estate, and that his mismanagement of Ms.
McCombs’s funds, liquidation of her assets without reason, conversion of her property, violation
of his fiduciary duties, failure to provide Ms. Donham with an accounting, and failure to fully repay
loans constitutes multiple defalcations.
Section 523(a)(4) excepts debts from discharge that arise out of “defalcation while acting
in a fiduciary capacity.” 11 U.S.C. § 523(a)(4). 	In Republic of Rwanda v. Uwimana (In re
Uwimana), 274 F.3d 806 (4th Cir. 2001), the court defined the tort of defalcation:
Defalcation is “the failure to meet an obligation” or “a nonfraudulent default.” To
be defalcation for purposes of 11 U.S.C. § 523(a)(4), an act need not “rise to the
level of . . . ‘embezzlement’ or even ‘misappropriation.’” Thus, negligence or even
an innocent mistake which results in misappropriation or failure to account is
sufficient.
Id. at 811; see also Pahlavi, 113 F.3d at 20 (“[A] ‘defalcation’ for purposes of this statute does not
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 8 of 12

-9-
have to rise to the level of ‘fraud’ ‘embezzlement,’ or even ‘misappropriation.’”) (citation omitted).
Here, taking the allegations in Ms. Donham’s amended complaint as true, the Debtor
mismanaged the funds of Ms. McCombs, liquidated her assets without reason, converted her
property, violated his fiduciary duties, failed to provide Ms. Donham with an accounting, and did
not fully repay loans. Thus, a sufficient basis exists, based on the jury’s verdict for Ms. Donham,
that a defalcation has occurred within the meaning of 11 U.S.C. § 523(a)(4). The only issue left for
determination is whether that defalcation occurred while the Debtor was acting in a fiduciary
capacity of the type contemplated by § 523(a)(4).
The definition of “fiduciary” for purposes of § 523(a)(4) is controlled by federal common
law. Harrell v. Merchant's Express Money Order Co. (In re Harrell), No. 98-1728, 1999 U.S. App.
LEXIS 4743 at *7 (4 th Cir. March 19, 1999) (citing Miller v. J.D. Abrams, Inc. (In re Miller), 156
F.3d 598, 602 (5th Cir. 1998)). Under federal common law, the term “fiduciary” includes trustees
of express or technical trusts. Id. In an express or technical trust, “[t]he trustee's obligations must
have been imposed prior to, rather than by virtue of, any claimed misappropriation of funds . . . .”
Id. at *8.
Although the definition of “fiduciary” is controlled by federal common law, “‘the existence
of a state statute or common law doctrine imposing trust-like obligations on a party may, at least in
some circumstances, be sufficient to create a technical trust relationship for purposes of section
523(a)(4).’” Centra Bank, Inc. v. Burton (In re Burton), 416 B.R. 539, 543 (Bankr. N.D.W. Va.
2009) (quoting 4 Collier on Bankruptcy ¶ 523.10[1][d] (Alan N. Resnick & Henry J. Sommer, eds.
15th ed. rev. 2009). Thus, certain state law fiduciary relationships exist that are determined to be so
special that they fall within the meaning of “fiduciary” in § 523(a)(4) despite the absence of an
express trust or other actual, preexisting notice to the debtor that he is holding property in trust for
another. Id. These relationships have included an ambassador and the property of the ambassador's
represented country, Republic of Rwanda v. Uwimana (In re Uwimana), 274 F.3d 806 (4th Cir.
2001), a financial advisor committing fraud and found to be a fiduciary by default in a state court
judgment, Pahlavi, 113 F.3d 17, real estate agents handling closing funds, Hamby v. St. Paul
Mercury Indemnity Co., 217 F.2d 78 (4th Cir. 1954), attorneys handling client funds, Andy Warhol
Found. for Visual Arts, Inc. v. Hayes (In re Hayes), 183 F.3d 162 (2d Cir. 1999), a corporate officer
and director mishandling corporate funds, Burton, 416 B.R. at 546, and those acting under a power
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 9 of 12

