Liebmann v. French et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: *
BETTY IRENE FRENCH, * Case No. 00-6-3163-JS
Debtor * Chapter 7
* * * * * * * * * * * * *
GEORGE W. LIEBMANN, *
Trustee * Adv. Pro. No. 02-5757-JS
v. *
RANDY LEE FRENCH *
and
DONNA MARIE SHAKA, *
Defendants *
* * * * * * * * * * * * *
MEMORANDUM OPINION GRANTING THE TRUSTEE’S MOTION FOR
SUMMARY JUDGMENT AND AVOIDING FRAUDULENT TRANSFER
On February 11, 2004, the trustee’s motion for summary judgment came on for
hearing. For the reasons set forth, the motion will be granted.
Date signed April 21, 2004
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1In the debtor’s Statement of Financial Affairs [P. 24], she stated under penalty
of perjury that during one year before bankruptcy she made no payments to insiders,
she suffered no losses from fire, theft, other casualty or gambling, no garnishment or
seizure of assets, no repossession of assets or returns, that she made no large gifts or
charitable contributions and no transfers of assets outside the ordinary course.
2The property was identified in the complaint as “Lot No. 5 of the subdivision
called and known as Love Estates in the Bambier District of the City of Nassau on the
Island of New Providence, one of the islands of the Commonwealth of the Bahamas.”
Complaint, ¶ 11.
2
FINDINGS OF FACT
On July 13, 1999, the Peninsula Bank (“Bank”) obtained a judgment in the
amount of $397,425.10, against Betty Irene French (“debtor”) in the Circuit Court for
Wicomico County, Maryland. On October 20, 2000, the Bank filed the instant
involuntary Chapter 7 bankruptcy petition in this Court against the debtor. On January
29, 2001, an order for relief was entered. On February 11, 2001, the debtor filed her
schedules under penalty of perjury and swore that her assets had not diminished
significantly during the year before the petition was filed.1
On August 22, 2002, George W. Liebmann, the Chapter 7 trustee, filed the
instant complaint to avoid and recover an alleged fraudulent transfer of real property2
in the Bahama Islands, made by the debtor to her son and daughter, the defendants
Randy French (“Randy”) and Donna Shaka (“Donna”), for no consideration within one
year of the filing of the petition. The verified complaint alleged that the debtor did not
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3The Court has previously determined that the instant complaint to recover
property of the estate located in the Bahamas does not implicate an extraterritorial
application of the Bankruptcy Code. Liebmann v. French (In re French), 303 B.R. 774
(Bankr. D. Md. 2003).
3
list the property in her schedules or disclose its existence in her Statement of Financial
Affairs. It further alleged that the property was purchased by the debtor and titled in
her name by deed dated November 11, 1976, and recorded in the Bahamas; and that
she transferred the property to the defendants by deed dated December 25, 1981, but
that the deed was not recorded among the Bahamian land records until June 21, 2000.3
The trustee also filed a motion [P. 2] for temporary restraining order (“TRO”),
which this Court granted by order [P. 3] entered August 26, 2002. The TRO prohibited
the defendants from transferring or encumbering the Bahamian property for a period
of ten days. On September 4, 2002, Judge E. Stephen Derby granted the plaintiff’s
request for a preliminary injunction [P. 7].
CONCLUSIONS OF LAW
Summary judgment is appropriate when (1) the pleadings, depositions, answers
to interrogatories, admissions on file and affidavits show that there is no genuine issue
of material fact; and 2) the moving party is entitled to judgment as a matter of law. In
determining the facts for summary judgment purposes, the Court may rely upon
affidavits made with personal knowledge that set forth specific facts otherwise
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4Section 548(a)(1)(B) provides as follows:
§ 548. Fraudulent transfers and obligations.
(a)(1) The trustee may avoid any transfer of an interest of the debtor in
property, or any obligation incurred by the debtor, that was made or incurred on
or within one year before the date of filing of the petition if the debtor voluntarily
or involuntarily –
* * * * *
(B)(I) received less than a reasonable equivalent value in exchange for
such transfer or obligation;
4
admissible in evidence and sworn or certified copies of papers attached to such
affidavits. Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056; Bailey v. Blue Cross & Blue
Shield of Virginia, 67 F.2d 53, 56 (4th Cir. 1995); Miller v. FDIC, 906 F.2d 972, 973
(4th Cir. 1990). Permissible inferences to be drawn from the underlying facts are
viewed in the light most favorable to the nonmoving party. Miller, 906 F.2d at 973-74
(4th Cir. 1990) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 587-88, 206 S. Ct. 1348, 1356, 89 L. Ed. 2d 538, 553 (1986)). In the instant
case, all of the facts and inferences therefrom have been construed in a light most
favorable to the defendants.
The undisputed facts here present qualify this transfer as constructively
fraudulent. 11 U.S.C. § 548(a)(1)(B).4 In order to obtain summary judgment on the
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(ii)(I) was insolvent on the date that such transfer was made or such
obligation was incurred, or became insolvent as a result of such transfer or
obligation[.]
Id.
