West Union Bank et al v. Aman et al

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
JOHN P. AMAN and VERONICA J.
AMAN,
Debtors.
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THE HUNTINGTON NATIONAL BANK,
WEST 	UNION 	BANK, 	and 	FREEDOM
BANK, INC.,
Plaintiffs,
v.
JOHN 	P. 	AMAN 	and 	VERONICA 	J.
AMAN,
Defendants.
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Case No. 11-1353
Chapter 13
Adv. Proc. No. 11-98
MEMORANDUM OPINION
The 	Huntington 	National 	Bank 	(“HNB”), 	West 	Union 	Bank, 	and 	Freedom 	Bank
(collectively “Plaintiffs”) seek summary judgment on their complaint to except $300,000 from
John P. Aman and Veronica J. Aman’s (“Debtors”) discharge under 11 U.S.C. § 523(a)(2), (4),
and (6). 	The Plaintiffs contend that grounds exist to render this debt nondischargeable because
Mr. Aman engaged in fraud, defalcation, and embezzlement over a seven-year period. 	The
Debtors oppose summary judgment on the basis that genuine issues of material fact exist. 	For
the reasons stated herein, the court will deny the Plaintiffs’ motion for summary judgment.
Dated: Thursday, September 19, 2013 5:45:47 PM
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I. STANDARD OF REVIEW
Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule
of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the
movant demonstrates “that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” 	Fed. R. Civ. P. 56(a). 	A party seeking summary
judgment must make a prima facie case by showing: first, the apparent absence of any genuine
dispute of material fact; and second, the movant’s entitlement to judgment as a matter of law on
the basis of undisputed facts. 	Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 	The
movant bears the burden of proof to establish that there is no genuine dispute of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). 	Demonstrating an absence of any genuine
dispute as to any material fact satisfies this burden. Id. at 323. Material facts are those necessary
to establish the elements of the cause of action. Anderson, 477 U.S. at 248. Thus, the existence
of a factual dispute is material — thereby precluding summary judgment — only if the disputed
fact is determinative of the outcome under applicable law. Shaw v. Stroud, 13 F.3d 791, 798 (4th
Cir. 1994). A movant is entitled to judgment as a matter of law if “the record as a whole could
not lead a rational trier of fact to find for the non-movant.” 	Williams v. Griffin, 952 F.2d 820,
823 (4th Cir. 1991) (citation omitted); see also Anderson, 477 U.S. at 248.
If the moving party shows that there is no genuine dispute of material fact, the
nonmoving party must set forth specific facts that demonstrate the existence of a genuine dispute
of fact for trial. Celotex Corp., 477 U.S. at 322-23. The court is required to view the facts and
draw reasonable inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at
798. 	However, the court’s role is not “to weigh the evidence and determine the truth of the
matter [but to] determine whether there is a need for a trial.” Anderson, 477 U.S. at 249-50. Nor
should the court make credibility determinations. 	Sosebee v. Murphy, 797 F.2d 179, 182 (4th
Cir. 1986). If no genuine issue of material fact exists, the court has a duty to prevent claims and
defenses not supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24.
II. BACKGROUND
Ms. Aman had a close relationship with her great uncle, Peter L. Olean. For a number of
years, Mr. Olean visited the Amans three to six nights per week. In 2000, Mr. Olean designated
Mr. Aman as one of his attorneys-in-fact because of his relationship with Ms. Aman. Under the
durable power of attorney, Mr. Aman had numerous powers: He had the right to, among other
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things, draw checks on, and withdraw all or part of Mr. Olean’s savings accounts; to demand, sue
for and recover for, any and all sums of money, debts, rents, royalties, accounts, insurance,
interest and dividends that became due; to sell, lease, pledge, encumber, convey, transfer, assign,
and dispose of property, and to make, execute, acknowledge, and deliver any instruments
required to consummate such transaction; to sell, assign, cash, convert or transfer any stocks,
notes, or securities; and “generally to do and perform all things necessary to carry out the
powers” provided for under the durable power of attorney. 	Soon after Mr. Olean executed the
durable power of attorney, he began noticing withdrawals from his bank accounts. Upon review
of his monthly bank statements, Mr. Olean discovered that Mr. Aman was writing checks on his
accounts. Mr. Olean told Mr. Aman to stop withdrawing funds from his accounts, but Mr. Aman
continued writing checks in Mr. Olean’s name. 	Although these unauthorized withdraws
continued for many years, Mr. Olean did not revoke his power of attorney because of his beloved
niece.
In 2001, Mr. Aman joined HNB as its senior treasury management officer. 	Sometime
during Mr. Aman’s employment with HNB, Mr. Olean loaned Mr. Aman stock certificates for
5,335 shares of Merck and 17,206 shares of Mylan Laboratories. 	Mr. Olean loaned him the
stock certificates as collateral to borrow from HNB. 	During Mr. Aman’s employment with
HNB, twelve HNB loans were taken out in Mr. Olean’s name; Mr. Olean signed three of the
loans,1 and Mr. Aman signed nine in his capacity as Mr. Olean’s power of attorney. 	At least
eight of the HNB’s loans were collateralized with Mr. Olean’s Merck and Mylan stock. 	All of
HNB’s loans were paid in full.
