In the United States Bankruptcy Court

for the Northern District of Iowa


KIMBERLY KLECKNER MILLINGTON Bankruptcy No. L-91-00319C
Debtor(s). Chapter 7

MARY ROSE MILLINGTON ROBERT
HENDRICKS MILLINGTON and
THOMAS HENRY MILLINGTON JR.
Adversary No. L-91-0078C
Plaintiff(s)
vs.
KIMBERLY KLECKNER MILLINGTON
Defendant(s)

Ruling Re: Dischargeability Complaint


The trial in this matter was held on December 5, 1991. The Court, having heard the evidence and testimony and having considered the arguments of counsel, now enters the following findings of fact, conclusions of law, and order pursuant to Fed.R.Bankr.P. 7052. The parties have stipulated that this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) & (I).

Introduction

The defendant, Kimberly Kleckner Millington, is the executrix of the estate of Thomas Henry Millington. The estate of Thomas Henry Millington is pending in the Iowa District Court in and for Linn County. It is the understanding of the Court that the plaintiff, Mary Rose Millington, has also filed a probate proceeding on behalf of Thomas Henry Millington in the state of Michigan. The plaintiffs and defendant to this proceeding are all of the children of the decedent, Thomas Henry Millington.

At the commencement of the trial in this case, this Court raised the issue of whether the alleged debt, which is the subject of this dischargeability complaint, is properly owing to the plaintiffs or to the Thomas Henry Millington Estate. All of the parties stipulated and agreed that since all interested parties to the Thomas Millington Estate are before this Court, that this Court could determine the dischargeability of any debt, whether that debt may be owing to the Thomas Henry Millington Estate or to the three plaintiffs, individually. Pursuant to that stipulation the trial commenced and this Court will determine whether any debt which may be due and owing by Kimberly Kleckner Millington is discharged.

Findings of Fact

1. The three plaintiffs and the defendant are all the children of Thomas Henry Millington, Sr. ("Thomas Millington"). Mary Rose Millington is the daughter of Thomas Millington by his first marriage. Robert Millington, Thomas Millington, Jr., and Kimberly Kleckner Millington are the children of Thomas Millington by his second marriage.

2. Thomas Millington divorced his first wife, the mother of Mary Rose. He remarried when Mary Rose was approximately 20 years old. Mary Rose lived with her father, his new wife, and their son, Robert, for some short period of time. Eventually, Mary Rose moved out of her father's home and lived either on her own or with her mother (Thomas Millington's first wife).

Mary Rose's existence was not a subject that Thomas Millington's second wife wanted discussed in the Millington household. Consequently, neither of the younger children, Thomas, Jr. and Kimberly, ever met or spoke with Mary Rose until after Thomas Millington's death in July, 1989. Robert remembered Mary Rose from the short time they lived together after Mr. Millington's remarriage, however, he also had not seen or spoken to his half sister for 20-25 years.

Mary Rose did have contact with her father. She worked with her father for a number of years, from approximately 1953 to 1967 in the Thomas H. Millington interior design business. Mary Rose testified that subsequent to 1967, Thomas Millington would regularly visit the home that she and her mother shared.

3. In the mid to late 1980's, Thomas Millington's health began to fail. He suffered from diabetes and its complications. Among his many medical problems was serious kidney disease and prior surgery on his pancreas. Mr. Millington also had digestive problems which required his hospitalization from time to time during the 1980's.

4. Thomas Millington had lived almost his entire life in the Detroit, Michigan area. All of the Millington children were born and raised in the Detroit area and resided in the Detroit vicinity until 1985. Kimberly Kleckner Millington's husband, Steve Kleckner, graduated from the University of Michigan in December 1985. Upon graduation, Steve Kleckner obtained a job at Rockwell Collins as an electrical engineer and the couple moved to Cedar Rapids over the Christmas holidays of December, 1985/January, 1986. Kimberly and Steve Kleckner have lived in Cedar Rapids since that time.

5. There is considerable dispute in the testimony as to who provided what level of care to Thomas Millington during his various periods of hospitalization and recuperation during the 1980's. In resolving the conflicts in the testimony as to this issue and other matters, the Court is mindful of the obvious deep animosity that exists between the Millington children. To the large extent, this Court finds the testimony of Thomas, Jr. and Mary Rose to lack credibility given many of the inconsistencies in their testimony, lack of corroboration of their testimony, and the obvious deep animosity each feels towards Kimberly. The Court notes that many of the statements made by Kimberly are corroborated by the independent testimony of Thomas Millington's brothers, sister-in-law, and close personal friend. On the other hand, there are inconsistencies in the testimony of Thomas, Jr. and Mary Rose, which inconsistencies will be discussed in more detail later; their testimony also lacks corroboration in documentary evidence and testimony of other witnesses.

6. The testimony shows that when Thomas Millington was hospitalized in the early 1980's, while Kimberly and her husband were still in the Detroit area, Kimberly assumed primary responsibility for visiting her father in the hospital and making the necessary arrangements for his post-hospital recuperation. Thomas, Jr. was living in Thomas Millington's home on a periodic basis during the early 1980's, but he could not be depended upon to be available when necessary or to make the necessary arrangements for the care of an elderly person who was recuperating from a number of major hospitalizations.

Subsequent to Kimberly's move to Iowa in late 1985, Thomas Millington's care became more problematical. Kimberly and her husband visited their family in the Detroit area 3-4 times per year. However, she was not always available to visit her father and take care of his needs. Thomas, Jr. was in the house on a more regular basis and was available to handle emergencies and to make certain that his father was taken care of in the event of a fall or other similar accident. However, Thomas, Jr. was not in a position to assume the type of care required by a person who was now in his mid-80's.

Robert was working seven days a week, twelve hours per day, and was not able to assume significant responsibility for his father. Mary Rose was living with her mother and still not welcome in the Millington household. Consequently, she was not in a position to assume any responsibility for her father. The testimony of Thomas Millington's brothers, sister-in-law, and friend indicate that they assumed much of the responsibility to see that groceries were purchased and to check on Thomas Millington. Throughout this period of time Mr. Millington was becoming increasingly less ambulatory, was losing his ability to drive on a regular basis, and was more dependent upon other persons to get him out of the home, purchase groceries, run errands, etc.

7. Beginning as early as 1987, Thomas Millington's brothers were discussing with Kimberly the question of long-term care for Thomas Millington. A diary kept by Frank Millington indicates that he was investigating nursing homes and other alternative living arrangements in the Detroit area. At the same time, Kimberly Millington was discussing with her uncles the possibility of Thomas Millington moving to Iowa and living with her. Kimberly and her husband began to construct an addition to their house which would include a bedroom, closet, and bathroom for Mr. Millington's use, in the event that he decided to come to Iowa to live with Kimberly and her family.

8. Thomas Millington was also aware of his needs and was a participant in the discussions concerning alternative living arrangements. Initially, he was reluctant to come to Iowa to live with Kimberly and her family. He felt that it would be a significant imposition upon Kimberly and her young children.

The situation became more critical in December, 1988. Thomas Millington was again hospitalized for complications of his diabetes, kidney disorder, and difficulties in eating. He was suffering from nausea, vomiting, and diarrhea. Upon discharge from the hospital, around Christmas, 1988, it became clear that Mr. Millington would require nearly full time care. Thomas, Jr. conducted a self-employed business as a fishing guide. Consequently, he was out of the house for several days at a time. As a result, some new arrangements were required for Mr. Millington's care, either in a nursing home or with a family member who could give him 24-hour attention.

Kimberly and her family were back in the Detroit area for the Christmas holidays during Mr. Millington's hospitalization. The various family members, including Thomas Millington himself, Kimberly and her husband, Thomas, Jr., Robert, and the brothers and sister-in-law of Thomas Millington were consulted about bringing Thomas Millington to Iowa. Eventually, it was agreed that bringing Thomas Millington to Iowa would be the best solution for all concerned. Robert and Thomas, Jr., concurred in this decision. Thomas Millington indicated to family members that he was greatly relieved that he was coming to live with Kimberly and that there would be someone to take care of him for whatever time he had left in his lifetime.