5
complaint, the trustee must demonstrate without dispute that the transfer of the subject
property was made within one year of the filing of the debtor’s bankruptcy petition for
less than reasonably equivalent value while the debtor was insolvent. BFP v.
Resolution Trust Corp., 511 U.S. 531, 535, 114 S. Ct. 1757, 1760, 128 L. Ed. 2d 556
(1994); Tavenner v. Smoot, 257 F.3d 401, 408-09 (4th Cir. 2001); Harman v. First
American Bank of Maryland (In re Jeffrey Bigelow Design Group, Inc.), 956 F.2d 479,
484-85 (4th Cir. 1992); Koch v. Rogers (In re Broumas), 203 B.R. 385, 393 (D. Md.
1996). Constructive fraud does not require proof of actual fraudulent intent. Balaber-
Strauss v. Sixty-Five Brokers (In re Churchill Mortgage Investment Corp.), 256 B.R.
664, 667 (Bankr. S.D.N.Y. 2000) (“If actual intent to defraud creditors cannot be
proved under Section 548(a)(1)(A), a transfer may be avoided under a theory of
constructive fraud.”).
While the Court accepts the defendants’ contention for purposes of ruling on
summary judgment that the property was given to the defendants by deed of gift on
December 25, 1981, the gift was not a matter of public record until June 21, 2000,
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5“This comports with Section 548(d)(1) of the Bankruptcy Code, which provides
that a transfer occurs ‘when such transfer is so perfected that a bona fide purchaser
from the debtor against whom applicable law permits such transfer to be perfected
cannot acquire an interest in the property transferred that is superior to the interest in
such property of the transferee, but if such transfer is not so perfected before the
commencement of the case, such transfer is made immediately before the date of the
filing of the petition.’ 11 U.S.C. § 548 (d)(1).” Liebmann, 303 B.R. 774, 777 (2003).
6
when the deed was recorded. The debtor admitted in her deposition that she continued
to visit and reside in the property after she made the gift and that she kept some
personal belongings there. Deposition, 14-16, Exhibit 2 of Plaintiff’s Ex Parte Motion
for Temporary Restraining Order [P. 2].
Section 548(d)(1) of the Bankruptcy Code, which determines when a transfer
occurs, provides that a transfer does not take place until it is perfected against a bona
fide purchaser. In this case, therefore, the transfer occurred on June 21, 2000, when
the deed to the property was recorded by the defendants.5 Because the transfer
occurred a mere five months before the debtor’s involuntary petition was filed, the
transfer occurred within the one year requirement of Section 548(a)(1).
The undisputed facts also demonstrate that the debtor received less than
reasonably equivalent value in exchange for the transfer. The debtor acknowledged
that the transfer was by deed of gift. Randy also testified to that effect. Donna did not
dispute the testimony of the debtor or Randy that the transfer was by deed of gift.
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7
Finally, there is no genuine dispute as to the material fact that the debtor was
insolvent at the time of the transfer. Her schedules filed under penalty of perjury on
February 11, 2001, less than one year after the conveyance took place, clearly
demonstrate the fact of her insolvency. They reflect assets totaling $220,950,
compared with liabilities of $2,940,175.35 [P.21]. The gross difference between the
debtor’s assets and liabilities with no reported change of circumstances in the year
before bankruptcy leads to the inescapable conclusion that she was insolvent on June
21, 2000, the date of the transfer. “Where a debtor is shown to be insolvent at a date
subsequent to a particular transfer and the debtor’s condition did not change during the
interim period, it is logical and permissible to presume that the debtor was insolvent as
the time of the transfer.” Grant v. Davis (In re Damason Constr. Corp.), 101 B.R.
775, 778 (Bankr. M.D. Fla. 1989), citing Foley v. Briden (In re Arrowhead Gardens,
Inc.), 32 B.R. 296 (Bankr. D. Mass. 1983). The fact is undisputed that the debtor
reported that she suffered no diminution of assets during the year prior to bankruptcy.
Therefore, the Bank’s judgment alone probably rendered her insolvent as early as July
13, 1999, well before the date of transfer.
Because the record supports the finding that the transfer was constructively
fraudulent, it is unnecessary to address the other grounds raised in the complaint.
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8
WHEREFORE, the trustee’s motion for summary judgment will be GRANTED
and the subject transfer will be AVOIDED and RECOVERED by the trustee.
ORDER ACCORDINGLY.
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9
cc: Orbie R. Shively, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, Maryland 21201
Counsel to the Chapter 7 Trustee
George W. Liebmann, Esquire
Liebmann and Shively
8 W. Hamilton Street
Baltimore, Maryland 21201
Plaintiff and Chapter 7 Trustee
Stanton J. Levinson, Esquire
P.O. Box 1746
Silver Spring, Maryland 20915
Counsel for the Defendants
Randy Lee French
20957 Nanticoke Road
Bivale, Maryland 21814
Donna Marie Shaka
11322 Magnolia Place
Smithfield, Virginia 23430
Betty Irene French
3999 Greenhill Church Road
Quantico, Maryland 21856
Office of the U.S. Trustee
300 West Pratt Street
Suite 350
Baltimore, Maryland 21201
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