In 2005, Mr. Aman left HNB to join West Union Bank as its senior vice president of its
Clarksburg, West Virginia branch office. 	During the first two years there, Mr. Aman took out
twenty-nine loans in the name of Mr. Olean and signed each one as “John Aman P.O.A.” 	The
loan documents indicate that the purpose of the loans were to “pay off Huntington Bank,” “to
pay contractor,” and for the “renewal of loan.” The vast majority of the West Union Bank loans
were unsecured; the few loans that were secured were collateralized by a “Pete Dye Membership
Certificate.” 	Mr. Olean was not aware of these loans until 2009. 	All of the West Union Bank
loans were paid in full.
1 The Plaintiffs suggest that Mr. Aman may have had Mr. Olean sign a blank page and then
somehow transcribed his signature onto the three loan documents. Mr. Olean acknowledged his
signature on three of the loan documents, but could not recall ever signing the loan documents.
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On or about May 15 and May 17, 2007, Mr. Aman took out two loans in the name of Mr.
Olean from Freedom Bank in the amounts of $245,054.89 and $114,313.36 — a total of
$359,368.25. The loan documents reflect that Mr. Olean was the borrower and Mr. Aman signed
as “John Aman P.O.A.” 	The stated purpose of the loans was “debt consolidation.” 	Both loans
were collateralized by Mr. Olean’s stock: 17,208 shares of Mylan Laboratories stock and 6,335
shares of Merck stock. A few days after Mr. Aman took out these loans, Mr. Olean revoked Mr.
Aman’s power of attorney. By 2009, both of the Freedom Bank loans were in default. Freedom
Bank sold the collateral and applied the proceeds to the outstanding debt obligation; the
proceeds, however, did not satisfy the outstanding obligation. Freedom Bank notified Mr. Olean
by letter that he should contact the bank to make arrangements to pay the $55,444 deficiency.
In 2010, Mr. Olean filed a lawsuit against the Plaintiffs in the Circuit Court of Monogalia
County, West Virginia. 	He brought four causes of action against the banks: fraud, negligence,
conversion, and vicarious liability. The Plaintiffs each filed a third-party complaint against Mr.
Aman. HNB and West Union Bank’s third-party complaint asserted the same two-counts: first,
for contribution from Mr. Aman if the banks were held liable to Mr. Olean; and second, they
alleged that Mr. Aman fraudulently misrepresented his authority under his durable power of
attorney, they relied upon his misrepresentations by approving the loans, they were damaged by
having to defend Mr. Olean’s lawsuit, and any potential judgment against them was sustained as
a proximate consequence of Mr. Aman’s fraudulent misrepresentations. Freedom Bank’s third-
party complaint, without the same specificity as HNB and West Union Bank, also asserted
causes of action for fraud and contribution if Freedom Bank was held liable to Mr. Olean.
During the state court proceeding, the Plaintiffs deposed the Debtors. Mr. Aman asserted
his Fifth Amendment privilege in response to questions relating to the money he borrowed from
the Plaintiffs in his capacity as Mr. Olean’s power of attorney. Ms. Aman similarly asserted her
spousal privilege in response relating to her husband’s loans from the Plaintiffs. 	On July 27,
2011, while the state court proceeding was pending, the Debtors filed for bankruptcy relief under
Chapter 13 of the Bankruptcy Code. 	On October 7, 2011, the Plaintiffs filed this adversary
proceeding and also individually filed proofs of claim in the Debtors’ bankruptcy case. 	This
adversary proceeding was stayed to permit the resolution of the state court proceeding above.
The Plaintiffs ultimately settled with Mr. Olean for $300,000 and each obtained a default
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judgment against Mr. Aman: HNB was awarded $108,333.33; West Union Bank was awarded
$108,333.34; and Freedom Bank was awarded $83,333.33.2
On February 26, 2013, this court held a pretrial conference and subsequently entered a
scheduling order whereby the parties were provided with sixty days for discovery. 	The court
held another pretrial hearing on June 10, 2013, where the parties indicated that discovery was
complete and they were ready to file dispositive motions. 	The motion for summary judgment
before the court relies on four depositions that were developed in the state court action, the
Plaintiffs’ loan documents, the durable power of attorney, and Freedom Bank’s letter to Mr.
Olean. 	The Debtors only offered two affidavits as evidence. 	The affidavits are both
approximately one page and provide, other than identification information, that the Debtors were
each advised by an attorney to assert the Fifth Amendment and spousal privilege in the state
court case. The Debtors presented no other evidence in opposition to the pending motion.