During the week between Christmas, 1988, and New Years Day, 1989, the Kleckner family transported Thomas Millington to Cedar Rapids, Iowa. It should be noted that the allegation contained in paragraph 3 of the complaint, which alleges that Kimberly Kleckner Millington removed her father from the Detroit area and brought him to Cedar Rapids, Iowa, by subterfuge and without the consent of Thomas Henry Millington has no basis in fact. It is the understanding of the Court that the plaintiffs have withdrawn that allegation. All the family members, except Mary Rose, were consulted and agreed that bringing Thomas Millington to Iowa was the best course of action. This decision was concurred in by Mr. Millington himself.

9. While in Iowa, Mr. Millington's health continued to deteriorate. Mr. Millington was a man in his mid 80's who suffered from diabetes and a number of serious complications from that disease. It is clear from the medical records and the testimony of the attending physician that Mr. Millington would not live any extended period of time. During his stay in Iowa he spent at least one-half of the time in the hospital and nursing homes. Eventually, Mr. Millington died at the age of 87 on July 2, 1989.

10. During Mr. Millington's stay in Iowa he had virtually no contact from his other children. Thomas, Jr. did not call or write at any time while Mr. Millington was in Iowa. Mary Rose was not even aware of the fact that Mr. Millington had moved to Iowa until July 2, 1989, when she received a telephone call from Robert advising her that her father had died in Cedar Rapids, Iowa. Mary Rose's lack of knowledge of her father's move to Iowa is one of the more unusual aspects of this case. She testified that prior to the move to Iowa she had frequent telephone conversations with her father and would visit with him 3-4 times per week. She testified that the last telephone call from her father was on December 26, 1989, and that he did not say anything to her about moving to Iowa.

In spite of the testimony about the close and frequent contacts between Mary Rose and her father, she lost all contact with him for over six months and did not even know that he had moved out of the Detroit area. Mary Rose testified that both she and her mother were bed ridden with their own serious illness. Yet, she also stated that she continued to try to telephone her father but no one ever answered the phone. She did indicate that if she had ever telephoned and found the telephone disconnected she would have immediately contacted someone to investigate what had happened to her father. Yet, Thomas, Jr. testified that he had a dispute with his father and Kimberly in May, 1989, and the phone was disconnected at the Thomas Millington residence in Redford, Michigan around mid-May, 1989. Thus, if Mary Rose had called at anytime between mid-May, 1989, and July 2, 1989, she would have found the phone disconnected. This is one of the serious inconsistencies that this Court finds in the testimony of Mary Rose and Thomas, Jr. Given the fact that Mary Rose did not know her father had left the Detroit area for over six months and that her father had made no attempt to contact her while he was in Cedar Rapids, leads the Court to the conclusion that testimony about the close and frequent contacts between Mary Rose and her father lacks credibility.

Robert had only slightly more contact with his father than Thomas Jr. and Mary Rose. He testified that he spoke with his father on two or three occasions while Thomas Millington was living with Kimberly. Kimberly was aware of only one telephone call from Robert. That call was received from Robert on Father's Day, 1989. There is testimony in the record that Thomas Millington did call Robert, in early to mid-June, about a $10,000 gift that Thomas Millington was making to Robert. This would account for two of the two or three contacts that Robert testified to as having with his father during the time Thomas Millington was in Iowa.

Kimberly testified that she called Robert frequently to seek advice and assistance concerning the care of her father. She indicated that she made frequent requests of Robert that he come to Iowa to visit his father. Robert said he could not recall those conversations with Kimberly, however, he could not deny that they occurred-. Kimberly's telephone records do show that in May and June, 1989, that she did frequently call Robert's residence.

Eventually, Robert and Thomas, Jr. did come to Iowa to visit their father the day before he died. Kimberly had advised Robert that his father was near death and they should come to Iowa to visit him before he died. Thomas, Jr. accompanied Robert, however, the testimony shows that he was very reluctant to do so. Thomas, Jr. came at the urging and direction of his mother, Thomas Millington's second wife, who purchased Thomas, Jr.'s airplane ticket. Both Robert and Thomas, Jr. stayed in Cedar Rapids for a few hours, visited their father, and then returned to Michigan. Thomas Millington died the next day.

During the period of time Thomas Millington was in Iowa, he did keep in contact with his two brothers, Frank and Alfred, his sister-in-law, Estelle Millington, and his close friend, Kenneth John MacDonald. Mr. Millington had regular written correspondence and telephone conversations with his brothers, sister-in-law, and longtime friend.

It is clear to the Court that Robert and Thomas, Jr. were very happy to have Kimberly take Thomas Millington to Iowa so as to relieve them of any responsibility for Thomas Millington's care. Once Mr. Millington was in Iowa, Robert and Thomas, Jr., essentially abdicated all responsibility for Mr. Millington's care to Kimberly. Evidence also shows, not unexpectedly, Mr. Millington was very disturbed by the lack of any letters or telephone calls from his sons.

11. At the time of Mr. Millington's move to Iowa, his assets consisted principally of the following:

  1. The home he had owned for many years, located at 13419 Arnold Street, Redford, Michigan.
  2. A joint bank account with Kimberly which had a balance of approximately $7,000 at the time of the move.
  3. A Pontiac automobile.
  4. Miscellaneous personal property and furniture.

In addition, Mr. Millington was receiving monthly Social Security Checks of $541 per month. Subsequent to the move to Iowa, he also received a property tax rebate of $1,200.

12. When Mr. Millington came to Iowa, Kimberly withdrew the funds that were in the joint account in Michigan, and brought a cashier's check, representing the account proceeds, with her to Iowa. The evidence shows that the account was a joint account which had been set up several years prior to Mr. Millington coming to Iowa. All the monies in the account were deposited by Mr. Millington, but Kimberly had access to the account and could have withdrawn money at any time. The proceeds of that check were deposited in the Kleckner's personal account at Collins Credit union.

On January 17, 1989, a new account was established at Collins Credit Union. This account was a joint account with right of survivorship in the names of Thomas H. Millington and Kimberly Kleckner Millington. Kimberly testified that the account was established principally for the purpose of providing for the direct deposit of Mr. Millington's Social Security Checks. Eventually, a direct deposit of the social security checks was arranged. All monies deposited into the joint account were from social security checks and the $1,200 tax refund received in March, 1989. Periodically, the monies deposited into the Thomas Millington/Kimberly Millington joint account would then be transferred out of that account into the Kleckner's personal account. A small balance remained in the account at the time of Mr. Millington's death, which balance became the property of Kimberly Millington as the surviving joint tenant.

13. It was eventually determined that the Pontiac automobile and house in Michigan would be sold. The automobile was sold because Mr. Millington no longer could drive and the Kleckner family had no use for the car. The car was sold in June, 1989, with the sale proceeds being placed in the Kleckner's personal account.

14. It was decided that the house would be sold because it became clear that Mr. Millington would not be in a position to ever return to the Detroit area and money was needed for possible nursing home care. The decision to sell the house was one that was made jointly between Thomas Millington and his daughter, in consultation with Mr. Millington's brother Frank. Eventually, a realtor was selected and a listing agreement was signed in March, 1989.

The sale of the house became more difficult by reason of the fact that Thomas, Jr. continued to live in the house, rent free, while Mr. Millington stayed in Iowa. Thomas, Jr. was to pay the utilities and taxes on the house, however, he was not meeting those responsibilities. He made it very difficult for realtors to show the house to perspective purchasers. If the realtor brought a prospective buyer to the home when he was at home, he would often be very hostile or would not even allow the home to be shown. if he was not at home, the doors would be locked and he would have large dogs roaming free in the house which would inhibit any realtor or perspective purchaser from viewing the home. When a buyer for the home was found, there was considerable dispute about removing Thomas Jr from the house. Frank Millington made some efforts to have Thomas, Jr. removed. Thomas, Jr. was not paying the utilities for the home and in mid-May Kimberly had all of the utilities to the house turned off. Thomas, Jr. then moved out and sent the bill for utilities, which included several months of unpaid utility bills, to Kimberly for payment.

