Court: United States Bankruptcy Court, E.D. Michigan; October 20, 2015; Us Bankruptcy; United States Bankruptcy Court
The Court, presided over by Bankruptcy Judge Thomas J. Tucker, conducted a joint bench trial concerning two adversary proceedings involving the Plaintiff, Stuart Gold, as the trustee in the Chapter 7 bankruptcy case of James L. Demeter and Glory L. Demeter (Case No. 12-44593). In Adv. No. 12-5212, the Plaintiff seeks to deny Glory L. Demeter a discharge under 11 U.S.C. § 727(a)(2)(A). In Adv. No. 12-5284, the Plaintiff's First Amended Complaint against Delores Ziole, the mother of Glory Demeter, includes four counts:
1. **Counts I and II**: The Plaintiff aims to avoid and recover two cash transfers totaling $177,539.00 made on February 6, 2012, from joint bank accounts of the Debtor and Defendant to the Defendant’s personal accounts. These transfers were made shortly before the bankruptcy filing, while the Debtor was insolvent, without receiving reasonably equivalent value, and with the intent to hinder or defraud creditors.
2. **Count III**: The Plaintiff seeks a judgment for the value of Glory Demeter’s remaining inheritance interest in her late father's estate, which should be offset against the value of the Transfers.
3. **Count IV**: The Plaintiff requests the disallowance of any proof of claim from the Defendant against the bankruptcy estate, asserting that she holds property that is recoverable by the Trustee under 11 U.S.C. §§ 542 and 550.
The Court has considered all evidence, including trial exhibits and witness testimony, to reach its findings of fact and conclusions of law regarding these proceedings.
Judgment will be entered in favor of all Defendants in the adversary proceedings. The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a), 157(b)(1), and Local Rule 83.50(a), E.D.Mich. Adversary proceeding No. 12-5212 (Gold v. Demeter) is classified as a core proceeding under 28 U.S.C. § 157(b)(2)(J), while No. 12-5284 (Gold v. Ziole) is core under §§ 157(b)(2)(A), (E), (H), and (O).
Key stipulated facts include:
- On February 28, 2012, Glory Demeter and her husband filed a Chapter 7 voluntary petition.
- Stuart A. Gold is the Chapter 7 Trustee for the bankruptcy estate.
- Delores Ziole, the debtor’s mother, is considered an insider under 11 U.S.C. § 101(31)(A)(i) and M.C.L. § 566.31(g).
- Prior to the petition date, Demeter’s name was jointly on Fifth Third and PNC Bank accounts with Ziole.
- Demeter asked for her name to be removed from these accounts, leading to the closure of the Fifth Third Account with a balance of $167,854.71 and the creation of a new account solely in Ziole's name.
- Similarly, a new PNC account was opened in Ziole’s name with approximately $9,684.83 transferred from the original account.
- The total amount transferred was $177,539.54.
- At the time of these transfers, the Debtor was facing lawsuits for unpaid debts totaling about $31,543.64, with an existing judgment from Discover Bank for $15,912.45, and had ceased mortgage payments.
- The Debtor owed approximately $43,400.00 in unsecured non-priority debt at that time.
The Court addresses the ownership dispute concerning two joint bank accounts held by Defendant Ziole and her daughter, Defendant-Debtor Glory Demeter. Until February 6, 2012, both accounts were jointly owned, but on that date, Glory Demeter's name was removed from the accounts. The Fifth Third Bank account, originally with a balance of $167,854.71, was restructured to be solely under Ziole's name after the change, maintaining the same balance. The PNC Bank account, which had $9,684.83, was withdrawn and subsequently deposited into a new account solely in Ziole's name, with Demeter listed only as a beneficiary.
The Trustee claims that prior to the changes, Demeter owned half of the funds in both accounts, amounting to a total of $88,859.76 that was effectively transferred to Ziole on February 6, 2012. The Trustee argues this transfer is fraudulent and seeks recovery for Demeter's bankruptcy estate and creditors. In contrast, both Defendants assert that all funds in the joint accounts were solely Ziole's property, despite the accounts being jointly titled.
Under Michigan law, there is a presumption that funds in a joint bank account are equally owned by both account holders. In this case, it is presumed that Glory Demeter and Delores Ziole each own half of the funds in the joint accounts. However, this presumption can be rebutted with evidence showing that one account holder contributed more than half of the funds. Rebuttal evidence may include the account holders' testimony, though it is not necessarily binding on the trier of fact.
The evidence presented indicates that both Glory Demeter and Delores Ziole had the ability to withdraw funds from the joint accounts. Glory Demeter testified that she had signed the signature cards for the accounts, and Ziole clarified that Demeter's name was included to allow her to access funds if Ziole became ill. Despite this, the court concluded that the presumption of equal ownership had been rebutted.