III. DISCUSSION
The Plaintiffs argue that their motion for summary judgment is ripe for disposition
because there are no genuine issues of material fact. 	They claim that all the material facts
necessary to adjudicate their motion were of record in the state court case. 	The Plaintiffs
contend that the Debtors cannot introduce “new evidence”3 in this proceeding because they
elected to invoke the Fifth Amendment and spousal privilege in the state court case. Relying on
SEC v. Benson, 657 F. Supp. 1122 (S.D.N.Y. 1987) and Leonard v. Coolidge (In re Nat’l Audit
Def. Network, 367 B.R. 207 (Bankr. D. Nev. 2007), the Plaintiffs urge the court to bar the
Debtors from introducing any evidence in this proceeding because a non-moving party cannot
introduce evidence in response to a motion for summary judgment where that party previously
asserted the Fifth Amendment. 	In response, the Debtors highlight that Benson and In re Nat’l
Audi Def. Network dealt with circumstances where the non-moving party raised the Fifth
Amendment in the same case, whereas here the Debtors have yet to assert any privileges.
Moreover, the Debtors argue that since there was not a judicial ruling made in the state court
2 The court is relying on the Plaintiffs representations of the amounts of the respective default
judgment awards. Upon review of the docket in this proceeding, the court could not find the
default judgment awards that were entered in state court.
3 The court assumes that the Plaintiffs consider new evidence to be any evidence not proffered
by the Debtors in the state court case.
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case regarding the validity of the invoked privileges, this court should not penalize the Debtors
for merely asserting a privilege in a previous case.
At this stage of the proceeding, the court declines from deciding whether the Debtors
may introduce new evidence in this case because the Debtors have not attempted to offer any
evidence. The Debtors’ response to the Plaintiffs motion for summary judgment does not attach
any depositions, substantive affidavits,4 or answers to interrogatories challenging the Plaintiffs
factual allegations. 	In fact, the Debtors’ response to the Plaintiffs’ motion for summary
judgment does not contest any of the Plaintiffs factual allegations; rather, the Debtors seemingly
rely on the record as developed by the Plaintiffs to show that genuine disputes of material fact
exist.
Turning to the merits of the Plaintiffs nondischargeability action, they argue that each of
their default judgments against Mr. Aman is nondischargeable because neither Mr. Olean nor the
durable power of attorney authorized Mr. Aman to obtain loans from the Plaintiffs. 	The
Plaintiffs contend that these default judgments are nondischargeable under any one of the three
following grounds: first, Mr. Aman violated § 523(a)(2)(A) because he obtained the subject
loans by fraudulently representing to the Plaintiffs that he had the authority to do so; second, Mr.
Aman violated § 523(a)(4) because he embezzled money from the Plaintiffs, and also obtained
money from them by acts of fraud or defalcation while acting in a fiduciary capacity; and third,
Mr. Aman violated § 523(a)(6) because he intentionally and maliciously injured the Plaintiffs by
obtaining loans he knew Mr. Olean had not authorized. 	The Plaintiffs bear the burden to
demonstrate by a preponderance of the evidence that the Debtors debt is nondischargeable under
one of these sections. Grogan v. Garner, 498 U.S. 279, 291 (1991) (holding that the standard of
proof for the dischargeability exceptions in § 523(a) is the preponderance-of-the-evidence
standard). 	Exceptions to discharge under § 523 are construed narrowly in favor of providing
debtors a fresh start. See Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 130 (4th Cir.
1999).
A. Section 523(a)(2)(A)
The Plaintiffs argue that Mr. Aman fraudulently misrepresented his authority to obtain
loans on behalf of Mr. Olean; they relied on his professed authority in approving the subject
4 The two affidavits submitted by the Debtors do not contest any of the facts alleged by the
Plaintiffs. Other than identification information, the affidavits only provide that an attorney told
the Debtors to assert the Fifth Amendment and spousal privilege in the state court case.
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loans; they were harmed by having to pay Mr. Olean $300,000 in the state court action; and they
justifiably relied on Mr. Aman’s representations because his power of attorney was “facially
valid.” The Plaintiffs also contend that they are entitled to judgment against Ms. Aman because
she obtained a benefit from the loans and she knew of her husband’s conduct. 	The Debtors
counter that the record shows that Mr. Olean was aware of Mr. Aman’s conduct and voluntarily
provided him with the collateral to secure the loans. 	Regarding Ms. Aman, the Debtors allege
that § 523(a)(2)(A) is inapplicable because she made no representation to the Plaintiffs.
Section 523(a)(2)(A) excepts from discharge any debt “for money . . . to the extent
obtained, by — (A) false pretenses, a false representation, or actual fraud . . . .” 	Congress
enacted § 523(a)(2)(A) “to protect creditors who were tricked by debtors into loaning them
money or giving them property, services, or credit through fraudulent means.” 	Nunnery v.
Rountree (In re Rountree), 478 F.3d 215, 219-20 (4th Cir. 2007). Section 523(a)(2)(A) does not
except any debt incurred as a result of fraud; for a debt to fall within this exception, the debtor
must use “fraudulent means to obtain money, property, services, or credit.” Id. at 219 (emphasis
added).
The terms “false pretenses,” “false representation,” and “actual fraud” are interpreted
according to the common understanding of those terms at the time of § 523(a)(2)(A)’s
enactment. 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 art. They are common-law terms, and . . . they imply
elements that the common law has defined them to include.”). At the time of their promulgation,
the prevailing common-law definition of these terms was set forth in the Restatement (Second) of
Torts (1976), which was published shortly before Congress passed the 1978 Bankruptcy Act.