Eventually, however, a buyer was found and a purchase agreement signed. As part of the sale transaction, it was determined that Thomas Millington would sign a power of attorney which would give Kimberly full authority to execute and sign any documents necessary to consummate the sale of the home. That power of attorney was signed and notarized at the Collins Credit Union on April 24, 1989.

The home was sold for $57,000 with a net proceeds, after deducting sale expenses, including delinquent real estate taxes, of $43,993.52 remaining. The sale proceeds were sent to Kimberly by a cashier's check which was then deposited into the Kleckner personal account.

15. The evidence shows that Kimberly received in excess of $58,000 from assets owned by her father. This figure is computed as follows:

a. Joint account with Kimberly and Thomas Millington $7,000.00
Tax refund 1,200.00
Car proceeds 2,600.00
House proceeds 43,993.52
Social Security checks, 6 months @ 541.00 per month 3,246.00
Total 58,039.52

Kimberly has accounted for $7,497.47 of expenses for her father's care. Those expenses are outlined in answer to interrogatory #6 in the interrogatory answers introduced into evidence as plaintiff's exhibit #13. In making this calculation, the following adjustments were made to the interrogatory answers:

Section I. All of the personal expenses totaling $4,596.57 were included.

Section II. The expenses for real estate taxes, water bill, and capping of a well were deducted;

Section III. A refund from the nursing home of $1,421 was deducted;

Section IV. All other expenses totaling $211.18 were included;

Section V. The Cedar Memorial Funeral expense of $570 was deducted leaving a net of $1,024.85. These figures total $7,487.47.

This figure does not include any expenses, which were not identified, which Kimberly says she has since discovered were expended on behalf of her father or any reimbursement to the Kleckners for the care and support they provided to Thomas Millington while he was living in their home.

16. In June, 1989, prior to Mr. Millington's death, Kimberly sent a check for $10,000 to her brother Robert. The balance of the proceeds from the sale of Mr. Millington's assets were expended on personal expenses of the Kleckners. A large portion of these expenditures involved repayment of student loans which had been incurred by both Kimberly and her husband. Most of these funds were expended in mid and late June, 1989.

17. It is Kimberly's contention that her father gifted to her all of the assets, not necessary for his support and care, except the $10,000 which was sent to Robert. This Court finds that the testimony and evidence shows that Thomas Millington did make a gift to his daughter, Kimberly Kleckner Millington, of all his assets, except the $10,000 sent to Robert.

In addition to Kimberly's own testimony about the gift, which the Court finds to be credible testimony, there is significant other supporting testimony and documentary evidence in the record which supports this finding. There is unrefuted testimony that Thomas Millington called his son Robert and indicated that he was making a gift of $10,000 to Robert and that Kimberly would be sending him a check shortly thereafter. Within a few days after that phone call, a $10,000 check from Kimberly was received by Robert. This sequence of events tends to support Kimberly's assertion that it was her father's intent to give all of the property to her, except for the $10,000.

Additionally, the evidence shows that Mr. Millington executed a will on May 12, 1989, which provided for the same testamentary disposition of his assets as the disposition which was made during his lifetime. That is, the will provided in Article V that Robert would receive $10,000, and further provided in Article VI that the balance of the estate would be distributed to Kimberly.

There is also significant evidence in the record that it had been Mr. Millington's intention for several years that the bulk of his estate go to Kimberly. The testimony of Mr. Millington's two brothers, sister-in-law and close personal friend, show that Kimberly had always been a particular favorite of Mr. Millington. In addition, he had often indicated that Kimberly would receive the house that Mr. Millington owned in Michigan upon his death. This testimony is supported by a number of documents which indicate this to be the intention of Mr. Millington. These documents include Frank Millington's journal entries and a quitclaim deed which Thomas Millington had previously given to Kimberly. The testimony shows that the issuance of the quitclaim deed to the house in Michigan in April, 1988, was for the purpose of making certain that Kimberly would get the house upon his death. Shortly after the issuance of the quitclaim deed, Mr. Millington asked Kimberly to reconvey the property to him because he discovered he would lose property tax credits for homestead and elderly if title to the property was not in his name. This sequence of events supports the finding that it was Mr. Millington's intention that Kimberly receive the house.

In addition to these facts, there are also letters from Thomas Millington dating back a number of years in which he indicated that the money in the joint account in Michigan was to be used by Kimberly as she pleased. The letters also indicated that he was enclosing blank checks and that she was free to write out a check for any amount at any time she felt the need for money. There is no evidence that Mr. Millington ever established a similar joint account with any of the other children or made such an offer of a blank check to Robert, Thomas, Jr., or Mary Rose.

In summary, this Court believes there is strong and compelling evidence in the record that Mr. Millington intended that Kimberly receive the bulk of his estate. If Kimberly had received the full net proceeds of the house, approximately $44,000, and the $7,000 joint account, she would have received proceeds in excess of $50,000. That amount of money is very close to the proceeds that the Kleckner family received from Mr. Millington during his lifetime after deducting the $10,000 gift to Robert. out of those proceeds, the Kleckners paid all of Mr. Millington's expenses for the last six months of his life.

18. The question then turns to the issue of whether Mr. Millington had the necessary mental capacity to make a gift to Robert and Kimberly during his lifetime or whether the gift was made as a result of the undue influence by Kimberly. Again, the Court finds that there is strong and compelling evidence to support the conclusion that Mr. Millington had the necessary mental capacity and that he was not under any undue influence when he made the gifts.

Mary Rose and Thomas, Jr. both testified that their father would not have made this gift unless Kimberly exerted undue influence. However, neither Thomas, Jr., nor Mary Rose, communicated with their father at any time while he was in Iowa. Consequently, they have no facts upon which to base their opinion, other than their own belief that Mr. Millington would have wanted to treat all his children equally.

Robert, on the other hand, did have some limited contact with his father. His father specifically called Robert in early or mid-June, 1989, to indicate that he was making a gift to Robert of $10,000. Robert testified that he believed his father did have the necessary capacity to make that gift to him at the time the gift was made, that he intended Robert to have the money, and that the gift was not made as a result of any undue influence by either he or Kimberly. The Court finds it highly inconsistent that Robert testified on one hand that the $10,000 gift to him was freely made with full mental capacity, while the concurrent gift to Kimberly of the remainder of the estate was made without mental capacity and was the result of undue influence.

Both Kimberly and her husband testified that Mr. Millington was mentally sharp and that he was fully aware of what he was doing. Mr. Kleckner testified as to Mr. Millington's ability to carry on lengthy conversations on the philosophy of life, the events of the world around him, and other various subjects. The Court notes, however, that the testimony of the Kleckners is obviously self-serving and accordingly should be given limited weight in determining mental capacity and undue influence. The Court finds the testimony of the Kleckners to be credible for the reason that there is strong corroborating evidence to substantiate their testimony.

A significant piece of corroborating testimony is the testimony of attorney Todd Anderson. Mr. Anderson is the attorney who prepared the will for Mr. Millington in May 1989. Mr. Anderson was contacted by Kimberly to prepare a will for her father and was given directions by Kimberly as to the contents of the will. While that procedure is somewhat suspect, Mr. Anderson determined for himself Mr. Millington's testamentary capacity, lack of undue influence, and the voluntariness of the testamentary disposition through a lengthy interview of Mr. Millington in the hospital. Mr. Anderson testified that he discussed with Mr. Millington the natural objects of his bounty, the assets of his estate, and the proposed distribution of his estate before he even showed Mr. Millington the will which he had prepared at Kimberly's direction. It was only after Mr. Anderson felt confident that Mr. Millington was capable of executing a will and that the will represented Mr. Millington's voluntary testamentary intentions that Mr. Anderson then went over the will with Mr. Millington. Again, Mr. Anderson testified that he reviewed the will very carefully with Mr. Millington and had Mr. Millington recite back to him the various provisions in the will to make certain that Mr. Millington fully understood the document he was signing. Mr. Anderson testified that he was confident that Mr. Millington had the necessary testamentary capacity and that he was not under any undue influence when he signed the will.

