Parker v. Martin
Filing
14
MEMORANDUM OPINION. Signed by District Judge T. S. Ellis, III on 9/11/2023. (tran)
Case 1:22-cv-01388-TSE-LRV Document 14 Filed 09/11/23 Page 1 of 19 PageID# 543
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
In re:
DEBORAH FAYE PARKER,
Debtor.
Case No. l:22-cv-1388
DEBORAH FAYE PARKER,
Defendant-Appellant,
V.
DAN GREGORY MARTIN,
Plaintiff-Appellee.
MEMORANDUM OPINION
At issue in this bankruptcy appeal is whether the bankruptcy court erred in concluding that
Plaintiff-Appellee Dan Gregory Martin's $150,000 state court unjust enrichmentjudgment against
Defendant-Appellant Deborah Faye Parker is non-dischargeable in bankruptcy as a "debt... for
... embezzlement." 11 U.S.C. § 523(a)(4). Parker contends on appeal that there is no record evi
dence to support the bankruptcy court's conclusion that Parker embezzled the money underlying
Martin'sjudgment.The matter has been fully briefed and argued,and it is now ripe for disposition.
I.
The following facts and proceedings are derived from the record in this case:
• Defendant-Appellant Deborah Faye Parker resides in Stafford County, Virginia. Parker is
the daughter of Morton H.Poindexter, Jr.
• Plaintiff-Appellee Dan Gregory Martin resides in Roanoke, Virginia. Martin is the son of
Peggy L. Martin.
• Parker and Martin are not related by blood, but their parents, Morton and Peggy,cohabited
for many years in Roanoke County, Virginia. Morton and Peggy never mamed.
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On April 13,2004, Morton and Peggy entered into a contractual agreement. Despite never
marrying, Morton and Peggy chose to label their contract a Post Marital Agreement
("PMA").' Notwithstanding its odd title, the PMA was in substance a contract to execute
mutual and reciprocal wills. The PMA required the following procedure:
o Morton and Peggy would designate each other's children as beneficiaries of their
respective estates.
o Whichever of Morton and Peggy would die first would pass their entire estate to
the other.
o The surviving party would not give more than $1,500 per year to that surviving
party's children.
o When the surviving party thereafter passed,two thirds ofthe combined estate would
go to Martin,and the remaining third would go to Morton's three children per stirpes. Put differently, Parker was entitled to one ninth ofthe combined estate.
The same day that Morton and Peggy executed the PMA (i.e.. May 13, 2004), they also
executed reciprocal and irrevocable wills that implemented the PMA's terms.
Peggy died in April 2009,and,as the PMA required, all her assets passed to Morton. After
Peggy's death, Morton transferred approximately $240,000 ofhis financial assets to Parker
(collectively referred to as the "Funds"). Specifically, Morton made the following transfers
to Parker after Peggy's death:
o Morton designated Parker as the primary beneficiary ofan annuity worth $111,622
that Morton held with Symetra Financial via SunTrust Investment Services. Plain
tiffs Motion for Summary Judgment at 3, Martin v. Parker, No. CL-14-702(Va,
Cir. Ct. Roanoke Cty. May 8, 2019)(hereinafter ^'Martin v. Parker (State Action)").2
o Morton named Parker as the beneficiary of an annuity worth $25,201 that Morton
held with Transamerica Life Insurance Co.Id.
The text of the PMA was not before the bankruptcy court because the PMA itself was not
admitted into evidence. See Supplemental Appendix to Appellee's Response Brief at 15
(Dkt.6-1)(hereinafter "R.3"); Order Designating Supplemental Record on Appeal(Dkt. 12).
However, Parker admitted to the essential terms of the PMA in her answer to Martin's com
plaint in this matter. See Record on Appeal, Vol. 1 at 25,37(Dkt. 3-2)(hereinafter "R.1').
Judicial notice of the filings that were submitted in Martin's Virginia lawsuit is appropriate,
since the existence and contents ofthe filings, as entered on the docket ofthe Circuit Court for
Roanoke County, Virginia,constitute facts that are"not subject to reasonable dispute." Fed. R.
Evid. 201(b). To the extent there are any facts asserted in the cited pleadings that niight rea
sonably be disputed,a close review ofthe record reveals no dispute between the parties.
