Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-06035/USCOURTS-ca8-05-06035-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

________

05-6035EM

________

In re: *

*

Louise M. Litzinger, *

*

Debtor. *

*

Louise M. Litzinger, *

 * Appeal from the United States

Debtor-Appellant, * Bankruptcy Court for the

 * Eastern District of Missouri

v. *

*

The Estate of Victor Litzinger, *

*

Claimant-Appellee. *

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Submitted: March 2, 2006

Filed: April 4, 2006

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Before KRESSEL, Chief Judge, FEDERMAN, and VENTERS, Bankruptcy

Judges.

________

KRESSEL, Chief Judge.

This is an appeal from an order of the bankruptcy court allowing a claim by the

Estate of Victor Litzinger in the amount of $130,553.38. In allowing the claim the

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 Most of these facts are from our earlier opinion. Litzinger v. Litzinger (In

re Litzinger), 322 B.R. 108 (B.A.P. 8th Cir. 2005).

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bankruptcy court held that debtor had participated in the conversion of at least that

amount of Victor’s probate estate’s assets. We affirm in part and reverse in part.

BACKGROUND1

Victor Litzinger had two heirs, his nephews Guy Litzinger and Warren

Rosenfelder. The debtor, Louise Litzinger, is Guy's estranged wife. Victor was an

elderly man when, on July 7, 1997, he signed a durable power of attorney naming Guy

his attorney-in-fact. The power of attorney gave Guy full authority, in his sole

discretion, to deal with Victor's assets without any limitations, except those imposed

by statute. A few months later, on October 16, 1997, Victor executed a Last Will and

Testament which named Guy as personal representative of Victor's estate. After

making a few special bequests, the will left all assets which Victor owned at the time

of his death to Guy and Warren equally.

Using Victor's assets, on March 19, 1998, Guy opened a brokerage account at

Edward Jones in the names of Victor and Guy Litzinger. No one could find any

documents evidencing the opening of this account. Guy did sign a Substitute W-9

which indicated that the account was opened as a joint account and the brokerage

company considered the account a joint account with the right of survivorship. Victor

signed no document in connection with the opening of the Victor/Guy account.

Between July 1997 and Victor's death, Guy paid all of Victor's living expenses

out of a separate checking account which Victor owned. No draws were made on the

Victor/Guy account between the time it was opened and Victor's death.

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On January 7, 2000, Victor died. Shortly thereafter, on February 9, 2000, Guy

signed a Letter of Authorization closing the Victor/Guy account. Pursuant to

instructions from Guy, the assets in the Victor/Guy account, valued on January 1,

2000, at $219,392.86, were transferred to an existing account in the names of Guy and

Louise jointly. Immediately prior to the transfer, the Guy/Louise Account had a

balance of $51,367.83. At Guy's direction, Louise called the broker to find out what

steps needed to be taken to effect a transfer and then conveyed that information to

Guy. However, Guy was the only person who could actually make the transfer. 

In March 2000, as personal representative of Victor's estate, Guy opened

Victor's probate estate in Michigan. On November 6, 2001, Guy filed an inventory

in the Michigan probate proceedings which listed a parcel of real estate in Michigan

and the Guy/Louise Account as Victor's only assets. This is apparently the first and

only time until the claim was filed in this case that Guy took the position that the

money in the Guy/Louise account was an asset of Victor's estate. For example, Guy

and Louise filed joint income tax returns for 2000 and 2001 in which they claimed the

gains on the Guy/Louise account as theirs and paid taxes on them. Guy filed

individual tax returns for 2002 and 2003, claiming once again that the earnings on the

Guy/Louise account were his, and he paid taxes on them. However, Louise believed

all along that she and Guy were entitled to the money upon Victor's death. 

During 2000, Guy and Louise withdrew $121,616.35 from the Guy/Louise

Account for payment of their own living expenses. Louise herself withdrew $40,000

of that sum from the account shortly before she filed for divorce on December 29,

2000. The divorce is still pending.

Meanwhile, on January 6, 2003, Dorothy Litzinger, Guy's mother, obtained a

judgment against Guy and Louise for $160,625.00. On February 28, 2003, Dorothy

garnished the Guy/Louise account and obtained $90,553.38. Guy, who was still the

personal representative of Victor's estate at that time, took no steps on behalf of

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Victor's estate to object to the garnishment. Shortly thereafter, on March 14, 2003,

Guy resigned as personal representative of Victor’s estate, and Warren was appointed

in his place.

