Hasse v. Rainsdon (In re Pringle)

• Decision Date: 02 July 2013
• Docket Number: BAP No. ID–11–1081–MkDJu.,Bankruptcy No. 09–41653.,Adversary No. 10–08023.
• Citation: 495 B.R. 447
• Parties: In re Raymond Keith PRINGLE, Debtor. Jolene Hasse, Appellant, v. Gary L. Rainsdon, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

495 B.R. 447

In re Raymond Keith PRINGLE, Debtor.
Jolene Hasse, Appellant,
v.
Gary L. Rainsdon, Chapter 7 Trustee, Appellee.

BAP No. ID–11–1081–MkDJu.
Bankruptcy No. 09–41653.
Adversary No. 10–08023.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued by Video Conference on Nov. 17, 2011.
Submitted on Jan. 7, 2013.
Decided July 2, 2013.

[495 B.R. 452]

Clayne Zollinger, Jr., Rupert, for appellant Jolene Hasse; Daniel C. Green, of Racine, Olson, Nye, Budge & Bailey, Chartered, Pocatello, for appellee Gary L. Rainsdon.

Before: MARKELL, DUNN and JURY, Bankruptcy Judges.

OPINION
MARKELL, Bankruptcy Judge.

Before the debtor, Raymond Pringle, filed his chapter 7 ¹ bankruptcy, he transferred his house to Jolene Hasse. The bankruptcy court found this transaction to be avoidable as a fraudulent transfer under 11 U.S.C. § 548. Hasse appeals. After finding that the bankruptcy court and this Panel have authority to decide the matters involved in this appeal, we AFFIRM.

I. FACTS A. Prepetition Actions

Hasse and Pringle had a long-term relationship as boyfriend and girlfriend. They lived together in Pringle's house (the “Residence”) for at least eight years.

In April 2008, about a year and a half before he filed bankruptcy, Pringle transferred the Residence to Hasse. Pringle used a form of gift deed to effectuate the transfer; on its face, it recites that the transfer was being made “For Love and Affection.” Compl. (Feb. 23, 2010) at ¶ 1 and Ex. A; Answer (Mar. 26, 2010) at ¶ 1.

At the time of the April 2008 transfer, the Residence was not encumbered and was worth at least $35,000. Also at that time, Pringle had less than $5,000 in nonexempt assets. His liabilities were roughly $24,000 and were mostly in the nature of credit card debt.

B. Pringle Files Bankruptcy

Pringle filed his chapter 7 bankruptcy case in October 2009. Appellee Gary Rainsdon (the “Trustee”) was appointed to serve as Pringle's trustee. In Pringle's statement of financial affairs, he disclosed the transfer of the Residence to Hasse, and described the transfer as a gift, with no value received in exchange.

The meeting of creditors pursuant to § 341(a) was held in December 2009. At that time, the Trustee asked Pringle about the transfer of his Residence, and Pringle testified that at the time of the transfer he had a legal matter that was coming up and he figured it would be better if the Residence was not in his name. According to Pringle, he was being sued by a man named Jose Luna for roughly $100,000 on account of an automobile accident, and Pringle was concerned that Luna ultimately might try to take away his Residence.

[495 B.R. 453]

By the time of his bankruptcy filing, however, Pringle did not list Luna as a creditor, and no one named Luna filed a proof of claim.

C. The Trustee Files the Fraudulent Transfer Action

Based on this information, in February 2010 the Trustee filed a complaint against Hasse seeking to avoid Pringle's transfer of the Residence as a fraudulent transfer under § 548² and state law.³

The Trustee's complaint alleged that the bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(H). In her answer, Hasse admitted the Trustee's jurisdictional allegations. Both parties' pleadings thus agreed that the matter was a core proceeding under 28 U.S.C. § 157(b)(2)(H). As a likely consequence of this understanding, neither party included in their respective pleadings a statement as to whether they consented to the bankruptcy court's entry of final judgment. See Rules 7008(a) and 7012(b).

After Hasse answered the Trustee's complaint, the parties engaged in discovery. In response to the Trustee's interrogatories, Hasse gave a different account of the reason why Pringle transferred the Residence to her:

The transfer of the property was pursuant to a verbal agreement between the Defendant and the Debtor. The Defendant, Jolene Hasse, agreed to allow Mr. Pringle to stay in the home for the rest of his life. The Defendant assumed the responsibility for paying for the taxes, the utilities, and all the upkeep on the home. She also agreed to take care of Mr. Pringle for the rest of his life. Mr. Pringle suffers from diabetes and has limited vision and needs someone to help him and especially drive him as he is unable to drive at night.

See Trustee's Pretrial Memorandum (Dec. 2, 2010) at p. 2 (quoting Hasse's response to the Trustee's Interrogatory No. 8).⁴

[495 B.R. 454]

D. The Nonjury Trial and the Bankruptcy Court's Entry of a Final Judgment

The bankruptcy court tried the case in December 2010. Pringle was the only witness the Trustee called. Pringle acknowledged his prior testimony at the December 2009 meeting of creditors, but at the same time maintained that he gave Hasse the residence in exchange for Hasse's oral agreement to continue to take care of him and to let him continue to live there.

