Butler, Jr., Trustee v. Mangin

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
TINA MARIE MANGIN, 	Case No. 04-02335-8-JRL
Debtor.
ALEGERNON L. BUTLER, JR., 	Adversary Proceeding No.:
Trustee in Bankruptcy for Tina 	L-05-00123-8-AP
Marie Mangin,
Plaintiff,
v.
STEVE B. MANGIN and
RBC CENTURA BANK,
Defendants.
______________________________________________________________________________
ORDER
This case is before the court on the motion to dismiss filed by defendant Steve Mangin.
The court conducted a hearing on this matter in Wilmington, North Carolina on March 13, 2007.
BACKGROUND
The debtor filed chapter 7 on March 22, 2004, and Steven Mangin is the debtor’s
SO ORDERED.
SIGNED this 26 day of March, 2007.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
Case 05-00123-8-JRL Doc 37 Filed 03/26/07 Entered 03/26/07 16:51:39 Page 1 of 4

2
husband. On January 24, 2003, Mr. Mangin obtained an unsecured loan from Branch Banking
and Trust Company (“BB&T”) solely in his name in the amount of $12,000. On October 2, 2003,
Mr. Mangin obtained a loan from RBC Centura Bank, solely in his name in the amount of
$12,400. The RBC Centura Bank loan was secured by a deed of trust executed by the debtor and
Mr. Mangin. The deed of trust purports to grant RBC Centura Bank a lien and security interest in
real property located in New Hanover County, North Carolina (“Property”). The Property is
owned and titled in the names of the debtor and Mr. Mangin, as tenants by the entirety.
On June 22, 2005, the trustee filed this adversary proceeding. In the complaint, the
trustee asserts that the proceeds from the October 2, 2003 loan from RBC Centura Bank were
applied to satisfy Mr. Mangin’s individual indebtedness to BB&T. The trustee, therefore,
contends that the debtor transferred a security interest in property of the estate within one year of
filing her petition, and the transfer is avoidable pursuant to 11 U.S.C. §§ 548 and 544 and N.C.
Gen. Stat. § 39-23 et. seq. On August 23, 2005, Mr. Mangin’s filed an answer, which included a
motion to dismiss.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 12(b)(6), made applicable by Bankruptcy Rule
7012(b)(6), a complaint should not be dismissed for failure to state a claim upon which relief can
be granted, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support
of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct.
99, 102 (1957). In making that determination, the court must accept as true all pleaded
allegations and view the complaint in the light most favorable to the plaintiffs. Hatfill v. The
New York Times Co., 416 F.3d 320, 329 (4th Cir. 2005).
Case 05-00123-8-JRL Doc 37 Filed 03/26/07 Entered 03/26/07 16:51:39 Page 2 of 4

1 The text of the statute was changed with the passage of BAPCPA, but this case was
filed prior to BAPCPA becoming effective and therefore the old language applies.
3
ANALYSIS
Pursuant to 11 U.S.C. § 548 the trustee may avoid transfers “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 the filing of the petition” 1 under limited circumstances. Specifically, the
Code provides that the trustee may avoid the transfer if the debtor: “(B) (I) received less than a
reasonably equivalent value in exchange for such a transfer or obligation; and (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. . . [.] 11 U.S.C. § 548(a)(1)(B)(I)-(ii). That the
property interest transferred encumbered only property that could be exempted in bankruptcy is
no defense. Tavenner v. Smoot, 257 F.3d 401, 407 (4th Cir. 2001).
By signing the deed of trust the debtor transferred a portion of her interest in the Property
to RBC Centura Bank within one year of filing her petition. Accepting as true all allegations pled
in the complaint, the debtor was insolvent on the date of the transfer and received no equivalent
value in exchange for her interest in the Property. Therefore, the court finds that the complaint
does state a claim upon which relief can be granted.
This case is similar to but distinct in one critical respect from, Butler v. NationsBank,
N.A., 58 F.3d 1022 (4th Cir. July 5, 1995). In Butler, the debtor and her husband signed a
promissory note for $35,000 to pay off a debt of the debtor’s husband. Id. at 1025. The note was
secured by a deed of trust on their house, which they owned as tenants by the entirety. Id. The
court held that the bank was required to pay $17,797 to the trustee, because the transfer of the
Case 05-00123-8-JRL Doc 37 Filed 03/26/07 Entered 03/26/07 16:51:39 Page 3 of 4

4
debtor’s share of the loan proceeds was void as a fraudulent conveyance under North Carolina
law. Id. at 1030. However, in this case, the debtor never signed the promissary note and no funds
attributable to her were transferred. The only transfer that took place was the transfer of the
interest in the Property.
The trustee can only recover that which is allowed under North Carolina law and the
Bankruptcy Code. Pursuant to Section 541(a) of the Bankruptcy Code, the debtor’s bankruptcy
estate includes her tenancy by the entirety interest in her Property. See In re Cordova, 73 F.3d
38, 40 (4th Cir. 1996). The filing of her bankruptcy petition did not sever that tenancy by the
entirety interest. See Greenblatt v. Ford, 638 F.2d 14, 15 (4th Cir. 1981). Under North Carolina
law, the “trustee may sell property held as tenants by the entirety only if there are creditors in the
case to whom both spouses are indebted.” In re Knapp, 285 B.R. 176 (Bankr. M.D.N.C. Oct. 2.
2002). Therefore, the trustee may be able to avoid the transfer of the deed of trust to RBC
Centura Bank by the debtor, but the Property will retain its tenancy by the entirety status. Any
additional equity created in the property by the avoidance would be subject to administration by
the trustee only to satisfy pre-petition joint claims.
CONCLUSION
Based on the evidence before the court, the complaint states a claim upon which relief
can be granted. Therefore, defendant Steve Mangin’s motion to dismiss is DENIED.
“END OF DOCUMENT”
Case 05-00123-8-JRL Doc 37 Filed 03/26/07 Entered 03/26/07 16:51:39 Page 4 of 4