On August 13, 2003, Louise filed a petition under Chapter 7 of the Bankruptcy

Code. On December 2, 2003, even though he had resigned as personal representative

nine months earlier, Guy filed a proof of claim on behalf of the probate estate,

asserting that the estate was owed $130,553.38. The proof of claim stated that Louise

was guilty of conversion when she withdrew $40,000.00 from the Guy/Louise account

on the eve of her divorce and when Dorothy garnished $90,553.38 in the account. 

The parties later agreed that, while the claim should have been filed by Warren, this

would not be considered grounds for objection to the claim. While the court also gave

the estate the opportunity to amend its proof of claim, it declined to do so.

After trial, the bankruptcy court allowed the estate’s claim in the amount of

$130,553.38. First, the bankruptcy court noted that the parties had agreed that

Missouri law applied to the question of whether there had been a conversion based on

the quantity and quality of contacts with the State of Missouri. The bankruptcy court

went on to hold that under Missouri law conversion consists of the wrongful

unauthorized assumption of the right of ownership over personal property of another,

that the money in the Victor/Guy account was subject to a fiduciary duty on Guy’s

part not to use it as his own, that Louise knew of the durable power of attorney and

that Guy was not authorized to use the money as his own, and that when Guy

transferred the funds from the Victor/Guy account to the Guy/Louise account both

Guy and Louise wrongfully assumed ownership of the account. The bankruptcy court

held Louise liable for conversion because she assisted Guy in the conversion of the

account and used the funds as her own. The bankruptcy court rejected Louise’s

argument that Guy’s filing of the claim on behalf of the probate estate was a wrongful

attempt to keep the money out of the divorce proceedings which were still pending.

The bankruptcy court further rejected the argument that Guy’s actions had been

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inconsistent with his current claim that the Victor/Guy account was property of

Victor’s estate and he was estopped from making that claim now. Louise appealed.

We remanded to the bankruptcy court to review whether it had jurisdiction, in

particular whether the probate exception to federal jurisdiction obtained. Litzinger v.

Litzinger (In re Litzinger), 322 B.R. 108 (B.A.P. 8th Cir. 2005). On remand, the

bankruptcy court held that it had jurisdiction and entered a new order, again allowing

the estate’s claim. Louise appealed again from the bankruptcy court’s June 21, 2005

order.

JURISDICTION

In our previous opinion, Litzinger, 322 B.R. at 117, we remanded the appeal to

the bankruptcy court to determine if the probate exception to federal jurisdiction

applies to this proceeding. As we discussed, the Supreme Court has defined the

federal courts’ jurisdiction in probate matters as follows. A federal court may:

entertain suits in favor of creditors, legatees and heirs and other

claimants against a decadent’s estate to establish their claims so long as

the federal court does not interfere with the probate proceedings or

assume general jurisdiction of the probate or control of the property in

custody of the state court.

Markham v. Allen, 326 U.S. 490, 494 (1946).

The Second Circuit articulated a two-part test to determine whether a particular

lawsuit implicates “probate matters.” Moser v. Pollin, 294 F.3d 335, 340 (2nd Cir.

2002). The Ninth Circuit has also adopted this test. Marshall v. Marshall (In re

Marshall) 392 F.3d 1118, 1133 (9th Cir. 2004) cert. granted, 74 U.S.L.W. 3169 (U.S.

Sep. 27, 2005) (No. 04-1544). Under the Second Circuit’s test, an affirmative answer

to any part requires that the case be dismissed for lack of subject matter jurisdiction.

Moser, 294 F.3d at 340. First, is the bankruptcy court being asked to directly probate

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a will or administer an estate? Second, does entertaining the action cause the

bankruptcy court to “interfere with the probate proceedings or assume general

jurisdiction of the probate or control of property in the custody of the state court.” Id.

(citation omitted). The Second Circuit determined that an impermissible interference

may arise in one of three ways: if by adjudicating the complaint, the federal district

court (1) “interferes with the probate proceedings;” (2) “assumes general jurisdiction

of the probate;” or (3) asserts “control of property in the custody of the state court.”

Id (quoting Markham, 326 U.S. at 464; and citing Charles Alan Wright, Arthur R.

Miller & Edward H. Cooper, Federal Practice & Procedure § 3610 (2d ed. 1984)).