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o Morton named Parker and her two brothers as beneficiaries ofa life insurance pol
icy that Morton held with the Virginia Retirement System, resulting in Parker re
ceiving $5,014.58 upon Morton's death. Id.
o Morton added Parker as a joint holder of(i)a checking account worth $69,377.25
and (ii) a certificate ofdeposit worth $8,012.11 that Morton held at SunTrust Bank.
Morton also gave Parker a second SunTrust certificate ofdeposit worth $8,026.53.
Mat 4.
Morton died in August 2013. Martin was appointed executor of Morton's estate, as Mor
ton's will directed.
Parker retrieved Morton's will several days before Morton's death. While Parker was"deal
ing with losing[her]father," Martin called Parker and "advised her"that Morton and Peggy
had executed the PMA.(R.3 at 59; R.2 at 74). When Parker read through Morton's will,
she discovered that Martin had been given two thirds of Morton's estate.(R.3 at 59).
After reading Morton's will, Parker became, in her words, "confused." Id. Specifically,
Parker was uncertain whether the Funds, which Morton had transferred to Parker before
his death, were(i)part of Morton's estate and thus two thirds Martin's or(ii) Parker's per
sonal property and thus entirely Parker's. Id. at 59-60.
According to Parker's unrebutted testimony at trial, Parker then contacted her bank and
said,"I've got a will and the post-marital."Id. at 60.Parker's bankers "basically said,sorry,
he—^he gave you—you his money when he was alive, and [Morton's inter vivos gift] su
persedes[Morton's will]." Id.
Parker thereafter had a conversation with Symetra,the issuer ofthe largest annuity Parker
had been given. At the end of that conversation, Parker concluded that the money in the
Symetra annuity was hers. Parker also called the issuer of Morton's life insurance policy
to ascertain whether she was entitled to receive the benefit of that policy. After that con
versation, Parker concluded that the benefit of that policy belonged to her as the named
beneficiary. Finally, Parker spoke to SunTrust Bank to determine ifshe had lawful posses
sion of Morton's accounts there. After that conversation, too, Parker concluded the Sun
Trust accounts were legally hers.
Martin objected and told Parker that two thirds of the Funds—^approximately $150,000—
were rightfully his, but Parker refused to hand them over.
Parker then collected the benefit ofthe annuities and policies and liquidated the three Sun
Trust accounts. On May 13, 2014, Martin sued Parker for his share of the Funds in the
Circuit Court for Roanoke County, Virginia (the "State Court"). See Complaint, Martin v.
Parker (State Action).
Martin's lawsuit in the State Court dragged on for years. Martin's Second Amended Com
plaint in that suit, filed on October 2, 2017, pleaded one count of breach of contract and
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one count of unjust enrichment.^ Martin alleged that Morton breached the PMA when he
gave Parker the Funds. Martin further alleged that, but for Morton's breach, two thirds of
the Funds would have gone to Martin, and consequently, Martin alleged, Parker was liable
to Martin in that amount. See Second Amended Complaint
22-25, Martin v. Parker
(State Action). Martin also alleged that Morton's transfer to Parker was wrongful and Par
ker had therefore been unjustly enriched. Id. at UK 27-28.
Importantly, Martin's Second Amended Complaint only alleged that Morton's transfers
were wrongful. Martin's lawsuit did not allege that Parker's liquidation ofthe Funds was
independently wrongful or that the Funds were the property of Morton's estate despite
Morton's prior transfer. Instead, Martin alleged that Parker had reaped the fhiits of Mor
ton's breach ofthe PMA.
On September 10,2019, more than five years after Martin's lawsuit was first filed, Martin
prevailed on summary judgment. Specifically, the State Court entered a judgment finding
Parker liable for $151,501, Martin's damages but for Morton's breach of the PMA (the
"Roanoke Judgment"). Parker noticed her appeal to the Supreme Court of Virginia on Oc
tober 7,2019, but that appeal was never prosecuted,and Parker's notice of appeal expired
on March 1,2021. See Expired Notice ofAppeal, Martin v. Parker (State Action). Parker
has never made any payment to Martin on the judgment against her.
Parker filed for Chapter 7 bankruptcy on December 24,2021.(R.3 at 53,110). On May 16,
2022, Martin filed a claim in Parker's bankruptcy in the amount ofthe Roanoke Judgment,
plus interest. See Claim 3-1,In re Parker,No.21-12073(Bankr. E.D. Va.).