Finally, and most significantly, Mr. Millington's attending physician testified that it was her expert opinion that Mr. Millington was mentally competent to sign a will on May 12, 1989. Dr. Voigts testified that while there were periods when Mr. Millington appeared confused, principally during periods of illness, his "baseline" condition was one of being "alert and oriented."

The plaintiffs argue strenuously that there are indications in the medical record that there were periods when Mr. Millington appeared confused, as well as references in the medical records by a physician, other than the primary treating physician, that Mr. Millington suffered from "chronic dementia." The plaintiffs also point to the fact that forms have been filed with the Social Security Administration to have Kimberly appointed as the payee on Mr. Millington's social security checks and that Dr. Voigts had certified in those documents that Mr. Millington was not capable of handling his own financial affairs. However, the evidence also shows that the form signed by Dr. Voigts for the Social Security Administration indicates that Mr. Millington's inability to handle his financial affairs was a result of a physical incapacity, not a mental impairment. In addition, Dr. Voigts testified that she did not agree with the diagnosis of Dr. Dusdieker that Mr. Millington suffered from dementia. Dr. Dusdieker, who is an associate of Dr. Voigts, saw Mr. Millington at the time he was admitted to the hospital. Dr. Voigts indicated that it was very possible that at the time of admission, when Mr. Millington was quite ill, that he appeared confused. However, the medical records show that Mr. Millington's condition improved quickly while he was in the hospital and that he soon returned to an alert and oriented state. Finally, the evidence shows that Dr. Dusdieker was asked to express an opinion concerning Mr. Millington's physical and mental condition and declined to do so. Dr. Dusdieker indicated that he only had seen Mr. Millington twice and that he would defer to Dr. Voigts, the primary treating physician, as to an opinion of Mr. Millington's mental capacity.

In summary, the Court finds that there is evidence that at certain periods Mr. Millington may have been susceptible to undue influence. He was an elderly gentleman suffering from serious medical problems. In times of illness he was confused and probably could have been easily swayed. However, there is no evidence in the records to support a finding that Mr. Millington was not fully alert and oriented at the time he signed the will in May, 1989, or when he made the gift to Kimberly and Robert. Likewise, there is no evidence that Kimberly exerted any undue influence over her father in order to induce him to make the gift to her and Robert.

This Court finds that the gift to Kimberly and Robert was made while Mr. Millington had the necessary mental capacity to make an inter vivos gift and that the gift was not the result of any undue influence by the defendant, Kimberly Millington.

Conclusions of Law and Discussion

The issue before this court is whether the ultimate disposition of Mr. Millington's assets is the result of defalcation by a fiduciary or fraudulent conduct so as to result in any debt being non-dischargeable under 11 U.S.C. § 523(a)(2) and (4)(1). This court concludes as a matter of law that there was no fraud committed or defalcation by a fiduciary.

A. Defalcation as a Fiduciary

The plaintiffs argue that Kimberly Kleckner Millington committed fraud and/or defalcation while acting in a fiduciary capacity. Section 523(a)(4) provides:

  1. A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt--
    1. for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;

11 U.S.C. § 523(a)(4) (1992) (emphasis added). Plaintiffs argue that the power of attorney granted to Kimberly Kleckner Millington, the defendant, creates a fiduciary relationship for the purpose of § 523(a)(4) and that while acting in a fiduciary relationship she was guilty of fraud or defalcation.

The issue of whether Kimberly Millington was a fiduciary, pursuant to the power of attorney granted to her, raises difficult legal issues which this Court need not address in this decision. Federal law has traditionally given a narrow definition to what qualifies as a fiduciary under § 523(a)(4) of the Bankruptcy Code. Normally, an expressed trust must be present to establish the requisite relationship; a constructive or implied trust is not sufficient. In re Lewis, 94 B.R. 406, 409-410 (Bankr. E.D. Va. 1988); see also In re Taylor, 58 B.R. 849, 852-854 (Bankr. E.D. Va. 1986); In re Washington, 105 B.R. 947, 950 (Bankr. E.D. Cal. 1989); In re Short, 818 F.2d 693, 695 (9th Cir. 1987); In re Pedrazzini, 644 F.2d 756, 758 (9th Cir. 1981). The class of fiduciary contemplated under § 523(a)(4) is a special class which includes guardians, administrators, executors, public officers, or trustees of an expressed trust, but does not normally include agents, bailees, brokers, factors, or partners. In re Holman, 42 B.R. 848, 851 (Bankr. E.D. Mo. 1984).

This strict rule that the fiduciary relationship referred to in § 523(a)(4) must arise out of an expressed trust relationship has been the subject of much litigation over which types of relationship rise to the level of a fiduciary for purposes of § 523(a)(4). Deciding whether an express or technical trust exists, the courts must look to relevant nonbankruptcy law. In re Dloogoff, 600 F.2d 166, 168 (8th Cir. 1979). A number of courts have held, including the United States District Court in this district, that no magic words are required to create a trust and that a technical trust may arise out of the relationship between the parties and any underlying federal or state regulatory statutes or rules. See In re Smith, 72 B.R. 61, 62-63 (N.D. Iowa 1987).

Bankruptcy Courts have split on whether an agent, such as a person holding a power of attorney, is a fiduciary for purposes of § 523(a)(4). This split results from the varying ways in which state laws define powers of attorney. See In re Barwick, 24 B.R. 703, 705-706 (Bankr. E.D. Va. 1982) (interprets Virginia law to conclude that persons acting under powers of attorneys are technical trustees); In re Schneider, 99 B.R. 974, 977 (Bankr. 9th Cir. 1989) (interpreting Oregon law to allow for express trusts that have not been evidenced by a writing); In re McMahon, 116 B.R. 857, 862-863 (Bankr. M.D. Fla. 1990) (finding no fiduciary capacity because powers of attorney were revoked at death or incapacity); In re Cooper, 30 B.R. 484 (Bankr. 9th Cir. 1982) (same). Some bankruptcy courts have found that in particular situations mere agency relationships can still meet the requirements of "fiduciary capacity" under § 523(a)(4). In re Weiner, 95 B.R. 204, 206 (Bankr. D. Kan. 1989) (recognizes the express trust requirement, but then finds an exception if there are additional facts that the Court finds compelling). In In re Burgess the court found that a power of attorney relationship, although it was not an express trust, still created "fiduciary capacity" within the scope of § 523(a)(4). 106 B.R. 612, 620-621 (Bankr. D. Neb. 1989).

This Court feels, however, that the question of whether a power of attorney creates a fiduciary relationship pursuant to § 523(a)(4) can await another day for determination. The Court concludes that even assuming, arguendo, there was a fiduciary relationship between Kimberly Millington and her father, that the evidence clearly shows there was no defalcation or fraud.

In order to establish defalcation the plaintiffs do not need to establish intentional wrongdoing, but only that the defendant in her fiduciary capacity failed to account fully for all the money that she received in her fiduciary role. In re Smith, 72 B.R. 61, 63 (N.D. Iowa 1987). See also Central Hanover Bank & Trust Co. v. Herbst, 93 F.2d 510, 511 (2nd Cir. 1937); In re Kawczynski, 442 F.Supp. 413, 418 (W.D.N.Y. 1977); In re Byrd, 15 B.R. 154, 156 (Bankr. E.D. Va. 1981); In re Barwick, 24 B.R. 703, 706 (Bankr. E.D. Va. 1982). Mere negligence or ignorance is enough to meet the defalcation standard. In re Smith, 72 B.R. at 63.

