By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
Schacher v. Dolph (In re Dolph)
Oregon Bankruptcy Court Case No. 04-37320-rld13
Adversary Proceeding No. 07-3326-rld
June 11, 2008 opinion; July 24, 2008 reconsideration denied
Unpublished
The Oregon Bankruptcy Court's website entry under this adversary proceeding in fact contains two separate Memorandum Opinions by Judge Randall Dunn, the first consisting of his decisions resolving issues from the adversary proceeding trial, and the second his denial of plaintiff's motion for reconsideration of the first Memorandum Opinion. This Bulletin focuses on the first of these Memorandum Opinions; the one on the motion for reconsideration was the subject of this website's Litigation Report dated November 3, 2008.
(Inexplicably, these two opinions were uploaded to the Court's website just last week (late October 2008) although they were decided last June and July.)
The litigation is part of a long-running inheritance fight among stepbrothers and stepsisters: plaintiff Jim Schacher is a stepson of decedent Patricia Schacher, while defendant Donald Dolph, the Chapter 13 debtor, is a son. Plaintiff seeks to impose a constructive trust on assets of defendant, particularly his residence, because of transfers made by the decedent to defendant allegedly in violation of a 1988 Agreement to Execute Wills between the decedent and her husband, plaintiff's father. Richard J. Parker of Parker Bush & Lane PC represented plaintiff, Brian E. Wheeler represented defendant.
The Issues and Judge Dunn's Holdings
These are the issues as the judge worded them, and his ruling on each:
"1. Is Mr. Schacher’s pursuit of a constructive trust remedy barred by laches?"
No. Although plaintiff waited to file the adversary proceeding until defendant's Chapter 13 plan payments were almost completed, and after arguably knowing about all the transfers at issue by no later than the plan confirmation, Judge Dunn declined to apply by analogy Oregon's 2-year statute of limitations for fraud. Instead he held that that plaintiff's claim was not barred by laches, for two reasons: 1) "[T]he right of Patricia’s estate to bring a constructive trust claim expressly was reserved in the order . . . confirming Mr. Dolph’s chapter 13 plan," so defendant "cannot have been surprised, and should have been prepared, when Mr. Schacher asserted that right and filed the Adversary Proceeding." 2) The delay in the filing of the adversary proceeding actually "may have saved [the parties] time and money, or at least did not increase their expenses" because plaintiff "might have decided not to pursue the constructive trust claims at all" after waiting to see how the Chapter 13 plan ran its course, and "[i]t is also possible that if such claims had been brought earlier, the court would have abated their pursuit while plan payments were made."
"2. Is Mr. Schacher entitled to prejudgment interest on his claims in behalf of Patricia’s estate?"
No, because Ninth Circuit case law makes clear that '[i]mposition of a constructive trust is an equitable remedy, and such a “trust” is not a property interest until its existence has been determined by a judicial decision." So a constructive trust judgment begins to accrue interest from the date that such judgment in this adversary proceeding is entered.
"3. Has Mr. Schacher met his burden of proof to establish that a constructive trust should be imposed?"
Yes, because Judge Dunn found that under Oregon law plaintiff has established the three elements of a constructive trust: "(1) the existence of a confidential or fiduciary relationship; (2) a violation of a duty imposed by that relationship; and (3) failure to impose the constructive trust would result in unjust enrichment."
The fiduciary relationship between defendant and his mother's estate arose because he was appointed personal representative of her estate back in 1992 shortly after her husband's death, and defendant was aware of transfers made to him and to others thereafter. Defendant violated this fiduciary duty by arranging for distributions of an IRA account from the estate to himself and a sister at a time when the state court dispute about such transfers was pending, plaintiff challenged these distributions in state court and included them in his proof of claim in the Chapter 13 case, and defendant did not object to this proof of claim. And defendant was unjustly enriched in that the trial record showed that he received about $75,100 from the transfers instead of his appropriate share of the estate, about $48,750.
"4. If a constructive trust is imposed, what should the judgment amount be, and on what asset(s) should the constructive trust be imposed?"
From the $75,100 amount just noted above, Judge Dunn subtracted a $10,000 credit for a savings bond recovered by the estate, and another $14,500 or so the estate received through the Chapter 13 plan, leaving a balance of about $50,600. Although the plaintiff wanted the judge to impose a constructive trust in this full amount on defendant's residence, instead he first credited the $48,750 "estimated legitimate share of Patricia's estate, calculated by the proof of claim filed by Mr. Schacher in Mr. Dolph's bankruptcy case," resulting in a constructive trust in the amount of about $1,850.
