342 F.3d 528 (6th Cir. 2003), 02-1187, In re Hurtado

Docket Nº:02-1187
Citation:342 F.3d 528
Party Name:In re Hurtado
Case Date:August 28, 2003
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 528

342 F.3d 528 (6th Cir. 2003)

In re Jon Rey HURTADO and Denise Hurtado, Debtors. Charles J. Taunt, Plaintiff-Appellee,

v.Barbara Hurtado, Defendant-Appellant.

United States Court of Appeals, Sixth Circuit

No. 02-1187.

United States Court of Appeals, Sixth Circuit

August 28, 2003

Page 529

Joseph J. Bernardi (argued and briefed), Kasiborski, Ronayne & Flaska, Detroit, MI, for Appellee.

Mark H. Shapiro (argued and briefed), Steinberg & Shapiro, Southfield, MI, for Appellant.

Before DAUGHTREY, MOORE, and SUTTON, Circuit Judges.

Page 530

OPINION

MOORE, Circuit Judge.

The defendant Barbara Hurtado appeals the district court's decision granting summary judgment against her, in favor of the Trustee Charles Taunt. Barbara Hurtado ("Hurtado"), the mother of debtor Jon Rey Hurtado, was the recipient of a fraudulent conveyance made by her son and her daughter-in-law, debtor Denice Hurtado. The Hurtados eventually filed for Chapter 7 bankruptcy protection in 1998.

On appeal, Barbara Hurtado claims that she was not an "initial transferee" from whom the Trustee could recover a fraudulent conveyance under 11 U.S.C.§ 550, because she only distributed the funds according to the desires of the debtors. She therefore claims to be a "mere conduittitut; for the funds, lacking the requisite legal dominion over the funds sufficient to be considered an initial transferee.

The bankruptcy court agreed with Barbara Hurtado and rendered summary judgment in her favor. The district court reversed and granted summary judgment in favor of the Trustee. We AFFIRM the district court's judgment.

I. BACKGROUND

Jon Rey Hurtado (sometimes referred to as Jon Rey) and Denice Hurtado, who are married, are the debtors in this case. They filed for Chapter 7 bankruptcy protection on September 9, 1998. Their debts were discharged on December 15, 1998. The plaintiff in this case is Charles J. Taunt, the Trustee in the underlying bankruptcy proceeding. The defendant, Barbara Hurtado, is the mother of debtor Jon Rey Hurtado.

In the early 1990s, the two debtors incurred significant financial obligations to various creditors. The creditors included Comerica Bank, which obtained a judgment on June 12, 1992, against the debtors in the amount of $87,752.77, and the IRS, which was owed roughly $110,000 for taxes evidently dating back to 1990. Smaller debts were owed to the state of Michigan, Michigan National Bank, and Cigna Bank.

During the time in which the debtors were incurring these debts, they received two significant blocks of income. In September 1992, the debtors sold their house and received proceeds of $83,247.93. In August 1995, the debtors settled a lawsuit against Blue Cross and Blue Shield ("BCBS") for $130,795.00. Instead of going to the debtors' creditors or into the debtors' accounts, however, the funds went immediately to Hurtado's mother, defendant Barbara Hurtado.

Barbara Hurtado deposited the checks into her savings account at TNC Credit Union. Barbara Hurtado and her husband Daniel were the only signatories on the account and had exclusive control of the funds therein.

Although the funds stayed in Barbara Hurtado's account, she spent them only at the direction of the debtors. The debtors used the funds to pay living expenses, which amounted to $4,000 a month, and to pay certain specific creditors. When the debtors needed to pay some particular living expense, they would instruct Barbara Hurtado to write a check on their behalf. Throughout the period of this arrangement, Barbara Hurtado kept the debtors' money separate from her own and never spent any portion of it on herself. The funds from the sale of the debtors' house and the settled lawsuit against BCBS were depleted by mid-1996, two years before the debtors declared bankruptcy. Barbara Hurtado had held funds for the debtors for over three years. No consideration was given in exchange for her aid.

Page 531

Although Barbara Hurtado characterizes the funds as always belonging to the debtors (and herself as a mere agent at their direction), there was, of course, a reason why the debtors insisted on having Barbara Hurtado take legal control of the money. With Barbara Hurtado legally in control of the funds, the creditors had no access to them. The funds were not, for example, listed as the debtors' assets on the 433-A form filed with the IRS by the debtors in February 1996.

There is no question that the transfer of funds was done deliberately to circumvent the creditors' rights. Jon Hurtado baldly admitted this in deposition. When asked why he gave the funds to his mother to place in her account rather than his own, Jon Hurtado responded, "Well, several reasons. Number one, I mean I've got creditors and creditors. I will just be very candid with you, you know, judgments and so forth, and I needed to survive." J.A. at 120 (Dep. Test. of Jon Hurtado). Barbara Hurtado also knew that the money was being used to pay certain creditors, for she was the individual writing checks to them.

The Trustee filed a complaint to avoid and recover the transfer of conveyances and to revoke the debtors' discharge in May 1999. The complaint was filed against the debtors as well as Barbara Hurtado. The debtors were later dismissed from the action by the bankruptcy court, and that decision was not appealed.

The bankruptcy court granted Barbara Hurtado's motion for summary judgment and denied the Trustee's summary-judgment motion, on the ground that Hurtado was not liable under 11 U.S.C. § 550. The bankruptcy court reasoned that Barbara Hurtado never had sufficient control over the money for liability to attach; instead, she was a mere conduit of the funds. The district court reversed, finding that Hurtado was liable as an initial transferee under 11 U.S.C. § 550. The district court issued a limited remand in the case for consideration of whether the statute of limitations barred the Trustee from recovering the portion of the funds that came from the 1992 sale of the debtors' home. On remand, the Trustee quickly conceded the issue. The bankruptcy court then entered a final judgment in favor of the Trustee on November 9, 2001, in the amount of the 1995 BCBS proceeds, and the district court affirmed. Hurtado appealed to this court, raising solely the question of whether she is liable under 11 U.S.C. § 550 with regard to the BCBS proceeds.

II. ANALYSIS

A....

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