Plaintiffs have not established any defalcation by Kimberly in this case. The evidence strongly indicates that Thomas Millington made a gift of the assets to his daughter Kimberly Kleckner Millington. Moreover, pursuant to Thomas Millington's request, Kimberly remitted $10,000 of the assets to her brother Robert Millington. Kimberly did not fail to meet the requirements of any fiduciary duty she may have had for the reason that she was following the wishes of her father. As stated previously in the finding of facts, there is ample testimony and documentary evidence in the record to support this conclusion. Therefore, the plaintiffs have failed to prove by a preponderance of the evidence that there was a defalcation.

B. Fraud

Plaintiffs also argue that the defendant perpetrated a fraud pursuant to § 523(a)(2)(A) and that the debt should be nondischargeable for that reason. Section 523(a)(2)(A) states:

  1. A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--
    1. for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by--
      1. false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;

11 U.S.C. § 523(a)(2)(A) (1992). Plaintiffs must prove by a preponderance of the evidence that any debt owed was obtained by fraud. Grogan v. Garner, ___ U.S. ___, 111 S. Ct. 654, 659, 112 L. Ed. 2d 755 (1991). Specifically, the plaintiffs plead that through false pretenses, false representations, or actual fraud the defendant obtained a power of attorney and a will that left the entire Thomas Millington estate to the defendant. Plaintiffs further allege that defendant sold the assets of Thomas Millington without his authority and, thereafter, converted the proceeds to her own use.

Under Eighth Circuit authority the plaintiffs must prove the following elements to establish fraud under § 523(a)(2)(A):

  1. the debtor made the representations;
  2. that at the time she knew they were false;
  3. that she made them with the intention and purpose of deceiving the creditor;
  4. that the creditor relied on such representations;
  5. that the creditor sustained the alleged loss and damage as the proximate result of the representation having been made.

In re Ophaug, 827 F.2d 340, 342 n.1 (8th Cir. 1987); In re Dallam, 850 F.2d 446, 449 (8th Cir. 1988). However, under Iowa law:

. . . a gift obtained by a person standing in a confidential or fiduciary relation to the donor is presumptively fraudulent, and when its validity is assailed, the burden is upon the donee to rebut the presumption of overreaching on his part and to affirmatively establish that in acquisition of the property he took no advantage of the donor by reason of their relationship, but that the donor acted voluntarily, with freedom, intelligence, and full knowledge of the facts.

Marron v. Bowen, 235 Iowa 108, 16 N.W.2d 14 (1944); See also Merrit v. Easterly, 226 Iowa 514, 284 N.W. 397 (1939).

There was clearly a confidential relationship between Kimberly and her father as evidenced by the father-daughter relationship and the fact that Thomas Millington lived in his daughter's home for a period of time before his death. This Court, after carefully weighing the facts, finds that Kimberly Kleckner Millington has met the burden of rebutting the presumption of fraud and has clearly established that her father, acting of his own free will, intended that all his property, minus the $10,000 gift to Robert, go to Kimberly.

The persuasive testimony of Kimberly and her husband, combined with corroborating testimony of others who knew Thomas Millington including all of his living brothers, convinces this Court that Mr. Millington acted voluntarily, of his own free will, and with full knowledge of all the facts when he made the gift to Kimberly. The facts show that, except for brief periods of dementia at the time of admittance to the hospital, he was "alert and oriented." His attending physician has testified that in her expert opinion Thomas Millington was mentally competent to sign a will on May 12, 1989. Further, the attorney that drafted the May 1989 will conducted a lengthy interview prior to execution of the will in which he sought to assure himself that Thomas Millington knew the natural objects of his bounty, the assets of his estate, and the proposed disposition of his estate. Mr. Anderson, the attorney, was confident that Mr. Millington had the requisite mental capacity.

Thomas Millington's action of giving the majority of his estate to Kimberly is only the result of a long standing intent to benefit Kimberly, not a result of false pretenses, false representation, or actual fraud. The question is whether he had sufficient capacity to fully understand and consent to the transactions that led to the sale of his house and subsequent gift of the proceeds to Kimberly and Robert. This Court concludes that he did have the requisite capacity.

CONCLUSION

This Court concludes that the plaintiffs have failed to meet their burden of establishing by a preponderance of the evidence that Kimberly Millington owes any debt that would not be dischargeable under § 523(a)(2)(A) & § 523(a)(4) of the Bankruptcy Code.

ORDER

IT IS THEREFORE ORDERED that plaintiffs' complaint is dismissed. Any debt which may be due and owing by Kimberly Kleckner Millington to either the estate of Thomas H. Millington or Mary Rose Millington, Robert Hendricks Millington, or Thomas Henry Millington, Jr., individually or in their representative capacity, is discharged.

DONE AND ORDERED this 10th day of February, 1992.

Michael J. Melloy
Chief Bankruptcy Judge


In the United States District Court

for the Northern District of Iowa

Cedar Rapids Division


Kimberly Kleckner Millington
Debtor.

MARY ROSE MILLINGTON ROBERT
HENDRICKS MILLINGTON and
THOMAS HENRY MILLINGTON JR.
No. C92-126
Plaintiffs/Appellants
vs.
KIMBERLY KLECKNER MILLINGTON
Defendant/Appellee

ORDER


The matters before the Court are Plaintiffs' appeal from United States Bankruptcy Judge Michael J. Melloy's dismissal of their adversary dischargeability complaint, and Defendant's resistance to that appeal. After careful consideration, it is the Order of this Court that Judge Melloy's ruling is upheld and Plaintiffs' appeal is denied.

I. FACTS

The facts recited here are largely those facts found by Judge Melloy, with which both sides seem to agree. Defendant is the executrix of the Estate of Thomas Henry Millington (hereinafter the Deceased). The Deceased's first marriage ended in divorce. Plaintiff Mary Rose Millington was the only child of his first marriage. Defendant and Plaintiffs Robert Millington and Thomas Millington Jr.. were the children of the Deceased's second marriage. All of the children were born and raised in the Detroit, Michigan area.

When Plaintiff Mary Rose Millington was approximately 20 years old, she lived for a short time with the Deceased, his new wife and their son Robert. Eventually, she moved out. From that time forward, Mary Rose was a sore subject between the Deceased and his second wife. Consequently, with the exception of Plaintiff Robert, the Deceased's children by his second wife never met nor spoke with Plaintiff Mary Rose until after the Deceased's death in July, 1989. Without her half-siblings knowledge, Plaintiff Mary Rose worked with her father in his interior design business from approximately 1953 through 1967. After 1967, Plaintiff Mary Rose no longer worked with her father, but remained in contact with him because he regularly visited the home which she shared with her mother.

In the mid- to late-1980s, the Deceased became ill. He suffered from diabetes and its complications, which included kidney disease. The Deceased also suffered from problems related to prior pancreatic surgery and from recurrent digestive problems which required periodic hospitalization. In the early 1980s, Defendant Kimberly Millington assumed the primary responsibility for visiting the Deceased in the hospital and taking care of him during his recuperation at home. At this time, Thomas Jr. was living in the Deceased's home in Detroit, but could not be depended upon to take care of the Deceased when he returned home from the hospital.

In 1985, the Deceased's health continued to deteriorate. The Defendant Kimberly's husband obtained a job at Rockwell Collins - a firm in the Cedar Rapids, Iowa area. The new job required that Defendant and her husband move from Michigan to Iowa. The couple moved during the December 1985/January 1986 holiday season, and continue to reside in Cedar Rapids.