Field, 516 U.S. at 70-72; Biondo, 180 F.3d at 134 (“[W]e will follow the Supreme Court's lead
and look to the Restatement to determine the elements required to prove that claim.”). Relying
on the Restatement of Torts and the Supreme Court’s survey of the dominant consensus of
common-law jurisdictions in 1978, the Court of Appeals for the Fourth Circuit found that a
plaintiff must prove four elements to satisfy § 523(a)(2)(A): “(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.” In re Biondo, 180 F.3d at 134.
In this case, the Plaintiffs have failed to establish that there is no genuine issue of
material fact as to whether Mr. Aman fraudulently misrepresented his authority to take out loans
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on Mr. Olean’s behalf. 	Whether Mr. Aman had such authority is material because it is
determinative of the Plaintiffs’ cause of action under § 523(a)(2)(A). 	Relying on Mr. Olean’s
deposition from the state court case and the durable power of attorney, the Plaintiffs argue that
Mr. Aman did not have the authority to take out the subject loans and therefore he fraudulently
misrepresented to them that he had the authority to obtain the loans. 	The Plaintiffs cite to
portions of Mr. Olean’s deposition where he testified that he was unaware of Mr. Aman’s
borrowing and that he did not authorize Mr. Aman to borrow money on his behalf unless he was
incapacitated. 	But Mr. Olean’s recollection of the subject loans is inconsistent. 	Mr. Olean
testified that he voluntarily loaned his Mylan and Merck stock to Mr. Aman for the purpose of
using it as collateral to take out the HNB loans. Notably, in response to whether Mr. Olean knew
Mr. Aman was going to use the stock as collateral for the HNB loans, Mr. Olean testified that
“he [Mr. Aman] said he was going to use it for that” and that “he told me he was going to use it
for collateral at Huntington Bank.” If Mr. Olean did not authorize Mr. Aman to take out loans, it
is quite peculiar for Mr. Olean to then loan him approximately $371,0005 in stock to use as
collateral for the HNB loans.
The terms of Mr. Olean’s durable power of attorney also do not resolve Mr. Aman’s
authority to obtain loans on Mr. Olean’s behalf. 	The Plaintiffs argue that the durable power of
attorney does not provide Mr. Aman with the authority to borrow in Mr. Olean’s name. 	But
paragraph six of the power of attorney provides that Mr. Aman:
may act as my [Mr. Olean] attorney, for me in my name and in my behalf: To sell,
lease, pledge, encumber, convey, transfer, assign or otherwise deal in and dispose
of my property, real and personal, and to make, execute, seal, acknowledge, and
deliver any deeds, contracts, leases, assignments, releases or other instruments
required to consummate any of said transaction.
By its terms, this paragraph authorizes Mr. Aman to encumber Mr. Olean’s personal property
and to execute any such instrument required to consummate the transaction. An encumbrance is
a “claim or liability that is attached to property . . . such as a lien or mortgage.” 	Black’s Law
Dictionary 568 (8th 2004). And an “instrument” is a “written legal document that defines rights,
duties, entitlements, or liabilities, such as a contract, will, promissory note, or share certificate.”
5 The record does not reflect the fair market value of Mr. Olean’s stock when he loaned it to Mr.
Aman. The court crudely estimates the value at $371,000 based upon the sale of the stock on
April 27, 2009. Of course, the value of the stock may have been vastly different at the time Mr.
Olean loaned it to Mr. Aman.
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Id. at 813 (emphasis added). Without determining definitively, the court observes that paragraph
six may empower Mr. Aman to encumber Mr. Olean’s personal property and to execute
promissory notes on his behalf. Based upon Mr. Olean’s contradictory testimony and paragraph
six, the court finds that a material factual dispute exists as to whether Mr. Aman had the
authority to borrow on Mr. Olean’s behalf. Thus, the Plaintiffs have not satisfied their burden in
showing the absence of a genuine dispute of material fact. See Anderson, 477 U.S. at 248.
The court also finds that the Plaintiffs have not alleged or established sufficient facts
showing that § 523(a)(2)(A) applies to Ms. Aman. Section 523(a)(2)(A) requires “the debtor to
have obtained money, property, services, or credit through her fraud or use false pretenses.” In
re Roundtree, 478 F.3d at 219 (emphasis added). The debts the Plaintiffs seek this court to find
nondischargeable are default judgments entered against Mr. Aman. 	The pleadings before the
court do not indicate that a judgment was entered against Ms. Aman, or that she individually
obtained money from the Plaintiffs prepetition. The court therefore is unsure what “debt” under
§ 523(a)(2)(A) the Plaintiffs seek this court to find nondischargeable against Ms. Aman.
Moreover, the record is devoid of any representations — let alone fraudulent misrepresentations
— that Ms. Aman made to either the Plaintiffs or Mr. Olean. 	Without providing a scintilla of
evidence that she ever even made representations to the Plaintiffs, the Plaintiffs have not
demonstrated that § 523(a)(2)(A) is applicable to Ms. Aman.