On remand the bankruptcy court determined that the probate exception to

federal court jurisdiction did not prohibit it from exercising subject matter jurisdiction

over this proceeding and neither party challenges the bankruptcy court’s determination

that it had jurisdiction to determine the disputed claim. We agree that the

determination of the claim objection does not fall into the categories of “interference”

as defined by the Second Circuit’s test and therefore the probate exception does not

apply. 

STANDARD OF REVIEW

We review the bankruptcy court’s factual findings for clear error and its

conclusions of law de novo. Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764,

765 (8th Cir. 2000); Wendover Fin. Servs. v. Hervey (In re Hervey), 252 B.R. 763, 765

(B.A.P. 8th Cir. 2000). The issue of what constitutes property of the bankruptcy

estate is a question of law. Nelson v. Ramette (In re Nelson), 322 F.3d 541, 544 (8th

Cir. 2003). A determination of liability for conversion under Missouri law is

reviewed de novo. Bank of Kennett v. Clayton, 245 S.W.2d 678, 681 (Mo. Ct. App.

1951).

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 While the parties stipulated that Guy and Louise spent money from the

account, not only did Victor’s estate decline the opportunity to amend its claim, it

did not prove that Louise converted any other funds from the account.

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DISCUSSION

Rather than address the proof of claim’s two allegations of conversion, the

bankruptcy court held that Louise was guilty of conversion when Guy transferred

$219,392.86 from the Victor/Guy account into the Guy/Louise account. We disagree

with the bankruptcy court’s holding. Of the two incidents of alleged conversion

referenced in the proof of claim by Victor’s estate, we hold that Louise committed

conversion when she unilaterally withdrew the $40,000.00 from the Guy/Louise

Account, but not when Dorothy garnished the account.2

 

The bankruptcy court held that Louise was liable to Victor’s estate for

conversion of its property. Conversion is the unauthorized assumption of the right of

ownership over the personal property of another to the exclusion of the owner’s rights.

Maples v. United Sav. and Loan Assoc. 686 S.W. 2d 525, 527 (Mo. Ct. App. 1985).

In Missouri, conversion may be proved in one of three ways: firstly, by tortious

taking; secondly, by any use or appropriation to the use of the person in possession,

indicating a claim of right in opposition to rights of the owner; or thirdly, refusal to

give up possession to the owner on demand. Lacks v. R. Rowland & Co., Inc., 718

S.W. 2d 513, 517 (Mo. Ct. App. 1986). The bankruptcy court held that Louise

“assumed ownership of the funds, with Guy, to the exclusion of Victor’s estate.” 

The actor’s good faith, motive, knowledge, care or negligence are not generally

“involved” in actions for conversion. Hinton v. State Farm Mutual Auto. Ins. Co., 741

S.W. 2d 696, 700 (Mo. Ct. App. 1987). “Neither mistake nor good faith belief in the

right to possession is a defense to a conversion claim.” Commerce Bank, N.A. v.

Tifton Aluminum Co., Inc., 217 B.R. 803, 816 (Bankr. W.D. Mo. 1997) (citing

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Ensminger v. Burton, 805 S.W.2d 207, 211 (Mo. Ct. App. 1991)). Missouri law is

consistent with the definition of conversion that appears in the Restatement. 

The Restatement defines conversion as follows:

(1) Conversion is an intentional exercise of dominion or control over a

chattel which so seriously interferes with the right of another to control

it that the actor may be required to pay the other the full value of the

chattel. (2) In determining the seriousness of the interference and the

justice of requiring the actor to pay the full value, the following factors

are important...(b) the actor’s intent to assert a right in fact inconsistent

with the other’s right of control.

Restatement (Second) of Torts § 222A.

The Restatement further indicates that the actor may not generally be relieved from

liability for conversion even if the individual acted in good faith.

An actor is not relieved of liability to another for trespass to a chattel or

for conversion by his belief, because of a mistake of law or fact not

induced by the other, that he (a) has possession of the chattel or is

entitled to its immediate possession, or (b) has the consent of the other

or of one with power to consent for him, or (c) is otherwise privileged to

act.

Restatement (Second) of Torts § 244 (Effect of Mistake).

The United States Supreme Court discussed the common law tort of conversion.

It stated that except for exemplary damages, the defendant’s knowledge, intent,

motive, mistake, and good faith are generally irrelevant to determining liability.