As a result of the Defendant's move, the Deceased's care in Detroit became unreliable. Defendant could only visit her family in the Detroit area three to four times a year, and could not always be available to tend to her father. Plaintiff Thomas Jr. was in the house on a more regular basis by this time, but did not assume the responsibility of providing care for the Deceased. Plaintiff Robert could not provide much care for the Deceased, either, since he was working 12 hours a day, seven days a week. And, Plaintiff Mary Rose, still not welcome in the Deceased's home, was in no position to assume responsibility for the care of the Deceased. Testimony at the Bankruptcy trial revealed that during the latter 1980s, the Deceased became increasingly less ambulatory and was losing his ability to drive on a regular basis. Since his children, Plaintiffs Robert and Thomas Jr. were not helping him enough at home, the Deceased depended upon his brothers, his sister-in-law and a friend to perform most of the household chores.

In 1987, Plaintiff Frank Millington was investigating nursing homes and other alternative living arrangements in the Detroit area. Concurrently, the Defendant Kimberly was discussing with the Deceased's brothers -- her uncles -- the possibility of the Deceased moving to Iowa to live with her. The Defendant Kimberly and her husband had already begun construction of an addition to their house for the deceased, which included a bedroom, a closet and a bathroom. The deceased was initially reluctant to move to Iowa, thinking it would be a major imposition on the Defendant.

By December, 1988, the Deceased's health deteriorated to the point where he was hospitalized for complications from his diabetes, including kidney disorders and eating difficulties which resulted in diarrhea, nausea and vomiting. On December 15, 1988, he signed a Will which left his property in equal shares to each of his children. During that same time period, the Deceased decided to move to Iowa, and with the agreement of all of the Plaintiffs(2), he was transported to Defendant Kimberly's home in Cedar Rapids during the week between Christmas, 1988 and New Years Day, 1989.

After he came to Iowa, the Deceased became increasingly ill. He initially spent nearly all of his time with the Defendant, Kimberly. The Deceased, soon thereafter, spent nearly half of his time in hospitals and nursing homes. He was regularly visited by the Defendant during this time, but from the evidence submitted, none of the rest of his children made an effort to contact him. The evidence shows that, between the time that he moved to Iowa and the time he died, he spoke only three times on the telephone with Plaintiff Robert, he never heard from Plaintiff Thomas Jr., who never wrote or called, and never heard from Plaintiff Mary Rose, who apparently was not even aware that the Deceased was living in Iowa.

On July 2, 1989, the Deceased died.

The Deceased's Assets

When the Deceased moved to Iowa, his assets consisted of the following:

a. His home at 13419 Arnold Street, Redford, Michigan;

b. A joint bank account with Defendant Kimberly(3) which had a balance of approximately $7,000 at the time of the move;

c. A Pontiac automobile;

d. Miscellaneous personal property and furniture;

e. Monthly Social Security checks for $541; and

f. A property tax rebate of $1,200.

When the Deceased came to Iowa, the Defendant Kimberly withdrew $7,000 from the Michigan joint checking account in the form of a Cashier's Check, and deposited that Cashier's Check into a personal account which she shared with her husband at Collins Credit Union in Cedar Rapids (hereinafter the Defendant/Husband personal account). On January 17, 1989, a joint account was established by the Defendant and the Deceased (hereinafter the Defendant/Deceased joint account). The Defendant/Deceased joint account was set up so that the Deceased could have his Social security checks direct-deposited in Iowa, and so that the Plaintiff could make necessary withdrawals from the account. The Defendant/Deceased joint account was established to include a right of survivorship provision. Periodically, the Defendant transferred Defendant/Deceased account funds to the Defendant/Husband personal account. At the time of the Deceased's death, only a small balance remained in the Defendant/Deceased joint account.

After the Deceased moved to Iowa, the Pontiac automobile and the Detroit area house were sold. The car was sold in June, 1989 for $2,600 with the proceeds going to the Defendant/Husband personal account. The Defendant Kimberly and the Deceased jointly agreed to sell the house. However, attempts to sell the house were made difficult by the fact that Plaintiff Thomas Jr. continued living there and refused to leave. The evidence shows that Plaintiff Thomas Jr. was hostile toward realtors who would attempt to show the house to prospective buyers. While living in the house, Plaintiff Thomas Jr. reneged on a prior promise to pay the utilities and taxes on the home, making a sale of the house more complicated with the potential of added encumbrances.

Once a buyer was found, Plaintiff Thomas Jr. refused to leave. In mid-May, 1989, Defendant had the utilities in the house turned off. At that point, Thomas Jr. moved out and sent to his sister, the Defendant, several months' worth of unpaid utility bills. Eventually, a purchase agreement was signed. As part of the sale transaction, it was determined that the Deceased would sign a Power of Attorney (hereinafter POA) giving the Defendant full authority to execute and sign any documents necessary to effectuate the sale of the house.

On April 24, 1989, the Deceased signed the POA. The house was sold for $57,000, with net proceeds, after deducting sale expenses and delinquent real estate taxes, of $43,993.52 which were sent to Defendant Kimberly by a Cashier's Check and deposited in the Defendant/Husband personal account. The total amount received by Defendant from assets owned by the Deceased was as follows:

a. Joint account: $ 7,000
b. Tax refund: $ 1,200
c. Car proceeds: $ 2,600
d. House proceeds: $ 43,993.52
e. Monthly SS checks @ $541 for 6 months: $ 3,246
58,039.52

At trial, Defendant testified that she spent approximately $7,497.47 on the Deceased's medical services while he was living in Iowa.

On May 12, 1989, the Deceased executed another Last Will which provided in Article V that Plaintiff Robert would receive $10,000 and provided in Article VI that Defendant would receive the balance of the estate assets. In June, 1989, at the behest of the Deceased (prior, of course, to his death), the Defendant sent a $10,000 check to Plaintiff Robert and spent all but a very small amount of the balance on personal expenses, and in particular the student loan obligations of Defendant Kimberly and her husband.(4)

At the time of the Deceased's death in July, 1989, Defendant Kimberly had nearly depleted the assets from her father's estate, having from her point of view effectively probated his estate by carrying out his testamentary requests prior to his death. After the Deceased's death, the Defendant Kimberly filed for bankruptcy. Subsequently, Plaintiffs initiated this suit in the United States Bankruptcy Court for the Northern District of Iowa, alleging that they were the Defendant's creditors, and that they were entitled to a portion of the Deceased's estate assets. In his ruling, Bankruptcy Judge Melloy determined that no debt to Plaintiffs was due or owing from Defendant and Judge Melloy dismissed the Plaintiffs' objections to the discharge of the Defendant Kimberly. Plaintiffs appealed Judge Melloy's ruling to this Court pursuant to Bankruptcy Rule 8013.

II. DISCUSSION

Under Bankruptcy Rule 8013, the District Court on review is bound to uphold all factual findings of the bankruptcy judge unless they are found to be clearly erroneous. See In reArkansas, 827 F.2d 1219, 1221 (8th Cir. 1987); In re Hunter, 771 F.2d 1126, 1129 (8th Cir. 1985). The Court may, however, correct errors in the application of law.

1. Whether Judge Melloy erred in not finding a fiduciary relationship between Defendant and the Deceased?

Plaintiffs argue that Judge Melloy improperly failed to find a fiduciary relationship between the Defendant and the Deceased. Had he found such a relationship, Plaintiffs argue, he surely would have found either defalcation of that duty or fraud on Defendant Kimberly's part, given the testamentary distributions in the May, 1989 Will (which had the effect of disinheriting two of the Deceased's children, and which limited Robert's inheritance), as compared with the Deceased's prior, December, 1988 Will, under which the Deceased's assets would have been divided between his children in equal shares.

a. Fiduciary relationship

Plaintiffs' claims of fraud and defalcation are dependent upon a finding that Defendant Kimberly was the Deceased's f fiduciary under 11 U.S.C. Section 523(a)(4)(5). Plaintiffs claim that Defendant had a fiduciary duty to the Deceased, and that Defendant breached that duty by allegedly influencing him to rewrite his Will against his true wishes at a time when he was ill and susceptible to undue influence.

