UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
COVINGTON DIVISION
IN RE:
TERRY LEE DEDDEN
DEBTOR CASE NO. 94-21165
MEMORANDUM OPINION
This matter is before the Court on the trustee's Objection to Claim, filed herein on August 31, 1995, in regard to the claim of the Estate of Mildred Hoffman ("the Estate"). Mildred Hoffman was the debtor's mother-in-law, and the executrix of the Estate, Judith Lee Hoffman Dedden, is the debtor's former wife. The Estate's claim is in the amount of $13,400.00; the debtor, however, contends that the debt was forgiven. The trustee has asked the Court to either disallow the claim, or reduce it in half.
The parties have filed Stipulations in regard to this matter which represent as follows:
"1. On January 7, 1992, Judith Lee Hoffman Dedden hereinafter wife files a Petition for Dissolution of Marriage in the Kenton Circuit Court bearing Case Number. 92-CI-00039. The style of the case is IN RE: the Marriage of Judith Lee Hoffman Dedden and Terry Lee Dedden.
2. On January 13, 1992, Mildred Hoffman, who is the mother of the wife Judith Hoffman Dedden, signed her Last Will and Testament. In the instrument, she named her daughter Judith Lee Hoffman Dedden as the Trustee and personal representative of the Estate. In the alternative she named Terry Dedden, hereinafter Debtor, as the alternate Trustee and alternate Personal Representative. Said instrument was prepared by Attorney, David R. Steele.
3. On June 16, 1992, a Verified Property Schedule was filed in the Dissolution Proceedings in Kenton Circuit Court. In said proceedings, the Debtor acknowledged a marital debt of Thirteen Thousand Four Hundred Dollars ($13,400.00) that was owed jointly by the Debtor and his wife to Mildred Hoffman.
4. On June 16, 1992, the Decree of Dissolution was recorded dissolving the marriage of the Debtor and his wife.
5. On March 25, 1993, Mildred Hoffman died.
6. On April 5, 1993, Judith Dedden filed a Petition for Probate of the Estate of Mildred Hoffman's Will, and said Estate was opened in the Kenton District Court bearing Case No. 93-P-00272. Judith Dedden has served in the capacity of Executrix in the Estate of Mildred Hoffman in all time since. The parties stipulate that the copy of the Will and the Petition for Probate of Mildred Hoffman's will that are attached hereto as joint Exhibits A & B are true and accurate copies of the original filed.
7. On December 15, 1993, an amended inventory was filed in the Estate of Mildred Hoffman listing the debt of the parties to Mildred Hoffman in the sum of Thirteen Thousand Four Hundred Dollars ($13,400.00).
8. The Inheritance Tax Return that was filed for the Estate of Mildred Hoffman listed the debt to Mildred Hoffman as an asset of the Estate; inheritance tax was paid on said asset. The Commonwealth of Kentucky accepted said Inheritance Tax Return and sent, to the Executrix, an acceptance of Inheritance Tax Return.
9. On April 28, 1994, the Kenton Circuit Court in the divorce proceeding ordered that the issue of the debt owed to Mildred Hoffman, and whether it was forgiven, be handled by the parties in Probate Court. Copy of the Order of the Kenton Circuit Court is attached joint Exhibit 3.
10. On October 19, 1994, the Debtor filed this Chapter 7 Bankruptcy Petition before this Court during the above styled case number. Included among Schedule F as an unsecured, non-priority claim is the Estate of Mildred Hoffman, care of Judith Lee Dedden Executrix, for an alleged loan of money made in 1990 for the amount of Six Thousand Seven Hundred Fifty Dollars ($6,750.00). Included petition was amended November 16, 1994, and debt was scheduled as disputed.
11. On October 19, 1994, Michael L. Baker was appointed as interim Trustee by the United States Trustee's office, and upon the first meeting of creditors held on November 14, 1994, Michael L. Baker became Trustee in Bankruptcy and has acted in that capacity ever since.
12. On March 3, 1995, the Trustee, pursuant to the order of the Bankruptcy Court, deposited sum of Thirty-Six Thousand Seven Hundred and 9/100ths Dollars ($36,744.09) representing one-half (1/2) of those funds held in escrow by Robert Wohlwender.The balance of the funds are being held by Robert Wohlwender pursuant to an Order of the Kenton Circuit Court arising out of the Dissolution Proceedings in said Court.