B. Section 523(a)(4)
Section 523(a)(4) excepts from discharge any debt “for fraud or defalcation while acting
in a fiduciary capacity, embezzlement, or larceny.” § 523(a)(4). Importantly, “while acting in a
fiduciary capacity” only qualifies “fraud or defalcation”; acts of embezzlement or larceny do not
require the concomitant condition of the act while the individual is a fiduciary. 	Therefore, an
examination of defalcation or fraud is only necessary if the Plaintiffs first demonstrate that the
debt arose while Mr. Aman was acting in a fiduciary capacity. See In re Parker, 264 B.R. 685,
700 (B.A.P. 10th Cir. 2001) (“The existence of a fiduciary relationship is a threshold issue under
§ 523(a)(4).”).
1. 	Fiduciary Capacity
The Plaintiffs argue that Mr. Aman owed a fiduciary duty to Mr. Olean and to two of the
three Plaintiff banks. 	The Plaintiffs contend that Mr. Aman was placed in a position of
ascendancy over Mr. Olean because he was designated as Mr. Olean’s attorney-in-fact and had
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substantial experience in financial matters. 	The Plaintiffs allege that Mr. Olean placed special
trust in Mr. Aman because of his financial knowledge and the relationship Mr. Olean had with
Ms. Aman. 	The Plaintiffs also assert that Mr. Aman acted in a fiduciary capacity to HNB and
West Union Bank because he was employed as an officer at both banks. 	In response, the
Debtors argue that Mr. Aman did not retain a position of ascendancy over Mr. Olean because
Mr. Olean was competent to handle his financial affairs, reviewed his bank statements, and was
aware of Mr. Aman’s financial transactions.
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 WL
150278, at *2–3 (4th Cir. Mar. 19, 1999). Under the federal common law, the term “fiduciary”
is limited to instances involving 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 *3. In general, the concept of a “fiduciary duty” under §
523(a)(4) applies only to technical or express trusts; it does not generally apply to fiduciary
duties implied by law from the contract. 	In re Bennett, 989 F.2d 779, 784 (5th Cir.1983). 	For
instance, there is no cause of action under § 523(a)(4) based on the existence of a constructive or
resulting trust because those types of trusts serve as remedies for another's breach of duty. E.g.,
Guerra v. Fernandez–Rocha (In re Fernandez–Rocha), 451 F.3d 813, 816 (11th Cir. 2006)
(“‘[C]onstructive’ or ‘resulting’ trusts, which generally serve as a remedy for some dereliction of
duty in a confidential relationship, do not fall within the § 523(a)(4) exception ‘because the act
which created the debt simultaneously created the trust relationship.’”) (citation omitted). 	A
technical or express trust requires there be a “fiduciary duty” with trust-type obligations that are
imposed under statute or common law. Bennett, 989 F.2d at 785. As explained by the Court of
Appeals for the Seventh Circuit, a fiduciary relationship may be 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.’” O'Shea v. Frain (In re Frain), 230 F.3d 1014,
1017 (7th Cir. 2000) (citation omitted). 	Under this test, a fiduciary relationship includes any
relationship that calls for the imposition of the same high standard as a trust, such as “a lawyer-
client relation, a director-shareholder relation, or a managing partner-limited partner relation”
because all these relationships call for the principal to “‘repose a special confidence in the
fiduciary.’” Id. (citation omitted).
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Although the determination of whether a fiduciary duty exists to support a § 523(a)(4)
cause of action is a question of federal law, “state law is relevant in determining whether a trust
obligation exists.” Martinez v. Goodrich (In re Goodrich), No. 03–8172, 2004 WL 2758671, at
*2 (Bankr. C.D. Ill. Oct. 20, 2004). “[T]he 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).” 4 Collier on Bankruptcy ¶
523.10[1][d] (Alan N. Resnick & Henry J. Sommer, eds. 15th ed. rev. 2009). 	If such an
obligation exists under state law, then “the court must look behind the provision to ascertain
whether the relationship possesses the attributes required for the purposes of Section 523(a)(4).”
In re Goodrich, 2004 WL 2758671, at *2; see Texas Lottery Comm'n v. Tran (In re Tran), 151
F.3d 339, 342 (5th Cir. 1998) (“A state cannot magically transform ordinary agents, contractors,
or sellers into fiduciaries by the simple incantation of the terms ‘trust’ or ‘fiduciary.’”).
Relationships demonstrating the requisite attributes 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 v. Ansari (In re Pahlavi), 113 F.3d 17 (4th
Cir. 1997), 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, In re Burton, 416 B.R. 539, 546 (Bankr. N.D.W. Va. 2009) and
those acting under a power of attorney to an incompetent person, Ostrum v. Porter (In re Porter),
No. 03–118, 2008 WL 114914 (Bankr. N.D.W. Va. Jan. 10, 2008).
