Criswell, Matter of, 96-20021

• Decision Date: 09 January 1997
• Docket Number: No. 96-20021,96-20021
• Citation: 102 F.3d 1411
• Parties: , Bankr. L. Rep. P 77,255, 11 Tex.Bankr.Ct.Rep. 76 In the Matter of John Leo CRISWELL, Debtor. CULLEN CENTER BANK & TRUST, Appellee-Cross Appellant, v. Nelson T. HENSLEY, Trustee, Appellant-Cross Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1411

102 F.3d 1411

30 Bankr.Ct.Dec. 235, Bankr. L. Rep. P 77,255,

11 Tex.Bankr.Ct.Rep. 76

In the Matter of John Leo CRISWELL, Debtor.

CULLEN CENTER BANK & TRUST, Appellee-Cross Appellant, v. Nelson T. HENSLEY, Trustee, Appellant-Cross Appellee.

No. 96-20021.

United States Court of Appeals, Fifth Circuit.

Jan. 9, 1997.

Kaaran E. Thomas, Vinson & Elkins, Houston, TX, for Cullen Center Bank and Trust, appellee-cross appellant.

Nelson T. Hensley, Trustee, Houston, TX, pro se.

Appeals from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and WIENER and STEWART, Circuit Judges.

WIENER, Circuit Judge:

In this bankruptcy case, both Appellant/Cross Appellee Nelson T. Hensley, Trustee of the Estate of John Leo Criswell, (the trustee) and Appellee/Cross Appellant Cullen Center Bank & Trust, now known as Frost National Bank, N.A., (Cullen) appeal from a district court decision affirming in part and reversing in part a bankruptcy court grant of summary judgment. In its decision, the district court (1) affirmed the bankruptcy court's finding that Cullen's filing of a judicial lien constituted an avoidable preference under 11 U.S.C. § 547(b) but (2) reversed and remanded to the bankruptcy court because it found that Cullen was entitled to assert the good faith transferee for value defense allowed to subsequent transferees under 11 U.S.C. § 550(b). Concluding that the district court correctly found that Cullen's filing of the judicial lien was avoidable under § 547(b) but that Cullen was an "initial transferee," rather than a "subsequent transferee," and thus not entitled to assert any defenses under § 550(b), we affirm in part, reverse in part, and remand to the bankruptcy court with instructions that it reinstate its grant of summary judgment and order that the proceeds of the sale of the properties at issue be included in the bankruptcy estate.

I FACTS AND PROCEEDINGS

The events giving rise to this bankruptcy proceeding began to unfold in October 1988 when John Leo Criswell executed a trust agreement creating the JC-5 Children's Trust (the Children's Trust) and conveyed his interest in several oil and gas properties to the trustee of the Children's Trust. This transaction, all parties now stipulate, was in fact a transfer in fraud of creditors. In fact, sometime after this transaction occurred, FIMSA, Inc., one of Criswell's creditors, filed suit to set aside the transfer under Texas' Uniform Fraudulent Transfer Act. ¹

In August 1989, approximately ten months after Criswell's fraudulent conveyance to the Children's Trust, Cullen obtained a judgment against Criswell for $122,227.67 plus interest. This judgment arose out of a lawsuit Cullen had filed against Criswell for monetary damages resulting from a lending transaction. Some six months after it obtained its judgment Exactly one week later, on February 22, 1990, Criswell filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code. In October 1990, Criswell's case was converted to a chapter 7 proceeding, and Hensley was appointed trustee of the bankruptcy estate.

on February 15, 1990 to be precise, Cullen filed an abstract of judgment in several Texas counties, including Live Oak County where the oil and gas properties previously transferred to the Children's Trust were located. Under Texas law, Cullen's recordation of this "abstract of judgment" created a judicial lien on any real property of Criswell, including after acquired real property, located in the counties in which it was recorded and indexed. ²

In January 1991, the trustee filed a motion to intervene in the FIMSA litigation already pending against Criswell and the Children's Trust. The following month the trustee filed a motion, which was subsequently granted, for authority to compromise the FIMSA litigation. The resulting settlement obtained by the trustee required the debtor and the Children's Trust to transfer all assets held by the Children's Trust to Criswell's bankruptcy estate. The assets, including the oil and gas properties here at issue, were so transferred in August 1991. Later, the trustee sold the oil and gas properties to a third party, Forney Oil Corporation, for an amount greater than $122,227.67, the amount Cullen claimed that Criswell owed it.