The court found, based on a preponderance of evidence, that Glory Demeter did not own any funds in the joint accounts prior to the transfers in question on February 6, 2012. The funds were sourced entirely from Delores Ziole's social security benefits, a life insurance benefit from her husband's death, funds from accounts that transferred solely to Ziole after her husband's death, proceeds from the sale of a building associated with her husband’s business, and collections owed to her husband. Ziole was unable to specify amounts due to the age of the events, occurring over 20 years before the trial.
Both Defendants testified that no funds in the Joint Accounts originated from Glory Demeter or her property. The Trustee acknowledged that approximately $130,000 in the Fifth Third Bank joint account came from Ms. Ziole liquidating U.S. Treasury bonds she had placed in joint names with Glory Demeter. Federal regulations assert that the registration of savings bonds indicates ownership, suggesting that both were co-owners during the bonds' existence. However, this does not imply that Glory Demeter is entitled to any of the proceeds post-liquidation.
Michigan courts can impose constructive or resulting trusts on Treasury bond proceeds in cases where the original intent of the bondholder is clear, suggesting that Ms. Ziole's intent was to ensure Glory would inherit the bonds if she passed away before they were cashed. The funds used to acquire the bonds did not come from Glory Demeter's property. Both Ms. Ziole and Glory Demeter understood that all funds in the Joint Accounts were solely owned by Ms. Ziole, a belief established long before February 2012.
Additionally, none of the funds listed as sources of the Joint Accounts belonged to Glory Demeter due to her potential inheritance rights from her deceased father in 1989. Under the law at that time, she would inherit half of the estate residue after the surviving spouse received $60,000. The law changed in 2000, allowing a larger inheritance, but the Court found it unnecessary to determine which statute applied, as the evidence did not provide sufficient information to assess the value of the intestate estate.
Ms. Ziole retained the entirety of her late husband’s intestate estate, with Glory Demeter's knowledge and without any probate estate being opened. Glory never asserted a claim to her father's estate or indicated entitlement to any funds. The court found that Glory waived any rights to the intestate estate long before the February 2012 transfers. Ms. Ziole added Glory's name to joint bank accounts without intention of granting ownership, citing potential need for assistance in case of illness. The court determined that the presumption of joint ownership was successfully rebutted, concluding that Glory did not own any funds in these accounts.
As for the Trustee's claims, Counts I and II concerning fraudulent transfers failed because when Glory assisted Ms. Ziole in transferring funds to accounts solely in her name, this did not constitute a transfer of Glory’s property. The Trustee could not invoke the Bankruptcy Code's fraudulent transfer provisions or Michigan's Uniform Fraudulent Transfer Act (UFTA) since no asset or interest of the debtor was disposed of; only non-debtor Ms. Ziole acted. Consequently, the Trustee's claims were deemed invalid.
Count III in Adv. No. 12-5284 requests an order for Delores Ziole to turn over property belonging to the Glory Demeter bankruptcy estate, specifically her interest in the estate of her deceased father, Walter Ziole. The Trustee needed to prove that Glory Demeter had an interest in Walter Ziole's estate as of February 28, 2012, and establish its value. The Trustee failed to meet this burden of proof, leading to the claim's dismissal.
Count IV in Adv. No. 12-5284 seeks to disallow any claim by Delores Ziole under 11 U.S.C. 502(d). However, she did not file a proof of claim by the April 17, 2013 deadline. Because the Trustee's other claims were unsuccessful, there is no basis for disallowing a claim that was never filed.
Count I in Adv. No. 12-5212 involves the Trustee's objection to Glory Demeter’s discharge under 11 U.S.C. 727(a)(2)(A). The Trustee must prove that Demeter transferred "property of the debtor" within one year before her bankruptcy filing. The Court concluded that the Trustee did not meet this burden, resulting in the failure of this count as well.
The Court will issue judgments in two adversary proceedings: Adv. No. 12-5212 and Adv. No. 12-5284. In Adv. No. 12-5212, the remaining count of the Trustee’s complaint will be dismissed with prejudice. In Adv. No. 12-5284, all four counts of the Trustee’s First Amended Complaint will also be dismissed with prejudice. This amended opinion only includes non-substantive corrections to the Trial Opinion from October 16, 2015, with no substantive changes made. The dismissal of Count II in Adv. No. 12-5212 was voluntary, as noted in the Final Pretrial Order. Stipulated facts referenced in the opinion are quoted from the Final Pretrial Orders of both adversary proceedings, with minor differences in wording. Citations to trial transcripts and exhibits are included, detailing testimony and the statutory share of the intestate estate attributed to Glory Demeter, the only child of Ms. Ziole and her husband.