In In re Porter, this court considered whether an appointee of a durable power of
attorney6 acted in a “fiduciary capacity” to the grantor under § 523(a)(4). Following the Seventh
Circuit, this court held that a fiduciary relationship exists under § 523(a)(4) when there is a
6 In West Virginia, a power of attorney is “‘an instrument granting someone authority to act as
agent or attorney-in-fact for the grantor.’” In re Richard P., No. 34751, 2010 WL 2723185 (W.
Va. July 9, 2010) (quoting Black’s Law Dictionary 1290 (9th ed. 2009)); Napier v. Compton, 210
W.Va. 594, 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); 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).
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“‘difference in knowledge or power between the fiduciary and principal . . . which gives the
former a position of ascendancy over the latter.’” In re Porter, 2008 WL 114914, at *3 (quoting
In re Frain, 230 F.3d at 1017). 	Employing this standard to the facts of that case, the court
bifurcated when the attorney-in-fact was acting in a fiduciary capacity. When the grantor of the
attorney-in-fact was competent and aware of the financial decisions being made on her behalf,
the attorney-in-fact was not acting in a fiduciary capacity. 	Id. at *4. 	But when the grantor
became incompetent, the attorney-in-fact enjoyed a position of ascendancy; consequently, the
relationship metamorphosed such that the attorney-in-fact acted in a fiduciary capacity from the
time of the incompetency.
Here, the Plaintiffs failed to demonstrate by a preponderance of the evidence that a
fiduciary relationship existed between the Plaintiffs and Mr. Aman. 	The Plaintiffs mistakenly
focus almost their entire argument on the relationship between Mr. Aman and Mr. Olean. 	The
default judgments the Plaintiffs obtained against Mr. Aman — the debts they seek the court to
find nondischargeable — are debts owed by Mr. Aman to the Plaintiffs. 	If Mr. Olean’s estate
was seeking a nondischargeability finding with respect to a judgment he obtained against Mr.
Aman, an examination of their relationship would be necessary. 	But the court, for purposes of
determining whether the Plaintiffs default judgments against Mr. Aman stemmed from “fraud or
defalcation,” is only concerned with whether he was acting in a fiduciary capacity with respect to
the Plaintiffs.7 See In re Bratt, 489 B.R. 414, 425 (Bankr. D. Kan. 2013) (“Proving this
exception [§ 523(a)(4)] requires demonstrating that a fiduciary relationship existed between the
7 Although Mr. Aman and Mr. Olean’s relationship is irrelevant in this § 523(a)(4) action, the
court nonetheless finds that Mr. Aman did not act in a fiduciary capacity to Mr. Olean. See
Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1371 (10th Cir. 1996) (“Neither a general
fiduciary duty of confidence, trust, loyalty, and good faith, . . . , nor an inequality between the
parties' knowledge or bargaining power, . . ., is sufficient to establish a fiduciary relationship for
purposes of dischargeability.”). Similar to the facts of In re Porter, Mr. Olean monitored his
financial affairs, reviewed bank statements, and confronted Mr. Aman about his withdrawals.
The Plaintiffs provided no evidence suggesting that Mr. Olean was incompetent during the time
Mr. Aman acted as his attorney-in-fact. In fact, Mr. Olean was aware that Mr. Aman was using
his powers for his personal benefit. Mr. Olean had the right to object and revoke Mr. Aman’s
authority at any time. 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 . . .’”). Notably, Mr. Olean eventually did exercise this right in 2007 and revoked his
durable power of attorney.
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debtor and the objecting party and that the debtor committed the defalcation in the course of that
fiduciary relationship.”).
Regarding the relationship between the Plaintiffs and Mr. Aman, the Plaintiffs summarily
conclude that Mr. Aman acted in a fiduciary capacity at HNB and West Union Bank because he
was employed by them. 	The Plaintiffs offered no other details of Mr. Aman’s corporate
responsibilities other than his title: At HNB, Mr. Aman was the senior treasury management
officer; at West Union Bank, he was the senior vice president of the Clarksburg branch. At this
stage of the proceeding, the record does not reflect the existence of a technical or express trust,
and the Plaintiffs provided no evidence suggesting that a state statute or common law doctrine
imposed trust-like obligations on Mr. Aman. 8 Accordingly, the court cannot determine with Mr.
Aman’s working titles alone whether he was acting in a fiduciary capacity. 	Because the
Plaintiffs failed to demonstrate that Mr. Aman was acting in a fiduciary capacity, the court does
not need to consider whether the debt arose from fraud or defalcation.