4 West Virginia law does not materially differ from the law of Maryland regarding a
power of attorney. See In re Richard P., No. 34751, 2010 W. Va. LEXIS 87 at *24 (W. Va. July
9, 2010) (stating that a “power of attorney” is “‘an instrument granting someone authority to act
as agent or attorney-in-fact for the grantor.’” (quoting Blacks Law Dictionary 1290 (9th ed.
2009)); see also W. Va. Code § 39-4-1 et seq. (uniform durable power of attorney).
5 Napier v. Compton, 558 S.E.2d 593 (W. Va. 2001) (“‘A power of attorney creates an
agency and this establishes the fiduciary relationship which exists between a principal and
agent.’”) (citation omitted).
6 Frazier v. Steel & Tube Co., 132 S.E. 723, 724 (W. Va. 1926) (“‘It is conceded that, as
a general rule, a principal has the right to revoke a power of attorney at any time . . . .’”) (citation
omitted).
-10-
of attorney to an incompetent person, Ostrum v. Porter, No. 03-118, 2008 Bankr. LEXIS 109
(Bankr. N.D.W. Va. Jan. 10, 2008). As stated in Hamby, 217 F.2d at 80, the term fiduciary in §
523(a)(4) encompasses those in a common law fiduciary relationship that have been entrusted with
funds such that the relationship between the parties is more than merely debtor-creditor.
Particularly, in Ostrum, 2008 Bankr. LEXIS 109, this court defined the time at which a
person holding a power of attorney over another will be deemed a fiduciary for purposes of 11
U.S.C. § 523(a)(4). The court held that a fiduciary relationship under § 523(a)(4) is “created when
there is a “‘difference in knowledge or power between the fiduciary and principal . . . which gives
the former a position of ascendancy over the latter.’” Id. at *11 (citation omitted).
In this case, the Plaintiffs assert that the Debtor was acting in a fiduciary capacity to
Mabel because he was exercising his rights under the [power of attorney]. Under
Maryland law, a power of attorney is a "written document by which one party, as
principal appoints another as agent (attorney in fact) and confers upon the latter the
authority to perform certain specified acts or kinds of acts on behalf of the
principal." [4] . . . 	Maryland State courts have described the relationship under a
power of attorney as one that encompasses obligations of confidentiality, loyalty, and
fiduciary duties.[5]
Notably, under Maryland law, a power of attorney granted in favor of another may
be revoked at anytime.[6] Here, no evidence suggests that Mabel was incompetent to
handle her own affairs before June 1995; thus, Mabel was competent to monitor the
actions of the Debtor before that time and object if 	she thought the Debtor was
acting improperly. Although Mabel signed the [power of attorney] in May 9, 1994,
the Debtor stated that he never exercised rights given to him by the [power of
attorney] until June 1995. No evidence suggests that Mabel was unaware of the
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 10 of 12

-11-
transactions that the Debtor engaged in relating to her financial affairs before this
date. Consequently, no basis exists in this case to find that the Debtor was acting in
a "fiduciary capacity" to Mabel before June 1995, and no transaction that occurred
before this time is subject to a § 524(a)(4) cause of action.
However, by the Debtor's own admission, in June 1995, Mabel was no longer able
to care for herself on a daily basis, and the Debtor began exercising his rights under
the [power of attorney] to manage Mabel's financial affairs on the basis that Mabel
had become incompetent to perform those tasks herself. Consequently, the Debtor
enjoyed a position of ascendancy over Mabel, who had, under the power of attorney,
reposed a special confidence in the Debtor over her financial affairs. The Debtor was
in this position of ascendency from June 1995, to the appointment of his replacement
in April 1996. Accordingly, the Plaintiffs have carried both their burden of proof and
persuasion that the Debtor acted in a fiduciary capacity – as a matter of federal law
– to Mabel from June 1995 to April 1996. Transactions engaged in by the Debtor
during this period of time are subject to scrutiny under § 523(a)(4).
Id. at *12-16.
In this case, Ms. McCombs made the Debtor her attorney in fact in 1993. In her summary
judgment motion and accompanying exhibits, Ms. Donham has failed to demonstrated that Ms.
McCombs was incompetent in 1993, or at anytime thereafter, such that the Debtor occupied a
position of ascendancy over her, and thereby creating a fiduciary relationship of the type
contemplated by 11 U.S.C. § 523(a)(4).
Ms. Donham also asserts that the Debtor exercised fiduciary duties as executor of Ms.
McCombs estate. West Virginia recognizes that executors are fiduciaries. E.g., Syllabus Pt. 4, In
re Estate of Lapinsky v. Sparacino, 148 W. Va. 38, 132 S.E.2d 765 (1963) (“An executor or
administrator of the estate of a deceased person is under a duty to take custody of the estate and to
administer it in such a manner as to preserve and protect it for ultimate distribution. In the discharge
of such duty, he is held to the highest degree of good faith; and is required to exercise that degree
of care and diligence which prudent persons ordinarily exercise, under like circumstances, in their
own personal affairs.”); see also Dillon v. Dillon, 362 S.E.2d 759, 761-62 (W. Va. 1987) (holding
that a fiduciary or confidential relationship existed based on a person’s status as an executor of an
estate). Likewise, under federal common law, executors are the type of fiduciaries that § 523(a)(4)
was meant to include inasmuch as an executor is akin to a trustee of an express trust. E.g., Shephard
v. O'Quinn (In re O'Quinn), 374 B.R. 171, 179 (Bankr. M.D.N.C. 2007) (“‘The term ‘fiduciary’ as
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 11 of 12

-12-
used in section 523(a)(4) is restricted to ‘the class of fiduciaries including trustees of specific written
declarations of trust, guardians, administrators, executors or public officers . . . .’”) (citation
omitted).
Although Ms. McCombs died on October 6, 2006, the record on summary judgment does
not demonstrate what acts, if any, Debtor is alleged to have undertaken as executor after October
6, 2006 that constitute a defalcation. 	Consequently, Ms. Donham has not demonstrated that
summary judgment is appropriate on her § 523(a)(4) cause of action.
IV. CONCLUSION
For the above stated reasons, the court will enter a separate order pursuant to Fed. R. Bankr.
P. 7058 that dismisses Ms. Donham’s cause of action under 11 U.S.C. § 523(a)(6), and that denies
her motion for summary judgment.
Case 1:10-ap-00093 Doc 30 Filed 06/07/11 Entered 06/07/11 11:28:04 Desc Main
Document Page 12 of 12