The Judge's Analysis on the Amount of the Constructive Trust
In this most critical aspect of Judge Dunn's analysis, he rejected Mr. Schacher's argument that the constructive trust should not be reduced by the $48,750 "estimated legitimate share" because that amount was highly speculative. This argument seems to have at least superficial appeal: since the amount debtor would eventually get from the estate was based on a variety of unknowns, including whether the estate succeeded in collecting its substantial claims against Mr. Dolph's two sisters, how can the court reduce the constructive trust imposed on Mr. Dolph's residence by this speculative amount?
Judge Dunn's answer is a practical and equitable one, turning pointedly on an evidentiary issue. The probate had been pending for a full five years with no distributions to the beneficiaries, and the judge suggested to Mr. Schacher that he ought to apply to the probate court for a partial distribution. Taking the debtor's house now after he has complied fully with his Chapter 13 plan would not be equitable. Most importantly, Judge Dunn focused on the only evidence available at trial on Mr. Dolph's estimated share of the estate: Mr. Schacher''s proof of claim leading to the calculation that Mr. Dolph would receive about $48,750 from the estate. Since Mr. Schacher sought the remedy of a constructive trust, he had the burden of showing proof of unjust enrichment. The only unjust enrichment the evidence supported was the difference between the above calculated $50,600 balance, reflecting the assets transfered to Mr. Dolph from his mother's estate, and this $48,750 share in that estate that the plaintiff himself had calculated defendant was to receive, resulting in the $1,850 constructive trust.
Reactions of Attorneys for the Parties
Rich Parker, represented the plaintiff in this adversary proceeding, and Theodore Sims of Sims & Sims is now his primary counsel on the appeal of the judgment. Defendant's Statement of Issues on Appeal states that the judge erred in holding that defendant was entitled to a present offset against the unjust enrichment claim for his eventual, now still highly speculative, share of the probate estate. The Statement of Issues also puts forward that there should be interest or some other consideration given for the time between when defendant was unjustly enriched by the various transfers and the time of the Chapter 13 filing many years later. Lastly, the Statement of Issues points out that the Chapter 13 Order Confirming Plan in this case, entered after objection by the plaintiff and negotiation between the parties, required defendant to pay over to the probate estate the full amount of the equity in his residence.
Brian Wheeler, attorney for debtor-defendant, agrees with the judge that a claim for the equitable remedy of unjust enrichment requires specific evidence of the extent of that enrichment. He points out the very practical problem that the plaintiff, the personal representative of his step-mother's estate, has spent the last five years going through a series of attorneys, accruing substantial attorney fees as well as his own travel costs, greatly dissipating the value of the estate, to all the beneficiaries' detriment. Now this appeal of Judge Dunn's judgment will only waste the estate assets further.
The Last Word
Judge Dunn's words with which he had introduced his analysis, from the biblical book of Proverbs, are appropriate last words here: "He that troubleth his own house shall inherit the wind.” Proverbs, 11:29
(Inexplicably, these two opinions were uploaded to the Court's website just last week (late October 2008) although they were decided last June and July.)
The litigation is part of a long-running inheritance fight among stepbrothers and stepsisters: plaintiff Jim Schacher is a stepson of decedent Patricia Schacher, while defendant Donald Dolph, the Chapter 13 debtor, is a son. Plaintiff seeks to impose a constructive trust on assets of defendant, particularly his residence, because of transfers made by the decedent to defendant allegedly in violation of a 1988 Agreement to Execute Wills between the decedent and her husband, plaintiff's father. Richard J. Parker of Parker Bush & Lane PC represented plaintiff, Brian E. Wheeler represented defendant.
The Issues and Judge Dunn's Holdings
These are the issues as the judge worded them, and his ruling on each:
"1. Is Mr. Schacher’s pursuit of a constructive trust remedy barred by laches?"
No. Although plaintiff waited to file the adversary proceeding until defendant's Chapter 13 plan payments were almost completed, and after arguably knowing about all the transfers at issue by no later than the plan confirmation, Judge Dunn declined to apply by analogy Oregon's 2-year statute of limitations for fraud. Instead he held that that plaintiff's claim was not barred by laches, for two reasons: 1) "[T]he right of Patricia’s estate to bring a constructive trust claim expressly was reserved in the order . . . confirming Mr. Dolph’s chapter 13 plan," so defendant "cannot have been surprised, and should have been prepared, when Mr. Schacher asserted that right and filed the Adversary Proceeding." 2) The delay in the filing of the adversary proceeding actually "may have saved [the parties] time and money, or at least did not increase their expenses" because plaintiff "might have decided not to pursue the constructive trust claims at all" after waiting to see how the Chapter 13 plan ran its course, and "[i]t is also possible that if such claims had been brought earlier, the court would have abated their pursuit while plan payments were made."
"2. Is Mr. Schacher entitled to prejudgment interest on his claims in behalf of Patricia’s estate?"