2. 	Embezzlement
The Plaintiffs also assert that Debtors debts to them are nondischargeable on the ground
of embezzlement under § 523(a)(4). 	The Plaintiffs argument that Mr. Aman embezzled funds
from them is one sentence: “[T]he evidence here is that although Aman lawfully (albeit
fraudulently) 	obtained 	the 	43 	loans 	from 	Plaintiff 	Banks, 	he 	thereafter 	fraudulently
misappropriated the funds for his own use and without his principal’s authority.” The Plaintiffs
also argue that Ms. Aman satisfies § 523(a)(4) because she was a “beneficiary of the
misappropriated monies.” 	The Debtors contend that the Plaintiffs have failed to show that the
8 	“The term ‘officer’ is not defined by the West Virginia Business Corporation Act, but, with
regard to corporate law, ‘the term refers esp. to a person elected or appointed by the board of
directors to manage the daily operations of a corporation . . . .’” In re Cross, No. 9-1823, 2010
WL 3447850, at *2-3 (Bankr. N.D.W. Va. Aug., 27, 2010). The current record does not indicate
whether Mr. Aman was appointed or elected by a board of directors, or whether he was named in
the respective bank’s by-laws as an officer. The distinction between Mr. Aman being an officer
or employee is significant because an employer-employee “relationship does not generally entail
the type of fiduciary duty contemplated by 11 U.S.C. § 523(a)(4).” Id. at *3. Compare Grow Up
Japan, Inc. v. Yoshida (In re Yoshida), No. 1–09–1415, 2010 Bankr.LEXIS 2502, at *15 (Bankr.
E.D.N.Y. Aug. 23, 2010) (“[A]n employment relationship alone does not give rise to a fiduciary
relationship for purposes of § 523(a)(4). Nor does the elevation of an employee to a managerial
position bring into being a fiduciary relationship within the purview of § 523(a)(4).”), with In re
Burton, 416 B.R. at 546 (holding that the “fiduciary relationship between a corporate officer
and/or director to the corporation and its shareholders is a trust-type obligation that satisfies the
fiduciary requirement of § 523(a)(4)”).
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Debtors embezzled funds because Mr. Olean was aware of Mr. Aman’s loan transactions, and
Ms. Aman could not have embezzled funds from the Plaintiffs because she was never entrusted
with monies.
“Embezzlement” under § 523(a)(4) is defined as the “‘fraudulent appropriation of
property by a person to whom such property has been entrusted, or into whose hands it has
lawfully come.’” 	Miller v. J.D. Abrams Inc. (In re Miller), 156 F.3d 598, 602 (5th Cir. 1998)
(citation omitted). To establish embezzlement, the movant must demonstrate that “(1) the person
was lawfully entrusted with property or property lawfully came into the hands of that person, and
(2) the property was fraudulently appropriated.” 	In re Davis, 262 B.R. 663, 671 (Bankr. E.D.
Va. 2001). 	Fraudulent intent may be inferred from the surrounding facts and circumstances.
E.g., In re Chwat, 203 B.R. 242, 249 (Bankr. E.D. Va. 1996); In re Allman, 147 B.R. 122, 125
(Bankr. E.D. Va. 1992). 	In contrast, “larceny” occurs under § 523(a)(4) if “the debtor has
wrongfully and with fraudulent intent taken property from its owner.” In re Rose, 934 F.2d 901,
903 (7th Cir.1991). 	“Embezzlement” differs from “larceny” in that when money is embezzled,
“the original taking of the property was lawful, or with the consent of the owner, while in larceny
the felonious intent must have existed at the time of the taking.” 	4 Collier on Bankruptcy ¶
523.10[2].
The Plaintiffs iterate throughout their motion for summary judgment that Mr. Aman
unlawfully obtained the subject loans because he did not have the authority to obtain the loans on
Mr. Olean’s behalf. This line of argument fails to show that the original taking of the Plaintiffs
property was lawful. 	Furthermore, the Plaintiffs argue that Mr. Aman “lawfully (albeit
fraudulently) obtained the 43 loans from the Plaintiff Banks.” This statement is oxymoronic: Mr.
Aman legally perpetrated fraud against the Plaintiffs. Thus the Plaintiffs have failed to show that
Mr. Aman legally received the loans and subsequently misappropriated those loans for his
benefit with a fraudulent intent. Regarding Ms. Aman, the Plaintiffs have provided no evidence
that Ms. Aman was ever entrusted with property of the Plaintiffs. She was not a party to any of
the subject loan transactions between the Plaintiffs and Mr. Aman, and she did not take out loans
from the Plaintiffs on her behalf. 	Accordingly, the court finds that the Plaintiffs have failed to
demonstrate how the embezzlement exception to discharge under § 523(a)(2)(A) applies to the
Debtors.
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C. Section 523(a)(6)
The Plaintiffs assert that grounds exist under § 523(a)(6) to except their debts from
discharge because Mr. Aman acts and resulting injury to them were deliberate and intentional.
The Plaintiffs allege that Mr. Aman intentionally entered the loan transactions with full
knowledge that Mr. Olean had not authorized the loans; they conclude that Mr. Aman therefore
misled the Plaintiffs into thinking that the loans were for the benefit of Mr. Olean. The Plaintiffs
contend that Mr. Aman, with thirty years of experience in the financial industry, knew that
borrowing funds based on misrepresentations created a substantial certainty that harm would
result. The Plaintiffs assert that Mr. Aman also acted with malice because he abused his power
under the durable power of attorney and his employment position with HNB and West Union
Bank. In response, the Debtors argue that the Plaintiffs have failed to show how any acts by Mr.
Aman were malicious.