Seeking to collect on the Roanoke Judgment in full, Martin initiated an adversary proceed
ing in Parker's bankruptcy on March 28,2022.(R.1 at 9). Martin argued that thejudgment
(/.«., a debt that Parker owed to Martin) was not dischargeable in bankruptcy because
(i)Parker's debt was incurred by fraudulent misrepresentations or actual fraud;(ii) Parker's
debt was the result of her fraud or defalcation, embezzlement, or larceny; and/or (iii) Par
ker's debt was for willful and malicious injury. See 11 U.S.C. §§ 523(a)(2)(A), (a)(4),
(a)(6).
The adversary matter proceeded through discovery and eventually came before the bank
ruptcy court for a bench trial on November 22, 2022. At trial, Parker took the stand and
testified that,after speaking to her bankers,she concluded that the Funds were legally hers.^
Virginia law provided Martin with a cause of action for breach of the PMA because "when
reciprocal testamentary provisions are made for the benefit ofa third party,... the beneficiary
[may]enforce the agreement in equity." Keith v. Lulofs,724 S.E.2d 695,698(Va.2012)(quot
ing Salley v. Burns,255 S.E.2d 512,516(Va. 1979)). Contracts to make mutual and reciprocal
wills are enforceable in the same way.See Black v. Edwards,445 S.E.2d 107,109(Va. 1994).
Although Parker was allowed to testify in part as to her conversations with her bankers, she
was precluded from testifying to the full content of those conversations because Martin
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After trial, the bankruptcy court issued Findings of Fact and Conclusions of Law. Record
on Appeal, Vol. 2, at 72(Dkt. 3-3)(hereinafter "R.2"). The bankruptcy court found that
Parker liquidated Ae Funds after she was advised by her financial institutions that she could
do so "because she was a joint account holder on each of[her father's] accounts."(R.2
at 75). In the bankruptcy court's view,"[t]here was no evidence presented ... that any of
the financial institutions were aware ofthe contents" of Morton's will or ofthe PMA.Id.
As a matter oflaw,the bankruptcy court found for Parker on every count of Martin's com
plaint but one.^ Specifically,the bankruptcy court found for Martin on Count II ofhis com
plaint by holding that the Roanoke Judgment constituted a non-dischargeable "debt... for
... embezzlement." 11 U.S.C. § 523(a). The bankruptcy court defined "embezzlement" as
^'the fraudulent appropriation of property by a person to whom such property has been
entrusted" and noted that embezzlement required "a showing of wrongfol intent." (R.2 at
81). The bankruptcy court then found that Parker"came into possession ofthe funds law
fully, from the financial institutions, as ajoint account holder," id at 84, and then embez
zled them when she "refused to turn the money over to [Martin]as Executor ofher father's
Estate."Id. at 82. The bankruptcy court concluded that Parker had the requisite fraudulent
intent because Parker knew the terms of Morton's will. Id.
Importantly, the bankruptcy court never found that Parker's testimony was not credible.
Though the bankruptcy court found there was"no evidence" that any ofParker's advisors
knew the contents ofMorton's will or ofthe PMA(R.2 at 75),the bankruptcy court did not
find that Parker's banks were unaware of Morton's will or PMA's contents. Nor did it find
(or any person testify) that Parker misled the banks, whether deliberately or accidentally.
Nevertheless, by equating knowledge ofthe will's terms with intent to defraud, the bank
ruptcy court concluded that the Funds had been embezzled and entered judgment against
Parker.
The bankruptcy court was clear that it found for Martin "not because of[Parker's] efforts
to evade collection on [Martin]'s Judgment, or even what she did with [Martin's] money."
objected on hearsay grounds. Although Parker did not appeal these rulings or make this argu
ment before the bankruptcy court, it appears that Martin's objections were improper. This is so
because "[a]statement that would otherwise be hearsay may nevertheless be admissible ifit is
offered to prove something other than its truth."In re C.R. Bard, Inc. Pelvic Repair Sys. Prod.
Liab. Litig., 810 F.3d 913,926(4th Cir. 2016). For example, an out-of-court statement is ad
missible to show that statement's effect on the listener. Graves v. Lioi,930 F.3d 307,325 n.l5
(4th Cir. 2019). What Parker told her bankers, and what her bankers told her, is relevant to
Parker's state ofmind—i.e.^ whether Parker believed the Funds were hers or Main's.Parker's
testimony therefore could have been admitted on that basis, and Martin s objections should
have been overruled.
