Morley P Thompson

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
MORLEY P. THOMPSON, SR., No. 04-11142
Debtor(s).
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Memorandum on Objection to Claim
_________________
The Patricia S. Thompson Trust has filed a proof of claim in this case in the amount of
$1,853,103.32, and creditor Great American Life Insurance Company has objected. After a trial, the
court is convinced that the claim is greatly overstated and may be allowed only in a substantially
reduced amount, if at all.
The most blatantly improper item in the claim is $721,202.55 arising out of an alleged breach of
an agreement settling a dispute between the trust and debtor Morley Thompson, who was a trustee of the
trust. Under the settlement, Thompson transferred certain properties to the Trust. The Trust alleges that
when it sold one of the properties it received $721,202.55 less than Thompson represented it was worth.
However, the court has no way of knowing if the difference was due to any sort of mistake or
misrepresentation (none was proved) or merely a shift in the real estate market in Ohio. Moreover,
nothing in the agreement purports to make Thompson the guarantor of any particular return or equity.
This item must be deducted from the claim.
The Ohio probate court was in the habit, when authorizing the Trust to make expenses, of
Entered on Docket
October 25, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-11142 Doc# 181 Filed: 10/25/05 Entered: 10/25/05 10:48:29 Page 1 of
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specifying that it could deduct the expenses from any amounts due to Thompson as a beneficiary of the
Trust. As to one payment of $150,000.00 in July, 2001, there was no such authorization. The Trust
alleges that this was an oversight by the probate court, but the court is not convinced of this. This item
will also be deducted from the claim, without prejudice to reconsideration if the probate court amends
its order, but only if Great American was given a full and fair opportunity to be heard.
On February 20, 2003, the probate court issued an order allowing the Trust to charge Thompson
for $63,042.45 paid to a condominium association and a homeowners’ association, “to avoid
foreclosure of the Trust’s first and second mortgages on the Flordia condominium.” Great America
argues that the claim must be allowed because there is no evidence of actual foreclosure proceedings,
but the court does not agree with this interpretation of the order. The intent of the probate court was
clearly that the Trust be authorized to protect its deeds of trust if Thompson did not meet his obligations
to make the payments. The obligations to the associations had priority over the deeds of trust.
Thompson’s failure to make the payments put the deeds of trust in jeopardy. The payments were
therefore necessary and authorized to avoid foreclosure, regardless of whether foreclosure proceedings
had been started. Accordingly, this item is properly included in the claim.
Evidence was produced that Thompson was entitled to a distribution from the Trust of
$489,000.00 for the year 2000 and has never been given credit for it. The court will reduce the claim by
this amount, but without prejudice to reconsideration if the probate court determines that no credit is due,
but only if Great American was given a full and fair opportunity to be heard.
Great American argues that the claim of the Trust must be reduced by $277,100.45, for capital
gains tax absorbed by Thompson which was supposed to be the obligation of the Trust. The court agrees
that some credit is due, but the evidence established only a $60,000.00 credit, so the claim will be
reduced by this amount only.
For the foregoing reasons, Great American’s objection will be sustained in part and the Trust’s
claim shall be reduced by $1,420,202.55, plus associated interest. If a positive amount still exists after
these deductions, the court will consider at a further hearing whether the claim should be further reduced
Case: 04-11142 Doc# 181 Filed: 10/25/05 Entered: 10/25/05 10:48:29 Page 2 of
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due to illegal compounding of interest or the other minor matters raised in the objection.
Counsel for Great American shall submit an appropriate form of order.
Dated: October 24, 2005
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 04-11142 Doc# 181 Filed: 10/25/05 Entered: 10/25/05 10:48:29 Page 3 of
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