Harden, Trustee v. Niemchak

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
JOHN HENRY WINGEN, JR., 	Case No. 08-03554-8-JRL
Debtor.
HOLMES P. HARDEN, Chapter 7 	)
Trustee for John Henry Wingen, Jr., 	)
)
Plaintiff, 	)
)
vs. 	) 	ADVERSARY PROCEEDING
) 	NO. 09-00013-8-JRL
SUSAN NIEMCHAK, 	)
)
Defendants. 	)
ORDER
This case came before the court on the trustee’s motion for summary judgment filed on
July 31, 2009. On September 16, 2009, the court conducted a hearing on this matter in Raleigh,
North Carolina.
JURISDICTION AND PROCEDURE
This court has jurisdiction over the parties and the subject matter of this proceeding
pursuant to 28 U.S.C. §§ 151, 157, and 1334, and the General Order of Reference entered by the
SO ORDERED.
SIGNED this 16 day of October, 2009.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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United States District Court for the Eastern District of North Carolina on August 3, 1984. This
is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), which this court may hear and
determine.
UNDISPUTED FACTS
1. John Henry Wingen, Jr. (the “Debtor”) filed a voluntary petition in bankruptcy under
Chapter 7 of the United States Bankruptcy Code on May 27, 2008.
2. The Debtor married Susan Niemchack (the “Defendant”) in October of 2006.
3. On April 16, 2007, the Defendant refinanced a residence located at 2112 Prescott
Place, Raleigh, North Carolina 27615 (“Raleigh House”). At the time of the refinancing, the
Raleigh House was owned by the Debtor and the Defendant as tenants by the entirety. The
refinancing note was made solely in the Defendant’s name and the Defendant received
$85,796.87. The Debtor also executed the deed of trust securing the note.
4. Between April 16, 2007, and August 28, 2007, the Defendant used the Raleigh House
refinancing proceeds to pay debts solely owed by the Debtor or jointly owed by the Debtor and
herself.
5. On August 28, 2007, the balance remaining out of the original $85,796.87 refinancing
proceeds was $11,356.23.
6. On August 28, 2007, within two years prior to the commencement of the Debtor’s
Chapter 7 bankruptcy, Debtor transferred to the Defendant, a one-half interest in a beach house
located at 112 North Sea Isle Drive, Indian Beach, North Carolina 28575 (“Beach House”). The
Debtor made the transfer by quitclaim deed. This transfer constituted a transfer of an interest in
Debtor’s property under 11 U.S.C. § 548.
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7. On August 28, 2007, the Debtor was unemployed.
8. Debtor’s liabilities in August 2007 included $80,000 to $90,000 in credit card debt,
two promissory notes in the approximate total amount of $118,702, and a pending arbitration
claim of that was reduced to a judgment of $115,000 in December 2007.
9. After the transfer on August 28, 2007, Debtor’s sole nonexempt assets were his one-
half interest in the Beach House and a $10,400 equity interest in the Raleigh House.
10. Debtor received no monetary interest in exchange for the transfer of the one-half
interest in the Beach House.
11. Defendant paid approximately $36,000 in household expenses including mortgage
payments and utilities relating to the Beach House from October 2006 to October 2007.
12. Six weeks after the transfer, the Beach House was sold on October 7, 2007. The
Defendant and the Debtor each received approximately $98,914.76, representing their respective
one-half interests, from the proceeds of the sale of the Beach House.
13. The Debtor deposited his share of the proceeds into his personal account for the
benefit of his ex-spouse, Sheresa Wingen, and children.
14. Defendant used the proceeds from the sale to pay expenses owed solely by the
Debtor and jointly by the Debtor and the Defendant.
15. On January 14, 2009, the Trustee of the Debtor’s bankruptcy estate filed an
adversary proceeding seeking to avoid and recover the Debtor’s transfer of a one-half interest in
the Beach House to the Defendant. The Trustee filed a motion for summary judgment on this
adversary proceeding on July 31, 2009.
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STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56(c), made applicable in bankruptcy by
Bankruptcy Rule 7056, summary judgment is proper “if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” The “plain language of Rule 56(c) mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against a party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.
Ct. 2548, 2552 (1986). In making this determination, conflicts are resolved by viewing all facts
and all reasonable inferences in the light most favorable to the nonmoving party. United States
v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994 (1962).
