Schlossberg v. Seymour

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
IN RE: :
:
SAMUEL HEATH SEYMOUR : Case No. 04-18540PM
: Chapter 7
Debtor :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - :
ROGER SCHLOSSBERG, TRUSTEE :
Plaintiff :
vs. : Adversary No. 04-1939PM
:
ANNE CLINTON SEYMOUR :
Defendant :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - :
MEMORANDUM OF DECISION
Before the court is the Defendant’s Motion to Dismiss this Complaint filed by Roger
Schlossberg, Chapter 7 Trustee of the bankruptcy estate of Samuel Heath Seymour. This
bankruptcy case under Chapter 7 was filed on April 6, 2004. The Complaint relates to the
conveyance of Unit 2A of the Oddfellow Condominiums located in Whitefish, Montana. The
property was conveyed to the Debtor and to the Defendant on July 29, 1999, the parties taking
title as joint tenants and not tenants in common. Thereafter, the joint tenancy was severed by the
Debtor’s conveyance of a Quitclaim interest in the property to his wife, the Defendant, on July
31, 2002.
The Complaint is stated in four counts, and presumably the Trustee’s Complaint is filed
pursuant to § 544(b)(1) of the Bankruptcy Code whereby he seeks under Montana Law to avoid
the transfer made without consideration. Count I charges, pursuant to Mont. Code Ann.
Date signed February 14, 2005
Entered: February 14, 2005 Case 04-01939 Doc 18 Filed 02/14/05 Page 1 of 3

§ 2-331(a) that the transfer was made with actual intent to hinder or defraud any creditor of the
Debtor, and pursuant to § 2-339(1)(a) seeks avoidance of the transaction. Count II is filed
pursuant to § 233(1)(b) and charges that the interest was transferred without a reasonably
equivalent value and at the time the Debtor was engaged in or was about to engage in a business
or transaction for which the remaining assets of the Debtor were unreasonably small. Count III is
filed in the alternative. In one part, the Trustee charges, pursuant to § 2-334 of Title 31, that the
transfer was made without the receipt of the reasonably equivalent value in exchange for the
transfer and that Debtor was insolvent, or became insolvent, as a result of the transfer. The
Trustee pleads in the alternative that the Defendant, Debtor’s wife, was an insider as defined
under the Montana Code, and likewise pleads that the transfer be avoided. Count IV cites,
pursuant to § 550 of the Bankruptcy Code, the Trustee’s claim that he may recover for the estate
either the Debtor’s interest in the real estate the property transferred or the value of the property
from the Defendant.
The Motion to Dismiss is based on three arguments. First, Defendant asserts that there
are no facts pleaded that establish the elements of an avoidance action. Next, the Complaint
does not plead fraud with specificity and third, that Montana Law recognizes the tenancy by the
entirety and that the property may not be reached by the Trustee as it is exempt as the
Defendant’s homestead. The Defendant is correct in that the Trustee has not pleaded as required
under § 544(b)(1) of the Bankruptcy Code that any creditor exists holding an unsecured claim
into whose shoes the Trustee may step. This is a requirement as well under Montana Law. As is
pointed out in Epstein Nickles & White Bankruptcy, § 6.60 (1992), “a disadvantage of Section
544(b) is that the trustee’s rights thereunder are entirely derivative of an actual unsecured
creditor. Section 544(b) permits the trustee to attack a transfer only the basis of laws that would
allow a transfer to be voided by a present creditor holding an unsecured claim that was in
existence at the time of the transfer.” In re Acequia, Inc.I, 34 F.3d 800, 807 (CA9 1994); In re
Major Funding Corp. 126 B.R. 504, 507 (BC S.D. Tex. 1990); In re Smith, 120 B.R. 588, 590
(BC M.D. Fla. 1990).
The purpose of a motion to dismiss is to test the legal sufficiency of a Complaint.
Randall v. United States, 30 F.3d 518, 522 (CA4 1994). Such a motion should be granted only in
very limited circumstances. Rogers v. Jefferson-Pilot Ins. Co., 883 F.2d 324, 325 (CA4 1989).
A court considering a motion to dismiss must accept as true all the plaintiff’s factual allegations
Case 04-01939 Doc 18 Filed 02/14/05 Page 2 of 3

and all favorable inferences that may reasonably be drawn from these allegations. A motion to
dismiss should not be granted unless it appears certain that the plaintiff can prove no set of facts
which would support its claim and would entitle it to relief. Mylan Laboratories, Inc. v. Matkari,
7 F.3d 1130, 1134 (CA4 1993). The court will give the Plaintiff the opportunity see if he can fill
in the blanks.
Inasmuch as the Trustee may seek to amend the Complaint, the court will deal with the
other issues raised by the Defendant. To begin, Plaintiff alleging a fraudulent conveyance is
required to plead only the requisite mental state with particularity. Atlanta Shipping Corp. v.
Chemical Bank, 888 F.2d 240, 251 (CA2 1987). Such conclusory statements of scienter are
generally held sufficient if supported by facts that give rise to a strong inference of fraudulent
intent. Ouaknine v. MacFarlane, 897 F.2d 75, 80 (CA2 1990). Here, the Trustee has amply
pleaded sufficient badges of fraud to give rise to an inference of fraudulent intent. The Trustee
pleaded a lack or inadequacy of consideration, a close family relationship between the parties,
and the retention of the property within the family. In re Kieser, 722 F.2d 1574 (CA2 1983).
Next, the court finds that the tenancy by the entirety relied upon by the Defendant does
not exist in Montana. Nothing could be clearer than the opinion of the Supreme Court of
Montana in Clark v. Clark, 143 Montana 183, 192, 387 P.2d 907, 912 (1963), where the court
concluded, “we hold that the estate by the entireties is not a permissible form of ownership in
Montana.” See also Lurie v. Sheriff of Gallatin County, 299 Montana 283, 999 P.2d 342 (2000).
An appropriate order will be entered.
cc:
Janet M. Nesse, Esq., 1150 18th Street, N.W., Suite 800, Washington, DC 20036
Roger Schlossberg, Esq., P.O. Box 4227, 134 West Washington Street, Hagerstown, MD 21741
End of Memorandum
Case 04-01939 Doc 18 Filed 02/14/05 Page 3 of 3