Section 523(a)(6) provides that a discharge in bankruptcy does not apply to any debt that
arises from the “willful and malicious injury by the debtor to another entity or to the property of
another entity.” 	§ 523(a)(6). 	The test is conjunctive — the debtor’s conduct must be both
willful and malicious. 	E.g., In re Miera, 926 F.2d 741, 743 (8th Cir. 1991) (noting that willful
and malicious are distinct elements of § 523(a)(6) exception to discharge). 	For a debt to be
excepted from a debtor’s discharge under 523(a)(6), “the plaintiff must prove three elements by a
preponderance of the evidence: (1) that the defendant's actions caused an injury to the plaintiff's
person or property, (2) that the defendant's actions were willful, and (3) that the defendant's
actions were malicious.” In re Raeder, 409 B.R. at 383.
Section 523(a)(6)'s exception from discharge is associated with the law of intentional
torts, and conduct that is negligent or reckless remains dischargeable. 	Kawaauhau v. Geiger,
523 U.S. 57, 60 (1998). 	The acts done must be with the actual intent to cause injury. 	Geiger,
523 U.S. at 61 (“[N]ondischargeability takes a deliberate or intentional injury, not merely a
deliberate or intentional act that leads to injury.”) (emphasis in original). 	An intentional act
alone “does not necessarily mean that he acted willfully and maliciously for purposes of §
523(a)(6), Duncan v. Duncan (In re Duncan), 448 F.3d 725, 728 (4th Cir. 2006). For an injury
to be “willful,” the debtor must actually intend to cause injury. This sort of intentional conduct
includes those actions where the debtor knows the consequences flowing from the complaint acts
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are certain, or are substantially certain to occur. See Barclays American/Business Credit., Inc. v.
Long (In re Long), 774 F.2d 875, 881 (8th Cir. 1985).
“Malicious” under § 523(a)(6) means that the debtor’s act was committed “deliberately
and intentionally in knowing disregard of the rights of another.” First Nat'l Bank v. Stanley (In
re Stanley), 66 F.3d 664, 667 (4th Cir. 1995); In re Walker, 48 F.3d 1161, 1163-64 (11th Cir.
1995) (“As used in section 523(a)(6), malicious means wrongful and without just cause or
excessive even in the absence of personal hatred, spite or ill-will.”) (internal quotation marks and
citation omitted). 	Debtors may act with malice even if they do not have “subjective ill will
toward” and do not intend to injure their creditor. 	In re Stanley, 66 F.3d at 667. 	Because a
debtor will rarely, if ever, admit to acting in a willful and malicious manner, those requirements
may be inferred from the circumstances surrounding the injury at issue. 	E.g., St. Paul Fire &
Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1010 (4th Cir. 1985) (“Implied malice, which may be
shown by the acts and conduct of the debtor in the context of their surrounding circumstances, is
sufficient under 11 U.S.C. § 523(a)(6).”).
The Plaintiffs have not demonstrated that there is no genuine dispute as to whether Mr.
Aman intentionally meant to harm the Plaintiffs when he obtained the subject loans. 	The
Plaintiffs allege that Mr. Aman executed promissory notes he knew Mr. Olean did not authorize.
But as the court noted above, a genuine issue of material fact exists as to whether Mr. Aman had
the authority to take out the loans. 	Consequently, the court cannot determine if Mr. Amen
knowingly misrepresented his authority to the Plaintiffs with the intent to cause them financial
harm. 9
9 Even assuming Mr. Aman misrepresented his authority, the Plaintiffs have not presented any
evidence that such conduct was directed towards harming the Plaintiffs rather than Mr. Olean.
See, e.g., In re Grasso, No. 12-11063-MDC, 2013 WL 3404329, at * 	(Bankr. E.D. Pa. July 3,
2013) (“The Movant must prove that the Debtor acted with a substantial certainty that his
conduct would harm the Movant. The Movant must also present evidence that establishes that
the Debtor's intent was focused upon harming the Movant . . . .”); In re Brown, 442 B.R. 585,
620 (Bankr. E.D. Mich. 2011) (“[A]ctions that are calculated to benefit a debtor, with any harm
to a plaintiff being a result of the debtor's ‘reckless disregard for the plaintiff's economic
interests,’ are not malicious for purposes of § 523(a)(6)”) (citation omitted); In Re Nofziger, 361
B.R. 236, 244 (Bankr. M.D. Fla. 2006) (“Therefore, in order to establish that a particular debt is
nondischargeable, [under 523(a)(6)], at a minimum, the creditor must establish that the [debtor’s]
. . . act was directed at the creditor, not someone else.”). Indeed, if Mr. Aman misrepresented his
authority to the Plaintiffs, Mr. Olean stood to take the brunt of the consequences: Mr. Olean was
the stated borrower on all the loans, $371,888 of his stock was sold when the Freedom Bank
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IV. CONCLUSION
For the above-stated reasons, the court will deny, without prejudice, the Plaintiffs’
motion for summary judgment. A separate order will be entered pursuant to Fed. R. Bankr.P.
9021.
loans defaulted, and Freedom Bank threatened legal recourse against him if he did not pay the
$55,444 deficiency.
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