At the close of evidence, Hasse conceded that Pringle's transfer of the Residence rendered Pringle insolvent. Regardless, Hasse maintained that the transfer could not be avoided because she had given reasonably equivalent value in exchange for the transfer.

Hasse also argued that § 548 should not apply at all because the transfer could not have harmed Pringle's creditors. If Pringle had not transferred the Residence to her, Hasse reasoned, it would have been exempt. He thus could have precluded his creditors from ever realizing the Residence's value, a sort of “no harm, no foul” argument.

Both sides filed post-trial briefs, and in January 2011, the bankruptcy court reconvened the matter and orally stated its findings of fact and conclusions of law on the record. The court apparently credited, at least in part, Hasse's contention and Pringle's testimony that Hasse made certain promises in exchange for the transfer of the Residence:

[Pringle], at some point in time, prior to April of 2008, ... reached an oral agreement with the defendant that he would deed his home located, I believed it's in Albion, Idaho, to her, in consideration of her promise to maintain the home, pay the taxes on the home, and to allow him to live in the home for the rest of his life with her and in exchange and consideration of her agreement to provide care and comfort to him and particular with respect to caring for him as a result of his medical condition.

Hr'g Tr. (Jan. 4, 2011) at 4:20–5:3. However, the court also held that value for purposes of § 548 must result in economic benefit to creditors. He then found that “whatever value, real value came out of [Hasse's] promise was not reasonably equivalent to the value that the debtor gave up in this exchange and that was a $35,000 unencumbered house.” Hr'g Tr. (Jan. 4, 2011) at 7:21–8:2.

In addition, the court rejected Hasse's “no harm, no foul” argument. The court held that Fox v. Smoker (In re Noblit), 72 F.3d 757 (9th Cir.1995) and Trujillo v. Grimmett (In re Trujillo), 215 B.R. 200 (9th Cir. BAP 1997)aff'd,166 F.3d 1218 (9th Cir.1999) (table) had rejected the argument, and that he was bound to follow both. In expanding on the argument, the court noted that Hasse's argument hinged on a false premise: that Pringle still was entitled to an exemption in the Residence after he voluntarily transferred the Residence to Hasse. As the court stated:

Congress has, I think, made it pretty clear that if debtors want the benefit of an exemption they should not transfer the property away to another before filing for bankruptcy. If they do so and the transfer's avoided, then under Section 522(g) the exemption can't be claimed and if I were to honor the no harm, no foul doctrine in a—in a case like this, effectively I'd be allowing a debtor [to] escape the consequence of that.

Hr'g Tr. (Jan. 4, 2011) at 9:18–25.

As an alternate basis for ruling in favor of the Trustee, the court found that Pringle

[495 B.R. 455]

had made the transfer with the intent to hinder and delay Luna, who was suing Pringle at the time the transfer was made.

The court entered judgment in favor of the Trustee avoiding Pringle's transfer of the Residence to Hasse. Hasse timely appealed.

II. CONSTITUTIONAL AUTHORITY

Under Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), we have an independent duty to consider whether the bankruptcy court had the constitutional authority to determine the fraudulent transfer claim. This issue is reviewed de novo. Cf. Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 769 n. 5 (9th Cir.2008); Cal. Franchise Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 416, 423 (9th Cir. BAP 2011).

This is not, however, an inquiry into subject matter jurisdiction, as the Ninth Circuit recently confirmed. “Stern ... made clear that § 157 ‘does not implicate questions of subject matter jurisdiction.’ ” Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553, 567 (9th Cir.2012) (quoting Stern, 131 S.Ct. at 2607),cert. granted,––– U.S. ––––, 133 S.Ct. 2880, ––– L.Ed.2d ––––, 2013 WL 3155257 (2013). Rather, what is implicated is whether “[s]ection 157 [constitutionally] allocates the authority to enter final judgment[s] between the bankruptcy court and the district court.” Stern, 131 S.Ct. at 2607 (emphasis supplied).

Here, it is beyond doubt that an Article III district court would have had subject matter jurisdiction under 28 U.S.C. § 1334(b), as a proceeding under § 548 “arises under” the Code. What is at issue here is whether the referral authorized under both 28 U.S.C. § 157(a) and the District of Idaho's general order of reference, Third Amended General Order No. 38 (D. Idaho, April 24, 1995), was constitutionally valid as applied in this case. ⁵

A. Bellingham

In December 2012, the Ninth Circuit decided Bellingham. That case holds that, despite Congress's designation of fraudulent conveyance actions as core matters,⁶ bankruptcy courts do not have authority to unilaterally hear and determine them. 702 F.3d at 565–66. But more importantly to this appeal,...