Plaintiffs argued these issues before Judge Melloy. In his ruling, Judge Melloy looked at traditional federal law, which narrowly defines a "fiduciary" as a person involved in an express trust, and which establishes that a person involved in a constructive or implied trust is not a fiduciary. In re Lewis, 94 B.R. 406, 409-10 (Bankr. E.D. Va. 1988) See also, In re Holman, 42 B.R. 848, 851 (Bankr. E.D. Mo. 1984). An express trust consists of: (1) a document creating the trust; (2) a definite subject matter and beneficiary; (3) a specific res as a trust corpus; and (4) the specific intent to create a fiduciary relationship. In re Chick, 53 B.R. 697 (Bankr. D.C. Or. 1985).

After careful consideration of the case law in this area, Judge Melloy concluded that the Defendant Kimberly was not a fiduciary.

In their brief to this Court, the Plaintiffs allege a "technical fiduciary relationship" between Defendant and the Deceased, based upon the POA for the sale of the Deceased's Michigan home. Plaintiffs cite as authority two Iowa cases, one of which holds that agency relationships are "fiduciary" in character, requiring a high degree of honesty." Miller v. Berkoski, 297 N.W.2d 334, 340 (Iowa 1980), and the other which holds that "the relationship between (a] broker or agent and his/her principal is confidential and fiduciary, including the strict duty of undivided loyalty and disclosure." Menzel v. Morse, 362 N.W.2d 465, 474 (Iowa 1985). Plaintiffs assert that these cases show that there was a "technically" fiduciary relationship between the Defendant and the Deceased pursuant to the terms of the Power of Attorney document, and that the Defendant breached her fiduciary duty by commingling the proceeds from the sale of the Deceased's Michigan home with her personal finances, and by using those proceeds to pay her school loans, her husband's school loans and other debts.

This Court is persuaded that Judge Melloy's ruling on the fiduciary duty issue was sound. The Court is so-persuaded, based not only on Judge Melloy's reasoning, but on its own research, as well. In researching this issue, this Court found a 1985 Eighth Circuit case which states that 11(i)t has long been established that the Bankruptcy Act reference to "fiduciaries" applies only to trustees of express trusts (citation omitted). . . The Code does not reach constructive trustees, designated as such because of misconduct." Barclay's v. Long, 774 F.2d 875, 878 (8th Cir. 1985). The Eighth Circuit has traditionally applied a narrow definition to "fiduciaries" under Section 523(a)(4), and has only found fiduciary relationships in the context of express trusts. Indeed, Plaintiffs appear to concede this point by attempting to develop an argument for a "technical" fiduciary relationship. Judge Melloy did not accept this argument, and this Court finds that Judge Melloy was not clearly erroneous.

The evidence showed that the Defendant was the only one of the Deceased's children who "continuously" provided care for him. Although it is true that the Defendant Kimberly did not provide care for the Deceased between the time she initially moved to Iowa and the time when the Deceased moved here to be with her, the facts show that during that timespan none of the Deceased's other children provided care for him on an on-going basis. The evidence further showed that for several years, the Deceased and the Defendant shared a joint bank account in Michigan, and soon after the Deceased moved to Iowa, another joint account was established here. The Defendant stated that the reason the joint account was opened was to ensure the prompt delivery to the Deceased of his Social Security checks.

As further set out elsewhere in this Order, the facts show that the Defendant Kimberly acted as though she had been appointed administrator when it came to disposing of his estate. On the one hand, for several years prior to his death the Deceased regularly expressed to his brothers, his sister-in-law and a friend that he wanted to leave the bulk of his estate to the Defendant. The facts also show, however, that just prior to his move to Iowa, the Deceased had executed a Will which provided for the disposal of his assets to each of his children in equal shares. Although the Court cannot reconcile this seeming inconsistency, the Court is not persuaded that this inconsistency shows that Judge Melloy's ruling was clearly erroneous. Therefore, the Court is persuaded that Plaintiffs' request for a reversal of Judge Melloy's ruling on the basis of a fiduciary relationship between the Deceased and the Defendant in this case must be denied.

2. Whether Judge Melloy erred in failing to find undue influence and conversion of assets through fraud and defalcation?

According to Judge Melloy's ruling, the key issue in this case was not whether Plaintiff was a fiduciary to the Deceased, but instead whether fraud or defalcation existed. Judge Melloy found the existence of neither in this case.

a. Defalcation

Defalcation is defined in Section 523(a)(4) as a situation in which a Defendant, while in a fiduciary capacity, failed to account fully for all the money received on behalf of the beneficiary. In re Smith, 72 B.R. 61, 63 (N.D. Iowa 1987); Central Hanover Bank & Trust v. Herbst, 93 F.2d 510, 511 (2d Cir. 1937). Judge Melloy determined that under this standard, mere negligence or ignorance is enough to result in defalcation. Smith, 72 B.R., at 63 (emphasis added). Despite this standard, Judge Melloy found that Defendants failed to establish defalcation in this case.

Judge Melloy was persuaded by the fact that Deceased's Last Will reflected the same disposition of the Deceased's assets as the disposition made at his behest by the Defendant prior to the Deceased's death. Judge Melloy was also persuaded by the testimony of the Deceased's siblings and one of the Deceased's close friends, who said that the Deceased had for many years expressed a desire to leave the bulk of his estate to the Defendant (DR. 124-160; 571-622). Given this evidence, Judge Melloy concluded that the Defendant did not fail to fully account for the money she received, but instead distributed it in the manner requested by the Deceased. Judge Melloy found no defalcation in this case, and he denied Plaintiffs' request for a denial of debt discharge to the Defendant.

Plaintiffs argue that the Defendant engaged in defalcation by commingling the house sale proceeds with her own finances "at a time when her father was at his weakest, and when he desperately needed the establishment of long-term nursing care" (Plaintiffs' Brief, at p. 7). They point out that those funds were transferred to the Defendant/Husband personal account, and were "substantially used to pay the past debts of the Defendant and her husband" while the Deceased was still alive (Plaintiffs' Brief, at p. 7) rather than for the Deceased's medical care. At the hearing in this case, the Plaintiffs noted that by the time the Deceased died, the Defendant Kimberly had almost depleted the entirety of the Deceased's assets by paying off student loans. The hearing court noted, too, that had the Deceased lived a few months longer, no estate assets would have been available to pay the Deceased's medical bills.

Notwithstanding what might have happened had the Deceased lived longer, the fact remains that the Deceased's bills were paid prior to his death. As mentioned above, the Court is persuaded that it was not clearly erroneous for Judge Melloy to conclude that by paying Plaintiff Robert $10,000 and using the bulk of the estate assets as she saw fit, the Defendant was carrying out the longstanding wishes of the Deceased, which does not amount to fraud in this instance. As mentioned, the Deceased had consistently remarked to his brothers and others of his desire to leave the Defendant the bulk of his assets. Therefore, the Court is persuaded that Judge Melloy's determination on the issue of defalcation must stand.

b. Fraud

Having found no defalcation on Defendant's part, Judge Melloy next considered the issue of fraud. Fraud is defined in 11 U.S.C. Section 523(a)(2)(A), as the obtaining of money, property, services, an extension, renewal or refinancing of credit by "false pretenses, a false representation, or actual fraud,' other than a statement respecting the debtor's or an insider's financial condition." The Eighth Circuit's interpretation of what the elements of fraud are under Section 523(a)(2)(A) is set out as follows:

1. That the debtor made representations;

2. That the debtor knew when she made them that the representations were false;

3. That the debtor made them with the intention and purpose of deceiving a creditor;

4. That the creditor relied on such representations;

5. That the creditor sustained the alleged loss and damage as the proximate result of the representation having been made.

See, In re Ophaug, 827 F.2d 340, 342 n. 1 (8th Cir. 1987); In reDallam, 850 F.2d 446, 449 (8th Cir. 1988).