ANALYSIS
The Bankruptcy Trustee in this case moves for summary judgment on a claim to avoid
the Debtor’s transfer of a one-half interest in the Beach House to his wife, the Defendant. The
Trustee seeks to avoid the transfer under § 548 of the Bankruptcy Code. This section allows a
Trustee to avoid transfers made within two years of the bankruptcy filing under two separate
circumstances. First, § 548(a)(1)(A) allows a Trustee to avoid a transfer that is made “with
actual intent to hinder, delay, or defraud” a creditor. 11 U.S.C. § 548(a)(1). Second, §
548(a)(1)(B) allows a Trustee to avoid a transfer of an interest in the debtor’s property if the
debtor (1) “received less than a reasonably equivalent value in exchange for such transfer” and
(2) was insolvent on the date of transfer or became insolvent as a result of it.
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With regard to the Trustee’s claim for transfer avoidance based on § 548(a)(1)(A), the
court finds that summary judgment is improper. Based on the Defendant’s affidavit addressing
the good faith intention behind the transfer of the Beach House, the Defendant’s marriage to the
Debtor within a year prior to the transfer, and due to the fact that discovery has yet to be
commenced in this adversary proceeding, the court finds that the Defendant has a colorable
theory that the transfer was not made with the requisite intent to defraud creditors under §
548(a)(1)(A). Therefore, material questions of fact remain with regard to the Debtor’s actual
intent to defraud creditors, which precludes summary judgment with respect to § 548(a)(1)(A).
Transfer avoidance under § 548(a)(1)(B) presents a more novel issue in this case. The
transfer of the one-half interest in the Beach House from the Debtor to the Defendant did not
include any documentation of consideration transferred from the Defendant to the Debtor. As a
result, the court must rely on the Defendant’s explanation as to what, if any, reasonably
equivalent value the Debtor received as a part of the transaction. The Defendant argues that the
reasonably equivalent value came in the form of (1) satisfaction of an antecedent debt to the
Defendant created by the Defendant’s payment of the Debtor’s sole debts and debts held jointly
between the Debtor and the Defendant (between April 16, 2007 and August 28, 2007), and (2)
the Defendant’s agreement to pay Debtor’s creditors subsequent to the transfer and sale of the
Beach House. The court finds these arguments unpersuasive.
Nothing in the record ties the Defendant’s antecedent payments of the Debtor’s expenses
to the transfer of interest in the Beach House at the time of the transfer. For the transfer to be
unavoidable, under § 548(a)(1)(B), the Debtor must have received at least a reasonably
equivalent value “in exchange” for the transfer. Furthermore, the court must examine the
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1Even if the record were to reflect that, at the time of transfer, the Defendant forgave the Debtor of his
antecedent debt, the value received by the Debtor would have been nominal in comparison to the value of the one-
half interest in the Beach House. At best, the Defendant paid $3,062.00 of debts solely owed by the Debtor prior to
the transfer. Exhibit A of Defendant’s affidavit itemizes payments made directly to Debtor’s sole creditors from
April 16, 2007 to August 28, 2007 as follows:
Date 	Amount Paid 	Description
5/11/07 	$700.00 	Capital One Charge on Debtor’s Account
7/16/07 	$1,160.00 	Online payment of Debtor’s MBNA credit card
7/16/07 	$1,202.00 	Online payment of Debtor’s MBNA credit card
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exchange of value on the date of the transfer. See In re Morris Communications N.C., Inc., 914
F.2d 458 (4th Cir. 1990) (“The date of defining such reasonable equivalence is the date of the
transfer”). The Debtor’s self-serving statement, absent any corroborating documentation, that
the Debtor’s transfer of a one-half interest satisfied antecedent debts does not provide sufficient
evidence of an exchange at the time of the transfer. 1 Therefore, the court rejects the notion that
the Debtor received any reasonably equivalent value for the satisfaction of allegedly antecedent
debts to the Defendant.
Under the most liberal construction of the Code, the Defendant’s subsequent payment to
the Debtor’s creditors using the sale proceeds of the one-half transferred interest in the Beach
House could be considered an exchange for reasonably equivalent value. See Moister v. Eidson
(In re Eidson), 10 B.R. 432 (N.D. Georgia) (recognizing an exchange of reasonably equivalent
value for the payment of a debtor’s creditors subsequent to the transferee’s receipt of a one-half
interest in debtor’s property). However, even under this construction, the Debtor received less
than a reasonably equivalent value for his transfer to the Debtor. In Moister, an insolvent debtor
transferred his one-half interest in a house to his wife, who previously owned a corresponding
half-interest, for nominal cash consideration. Id. at 433. Subsequent to the transfer, the wife
used the property to obtain a loan, which she used in full to pay the debtor’s creditors. Id. at 434.
