461 B.R. 34
Bankr. N.D. Ill.2011Background
- Shriners Hospital for Children sues James George Bauman in a Chapter 7 case to determine dischargeability of a debt under 523(a)(4) and (a)(6).
- Bauman moved to dismiss for failure to state a claim or, alternatively, for summary judgment; motion treated as summary judgment.
- Undisputed facts: Ellis executed 1964 Will naming Shriners as contingent beneficiary; Ellis later executed 1999 Will leaving all to Bauman as sole primary beneficiary; Bauman served as Ellis’ power of attorney and later executor under the 1999 Will; Ellis died in 2003; $2M+ estate; probate litigation followed with multiple will contests and depositions showing Ellis was of sound mind.
- Plaintiff filed probate petitions asserting undue influence and mental incapacity (timeliness issue in state court); Illinois Supreme Court later ruled only on timeliness of the tort claim, not merits.
- Bauman filed Chapter 7 on Oct 8, 2010; Plaintiff filed adversary complaint on May 13, 2011 and amended on Aug 11, 2011; discovery was not completed prior to the summary judgment motion, which the court nonetheless deemed timely under Rule 56(b).
- Final posture: Court grants Bauman summary judgment on both counts, concluding the debt is dischargeable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 523(a)(4) discharge exception applies | Plaintiff claims fiduciary relationship existed (as rightful heir/contingent beneficiary and Ellis’s power of attorney) | No express trust or fiduciary relationship with Plaintiff; power of attorney was between Ellis and Bauman; Plaintiff not an heir or beneficiary under 1999 Will | Bauman granted summary judgment for Count I |
| Whether 523(a)(6) discharge exception applies | Bauman willfully and maliciously deprived Plaintiff by causing Ellis to transfer assets and execute a new will | Ellis acted independently and Was of sound mind; no act by Bauman caused the transfer or will | Bauman granted summary judgment for Count II |
| Whether res judicata bars the litigation of the 1999 Will’s validity | Ellis decision precludes re-litigation of will validity | Res judicata requires same cause of action; here 523(a) claims differ from tort claim | Res judicata does not bar the dischargeability action |
| Whether the summary judgment motion was timely | Discovery not complete; depositions missing; premature ruling | Rule 56(b) permits motion before close of discovery; plaintiff had notice and substantial time to discover | Motion timely under Rule 56(b) |
| Whether Plaintiff is entitled to attorney’s fees | Fees should be recoverable under applicable rule | No statute or contract; 523(d) not applicable to 523(a)(4)/(a)(6); Rule 9011 sanctions pending | Fees denied as a matter of right; separate Rule 9011 sanctions may be considered |
Key Cases Cited
- In re McGee, 353 F.3d 537 (7th Cir. 2003) (definition of fiduciary/defalcation elements for 523(a)(4))
- In re Berman, 629 F.3d 761 (7th Cir. 2011) (necessity of preexisting fiduciary duties for 523(a)(4))
- In re Marchiando, 13 F.3d 1111 (7th Cir. 1994) (fiduciary relationship can arise from power imbalance creating ascendancy)
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) (‘willful’ injury requires intent to cause harm, not mere intent to act)
- In re Ginsberg, 2009 WL 4891815 (N.D. Ill. 2009) (interpretation of willful malice standard under 523(a)(6))
- Basel-Johnson, 366 B.R. 831 (Bankr.N.D. Ill. 2007) (malice and intent standards under 523(a)(6))
- In re Scarlata, 979 F.2d 521 (7th Cir. 1992) (preponderance standard for discharge exceptions)