Shortly after this sale, on November 21, 1991, the trustee filed a complaint in the Criswell chapter 7 bankruptcy case against Cullen seeking a declaratory judgment that the trustee had a priority claim to the proceeds of the Forney sale. The trustee subsequently amended the complaint to allege that Cullen's filing of the abstract of judgment constituted a preferential transfer and was avoidable pursuant to 11 U.S.C. § 547(b). The trustee eventually filed a motion for summary judgment on this claim. Cullen responded to the trustee's motion for summary judgment by (1) denying that the abstract of judgment constituted a transfer of property within the meaning of § 547(b), as there was no "interest of the debtor in property" to be transferred, and (2) arguing that even if filing the abstract constituted a preferential transfer, then Cullen was nevertheless a subsequent and good faith transferee for value from which the trustee could not recover pursuant to 11 U.S.C. § 550(b).

In August 1993, the bankruptcy court granted, without filing written reasons, the trustee's motion for summary judgment. Cullen timely appealed the bankruptcy court ruling to the district court. In a Judgment and accompanying Order and Memorandum, the district court affirmed the bankruptcy court's finding that Cullen's filing of the abstract of judgment constituted a preferential transfer of "an interest of the debtor in property" pursuant to § 547(b), but reversed the bankruptcy court's grant of summary judgment against Cullen, finding that Cullen was entitled to assert the good faith transferee for value defense allowed to subsequent transferees under § 550(b). The district court then remanded the case to the bankruptcy court for proceedings consistent with its opinion. ³

Both parties have appealed the district court's judgment. First, on direct appeal, the trustee argues that, by filing its abstract of judgment, Cullen either (1) was not a transferee of any kind under § 547(b), as its lien did not attach to any real property of the debtor located in Live Oak County, or (2) at most became an "initial transferee" from which the estate can recover under § 550(a) and which cannot avail itself of the good faith transferee for value defense provided by

§ 550(b). In reply and on cross-appeal, Cullen contends that (1) the district court erred in finding that there was "an interest of the debtor in property" to be transferred as a preference pursuant to § 547(b), but (2) if there was such an interest, the district court was correct in holding that Cullen is entitled to the good faith transferee for value defense under § 550(b) because either (a) the trustee is judicially estopped from now arguing that Cullen was not a transferee of any kind, or (b) Cullen is indeed a subsequent not an initial transferee.

II ANALYSIS

1. STANDARD OF REVIEW

We review a partial grant of summary judgment de novo and apply the same standards used by the district court. ⁴ Therefore, summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. ⁵ Further, we note that as the bankruptcy and district court rulings under consideration on this appeal are exclusively conclusions of law, they are subject to de novo review. ⁶

2. CRISWELL'S FRAUDULENT TRANSFER AND "AN INTEREST OF THE DEBTOR IN PROPERTYY" UNDER § 547(B)

In the logic of the Bankruptcy Code's preference-avoiding statutes, the first issue to be decided in this case is the one challenged by Cullen on cross appeal--that is, whether Cullen's filing of its abstract of judgment constituted a preferential transfer of "an interest of the debtor in property" under 11 U.S.C. § 547(b), given that Criswell had transferred legal title to the relevant properties to the Children's Trust before Cullen filed its abstract of judgment.

In general, § 547(b) permits a trustee to avoid various preferential transfers of the debtor's property made prior to the commencement of a bankruptcy case. ⁷ Congress enacted this preference-avoiding section with two intertwined purposes in mind: (1) discouraging creditors from racing to the courthouse to dismember the debtor during his slide into bankruptcy, and (2) facilitating the prime bankruptcy policy of equality of distribution among creditors of the debtor. ⁸ As one of the leading treatises has observed, the underlying theory for voiding preferences must be distinguished from the rationale for voiding fraudulent transfers: "A preference is an infraction of the rule of equal distribution among all creditors; a fraudulent transfer goes further, and by it the debtor seeks through deceitful means to secure a personal advantage out of what in law should belong to creditors and not to the debtor." ⁹ Accordingly, neither the intent nor motive of the parties is relevant in consideration of an alleged preference under § 547(b). ¹⁰

Turning now to the application of § 547(b) to the specific facts of this case, we first observe that the definition of "transfer" under the Bankruptcy Code is comprehensive and includes every conceivable mode of alienating property, whether directly or indirectly, voluntarily or involuntarily. ¹¹ Given this broad meaning of "transfer," the fixing of a non-statutory, judicial lien--such as the one created by Cullen's filing of its abstract of judgment--is avoidable as a preferential "transfer" provided § 547(b)'s other requirements are satisfied. ¹² In the instant case, the parties properly stipulated that a "transfer" of property did take place when Cullen filed its abstract of judgment and further agreed that all but one of the...