Morissette v. U.S., 342 U.S. 246, 270 (1952). The opinion further cites state law cases

which indicate that when “[O]ne clearly assumes the rights of ownership over

property of another no intent to convert is necessary. It has been held that one may

be held liable for conversion even though he reasonably supposed he had a legal right

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to the property in question.” Id. (quoting Row v. Home Sav. Bank, 29 N.E. 2d 552

(Mass. 1940)). 

While it is not required that proof be shown that the defendant acted with a

wrongful motive or intent, it must be proven that the defendant intended to do the act

which deprived the person of his property. Hinton, 741 S.W. 2d at 699; Waverly

Timber & Iron Co. v. St. Louis Cooperage Co., 20 S.W. 566, 567 (Mo. 1892).

“Intent” is defined in the Restatement to indicate that the actor “desires the

consequences of his act, or that he believes that the consequences are substantially

certain to result from it.” Restatement (Second) of Torts § 8A. Intent is not limited

to consequences that are desired. Id. cmt. b.

Transfer of funds from Guy/Victor Account to Guy/Louise Account

Louise cannot be held liable for conversion when Guy transferred the funds

from the Victor/Guy Account to the Guy/Louise Account. Although Louise contacted

the broker to determine the procedure for transferring the funds, Guy was the only one

authorized to make the funds transfer. There was no “act” by Louise to transfer those

funds because she was not authorized to make that transaction, nor did she. The law

of conversion in Missouri requires an act by the offending party. See Benson v. Jim

Maddox Northwest Imports, Inc., 728 S.W. 2d 668, 669 (Mo. Ct. App. 1987). The

only action Louise took related to this transaction was to call the broker at Edward

Jones. Only Guy, acting as the personal representative, had the authority to transfer

the funds. Only Guy committed the act which resulted in conversion. If anybody is

liable for conversion of these funds, it is Guy and neither Victor’s estate nor Warren

has made such a claim. 

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Dorothy’s Garnishment

Dorothy obtained a judgment against Guy and Louise for $160,625.00 and

garnished the Guy/Louise Account for $90,553.38. Victor’s estate claims that Louise

is liable for the conversion of the funds that Dorothy garnished. Here too, there is no

act by Louise to deprive Victor’s estate of its property. 

Conversion is an intentional tort. Benson, 728 S.W. 2d at 669. According to

the Restatement the intent is shown when “the actor desires to cause the consequences

of his act, or that he believes that the consequences are substantially certain to result

from it.” Restatement (Second) of Torts § 8A. Missouri courts have adopted this

definition of intent in its jurisprudence. See Subscribers at the Auto. Club Inter-Ins.

Exch. v. Kennison, 549 S.W. 2d 587, 590-591 (Mo. Ct. App. 1977). To commit an

intentional tort, a person must not only commit the act, but must also intend to

produce the resulting harm. Farm Bureau Town & Country Ins. Co. of Mo. v. Turnbo,

740 S.W.2d 232, 235 (Mo. Ct. App. 1987). (Citing Restatement (Second) of Torts §

870 cmt.b). In this particular situation, when Dorothy garnished the funds, there was

no act by Louise and therefore no manifest intent by Louise to deprive the Estate of

Victor Litzinger of its property. Dorothy may well be guilty of conversion, but once

again neither Victor’s estate nor Warren has asserted such a claim. 

$40,000.00 Withdrawal

Louise converted the $40,000.00. Louise argues that she thought Guy had a

right to the money because she had been led to believe that Victor’s will granted the

cash account to Guy and the real property to Warren. She claims that because the

money was transferred into the Guy/Louise Account and she believed the money was

Guy’s, she had rightful access to it. However, under Missouri law it does not matter

if she withdrew the money with the good faith belief she had a right to it. The money

remained property of Victor’s estate and the only intent required to show conversion

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is the intent to perform an act which deprived Victor’s estate of the right of ownership

of the property. Hinton, 741 S.W. 2d at 699.

CONCLUSION

Guy, but not Louise, converted Victor’s money when he took it from the

Victor/Guy Account and put it in the Guy/Louise Account. Dorothy, but not Louise,

converted Victor’s money when she garnished the Guy/Louise Account. Louise

converted Victor’s money when she withdrew $40,000.00 from the Guy/Louise

Account. Accordingly we reverse the bankruptcy court’s June 21, 2005 order

allowing the claim of the Estate of Victor Litzinger and remand to the bankruptcy

court for the entry of an order allowing the estate’s claim in the amount of $40,000.00.

 

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