Court upholds judgment against embezzler’s ex-wife

Interesting case out of my neck of the woods entitled Landers v. Wabash Center, Inc. (pdf). The Indiana Court of Appeals affirmed the trial court. The legal issues weren’t ground breaking, but I thought the fact pattern was interesting.

Wabash Center is a non-profit that provides educational assistance to children with disabilities and independent living, employment, and community involvement assistance to adults. From 1986 to 2009, a guy named Stephen McAninch worked for them. For a lot of that time, he was also embezzling from them. He had created a fake corporation, ginned up board minutes approving payment of claims to that corporation, and then submitted those claims to the controller for payment. In October 2009, an outside auditor requested confirmation that the company had actually performed some of the claimed services. He committed suicide on October 31, 2009.

The defendant in this case was McAninch’s ex-wife. They divorced in 1998. Wabash Center sued her and the trial court awarded a judgment in favor of Wabash Center and against the ex-wife in excess of $1 million.

She tried to say that the statute of limitations had passed. This didn’t fly because Wabash Center exercised ordinary diligence in managing its finances, it did not discover the loss until 2009, and it filed its lawsuit diligently after becoming aware of the loss.

Having made that determination, the Court of Appeals mentioned but did not resolve the possibility that the statute of limitations may have been tolled by her own fraudulent concealment. Apparently she made out very well in the divorce. From footnote two in the Court of Appeals decision:

During the marriage, Landers knew McAninch was bringing in additional income through “moonlighting.” Tr. p. 66. During divorce negotiations in 1998, Landers told McAninch, “I am . . . giving you advance warning of what to come, if you refuse to settle this my way. . . . You will be totally destroyed if this community finds out what you have been up to.” Appellee’s App. p. 4. She further stated that if the divorce was not resolved on her terms, “I will be completely truthful to family, friends, your employer, the court and the community with any and all information that I currently have concerning your personal integrity. I hope you realize you have a lot at stake and potentially have a lot more to lose.” Id. at 6. McAninch told Landers, “If we can’t make [the settlement] work between the two of us, we will all lose out in the end. We both have a lot to lose.” Id. at 1. He also stated, “If . . . you carry out your vengeance, everyone loses in the end.”

The defendant also claimed that she was not unjustly enriched by receiving benefits from McAninch’s fraudulent actions. The benefits she received, the argument seemed to go, flowed from her ex-husband’s clean money. He kept the dirty money for himself. As part of its discussion, the court mentioned a long standing rule I found interesting. “[W]here ill-gotten gains are commingled with other funds and the thief draws upon the commingled funds, the thief is presumed to draw out his own money first, and the remainder belongs to the source of the ill-gotten gains.”

Based on that, and reasoning that the couple couldn’t have lived as well as they did on McAninch’s legitimate income, the Court of Appeals upheld the trial court’s judgment against the defendant.

Comments

  1. jharp says

    Sounds to me like she could have been charged criminally for helping him conceal the fraud, no? I sure think she should have been.

    And I am not a lawyer.

  2. Reuben says

    The clean vs dirty money first issue makes me think of political candidates that have a pile of money in the bank, but can’t repay a relatively small sum back to some other entity from which the money was stolen because “it has already been spent”.

  3. knowledge is power says

    the accountant/auditor apparently walks away without any liability
    whatsoever despite the sloppy performance of their job, in not catching this scheme earlier.

    I knew someone whose husband was convicted of bilking investors
    by embezzlement. She was sued separately by at least 6 different investors, while her husband was in jail/prison, merely because (from her perspective) she had “introduced” these investors to her husband and had little to do with any of the transactions. She has since passed away but her husband moved back to Indiana after his prison time was served and very few people locally know that he was previously such a slimeball. He also tried to hide $65K from a bankruptcy trustee
    through his sibling here.

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