Judge Melloy ruled that there "clearly" was a confidential relationship between the Defendant and the Deceased. This was so, he wrote, because the Defendant and the Deceased were father and daughter, and the Deceased was closer to the Defendant -- both emotionally and geographically -- than to any of his other children at the time when he wrote his Last Will, and at the time his testamentary dispositions were-carried out, inter his testamentary dispositions were-carried out, inter vivos, by the Defendant. Nonetheless, Judge Melloy determined that the Defendant adequately rebutted the presumption of fraud in this case by demonstrating that she disposed of the Deceased's assets in accordance with the Deceased's voluntary and competent directions.

In his ruling, Judge Melloy cited testimony which tended to show that the Deceased acted voluntarily, of his own free will, and with knowledge of all relevant facts when he articulated to the Defendant his desired means and method for the disposal of his assets. Judge Melloy noted with particularity the testimony of the Deceased's attending physician, Dr. Voigt, who stated that although the Deceased suffered occasional dementia while in the hospital, he was "alert and oriented" for the majority of his stay and he was mentally competent when he signed the will (D.R. 28-29). Judge Melloy concluded that "Thomas Millington's action of giving the majority of his estate to Kimberly is only the result of a long standing intent to benefit Kimberly, not a result of false pretenses, false representation, or actual fraud" (D.R. 29).

Plaintiffs argue that Judge Melloy erred in finding no fraud in this case. They maintain that fraud can occur whenever someone standing in a confidential relationship with another person takes advantage of that relationship in order to effectively gather the other's assets and convert them to her use. This, they say is what occurred in our case. Plaintiffs cite Marron v. Bowen, 235 Iowa 108, 16 N.W.2d 14 (Iowa 1944) for the proposition that

a gift obtained by a person standing in a confidential or fiduciary relation to the donor is presumptively fraudulent, and when it's validity is assailed, the burden is upon the donee to rebut the presumption of overreaching on his part and to affirmatively establish that in acquisition of the property he took no advantage of the donor by reason of their relationship, but the donor acted voluntarily, with freedom, intelligent and full knowledge of the facts.

As stated elsewhere in this Order, the Plaintiffs assert that a "technical" fiduciary relationship existed here, and further assert that the testamentary dispositions in this case show clearly that the Defendant violated her fiduciary responsibilities by allegedly forcing her father, who was ill and subject to undue influence, to sign away the majority of his assets to her against his true wishes. As previously mentioned, they note differences between the testamentary dispositions in the December Will and those in the Deceased's Last Will, which was signed approximately five months later.

Plaintiffs also cite testimony which allegedly demonstrated that the Deceased suffered not from "occasional" dementia, but instead from "chronic" dementia, which Plaintiffs maintain made the Deceased subject to the Defendant's undue influence. The testimony which the Plaintiffs refer to came from visiting nurses who were familiar with the Deceased and from Dr. Dusdieker, who was a physician assisting Dr. Voigt in the care of the Deceased. Plaintiffs also cite the fact that Dr. Voigt stated in her deposition that Defendant could no longer control his financial affairs while under her care as more proof of the Deceased's unstable mental condition.

Finally, Plaintiffs argue that under Luse v. Grenko, 251 Iowa 211, 214, 100 N.W.2d 170, 172 (Iowa 1959), "where it clearly appears that the transferee of money or property was the dominant person in a confidential relationship with the transferor, a presumption arises that the transfer was obtained by fraud or undue influence" and that, contrary to Judge Melloy's ruling, Defendant did not meet the burden here.

Despite these arguments, which were rejected, the Court is persuaded that Judge Melloy was not clearly erroneous in finding that the Plaintiff had overcome the presumption of fraud in this case. Initially, regarding the Deceased's ability to handle his financial affairs, Judge Melloy determined that Dr. Voigt's determination that the Deceased was unable to handle his financial affairs was due to a physical, not mental impairment.(6)

Therefore, Judge Melloy was not clearly erroneous in finding that Dr. Voigt's statement did not give rise to the possibility of undue influence in this case.

The Court is also persuaded that Judge Melloy was not clearly erroneous when he weighed the testimony of the medical is personnel who cared for the Deceased near the time of his death. Although the Deceased may have suffered occasional dementia during his final months, the testimony of attending physician Dr. Voigt demonstrated that the Deceased was not under a mental impairment when he signed his Last Will. The Court is persuaded that Judge Melloy was not clearly erroneous in concluding that the testimony of the visiting nurses and Dr. Dusdieker to the effect that the Deceased suffered "chronic dementia" during his final months did not contradict Dr. Voigt's testimony because the visiting nurses only saw the Deceased occasionally -- perhaps each time he was suffering from dementia -- while Dr. Voigt, as the Deceased's attending physician, saw him regularly. As well, the Court is persuaded that Dr. Dusdieker's claims about the Deceased"s "chronic dementia" are discounted by her January 18, 1990 note, which referred all inquiries about the Deceased's mental capacity to Dr. Voigt, since that note showed that Dr. Dusdieker recognized that Dr. Voigt had superior knowledge of the Deceased's condition, since Dr. Voigt was the Deceased's attending physician.

For these reasons and for all of the reasons stated above, this Court is persuaded that Judge Melloy was not clearly erroneous in determining that the Defendant Kimberly did not fraudulently induce the Deceased to give the bulk of his estate to her prior to his death.

Finally, on the issue of the circumstances surrounding the writing and execution of the Deceased's Last Will, Judge Melloy conceded in his ruling, and this Court agrees, that the circumstances were, to say the least unique and suspect. There is no denying the fact that the Deceased's Last Will was written by the Defendant and was in final form when the attorney who prepared it first met the Deceased.

Judge Melloy determined, however, that it was enough that Attorney Anderson met with the Deceased, discussed the testamentary dispositions with the Deceased, made an independent assessment of the Deceased's ability to know and understand the nature and extent of his assets and how they were going to be distributed, and then determined that the disposition was voluntary and knowing, and without any outside influences (D.R. 20-21). Therefore, this Court finds that Judge Melloy was not clearly erroneous in finding no undue influence and fraud in this case.

IT IS THEREFORE ORDERED that Judge Melloy's Ruling Dismissing the Plaintiffs' objections to Defendant Kimberly's discharge in bankruptcy is hereby upheld.

IT IS FURTHER ORDERED that Plaintiffs' request that this Court deny Defendant Kimberly's discharge of debts allegedly owed to her siblings from her father's estate is hereby denied.

IT IS FURTHER HEREBY ORDERED that this appeal is hereby dismissed.

February 11, 1994.

Donald E. O'Brien, Senior Judge
UNITED STATES DISTRICT COURT


1. All statutory references are to the Bankruptcy Code, as amended, 11 U.S.C. §§ 101-1330 (1992).

2. Except, of course, for Mary Rose who was not notified.

3. This account was established by the Deceased several years before his move to Iowa. All of the money in the account was deposited by the Deceased, but Defendant Kimberly had access to the account and could have withdrawn, and did withdraw, money at any time.

4. Judge Melloy found that "In June, 1989, prior to Mr. Millington's death, Kimberly sent a check for $10,000 to her brother Robert. The balance of the proceeds from the sale of Mr. Millington's assets were expended on personal expenses of the Defendant Kimberly and her husband. As mentioned, a large portion of these expenditures involved repayment of student loans which had been incurred by both Kimberly and her husband. Most of these funds were expended in mid and late June, 198911 (DR. 16).

5. 11 U.S.C. Section 523(a)(4) allows creditors to overcome debtors' debt discharges "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny."

6. Judge Melloy found that "(t)he plaintiffs also point to the fact that forms have been filed with the Social Security Administration to have Kimberly appointed as the payee on Mr. Millington's social security checks and that Dr. Voigts had certified in those documents that Mr. Millington was not capable of handling his own financial affairs. However, the evidence also shows that the form signed by Dr. Voigts for the Social Security Administration indicates that Mr. Millington's inability to handle his financial affairs was a result of a physical incapacity, not a mental impairment" (D.R. 21-22).