5 The bankruptcy court rejected Martin's arguments that Parker's debt was nondischargeable due
to (i)fraudulent misrepresentation or actual fraud,(ii) fiduciary defalcation, (iii) larceny, or
(iv) willfijl or malicious injury. Martin does not appeal any of those holdings.{See R.2 at 9698).
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(R.2 at 79). Instead, it found embezzlement"because [Parker] wrongfully took [Martin's]
money in the first place."Id, For that reason,and for that reason only,the bankruptcy court
held that the judgment could not be discharged.
Parker then appealed the bankruptcy court's decision pursuant to Rule 8003,Fed. R.Bankr.
P.,and 28 U.S.C.§ 158(a)(1).Parker argues that thejudgment against her must be reversed because
(1) Martin failed to plead embezzlement properly and (2) Martin's evidence was insufficient to
prove embezzlement.(R.2 at 91).
II.
The dispositive question on appeal is whether the bankruptcy court erred in finding that
Martin carried his burden of proof to show Parker committed embezzlement. Put briefly, the an
swer to that question is "yes."^ To support a finding of embezzlement, Martin was required to
prove each of four elements:(i)fraudulent (ii)conversion of(iii) the property of another (iv) by
one with lawful possession thereof. As to two ofthose elements, Martin did not meet his burden.
Martin did not prove the third element ofembezzlement,namely,that the Funds were **the
property ofanother." Martin did not prove the first element ofembezzlement,either, because Mar
tin did not show that Parker acted with fraudulent intent—le.^ with knowledge that her use ofthe
Funds was unauthorized. On the contrary, the record indicates that Parker was operating under a
good-faith belief that she was entitled to the fiinds that she took. Such a belief, even if ultimately
mistaken, precludes a finding offraudulent intent. Because the bankruptcy court's finding ofem
bezzlement rested on errors of both law and fact, thejudgment against Parker must be reversed.
6 Because Parker prevails on this ground for appeal, there is no need to address or resolve Par
ker's argument that Martin did not adequately plead embezzlement.
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A.
Appeals in bankruptcy cases are reviewed by courts in this District in the same manner,
and using the same standards, as civil appeals are reviewed by the Fourth Circuit. See 28 U.S.C.
§ 158(c)(2). In other words, while questions of law are reviewed de novo, questions of fact are
reviewed only for clear error. TKC Aerospace, Inc. v. Muhs(In re Muhs)^ 923 F.3d 377,384(4th
Cir. 2019). Mixed questions oflaw and fact"are reviewed under a hybrid standard," reviewing the
factual portion ofthe mixed question for clear error and "and examining de nova the legal conclu
sions derived from those facts." Educ. Credit Mgmt. Corp. v. Frushour,(In re Frushour),433 F.3d
393,398(4th Cir. 2005)(cleaned up). As the Fourth Circuit has explained,"[a]finding is *clearly
erroneous'when although there is evidence to support it,the reviewing court on the entire evidence
is left with the definite and firm conviction that a mistake has been committed." United States v.
Hall,664 F.3d 456,462(4th Cir. 2012)(quoting United States v. U.S. Gypsum Co.,333 U.S. 364,
395(1948)).Put another way,the bankruptcy court clearly erred ifits "account ofthe evidence" is
not"plausible in light ofthe record viewed in its entirety." See id. ((\\xoimg Anderson v. Bessemer
City,470 U.S. 564,574(1985)).
Bankruptcy courts may—^and, presumptively, must—discharge debts incurred by a volun
tary Chapter 7 debtor before the bankruptcy case began. 11 U.S.C. §§ 301(a),727(b);Kubota Trac
tor Corp. V. Strack(In re Strack), 524 F.3d 493,497(4th Cir. 2008). When the debt in question is
a judgment for damages, discharge voids thatjudgment; to recover, a judgment creditor must in
stead file a claim in the debtor's bankruptcy. See id. at § 524(a)(1). But a creditor who wishes to
avoid the claims procedure may rebut the presumption ofdischargeability by showing that the debt
to be recovered on falls into one ofthe Bankruptcy Code's exceptions to discharge. See 11 U.S.C.