No, because Ninth Circuit case law makes clear that '[i]mposition of a constructive trust is an equitable remedy, and such a “trust” is not a property interest until its existence has been determined by a judicial decision." So a constructive trust judgment begins to accrue interest from the date that such judgment in this adversary proceeding is entered.
"3. Has Mr. Schacher met his burden of proof to establish that a constructive trust should be imposed?"
Yes, because Judge Dunn found that under Oregon law plaintiff has established the three elements of a constructive trust: "(1) the existence of a confidential or fiduciary relationship; (2) a violation of a duty imposed by that relationship; and (3) failure to impose the constructive trust would result in unjust enrichment."
The fiduciary relationship between defendant and his mother's estate arose because he was appointed personal representative of her estate back in 1992 shortly after her husband's death, and defendant was aware of transfers made to him and to others thereafter. Defendant violated this fiduciary duty by arranging for distributions of an IRA account from the estate to himself and a sister at a time when the state court dispute about such transfers was pending, plaintiff challenged these distributions in state court and included them in his proof of claim in the Chapter 13 case, and defendant did not object to this proof of claim. And defendant was unjustly enriched in that the trial record showed that he received about $75,100 from the transfers instead of his appropriate share of the estate, about $48,750.
"4. If a constructive trust is imposed, what should the judgment amount be, and on what asset(s) should the constructive trust be imposed?"
From the $75,100 amount just noted above, Judge Dunn subtracted a $10,000 credit for a savings bond recovered by the estate, and another $14,500 or so the estate received through the Chapter 13 plan, leaving a balance of about $50,600. Although the plaintiff wanted the judge to impose a constructive trust in this full amount on defendant's residence, instead he first credited the $48,750 "estimated legitimate share of Patricia's estate, calculated by the proof of claim filed by Mr. Schacher in Mr. Dolph's bankruptcy case," resulting in a constructive trust in the amount of about $1,850.
The Judge's Analysis on the Amount of the Constructive Trust
In this most critical aspect of Judge Dunn's analysis, he rejected Mr. Schacher's argument that the constructive trust should not be reduced by the $48,750 "estimated legitimate share" because that amount was highly speculative. This argument seems to have at least superficial appeal: since the amount debtor would eventually get from the estate was based on a variety of unknowns, including whether the estate succeeded in collecting its substantial claims against Mr. Dolph's two sisters, how can the court reduce the constructive trust imposed on Mr. Dolph's residence by this speculative amount?
Judge Dunn's answer is a practical and equitable one, turning pointedly on an evidentiary issue. The probate had been pending for a full five years with no distributions to the beneficiaries, and the judge suggested to Mr. Schacher that he ought to apply to the probate court for a partial distribution. Taking the debtor's house now after he has complied fully with his Chapter 13 plan would not be equitable. Most importantly, Judge Dunn focused on the only evidence available at trial on Mr. Dolph's estimated share of the estate: Mr. Schacher''s proof of claim leading to the calculation that Mr. Dolph would receive about $48,750 from the estate. Since Mr. Schacher sought the remedy of a constructive trust, he had the burden of showing proof of unjust enrichment. The only unjust enrichment the evidence supported was the difference between the above calculated $50,600 balance, reflecting the assets transfered to Mr. Dolph from his mother's estate, and this $48,750 share in that estate that the plaintiff himself had calculated defendant was to receive, resulting in the $1,850 constructive trust.
Reactions of Attorneys for the Parties
Rich Parker, represented the plaintiff in this adversary proceeding, and Theodore Sims of Sims & Sims is now his primary counsel on the appeal of the judgment. Defendant's Statement of Issues on Appeal states that the judge erred in holding that defendant was entitled to a present offset against the unjust enrichment claim for his eventual, now still highly speculative, share of the probate estate. The Statement of Issues also puts forward that there should be interest or some other consideration given for the time between when defendant was unjustly enriched by the various transfers and the time of the Chapter 13 filing many years later. Lastly, the Statement of Issues points out that the Chapter 13 Order Confirming Plan in this case, entered after objection by the plaintiff and negotiation between the parties, required defendant to pay over to the probate estate the full amount of the equity in his residence.
Brian Wheeler, attorney for debtor-defendant, agrees with the judge that a claim for the equitable remedy of unjust enrichment requires specific evidence of the extent of that enrichment. He points out the very practical problem that the plaintiff, the personal representative of his step-mother's estate, has spent the last five years going through a series of attorneys, accruing substantial attorney fees as well as his own travel costs, greatly dissipating the value of the estate, to all the beneficiaries' detriment. Now this appeal of Judge Dunn's judgment will only waste the estate assets further.
The Last Word
Judge Dunn's words with which he had introduced his analysis, from the biblical book of Proverbs, are appropriate last words here: "He that troubleth his own house shall inherit the wind.” Proverbs, 11:29
by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com
Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
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