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2 Exhibit A of Defendant’s affidavit itemizes payment of Debtor’s sole debts after the sale of the Beach
House on October 22, 2007 as follows:
Date 	Amount 	Description
10/26/07 	$19,614.99 	Payoff for Debtor’s Wachovia Overdraft Account
10/29/07 	$11,945.00 	Payoff for Debtor’s Capital One Credit Card
10/29/07 	$2,000.00 	Discover Card Payment for Debtor
11/23/07 	$15,000.00 	Payment to Stacey Wingen (Debtor’s sister)
12/14/07 	$400.00 	Discover Card Payment for Debtor
12/26/07 	$101.67 	Wake Co. Rev. Dept. (John’s Car)
12/27/07 	$200.00 	Online payment Debtor’s Credit Card (Barclay’s)
3/13/08 	$9,054.00 	Payment to Sheresa Wingen (Debtor’s ex-wife)
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The court treated the amounts paid to creditors as a reasonably equivalent value in exchange for
the transfer of the one-half interest. Id. Under Moister’s construction, the Defendant’s use of
the sales proceeds from the Beach House to pay the Debtor’s sole creditors may be considered
value in exchange for the transfer that the Trustee seeks to avoid. Exhibit A of the Defendant’s
affidavit indicates that after receiving $98,914.76 in proceeds from the sale of the Beach House,
the Defendant paid Debtor’s sole debts in the amount of $58,315.66.2 The remaining proceeds
from the sale were used to pay joint expenses shared by the Debtor and Defendant as husband
and wife. The court will not consider joint expenses as part of any value received by the Debtor
because these expenses go to the mutual benefit of Defendant and Debtor and not to the
exclusive benefit of the Debtor. The Debtor, therefore, received less than 60% of the marketable
value of property in his exchange with the Defendant. Furthermore, the Defendant knew the full
value of her interest upon the sale of the Beach House, yet returned the Debtor substantially less
than this known value. In light of these circumstances, the court finds that under even the most
liberal construction of § 548(a)(1)(B) the Debtor did not receive a reasonably equivalent value in
exchange for the interest he transferred to the Defendant.
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Transfer avoidance under § 548(a)(1)(B) also requires that the Debtor was insolvent at
the date of transfer or became insolvent as a result of the transfer. The Bankruptcy Code defines
“insolvent” as the existence of a “financial condition such that the sum of [the debtor’s] debts is
greater than all of [the debtor’s] property, at a fair valuation.” 11 U.S.C. § 101(32)(A). In
determining whether a debtor is insolvent, the court employs a “balance sheet” test whereby the
debtor is insolvent when its liabilities exceed the fair value of its assets. See Solomon v. Kirtley
(In re Solomon), 299 B.R. 626, 638-39 (10th Cir.). This calculation is exclusive of property
exempted or fraudulently transferred. § 101(32)(A). Immediately after the transfer of the one-
half interest in the Beach House, the Debtor had assets equal to the sum of his $10,400 equity
interest in the Raleigh House and his remaining one-half interest in the Beach House, which was
subsequently valued at $98,914.76. The sum of these two assets equals $109,314.76. The sum
of the Debtor’s liabilities at the time of transfer was approximately $313,702, which exceeds the
value of the Debtor’s assets. Even if the court were to exclude the pending arbitration claim
(which was later reduced to a judgment of $115,000) from the calculation of the Debtor’s
liabilities, the sum of liabilities at the time of transfer would still exceed the sum of the Debtor’s
assets. Therefore, the Debtor was insolvent at the time of transfer for purposes of §
548(a)(1)(B)(ii).
Because the Debtor was insolvent at the time of the transfer of the one-half interest in the
Beach House and the Debtor did not receive a reasonably equivalent value in exchange for the
transfer to the Defendant, the Trustee may avoid the transfer under § 548(a)(1)(B).
CONCLUSION
Based on the foregoing, the plaintiff’s motion for summary judgment is DENIED with
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respect to the allegation of actual fraud under § 548(a)(1)(A) and GRANTED with respect to the
allegation of constructive fraud under § 548(a)(1)(B).
“END OF DOCUMENT”
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