§ 523(a). These exceptions are construed narrowly to give effect to the Bankruptcy Code's policy
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ofproviding debtors with a fresh start. Strack,524 F.3d at 497(quoting Foley & Lardner v. Biondo
(In re Biondo), 180 F.3d 126,130(4th Cir. 1999)). One ofthose exceptions, codified at 11 U.S.C.
§ 523(a)(4), dictates that a debt "for fraud or defalcation while acting in a fiduciary capacity, em
bezzlement,or larceny" is not dischargeable.Ifthat exception applies here—i.e.,ifMartin'sjudg
ment against Parker is a"debt...for... embezzlement"—then thatjudgment cannot be discharged.
In that event, Martin would be able to pursue Parker for the full amount ofthe Roanoke Judgment.
The elements of embezzlement are not stated by the Bankruptcy Code,but the offense has
traditionally been defined as "the fraudulent appropriation of property by a person to whom such
property has been [ejntrusted, or into whose hands it has lawfully come." Moore v. United States,
160 U.S. 268,269(1895).' In other words, distilled to its essence,"the traditional concept ofem
bezzlement" requires a (i)fraudulent (ii) conversion of (iii) the property of another (iv) by one
with lawful possession thereof. United States v. Stockton, 788 F.2d 210,217(4th Cir. 1986); see
also United States v. Sampson,898 F.3d 270,277(2d Cir. 2018);3 Wayne R. LaFave,Substantive
Criminal Law § 19.6(3d ed. 2017).®
B.
As the bankruptcy court acknowledged (R.2 at 77), it was Martin's burden, as the creditor
in this adversary proceeding,to prove embezzlement by a preponderance ofthe evidence. Grogan
V. Garner,498 U.S.279,291 (1991). The issue at the heart ofthis appeal is whether Martin carried
7 The bankruptcy court quoted this definition of embezzlement, although it did not cite Moore
when it did so.(R.2 at 81)(quoting Direct Cap. Grp., LLC v. Hadley(In re Hadley),2011 WL
3664609,at *12(Bankr. E.D. Va. Aug. 19,2011)).
8 This definition aligns with Martin's, which interprets embezzlement as comprising "(1)[a]
debtor's appropriation of property for [the] debtor's benefit, and (2)appropriation with fraud
ulent intent or by deceit." Response Brief of the Appellee at 13 (Dkt. 6)(quoting Dixon v.
Wilkerson (In re Wilkerson),644 B.R. 349,371 (Banla:. E.D. Va. 2022)).
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his burden.The bankruptcy court concluded that Martin did.Its analysis ofMartin's embezzlement
claim follows in its entirety:
In this case, the financial institutions, knowing only that [Parker]
was a joint account holder, advised her that she was entitled to liq
uidate the accounts. As a joint account holder, she came into the
money from her father's Estate lawfully. She then refused to turn the
money over to [Martin] as Executor ofher father's Estate. In doing
so, she exercised control and dominion over the funds, wrongfully.
[Parker]had actual knowledge ofthe terms ofher father's Will when
he was still in the hospital. She testified that she retrieved a copy of
the Will and brought it to the hospital. She acknowledged that[Mar
tin] told her of the [PMA]between her father and [Peggy] Martin
shortly thereafter. This conduct meets the very definition ofembez
zlement. Further, in knowing the terms of ±e Will, [Parker] had
fraudulent intent in not turning the property over to [Martin] as Ex
ecutor.
(R.2 at 82). In other words, the bankruptcy court's theory of embezzlement was that Parker had
lawful possession ofthe Funds when she "came into the money from her father's [e]state""[a]s a
joint account holder"; that the Funds were in truth the property of another; that the Funds were
converted when Parker refused to turn the Funds over to Martin on demand; and that Parker acted
with fraudulent intent because,"in knowing the terms of[Morton's][w]ill," Parker knew that the
Funds did not belong to her.
Two elements ofembezzlement—^lawful possession and conversion—^are undisputed. Par
ker came into possession ofthe Funds lawfully via a series of gifts from her father Morton. It is
well settled that"where[a]defendant's original possession is not wrongful,conversion is complete
when the rightful owner demands the retum ofthe property and is refused." Goodbody & Co., Inc.
V. McjDowe//,530 F.2d 1129,1151 (5th Cir. 1976)(applying Texas law);
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