13. The 2004 Examinations conducted March 15, 1995, of the Debtor and of the ex-wife, Judith Dedden, are stipulated. The originals of said 2004 Examinations have been deposited with said Court by the court reporter.
14. The depositions of Mildred Hoffman and Donald Lunsford are hereto attached.
15. The parties acknowledge that the issue before the Court is not whether a debt existed; said debt was acknowledged in the Kenton Circuit Court and clearly, at one point in time, the parties all agree that the sum Thirteen Thousand Four Hundred Dollars ($13,400) was jointly and severally owed by the Debtor, and his now ex-wife, to Mildred Hoffman. The issue before the Court is whether said debt was canceled or forgiven by Mildred Hoffman prior to her death as a result of an alleged meeting held in December of 1992.
16. The Trustee raised the issue of contribution in his objection. The Trustee withdraws, and the parties stipulate, that said issue is withdrawn as part of the objection to the Estate of Mildred Hoffman. The right of contribution if any, against the ex-wife, Judith Lee Hoffman Dedden, is reserved by the Trustee pending the resolution of the issue before the Court. Said matter, if need to be brought, would be in the form of an Adversary Proceeding."
Testimony from Donald P. Lunsford Jr. concerning whether the subject debt was forgiven by Mildred Hoffman before her death was offered as set out above. Mr. Lunsford is a friend of both the debtor and his former wife. He testified that he accompanied the debtor to Mrs. Hoffman's home in December 1992. She was terminally ill at the time. He testified that he overheard Mrs. Hoffman instruct the debtor to get a piece of paper from a desk, that she then tore the piece of paper up and had the debtor throw it in a wastebasket. He further testified that as she was tearing up the piece of paper, Mrs. Hoffman made a statement to the effect that she was not going to be around to collect "it" and for the debtor not to worry about "it." Mr. Lunsford did not see what was on the paper, but knowing that the debtor and his former wife owed Mrs. Hoffman money, he assumed that she was cancelling the debt.
Judith Dedden also gave testimony concerning the debt to Mrs. Hoffman, at a 2004 examination conducted on March 15, 1995. She testified that her mother had not asked for a promissory note or any other document that she and her former husband were required to sign in regard to the loan. She did , however, testify that she signed a handwritten statement that she and her former husband would repay the money. She did not remember whether her former husband had also signed the statement. She testified that her mother did not treat the loan in her will.
The Estate argues that the burden of proof of cancellation by forgiveness of the debt is on the debtor, and that the standard of proof is clear and convincing evidence. It cites Ratliff v. Ratliff, 141 S.W.2d 566, Ky. (1940) in support of its position. The Ratliff court held that ".... gifts inter vivos are closely scrutinized by courts, especially where the donor and donee occupy confidential relations and it takes clear and convincing evidence to sustain them; ...." Id., at page 568. However, the Estate offers no authority for the proposition that the state law standard of proof, as well as the determination of where the burden of proof falls, apply in this instance. In fact, they do not.
In considering an objection to claim, the Court begins with the proposition that a correctly filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. FRBP 3001(f). In the absence of rebuttal evidence brought forth by an objecting party, the claimant prevails. If rebuttal evidence is brought forth, however, the claimant must produce additional evidence to prove the validity of the claim by a preponderance of the evidence. The ultimate burden of proof of a claim always falls on the claimant. See Matter of Fidelity Holding Co., Ltd., 837 F.2d 696 (5th Cir. 1988), at page 698.
In the within matter, the Estate properly filed its proof of claim. The trustee came forward with rebuttal evidence in the form of Mr. Lunsford's testimony. Mr. Lunsford was a credible, apparently disinterested witness, but his testimony was certainly not conclusive. The Estate countered with the deposition testimony of Mrs. Hoffman, given shortly after her meeting with the debtor in December 1992. On that occasion she discussed her relationship and dealings with the debtor extensively, and although she had the opportunity, never mentioned having forgiven the subject debt. In addition, the claim of forgiveness was not brought forward until after Mrs. Hoffman died. It appears to the Court that the Estate has proven the validity of its claim by a preponderance of the evidence as federal law requires, and the Court will therefore, overrule the trustee's objection to the Estate's claim.
An order in conformity with this opinion will be entered separately.
Dated:
By the Court -
________________________________
Judge
Copies to:
Debtor
Michael L. Baker, Esq., Trustee
David R. Steele, Esq.
Charles L.J. Freihofer, Esq.